Intuitively, business people grasp the idea of tangible expenses such as salaries, rent, and interest expense. But publicly held businesses also raise money in the equity markets. And here, as James Grant of Interest Rate Observer fame has often noted in various contexts, it is Mr. Market who sets the necessary or required level of equity return. And where Mr. Market sets that level depends in large measure on perceived levels of business and financial risk. A company may not earn cost of capital every year. But shareholders won’t put up money to finance operations if they didn’t think they have a reasonable chance of earning a satisfactory return on their investment. No one invests to lose money. Nor to earn a return below that called for considering the risk taken. But the regulated utility business is different. Unlike the situation for other private sector corporations, it is the […]