Problem $8-10$ Understanding rate regulation and accounting choices $($LO $8-4)$

Big Energy Corporation received regulatory approval for its $201$ electricity rate. The company has been authorized to charge customers $$0\mathrm{.}10$ per kilowatt$-$hour $($kwh$),$ a rate lower than other utilities in the state charge. Details of the rate calculation follow:

Shortly after the $201$ rate was set, the company's financial reporting staff circulated an internal memo recommending that it appeal the ruling after making the following accounting changes:

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.

Increase estimated bad debt expense from $1\%$ to $1\mathrm{.}5\%$ 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.

Amortize $200$ hostile takeover defense costs of $$4\mathrm{.}5$ million over three years rather than take the entire expense in $200.$ This action would increase $201$ operating costs by $$1\mathrm{.}5$ million and add $$3$ million to the asset base.

Write up fuel and materials inventories to their current replacement value. This action would add $$60$ million to the asset base, but it would have no impact on $201$ operating costs.

Required:

Assess the impact of the proposed changes on the company's $201$ revenue requirement and rate per kilowatt$-$hour, assuming that regulators will approve the accounting changes and adjust the allowed rate accordingly.

As a member of the state utility commission, comment on the merits of each proposed accounting change.