Ebook: Regulatory Finance: Financial Foundations of Rate of Return Regulation
Author: Howard E. Thompson (auth.)
- Tags: Industrial Organization, Finance/Investment/Banking
- Series: Topics in Regulatory Economics and Policy Series 9
- Year: 1991
- Publisher: Springer US
- Edition: 1
- Language: English
- pdf
This monograph is concerned with the determination of the allowed rate ofreturn in rate cases which, in part, determines the rates ofcharge to customers of public utilities. Rate of return determination has been a central topic in utility regulation for a century. Recent changes in the traditionally regulated markets - electricity, gas, and telephone - have shoved discussion of rate of return determination into the background, replacing it by technology changes, competition, downsizing, deregulation, and reg'ulatory incentive systems. These new issues have made the regula tory sector, which had the reputation of being stodgy and uninteresting, an exciting field ofstudy. But rate ofreturn is not dead. It will playa key role in whatever the new structure ofthe regulated sector. Separating generation from transmis sion and distribution will not eliminate the need for rate of return analysis in the electric utility industry. Rather, it may well increase the number of companies for which the rate of return needs to be determined. It will playa fundamental role in the new regulatory environment. Incentive systems in the regulated sector may be the wave of the future but they will use the required rate ofreturn as a benchmark. Rate case will persist. Most rate cases include opposing testimony as to the "fair" rate of return or even the cost ofcapital for a public utility whose rates are at issue.
Content:
Front Matter....Pages i-xii
Front Matter....Pages 1-1
Rate of Return in Rate Cases: The Institutional Setting....Pages 3-9
Earned Rates of Return, Allowed Rates of Return and the Cost of Capital in a Historical Setting....Pages 11-23
Front Matter....Pages 25-25
Traditional Models: DCF and Comparable Earnings....Pages 27-41
Traditional Models: CAPM and Risk Analysis....Pages 43-55
Recent Models: Arbitrage Pricing Theory....Pages 57-68
Recent Models: Valuation of Contingent Claims and Regulation....Pages 69-88
Issues in the Theory of Rate of Return....Pages 89-95
Front Matter....Pages 97-97
Methodology of Comparable Earnings and DCF....Pages 99-119
The Methodology for Risk Analysis....Pages 121-140
Methodology of Arbitrage Pricing Theory....Pages 141-159
Issues in Methodology for Determining the Rate of Return....Pages 161-174
Front Matter....Pages 175-175
The Past and the Present: Adapting to Change....Pages 177-189
Factors Not Incorporated into the Models....Pages 191-206
The Reliability of Rate of Return Judgment....Pages 207-212
Beyond Rate of Return Regulation....Pages 213-222
Back Matter....Pages 223-243
Content:
Front Matter....Pages i-xii
Front Matter....Pages 1-1
Rate of Return in Rate Cases: The Institutional Setting....Pages 3-9
Earned Rates of Return, Allowed Rates of Return and the Cost of Capital in a Historical Setting....Pages 11-23
Front Matter....Pages 25-25
Traditional Models: DCF and Comparable Earnings....Pages 27-41
Traditional Models: CAPM and Risk Analysis....Pages 43-55
Recent Models: Arbitrage Pricing Theory....Pages 57-68
Recent Models: Valuation of Contingent Claims and Regulation....Pages 69-88
Issues in the Theory of Rate of Return....Pages 89-95
Front Matter....Pages 97-97
Methodology of Comparable Earnings and DCF....Pages 99-119
The Methodology for Risk Analysis....Pages 121-140
Methodology of Arbitrage Pricing Theory....Pages 141-159
Issues in Methodology for Determining the Rate of Return....Pages 161-174
Front Matter....Pages 175-175
The Past and the Present: Adapting to Change....Pages 177-189
Factors Not Incorporated into the Models....Pages 191-206
The Reliability of Rate of Return Judgment....Pages 207-212
Beyond Rate of Return Regulation....Pages 213-222
Back Matter....Pages 223-243
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