Need solid examples of disastrous results of privatization of public works...

[badtoworse]

34. You need to do a little research on what a "regulated rate of return" means

Decades ago, when the country was being electrified, it was recognized that it would be very impractical to have many companies stringing electrical wire down the streets to provide service to homes. One company was selected to have the franchise and was given a monopoly to serve a certain area. At the same time, it was also recognized thatwithout competition, such a company could charge whatever it wanted for electricity and gouge the customers. To prevent that, the company (the electric utility) was given a regulated rate of return.

With a regulated rate of return, the utility is entitled to recover its reasonably incurred costs and earn a certain percentage (usually between 9% and 12% over the last few decades) on its equity in the assets. The equity is its investment plus any capital additions less accumulated depreciation - think of it as its "stake" in the business. The electric rates paid by consumers consider what is needed to reimburse the utility's costs and give it that regulated return. The process is overseen by the state Public Utility Commission ("PSC&quot and the rates must be approved before they can be charged to consumers. Periodically, the utility will petition the PSC for an adjustment in rates (almost always an invcrease) in what is called a rate case. The PSC looks at the utility's costs and the current investment environment (this is to determine what a reasonable return would be on a relatively low risk investment. It considers what similar, low rsik investments are earning and the inflationary environment.) The PSC will usually give something in the way of an increase, but it is usually (in my experience) less than what the utility asks for and sometimes a lot less. The PSC will generally not allow a utility to earn a return on investments that were not prudently incurred. It's unusual, but it can and has happened.

A similar process applies to other monopoly situations, such as water and sewer service (where supplied by private companies), historically phone service and cable tv (but not now because there is competition now from the phone companies and satellite tv). The bottom line is that if an asset that is privatized creates a monopoly situation, it should not be allowed to charge whatever it pleases. Its rates should be regulated to what is needed to provide a reasonable return for the acquiring company. It would be sheer stupidity not to provide for this in a privatization situation.