I would like to understand the point you are making and I don't currently understand some of these premises. If you could clarify that would be great.

Quote Originally Posted by BananaStand View Post
Basically, it works like this. The utility company adds up all of the capital they have invested in this system to deliver electricity. Then they say....well if I had instead put all that capital in a mutual fund...I could have made 8% with virtually no risk. But I actually sunk my investment into electricity production and delivery. That's harder, riskier, and benefits the economy more....so it's reasonable for me to expect a higher return. How about 11%?

Then the oversight board says yea or nay....end of regulation.
Is the company asking the oversight board if it can raise its prices enough that its return is 11% instead of 8%?

As you can see, the more capital the electric company invests...the more money they are allowed to make.
I don't understand how this follows. More capital investment doesn't mean more revenue or profit. Unless this is referring to the government regulation, in which case this is perverse incentives. But I don't want to get into that now.

So, if you're a project manager at the electric company, you're given a project, and a budget. It is important to spend ALL of your budget. If you don't, then the capital investment is smaller, and the company makes less money.
Why is it important to spend all of your budget? Why is spending more budget meaning more revenue/profit? Firms prefer to be under budget as much as possible. Why does this firm want to not do that?

So, let's say they want you to build some kind of electrical doohickey.
Who is they?

First step in the project is to get a building permit. Then you find out....oh shit...the permit process takes 14 months. Guess what.....you aren't going to complete your project this year.
Why does the permit process take 14 months?

But you still have to spend your budget. So you start pulling in future projects that you can do now...just to spend money.

Maybe you replace some utility poles that aren't due to be replaced for another 5 years.
I said I wouldn't get into this before better understanding your premise, though I will say that this sounds like the typical perverse incentive caused by government intervention.