Don’t Answer That…

Suppose for a moment that your business held monopoly control over a product that the people living in your community needed to survive – and, in fact, were required by law to make some use of. Let’s also imagine that there is no real alternative product; even minimizing use of your product would require a huge investment of capital, to the extent that the residents would probably not be able to save enough money over the life of the equipment they would have to buy to avoid doing business with you to pay for the cost of that equipment. Under those conditions, would you attempt to quietly rake in your huge (and unavoidable) profits while keeping a low profile, or would you openly attempt to screw so much money out of your “customers” that they start politically agitating against you – and charge so much that the alternative technology starts to become affordable?

Before you answer, consider the strange case of the Salt River Project (SRP) in Arizona. A story being reported this week in the Arizona Republic claims that the SRP, a privately-held company that controls electrical service to a large number of areas in Central Arizona is expecting to make about $25 million less in net revenue this year than was originally projected, and are considering raising rates to make up the difference. Please note that the shortfall is not in gross sales, or gross income, or even gross revenue; we’re talking a reduction in net revenue, money the company actually gets to keep. Also, please note that the SRP has already raised its rates four times in the past 15 months, citing higher fuel costs. That sort of thing is hard to explain given that even after the recent hikes in the price of oil, fuel is still about half of what it cost last summer…

This doesn’t even consider the fact that utility companies in Arizona routinely charge 300% more for electricity in the summer months, when everyone needs the power to run their air conditioners (and evaporative coolers) to stay alive; we’re just talking about increases over previous years. It isn’t legally feasible to go without power either; most of the communities in the SRP area of operations have ordinances that allow a landlord to evict someone who hasn’t got water and power turned on. It’s doubtful that any of this would be allowed to happen anywhere other than Arizona, where the state government is so corrupt that attempts to make it illegal to bribe your state legislators routinely fail to pass. But leaving aside all of the legal, moral and ethical aspects of the question, I have to question the intelligence of the people running SRP…

Investment in home solar power systems has been prevented mostly by economic concerns; most such systems are so expensive that you’ll need to replace the system before you can save enough money to cover the cost of buying it in the first place. But if the SRP raises the cost of their service too far, that equation will change – and if they annoy their customers enough, an increasing number of people will also install solar panels just to deny SRP their business. Can the people at SRP really be stupid enough not to see that squeezing out the largest possible short-term profit will eventually destroy them? Can they really be short-sighted enough to ignore the danger inherent in violating the Second Law of Business that badly?

***Sigh.*** You’d better not answer that…