RATE BASE METHODS AND REALIZED RATES OF RETURN

Considerable regulatory energy and academic research has been devoted to examining the question of what constitutes the "correct" basis of valuation of the rate base for utility firms. This study compares utility earnings using data which adjust for differences among state jurisdictions concerning what is allowed in the rate base. The results show that there is no statistical difference in earnings of firms regulated by original cost, fair value, and reproduction cost jurisdictions. The results also show that regulation cannot generally explain the variance in earnings between states and rapid inflation does not seem to affect the results.