Why Bitcoin will make cost of electricity go DOWN over time?
First, we need to understand how electric utilities generate profits. Because they have monopoly on electricity distribution, utilities are highly regulated entities. Every utility reports to a PUC (public utility commission) or PSC (public service commission). Different names, same concept.
A PUC is a semi-governmental entity that should act neutral amongst the utility and the rate payer (you read that right, you are called a rate payer in their world).
Here’s the interesting part 👉 A UTILITY’S NET PROFIT IS SET IN ADVANCE BY THE PUC!
Again, you read that right. A utility is authorized by the PUC to generate a predetermined Net Income. No other business on earth works that way. A typical P&L is “top down”, meaning you generate sales, substract COGS, SG&A, interest cost and depreciation to get to Net Income.
A Utility’s P&L works the other way around or “bottom up”. You start with Net Profit, and you add up P&L elements to work your way up and determine the amount of Sales you need to generate so that at the end of the year the ALLOWED Net Profit is achieved.
We have only scratched the surface, this is not a documentary so I’ll end it here for now. Next post I’ll write about HOW NET INCOME IS FIXED BY THE REGULATOR.
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