Not to geek out too much on regulated utilities but here goes...But . . . how does an Energy Company make money other than by charging rates?
I mean, ultimately, you can't just say "take it from the shareholders" because that shareholder value comes from . . . making money . . . which comes from charging rates.
What am I missing?
Utility rates are a calculation of cost of operations plus a return on and of capital. All of this is divided by “normalized” usage for customers. So shareholders get a return on the equity in the company ( you hear the term “Allowed rate of return”..not a guaranteed return but allowed. That’s the equity return component to shareholders).
Commissions can disallow costs if they find them imprudent or if is for things not allowed in rates (Most likely goodwill items). So when it’s taken from shareholders what is happening is if at the end of the year shareholders earned 8% on their shares, they would earn less than that because these goodwill costs would not be allowed in rates and therefore be deducted from any utility profits.
Believe it or not, that’s the simple explanation.
More than you wanted to know I’m sure but a great ice breaker at parties
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