Cost-of-Capital Method Law and Legal Definition

Cost-of-capital method is a method of measuring a utility’s cost of acquiring debt and equity capital. Cost-of-capital method requires the weighting of the costs of each component of capital according to the ratio each bears to the total capital structure of the utility and the resultant figures are added together to yield a sum which represents the overall rate of return. Regulatory commissions often use this method to determine a fair rate of return for the utility’s investors.