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 Originally Posted by BananaStand
Why? It doesn't matter. And in real life, they probably aren't the same.
What caused the difference in this instance?
The price of electricity is not a function of what people are willing to pay for it.
In a free market it is. In a non-free market, it still is, just that price is more cost than sticker price, roughly speaking.
This process allows the elec company investors to earn a fair return on their money. By fair, I mean they are not motivated to invest in something else.
If it is the case that investors in Market A want to move to Market B because Market A doesn't have high enough yield per risk, it tells us there needs to be a price change in Market A. This is financial theory. The economic theory of it adds the insight that an upward price change increases the activity among other firms to enter the market.
The government doesn't really have a ton of power here. If they try to squeeze the electric company by shaving points off of their returns, then they will motivate investors to invest somewhere else. All they are really doing is making sure that the company can't bilk consumers and score windfall profits just because they're the only game in town.
What can sometimes seem like small input can be significant. Government oversight to "make sure customers aren't bilked" is a very big regulation even if its surface incidence seems small.
Sounds like you're giving them a little too much credit for being sinister.
The behavior is typical and nearly always not sinister. It's really just incorporating the regulatory impact just like a firm incorporates any other impact.
then the project managers went about their business and inevitably some projects hit roadblocks. If you're a project manager...are you gonna eat your bonus because the board of selectmen in Cowcock Vermont only meets once every six months, and because of that you won't get your permit in time?? FUUUUUUCKK THAT! You'll just spend money on something else and get paid right??
The question is why would the firm assess unequal investments as equal.
Well, one guy got away with it. Then when his buddy ran into a similar problem, he gave his buddy a tip on how to beat the system. Pretty soon everybody was doing it, and it raised some flags with the oversight board.
It's not as though company executives were actively trying to falsify their 'rate case'. Call it incompetence. This loophole in their system resulted in them spending a lot of money on stuff consumers didn't need, and as a result consumers refused to give them a return.
Sounds like there was a lot going on that I'm unaware of. Was this fraud?
Where did the assessment that investments of unequal quality were of equal quality come from?
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