Modified Double Leverage - a New Approach
Public Utilities Fortnightly, pp. 31-36, March 31, 1983 (Posted with permission from the March 31, 1983 issue of Public Utilities Fortnightly. Public Utilities Reports, Inc. Copyright 1983. All rights reserved. Additional photocopying or electric transmission is prohibited.)
6 Pages Posted: 17 Oct 2005
This article provides the basic theory of double leverage used in utility rate regulation. It derives the double leverage adjustment for finding the cost of capital of a wholly-owned subsidiary from fundamental cost of capital propositions. The standard estimates of capital costs using this approach are shown to be misestimated. The article then provides a modified double leverage method that provides the correct cost of capital.
Keywords: Rate regulation, cost of capital, double leverage
JEL Classification: G31, G38
Suggested Citation: Suggested Citation