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Modelling Utility Financial Viability Using Logistic Regression: Evidence From Florida

Author

Listed:
  • Daniel Acheampong
  • Tanya Benford
  • Ara Volkan,

Abstract

Ratemaking is the mechanism that various state commissions use to establish utility rates for investorowned utilities. Using logistic regression, this study explains the need for a flexible model to determine the financial viability of such utilities. The study uses 47 Florida investor-owned water and wastewater utilities to assess financial viability from 2002 to 2013. The financial viability results obtained using the National Regulatory Research Institute (NRRI) model are compared to the results of a more rigorous logistics regression model developed in this study. First, the results show that the financial ratios currently used by the NRRI to determine the viability of utilities do not need to be all-inclusive. Second, using data from 2002 to 2013, the logistic regression model categorized the viability of these utilities into groupings different from those of the NRRI model. Third, the study shows that ratemaking is not a uniform process across all states and supports discontinuing usage of the NRRI standard viability model in favor of the logistic regression model that incorporates the same financial ratios used by the NRRI

Suggested Citation

  • Daniel Acheampong & Tanya Benford & Ara Volkan,, 2018. "Modelling Utility Financial Viability Using Logistic Regression: Evidence From Florida," Accounting & Taxation, The Institute for Business and Finance Research, vol. 10(1), pages 87-96.
    • Handle: RePEc:ibf:acttax:v:10:y:2018:i:1:p:87-96
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    More about this item

    Keywords

    Water Utilities; Financial Viability; Logistic Regression; Financial Ratios;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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