Some Determinants of Allowed Rates of Return on Equity to Electric Utilities

Using a variance components model, this paper examines the economic and political variables that may affect the rate of return on equity allowed electric utilities. The evidence indicates that both the risk and the size of the firm are positively related to the allowed return on equity. The use of book value in determining the rate base and the term of commissioners were also positively related to the allowed return. The compensation of the commissioners and whether they were elected or appointed were not related to the allowed return.