Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Stranded Costs: Is the Market Paying Attention? (A Look at Market-to-Book Ratios)

Fortnightly Magazine - May 15 1996

debt and property taxes, depreciation, and deferred assets. Costs of equity are not accounted for in this model.

3 See, Standard & Poor's, 1995 Utilities & Perspectives, Vol. 2, No. 48, Special Edition, Direct Access Threatens Electric Utility Revenues (November 27, 1995).

4 Market-to-book ratios were based on 1995 year-end stock prices and September 1995 book values, and taken from Regulatory Research Associates, Electric Utility Monthly-January 1996.

5 All "statistically significant" variables in this analysis are significant at either the .01 or .02 level - i.e., there is no more than a 2 out of 100 probability that the results of this analysis are random or occurred simply by chance.

6 Determinants of Market-to-Book, Linear Regression Estimates

Moody's S&P reas. S&P severe

Constant 1.662 1.739 1.720

Coefficient -.169 -4.260 -1.354

T-Stat -4.179* -4.156* -4.349*

Adjusted R2 .193 .191 .206

*Statistically significant at the .01 level.

7 Return on equity (1995 year-end average earned), production cost (1994 fuel and O&M expenses per Kwh generated inhouse), and percent industrial (1994 industrial Mwh sales as a percent of Mwh sales to ultimate customers) were taken from the Regulatory Research Associates Electric Utility Monthly-January 1996, Electric Utility Operating Cost Data (October 17, 1995), and Average Retail Price of Electricity: 1994 & Comparative Historical Data (May 22, 1995).

8 Determination of Market-to-Book, Multiple Regression Estimates

Moody's ROE Prod Cost %Ind. Load

Coefficient -.089 11.991 -.053 -.199

T-Stat -2.481** 7.063* -.841 -.859

Adjusted R2 .507

Constant .353

S&P reas. ROE Prod Cost %Ind. Load

Coefficient 13.540 12.079 .050 -.151

T-Stat -3.648* 7.583* .711 -.677

Adjusted R2 .553

Constant .215

S&P severe ROE Prod Cost %Ind. Load

Coefficient -1.038 11.971 .032 -.207

T-Stat -3.538* 7.449* .461 -.932

Adjusted R2 .548

Constant .256

*Satisfically significant at the .01 level.

**Satisfically significant at the .02 level.

.R2

18

Articles found on this page are available to Internet subscribers only. For more information about obtaining a username and password, please call our Customer Service Department at 1-800-368-5001.

Pages