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Title: Effects of resource acquisitions on electric-utility shareholders

Abstract

The purpose of this study is to see how shareholders fare when the utility acquires different kinds of resources. The resources considered are utility-built, -operated, and -owned power plants with different combinations of construction and operation costs; purchases of power; and DSM programs. We calculated the net present value of realized (cash) return on equity as the primary factor used to represent shareholder interests. We examined shareholder returns for these resources as functions of public utility commission regulation, taxes, and the utility`s operating environment. Our treatment of regulation considers the frequency and type (future vs historic test year) of rate cases, inclusion of construction work in progress in ratebase vs allowance for funds used during construction, ratebase vs expensing of DSM programs, book and tax depreciation schedules, possible disallowances of ``excess`` power-plant or DSM capital costs, and possible lack of adjustment for ``excess`` fuel or purchased power costs. The tax policies we studied include the existence and rates for property, sales, and income taxes and the existence and regulatory treatment of deferred taxes. The utility`s operating environment includes the overall inflation rate, load-growth rate, escalation in nonproduction expenses, and nongeneration construction (capital) requirements. Finally, given the increasingly competitive nature ofmore » electricity markets, we briefly considered alternatives to traditional cost-of-service regulation. We examined shareholder returns for the resources described above in an environment where the utility competes with other suppliers solely on the basis of electricity price.« less

Authors:
;
Publication Date:
Research Org.:
Oak Ridge National Lab., TN (United States)
Sponsoring Org.:
USDOE, Washington, DC (United States)
OSTI Identifier:
10156385
Report Number(s):
ORNL/CON-387
ON: DE94012848
DOE Contract Number:  
AC05-84OR21400
Resource Type:
Technical Report
Resource Relation:
Other Information: PBD: May 1994
Country of Publication:
United States
Language:
English
Subject:
29 ENERGY PLANNING, POLICY AND ECONOMY; 99 GENERAL AND MISCELLANEOUS//MATHEMATICS, COMPUTING, AND INFORMATION SCIENCE; ELECTRIC UTILITIES; MANAGEMENT; RESOURCE MANAGEMENT; SUPPLY AND DEMAND; REGULATIONS; PLANNING; TAXES; 296000; 990100; ELECTRIC POWER

Citation Formats

Hirst, E, and Hadley, S. Effects of resource acquisitions on electric-utility shareholders. United States: N. p., 1994. Web. doi:10.2172/10156385.
Hirst, E, & Hadley, S. Effects of resource acquisitions on electric-utility shareholders. United States. https://doi.org/10.2172/10156385
Hirst, E, and Hadley, S. Sun . "Effects of resource acquisitions on electric-utility shareholders". United States. https://doi.org/10.2172/10156385. https://www.osti.gov/servlets/purl/10156385.
@article{osti_10156385,
title = {Effects of resource acquisitions on electric-utility shareholders},
author = {Hirst, E and Hadley, S},
abstractNote = {The purpose of this study is to see how shareholders fare when the utility acquires different kinds of resources. The resources considered are utility-built, -operated, and -owned power plants with different combinations of construction and operation costs; purchases of power; and DSM programs. We calculated the net present value of realized (cash) return on equity as the primary factor used to represent shareholder interests. We examined shareholder returns for these resources as functions of public utility commission regulation, taxes, and the utility`s operating environment. Our treatment of regulation considers the frequency and type (future vs historic test year) of rate cases, inclusion of construction work in progress in ratebase vs allowance for funds used during construction, ratebase vs expensing of DSM programs, book and tax depreciation schedules, possible disallowances of ``excess`` power-plant or DSM capital costs, and possible lack of adjustment for ``excess`` fuel or purchased power costs. The tax policies we studied include the existence and rates for property, sales, and income taxes and the existence and regulatory treatment of deferred taxes. The utility`s operating environment includes the overall inflation rate, load-growth rate, escalation in nonproduction expenses, and nongeneration construction (capital) requirements. Finally, given the increasingly competitive nature of electricity markets, we briefly considered alternatives to traditional cost-of-service regulation. We examined shareholder returns for the resources described above in an environment where the utility competes with other suppliers solely on the basis of electricity price.},
doi = {10.2172/10156385},
url = {https://www.osti.gov/biblio/10156385}, journal = {},
number = ,
volume = ,
place = {United States},
year = {1994},
month = {5}
}