Moving Toward Value in Utility Compensation, Part 1 – Revenue & Profit

This paper corrects two widely held notions in the regulatory community: that the utility’s rate of return is the sole value driver for utility shareholders and that rates of return are set at the cost of equity. Instead, the financial “value engine”—the difference between a utility’s return on investment and its cost of capital—drives shareholder returns. Regulators should use this value engine to align utilities’ financial motivations with delivering value to customers and society.