Let me tell you a story about how you’re likely getting ripped off. It involves a shadowy group. Some seriously shady tactics. And a product you literally can’t live without: electricity.
You know how your electricity bill seems to keep climbing, even though you’re not running a Bitcoin mining operation out of your basement? You’re not crazy. Private utilities have jacked up residential electricity rates by a whopping 49% in the past three years. That’s way more than inflation, and it’s a trend that should have you seeing red.
So, who’s pulling the strings here? There’s this not-so-secret society called the Society of Utility and Regulatory Financial Analysts (SURFA). These guys aren’t exactly household names, but they wield a ton of power. Way too much power.
SURFA is basically a clique of consultants who use some seriously questionable economic analysis to cozy up to regulators. Their goal? To convince those regulators to let utility companies charge you more. It’s a sweet deal for the utilities, but a raw deal for your wallet.
How the Scam Works
- Utilities are supposed to be regulated. We’re talking about a basic bargain here. Utility companies get a monopoly in a certain area, and in exchange, they’re supposed to provide universal service and have their rates regulated by state public utility commissions (PUCs).
- They need approval for rate hikes. When a utility wants to charge you more, they have to go before the PUC and prove they deserve it. They’re supposed to get only a “just and reasonable” profit.
- Here come the shenanigans. Utility companies have two kinds of costs: operating costs (like salaries) and capital costs (like building power plants). They make money on both, but they can make more money by increasing those capital expenditures. It’s like a bank earning interest on a bigger loan – the bigger the loan, the more interest they earn.
- SURFA and their “expert” witnesses. This is where SURFA comes in. These guys provide “expert” testimony to PUCs to justify those rate increases.
- Bogus economic models. Ellis’s report reveals that these experts use some truly bizarre economic models. Two of the models are so bad that the Federal Energy Regulatory Commission said they “defy general financial logic” and banned them at the federal level. But guess what? They’re still used at the state level.
- They’ve co-opted the opposition. Here’s the really crazy part: Even the people who are supposed to be arguing against the utilities often use the same flawed models! SURFA basically trains everyone, so they’re all playing the same rigged game.
The result of all this? You get stuck with inflated electricity bills.
Here’s a mind-blowing stat: Investor-owned utilities are seeing stock growth way higher than you’d expect for a low-risk, regulated industry. In the first half of 2023, they were bringing in a 9.6 percent return, while the broader stock market averaged only 6 to 7 percent.
According to Ellis, it doesn’t take a genius to figure out the proper rate of return for utility rates. As he puts it, “There are very long-standing principles of finance that literally a first-year finance student, undergrad, will learn.”
Ellis has a few ideas to fix this mess:
- Codify the “rate of return equals cost of capital” standard into law. This would stop the SURFA consultants from running the show with their bogus models.
- Compensate independent analysts and advocates. This would help them participate in the regulatory process and provide alternative perspectives.
- Promote information-sharing across regions. This could help regulators learn from each other and avoid falling for the same tricks.
- Stop utilities from using lobbying expenses as an operating cost. Why should you have to pay for the very lobbying that’s screwing you over?
Here’s the thing Ellis doesn’t say, but I will: We need more publicly owned utilities. Co-ops. The data is clear – they operate much differently than investor-owned utilities, and they’re not driven by the same profit motives.
Publicly owned utilities are more accountable to the public, and that could go a long way toward ending the kind of overcharging we’re seeing.
This whole situation is a classic example of a small group of “experts” abusing the system for their own gain. It’s going to take some serious digging to expose all these problems across different industries. But at least with utilities, we’ve got a starting point.
So, what are you going to do about it? Are you going to keep letting these guys pick your pocket, or are you going to demand some change?