The Effectiveness of Rate-of-Return Regulation: An Empirical Test Using Profit Functions* *This paper was written during the author's tenure as a Brookings Economic Policy Fellow at the Federal Energy Administration. He would like to especially thank David Nissen of the FEA for his generous encouragement and support. He would also like to acknowledge helpful comments from M. Fuss, D. McFadden, D. Nissen, V. Kerry Smith and members of the Applied Microeconomic Theory Workshop at SUNY-Binghamton. The views and conclusions expressed in this study are those of the author, as is the responsibility for remaining errors, and should not be attributed to any of the agencies or institutions mentioned above.