Restructuring and the market-to-book ratio
It`s time for a vigorous debate on the role of the market-to-book ratio in balancing interests of utility shareholders and customers. All parties--and the cause of consistency in regulation--would be better served if MBR were used as a basis for decisions involving stranded assets, performance-based ratemaking, and allocation of merger benefits. Throughout the nation, large users of electricity are making regulators, legislators and even governors aware of the need to restructure the electric industry to create more competition and allow greater customer choice of suppliers. Knowledgeable customers are eager to rid the industry of regulatory practices which have enabled utility service monopolies to obtain equity returns that have exceeded those of the Standard and Poor`s 500 index. The cost savings associated with industry restructuring have been estimated at $20 billion per year--about ten percent of total government-owned and investor-owned utility revenues. The current restructuring of the electric industry has placed all electric utility assets on the negotiating table. The purpose of this article is to examine how governors, legislators, and regulators can develop fair, efficient solutions that yield an equitable and efficient outcome in response to the many difficult problems associated with this restructuring: how to treat the economic and uneconomic assets of utilities, the latter of which threaten to wipe out a significant fraction of shareholder equity. While the principal focus of this article is electricity industry restructuring and its relation to the market-to-book ratio (MBR), the principles presented here apply also to the common carrier activities of gas, water, and telecommunications utilities. The MBRs of these utilities are presently, like electric utilities, significantly above unity. However, it is beyond the scope of this paper to address the significant impact of restructuring and the MBR on these utilities.
- OSTI ID:
- 518441
- Journal Information:
- Electricity Journal, Vol. 10, Issue 2; Other Information: PBD: Mar 1997
- Country of Publication:
- United States
- Language:
- English
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