A Free-Market Energy Blog

Public Utility Regulation 201: The Rate Case

By Jim Clarkson -- March 29, 2016

“One interesting rate base item is storm damage. We are accustomed to seeing news coverage of tearful hurricane victims praising the heroic utility workers who restore their electrical service. Not so heroic is the way the utility accountants are booking that expense in a way that gives huge future streams of profits to the poor storm-victim utility.”

The procedures for state-level utility rate cases have evolved into a standard set of formulas and estimating methods over time. [1]

Most states use a future “test year” where the utility estimates its revenue and costs for an upcoming period. Naturally, the utility will ‘low ball’ the projected revenue to justify asking for a higher level of revenue through individual rates approved by the regulators. Similarly, costs in the model year will be overstated as much as the utility thinks it can get away with.…

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AWED Energy & Environmental Newsletter: March 28, 2016

By -- March 28, 2016

The Alliance for Wise Energy Decisions (AWED) is an informal coalition of individuals and organizations interested in improving national, state, and local energy and environmental policies. Our premise is that technical matters like these should be addressed by using Real Science (please consult WiseEnergy.org for more information).

A key element of AWED’s efforts is public education. Towards that end, every three weeks we put together a newsletter to balance what is found in the mainstream media about energy and the environment. We appreciate MasterResource for their assistance in publishing this information.

Some of the more insightful articles in this issue are:

Wind and Solar have Destroyed the Energy Market

Batteries Will NOT Save Wind Energy

Health Officer Gets Migraines When Visiting Wind Project

Will Turbines Ever Be Bird Safe? (Audubon)

Wind Energy is a Public Health Problem

Wind Projects Tear Communities Apart

Time to Regroup and Defend Against Big Wind

Why Renewable Energy is a Worse Option than Nuclear

Is Global Warming Quickening?

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Public Utility Ratemaking 101 (the problems of rate base, cost passthrough)

By Jim Clarkson -- March 24, 2016

“In Georgia and South Carolina, for example, the nuclear-related cost overruns are a good thing. Not only is rate base enlarged for assigned profits for decades, the CEOs can tell victimized consumers that they are avoiding emissions from much cheaper, cost-predictable conventional power plants. Bootleggers and Baptists all in one.”

Public utility regulation attempts to protect the public where one and only one franchised monopolist serves a certain geographical area. Such is the case with your local natural gas and electricity provider. But the alleged protection is actually the enemy of consumers on close inspection. To understand why, the fundamentals of rate base regulation must be explained.

The Formula

Regulated utilities are allowed to recover their cost to do business and earn a return on invested capital. Expressed as a formula this is the revenue requirement: R = Oc + (V-D)rr

where:

R = Revenue justified by cost and return

Oc = Operating cost including depreciation

V = Value, always first costs

D = Depreciation

rr = Rate of return allowed by regulators

(V-D) = Rate base, this is the current book value of assets and the un-recovered part of depreciable assets and other amortized capital.…

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The Global Warming ‘Pause’: What Alarmists Said Back in 2009

By Robert Bradley Jr. -- March 23, 2016
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‘Grid Parity’ for Renewables: Why Subsidies? (Part II)

By Mark Febrizio -- March 22, 2016
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‘Grid Parity’ for Renewables: An Empty Concept (Part I)

By Mark Febrizio -- March 21, 2016
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Human Achievement Hour (Earth Hour made happy!)

By Robert Bradley Jr. -- March 18, 2016
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Smil on Oily Wind Turbines

By Robert Bradley Jr. -- March 17, 2016
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Ethanol’s Lost Decades: Could We Have Had a Biofuel World?

By Marc Rauch -- March 16, 2016
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“Denier” Charge from Jerry Taylor: How Low Can He Go?

By Robert Bradley Jr. -- March 15, 2016
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