Financing the future growth of the electric power industry

Technical Report · Fri Sep 01 04:00:00 EDT 1978

OSTI ID:6306007

Baughman, M L; Kamat, D P

Capital requirements and financial prospects of the U.S. electric utility industry are assessed within the context of existing regulatory institutions as well as in response to a variety of possible changes in the way regulated electricity prices are determined in the U.S. In recognition of the possible financial difficulties that the electric utility industry may face if regulated prices are not set high enough to allow sufficient capital to be generated, a number of policy proposals have been made.The most direct way of dealing with the problem is simply to raise the allowed rate of return to a level greater than or equal to the cost of capital. Since 1976 this policy has been implemented to some extent through a combintion of large rate increases and declining interest rates, and the effects have been reflected by a large increase in the market value of most electric utility common stocks. A number of indirect policies for increasing revenues of the industry have also been proposed, such as the inclusion of construction work in progress (CWIP) in the rate base, increases in the investment tax credit, and the expensing of preferred stock dividends. This paper does not predict whether there will be a capital shortage or how large it will be. Rather, it shows that under reasonable assumptions a capital shortage is possible, then examines the relative effects that alternative regulatory reforms would have on such a capital shortage if it were to evolve. The analysis is carried out by using a regionalized engineering econometric simulation model of U.S. electricity supply and demand. (REM)

• Research Organization: Texas Univ., Austin (USA). Center for Energy Studies
• OSTI ID: 6306007
• Report Number(s): UT/CES-PS-4
• 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
CAPITAL
CHARGES
CONSTRUCTION
CWIP
ECONOMETRICS
ECONOMICS
ELECTRIC UTILITIES
FINANCING
NORTH AMERICA
PLANNING
POLLUTION ABATEMENT
PUBLIC UTILITIES
REGULATIONS
SIMULATION
SUPPLY AND DEMAND
USA