“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.…
Continue ReadingThe 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?…
Continue Reading“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.…
Continue Reading