On the Use of Beta in Regulatory Proceedings

Public utility requires that a firm's rate of return be linked to its risk, and some analysts have urged that Beta be used as the appropriate measure of risk. This study explores the use of Beta in regulatory proceedings and finds it wanting. Empirical measures of Beta are known to depend on (1) the estimating equation that is used, (2) the choice of market index, and (3) the specific time period that is selected. Empirical estimates of a firm's Beta are shown to range from a large positive to a large negative value.