On the Effect of Regulation on Value

Abstract

There is an ambivalence in the literature of public utility regulation and valuation which leads to the heart of what regulation is all about. Everyone knows that public utility regulation is really public utility policy and that policy means choice. The literature, including rate case testimony, is replete with acknowledgements that regulatory policies involve the exercise of judgement, and the call is loud and clear for the need of wisdom in regulation. But there is a co-existing belief that value in the case of public utility property is independent of public utility regulation, that value is a given, something to be seriously sought after, to speak of value as if it had an unequivocal, objective meaning and subject to unequivocal measurement. According to the former belief, valuation is a dependent variable; to the latter, it is an independent variable, a tightly binding constraint upon regulation. Perhaps this juxtaposition of contradictory views is too neat, or strained; perhaps writers and speakers exaggerate their belief in the choice and ergo judgemental character of regulation, and perhaps they, at least to some extent, only pretend that there is such a thing as value to be discovered. Perhaps, but the ambivalence exists, however couched.

Originally published in Public Utilities Fortnightly, vol. 88, 2 September 1971, and National Tax Journal, vol. 25 (June 1972).