Big City Bias: he Problem with Simple Rate Comparisons

Looking beyond ranking utilities on price.

It's tempting to compare rates between utilities- to use those simple rankings as regulatory carrots and sticks-but those who do may play a dangerous game. While such rankings may appear compelling, they can add an inappropriate bias to the regulatory process and penalize well-performing electric utilities that operate in high-cost service territories, such as large metropolitan areas.

In fact, the cost disadvantage faced by utilities serving our large cities is quite pronounced. As a result, the average electric rates paid by consumers in large metro areas consistently exceed the average rates of small metro areas by at least 10 to 20 percent, throughout the country.

To make matters worse, this bias is often magnified for high-profile utilities-firms that are highly visible to the public and state politics, closely scrutinized by local media, and supplying power to a large portion of the state's economy.

As it happens, the utilities that furnish service to major metropolitan areas often face both of these challenges: A perception of high rates, and the intense public and political scrutiny associated with being a high-profile utility.