ACCELERATED DEPRECIATION RISK AND VALUATION

This dissertation concentrates on three aspects of accelerated depreciation for public utilities: Valuation of a regulated firm, risk and rate of return for electric utilities, and pricing behaviour of electric utilities. First chapter analyzes the literature extensively about accelerated depreciation and its effects for public utilities.; In chapter 2, we develope a multi-period valuation model for a regulated firm in the context of Modigliani and Miller valuation. This model is developed for the three different depreciation policies used by public utilities namely, Normalization, Flow Through and Straight Line.; In chapter 3, the above valuation model is simulated for the different values of dependent variables. Diagrams illustrate the behaviour of valuation for both normalized and flow through firms.; In chapter 4, we do an empirical analysis on reported rate of return and the average prices per KWH for electric utilities. Prior to the analysis we do an extensive study on homogeneity of firms in our sample. We make statistical texts for homogeneity, risk of the rate of return and the prices. There are 70 firms in our sample, and data was collected for a period of 12 years for the above analysis.; Chapter 5 summarizes the effects of accelerated depreciation. Finally we conclude stating that Normalization depreciation accounting is far superior than that of Flow Through depreciation accounting in respect to valuation, risk of rate of return and price, and the average price per KHW to its customers.