Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

The Effect of Fuel Adjustment Clauses on the Systematic Risk and Market Values of Electric Utilities

The Effect of Fuel Adjustment Clauses on the Systematic Risk and Market Values of Electric Utilities The Effect of Fuel Adjustment Clauses on the Systematic Risk and Market Values of Electric Utilities ROGER G. CLARKE* IN RECENT YEARS, the substantial increase in the price of energy' has resulted in financial problems for regulated electric utilities because prices have often increased faster than rates have been adjusted to charge consumers. In the presence of this regulatory lag, stockholders have had to absorb the difference between revenues and the unexpected increases in energy costs. In an effort to reduce the regulatory lag, many states have allowed regulated utilities to pass through increased costs of fuel automatically with the use of a fuel adjustment clause (FAC).' The clause typically allows the f m to adjust the price of electricity charged to consumers at frequent intervals whenever the price of fuel deviates from some fixed base price.3 This paper suggests that the use of the FAC tends to decrease the systematic risk of the firm and tests for the change in systematic risk. The basic results indicate that the use of the FAC in the early part of the 1970's reduced the systematic risk of electric utilities in general by approximately 10 percent. The decline in systematic risk http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

The Effect of Fuel Adjustment Clauses on the Systematic Risk and Market Values of Electric Utilities

CLARKE, ROGER G.
The Journal of Finance , Volume 35 (2) – May 1, 1980
Download PDF
12 pages

Loading next page...
 
/lp/wiley/the-effect-of-fuel-adjustment-clauses-on-the-systematic-risk-and-k8fg5GYDuS

References (11)

Publisher
Wiley
Copyright
1980 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1980.tb02164.x
Publisher site
See Article on Publisher Site

Abstract

The Effect of Fuel Adjustment Clauses on the Systematic Risk and Market Values of Electric Utilities ROGER G. CLARKE* IN RECENT YEARS, the substantial increase in the price of energy' has resulted in financial problems for regulated electric utilities because prices have often increased faster than rates have been adjusted to charge consumers. In the presence of this regulatory lag, stockholders have had to absorb the difference between revenues and the unexpected increases in energy costs. In an effort to reduce the regulatory lag, many states have allowed regulated utilities to pass through increased costs of fuel automatically with the use of a fuel adjustment clause (FAC).' The clause typically allows the f m to adjust the price of electricity charged to consumers at frequent intervals whenever the price of fuel deviates from some fixed base price.3 This paper suggests that the use of the FAC tends to decrease the systematic risk of the firm and tests for the change in systematic risk. The basic results indicate that the use of the FAC in the early part of the 1970's reduced the systematic risk of electric utilities in general by approximately 10 percent. The decline in systematic risk

Journal

The Journal of Finance – Wiley

Published: May 1, 1980

There are no references for this article.