Energy pricing : economics and principles / Roger L. Conkling.

Includes index.

1. Introduction -- 1.1. Distinguishing Between Cost and Price -- 1.2. Cost and Price in Our Daily Vocabulary -- 1.3. The Credibility of Cost -- 1.4. Total Cost of the Operation as a Whole -- 1.5. Joint-Product Costs -- 1.6. Price Relationships: The Baker Revisited - - The Quantity Discount -- 1.7. The Economics of Fixed (Overhead) Costs -- 1.7.1. Production Within the Capability of Existing Plant -- 1.7.2. Where Plant Expansion Is Required -- 1.8. A Closer Look at Two-Part Pricing -- 1.9. Competitive Pricing (Value to the Purchaser) -- 1.10. From Wonderland to Reality -- 1.10.1. The Baker -- 1.10.2. The Utility -- 1.10.3. A Broader Horizon -- 1.10.4. Benefits vs. Costs -- 1.11. Cost and Price-A Primer -- 1.12. Conclusions, If Any -- 2. The Cost Approach to Pricing: The Direction of Cost -- 2.1. Preface -- 2.2. Fixed and Variable Costs -- 2.2.1. The "Readiness to Serve" Concept -- 2.2.2. The "Use of Service (Product)" Concept -- 2.2.3. Relative Proportion of Fixed and Variable Costs -- 2.3. Decreasing,Constant, and Increasing Costs Conditions -- 2.4. Decreasing Costs -- 2.4.1. The Static Hypothesis -- 2.4.2. The Dynamic Hypothesis -- 2.5. The Base System -- 2.6. Future Additions -- 2.6.1. Decreasing Fixed-Cost Scenario -- 2.6.2. Constant Fixed-Cost Scenario -- 2.6.3. Increasing Fixed-Cost Scenario -- 2.7. The Small Base-Load Plant -- 2.8. The Peaking or Firming-Up Plant -- 2.9. Power Purchases by Electric Utilities from Non-utility Sources, Bypass, and Discounts -- 2.9.1. Purchase by a Utility -- 2.9.2. Construction by the Utility of Its Own Plant -- 2.9.3. Purchase of IPP Power -- 2.9.4. Bypass of the Utility -- 2.9.5. An Alternative to Bypass: A Discounted Price -- 2.9.6. Arrestedor Contracted Output -- 2.9.7. Summary of Findings -- 2.10. Variable Costs -- 2.10.1. The Dominance of Variable Costs -- 2.10.2. The Uncertainty of Variable Costs -- 2.10.3. High Capital /Low Operating Costs vs.Low Capital /High Operating Costs -- 2.11. Matters of Judgment -- 2.12. A Note on Generating Plants -- 2.13. A Note onthe Level of Costs -- 3. The Cost Approach to Pricing: Joint Cost Allocations -- 3.1. Direct and Joint /Common Costs -- 3.2. Cost Causation -- 3.2.1. The Classification of Customers -- 3.2.2. The Classifications of Services -- 3.2.3. The Classification of Costs -- 3.3. Utility Cost Allocation Theory -- 3.4. The Functionalization of Costs -- 3.5. Methods of Allocation -- 3.5.1. The "Coincident Demand Peak- Responsibility" Method -- 3.5.2. The "Non-coincident Demand Peak-Responsibility" Method -- 3.5.3. Other Peak-Responsibility Methods -- 3.5.4. Various Other Methods -- 3.5.5. The "Phantom Customer" Method -- 3.5.6. The Nordin Proposal -- 3.5.7. Edison's Improvements -- 3.6. Distribution -- 3.7. Rate Schedule Divisions of Cost -- 3.7.1. Demand Costs -- 3.7.2. Customer Costs -- 3.7.3. Commodity Costs -- 3.7.4. The "Perfect"Rate -- 3.8. Suballocations -- 3.9. The Total Cost and Incremental Cost Methods -- 3.9.1. Marginal Costs -- 3.9.2. Useof the Incremental Cost Method -- 3.10. The Separable Costs-Remaining Benefits Method of Cost Allocation in Federal Multi-purpose Projects -- 3.11. Limitson the Ascertainment of Costs -- 3.12. Definitions of Cost -- 4. The Cost Approach to Pricing: The Tenneco Pattern -- 4.1. Tenneco Pattern -- 4.2. The Issues -- 4.3. The Regulatory Scheme in Brief -- 4.4. Assignment of Fixed and Variable Costs -- 4.4.1. The Seaboard Formula -- 4.4.2. The United Formula -- 4.4.3. The Modified Fixed - Variable (MFV) Formula -- 4.4.4. The Straight Fixed - Variable (SFV) Formula -- 4.4.5. Comparison of the Formulae -- 4.5. The Demand Charge -- 4.6. Zoning -- 4.6.1. A "Postage-Stamp" Approach -- 4.6.2. The Zoning Alternatives -- 4.6.3. Which Alternative Is the Best? -- 4.6.4. The Legal Standards -- 4.6.5. The Commission's Appraisal Yardsticks -- 4.6.6. Commission Precedents -- 4.6.7. The Commission's Findings and Orders -- 4.7. A Resume -- 4.8. The Minimum Bill -- 4.9. Tenneco Allocations for Rate Design -- 4.9.1. Step 1:The Company-Wide Cost of Service -- 4.9.2. Step 2: Functionalization of the Cost of Service -- 4.9.3. Step 3: Classification of Functional Costs as Fixed or Variable -- 4.9.4. Step 4: Classification of Costs as Demand or Commodity -- 4.9.5. Step 5: Classification of Transmission Sector Costs -- 4.9.6. Step 6: Distance-Related Costs -- 4.9.7. Step 7:The New York Zone -- 4.9.8. Step 8:Per-Unit Rate Elements -- 4.9.9. Step 9:Total System Costs Revisited -- 4.9.10. Closing Reminders --

5. The Value Approach to Pricing: Demand Influence -- 5.1. Preface -- 5.2. Value of Service Defined -- 5.3. Cost vs. Value in Juxtaposition -- 5.4. The "Upper and Lower Limit of Rates" Concept -- 5.5. Economic Demand -- 5.6. Direct and Derived Demand -- 5.7. Option Demand -- 5.8. The Price Elasticityof Demand -- 5.9. The Crucial Importance of Price Elasticity -- 5.9.1. Electric - Washington Public Power Supply System (WPPSS) -- 5.9.2. Gas - Producer-Pipeline Take-or-Pay Contracts -- 5.10. The Revenue Effects of Elasticity -- 5.11. Immediate, Short-Run and Long-Run Price Elasticities of Demand -- 5.12. Repression and Stimulation -- 5.13. The Principle of Diminishing Utility -- 5.14. Economics of Pricing on a Value of Service Basis -- 5.15. Monopoly Pricing -- 5.16. The Theory of Class Price -- 5.16.1. Price Differentiation -- 5.16.2. Reasonable Price Differences -- 5.16.3. Determination of Rate Classifications Under Value and Combined Cost-Value Approaches -- 5.16.4. Combined Value and Cost Bases -- 5.17. Bases of Rate Classes -- 5.18. The Cost and Value Approaches Compared -- 5.19. Unreasonable Discrimination -- 5.19.1. The FERC Lists -- 5.19.2. Statutory Prohibitions -- 5.20. Predatory Pricing -- 5.21. Is There a Problem? -- 5.22. Concluding Observations on Cost vs. Value -- 5.23. Marketing and Advertising -- 5.23.1. Civic Participation -- 5.23.2. Marketing -- 5.23.3. Giveaways -- 5.23.4. Advertising -- 6. The Value Approach to Pricing: Planning for Demand -- 6.1. Units of Measurement -- 6.2. Procedure -- 6.3. Planning: Short-Run Demand Forecasts -- 6.3.1. Natural Gas -- 6.3.2. Electric -- 6.3.3. Common Issues -- 6.4. Planning: Long-Range Demand Forecasts -- 6.4.1. The Purpose of the Forecast -- 6.4.2. The Strategic Plan -- 6.4.3. The Supply Forecast -- 6.4.4. Matching Supply and Demand -- 6.4.5. The Input Assumptions -- 6.4.6. Other Market Share Considerations -- 6.4.7. Availability and Reliability -- 6.4.8. Finally, the Factor of Governmental Policy -- 6.5. Final Results -- 6.5.1. The Single Forecast vs. a Range -- 6.5.2. The Components of the Forecast -- 6.5.3. Testing the Forecast -- 6.5.4. Reliance on Forecasts -- 6.6. Public Policy Forecasts -- 6.6.1. Errors in Public Policy -- 6.6.2. Omissions in Public Policy -- 6.7. Concluding Comments -- 6.7.1. Conflicting Forecasts -- 6.7.2. Guidelines -- 6.7.3. A Personal Note -- 6.7.4. Alternative Forecasts -- 6.7.5. Resolving Forecasting Conflicts -- 7. The Public Policy /Social Engineering Approach to Pricing -- 7.1. California's Lifeline /Baseline Rate -- 7.1.1. The California Lifeline Philosophy -- 7.1.2. The Lifeline /Baseline Rate Schedule -- 7.1.3. Pricing Procedure -- 7.2. Cost Components of Rates -- 7.3. Timed Pricing -- 7.3.1. Prior to -- 7.3.2. Real-Time Pricing(RTP) -- 7.3.3. Now -- 7.4. The Color GREEN -- 7.4.1. Comparisons -- 7.4.2. Electric Utilities: Clean-Energy Programs -- 7.4.3. From the Printed Media -- 7.5. Venture into Marginal Cost Regulation -- 7.5.1. Marginal Cost Defined -- 7.5.2. The Steppingstone -- 7.5.3. The Proxy, a Combustion Turbine -- 7.5.4. Levelization Out, RECC In -- 7.5.5. EPMC Adopted, EDP Dropped -- 7.5.6. Energy Reliability Index (ERI) Established -- 7.5.7. Excess Generating Capacity and the ERI -- 7.5.8. The Resource Plan and the ERI -- 7.5.9. Long-Run vs. Short-Run and the ERI -- 7.5.10. The Capacity Response Ratio (CRR) -- 7.5.11. VOS In,ERI Out -- 7.5.12. The Abrupt Halt -- 7.6. Wind Rates onan Integrated Electric System -- 7.6.1. A Primer on Windand the Electric Grid -- 7.6.2. Amount of Wind Generation -- 7.6.3. Wind and Planning -- 7.6.4. Planning: Wind Generators -- 7.6.5. Planning: Persistence Models -- 7.6.6. The Generation Reserves -- 7.6.7. Costs -- 7.6.8. Balancing Measures -- 7.6.9. Points of Contention -- 7.6.10. Services Offered -- 7.6.11. Rate Design -- 7.6.12. Physical Specifications -- 7.6.13. What's Left Out -- 8. Introduction to Rates -- 8.1. The Unregulated Marketplace -- 8.2. The Marketplace Under Regulation -- 8.3. The Customer Viewpoint -- 8.4. The Management Viewpoint -- 8.5. The Public Viewpoint -- 8.5.1. The California PUC -- 8.5.2. The Federal Energy Regulatory Commission -- 8.6. Related Objectives -- 8.7. Some Expert Opinions -- 8.8. Definitions --

9. Elements of Rate Design -- 9.1. Frequent Features -- 9.1.1. Minimums -- 9.1.2. Ratchets -- 9.1.3. Adjustment Clauses -- 9.1.4. Penalties and Discounts -- 9.1.5. "Frozen" Rates -- 9.1.6. Caps and Floors -- 9.2. The "Blocking" Principle -- 9.3. "Postage Stamp" vs. Zone Rates -- 9.4. All-Purpose vs. Special-Purpose Rates: Unbundling -- 9.5. Seasonal vs. Year-Round Rates -- 9.6. Rolled-in vs. Incremental Pricing /Old Customer vs.New Customer Rates -- 9.7. Rate-Level Changes Across-the-Board -- 9.8. The "Fine-Print"Provisions -- 9.9. Nota Bene -- 10. Traditional Types of Rate Forms -- 10.1. Introduction -- 10.2. Rate Elements Defined Again -- 10.3. Single-Part Rate Forms -- 10.3.1. Flat Rates -- 10.3.2. Metered Commodity Rates (Also Called Straight-Line Commodity Rates) -- 10.3.3. Metered Demand Rates -- 10.3.4. Single-Part Rate Forms and Rate Theory -- 10.4. Two-Part Rate Forms -- 10.4.1. The Hopkinson Rate -- 10.4.2. The Wright Rate -- 10.4.3. Comparison of Hopkinson and Wright Rate Forms -- 10.4.4. Two-Part Rate Forms and Rate Theory -- 10.5. Three-Part Rate Forms -- 10.5.1. The Doherty Three-Part Rate -- 10.5.2. The Lester Special-Investment Three-Part Rate -- 10.5.3. The Zanoff Three-Part Gas Pipeline Rate -- 10.6. Modifications of Rate Forms and Special Applications -- 10.6.1. Promotional, Incentive-Type Rates -- 10.6.2. The Objective Rate -- 10.6.3. Additions to Standard Rate Forms -- 10.7. Miscellany -- 10.7.1. A 1946 - 1950 Case History with Overtones for Today -- 10.7.2. Rate Forms and Rate Comparisons -- 10.7.3. A 1971 Gas Distributor and Pipeline Tariff -- 10.7.4. Some Concluding Observations -- 11. Tools of the Trade -- 11.1. Introduction -- 11.2. Knowing the Market:Load Curves -- 11.2.1. Load /Demand Curve -- 11.2.2. Season Usage Patterns -- 11.2.3. Duration Curve -- 11.2.4. Planning -- 11.3. Gauging the Market: Analysis Factors -- 11.3.1. Diversity and Diversity Factor -- 11.3.2. Load Factor -- 11.4. Capacity Factor -- 11.5. Utilization Factor -- 11.6. Demand Factor -- 11.7. Power Factor -- 11.8. A Note to the Ratemaker -- 12. Matters of Judgment -- 12.1. Part 1: Dubious Accounting -- 12.2. Earlier Accounting Results -- 12.3. Current Accounting Results -- 12.3.1. Overstatements -- 12.3.2. Understatements -- 12.3.3. Special Issues -- 12.3.4. Potpourri -- 12.3.5. Three Tidbits over 10Years -- 12.3.6. Debt Concealment -- 12.3.7. At the Borderline -- 12.4. An Appraisal -- 12.5. Difference: Utility and General Corporate Accounting -- 12.5.1. Lack of Uniformity -- 12.5.2. The Question of Prudence -- 12.5.3. Afudc -- 12.5.4. Deferred Income Taxes -- 12.6. Part 2:The California Energy Crisis -- 12.7. 1996: Assembly Bill -- 12.8. Optimism Reigns: No Doubts (1996) -- 12.9. The Lull Before the Storm (1997 - 1999) -- 12.9.1. FERC's Approval -- 12.9.2. Sales of California Generation Capacity -- 12.9.3. The California PX -- 12.9.4. Acquisitions of Generating Capacity Beyond California -- 12.9.5. Other Notes of the Majors -- 12.9.6. Rate Reduction Bonds -- 12.10. The Storm Hits: The Energy Crisis (2000 - 2001) -- 12.10.1. PG&E Corporation and Edison International -- 12.10.2. Other Activities of PG&E Corporation and Edison International -- 12.10.3. The Special Case of Sempra Energy, Parent of San Diego Gas and Electric Company -- 12.11. Chronology: The Crisis and Its Aftermath (to Early 2002) -- 12.11.1. November -- 12.11.2. August -- 12.11.3. January -- 12.11.4. February -- 12.12. Comments -- 12.12.1. The Fatal Contradiction -- 12.12.2. Regulatory and Economic Failures -- 12.12.3. The Divestiture of Generating Capacity by California Utilities -- 12.12.4. The Issue of Long-Term Contracts -- 12.12.5. The Uniform-Price Auction -- 12.12.6. The Neglect of Costs -- 12.13. From Stormto Turmoil -- 12.14. P.S. - -- 12.14.1. Pacific Gas and Electric Company -- 12.14.2. Edison International -- 12.14.3. Sempra Energy -- 12.14.4. Statutory Changes -- 12.14.5. CPUC Actions -- 12.15. Part 3: The 2008 - 2009 Recession -- 12.16. Toxic Assets in Action:The Beginning -- 12.16.1. The Securitization Process in Detail -- 12.16.2. The CDS -- 12.16.3. The CMBS -- 12.16.4. A Bond Called Jupiter -- 12.17. Disregarded History -- 12.18. Earlier Bailouts -- 12.19. The Financial Crisis -- 12.20. The Bailouts -- 12.21. A Conducive Environment -- 12.22. Causes -- 12.23. The Dow from September 10 to October 10 -- 12.24. The Paths of the Giants -- 12.25. Regulation -- 12.26. 2008 Statistics -- 12.27. Epilogue -- 12.28. Acronyms and Definitions.

"This book describes the processes through which rates for energy consumption are derived, ranging from initial analyses of the supply and demand parameters to the final forms and levels of end-use consumer prices. The author argues against aggressive accounting procedures, and suggests criteria for choosing firm's position on pending public policy issues. A handbook on energy formulae for non-professionals is included in the book."--Publisher's website.

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