Electric Co USA is a regulated electric utility which has equity with a market value of $ 1.5 billion and debt outstanding of $ 3 billion. An outside business 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 overlevered.

a. Why would you expect a 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?