Alliant Energy just received regulatory approval for its 2008 electricity rate. The company has been authorized to charge customers \($0.10\) per kilowatt-hour (kwh), a rate lower than other utilities in the state charge. Details of the rate calculation follow:

Shortly after the 2008 rate was set, the company’s financial reporting staff circulated an internal memo recommending the following accounting changes:
1. Extend plant depreciation life by five years to reflect current utilization forecasts. This would add \($175\) million to the asset base and reduce annual depreciation (an operating cost) by \($5\) million.
2. Increase estimated bad debt expense from 1% to 1.5% of sales to reflect current forecasts of customer defaults. This would add \($7\) million to operating costs and reduce total assets by the same amount.
3. Amortize 2007 hostile takeover defense costs of \($4.5\) million over three years rather than take the entire expense in 2007. This would increase 2008 operating costs by \($1.5\) million and add \($3\) million to the asset base.
4, Write up fuel and materials inventories to their current replacement value. This would add \($60\) million to the asset base, but it would have no impact on 2008 operating costs.
Required:
1. Assess the impact of each proposed change on the company’s 2008 revenue requirement and rate per kilowatt-hour, assuming that regulators will approve the accounting changes and adjust the allowed rate accordingly.
2. Asa member of the state utility commission, comment on the merits of each proposed accounting change.

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Alliant Energy Allowed operating costs Assets in service X Allowed rate of return Revenue requirement Estimated energy demand Rate allowed per kwh $3,200 million 8.75% = 2008 Rate Authorization $ 1,120 million 280 million $ 1,400 million 14,000 million kwh $ 0.10