Public Utilities, Second Edition

Public Utilities, Second Edition

Old Problems, New Challenges

David E. McNabb

A thoroughly updated introduction to the current issues and challenges facing managers and administrators in the investor and publicly owned utility industry, this engaging volume addresses management concerns in five sectors of the utility industry: electric power, natural gas, water, wastewater systems and public transit.

Chapter 10: Public utility pricing and rate setting

David E. McNabb

Subjects: economics and finance, public sector economics, politics and public policy, public policy


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.

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information