Suppose shareholders equity invested in a utility is $100 million, and the equity beta is 0.6. If the T-bill rate is 6%, and the market risk premium is 8%, then a fair annual profit will be 6% + (0.6 x 8%) = 10.8% of $100 million, or $10.8 million. Because regulators accept the CAPM, they will allow the utility to set prices at a level expected to generate these profits