“Affordable” Utility Service: What is Regulation’s Role? Aided by the nation’s economy stressed, politicians are pressuring regulators in order to make utility service “affordable.” This picture has three problems. Wealth Redistribution is Not Regulation’s Department The regulator identifies prudent costs, computes a revenue requirement to cover those costs, then designs rates to produce the revenue requirement under embedded cost ratemaking. Rate design makes each customer category bear the expenses it causes. None among these steps—prudent cost identification, revenue requirement computation, cost allocation—involves affordability. Affordability becomes one factor only we lower rates for the unfortunate by raising rates for others if we jigger the numbers—if. Achieving affordability through rate design means cost that is compromising to redistribute wealth. It resembles taxation of just one class to profit another, with this particular exception: With taxation, citizens can retire representatives whose votes offend; however with utility service, captive customers are stuck utilizing the rates regulators set. Instead of shifting costs between customer classes, regulators might redistribute wealth in another way: by “taxing” shareholders, for example., reducing shareholder returns underneath the otherwise appropriate level. But taxing shareholders is no more the regulator’s domain than is taxing some other clients. And it’s likely unconstitutional: Having invested to serve the general public, shareholders expect “just compensation,” undiminished by a forced contribution for affordability. Moving money among citizens is important to a fair society. Poverty is intolerable and private charity never suffices, so government steps in. But helping the luckless should be done by political leaders, who must justify their actions to your electorate; not by professional regulators, whose focus should be industry performance. Affordability of any product—groceries, a Lexus, or utility service—depends on one’s income and wealth, as well as on the expense of other products. The poor could better afford utility service if we raised their income and increased their wealth. Or if perhaps we lowered their price of housing, medical care, transportation, or education. But these initiatives are outside regulators’ authority. To create regulators in charge of affordability is illogical. Cheap Energy is politics that are cheap Politicians who argue for affordability make the road that is easy. All efforts that increase costs, while commanding the regulator to make service “affordable,” is low-risk politics, responsibility-avoidance politics, cheap politics to legislate economic development, greenness, reliability, energy independence, and technology leadership. When politicians call for “lower rates,” the electorate feels entitled to get in the place of encouraged to contribute. But no family, no congregation, no civil society, thrives if its key verb is “take” in place of “give.” So when lower rates now lead to higher costs later, citizens become cynical. Self-doubting, also, because they question their ability to differentiate pander from policy. They are the results when politicians avoid their responsibility for affordability. “Affordability” Undermines Regulation’s Responsibility Mathematician Carson Chow says he’s found the reason for our obesity epidemic: low food prices. Studying 40 years of data, he spotted both causation and correlation between girth growth and value declines. He traced these trends to government farm policy shifts (from spending money on non-production to stimulating full production) and technology boosts (which lowered production costs). The low the fee, the more production; the more production, the more (fast) food; the more food, the greater amount of calories available; the greater amount of calories available, the greater calories consumed. See C. Dreifus, “A Mathematical Challenge to Obesity,” The New York Times (May 14, 2012). Our company is both over-consuming and under-appreciating: Dr. Chow unearthed that “Americans are wasting food at a progressively increasing rate.” (Fairness point: Chow has his doubters. See Michael Moyer, “The Mathematician’s Obesity Fallacy,” Scientific American (May 15, 2012). What does food have to do with “affordable” utility service? A regulator’s job would be to regulate—to establish performance standards, then align compensation with compliance. In this equation, affordability is not a variable. Which will make service affordable to your unlucky, the commission would need to lower the cost below cost. That leads to overconsumption, to Dr. Chow’s “waste.” This inefficiency hurts everyone. Economic efficiency exists when no action that is further create benefits without increasing costs by a lot more than the benefits. Conversely, economic inefficiency exists as soon as we forego some action that, if taken, could make someone best off without making anyone worse off. To over-consume, to waste, to do something inefficiently, to leave an advantage on the table, makes everyone worse off. Underpricing in the true name of affordability makes someone worse off, unnecessarily. How sensible is that? Actions for Affordability: The Right Roles for Regulators Unless essential services are affordable, government will never be credible. Regulators, being part of government, need certainly to help. (A commission staff chief told me 25 years ago, “Sometimes you must put away your principles and do what’s right.”) And some statutes that are regulatory require the regulator to produce service “affordable.” (As is the case, I am told, in Vanuatu, an 83-island nation in the South Pacific.) Listed below are 3 ways, in keeping with economic efficiency, for regulators to deal with affordability. Help the reduce usage that is unlucky. Regulators can advocate for affordability by pressing for policies that make consumption less costly, like improved housing stock, “orbs” that signal high prices, and lighting that is efficient appliances. Analogy: Doctors save lives not only by treating gunshot wounds, but by advocating for gun safety. (American Academy of Pediatrics: “The lack of guns from children’s homes and communities is considered the most reliable and effective measure to prevent firearm-related injuries. “) Interpret “affordability” as long-term affordability. Getting prices right and preventing overconsumption, even in the event it raises prices when you look at the short run, reduces total costs in the long term. Expose the side that is dark of. As opposed to follow politicians down the low-price, low-risk, cheap politics path, regulators, like Dr. Chow, can talk facts: in regards to the real costs of utility service, the difficulty of overconsumption, the error of under-pricing. Using their credibility rooted in expertise, regulators can pressure legislators to do something on affordability directly by enacting policies that are income-raising. Better education, housing, and health care—all these result in higher incomes, to make certain that citizens can afford utility service priced properly.

“Affordable” Utility Service: What is Regulation’s Role? </p> <p>Aided by the nation’s economy stressed, politicians are pressuring regulators in order to make utility service “affordable.” This picture has three problems.</p> <h2>Wealth Redistribution is Not Regulation’s Department</h2> <p>The regulator identifies prudent costs, computes a revenue requirement to cover those costs, then designs rates to produce the <a href="https://ultius.ws/">ultius review</a> revenue requirement under embedded cost ratemaking. Rate design makes each customer category bear the expenses it causes. None among these steps—prudent cost identification, revenue requirement computation, cost allocation—involves affordability. Affordability becomes one factor only we lower rates for the unfortunate by raising rates for others if we jigger the numbers—if. Achieving affordability through rate design means cost that is compromising to redistribute wealth. It resembles taxation of just one class to profit another, with this particular exception: With taxation, citizens can retire representatives whose votes offend; however with utility service, captive customers are stuck utilizing the rates regulators set.</p> <p>Instead of shifting costs between customer classes, regulators might redistribute wealth in another way: by “taxing” shareholders, for example., reducing shareholder returns underneath the otherwise appropriate level. But taxing shareholders is no more the regulator’s domain than is taxing some other clients. And it’s likely unconstitutional: Having invested to serve the general public, shareholders expect “just compensation,” undiminished by a forced contribution for affordability.</p> <p>Moving money among citizens is important to a fair society. Poverty is intolerable and private charity never suffices, so government steps in. But helping the luckless should be done by political leaders, who must justify their actions to your electorate; not by professional regulators, whose focus should be industry performance.</p> <p>Affordability of any product—groceries, a Lexus, or utility service—depends on one’s income and wealth, as well as on the expense of other products. The poor could better afford utility service if we raised their income and increased their wealth. <a href="http://www.onlinepokern.com/poker/affordable-utility-service-what-is-regulation-s-2/#more-2932" class="more-link">Read more »</a></p> <p>

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