Imagine That!
A Stock-price Premium for DSMA rise in DSM spending (as a percentage of total expenditures) indicated an increase in market-to-book ratio.
For electric utilities, financial and managerial attributes such as rate of return or the dividend payout ratio often exert a strong positive effect on the market-to-book (M/B) ratio (em the ratio of the company's stock price divided by book value. Other factors may carry a negative impact, and these items typically might include the extent of debt financing, nuclear power plant construction, or the percentage of total costs paid in taxes or for fuels.
But what about demand-side management (DSM) programs?
We examined how utility investment in DSM affected M/B ratios, analyzing four years of data collected and made available by the U.S. Energy Information Agency (EIA) for the period 1990-93, which saw the enactment of the Energy Policy Act of 1992, allowing monopoly utilities to own unregulated generating companies and the Federal Energy Regulatory Commission (FERC) to order transmission access (em two developments suggesting that capital markets during that period would have been efficient and would have incorporated the impact of future competition in utility stock market prices. (Nevertheless, the full impact of retail competition may not have been totally felt in the capital markets until the California Blue Book came out in April 1994.)
Findings