In more recent years, utility cost of capital experts tend to employ the Hamada beta adjustment in estimating the cost of equity in utility rate proceedings. This podcast explains what the Hamada beta adjustment is and demonstrates that the adjustment as applied in rate proceedings leads to inflated beta values and thus higher expected cost of equity than it should be. It argues that the method as applied is fundamentally flawed and the jurisdictional authorities should disregard the method completely.
About Zhen Zhu
Zhen Zhu is Professor of Economics at University of Central Oklahoma. He has been teaching energy related courses such as Oil and Gas Economics, International Energy Markets, Natural Gas Investment and Valuation, Energy Trading and Risk Management at UCO and University of Oklahoma. Zhen Zhu is also a Managing Consultant with C.H. Guernsey and Company in Oklahoma City. He worked on projects related to electric and gas utility planning, load forecasts, risk management, and many more. He has testified before a number of state utility commissions concerning electric and gas utility cost of capital, integrated resource planning and gas pricing issues representing consumer advocacy groups, state agencies and the U.S. Department of Defense, among others. Before joining the World Bank, he worked as a research economist at the Center for Global Trade Analysis, the Department of Agricultural Economics at Purdue University; the Electricity Policy Research Group, University of Cambridge; the Enterprise Analysis Unit at the World Bank, and Credit Research Center at Georgetown University. He also spent a number of years with the Ministry of Foreign Affairs of Latvia, working primarily on Latvian economic integration in the EU and WTO. Dr. Steinbuks taught a number of graduate and undergraduate courses in economics at the University of Cambridge, Miami University, the George Washington University, and the University of Latvia. His research is published in peer-reviewed academic journals and is regularly presented at international conferences and workshops. Jevgenijs Steinbuks has his PhD in Economics from the George Washington University.