Whatever happened to the cost of doing business? There was a time when businesses bit the bullet and absorbed the ordinary cost of doing business. Them days are gone forever. Nowadays, the consumer gets stuck with those costs. Capital improvements? Raise prices. Upgrade computers? Raise prices.
I believe most consumers would agree that it was perfectly reasonable for businesses to charge higher prices to offset the skyrocketing cost of fuel which we experienced in recent months. But now that fuel prices have fallen back down, have businesses lowered prices accordingly? I don’t think so.
When it comes to screwing the consumer, CenterPoint Energy takes the prize.
I can’t link to this piece so I’m having to guess a bit at what it says. Centerpoint is the regulated utility portion of the former Houston Power and Light. Under the Texas utility deregulation structure, the transmission and distribution of electricity remains regulated by the Texas Public Utility Commission. Centerpoint doesn’t sell electricity to consumers or other users. The affiliated retail company (or formerly affiliated; they are now completely separately owned), Reliant Energy, now is the entity with whom Texas consumers living in areas served by investor owned utilities within ERCOT can buy power; it is one of about 20-25 such companies, and consumers are free to choose from among these. T&D;utilities, on the other hand, remain the sole providers within their service areas. The idea is that customers can choose from among offers by several different retail companies and shop for the best deal. As with anything to do with electricity, there’s debate on whether this system is working or not, but that’s an 80,000 foot view of how it works in a nutshell.
The price customers pay to their retail company includes a component paid to the customer’s transmission and distribution company. That rate is regulated by the PUC and depends mainly on the amount of power a customer uses. In the regulated utility world, it is commonplace for the utility to recover capital costs, such as the price for building and maintaining power lines, replacing computers, and similar items, through the rates charged to customers. The ratemaking process includes a lot of negotiation among the utilities, the cities served by the utilities, and other interested parties. The utilities try to include as much of such costs as they can; the other parties try to exclude as much as they can. In the end, there’s usually a deal, and occasionally the ratemaking is litigated before the PUC (or an administrative law judge). The “regulatory compact” is that a utility has a monopoly in its service area in exchange for being regulated. The retail providers’ rates are not regulated, but their business is riskier, in that they don’t have the opportunity to correct their mistakes through their rates. If they, for example, err when buying power or fuel, or hedge improperly or incompletely, they are subject to heavy losses if the market for those commodities doesn’t go their way. A number of retail providers went out of business earlier this year in such a fashion. The others are trying to balance preserving some sort of margin while not pricing themselves out of the market. Some are doing it better than others.
If this blogger is complaining about the price he/she is paying for electricty, then he or she needs to shop around. If the company’s customer service is lousy, then he or she needs to switch.
here’s the meat of what has the author’s goat:
The so-called “smart meters” can be read and controlled remotely from a central information center. For the privilege of letting CenterPoint operate more efficiciently without having to employ meter readers, electric consumers are going to have to pay a $3.24 monthly surcharge for two years and then $3.05 for the next ten years. Each of the 2.2 million customers served by CenterPoint will have paid a total of $443.76 in surcharges by the end of the 12 year period.
Lets see, $443.76 x 2,200,000 = $976,272,000. CenterPoint says the new system will cost $640 million, with the balance of the $976.3 million used to pay for the financing costs. The surcharges will be added on to the customer bills of Reliant Energy, TXU Energy and the other electric power companies competing for business in the greater Houston area and will be billed in addition to the $3.88 monthly fee CenterPoint already charges.
Once the new meters have been installed, CenterPoint’s cost of doing business will have been reduced and a whole bunch of meter readers will become unemployed, with a good number of them having to go on welfare. But instead of passing their savings on to the consumers, CenterPoint is doing just the opposite. The consumer be damned!
In principle “smart meters” sound like a good idea—with benefits that could go way beyond economies in meter-reading.
One of the costliest and most crucial aspects of the electric utility business is having enough capacity to meet peak demand. If you fall short, you get brownouts and blackouts.
The logical solution to peak overload is to charge higher rates during peak periods—particularly when the system gets dangerously near to a brownout. The utility would announce by TV, radio, and e-mail that superpeak rates (e.g., 8 times the off-peak rate) are in effect. Users would respond by curtailing their consumption: e.g., adjusting the thermostat and waiting until later to use the washer and dryer. If California had had smart meters and appropriately tiered pricing earlier this decade, it could have avoided brownouts.
High peak rates would not only encourage conservation but make peak users pay more of the cost of building or maintaining extra capacity. Peak pricing would, moreover, reduce the overall cost of generating and distributing electricity by reducing demand at the very times when demand is costliest to meet.
But traditional electric meters record too little information to make peak pricing work. Hence the logic of smart meters.
In a competitive market, competition would force utilities to pass on the savings to their customers. On the other hand, if you have a local monopoly, you need rate regulation in any event.
Competition does not necessarily force firms to pass savings on to customers by any means.
The savings (or [i]profits[/i]) might just as likely be passed on to the shareholding public in the form of dividends, or to the employees in the form of higher wages and salaries, or to a multitude of governments in the form of increased taxes. They might be passed on to creditors in the form of rising interest rates on debt, or passed on to suppliers and vendors in the form inflation or price increases. Quite frequently they are passed on to our children in the form of infrastructure maintenance, innovation, or expansion. The idea that a cost reduction in meter reading should flow in a direct line back to the consumer whose meter is upgraded is an utter non sequitor.
They trade on the NYSE as CNP. If they’re really hoarding so much wealth you should buy a share.
“Smart readers” are notorious for raising havoc with home electronics which these days have cheap power supplies that don’t filter out line hash, because in the first world we’re supposed to have clean and reliable electicity. I guess someone forgot to tell the new utility owners and regulators about that reputation.
[i] Competition does not necessarily force firms to pass savings on to customers by any means [/i]
Marion [#4]: No market is perfect. But if consumers care about price and firms must compete for consumers’ business, then competition will press firms to pass some cost savings through to their customers. Firms that fail to do so will, over time, tend to lose market share and make lower profits than they otherwise would have. The greater the competition, the greater the pressure to pass through savings. If you disagree, please explain what you understand “competition” to mean.
The so-called “competition” in the energy providing industry is an articifical construction. As in California, with the de-regulation of energy, energy vendors are by law able to piggy-back on the infrastructure owned by the power companies. Deregulation has certainly not reduced rates to consumers, and service standards are lowered because now the former monopolies such as PG&E;now have to spend lots of capital in advertising. The old system wherein such providers as PG&E;were guaranteed a monopoly with rates set by the PUC was much better. Rates were set at such a level so that the power co. could make a reasonable profit and be able to meet service issues (especially weather, which in PG&E;territory is always a concern) with full staffing. PG&E;was always a bastion of the community in small town rural California, and it also provided a dependable return for investors, many of whom were retired and elderly on small incomes. But, we’re told that we can’t turn back the clock. I wish we could.