Impact of state regulatory practices on electric utility: an empirical analysis
The objective of this study was to investigate the impact of state regulatory practices on investor-owned electric utilities in the context of interactions among 5 variables: allowed rate of return; cost of capital; cost of electric service; price of electricity; and realized rate of return. A recursive system of 5 equations was constructed and the ordinary least-squares estimation was adopted. Data sets comprise 77 utilities in the US for 1976 and 1980. Results are: (1) allowed rate of return is principally determined by firm specific variables rather than by commission-specific variables, and the behavior of the public utility commission is adaptive; (2) high common equity ratio and a high market to book value ratio lower the cost of external capital, as proxies for financial strength and regulatory risk; (3) long-run average cost of electric service is nearly horizontal and any inter-firm difference in the cost is predominantly explained by the difference in the price of fuel that a utility plant uses; inclusion of Construction Work in Progress adversely affects the realized rate of return, not the cost or price; (4) electricity price is mostly determined by the average cost, and inter-firm differences in the allowed rate of return have little effect on the price; and (5) regulation is effective mainly in the sense that the realized rate of return is severely affected by the allowed rate of return.
- Research Organization:
- Texas Tech Univ., Lubbock (USA)
- OSTI ID:
- 5288640
- Resource Relation:
- Other Information: Thesis (Ph. D.)
- Country of Publication:
- United States
- Language:
- English
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