Rate unbundling: Are we there yet?

This article reviews the concept of unbundling the cost of capital in the electric utility industry. It makes the case that there should be separate rates of return for generation and transmission and distribution. It is demonstrated in this article that estimates of ROE using tradition models requires a series of complicated, data-intensive calculations. Since there are no truly comparable groups, the exercise becomes that much more problematic. The concept of finding pure-play comparables among utility services, even those in a holding company structure, seems unrealiastic as well. Until market-based solutions are available, simple proxies can be used.