“In Georgia and South Carolina, for example, the nuclear-related cost overruns are a good thing. Not only is rate base enlarged for assigned profits for decades, the CEOs can tell victimized consumers that they are avoiding emissions from much cheaper, cost-predictable conventional power plants. Bootleggers and Baptists all in one.”

Public utility regulation attempts to protect the public where one and only one franchised monopolist serves a certain geographical area. Such is the case with your local natural gas and electricity provider. But the alleged protection is actually the enemy of consumers on close inspection. To understand why, the fundamentals of rate base regulation must be explained.

The Formula

Regulated utilities are allowed to recover their cost to do business and earn a return on invested capital. Expressed as a formula this is the revenue requirement: R = Oc + (V-D)rr

where:

R = Revenue justified by cost and return

Oc = Operating cost including depreciation

V = Value, always first costs

D = Depreciation

rr = Rate of return allowed by regulators

(V-D) = Rate base, this is the current book value of assets and the un-recovered part of depreciable assets and other amortized capital.…