Analysis of the efficiency of the electric utility industry during the period of 1954-1973

Abstract

Scope and Method of Study: This report consists of an analysis of the efficiency of the electric utility industry during 1954-1973 in the area related to energy, plant and equipment, profitability performance and solvency. Several models of ratio analysis are developed to measure the efficiency of all investor-owned electric utilities which are available in The Utility Compustat Tape. The results obtained are applied to the industry as a whole.

Findings and Conclusions: The conclusion reached in this study is that the electric utility industry is now having a financial problem. Specifically, the industry will have difficulties in raising sufficient capital because of depressed earnings which can be generally attributed to the inflationary impact on the following areas: (1) high interest, (2) plant and equipment, and (3) fuel. An additional factor is the difficulty in obtaining timely rate increases because of regulatory friction. The financial problems facing the industry are severe .and require public recognition of its need to provide adequate capital funds to meet the growing needs of electricity in the years ahead. The basic solution is to have adequate rate increases that will impress potential investors.