The Impact of Stranded-Cost Risk on Required Rates of Return for Electric Utilities: Theory and an Example.

The impact of a proposal to deregulate electric generation on the required rate of return for a utility can be inferred from the proposal's impact on the utility's dividend yield, given some admittedly strong assumptions about risk timing and related matters. We use the case of the April, 1994 California "Blue Book" to demonstrate that even modest changes in the dividend yield can signal large changes in the required rate of return under partial deregulation. Copyright 1998 by Kluwer Academic Publishers