Electric-Utility reliability, pricing polices, and cost of capital: theories and evidence

Thesis/Dissertation · Thu Jan 01 04:00:00 EST 1981

OSTI ID:5929268

Stumpp, M S

This thesis departs from most recent empirical work in that it develops a theory that explains deviations from optimal reliability levels. In light of recent discussions concerning the deregulation of bulk-power supplies, Chapter One investigates the competitive and monopolist's production of reliable power. It is shown that the monopolist produces more reliable power than would a competitor. The second chapter examines the effects of alternate forms of regulation on the joint determination of output and reliability. The major conclusions of this section are: (1) the optimal combination of output and reliability cannot be achieved through the use of a single regulatory instrument, and (2) rate-of-return regulation results in an increase in the level of reliability. The third chapter extends the analysis of the preceding chapters to consider stochastic demand, while still obtaining the earlier results. Chapter Four extends the uncertainty model to examine the pricing practice traditionally employed in the industry (fully distributed cost pricing). The principal result of this chapter is that deviations from equalized-class rates of return on rate base may increase the overall variability of return and the firm's cost of capital. This result obtains under the assumption that the risks of serving various classes of customers and unequal, and that the cost of capital is positively related to the variability in earnings. The final chapter presents an empirical verification of both assumptions. It is shown for a sample of utilities the risks of serving various customer classes can significantly differ. It is also found that it is not possible to reject the hypothesis that variable earnings flows, resulting from variable class sales, increases the firm's cost of capital.

• OSTI ID: 5929268
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
296000* -- Energy Planning & Policy-- Electric Power
32 ENERGY CONSERVATION, CONSUMPTION, AND UTILIZATION
320603 -- Energy Conservation
Consumption
& Utilization-- Municipalities & Community Systems-- Public Utilities-- (1980-)
ECONOMIC ANALYSIS
ECONOMICS
ELECTRIC UTILITIES
PRICING REGULATIONS
PUBLIC UTILITIES
RATE STRUCTURE
REGULATIONS
RELIABILITY