Pro-producer regulation and accounting for assets: The case of electric utilities

This paper's thesis is that rate-of-return regulation of the electric utility industry was a pro-producer regulatory policy, and that supra-competitive returns were earned by regulated utilities even while their accounting rate-of-returns met the ‘fair’ return constraint established by law. It is argued that this was accomplished by using the accounting system to revalue upward the asset bases of regulated utilities. The empirical results support this hypothesis in that utilities regulated by state commissions had abnormally high book values for their assets compared with unregulated utilities in 1917 and 1922.