Regulatory Valuation of Public Utilities: A Case Study of the 20th Century
published by Business History (2014), vol 56, pp 936-955
42 Pages Posted: 24 Jan 2013 Last revised: 19 Dec 2014
Date Written: June 1, 2013
This paper analyses the regulatory attitudes to asset valuation in the 20th century. It focuses in particular on the U.S. experience from Smith v Ames 169 U.S. 466 (1898) to Federal Power Commission v Hope Natural Gas 320 U.S. 591 (1944) and on the experience in the U.K. in last two decades of the century. It is shown that movements in capital goods prices in the U.S. had a significant impact on regulatory decisions, e.g., regulators were more likely to choose original cost as the regulatory valuation when replacement cost was high. In the U.K. regulatory agencies moved through valuations increasingly less favourable to the companies from a traditional historic cost model to an ‘original cost’ model based on flotation value. Far from displaying regulatory capture, the evidence is consistent with robust regulation against ‘monopoly’ incumbents.
Keywords: Public utilities, regulation, asset valuation, privatisation
JEL Classification: H00, K2, N8
Suggested Citation: Suggested Citation