A Portfolio Approach to Fossil Fuel Procurement in the Electric Utility Industry

study is to inject a novel approach to fossil fuel procurement, and to determine to what extent the utility industry has been an efficient utilizer of scarce resources. The implications of this study have relevance to the managers of the utility industry, to the public regulatory commissions and to students of the industry. Section I deals briefly with some of the characteristics of the industry and indicates the relationship of portfolio theory to fossil fuel mix. Section II reviews the methodology and data used in the study, while Section III contains the empirical results and an analysis of them. A theoretical extension is introduced in Section IV where the notion of the Capital Market Line as it applies to fuel diversification is interpreted. Section V contains a summary and implications of the paper.