“Affordable” Utility Service: What is Regulation’s Role? Using the nation’s economy stressed, politicians are pressuring regulators to make utility service “affordable.” This picture has three problems. Wealth Redistribution is Not Regulation’s Department The regulator identifies prudent costs, computes a revenue requirement to cover those costs, then designs rates to produce the revenue requirement under embedded cost ratemaking. Rate design makes each customer category bear the costs it causes. None of these steps—prudent cost identification, revenue requirement computation, cost allocation—involves affordability. Affordability becomes a factor only whenever we jigger the numbers—if we lower rates when it comes to unfortunate by raising rates for other individuals. Achieving affordability through rate design means compromising cost causation to redistribute wealth. It resembles taxation of 1 class to profit another, with this particular exception: With taxation, citizens can retire representatives whose votes offend; but with utility service, captive customers are stuck because of the rates regulators set. Instead of shifting costs between customer classes, regulators might redistribute wealth in another way: 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 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 essential to a society that is fair. 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 must be industry performance. Affordability of any product—groceries, a Lexus, or utility service—depends on 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 we lowered their price of housing, health care, transportation, or education. However these initiatives are outside regulators’ authority. To create regulators accountable for affordability is illogical. Cheap Energy is politics that are cheap Politicians who argue for affordability use the road that is easy. All efforts that increase costs, while commanding the regulator to make service “affordable,” is low-risk politics, responsibility-avoidance politics, cheap politics to legislate economic development, greenness, reliability, energy independence, and technology leadership. When politicians call for “lower rates,” the electorate feels entitled to get as opposed to encouraged to contribute. But no family, no congregation, no society that is civil thrives if its key verb is “take” rather than “give.” So when lower rates now result in higher costs later, citizens become cynical. Self-doubting, also, because they question their capability to distinguish pander from policy. They are the total results when politicians avoid their responsibility for affordability. “Affordability” Undermines Regulation’s Responsibility Mathematician Carson Chow says he is found the cause of 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 investing in non-production to stimulating full production) and technology boosts (which lowered production costs). The low the cost, the more production; the greater amount of production, the greater (fast) food; the more 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 unearthed 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). What does food want 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 not a variable. Which will make service affordable to the unlucky, the commission would need to lower the price below cost. That leads to overconsumption, to Dr. Chow’s “waste.” This inefficiency hurts everyone. Economic efficiency exists when no further action can create benefits without increasing costs by more than the advantages. Conversely, economic inefficiency exists whenever we forego some action that, if taken, can make someone better off without making anyone worse off. To over-consume, to waste, to do something inefficiently, to leave a benefit up for grabs, makes everyone worse off. Underpricing in 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 shall never be credible. Regulators, being element of government, have to help. (A commission staff chief told me 25 years ago, “Sometimes you have to put away your principles and do what’s right.”) And some statutes that are regulatory require the regulator in order to make service “affordable.” (as it is the actual situation, I am told, in Vanuatu, an 83-island nation in the South Pacific.) Here are 3 ways, consistent with economic efficiency, for regulators to address affordability. Assist 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 the most reliable and measure that is effective prevent firearm-related injuries. “) Interpret “affordability” as long-term affordability. Getting prices right and preventing overconsumption, even though it increases prices when you look at the short run, reduces total costs when you look at the run that is long. Expose the side that is dark of. Rather than follow politicians along the low-price, low-risk, cheap politics path, regulators, like Dr. Chow, can talk facts: concerning the real costs of utility service, the issue of overconsumption, the error of under-pricing. With their credibility rooted in expertise, regulators can pressure legislators to do something on affordability directly by enacting policies that are income-raising. Better education, housing, and health care—all these lead to higher incomes, to ensure that citizens can afford utility service priced properly.

“Affordable” Utility Service: What is Regulation’s Role? <p>Using the nation’s economy stressed, politicians are pressuring regulators to make utility service “affordable.” This picture has three problems.</p> <h2>Wealth Redistribution is Not Regulation’s Department</h2> <p>The regulator identifies prudent costs, computes a revenue requirement to cover those costs, then designs rates to produce the revenue requirement under embedded cost ratemaking. Rate design makes each customer category bear the costs it causes. None of these steps—prudent cost identification, revenue requirement computation, cost allocation—involves affordability. Affordability becomes a factor only whenever we jigger the numbers—if we lower rates when it comes to unfortunate by raising rates for other individuals. Achieving affordability through rate design means compromising cost causation to redistribute wealth. It resembles taxation of 1 class to profit another, with this particular exception: With taxation, citizens can retire representatives whose votes offend; but with utility service, captive customers are stuck because of the rates regulators set.</p> <p>Instead of shifting costs between customer classes, regulators might redistribute wealth in another way: 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 really likely unconstitutional: Having invested to serve the general public, shareholders expect “just compensation,” undiminished by a forced contribution for affordability.</p> <p>Moving money among citizens is essential to a society that is fair. 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 must be industry performance.</p> <p>Affordability of any product—groceries, a Lexus, or utility service—depends on 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 we lowered their price of housing, health care, transportation, or education. However these initiatives are outside regulators’ authority. <a href="http://seb.seesa.co.za/affordable-utility-service-what-is-regulation-s/#more-429" class="more-link">Continue reading <span class="screen-reader-text">“Affordable” Utility Service: What is Regulation’s Role? Using the nation’s economy stressed, politicians are pressuring regulators to make utility service “affordable.” This picture has three problems. Wealth Redistribution is Not Regulation’s Department The regulator identifies prudent costs, computes a revenue requirement to cover those costs, then designs rates to produce the revenue requirement under embedded cost ratemaking. Rate design makes each customer category bear the costs it causes. None of these steps—prudent cost identification, revenue requirement computation, cost allocation—involves affordability. Affordability becomes a factor only whenever we jigger the numbers—if we lower rates when it comes to unfortunate by raising rates for other individuals. Achieving affordability through rate design means compromising cost causation to redistribute wealth. It resembles taxation of 1 class to profit another, with this particular exception: With taxation, citizens can retire representatives whose votes offend; but with utility service, captive customers are stuck because of the rates regulators set. Instead of shifting costs between customer classes, regulators might redistribute wealth in another way: 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 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 essential to a society that is fair. 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 must be industry performance. Affordability of any product—groceries, a Lexus, or utility service—depends on 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 we lowered their price of housing, health care, transportation, or education. However these initiatives are outside regulators’ authority. To create regulators accountable for affordability is illogical. Cheap Energy is politics that are cheap Politicians who argue for affordability use the road that is easy. All efforts that increase costs, while commanding the regulator to make service “affordable,” is low-risk politics, responsibility-avoidance politics, cheap politics to legislate economic development, greenness, reliability, energy independence, and technology leadership. When politicians call for “lower rates,” the electorate feels entitled to get as opposed to encouraged to contribute. But no family, no congregation, no society that is civil thrives if its key verb is “take” rather than “give.” So when lower rates now result in higher costs later, citizens become cynical. Self-doubting, also, because they question their capability to distinguish pander from policy. They are the total results when politicians avoid their responsibility for affordability. “Affordability” Undermines Regulation’s Responsibility Mathematician Carson Chow says he is found the cause of 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 investing in non-production to stimulating full production) and technology boosts (which lowered production costs). The low the cost, the more production; the greater amount of production, the greater (fast) food; the more 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 unearthed 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). What does food want 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 not a variable. Which will make service affordable to the unlucky, the commission would need to lower the price below cost. That leads to overconsumption, to Dr. Chow’s “waste.” This inefficiency hurts everyone. Economic efficiency exists when no further action can create benefits without increasing costs by more than the advantages. Conversely, economic inefficiency exists whenever we forego some action that, if taken, can make someone better off without making anyone worse off. To over-consume, to waste, to do something inefficiently, to leave a benefit up for grabs, makes everyone worse off. Underpricing in 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 shall never be credible. Regulators, being element of government, have to help. (A commission staff chief told me 25 years ago, “Sometimes you have to put away your principles and do what’s right.”) And some statutes that are regulatory require the regulator in order to make service “affordable.” (as it is the actual situation, I am told, in Vanuatu, an 83-island nation in the South Pacific.) Here are 3 ways, consistent with economic efficiency, for regulators to address affordability. Assist 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 the most reliable and measure that is effective prevent firearm-related injuries. “) Interpret “affordability” as long-term affordability. Getting prices right and preventing overconsumption, even though it increases prices when you look at the short run, reduces total costs when you look at the run that is long. Expose the side that is dark of. Rather than follow politicians along the low-price, low-risk, cheap politics path, regulators, like Dr. Chow, can talk facts: concerning the real costs of utility service, the issue of overconsumption, the error of under-pricing. With their credibility rooted in expertise, regulators can pressure legislators to do something on affordability directly by enacting policies that are income-raising. Better education, housing, and health care—all these lead to higher incomes, to ensure that citizens can afford utility service priced properly.</span></a></p> <p>