“Affordable” Utility Service: What is Regulation’s Role? With the nation’s economy stressed, politicians are pressuring regulators which will make utility service “affordable.” This picture has three problems. Wealth Redistribution is certainly not Regulation’s Department Under embedded cost ratemaking, the regulator identifies prudent costs, computes a revenue requirement to cover those costs, then designs rates to produce the revenue requirement. Rate design makes each customer category bear the expense it causes. None of those cost that is steps—prudent, revenue requirement computation, cost allocation—involves affordability. Affordability becomes a 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 compromising cost causation to redistribute wealth. It resembles taxation of just one class to benefit another, with this particular exception: With taxation, citizens can retire representatives whose votes offend; however with utility service, captive customers are stuck aided by the rates regulators set. Instead of shifting costs between customer classes, regulators might redistribute wealth in different ways: by “taxing” shareholders, for example., reducing shareholder returns below the otherwise appropriate level. But taxing shareholders is no more the regulator’s domain than is taxing some other clients. And it’s really 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 society that is fair. Poverty is intolerable and charity that is private suffices, so government steps in. But helping the luckless should be done by political leaders, who must justify their actions to the electorate; not by professional regulators, whose focus should be industry performance. Affordability of any product—groceries, a Lexus, or utility service—depends using one’s wealth and income, as well as on the price of other products. The poor could better afford utility service whenever we raised their income and increased their wealth. Or if perhaps we lowered their cost of housing, medical care, transportation, or education. However these initiatives are outside regulators’ authority. To produce regulators responsible for affordability is illogical. Cheap Energy is politics that are cheap Politicians who argue for affordability use the easy road. To legislate economic development, greenness, reliability, energy independence, and technology leadership, all efforts that increase costs, while commanding the regulator in order to make service “affordable,” is low-risk politics, responsibility-avoidance politics, cheap politics. When politicians call for “lower rates,” the electorate feels entitled to receive instead of encouraged to contribute. But no family, no congregation, no society that is civil thrives if its key verb is “take” in place of “give.” And when lower rates now result in higher costs later, citizens become cynical. Self-doubting, also, because they question their capability 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 cause of our obesity epidemic: low food prices. Studying 40 many years of data, he spotted both causation and correlation between girth growth and cost declines. He traced these trends to government farm policy shifts (from paying for non-production to stimulating production that is full and technology boosts (which lowered production costs). The reduced the cost, the more production; the greater production, the greater (fast) food; the greater amount of food, the greater calories available; the more calories available, the greater amount of 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 discovered 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). So what does food need to do with “affordable” utility service? A regulator’s job is to regulate—to performance that is establish, then align compensation with compliance. In this equation, affordability is certainly not a variable. In order to make service affordable to your unlucky, the commission would need to lower the purchase price 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 significantly more than the benefits. Conversely, economic inefficiency exists when we forego some action that, if taken, can make someone best off without making anyone worse off. To over-consume, to waste, to behave inefficiently, to leave an advantage up for grabs, 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 shall not be credible. Regulators, being element of government, need certainly to help. (A commission staff chief told me 25 years back, “Sometimes you need to put away your principles and do what’s right.”) And some regulatory statutes explicitly require the regulator which will make service “affordable.” (as it is the situation, i will be told, in Vanuatu, an nation that is 83-island the South Pacific.) Here are 3 ways, in line with economic efficiency, for regulators to deal with affordability. Help the unlucky reduce usage. Regulators can advocate for affordability by pressing for policies that produce consumption less costly, like improved housing stock, “orbs” that signal high prices, and efficient lighting and appliances. Analogy: Doctors save lives not just by treating gunshot wounds, but by advocating for gun safety. (American Academy of Pediatrics: “The absence 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, regardless if it increases prices within the short run, reduces total costs into the run that is long. Expose the dark side of under-pricing. Rather than follow politicians down the low-price, low-risk, cheap politics path, regulators, like Dr. Chow, can talk facts: about the real costs of utility service, the situation 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 income-raising policies. Better education, housing, and health care—all these lead to higher incomes, making sure that citizens are able to afford utility service priced properly.

Aug 22, 2019 بدون دیدگاه
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