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 competition from marketers, brokers, independent producers and even other utilities. To succeed in this environment, utilities will need to develop innovative pricing strategies that better meet customer needs and respond more effectively to competition. The common response by utilities to competition calls for price discounting to retain "at risk"
customers by meeting the competition head-on.
To do that, electric utilities typically will employ one of two methods to discount prices. The first method adjusts the demand charge to make the average cost of utility service equal to the cost of the bypass threat or the least-cost competitive alternative. The second method adjusts the usage charge to attain the same end result.
Nevertheless, utilities can improve on these traditional discounting methods. The solution lies in pricing usage separate from access. Set the usage price at marginal cost and recover fixed costs through the access charge. By unbundling usage and access through a two-part tariff, a utility can maximize its contribution to margin and minimize the size of the discount needed to retain load.
This seemingly contradictory result comes directly from economic theory. First, by cutting usage rates, the seller can stimulate demand and deliver benefits to customers by what is known as "consumer surplus," compared to traditional approaches used by utilities to retain customers. Second, by recovering margin through an access charge, the utility avoids depressing demand
and actually boosts "producer surplus."