A consumer's guide to the economics of electric utility ratemaking PDF
Preview A consumer's guide to the economics of electric utility ratemaking
DOE/RGI A Consumer's Guide totbe Economics of Electric Utility Ratemaking NOTICE This repon was prepared as an eccount of work sponsored by the United States Government. Neither tthle United Stat8e$s nor the United Stat8e$s Department of Energy, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or rnetSsppoonsibility for tthle eccc:uraecc:y. completeness, or usefulness of any information, apparatus. product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process, or service by trade n~aem,e, mark, mannuuffllaCc1tuUrreer, or otherwise, does not necessarily constitute or imply iu endorwment., recommendation, or favoring by the United States Government or any agency thereof. The views and opinions of authors expressed herein do not necessarily state or reflect those of the United States Govaernment or any aegency thereof. Available from: National Technical Information Service (NTIS) U.S. Department of Commerce 5285 Port Royal Road Springfield, Virginia 22161 Price: Printed copy: $9.50 M:iiccrrooffiicche: $4.00 /I0,'u'1l"' sSnlIiltl·' 0u..1\"' Ithec .X·lIIIlI"C'll""iilllctclIn<tilcnt "cf lIJoncclUlIlllCclnlts., UV..l.:;.. GOoy\'ccrrlllllent lP'rinting Olfllicc. Wnsahsihnin~tgotolln,. D.C. 204~02 DOE/RG/09154 Dist. Category UC 97 r i, A Consumer's Guide to the Economics of Electric Utility Ratemaking Published May 1980 ) Prepared by: "'.j/ Illinois Office of Consumer Services Grant" Number DE-FG-Q01-79-RG 09154 Prepared for: u.s. Department of Energy Administrator, Economic Regulatory Administration Division of Utility Regulatory Assistance Washington, DC 20585 TABLE OF CONTENTS Page LIST OF TABLES .. • • • • o·' · ..... v LIST OF CHARTS. vi GUIDE TO SYMBOLS. . . . . . vii PREFACE ... . . . . · . . ix Introduction 1 Chapter One THE PUBLIC UTILITY CONCEPT 3 Introduction . · · · . . . 3 The Historical Relationship Between Government and Business . . . . . 4 · · · · · Rationale and Characteristics . 17 · · · · /) Methods and Goals of Requ1ation 36 ) ~ Two THE ANALYTICAL FRAMEEtW~ORRKK:: AN OVVEERRVVIIEEtW~ 4·8 · · Introduction . . . . . . . . 48 · · · · · · · · The Economic Framework . 50 · · · · Three TOTAL OPERATING EXPENSES · · .· .· .· 60 Introduction . . · · · . . 60 Primary Economic Elements · . . . · 61 Methods of Evaluation · · · · · 65 Court Cases . ·. ·. ·. . · .· .· .· 72 -ii- Four THE RATE BASE AS A COMPONENT OF TOTAL EARN- INGS .... 78 Introduction 78 Primary Economic Elements 82 Economic Principles ..... 83 Valuation Methods 85 Legal Evolution of Rate Base Valuation . . .. 90 Five THE RATE OF RETURN AS A COMPONENT OF TOTAL EARNINGS . . . . . . . 94 Introduction .. 94 Primary Economic Elements 96 ROR Methods and Evaluation Techniques 101 ROR and the Courts 113 Six THE RATE STRUCTURE 119 Introduction .. 119 Primary Economic Elements •• i • • 123 Cost Allocation Evaluation Techniques .. 141 Seven CURRENT ISSUES 158 Introduction . . ...... . 158 Automatic Fuel Adjustment Clause . . . . 158 Advertising 170 Taxes ... 179 Construction Work in Progress 183 Life 1 i ne Rates 192 Peak-Load Time Differential Pricing 204 -iii- EPILOGUE . . 212 · · · · · · · DEFINITIONS. . . . . . 213 · · · · · · · BIBLIOGRAPHY . . • . . • . · · · · · · · 232 -iv- LIST OF TABLES Title Page The Twenty Leading Investor Owned Electric/Gas Utility Firms, Ordered by Size, Based on Dollar Sales, 1976 ................. . ., ., ., Usage and Total Revenue Data by Customer Classification in the Electric Light and Power Industry, 1976 . . 58 Total Operating Expenses for Investor Owned Electric Utilities in the U.S., 1976 • . . . . . . • . . 63 The Composite Capital Structure of Investor Owned Electric Utilities, 1967-1976 .•..••..•• , 100 The Composite Cost of Long Term Debt, Preferred and Common Stocks and the Rate of Return on the Rate Base for Investor Owned Electric Utilities, 1967 1976 . . . . . . . . . . • . . . . . . . . . . . • .· . . 105 Average Price Per KWH Charged by Investor Owned Utilities to Various Customer Classifications, 1976 ·, . . 122 Interrelationshio Between Functional Related Cost and Causal Related Cost .••.......... ., ..•• ., ., ·, . . 126 Comparison of Pacific Gas & Electric Co., Rate (1974) With a Lifeline Rate Proposal of DR. E. P. Coyle •, ·, . ., 196 -v- LIST OF CHARTS Page The Public Utility Concept 43 The Analytical Model ... 59 Total Operation Expenses .. .. " , .. 77 Total Earnings: The Rate Base Determination 93 Total Earnings: The Rate of Return. 117 Rate Structure Design .. 156 , ~ \ I .~. -vi- GUIDE TO SYMBOLS* Acronyms IOU = Investor Owned Utility TVA = Tennessee Valley Authority REC = Rural Electric Cooperative REA = Rural Electrification Authority FDC = Fully Distributed Cost PDR = Peak Demand Responsibility NPD = Noncoincident Peak Demand AED = Average Excess Demand MC = Marginal Cost SRr,'1C = Short Run Marginal Cost LRMC = Long Run M~1aarrgiinall Cost LRIC = Long Run Incremental Cost FAC = Fuel Adjustment Clause CWIP = Construction Work in Progress AFUDC = Allowance for Funds Used During Construction PLTD = Peak-Load/Time Differential *The Acronyms are listed in the order in which they appear in the Guide. The equation symbols are listed in the order in which they appear in the Guide. -vii- Equation Symbols TC = Total Cost TR = Total Revenue TOE = Total Operating Expenses TE = Total Earnings OE = Operation Expenses AD = Annual Depreciation TX = Taxes ROR = Rate of Return RB = Rate Base -viii
The list of books you might like
