Regulatory Rate of Return and Capital Structure Optimization in Utility Sector Financing

Abstract

This article examines how regulatory rate of return and capital structure decisions interact in utility sector financing, and it develops a framework for judging them against a single outcome: the financeable and customer acceptable revenue requirement. Six dimensions carry the analysis, covering cost of capital, debt capacity, the regulatory compact, investment need, customer affordability, and resilience. A structured integrative review assembles evidence from utility regulation, corporate finance, infrastructure delivery, and adjacent sectors where mechanisms transfer only under comparable data, incentives, and controls. The framework treats each dimension as a decision pathway rather than a correlation, and it sets out twelve propositions with candidate measures for empirical testing. The argument is that allowed returns, capital programs, and affordability programs should be evaluated together, because a decision that improves one dimension on its own tends to move cost or risk into another.