The first step in the utility ratemaking process is a determination of the utility’s authorized rate of return, also known as its cost of capital. This is set by the regulatory commission, sometimes as part of the rate case and other times in a separate proceeding called a cost of capital proceeding. The regulator looks at the current investment marketplace and determines how much return investors must be offered to ensure they invest in utility stocks or debt as opposed to other investment opportunities. Separate rates of return will be set for utility debt and for equity, which is the money invested by stockholders. The utility’s return on equity is set such that it is similar to returns investors would receive on alternative investments with similar risk profiles. The two rates, weighted by the amount of debt and the amount of equity, are used to determine the overall authorized rate of return.