A Behavioral Study of Tax Allocation in Electric Utility Regulation.

Abstract This article focuses on a study which examined the effects of alternative interperiod tax-allocation methods on regulatory rate-of-return decisions affecting the electric utility industry. It is intended to evaluate the extent to which different decisions are associated with alternative tax-allocation methods, and to find reasonable explanations for any such differences that are found. For many years accountants have tried to find criteria for selecting accounting methods that are best for particular decision-making purposes. The lack of knowledge about decision-making has been a major obstacle in determining which accounting methods are best for different purposes. Electric utility companies in most areas of the U.S. are under the jurisdiction of state regulatory agencies. Regulatory agencies prescribe the accounting methods to be used by the electric utility companies under their jurisdiction. The choice of accounting methods by regulatory agencies affects the amount of the net operating revenue and the rate base used for the rate-of-return computation.