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2 edition of The rate of return, rate base methods, and the regulatory constraint found in the catalog.

The rate of return, rate base methods, and the regulatory constraint

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Published by College of Commerce and Business Administration, University of Illinois at Urbana-Champaign in [Urbana] .
Written in English

Edition Notes

Bibliography: leaves 18-19.

StatementWalter J. Primeaux and Randy A. Nelson
SeriesFaculty working papers -- no. 468, Faculty working papers -- no. 468.
ContributionsNelson, Randy A., joint author
The Physical Object
Pagination19 leaves :
Number of Pages19
ID Numbers
Open LibraryOL24635000M

rate-of-return regulation the stipulation by the government of maximum permitted levels of PROFIT accruing to a MONOPOLY supplier. Profit regulation is commonly used in the USA and the UK to control the pricing policies of (privately owned) PUBLIC UTILITIES. General Rate Revenues Generally, a rate or the associated revenues designed to recover the cost of service other than certain costs separately identified and recovered through a pass-through charge or any specific rate such as a surcharge. For water and sewer utilities, general rates typically include the base rate and gallonage rate. @article{osti_, title = {Regulatory and financial aspects of the utility industry rate treatment of construction work in progress}, author = {Sarikas, R.H.}, abstractNote = {Growth in utility-construction programs has focused attention on the methods used by utilities to obtain the earnings needed to pay investors for the use of funds for construction expenditures.

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The rate of return, rate base methods, and the regulatory constraint by Walter J. Primeaux Download PDF EPUB FB2

THERATEOFRETURN,RATEBASEMETHODS,ANDTHEREGULATORYCONSTRAINT by ux, INTRODUCTION andL. The rate of return, rate base methods, and the regulatory constraint / By Walter J. Primeaux and joint author. The rate of return, rate base methods, and the regulatory constraint / BEBR No. By Walter J. Primeaux and Randy A.

Nelson Get PDF (1 MB)Author: Walter J. Primeaux and Randy A. Nelson. The regulatory authority imposes ROR regulation on the railway firm in each period.

In general, ROR regulation is expressed as (fair rate of return)≥ (revenue)-(non-capital cost) (value of capital stock=rate base) =(a firm′s rate of return), where the fair rate of return (=the allowed rate of return) is determined by the by: 4. and the regulatory constraint book Capital Structure.

The rate of return n Example: Debt 2, 40% 8% % Equity 3, 60% 12% % TOTAL 5, %. Overall rate of return multiplied by rate base as part of revenue requirement computation. Cost of debt determined by average of the actual.

1 Rate base is the gross value of the company’s assets, minus accumulated depreciation. Cost of capital is also called. the allowed rate of return and is the interest that the company pays on its debt plus the return it must provide to.

shareholders to ensure they continue to invest The rate of return the : Mark The rate of return. Jamison. So if the utility is allowed an 8% overall rate rate base methods return and obtains debt for 5% (rd), its return on equity will be 11% (re).

If the allowed rr is raised to 9%, then the re will be 13%. Once the rate of return is set if the cost of debt decreases, the return on equity will increase. A Rate of Return (ROR) is the gain or loss of an investment over a certain period of time.

In other words, the rate of return is the gain (or loss) compared to the cost of an initial investment, typically expressed in the form of a percentage.

When the ROR is positive, it is considered a gain and when the ROR is negative. The rate of return is a combination of the cost of paying back its debt holders with interest and the return utilities provide to their equity shareholders.

Not surprisingly, the most and the regulatory constraint book part of this The rate of return is calculating the utility’s allowed return on equity (ROE) – this is the only portion of the revenue requirement that a utility ultimately keeps as profit. base. The regulatory agencies establish a rate base and a rate of return; utilities are permitted to earn at this established rate on the rate base.

Hence, it is logical that prospective buyers and sellers would see and the regulatory constraint book rate base as a significant factor in formulating investment decisions. HCLD is much lessFile Size: 1MB. For example, assume that the regulator determines that the company has a net asset base of $30, an after-tax cost of capital of 12 percent, a tax rate of 25 percent, operating expenses of $1, and depreciation expenses of $, 2 File Size: KB.

Rate Case Training 6 31 Rate Base rate base methods Capital) Example RATE BASE The rate of return in Service 1, Less: Accumulated Depreciation Net Plant Materials & Supplies 25 Fuel Inventories 20 Regulatory Assets 5 Cash Working Capital 10 Accumulated Deferred Federal Income Taxes (80) Total Rate Base Multiplied by Rate of Return 10% Return dollars included in Revenue Requirement Alternative rate base approaches, such as “Trended Original Cost”, which trends the OC rate base for inflation, or “replacement cost new net of depreciation,” which considers the current cost of construction adjusted for the age and condition of existing assets, may be useful alternatives that avoid substantially reducing the rate base.

Accounting Rate of Return The rate of return ARR: The accounting rate of return (ARR) is the amount of profit, or return, an individual can expect based on an investment made. Accounting rate of return divides the. Definition of book rate of return.

book rate of return. Accounting income divided by book value. Also called accounting rate of return. Related Terms: Abnormal returns. Part of the return that is not due to systematic influences (market wide influences). In other words, abnormal returns are above those predicted by the market movement alone.

Risk and Return for Regulated Industries provides a much-needed, comprehensive review of how cost of capital risk arises and can be measured, how the special risks regulated industries face affect fair return, and the challenges that regulated industries are likely to face in the future.

Rather than following the trend of broad industry introductions or textbook style reviews of utility. Rate-of-return regulation has been criticized for providing inappropriate incentives to regulated firms and for being costly to administer. An alternative is price-cap regulation, by which ceilings (“caps”), based on indices of price and technological change are imposed, below which the regulated firm has full pricing freedom.

The differences and similarities of the two are reviewed herein Cited by: Under some regulatory structures, network owners have strong incentives to increase the size of their asset base, for example rate of return type of regulation common in US markets and the aspects Author: David M.

Newbery. The accounting rate of return is the expected rate of return on an investment. The calculation is the accounting profit from the project, divided by the initial investment in the project.

One would accept a project if the measure yields a percentage that exceeds a certain hurdle rate used by the company as its minimum rate of formula for the accounting rate of return is.

return of 10 percent on a valuation rate base. 3 The Mid-Continent Shippers appealed to the United States Court of Appeals for the District of Columbia Circuit. Inwhile that appeal was pending, Congress transferred regulatory.

As shown, the Return allowance is determined by multiplying Rate Base by the overall Rate of Return (ROR). A-7 shows the calculation of Pipeline U.S.A.'s return allowance of $53, The Overall Rate of Return is computed as a function of the following three components: the capitalization ratio of the pipeline, the cost of debt, and the allowed.

Rate Base Determination • The rate base includes costs of plant and equipment that are used in the provision of the service. • Several adjustments are typically made to avoid excessive claims on the rate base as these have direct tariff implications through the resultant rate of return claimed.

Rate Of Return Regulation: A form of price setting regulation where governments determine the fair price which is allowed to be charged by a monopoly. Rate of return Author: Will Kenton. Rate Base Rate of Return method is most common for investor-owned utilities ›In its simplest terms: Return= Rate Base x Rate of Return Rate Base is the net value of property (assets) used in providing service, on which a public utility is permitted to earn a specified rate of return.

Rate-of-return regulation was dominant in the US for a number of years in the government regulation of utility companies and other natural monopolies. If the firms to remain unregulated, they could easily charge far higher rates since consumers would pay any price for goods such as electricity or water.

Chapter 4 Foreign Exchange Markets and Rates of Return. People trade one national currency for another for one reason: they want to do something with the other currency. What they might do consists of one of two things: either they wish to spend the money, acquiring goods and services, or they wish to invest the money.

the value of utility “rate base,” a value on which the utility is entitled to a fair and reasonable return for its shareholders. All utility depreciation details are within a federal or state regulatory agency’s discretion. Assets’ book values are critical inputs for determining a regulated utility’s revenue requirement,File Size: KB.

rate-of-return regulation. The rate-of-return ap-proach is used in Canada, Japan, and the United States, where regulatory agencies fix the rate of return that a utility can earn on its assets.

They set the price the utility can charge so as to al-low it to earn a specified rate of return—and no more. The regulated price can be adjusted up-File Size: KB. This book develops a comprehensive concept of regulatory risk integrating existing theoretical and empirical research.

The focus is on explaining how the design of the regulatory system influences the risk of a rate-regulated firm, as well as on elaborating appropriate methods for the determination of the regulatory rate base and the allowed. Regional seminar: INOGATE PC convergence with EU Electricity and Gas Tariffs 1.

Agenda r = allowed rate of return B = rate base (or regulatory asset base – RAB) Necessary costs Book valuation Market valuation Historic cost Current cost Current Re-valued initialFile Size: 1MB. generic proceeding, a rate reduction would be required.

Note that the $ million tax reduction generates a $ million revenue reduction ($ million/(1-tax rate)), because the rate reduction reduces tax expense Note that after this rate reduction, King in the North Power continues to earn its allowed % equity returnFile Size: KB.

Utility General Rate Case – A Manual for Regulatory Analysts POLICY AND California Public Utilities Commission Return on Rate Base e. Legal Standard for setting Return and records of utilities for regulatory and tax purposes at least once every three years.

3)).))) File Size: KB. Chapter Summary. Chapter 7 - Rate-of-Return Analysis. Rate of return (ROR) is the interest rate earned on unrecovered project balances such that an investment’s cash receipts make the terminal project balance equal to zero.

Rate of return is an intuitively familiar and understandable measure of project profitability that many managers prefer over PW or other equivalence measures. Utility ratemaking is the formal regulatory process in the United States by which public utilities set the prices (more commonly known as "rates") they will charge consumers.

Ratemaking, typically carried out through "rate cases" before a public utilities commission, serves as one of the primary instruments of government regulation of public utilities. Rate of return ii. Depreciation iii. Rate base iv.

Auditing v. Staffing levels vi. “Distribution companies” versus vertically integrated utilities 1. Production related CAPEX and integrated resource plans 7. Commentary on multi-year rate cases a.


A rate of return is calculated for each time interval between cash flows, then these rates are compounded to get the time-weighted return for the whole period. Sincethis time-weighted rate of return calculation has been the measure of choice to evaluate investment managers, the standard method endorsed by the Bank Administration Institute.

IRR (Internal Rate of Return) is a discount rate that forces the PV of cash inflows to equal the cost. This is equivalent to forcing the NPV to equal zero.

The IRR is an estimate of the project’s rate of return, and it is comparable to the YTM on a bond. Calculate the IRR for Project A: Internal rate of return.

The Internal Rate of Return is the rate, which discounts the invested cash flows to ø. The cash flows are the initial $, the addition of $80 at six months and the return of $ surplus at year-end. Using v = + 80v.5 - v = 0 Solving v v i = % the internal rate of return File Size: 23KB.

Book Rate of Return (BRR): This is a rate of return measure based on accounting earnings and is defined as the ratio of book income to book assets. Decision rule and interpretation: Accept projects with returns greater than the average return on the book value of the firm, or some external yardstick.

Regulatory agencies commonly rely on Rate-of-Return pdf regulation to determine prod-uct prices in a range of industries such as telecommunication services, electricity, gas and water.1 In its traditional form, RoR regulation sets prices so that the regulated rm’s Return .The discount rate that equates the NPV of an investment opportunity with $0 (because the present value of cash inflows equals the initial investment); it is the rate of return that the firm will earn if it invests in the project and receives the given cash inflows.It also has a $, loan outstanding on which it pays an ebook interest rate.

The annual ebook paid on the first loan is $60, and the annual amount paid on the second loan is $40, This information results in the following calculation of the weighted average interest rate on the firm’s debt.