continuing economics discussion, rate of return for governments

[bacon4life]

http://www.eng-tips.com/viewthread.cfm?qid=201380&page=1

got me thinking some more about economic analysis of transformer losses.

After going to our financial guy, I was very surprised at the low rate of return publicly owned utilities expect versus private/investor owned utilities. Does anyone have a good way to explain why it works that way?

If I did the analysis correctly, we should buy a highly efficient transformer that lasts 40+years, but an investor owned utility would instead buy a higher cost one that lasted 10-15 year. I just can't quite grasp why even though the technical requirements would be the same, the ownership would drive vastly different decisions.

 

[civilperson]

Your assumptions are not proven. Rates of return for monopoly utilities was capped by law to stop rapacious rates foisted on the public when lack of competition allowed unlimited rate increases. These "protections" led to utilities spending as much as possible since their rates would guarantee a larger profit if they "invested" in the most expensive of each necessary product. Check out the utility headquarter buildings with marble walls and granite floors. Rates of return in non-regulated companies vary from extreme, (leading to six hundred new competitors the next year), to modest and below, (leading to defaults, bankruptcies and forced acquisitions).

 

[dcasto]

If you really want to have fun, work at a company that has both utility regulated business and unregulated. WOW, everything from pencils to boilers to skyscrapers are vastly different. And the book keeping, whew.....