Consolidated Power is a regulated electric utility that has equity with a market value of $1.5 billion anddebt outstanding of $3 billion. A consultant notes that this is a high debt ratio relative to the average across all firms, which is 27%, and suggests that the firm is over-levered.

a. Why would you expect an electric utility to be able to maintain a higher debt ratio than the average company?

b. Does the fact that the company is a regulated monopoly affect its capacity to carry debt?