Risk, return and rate base valuation methods : an empirical analysis
By: Edward L. Bubnys, Walter J. Primeaux, Jr., J. Kenton Zumwalt
Contributors: Primeaux, Walter J.; Zumwalt, J. Kenton; University of Illinois at Urbana-Champaign. College of Commerce and Business Administration; University of Illinois at Urbana-Champaign. Bureau of Economic and Business Research
Series: BEBR faculty working paper -- no. 872; BEBR faculty working paper -- no. 872.
Publisher: College of Commerce and Business Administration, Bureau of Economic and Business Research, University of Illinois at Urbana-Champaign
Published: 1982
Place of publication: [Urbana, Ill.]
Language: eng
Number of pages: 26
Description: It has been observed that utility executives generally argue for inflation adjusted rate bases while consumer groups advocate original cost valuation methods. Recent analytic and empirical studies indicate that rate base valuation methods should not and do not account for differences in utilities' realized rates of return. However, there is evidence that CHANGES in valuation methods may cause changes in realized returns due to over or under compensation for the effects of inflation.

This study examines the impact of changes in rate base evaluation methods on (1) expected shareholder returns, (2) realized shareholder returns, and (3) systematic risk. A unique time series data set and a new statistical procedure are used. Overall, the results are consistent with earlier studies. However, the results for utilities in one state provide support for the argument that investors fare better under fair value regulation.
Notes: Includes bibliographical references (p. 25-26).