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Our work provides refined tests of the source of merger gains in a neglected industry: utilities. Utilities offer fertile ground for analysis of traditional theories: synergy, collusion, hubris, and anticipation. Utility mergers create wealth for the combined firm, consistent with both the synergy and collusion hypotheses. To distinguish between these hypotheses, we study rival stock returns across dimensions related to collusion: deregulation, geography, and horizontal and withdrawn deals. We also find that the impact of mergers on consumer prices is consistent with synergy rather than collusion. Analysis of industry rivals that become targets also rejects collusion and is consistent with anticipation. [ABSTRACT FROM PUBLISHER]

Public managers and organizations are often encouraged to take a proactive role in finding solutions to the challenges that face their communities. These challenges require meeting increasingly high expectations for public service provision with ever reducing resources. This research investigates the relationship between change in resource constraints—as measured by longer and shorter term financial condition—and the entrepreneurial orientation of US local governments. Theoretically, it remains unclear whether resource constraints foster or impede entrepreneurial actions (i.e., risk taking, proactivity, and innovation) in public organizations. While entrepreneurial actions may be related to increased organizational financial capacity, a decline in an organization's financial condition might motivate proactivity, innovation, and risk taking as problem‐solving mechanisms and a means to continue service provision. We explore this relationship using two sources of data: a 2012 national survey of managers in 500 cities and financial data from Comprehensive Annual Financial Reports. Our findings suggest that resource constraints are associated with increased entrepreneurial activity in US local governments. [ABSTRACT FROM AUTHOR]

The article discusses the concept of depreciation as it affects the financing of public utilities, focusing on the failure of traditional accounting methods to address the issues of inflation and rapid technological change. It is argued that capital recovery for public utilities is rendered inefficient by the traditional accounting methodology, harming both the utilities and their customers. It is recommended that public utility regulators reconsider the accounting standards used in such cases, as depreciation charges utilizing information such as price indexes would be more useful than existing methods, which simply consider the original cost and salvage value of physical assets.

Previous research suggests that firms choose negotiated issuance over competitive despite its apparently higher net interest cost. This result is shown to arise partly from failure to correct for 9 selectivity bins in the choice of issuance procedures. Two stage analysis is used in a model that includes qualitative and limited dependent variables to re-estimate the net interest cast difference between competitive and negotiated issues. Results support the hypothesis that the choice of issuance procedure is consistent with shareholder wealth maximization. Examination of debt issues subject to Rule 50 of the Public Utility Holding Company Act indicates that the regulation, as applied, is not effective. [ABSTRACT FROM AUTHOR]

The problems of cost overruns in both nuclear and non-nuclear power plant procurements have been well documented (see [5] [19]). For example, when the Shoreham 1 nuclear plant comes fully on line on Long Island it will have cost at least five times the amount first estimated [5]. This type of cost overrun causes acute problems for utilities since their ability to pass on costs to the consumer are subject to both a regulatory review and rate adjustment time-lag. The incentive effects of regulatory lag are well known. Specifically, by increasing the length of the lag regulators can create incentives for utilities to reduce their production costs (see Baumol [3] and Baumol and Klevorick [4]). In this paper we assume that regulatory lag is present, so that utilities have an incentive for cost efficiency, and concentrate on one very important area of cost control, namely, utility plant and equipment procurement. It is shown that cost efficiency can be directly related to the types of contract used by the utility in its procurements. [ABSTRACT FROM AUTHOR]

This study has analyzed the use of futures markets by public utilities to hedge the regulatory lag inherent in incremental debt, labor, and materials costs. The development of the hedging model raises important issues regarding the effects of hedging on the utility's cost of capital, the managerial incentives for hedging, the proper bearers of risk in society, and the allocation of the benefits from hedging between shareholders and ratepayers. Finally, the prospect of hedging by utilities to avoid regulatory lag challenges regulators to respond to the issues developed here. Strong incentives for hedging by utilities exist, and it is quite likely that important benefits for society are possible. Yet the current institutional structure, almost certainly, will not result in a socially optimal outcome. Under the present regulatory environment, utilities will probably not engage in the socially optimal amount of hedging, risks associated with the production of utilities will probably not be borne by the most efficient bearers, and the allocation of benefits from hedging will probably not be efficient. Taken together these difficulties pose a new set of problems for regulators and for students of the public utility industry. [ABSTRACT FROM AUTHOR]

The article illustrates the use of a model for determining the cost of capital for a non-traded company or division of a company. The application of the model to a public utility is represented. In order to avoid engaging in debate concerning which cost of capital theory is correct, the authors restrict themselves to establishing the yield at which a non-traded company or division of a company would sell if it were publicly traded. The technique employed by the authors represents the difference between the cost of capital and the interest rate as it relates to the systematic risk of the division or the whole company.

This paper investigates the effect on shareholder wealth of two events that change management's choice between negotiated and competitive underwritten equity offerings. These two events are the suspension and termination of suspension of Rule 50. (This rule is based on the Public Utility Holding Company Act of 1935 and requires certain utilities to use the competitive method.) The results indicate that the shareholders of the affected utilities experience an abnormal negative return on the announcement of the suspension of Rule 50, and an abnormal positive return on the announcement of the termination of suspension. This evidence is consistent with the joint hypothesis: (i) competitive offerings are less costly than negotiated offerings, and (ii) manager-shareholder agency costs are a determinant of the corporate choice between these two methods of raising equity. [ABSTRACT FROM AUTHOR]

The article presents research modeling the impact of fuel adjustment clauses (FAC) within investments of utility companies on the firm value and cost of capital. Details are given outlining the common practices of investors' management of rising fuel prices and their econometric influence. The author suggests that FACs can decrease systematic risk in one-time scenarios, increasing firm value, or alternatively create positive or negative effects depending on base fuel cost adjustments by the companies. The implications of these factors on the financial regulation of public utilities are also discussed.

The article presents research into the microeconometric analysis of public utility securities rates of return and their regulation. Existing models studying rates of return are described, highlighting problems with multiperiod considerations. The authors present an updated model which explores the time-related factors of financial and capital expansion decision tradeoffs in regulated industries with particular attention to maximizing shareholder wealth. Decision making paradigms are outlined through the model, pointing out the influence of rate of return on ex-ante financial behavior.

The article reports on the financial performance of publicly-owned urban transit systems in California. The focus is on Southern California Rapid Transit District (SCRTD), San Francisco Municipal Railway (Muni), Alameda Contra Costa Transit District (ACT) which developed from the private company Key System, and San Francisco Bay Area Rapid Transit District (BART). Publicly owned systems are organized as special purpose districts. Some have subsidy arrangements, taxing power, and general purpose authority. Statistical analysis shows how the shift to public ownership affects taxes and equity accruals. Data is given for passengers, expenses, taxes and licenses, revenues, profit, and subsidy. Fare increases and price elasticity of transit demand are mentioned.

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This paper generalizes the classical discounted utility model introduced in Samuelson (Rev. Econ. Stud. 4:155-161, ) by replacing a constant discount rate with a function. The existence of recursive utilities and their constructions are based on Matkowski's extension of the Banach Contraction Principle. The derived utilities go beyond the class of recursive utilities studied in the literature and enable a discussion on subtle issues concerning time preferences in the theory of finance, economics or psychology. Moreover, our main results are applied to the theory of optimal economic growth related with resource extraction models with unbounded utility function of consumption. [ABSTRACT FROM AUTHOR]

Migrant hometown associations (HTAs) are mobilizing collective remittances to improve social welfare in their countries of origin. This paper assesses the effect of transnational coproduction of public goods in migrants' places of origin by studying the 3 × 1 Program for Migrants. The 3 × 1 Program is a national social spending program in which the Mexican local, state, and federal government matches HTAs' collective remittances to improve public services through cross-border public-private partnerships. The statistical analysis across municipalities that do and do not participate in the 3 × 1 Program shows that coproduction improves citizens' access to public sanitation, drainage, and water, although not electricity. Moreover, a negative and statistically significant interaction term between 3 × 1 Program expenditures and family remittances reveals a substitution effect: in the presence of transnational coproduction, migrant households are less likely to improve public goods using family remittance resources, but in the absence of 3 × 1 Program participation they continue to improve their hometowns with family remittances. This research offers a theoretical mechanism and supporting empirical evidence of an important kind of intermediary institution improving social welfare in migrant places of origin. [ABSTRACT FROM AUTHOR]

The article focuses on the increasing pressure on controlling the costs for water utilities while complying the stringent regulatory requirements and maintaining the fiscal and structural integrity in the U.S. It mentions that the water utilities may experience reinvention and undergo changes to meet the competing competitions. It also notes a transition water revolution which involves reallocation and identification of management objectives and financial risks.

The article focuses on the steps a utility management should consider in understanding rate implementation process of public utility. It states that adapting business principles, which serve as a basis for long-term business decisions for utility is needed in the process. It says that developing performance measurements and financial policies is a good practice for utilities to have written financial policies concerning debt management. It relates that assessing cost reduction is also included.

The aging water infrastructure (AWI) dilemma requires a straightforward road map to address the issue as a financial problem. The basic steps should be understood by water utility management, politicians, and members of the public. Once this common ground is established, collaborative partnerships can be formed and professionals from a variety of disciplines can work through the steps. The game plan presented in this article uses the AWI solution cycle to offer basic steps to- among other things-reduce costs, find every available funding source, create new partnerships, conduct condition assessments, communicate with the stakeholders, address rate affordability challenges, build an asset management program, and-ultimately-achieve sustainability. As these basic steps are followed, cost efficiencies will occur and costly mistakes will be avoided. In addition, overall asset risk will decrease, and infrastructure investment funding gaps will be reduced. In order to move forward on AWI, the focus must be shifted from an engineering problem to a financial problem. Likewise, moving forward with condition assessment ahead of a total asset management program offers small and medium utilities a chance to better allocate funding and reduce risk early in the process. [ABSTRACT FROM AUTHOR]

The article focuses the appraisal of flotation costs on public utilities though weighted average cost of capital (WACC). It details on the importance of this cost in evaluating appraisals especially on adjusting the WACC. It further cites some passages from finance textbooks regarding the adjustment of costs. It concludes in stating the appropriate way to measure the cost of a capital and in valuation process.

We analyze portfolio strategies which are locally optimal, meaning that they maximize the Sharpe ratio in a general continuous time jump-diffusion framework. These portfolios are characterized explicitly and compared to utility based strategies. We show that in the presence of jumps, maximizing the Sharpe ratio is generally inconsistent with maximizing expected utility, in the sense that a utility maximizing individual will not choose a strategy which has a maximal Sharpe ratio. This result will hold unless markets are incomplete or jump risk has no risk premium. In case of an incomplete market we show that the optimal portfolio of a utility maximizing individual may "accidentally" have maximal Sharpe ratio. Furthermore, if there is no risk premium for jump risk, a utility maximizing investor may select a portfolio having a maximal Sharpe ratio, if jump risk can be hedged away. We note that uncritical use of the Sharpe ratio as a performance measure in a world where asset prices exhibit jumps may lead to unreasonable investments with positive probability of ruin. [ABSTRACT FROM AUTHOR]

This article discusses water utilities that are characterized by overhead costs. About 1/4 of U.S. water utilities are private and subject to regulations, which are unlikely to be implemented by costlessness. Relying on a new dataset of 32 districts in California, the article analyzes the regulation of private water utilities. For every district, the California Public Utilities Commission chooses a price for water, an access fee per meter, and a rate of return on capital to satisfy the revenue requirements of firms. A data chart concludes that Class A utilities serve more than 10,000 residential connections and are required to submit annual reports on their capital stock including water sources, operating costs, population, rainfall, footage of pipeline, and rate of return.

Presents the results of a study which examined whether shifts in the price to book ratio (PB) of electric utilities follow a partial adjustment rather than the pure adjustment process implied by the cost-plus pricing policy of regulation. Similarity/dissimilarity in the time-series behavior of PB for regulated and non-regulated firms; Link between PB shifts and future profits and investments.