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Utilities tend to make most profit as a fixed rate of return on infrastructure built, not really based on electricity costs. Build a new substation, some poles
by floatrock 1y ago
Utilities tend to make most profit as a fixed rate of return on infrastructure built, not really based on electricity costs. Build a new substation, some poles & wires to distribute it to the new subdivisions, and bammo, regulator grants you a fixed rate of return on that from your ratebase (paying customers) over the lifetime of that infrastructure.
- zdragnar 1y agoYou get a fixed return on that infrastructure, but you need to keep pace with inflation in all other areas of the business. Storms, errant vehicles, animals, fires, all sorts of things cause that same infrastructure to require maintenance personnel and equipment, and that equipment needs its own maintenance, as do the offices for the personnel, and so on. It becomes a balancing act because you only get to adjust the rates every so often, and with regulator approval.
- strawhatguy 1y agoRegulator approval really isn’t market forces, to tie this to comment above.