Mysterious Cost of Capital for Energy Utilities

Thu Jun 01 12:20:41 EDT 2017
By Dr. Jeff D. Makholm

In an upcoming article in the June 2017 issue of the Wiley journal Natural Gas & Electricity, NERA Managing Director Dr. Jeff D. Makholm discusses the local nature of utilities’ cost of capital reports—despite the presence of international capital markets that would seem to have relevance around the world—and why the results vary so greatly by location. Dr. Makholm posits that the answer lies in practices developed in North America long ago both to motivate competitive capital markets to invest in regulated businesses and to ensure that such capital is protected from marauding by regulators. He analyzes the history of calculating cost of capital, citing intervening cases and economic theories that helped shape the theories used to value corporations. Dr. Makholm concludes that the differences between cost of capital reports are only mysterious to those who do not appreciate how long-standing institutions drive regulatory practices for energy utilities around the world.

Makholm, Jeff D. (2017, June). Mysterious Cost of Capital for Energy Utilities. Natural Gas & Electricity 33/11, ©2017 Wiley Periodicals, Inc., a Wiley company.