By unbundling usage from access, utilities can maximize contribution to margin and yet still retain load.
With deregulation and industry restructuring, energy utilities face price...
Table 5. Optional Tailored Tariffs for
"At Risk" Customers
Peak Usage Off-Peak Access
Charge Usage Charge Charge
Customer (cents/kWh) (cents/kWh) ($000/month)
1 3.0 2.0 635
2 3.0 2.0 663
3 3.0 2.0 463
4 3.0 2.0 444
5 3.0 2.0 330
6 3.0 2.0 323
7 3.0 2.0 323
8 3.0 2.0 308
9 3.0 2.0 277
10 3.0 2.0 215
Table 6. Comparison of Discounts Under Alternative Pricing Methods Compared to the Optional Tailored Tariff ($million)
Tailored Tariffs Method 1 Method 2
Discount 4.6 8.7 9.4
Difference NA 89 104
* Comparison is with respect to optional tailored tariffs.
Table 7. Automatic Tariff for Core Customers
(Conservative Elasticity Estimates)
Usage Charge Access Fee
Peak Peak Minimum Maximum Average Deviation
4. 6 3.9 32.9 107.8 50.9 16.9
1 Optional tariffs appear to possess most of the attributes George Pleat discussed in "Pricing and Profit Strategies for a Stand-Alone Electric Distribution Company," PUBLIC UTILITIES FORTNIGHTLY, Jan. 15, 1997, p. 20. For example, as Mr. Pleat recommends, optional tariffs: (1) use two-part tariffs consisting of an access charge (flat charge as Mr. Pleat terms it) and usage fees; (2) allow the usage charges to vary by season; and (3) are based on marginal costs, price elasticities and the costs of competitive alternatives.
2 According to Michael Porter, a noted expert on business strategy, success or failure for a company depends upon either delivering product at the lowest cost, or developing unique benefits that enable the company to differentiate itself from its rivals and sell its products for a premium price. (See Porter, M., Competitive Advantage: Creating and Sustaining Superior Performance, The Free Press, New York, 1985).
3 The cost of the competing alternative is computed as the levelized cost of optimally sized generation unit for each market segment.
4"Anti-Competitive Impacts of Secret Strategic Pricing in the Electricity Industry," by William Shepherd, PUBLIC UTILITIES FORTNIGHTLY, Feb. 15, 1997, p. 24.
5 See for example, California Public Utilities Commission Decision 92-11-052, November 23, 1992.
6The usage charges can be allowed to vary by season or by time-of-use.
7For ease of exposition, the optional automatic tariff is described as if there is only one usage charge. The method is also applicable to time-of-use tariffs that have multiple usage charges.
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