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Public utility pricing and rate setting

In: Public Utilities, Second Edition

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Abstract

This chapter focuses of the rate-setting function in public utilities. The process of setting rates (prices for services) in public utilities involves four steps: (1) determining operating costs, (2) distributing costs among different customer classes, (3) considering relevant load and use factors, and (4) designing the pricing structures that reflect the influences of the first three considerations. Rate setting in regulated utilities is further complicated by the legislative and social requirement that the final rates be “just and reasonable” (fair and equitable). Determining costs involves analysis of four categories of operations: customer service, operations, demand, and overhead. Typically, prices are lowest for large users, such as factories or commercial centers, and highest for residential customers. However, prices will tend to vary more during any period for industrial and commercial users than they will for residential customers.

Suggested Citation

  • ., 2016. "Public utility pricing and rate setting," Chapters, in: Public Utilities, Second Edition, chapter 10, pages 198-220, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:16995_10
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    Cited by:

    1. Park, Alex & Lappas, Petros, 2017. "Evaluating demand charge reduction for commercial-scale solar PV coupled with battery storage," Renewable Energy, Elsevier, vol. 108(C), pages 523-532.
    2. Tran, Thomas T.D. & Smith, Amanda D., 2017. "fEvaluation of renewable energy technologies and their potential for technical integration and cost-effective use within the U.S. energy sector," Renewable and Sustainable Energy Reviews, Elsevier, vol. 80(C), pages 1372-1388.

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