Regulation is ineffective when it comes to utility rates. What is the rationale for this?
This is a good question. When we discuss utility rates, we are dealing with commodities. And when we are dealing with commodities, we are dealing with something that is limited. This fact alone will cause fluctuations in price, even if there are regulations.
Let me give an example. If you take a look at the price of oil, it changes every day. Sometimes the change in the price of oil can be enormous. It can go up or down over twenty percent in a few weeks. In 2008 a barrel of oil hit over 150 dollars. Now it is trading at 99 dollars and a few weeks ago it was in the mid 80 dollar range. This change of price will have a huge impact on any oil based utility, especially during winter months. The same point can be made with natural gases. In short, all commodities are subject to a change in market rates on a daily basis.
Another important point to consider is the price is also based on the amount of usage. The more people use of a commodity, then there is less is of that commodity. This will have an impact on price.
Finally, at times the government can subsidize, but in this economy, the government is not able to do much.