« Affordable » Utility Service: What Exactly Is Regulation’s Role? With all the nation’s economy stressed, politicians are pressuring regulators to produce utility service « affordable. » This picture has three problems. Wealth Redistribution is 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 create the revenue requirement. Rate design makes each customer category bear the costs it causes. None among these 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 cost that is compromising to redistribute wealth. It resembles taxation of 1 class to benefit another, with this specific exception: With taxation, citizens can retire representatives whose votes offend; but with utility service, captive customers are stuck because of the rates regulators set. In place of shifting costs between customer classes, regulators might redistribute wealth in different ways: by “taxing” shareholders, for example., reducing shareholder returns underneath the otherwise level that is appropriate. But taxing shareholders is no more the regulator’s domain than is taxing other customers. And it’s likely unconstitutional: Having invested to serve the 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 charity that is private suffices, so government steps in. But helping the luckless ought to be done by political leaders, who must justify their actions into the electorate; not by professional regulators, whose focus needs to be industry performance. Affordability of any product—groceries, a Lexus, or utility service—depends on a single’s income and wealth, and on the cost 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 price of housing, health care, transportation, or education. However these initiatives are outside regulators’ authority. To create regulators responsible for affordability is illogical. Cheap Energy is politics that are cheap Politicians who argue for affordability make 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 get instead of encouraged to contribute. But no family, no congregation, no society that is civil thrives if its key verb is « take » in the place of « give. » So when lower rates now lead to higher costs later, citizens become cynical. Self-doubting, also, while they question their ability to distinguish pander from policy. These are the results when politicians avoid their responsibility for affordability. « Affordability » Undermines Regulation’s Responsibility Mathematician Carson Chow says he’s found the explanation for our obesity epidemic: low food prices. Studying 40 years of data, he spotted both correlation and causation 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 price, the greater production; the greater amount of production, the greater (fast) food; the greater food, the greater amount of calories available; the greater calories available, the greater calories consumed. See C. Dreifus, « A Mathematical Challenge to Obesity, » The New York Times (May 14, 2012). We have been 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 would be to regulate—to performance that is establish, then align compensation with compliance. In this equation, affordability is not a variable. Which will make service affordable into the 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 a lot more than the advantages. Conversely, economic inefficiency exists as soon as 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 go out of an advantage up for grabs, makes everyone worse off. Underpricing when you look at the name of affordability makes someone worse off, unnecessarily. How sensible is that? Actions for Affordability: The Proper Roles for Regulators Unless essential services are affordable, government will never be credible. Regulators, being element of government, have 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 statutes that are regulatory require the regulator to produce service « affordable. » (as it is the outcome, i will be told, in Vanuatu, an nation that is 83-island the South Pacific.) Listed below are 3 ways, in keeping with economic efficiency, for regulators to handle affordability. Assist the unlucky reduce usage. Regulators can advocate for affordability by pressing for policies which make consumption less costly, like improved housing stock, « orbs » that signal high prices, and efficient lighting and appliances. Analogy: Doctors save lives not only 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 one of reliable and effective measure to prevent firearm-related injuries. « ) Interpret « affordability » as long-term affordability. Getting prices right and preventing overconsumption, whether or not it increases prices within the short run, reduces total costs when you look at the run that is long. 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: about the real costs of utility service, the issue of overconsumption, the error of under-pricing. Due to 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 result in higher incomes, making sure that citizens can afford utility service priced properly.

« Affordable » Utility Service: What Exactly Is Regulation’s Role? </p> <p>With all the nation’s economy stressed, politicians are pressuring regulators to produce utility service « affordable. » This picture has three problems.</p> <h2>Wealth Redistribution is Not Regulation’s Department</h2> <p>Under embedded cost ratemaking, the regulator identifies prudent costs, computes a revenue requirement to cover those costs, then designs rates to create the revenue requirement. <a href="http://fxbot.info/affordable-utility-service-what-exactly-is-3/#more-1160" class="more-link"><span aria-label="Lire la suite de « Affordable » Utility Service: What Exactly Is Regulation’s Role? With all the nation’s economy stressed, politicians are pressuring regulators to produce utility service « affordable. » This picture has three problems. Wealth Redistribution is 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 create the revenue requirement. Rate design makes each customer category bear the costs it causes. None among these 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 cost that is compromising to redistribute wealth. It resembles taxation of 1 class to benefit another, with this specific exception: With taxation, citizens can retire representatives whose votes offend; but with utility service, captive customers are stuck because of the rates regulators set. In place of shifting costs between customer classes, regulators might redistribute wealth in different ways: by “taxing” shareholders, for example., reducing shareholder returns underneath the otherwise level that is appropriate. But taxing shareholders is no more the regulator’s domain than is taxing other customers. And it’s likely unconstitutional: Having invested to serve the 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 charity that is private suffices, so government steps in. But helping the luckless ought to be done by political leaders, who must justify their actions into the electorate; not by professional regulators, whose focus needs to be industry performance. Affordability of any product—groceries, a Lexus, or utility service—depends on a single’s income and wealth, and on the cost 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 price of housing, health care, transportation, or education. However these initiatives are outside regulators’ authority. To create regulators responsible for affordability is illogical. Cheap Energy is politics that are cheap Politicians who argue for affordability make 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 get instead of encouraged to contribute. But no family, no congregation, no society that is civil thrives if its key verb is « take » in the place of « give. » So when lower rates now lead to higher costs later, citizens become cynical. Self-doubting, also, while they question their ability to distinguish pander from policy. These are the results when politicians avoid their responsibility for affordability. « Affordability » Undermines Regulation’s Responsibility Mathematician Carson Chow says he’s found the explanation for our obesity epidemic: low food prices. Studying 40 years of data, he spotted both correlation and causation 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 price, the greater production; the greater amount of production, the greater (fast) food; the greater food, the greater amount of calories available; the greater calories available, the greater calories consumed. See C. Dreifus, « A Mathematical Challenge to Obesity, » The New York Times (May 14, 2012). We have been 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 would be to regulate—to performance that is establish, then align compensation with compliance. In this equation, affordability is not a variable. Which will make service affordable into the 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 a lot more than the advantages. Conversely, economic inefficiency exists as soon as 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 go out of an advantage up for grabs, makes everyone worse off. Underpricing when you look at the name of affordability makes someone worse off, unnecessarily. How sensible is that? Actions for Affordability: The Proper Roles for Regulators Unless essential services are affordable, government will never be credible. Regulators, being element of government, have 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 statutes that are regulatory require the regulator to produce service « affordable. » (as it is the outcome, i will be told, in Vanuatu, an nation that is 83-island the South Pacific.) Listed below are 3 ways, in keeping with economic efficiency, for regulators to handle affordability. Assist the unlucky reduce usage. Regulators can advocate for affordability by pressing for policies which make consumption less costly, like improved housing stock, « orbs » that signal high prices, and efficient lighting and appliances. Analogy: Doctors save lives not only 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 one of reliable and effective measure to prevent firearm-related injuries. « ) Interpret « affordability » as long-term affordability. Getting prices right and preventing overconsumption, whether or not it increases prices within the short run, reduces total costs when you look at the run that is long. 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: about the real costs of utility service, the issue of overconsumption, the error of under-pricing. Due to 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 result in higher incomes, making sure that citizens can afford utility service priced properly.">(suite…)</span></a></p> <p>

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