Bigger payoffs for larger electric customers should surprise no one, says one exec, while a consultant blames the Fortnightly for obscuring the point.
It is not surprising that authors Bierman, Nelson and Stover ("Anomalies in Residential Electric Rates: Harbinger of Competition?" Public Utilities Fortnightly, July 15, 1999) found an increasing differential between residential and industrial rates. It also is not surprising that there is a correlation with deregulation activities. This situation is the natural result of competition causing subsidies to unwind. The same thing happened with telecommunications services, when competition caused the long-distance subsidy of local service to unwind.
The politics of electric utility regulation has created subsidies in two ways I discuss here. One way is through rates of return for industrial service that are typically about the same as the average rate of return, rates of return for commercial service above the average, and rates of return for residential service below the average. The other way is through utilization of cost-of-service study techniques selected more for their effect than for their validity. Examples of such techniques are:
* Application of energy-related allocation factors to demand-related costs, thereby over-allocating costs to high load factor customers; and
* Not recognizing how distribution systems are actually used to provide service to primary and secondary voltage customers.