The Effect of "Fair Value" Rate Base Valuation in Electric Utility Regulation
Journal of Finance
Rate regulation of electric utilities in the United States is accomplished using a rate of return on capital limitation. The firm is allowed to charge rates which are designed to produce no more than some specified return on its capital. During the course of setting rates there are several intermediate steps. The commission must determine the proper or fair rate of return, the depreciated capital or rate base to which the allowed rate of return is to be applied, the firm's current revenues, revenues under proposed new rates, and allowable expenses.
The Effect of Fair Value Rate Base Valuation in Electric Utility Regulation. 1976. Journal of Finance, December, pp. 1487-1490.