Regulatory risk : economic principles and applications to natural gas pipelines and other 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. 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 'sused 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 Front Matter....Pages ii-xv Introduction....Pages 1-7 The Theory of Regulatory Risk....Pages 9-64 Regulatory Risk: Objections to the Theory....Pages 65-114 Sources of Asymmetric Risk in Regulated Industries....Pages 115-136 Risk of the Interstate Natural Gas Pipeline Industry: Summary....Pages 137-156 Recent Trends in the Interstate Gas Pipeline Industry....Pages 157-196 Two Views of Pipeline Risk....Pages 197-221 Risk Analysis for Natural Gas Pipelines....Pages 223-280 Two Fundamental Questions....Pages 281-292 Back Matter....Pages 327-345