Price-level adjustments on municipal electric statements

An unidentified municipal electric utility is used to examine, by price-level accounting, the effects of inflation on public utilities. Little attention has been given to how inflation affects the financial resources of municipal utilities, which generate only 8.6 percent of U.S. electric power. Financial statements for 1975 and 1976 were adjusted by the gross national product deflator index to reflect changes in dollar purchasing power for depreciation, revenues, and gain or loss on monetary items. Detailed analyses of accounts revealed a significant impact because of inflation, with the greatest impact on depreciation. Price-level accounting is shown to be a more useful tool for setting private than public utility rates. The impact on municipal utilities is shown to be different from regulated investor-owned utilities because it is more useful to approach charges on the basis of the cost of providing service rather than the return on investment. (DCK)