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Utilities and their rates

Are exclusive utility franchises given by each state? Do rules and regulations permit rate changes for a reasonable return on capital? Can rate commissions be sued if reasonable rates are not permitted? L. S.

Utilities are legal but regulated monopolies, because it makes little sense for two electric companies to string wire through the same territory. Franchises are awarded by one or several states, but service areas are not limited to state lines. Many utilities serve consumers in several contiguous states, and many states have numerous power companies within their borders.

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Regulation generally hinges on how much a utility may charge its customers, and state commissions are set up to evaluate costs, operations, and profits. By law utilities are entitled to earn a "reasonable" return on invested capital and to change rates as necessary (with approval) to earn those returns. Most of the problems in rate-setting resolve around a definition of "reasonable" and agreement on which assets and costs are to be included within the rate determination base.

A regulatory commission may be sued if a utility company believes its rights are being illegaly infringed -- usually in the matter of adequate rates. When oil prices quadrupled in 1973-74, many utilities were suddenly caught in a cost-price squeeze. After a time, commissions caught up with rate increase requests, and now most fuel prices are allowed to flow through to prices with minimum delays.

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