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The Impact of Stranded-Cost Risk on Required Rates of Return for Electric Utilities: Theory and an Example

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  • Kolbe, A Lawrence
  • Borucki, Lynda S

Abstract

The impact of a proposal to deregulate electric generation on the required rate of return for a utility can be inferred from the proposal's impact on the utility's dividend yield, given some admittedly strong assumptions about risk timing and related matters. We use the case of the April, 1994 California "Blue Book" to demonstrate that even modest changes in the dividend yield can signal large changes in the required rate of return under partial deregulation. Copyright 1998 by Kluwer Academic Publishers

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  • Kolbe, A Lawrence & Borucki, Lynda S, 1998. "The Impact of Stranded-Cost Risk on Required Rates of Return for Electric Utilities: Theory and an Example," Journal of Regulatory Economics, Springer, vol. 13(3), pages 255-275, May.
    • Handle: RePEc:kap:regeco:v:13:y:1998:i:3:p:255-75
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    Cited by:

    1. Evans, Lewis & Guthrie, Graeme, 2006. "Incentive Regulation of Prices when Costs are Sunk," Working Paper Series 18971, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    2. Dominik Schober, 2013. "Refinancing under Yardstick Regulation with Investment Cycles–The Case of Long-Lived Electricity Network Assets," EWL Working Papers 1321, University of Duisburg-Essen, Chair for Management Science and Energy Economics, revised Jun 2013.
    3. Schober, Dominik & Weber, Christoph, 2015. "Refinancing under yardstick regulation with investment cycles: The case of long-lived electricity network assets," ZEW Discussion Papers 15-065, ZEW - Leibniz Centre for European Economic Research.
    4. repec:vuw:vuwscr:18971 is not listed on IDEAS
    5. Boland Michael A. & Crespi John M. & Turner Tracy M., 2014. "Measuring Sunk Costs in Agricultural and Food Industry Assets: Why Some Assets Sell Below Appraisal," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 12(1), pages 53-63, January.
    6. Lewis Evans & Graeme Guthrie, 2006. "Incentive Regulation of Prices When Costs are Sunk," Journal of Regulatory Economics, Springer, vol. 29(3), pages 239-264, May.

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