3 comments on “Timmy elsewhere

  1. Should utilities make an average or below average return on capital? They are safer businesses than most. And/or if they are safer, can they borrow more cheaply/use more debt, thus giving a better return on equity?

    So if it’s truly competive, their return on capital should be *below* average, not just average?

    Happy to be told why I’m wrong.

    Tim adds: “if they are safer, can they borrow more cheaply/use more debt, thus giving a better return on equity?”

    But this is what they already do. We’ve all sorts of people complaining that they have large borrowings and low capital precisely because they are safe, regulated, businesses. And they’ve done this precisely to leverage up the returns to capital…..which, when so leveraged, are still pretty mediocre.

  2. “They are safer businesses than most.”
    ???
    A business that wholly depends on the whims of politicians playing to the political gallery?
    Jeez.
    Now dealing heroin wraps on street corners. That’s safe business.

  3. Tim, one or the other of us is confusing return on capital with return on equity…..probably me, but here goes.

    Can’t you have poor/average returns on capital (ie *total* of debt finance and equity) and a good return on equity? As utilities are largely debt funded (with lower cost than equity capital) their shareholders can be doing well even if the total return on capital is poor/average. I don’t know whether their ROC or ROE is good/bad/average, btw.

    BIS, well, the stock market in its infinite wisdom disagrees with you – check out the beta for a random sample of utilities.

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