Diversification, Deregulation, and Competition: Cost of Capital Implications for Electric Utilities

  • Leonard S. Hyman
  • Heidimarie West
Part of the Topics in Regulatory Economics and Policy book series (TREP, volume 3)


Diversification, deregulation, and competition are likely to affect the cost of capital of electric utilities by altering the risk levels of the existing utility business and by leading the utility into lines of business that may be riskier than electric service. They may require talents not yet residing in the utility as well as financial policies now alien to the organization. To the extent that the utility does not adapt its financial, managerial, governmental, and operational policies to the new environment, the utility may create greater risks than necessary for its owners and creditors (Crew 1980, 83). The guiding principle of utility finance has been to offset the lower business risk of the regulated monopoly by means of greater financial risk-leverage. What would happen to the utility’s securities if the utility corporation’s business risk rose as a result of competition, deregulation, and entry into diversified ventures, but the corporation kept financial ratios appropriate only to the regulated monopoly (ELCON 1987,6)?


Electric Utility Financial Policy Dividend Payout Natural Monopoly Residential Rate 


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Copyright information

© Kluwer Academic Publishers 1989

Authors and Affiliations

  • Leonard S. Hyman
  • Heidimarie West

There are no affiliations available

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