Electrical equipment purchasing patterns of utilities and commercial companies as affected by collusion among equipment manufacturers: an aspect of rate-base padding by electrical utilities

Thesis/Dissertation · Tue Jan 01 04:00:00 EST 1985

OSTI ID:5319786

Tomic, I M

Prof. E. Zajac noted in 1970 that little attention was paid to possible overintensive use of capital unrelated to the substitution process among different factors of production. Translating the Averch-Johnson hypothesis into geometric form, he was able to examine this issue otherwise known as the rate base padding. He found that a regulated firm, under certain constraints, will at times find it profitable to pad the rate base by: (1) gold plating. These are purchases of capital that are unnecessarily expensive. Payments for capital that are above the market price are viewed as additions of non-productive capital, (2) maintaining excessive capacity, (3) penetration into other markets at non-profitable prices. In this study, the author examined only the first form of overintensive use of capital, gold plating. First, he demonstrated that rate base padding can take place under conditions where padding was previously thought unprofitable. Second, he examined the proposition that utilities failed to secure the lowest prices for certain kind of equipment. The findings of this study are: (1) for the years of 1957-1959, the period of collusion, the annual regression functions indicate the existence of price differences between the purchases of utilities and industrial firms. The utilities have paid a higher price for the equipment they purchased; therefore, it is very likely that they padded the rate base. (2) For the years 1961-1963, the post-collusion period, the annual regressions indicate a small and diminishing price difference between the purchases of industrial firms and utilities. Therefore, padding the base probably did not take place.

• Research Organization: City Univ. of New York, NY (USA)
• OSTI ID: 5319786
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
290200* -- Energy Planning & Policy-- Economics & Sociology
296000 -- Energy Planning & Policy-- Electric Power
ELECTRIC UTILITIES
ELECTRICAL EQUIPMENT
EQUIPMENT
INDUSTRY
MARKETING
PRICES
PUBLIC UTILITIES
RATE STRUCTURE