Please forward this error screen to sharedip-10718057111. Historically, 10-1 utility expenses different classes of business have been classified as public utilities, and thus have been legally mandated to go through the ratemaking process in order to determine the allowable service charges for their industry. Ratemaking is political because the product is determined to be a social necessity and rates must be fair across different classes of consumers.
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Additionally, ratemaking can be designated to serve other social purposes. When prices are kept below market, efficiency suffers. When prices exceed the market, prices may not be reasonable. Both events have occurred during the history of utility regulation.
The above goals attempt to serve the interests of the utility, its shareholders, consumers, and the general public. Although utilities are regulated industries, they are typically privately owned and must therefore attract private capital. Accordingly, because of constitutional takings law, government regulators must assure private companies that a fair revenue is available in order to continue to attract investors and borrow money. This creates competing aims of capital attraction and fair prices for customers. State laws typically restrict utilities from large, sudden rate increases.
Utilities should implement new rates over time so that consumers and business can adapt to the changing prices. This is known as the principle of gradualism. A standard demand curve showing that as prices decline, consumption rises. The price of a utility’s products and services will affect its consumption.