THE IMPACT OF STRANDED-COST RISK ON REQUIRED RATES OF RETURN FOR ELECTRIC UTILITIES - THEORY AND AN EXAMPLE

The impact of a proposal to deregulate electric generation on the requ ired rate of return for a utility can be inferred from the proposal's impact on the utility's dividend yield, given some admittedly strong a ssumptions about risk timing and related matters. We use the case of t he April, 1994 California ''Blue Book'' to demonstrate that even modes t changes in the dividend yield can signal large changes in the requir ed rate of return under partial deregulation.