Costs of capital and rates of return for industrial firms and Class A and B electric utility firms
The intent of the Powerplant and Industrial Fuel Use Act of 1978 (FUA) is to deter industry and electric utilities from using oil or natural gas as a primary boiler fuel. Under the FUA, industries and utilities must convert existing boiler facilities and build any new boiler facilities to burn coal or alternate fuel. This requirement may place a significant capital requirement on firms that must comply with the FUA. This study was undertaken to assit the Economic Regulatory Administration both in developing discount rates for use in the cost test, and in developing measures of the rate of return for use in assessing the economic health of firms petitioning for exemption. The cost of capital for industrial and utility firms was estimated for a sample of 54 energy-intensive industrial firms and 118 Class A and B electric utility firms. Fur purposes of this study, the cost of capital at the margin was assumed to be the weighted average cost of new financing. Weighting factors for each firm were calculated as the most recently available book value of each component of the capital structure, divided by the firm's total capitalization. A theoretical discussion of the firm's cost of capital and rate of return, methods of estimation, cost of capital and rate of return for industrial firms, and cost of capital and rate of return for utility firms are presented. In addition, seven technical appendices are presented to provide mathematically complex derivations and to clarify concepts and procedures.
- Research Organization:
- Ernst and Ernst, Washington, DC (USA)
- DOE Contract Number:
- EB-78-C-01-6391
- OSTI ID:
- 6068815
- Report Number(s):
- FE-6391-T1
- Country of Publication:
- United States
- Language:
- English
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COST
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FUEL SUBSTITUTION
BOILERS
CALCULATION METHODS
INVESTMENT
PAYBACK PERIOD
PROGRAMMING
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