Utilities

This author can state positively that he knows very damned little about the Power industry. What he does know comes from articles like this one. It might be necessary to review what I do know. The initial element consists of the high Capitalization Costs of building Utilities. So high, in fact, that the normal Rent-Seeking activities of the Business world might demand a usurious Profits margin for Utilities. Such an argument can be extended to almost All of Corporate operations any more, but is especially relevant with Utilities, due to the concentration of Capital assets. The trouble comes in that the heavy Rent-Seeking in the Power industry drafts its Income from a general Populace, who lack Rent-Seeking avenues of their own. The end result brings sharp distress to the general population, while recapitalization venues are themselves sharply limited; sufficient Power generation capacity is exactly that, with no need of major expansion. The total effect is magnified by the fact that Power generation Capital has a long life-expectancy.

The Above scenario held the rationale for traditional Rate-controls in the Power industry from the Start. The sudden high Charges after Rate-controls are removed suggest there was real foundation for the Rate-controls in the first place. Another suggestive element comes in the fact that Power outages and shortages did not appear until after Rent-controls were abandoned. Utilities previously had used a lineal monopoly under Government regulation to maintain usable Power at reasonable Rates. The Power industry broke up these lineal monopolies after Power deregulation, each separate segment demanding it’s own high Profit margins. Power suddenly became too expensive for its normal Consumers.

We must ask Ourselves if the current state of affairs is normal? We do know that Utility company shareholders enjoyed a vast Windfall with deregulation, which they did not reinvest in the Power industry. We do know that segmentation of the Power industry currently demands 12-14% Profit margins not only on Product utilized, but also upon 12-14% Profit margins; the segmented levels often extending to 5-6 levels of Business interaction. Do We get some sense of artificial structuring for Rent-Seeking in these endeavors?

There are several methods to limit such devotion to Rent-Seeking and Profit margins. One is to pressure Utilities to buy their own Resource development. Another is to insist on Utilities using only State-Issued Bonds for development Capital, with the States maintaining supervisory control over Bond floatation. A third method consists on the passage of law which restrains Profit margins to 12-14% of Total Costs overall. A fourth method brings a State Supervisory Committee to pass on Utility Pay Packages and Stockholder Dividends, when and where there is any Utility debt still outstanding. It is not impossible to constrain Utility charges; one simply has to arrive at effective Solutions. lgl