AMERICA’S POWER PLAN
You Get What You Pay For: Moving Toward Value in Utility Compensation, Part 1
Revenue & Profit
Steve Kihm – Seventhwave
Ron Lehr – Western Grid Group
Sonia Aggarwal – America’s Power Plan
Edward Burgess – the Utility of the Future Center
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. Neither of these perceptions is correct. Instead, the financial “value engine”—the difference between a utility’s return on investment and its cost of capital—drives shareholder returns. The authors argue that regulators should use this value engine to align utilities’ financial motivations with delivering value to customers and society. They can offer utilities opportunities to earn increased revenues when they provide value-based products and services.
Download or view paper HERE (PDF)