In Duquesne Light Co. v. Barasch, the Supreme Court ruled that regulatory risks generally require compensation to utility investors, although "slight" losses from changes in the regulatory rules faced by investors are constitutional. However, it will be difficult or impossible to provide the compensation envisioned by the Court if regulators adopt rules of the sort in effect in the 1980s. In particular, traditional procedures for setting allowed rates of return for investors in regulated companies can fall substantially short of the required compensation. As a result, either regulatory institutions will have to change materially from those of the 1980s or material disincentives to new utility investment will persist indefinitely.

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