Risk and the fair return for regulated companies

Provided evidence in proceedings before Canada’s National Energy Board that has been cited in Board decisions that recognize that the required return on equity depends on the market-value capital structure (i.e., debt-equity combination) of the company in question. (See in particular the NEB’s Trans Québec & Maritimes decision, RH-1-2008, and its recent TransCanada Pipelines Limited et al. decision, RH-003-2011.) This can make a material difference in the appropriate allowed return on equity for rate-regulated firms when the book-value capital structure to which the return is applied differs from the market-value capital structures of the sample companies used in the analysis.