Long-Term Consumer Impacts of Electricity-Rate Regulatory Policies

摘要

Can rate suppressive electric utility regulation raise electricity rates higher than they otherwise would be under more fair and reasonable regulation and thereby make ratepayers worse off. This study examines that hypothesis within the context of several regulatory penalties which rate suppression imposes on the electricity consumer through its distortive effects on the utility's investment and operating decisions and through a risk premium that rate suppression appears to impose on a utility's cost of capital. The sources of rate suppression within the context of state public utility commission (PUC) regulation of the electric utility industry and the PUCs' regulatory mandate are described and analyzed. The effects of rate suppression on an electric utility's investment and operating strategy are examined within the context of the utility's twin responsibilities to ratepayers and shareholders. The three regulatory penalties associated with rate suppression, i.e., fuel penalty, cost of capital penalty, and reliability penalty are discussed. A rate-forecasting methodology to measure the regulatory penalties imposed by rate suppression is developed. A ratemaking model in wide use among the PUCs is used to forecast electricity rates and critical utility financial indicators under the two alternative regulatory regimes (rate-suppression versus capital attraction) for the two alternative investment strategies (capital minimization versus capital optimization). The results of the forecasting analysis provide conclusive evidence that the welfare of electricity ratepayers may be substantially reduced when PUCs adopt policies which prevent a utility from earning its market cost of capital, i.e., when rates are suppressed. (ERA citation 08:020826)