Modelling Utility Financial Viability Using Logistic Regression: Evidence From Florida

Accounting & Taxation, v. 10 (1) p. 87-96

10 Pages Posted: 10 Mar 2019

See all articles by Daniel Acheampong

Daniel Acheampong

Florida Gulf Coast University

Tanya Benford

Florida Gulf Coast University

Ara Volkan

Florida Gulf Coast University

Date Written: 2018

Abstract

Ratemaking is the mechanism that various state commissions use to establish utility rates for investorowned utilities. Using logistic regression, this study explains the need for a flexible model to determine the financial viability of such utilities. The study uses 47 Florida investor-owned water and wastewater utilities to assess financial viability from 2002 to 2013. The financial viability results obtained using the National Regulatory Research Institute (NRRI) model are compared to the results of a more rigorous logistics regression model developed in this study. First, the results show that the financial ratios currently used by the NRRI to determine the viability of utilities do not need to be all-inclusive. Second, using data from 2002 to 2013, the logistic regression model categorized the viability of these utilities into groupings different from those of the NRRI model. Third, the study shows that ratemaking is not a uniform process across all states and supports discontinuing usage of the NRRI standard viability model in favor of the logistic regression model that incorporates the same financial ratios used by the NRRI.

Keywords: Water Utilities, Financial Viability, Logistic Regression, Financial Ratios

JEL Classification: C02, C18, C30, G33, L32, L95

Suggested Citation

Acheampong, Daniel and Benford, Tanya and Volkan, Ara, Modelling Utility Financial Viability Using Logistic Regression: Evidence From Florida (2018). Accounting & Taxation, v. 10 (1) p. 87-96, Available at SSRN: https://ssrn.com/abstract=3203088

Daniel Acheampong (Contact Author)

Florida Gulf Coast University

10485 FGCU Blvd S
Ft. Myers, FL 33965-6565
United States

Tanya Benford

Florida Gulf Coast University ( email )

10485 FGCU Blvd S
Ft. Myers, FL 33965-6565
United States

Ara Volkan

Florida Gulf Coast University ( email )

10485 FGCU Blvd S
Ft. Myers, FL 33965-6565
United States

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