The Efficient Allocation of Proceeds from a Utility's Sale of Assets
This Article evaluates the regulatory treatment of windfall proceeds from a utility's purchase and subsequent sale of important assets. For service to be sustained, regulatory treatment of proceeds from all jurisdictional activities is such that expected returns to equity investment will equal the equity costs of capital. But over time, a utility's actual net revenues vary from expected net revenues, and that variation may be positive or negative. Economic efficiency requires that the regulator allocate these variations to the investor: Given symmetric treatment of unexpected profit and loss outcomes, the risks that the investor bears under the regulatory contract are properly compensated. The shareholder should receive any gain, as a result of a change in market conditions, including changes in technology that increase the demand for the utility's service or render its capital stock more productive. The exception is that the ratepayer should receive any gain that the utility experiences as a result of a change in regulatory conditions. On the utility's sale of an asset that has been used to provide regulated services, and that has appreciated in value, the utility's shareholders should receive the proceeds from the asset's sale. This rule, which follows from efficiency theory, is evident in the reported decisions by courts and regulatory commissions in the United States. In short, the jurisprudence on the allocation of windfall proceeds from a utility's sale of assets advances economic efficiency.
|Date of creation:||17 Aug 2001|
|Date of revision:|
|Contact details of provider:|| Web page: http://icf.som.yale.edu/|
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ysm:somwrk:ysm218. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.