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Financial News

Fortnightly Magazine - November 15 1996

environment, weather variables, and prices for competing fuels.

Running the regression model using 1990 to 1993 data produced results indicating effects on M/B ratio and the significance of such effects:

T

able 2. Parameters and Significance

 

Variable Parameter Estimate t-Statistic

INTERCEPT 4.01 0.46

YEAR91 8.09 3.19

YEAR92 22.56 8.60

YEAR93 32.48 10.59

Average Plant Age 1.23 1.34

Equity to Debt Ratio 1.21 8.07

Percentage of Industrial Sales 0.27 3.08

Rate of Return 3.11 5.38

Dummy Variable

(l=favorable regulatory environ.) 5.16 1.48

Dummy Variable

(l=least-cost planning required) -8.93 -3.08

Dividend PayOut Ratio 1.82 4.03

CWIP (% of plant & equipment) -0.43 -4.48

Sales to Other Utilities (%) -0.13 -1.90

DSM (% of total expenses) 1.90 2.05

Parameter estimates show the impact of a marginal change in the associated variable on the M/B ratio. For example, the M/B ratio increased by 0.27 points for each percentage point increase in industrial sales. The t-statistic indicates the statistical significance of the estimated relationship. The larger the t-statistic, the more significant the relationship (e.g., the more confidence we have in the validity of the finding). t

Philipp Degens and M. Sami Khawaja are economists in the Portland, OR, offices of Barakat & Chamberlin, Inc., and provide services to the utilities industry.

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