Quote:
Originally Posted by Mathgod
So they're making money by collecting the delivery charges and paying off the cost of their capital expense over time.
But they're at the same time making money by raking in the admin fee.
Seems like double dipping to me...
|
No not really, your admin fee goes to your retailer. They are different from your distribution company.
The only way a utility company makes money is off the recovery of their capital investment. They have an approved debt/equity ratio, which means for every dollar they invest they are allowed a certain amount of equity. Without looking it up right now I think the equity thickness is around 38%. For every dollar of investment 38 cents of it is equity the rest is debt which they recover the cost of. Then in the equity portion they earn an approved regulated rate of turn, these days I think in the low 9 percent range. So the profit they make is the return on equity, times the equity thickness times the undepreciated rate base. The rest of their costs are basically flow through.
There are lots of nuances to this but that’s the basic regulatory set up.