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It is common to assert that utility investors are compensated in
the allowed rate of return for the risk of large disallowances,
such as arise for investments found imprudent or not 'used and
useful'. However, this book develops a new theory of asymmetric
regulatory risk that shows that infallible estimates of the cost of
capital are sure to provide downward-biased estimates of the
necessary allowed rates of return in the presence of such
regulatory risks. The book uses the new theory of regulatory risk
to understand recent developments in the risk of natural gas
pipelines and other regulated industries.
It is common to assert that utility investors are compensated in
the allowed rate of return for the risk of large disallowances,
such as arise for investments found imprudent or not used and
useful'. However, this book develops a new theory of asymmetric
regulatory risk that shows that infallible estimates of the cost of
capital are sure to provide downward-biased estimates of the
necessary allowed rates of return in the presence of such
regulatory risks. The book uses the new theory of regulatory risk
to understand recent developments in the risk of natural gas
pipelines and other regulated industries.
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