Anyone who has attended a rate case hearing recently is well aware that the debate over the rate of return now tends to focus on the implications for public utility investors of a largely unprecedented trend in the current capital markets-specifically, intervention by the Federal Reserve in the government bond market. The current capital market conditions are unique from a historical perspective. No US government policy intervention in recent history has had such an important effect on the risk-free rate relied upon by public utility analysts in their routine modeling of market and utility investor behavior. In this NERA briefing note, Vice President Kurt G. Strunk examines how these capital market conditions affect the cost of capital for public utilities.