Abstract
Chapter 8 introduces the environment surrounding utility prices (or rates, in utility jargon) by outlining the viewpoints brought to bear on the subject by customers, utility managements, and the public. The chapter also includes some pertinent definitions.
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Notes
- 1.
The idea of simplicity seems to come and go in rate making. Originally rates were fairly simple. In the late 1920s and 1930s, the trend was toward more “scientific”—and consequently more complicated—rate structures. This trend was then reversed for some years and simplicity was the keynote. The current trend to emphasize “cost-based” rates represents another reversal toward complexity; for example, the “unbundling” of costs into separate billing elements.
- 2.
Although special rate-making objectives can be stated simply, this does not indicate that the problem involved is simple. As an illustration, we may note some aspects of developing promotional rates as discussed a half-century ago by G.C. Delaville of the California Electric Power Company.
“In establishing rates which will encourage the greater use of the electricity, the rate engineer must keep his eye on increases in net income rather than increases in gross revenue. It is easy to design a rate which will increase gross revenue by increasing use, but this increase in use may force a utility to make such large increases in facilities that the increase in revenue is completely offset by the charges, fixed and other, on the increased facilities.”
“These remarks are especially applicable to any rate which encourages the use of air heating in areas with relatively warm winters subject to occasional cold spells of short duration. These same remarks may become applicable to domestic rates as a whole, if the present tendency toward low incremental rates in this sales classification continues. Thus, taking the record for the nation as a whole, we find that, from 1926 through 1950 annual domestic sales were increased 117 kWh per customer at an increment rate of 2.46 cents per kWh, but from September, 1945, through September 1946, annual domestic sales were increased 104 kWh per customer at an increment rate of only 1.2 cents per kWh. How long will the industry be able to increase sales at such low incremental rates, considering that these sales require additional capital expenditure and that all operating costs are increasing?” See Delaville, G.C., “What Does the Rate Engineer Do?” Public Utilities Fortnightly, Vol. XXXIX, No. 13, June 19, 1947, pp. 820–821.
- 3.
However, commissions may not necessarily be satisfied. The California PUC has declared: “[The company and the commission] should not be indifferent to a rate structure merely because it collects its revenue requirements and the customers who benefit from that rate structure are satisfied.”
- 4.
California PUC, “The 1988 Workplan” Glossary; Ratemaking Goals.
- 5.
Federal Energy Regulatory Commission, Notice Requesting Supplemental Comments, Docket No. RM85-1-000, issued October 9, 1985.
- 6.
Federal Energy Regulatory Commission, Order No. 436, issued October 9, 1985. Later, FERC followed up by a lengthy “Policy Statement Providing Guidance with Respect to the Designing of Rates,” issued May 30, 1989, geared to open-access transportation-only rates, finding that the same goals and policies set forth for the transportation components of sales rates were equally applicable to both types of rates.
- 7.
Clark, J.M., Studies in the Economics of Overhead Costs, University of Chicago Press, Chicago, IL, 1923, Ch. XVI, p. 322.
- 8.
Delaville, G.C., op. cit. p. 819.
- 9.
Lefferson, L.R., “Residual Rates for Tomorrow’s Loads,” Edison Electric Institute Bulletin, Vol. 17, No. 7, July 1949, p. 250.
- 10.
Bateman, Helene C., “Design for a Good Rate Schedule,” Bell Telephone Magazine for winter 1952-53, p. 230. In this article it is also stated that the Bell System objective, which the System’s Rate Engineers seek to implement, is “the most telephone service and the best at the least cost to the public consistent with financial safety.” See p. 231.
- 11.
“Glossary of Important Power and Rate Terms, Abbreviations, and Units of Measurement.” 1949 (by Subcommittee on Glossary of Federal Inter-Agency River Basin Committee, under supervision of Federal Power Commission), U.S. Government Printing Office, p. 6.
- 12.
California PUC, op. cit.
- 13.
Oregon PUC, Order No. 78-521, issued July 20, 1978.
- 14.
Oregon PUC, Order No. 78-521, Ibid.
- 15.
California PUC, op. cit.
- 16.
American Gas Association, Proceedings, 8th Annual Convention (Rate Structure Committee Report) 1926, p. 101.
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Conkling, R.L. (2011). Introduction to Rates. In: Energy Pricing. Energy Systems. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-15491-1_8
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