PUCs have yet to factor in higher risk for deregulation

Here are the results of our annual survey of authorized rates of return on common equity (ROE) for state-regulated energy utilities.

This year's survey covers ROE determinations by state regulatory commissions during the period Oct. 1, 1999 through Sept. 30, 2000. The survey reports the results of traditional, cost-of-service rate orders, as well as orders involving utilities operating under performance-based rate plans. The reported ROE figures were obtained from a variety of sources, including rate analysts at state public utility commissions, rate department personnel at the major investor-owned, electric and gas utilities, and directly from orders issued by state regulators. Explanatory notes accompany most entries, and citations are provided for orders published in Public Utilities Reports, Fourth Series (PUR4th).

Many of the unpublished orders are accessible through PURbase CD ROM, WESTLAW, and LEXIS.Although the ROE determinations generally are based on the results of quantitative financial models, such as the discounted cash flow model, the ROE awards are influenced by other factors, such as prevailing interest rates. If interest rates are high, investors are thought to require a higher ROE to justify the added risk that accompanies equity investments.