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Fundamentals of Utility Pricing

Fundamentals of Utility Pricing

Course Description

This course is designed to provide marketing personnel with a basic understanding of cost-of-service principles and rate design for electric and gas utilities. These principles are essential for developing a strong marketing strategy as well as new products and services. The method of instruction will combine lecture and practical exercises in conveying the material to class participants.

Learning Objectives

After this course students will be able to:

  • Understand cost of service ratemaking, including development of the revenue requirement and rate design principles for allocating the revenue requirement to customer rates.

  • Understand how rates for different services are constructed.

  • Work more effectively with rate and regulatory personnel in developing special contracts for individual customers or rates for new service offerings.

  • Understand how a utility’s rates and tariffs can be used creatively to meet the needs of customers.

  • Explain how utilities currently generate earnings and new approaches which may be used to generate income in the future, such as new service offerings. Understand how to turn a customer’s request for a rate decrease into a selling opportunity.

1. Principles of economic regulation

2. The economic theory of pricing

A. Embedded cost pricing

B. Marginal cost pricing

3. Cost of service ratemaking

A. Test year concepts

B. Determining the revenue requirement

1. Operation and maintenance expenses

2. Return on investment

a. Determination of rate base

b. Determination of rate of return

3. Depreciation

4. Income taxes

5. Other taxes

C. Rate design concepts

1. Cost of service study

a. Functional assignment of costs

b. Classification of costs

c. Allocation of costs among classes of customersd. The role of load research in rate making

2. Billing determinants

3. Developing retail rates

4. The regulatory process and regulatory considerations

5. Changes in the electric utility industry

A. Unbundling existing rates

B. Developing rate menus to provide customer choice

C. Rebundling rates and services

D. The role of market research in pricing


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