Averch Johnson Regulations Effect of FCL Computational Load

Abstract

The current study investigates the implications of the Averch Johnson (AJ) overinvestment principle among U.S. regulated electric utilities based on the connection between rate-base growth and both renewable supply and renewable electricity generation in the period from 2011 to 2020. The overinvestment principle of the Averch-Johnson model stipulates that there is an excessive accumulation of capital resources in the context of rate-of-return regulation, and, instead of lifecycle GHG emissions, renewable-supply data is used to reflect this phenomenon better. Based on the merger of FERC rate-base data, Public Service Commission rate-of-return (ROE) decisions, EIA-860 renewable-capacity data, and EIA-923 renewable generation data, I build utility-year and plant-month panels for the period of 7 utilities during 10 years (70 utility-years). There was an intensive growth in rate bases (+112% for Dominion, +99% for Duke Indiana, +90% for FPL, and +54% for Georgia Power) while allowed ROE was either stable or decreasing, thus demonstrating AJ overinvestment; at the same time, the amount of renewable supply grew significantly (FPL from 35 MW to 2,124 MW) and share of renewable generation grew as well.