Effect of economic regulation on risk and financial performance in the electric utility industry

Thesis/Dissertation · Sun Jan 01 04:00:00 EST 1984

OSTI ID:5727218

Smith, D M

Regulation has often been cited as the major impediment to quick, efficient utility response to changing economic conditions. The quality of regulation, as assessed from an investor's viewpoint, has had an impact on the financial health of electric utilities. Firms with good regulation experienced a smaller increase in investment risk and a smaller decline in financial condition than utilities with poor regulation. While the purpose of regulation is not to ensure that utilities make profits, regulation is supposed to maintain the capital integrity of the firm. The eroding financial position of the electric utilities indicates that, in general, regulators have not maintained the capital integrity of the firms. Regulators of above-average quality were only marginally more able to mitigate the damaging effects of a changing environment on electric utility financial condition than below-average regulators. The effect of regulatory quality on risk and financial performance was relatively small when compared to other operating and environmental factors that affect utilities. The fuel mix, dividend policy, accounting practices and economy have all affected utility stocks to a far greater degree than the regulatory environment. While regulatory quality did have some impact on the performance of utility securities from 1972 to 1982, it was not the major factor affecting the securities.

• OSTI ID: 5727218
• 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
32 ENERGY CONSERVATION, CONSUMPTION, AND UTILIZATION
320603 -- Energy Conservation
Consumption
& Utilization-- Municipalities & Community Systems-- Public Utilities-- (1980-)
CAPITAL
ECONOMIC ANALYSIS
ECONOMIC IMPACT
ECONOMICS
ELECTRIC UTILITIES
PUBLIC UTILITIES
REGULATIONS
RISK ASSESSMENT