10/29/2004

Utah Power

As of April 1, 2005, you can expect your power bill to go up by about $4.75 a month. The Public Service Commission (PSC) is experimenting on how electricity rates are set for Utah consumers. Utah Power is seeking permission to raise its rates 11 million. The full story about this is published in the Salt Lake Tribune.

The main difference in this new procedure on trial, is that the rates will be based entirely on projected costs that the utility expects to incur in the 12 months after the new rates go into effect. Utah Power believes using a so-called "future test year" to determine rates, instead of basing them on historical costs, the traditional method used by the PSC, will be more fair to the company as well as its customers. They say that these projected costs will eliminate the problem of "regulatory lag;" which is when a utility spends money on behalf of its customers but must wait for the PSC to approve those costs.

My question, along with everybody elses', is "Are these projected costs reasonable?" I thought that historical costs were used to determine projections. So what is making the difference here, and why are our electricity bills going up almost $5 a month? That's sixty bucks a year!

7 comments:

Rufio said...

After reading the article you found in the Salt Lake Tribune I came to the conclusion that Utah Power isn't really trying to hurt its customers with this price increase. It seems to me that they are just trying to recoupe their costs quicker. In order for any business to be profitable (which is the nature of a business) is to make sure your profits exceed your expenditures. Dan Gimble, chief of technical staff at the Committee of Consumer Services said if a committee in Portland, Oregon disagrees with Utah Power's cost projections, it can challenge them before the PSC. This will hopefully prevent any unreasonable increase in costs to the consumer. I should also add that power is a very inelastic product with not many substitutes so there isn't much we can do about these price increases. I don't think the demand for power will decrease with these new price increases on the way.

John West said...

I understand that UP&L's expenses may be going up, but maybe it isn't fair to pass those expenses on to the consumer. I sorta believe that an outside audit may find that most monopolies don't operate in the most cost-efficient ways.

Bruce Banner said...

Once this study is over and the results are about the same is the power company going to reduce the rate once it is over or are they going to keep it the same or raise it again?

Max said...

I'm sure the test will only increase the rate, never decrease. There will be some reason to keep the increased rate even if it is predicted too high.

Bryce Larkin said...

I want to know if these projected rates are too high will they lower them? A $5 increase every month is huge.

Maudi said...

The government has a warped sense of humor and that is why they are allowing these people to do such a thing.We as the consumer need to stand up to our legislator and tell them what we think. we need good representation to help fight the battle against they monopolistic powers.

Dr. Tufte said...

Utility regulation is understood by economists to be "captive". This means that the utilities can usually get what they want from the regulators. This leads to a phenomenon (in most books, but not this one) called lazy monopoly. Rather than make a profit, the regulated utility works at zero profits. But, since they have captured the regulatory process, any time they have cost increases, they pass those straight on to the consumer.

Rufio has missed a subtle point though. Getting their money earlier increases the present value of those payments. This is a good thing for the utility, and a bad thing for the public (because we are paying early, and losing some of our present value).