Advice to Regulators
Mr. Kenneth Costello is Regulatory Economist/Independent Consultant. He has conducted extensive research and written on a wide variety of topics related to the energy industries and public utility regulation.
One hallmark of public utility regulation is its commitment to universal utility service. While economic efficiency focuses on the aggregated effect of utility activities, fairness or equity is a chief concern of public policy. One notion of fairness is the affordability of utility services to all households, including those living in poverty.
Affordability goes beyond whether a physical service is available; for example, a customer having a gas service line extended to her house. It entails whether households can actually pay for their utility services without jeopardizing the ability to purchase other essential goods and services, such as food, medicine, and housing.
Invariably, the real culprit of unaffordable utility service is inadequate income. Access to utility service therefore requires the ability of customers to buy utility services. One generally acceptable affordability metric is the ratio of utility bills to household income.
Affordability aligns with the concept of equity; namely, it is unfair to charge customers more for utility service than they can afford. Unfairness, in the extreme, would result in customers falling so far behind on their utility bills that over time they accumulate an unpaid account that they are unable to pay. The inevitable outcome is service disconnection for those customers and severe financial obstacles to service restoration.