Series 79 practice questionmediumIndustry/Sector Analysis
A utility sector report emphasizes rate base growth more than unit volume growth. Why?
- AAllowed returns are often earned on regulated invested capital rather than on purely competitive pricing✓ Correct answer
- BUtilities do not use debt financing
- CUtilities cannot issue common stock
- DRate base replaces the cash flow statement
Explanation
Why A — Allowed returns are often earned on regulated invested capital rather than on purely competitive pricing
Allowed returns are often earned on regulated invested capital rather than on purely competitive pricing In regulated utilities, earnings are closely tied to the amount of capital investment approved by regulators. That is why bankers studying utilities spend significant time on capex plans and regulatory treatment.
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