Coping with underdepreciation in the electric-utility industry

Thesis/Dissertation · Tue Jan 01 04:00:00 EST 1980

OSTI ID:6328763

Haywood, D M

The purpose of this study is to examine a two-part hypothesis: (1) that underdepreciation is the cause of serious financial problems which have beset investor-owned electric utilities in recent years; and (2) that depreciation adjusted for changes in the general level of prices would do much to alleviate these problems. A financial-ratio analysis, primarily of the twenty-four electric utilities that make up Moody's electric utility average, reveals the nature and magnitude of the utilities' problems: cast flows inadequate to replace fixed assets, stocks selling below book value, and at least occasional dividend payments out of capital. The nature of the electric-utility industry shows the critical role depreciation plays in the industry's financial health and why, particularly during inflation, that depreciation is so susceptible to understatement. The conclusion is that the investor-owned electric utilities need larger cash flows, if they are to avoid the financial crisis toward which they are headed. The method of units of purchasing power-historical cost (UOPP-HC) depreciation has much to recommend it as the means of generating these larger cash flows. The emphasis of this study is on the period 1964 through 1976. An examination of some key financial ratios for the period 1977 through October, 1980 indicates that the plight of the investor-owned electric utilities is probably even more critical in this subsequent period than in the period emphasized.

• OSTI ID: 6328763
• 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
ACCOUNTING
COST
DATA
DEPLETION ALLOWANCES
ECONOMIC ANALYSIS
ECONOMICS
ELECTRIC UTILITIES
FINANCIAL DATA
FINANCING
INFORMATION
INVENTORIES
LOSSES
MANAGEMENT
OPERATING COST
PRICES
PUBLIC UTILITIES