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Florida PSC Retains Existing Leverage Formula ROEs

Posted on by Carlos

The Florida Public Service Commission has decided to retain its current leverage formula range for use in determining the return on equity (ROE) for water and wastewater utilities (see: Water and Wastewater Industry Annual Reestablishment of Authorized Range of Return on Common Equity, Order No. PSC-12-0339-PAA-WS, June 28, 2012). The Commission explained that if it were to use “current financial information and [the] approved methodology, the upper end of the allowed return on equity range would increase by almost 100-basis points, and the bottom of the range would be decreased by 38-basis points. This results in the widest spread… for the allowed return on common equity for water and wastewater utilities in the approximately 30 years the leverage formula has been in use in Florida.”

The PSC further explained that it was incongruous to raise the cost of equity component of the leverage forumla increase when the cost of debt had declined to historically low levels. The 2011 leverage formula range of 8.74%-11.16% will continue to be used until the formula is addressed in 2013.

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