A fair return on investment refers to a reasonable profit that a public utility or business can expect from its investments. This concept is determined through careful judgment and common sense, rather than precise mathematical calculations. It emphasizes the need for a balanced approach to evaluating the profitability of investments, ensuring that returns are equitable for all stakeholders involved.
The term "fair return on investment" is commonly used in regulatory and legal contexts, particularly in public utility law. It is relevant in areas such as:
This term often comes into play during rate-setting proceedings, where public utilities seek to establish rates that allow them to earn a fair return on their investments. Users may find templates and forms on US Legal Forms that assist with the documentation and processes involved in these regulatory matters.
Here are a couple of examples of abatement:
Example 1: A public utility invests in infrastructure upgrades to improve service reliability. During a rate case, the utility argues that it needs to charge higher rates to achieve a fair return on its investment based on the costs incurred.
Example 2: A new energy company seeks to attract investors by promising a fair return on investment based on projected market growth and demand for renewable energy sources. (hypothetical example)
Examples of state differences (not exhaustive):
| State | Regulatory Approach |
|---|---|
| California | Strict guidelines on fair return calculations for utilities |
| Texas | More flexible approach, allowing for market-based returns |
| New York | Focus on consumer protection and equitable returns |
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
| Term | Definition |
|---|---|
| Return on Investment (ROI) | A measure of the profitability of an investment, often expressed as a percentage. |
| Fair Market Value | The price that an asset would sell for on the open market. |
| Cost of Capital | The return expected by those who provide capital to the company. |
If you are involved in a situation where fair return on investment is relevant, consider the following steps:
If your situation is complex, seeking professional legal help is advisable.
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