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Public Utility Valuation and Risk under Incentive Regulation

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  • Lewellen, Wilbur G
  • Mauer, David C

Abstract

The objective of providing inducements for public utilities to seek to improve the efficiency of their operations has been a longstanding regulatory concern. Among the evolving strategies for furthering that objective is a shift toward what has come to be referred to as "incentive" regulation. We examine here how this departure from past regulatory practice will affect the market value and market risk of the utility firm, and the specific manner in which an incentive mechanism can be implemented in order to achieve a desired valuation outcome. A particular focus is the establishment of boundaries on allowed rates of return under incentive regulation which are consistent with that desired outcome. The likely impact on utility ratepayers is considered. Copyright 1993 by Kluwer Academic Publishers

Suggested Citation

  • Lewellen, Wilbur G & Mauer, David C, 1993. "Public Utility Valuation and Risk under Incentive Regulation," Journal of Regulatory Economics, Springer, vol. 5(3), pages 263-287, September.
    • Handle: RePEc:kap:regeco:v:5:y:1993:i:3:p:263-87
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    Cited by:

    1. Roger Buckland & Julian Williams & Janice Beecher, 2015. "Risk and regulation in water utilities: a cross-country comparison of evidence from the CAPM," Journal of Regulatory Economics, Springer, vol. 47(2), pages 117-145, April.
    2. Boyle, Glenn & Evans, Lewis & Guthrie, Graeme, 2006. "Estimating the WACC in a Regulatory Setting: An Assessment of Dr Martin Lally's paper 'The Weighted Average Cost of Capital for Electricity Lines Businesses' of 8 September 2005," Working Paper Series 18939, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    3. Graeme Guthrie, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 925-972, December.
    4. Guthrie, Graeme, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Working Paper Series 18946, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    5. repec:vuw:vuwscr:18939 is not listed on IDEAS
    6. repec:vuw:vuwscr:18946 is not listed on IDEAS
    7. Majumdar, Sumit K., 2016. "Debt and communications technology diffusion: Retrospective evidence," Research Policy, Elsevier, vol. 45(2), pages 458-474.
    8. Boyle, Glenn & Evans, Lewis & Guthrie, Graeme, 2006. "Estimating the WACC in a Regulatory Setting: An Assessment of Dr Martin Lally's paper 'The Weighted Average Cost of Capital for Electricity Lines Businesses' of 8 September 2005," Working Paper Series 3844, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.

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