To establish price caps, regulators must determine appropriate returns for utilities' capital employed. This paper uses the techniques of the Kalman Filter to estimate daily betas for the U.K.'s regional electricity companies in the period from privatization to end-1998. The paper demonstrates that utilities' risk is time-variant, and establishes significant political and regulatory influences in the systematic risk faced by shareholders. It finds beta to be mean reverting, with little evidence of cyclical variation across the regulatory review cycle. The paper confirms the prevalence of significant excess returns in U.K. privatized electricity distribution and suggests that over-estimation of the systematic risk faced by investors may imply further excess returns in the next regulatory review period.