Modified Double Leverage - a New Approach

Public Utilities Fortnightly, pp. 31-36, March 31, 1983 (Posted with permission from the March 31, 1983 issue of Public Utilities Fortnightly. Public Utilities Reports, Inc. Copyright 1983. All rights reserved. Additional photocopying or electric transmission is prohibited.)

6 Pages Posted: 17 Oct 2005

See all articles by Michael S. Rozeff

Michael S. Rozeff

SUNY at Buffalo - Department of Financial & Managerial Economics

Abstract

This article provides the basic theory of double leverage used in utility rate regulation. It derives the double leverage adjustment for finding the cost of capital of a wholly-owned subsidiary from fundamental cost of capital propositions. The standard estimates of capital costs using this approach are shown to be misestimated. The article then provides a modified double leverage method that provides the correct cost of capital.

Keywords: Rate regulation, cost of capital, double leverage

JEL Classification: G31, G38

Suggested Citation

Rozeff, Michael S., Modified Double Leverage - a New Approach. Public Utilities Fortnightly, pp. 31-36, March 31, 1983 (Posted with permission from the March 31, 1983 issue of Public Utilities Fortnightly. Public Utilities Reports, Inc. Copyright 1983. All rights reserved. Additional photocopying or electric transmission is prohibited.). Available at SSRN: https://ssrn.com/abstract=823264

Michael S. Rozeff (Contact Author)

SUNY at Buffalo - Department of Financial & Managerial Economics ( email )

Buffalo, NY 14260
United States

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