Abstract

A substantial debate has emerged over the financial impacts of nonutility generation (NUG) contracts on investor-owned utilities. This debate is reflected in the 1992 Energy Policy Act (EPAct), which requires state regulatory commissions to consider whether long-term contracts for NUG power purchases would increase (or decrease) the utility's cost of capital. This study reviews the literature on the cost of equity capital for regulated utilities. Since there is no consensus definition of the intuitive "cost of capital" notion, we work with several alternative formulations of the debate on NUGs and the utility's cost of capital. We also review variable definitions and data sources.