Electric Utility Firms Research Articles

Switch to pollution control bonds, else carbon risk will switch us: Evidence from the U.S. electric utility firms

This study explores the implications and effectiveness of pollution control bonds (PCBs) in reducing carbon risk, focusing on a sample of 242 U S. electric utility firms from 2012 to 2022. The research investigates the association of PCB issuances with (i) absolute (unscaled) carbon emissions levels and their three scopes; and (ii) carbon emissions intensity and its three scopes. Using quantile regressions covering the 5th, 25th, 50th, 75th, and 90th quantiles, along with the Propensity Score Matching (PSM) methodology (where the treatment group includes firms using PCBs and the control group comprises firms that do not opt for PCBs), the findings show a significant reduction in carbon emissions due to PCB issuance. Substantial differences were observed between the treatment group and the control group across various quantiles of carbon emissions, particularly for companies with medium to high carbon footprints, both in terms of overall CO2 emissions and scope 2 CO2 emissions. Moreover, disparities between the two groups were notable across all quantiles of scope 1 CO2 emissions. Additionally, among the companies using PCBs, those with lower risk profiles exhibited a smaller carbon footprint, measured by scope 3 CO2 emissions, in comparison to their counterparts. Furthermore, the study highlights a more pronounced impact of PCBs issuance during the second phase of the Kyoto Protocol and the commitment period of the Paris Agreement. The results remain robust when alternative measures of carbon risk are applied. These findings carry significant implications for municipal and financing authorities, as well as investors within the U.S. electric utility industry. This research contributes novel insights to the field of electric utility management.

A technique to boost Reliability and Efficiency of a Radial Distribution Network by considering the effect of Protective Devices and System Restructuring

The capability to supply reliable and efficient electric power is essential for any healthy power distribution network. Achieving these desirable network performance criteria has always been a concern for electric power utility firms. A solution to resolving this concern is demonstrated in this paper with the aid of an operational technique, known as Distribution System Restructuring. In this technique, the topological arrangement of the flow of branch currents is varied by operating the available network switches in such a way that the desired objective is fulfilled keeping all the nodes energized in a radial configuration. The method exhibits how without further infrastructural investments the reliability and efficiency of the system can be improved at various load levels. This paper also showcases the effect of protective devices on system reliability. A detailed analysis is provided to assess the possible interruption duration caused due to a fault. This assessment is pivotal for reliability evaluation. The proposed methodology benefits from a novel optimization technique named Differential Evolution infused Krill Herd Sine Cosine Algorithm. The methodology is applied to the IEEE 33-node and the IEEE 69-node distribution network. The numerical results so obtained prove its potency to solve the problem.

THE SHAREHOLDER VALUE EFFECT OF SYSTEM OVERLOADS: AN ANALYSIS OF INVESTOR RESPONSES TO THE 2003 BLACKOUT IN THE US

This study investigates the stock price reaction of electric energy utility firms to the 2003 blackout in the Northeast of the USA and if the market was able to identify the responsible firm. Therefore, we employ event study methodology and select a sample of US-based electric energy utility firms. Although it took a commission almost eight months to name the firm responsible for the blackout, investors punished FirstEnergy only two trading days after the blackout - and were right, as it later turned out. This study demonstrates this based on the analysis of abnormal stock returns and abnormal trading volumes. Our findings suggest that investors have extensive knowledge of electric energy utility firms' responsibility as they were able to identify the culprit. This, in turn, demonstrates that electric power utility firms should ensure a high-quality grid infrastructure to avoid these negative outcomes.Keywords: Event study; Blackout; System overload; Market efficiencyJEL Classifications: G1, Q40 DOI: https://doi.org/10.32479/ijeep.11756

Interaction effects of corporate hedging activities for a multi-risk exposure: evidence from a quasi-natural experiment

This study analyzes the interaction effects of corporate hedging activities of electric utility firms facing a manifold risk exposure consisting of several market price risks. We employ 16 recent introductions of markets for trading electricity derivatives as a quasi-natural experiment. The results show that electric utilities generally favor domestic markets for trading electricity derivatives, which might be reduced to their usual high market power and the related good predictability of electricity prices. As a consequence, electricity output hedging eliminates a major part of overall market risk. Further, we identify several spillover effects of electricity output hedging: The sensitivities to input commodity prices decrease, while the sensitivities to foreign exchange rates and interest rates increase. Furthermore, electricity output hedging increases debt capacities and the availability of internal funds. These results are relevant for electric utility firms, market operators, and policy makers, since the selective presence of derivatives markets might let financing policies globally diverge.

Output-Hedging of Electric Utility Firms: The Role of Electricity Derivatives Markets

This study analyzes the interaction effects of corporate hedging activities of electric utility firms facing a manifold risk exposure consisting of several market price risks. We employ 16 recent introductions of markets for trading electricity derivatives as a quasi-natural experiment. The results show that electric utilities generally favor domestic markets for trading electricity derivatives, which might be reduced to their usual high market power and the related good predictability of electricity prices. As a consequence, electricity output hedging eliminates a major part of overall market risk. Further, we identify several spillover effects of electricity output hedging: The sensitivities to input commodity prices decrease, while the sensitivities to foreign exchange rates and interest rates increase. Furthermore, electricity output hedging increases debt capacities and the availability of internal funds. These results are relevant for electric utility firms, market operators, and policy makers, since the selective presence of derivatives markets might let financing policies globally diverge.

Do US electric utilities use industry-specific generally accepted accounting principles to manage earnings?

The study investigates whether rate regulated electric utilities use discretion (available under industry-specific GAAP) to manage earnings. We examine the following question: Do electric utilities use industry specific GAAP to manage earnings? Using a sample of electric utility firms, we estimate the earnings management metric, discretionary accruals by time series accrual expectation models and regress it against regulatory assets. Results indicate a negative relationship between discretionary accruals and regulatory assets. We interpret this finding to mean that rate regulated electric utilities use regulatory assets that is a creation of industry-specific GAAP. Results of this study are important to academia, accounting standard setters and public policy managers. First, the study contributes to earnings management literature. Secondly, the results should inform accounting standards setters about discretion in the application of accounting standards. Finally, public utility commissions should be aware of opportunistic earnings management using industry-specific GAAP to achieve rate increases.

Regulatory Uncertainty and Managerial Attention in the U.S. Renewable Electricity Industry

Top managers’ attention to new problems has important consequences for the firm and is often triggered by external factors such as regulatory uncertainty. In this research we draw from behavioral theories of uncertainty avoidance and managerial attention to examine how headquarter and subsidiary top managers allocate attention to a new problems with and without regulatory uncertainty. We find subsidiary top managers exhibit classic uncertainty avoidance by reducing attention to new problem in uncertain as compared to certain settings, while headquarter top managers increase their attention to new problems under regulatory uncertainty. We test these ideas using a setting where U.S. electric utility firms are attending to a relatively new sector: renewable electricity, from 2000 to 2010.

Global strategies, differing experiences. Electricity companies in two late-industrialising countries: Spain and Argentina, 1890–1950

The article compares the performance and profitability rates of electric utility firms in Spain and Argentina from the early period of global electrification to the period following World War 2. It aims to analyse the relationship between the investment strategies of international electricity companies and local conditions in two late-industrialising countries, and evaluate its impact on the structure and development of both electric utility systems. The study finds similar long-term trends in profitability as a result of the global strategies of multinational holding companies; nonetheless profitability rates varied greatly from one country to another. Rates were higher in Argentina as foreign firms controlled large systems in most dynamic urban areas. In contrast, the increasing investment of local firms in electric utilities paved the way to a less profitable but more equitable electricity system in Spain.

Mandated Climate Change Disclosures by Firms Participating in the Regional Greenhouse Gas Initiative

In February 2010, the Securities and Exchange Commission (SEC) issued an interpretive release clarifying what registrants should disclose related to climate change on their documents filed with SEC (i.e. 10-K or 20-F). This study investigates whether the electric utility firms participating in the Regional Greenhouse Gas Initiative (RGGI) are virtually fulfilling this mandate. An equal weighting content analysis was performed with two types of disclosure indices for RGGI and climate change, respectively. The results show that there are cross-sectional differences in the disclosures on both RGGI and climate change among the sample firms. However, we do not find any significant temporal difference in the disclosure on RGGI among the sample years from 2008 to 2011. Although there is no significant difference in the disclosure on climate change between the initiative 2009 and 2010 (the year targeted by the SEC), we find a significant difference between 2008 and 2010. This finding suggests that there was an impact of the SEC interpretive release on firms' disclosure on climate change.

Strategic rigidity and foresight for technology adoption among electric utilities

The variation in the adoption of a technology as a major source of competitive advantage has been attributed to the wide-ranging strategic foresight and the integrative capability of a firm. These possible areas of competitive advantage can exist in the periphery of the firm's strategic vision and can get easily blurred as a result of rigidness and can permeate in the decision-making process of the firm. This article explores how electric utility firms with a renewable energy portfolio can become strategically rigid in terms of adoption of newer technologies. The reluctance or delay in the adoption of new technology can be characterized as strategic rigidness, brought upon as a result of a firm's core competence or core capability in the other, more conventional technology arrangement. This paper explores the implications of such rigidness on the performance of a firm and consequently on the energy eco-system. The paper substantiates the results by emphasizing the case of Iberdrola S.A., an incumbent firm as a wind energy developer and its adoption decision behavior. We illustrate that the very routines that create competitive advantage for firms in the electric utility industry are vulnerable as they might also develop as sources of competitive disadvantage, when firms confront environmental change and uncertainty.

Operational synergy in the US electric utility industry under an influence of deregulation policy: A linkage to financial performance and corporate value

Sueyoshi et al. (2009) have examined a synergy effect between electricity and gas services in the US electric utility industry. They have compared electricity-specialized firms with diversified utility firms in their financial performance and corporate value. A problem of their study is that it has not empirically measured the operational performance of the electric utility firms. As an extension of the preceding study, this research investigates the operational performance of 104 US electric utility firms (1990–2004) by fully utilizing DEA (Data Envelopment Analysis). This study finds the three new policy implications. First, the synergy effect has not existed in the operational performance of diversified utility firms before and after the deregulation on the US electricity markets. Thus, core business concentration is more effective for electric utility firms than corporate diversification to enhance their operational performance under the current US deregulation policy. Second, the operational performance has had an increasing trend until 1996 and a decreasing trend after 1996. Thus, the US deregulation policy has been influential on their operational performance. Third, the enhancement in operational performance of electric utility firms has improved their financial performance. The improvement in financial performance has increased their corporate value. Thus, this study finds the business causality among operational performance, financial performance and corporate value in the US electric utility industry.

Can environmental investment and expenditure enhance financial performance of US electric utility firms under the clean air act amendment of 1990?

This study investigates the causality from environmental investment (as a long-term effort) and expenditure (as a short-term effort) to financial performance in the US electric utility industry. The industry is one of the large air polluters in the United States. This empirical study finds that the environmental expenditure under the US Clean Air Act has had a negative impact from 1989 to 2001. The negative impact has become much effective after the implementation of the Title IV Program (1995) of the US Clean Air Act. This study cannot find the influence of environmental investment on financial performance by a statistical test although it indicates a positive impact. In the United States, fossil-fueled power plants such as coal-fired ones still produce a large portion of electricity. The generation structure is inconsistent with the betterment in the US environmental protection and imposes a financial burden to electric utility firms.

Core business concentration vs. corporate diversification in the US electric utility industry: Synergy and deregulation effects

Many economists such as Wilson (2002) [Wilson, R., 2002. Architecture of power market, Econometrica, 70, 1299–1340] have considered that there are similarities between electricity and gas services in the US electric utility industry. Hence, they expect a synergy effect between them. However, the two businesses do not have technology similarities at the level that the gas service produces a synergy effect with electricity. To examine whether there is a synergy effect of corporate diversification in the industry, we compare electricity-specialized firms with diversified utility firms in terms of their financial performance and corporate value. The comparison indicates that core business concentration is more effective for electric utility firms than corporate diversification under the current US deregulation policy.

Technological externalities and economies of vertical integration in the electric utility industry

This paper investigates economies of vertical integration of the electric utility industry, focusing on the technological externality between the generation and transmission–distribution stages. For this purpose, a shadow cost function of the symmetric generalized McFadden form is estimated using panel data on the transmission–distribution stage of nine Japanese electric utility firms. The results show that there exist the technological externality effects of generation facilities on the cost of the transmission–distribution stage, suggesting economies of vertical integration.

Managing information systems for service quality: a study from the other side

System quality, information quality, user IS characteristics, employee IS performance and technical support are identified as important elements that influence service quality. A model interrelating these constructs is proposed. Data collected through a national survey of IS departments in electric utility firms was used to test the model using regression and path analysis methodology. The results suggest that system quality, information quality, user IS characteristics, through their effects on employee IS performance, influence service quality, while technical support influences service quality directly. The results also suggest that employee IS performance contributes more to service quality compared with technical support. Implications of this research for IS theory and practice are discussed.

Chief Executive Officer Careers in Regulated Environments: Evidence from Electric and Gas Utilities

We compare chief executive officers (CEOs) of electric and gas utility firms with CEOs of unregulated firms. Utility CEOs tend to be older when appointed to office, have less‐prestigious educational backgrounds, and are more likely to have a legal background. Despite these differences, the evidence indicates that the likelihood of utility CEO turnover is at least as sensitive to stock performance as the likelihood of turnover among CEOs of unregulated firms. We find no convincing evidence that utility CEOs stay in office longer than their unregulated counterparts, although they are less likely to be overtly forced from office or replaced by an executive from outside the firm. Finally, the evidence suggests that regulatory expertise is valued in the selection of new utility CEOs.

Strategic orientations, incentive plan adoptions, and firm performance: evidence from electric utility firms

This study examines the performance implications of the fit between strategic orientations and incentive plan characteristics. Research hypotheses are based on a framework that draws upon managerial discretion and agency theories to identify the links between firm strategy, managerial motivation and control, managerial risk-bearing, and incentive plan characteristics. A pooled cross-sectional, time series research design is used to test hypotheses in a sample of 50 electric utility firms. Consistent with theory, results indicate that annual bonus plans that use cash incentives and accounting measures of performance lead to better performance among firms with Defender strategic orientations. In contrast, firms with Prospector strategic orientations realize performance benefits when they adopt stock-based incentive plans and use market measures to evaluate managerial performance. © 1997 John Wiley & Sons, Ltd.

Selling the ?electrical idea?: the campaign to electrify America in the 1920s

In the 1920s, a complex array of social, economic and political factors led officials of the electrical industry in the United States to the conclusion that they needed to raise the nation's electrical consciousness (Larned, t925, p. 25). More than 60 per cent of American homes and residences remained without basic electric service and yet, several electric utility firms held excess generating capacity built up to meet the great wartime demand for electricity (Wilson, 1930, p. 942; Keller, 1921, pp. 1-10). The return to a peacetime economy had saddled manv companies with idle plants and equipment and their officials eagerly sought to develop new markets (Alexander, 1919, pp. 542-43). Further, reformers in Congress, state legislatures, and municipal governments were increasingly calling for stricter regulation and government entry into the electric power business (Merriam and Lasswell, 1924, pp. 276-295). This essay offers an accounting of the steps taken by the electrical industry to make Americans, more than ever before, conscious of its vital role in all spheres of public and private life. Industry leaders sought to sell the "electrical idea" through a variety of media channels and messages and this essay describes how the trade associations of the different branches of the industry conducted a nationwide corporate "issue/advocacy" campaign to promote electrification, suggest new uses of electricity, discredit public power proponents, and stave off the regulators. 1 This essay appraises the immediate outcome of that program on electric utility regulatory policy and on household and commercial demand for electrical power and equipment. It also considers some of the possible longrange, cultural consequences of the industry's effort to fix the "electrical idea" into the public consciousness.

THE IMPACT FOR STOCKHOLDERS WHEN REGULATED FIRMS REVISE DIVIDEND POLICY

This study examines the stock market's response when dividend policy changes are made by firms in a heavily regulated industry. Electric utilities are chosen because these firms are regulated in many ways. Regulatory control covers rates of return, pricing, markets and many other areas. This study focuses on dividend changes which follow a period of dividend stability. The results indicate that electric utility firms' stock prices adjust accordingly at the time of the announcement. The market reaction appears to be greater than that of previous studies which considered many industries.

Scale Economies and Over-Capitalization in Japanese Electric Utilities

This paper presents empirical evidence on scale economies and overcapitalization in Japanese electric utilities. We employ the short-run equilibrium model in which the variable cost function treats capital stock as a quasi-fixed factor. We specify the variable cost function as a translog form and estimate it using panel data of nine Japanese electric utility firms during the period 1981 to 1985. Our results show that eight of the nine firms experience scale economies in the short run but diseconomies in the long run, and that seven firms significantly over-capitalize as expected by the Averch-Johnson effect.