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by shaftoe
4180 days ago
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I get that that is the idea. The reality is that most utilities pass along their expenses, whatever they are, into a "rate case" with a percentage tacked on top. That is opposed to every other business where more efficiency == more profit and decreasing prices due to competition. Models of efficiency, they are not, to the point that their inefficiency severely hinders their ability to serve "the public interest." They also tend to use their size to squash any potential competitors in their space (see power companies with private solar and the telecom industry versus VOIP). |
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Again, that's by design. The public authority sets rates at some fixed cost plus reasonable rate of return on capital. The idea is to encourage potentially very expensive capital investment without the perceived danger of subjecting a critical utility to the ups and downs of market pricing.
And utilities act to squash competitors because lack of competition is the whole quid-pro-quo of being a utility. Utilities don't make Twitter-like 30% margins with double-digit growth. The reason private capital is willing to sink money into them is that they get their consistent 10-15% return on a regular basis. Competitors not only upset the arrangement, they can quickly jeopardize that margin.
I'm not defending regulated utilities. I think they're mostly a bad idea, but judging by the discussions around here where people talk about the wonderfulness of water utilities, lots of people are on board with sanctioned monopolies with guaranteed rates of return. But the flaws you're pointing to aren't "abuses of regulation"--they're a conscious bargain between municipalities and utilities.