Regulated companies.
Aug 29, 2016 11:38:39 GMT
Post by Deleted on Aug 29, 2016 11:38:39 GMT
I think people don't understand regulated companies.
There is, of course, a good side and even a necessary side to regulation, but there is a substantial downside.
In amongst everything else is the principle that their profit is "limited" to n%. Essentially that they may charge cost +n% for everything, providing that the cost is approved by the regulator. You see, another way of reading "limited to n%" is "guaranteed at n%".
The only way for a regulated company to get more money is to increase cost. Since it is almost impossible for them to increase the cost of an existing activity beyond that of inflation minus a bit, then they must grow that activity. Hence, for example, Health & Safety is a blessing to a regulated company because now they have to do loads more activities that they can charge a margin on. Even better, since its is a Government "wanted" activity, there is pressure on the regulator to approve the cost increases.
There are other instances where some long term infrastructure has been installed, using equipment which lasts a bloody long time with little serving or other input. The target then would be to be tasked with replacing that equipment for some 'justifiable' reason, even though there's loads of life left in it. Loads of write offs, disposals, removal and installation work, new equipment and all of it additional to plan/budget requiring more staff, more activities, more equipment and more margin.
Loads of support from suppliers who didn't realise that they were going to get all this new equipment business, contractors who get work to do, managers who get to manage more projects, and a general increase of importance and cost all round (+n%, of course).
With me so far?
Now consider the case of smart metering......
There is, of course, a good side and even a necessary side to regulation, but there is a substantial downside.
In amongst everything else is the principle that their profit is "limited" to n%. Essentially that they may charge cost +n% for everything, providing that the cost is approved by the regulator. You see, another way of reading "limited to n%" is "guaranteed at n%".
The only way for a regulated company to get more money is to increase cost. Since it is almost impossible for them to increase the cost of an existing activity beyond that of inflation minus a bit, then they must grow that activity. Hence, for example, Health & Safety is a blessing to a regulated company because now they have to do loads more activities that they can charge a margin on. Even better, since its is a Government "wanted" activity, there is pressure on the regulator to approve the cost increases.
There are other instances where some long term infrastructure has been installed, using equipment which lasts a bloody long time with little serving or other input. The target then would be to be tasked with replacing that equipment for some 'justifiable' reason, even though there's loads of life left in it. Loads of write offs, disposals, removal and installation work, new equipment and all of it additional to plan/budget requiring more staff, more activities, more equipment and more margin.
Loads of support from suppliers who didn't realise that they were going to get all this new equipment business, contractors who get work to do, managers who get to manage more projects, and a general increase of importance and cost all round (+n%, of course).
With me so far?
Now consider the case of smart metering......
