Costs incurred in supplying the services to the markets also are included in the process. This implies that any cost that concerns the production and supply of the utility to the market that involves the owners using their own money need to be included in the procedure. The costs incurred by the utility in paying loans and interests that were taken to start up the investment are included in the process. Revenue requirement basically requires the utility to recovers its operational costs and expenses, debts owed and taxes. It may but not necessarily ensure that the utility makes fair returns.
What are the problems/shortcomings of using the revenue requirement process to determine just and reasonable rates? 2. Rate structures a) The various public utility pricing elements and the various conditioning factors? Describe, explain, and give examples for the utility industries. There are various public utility pricing elements and their conditioning factors include equity and efficiency. This element of pricing implies that the the prices have to ensure that the utilities will be available (affordable )to everyone and that the price meets the cost of efficiently supplying the utility to the consumers.
The conditioning factor for these element however is the marginal cost of other markets. Another element is the principles and practices of regulations. Governments need to justify why they interfere with prises of utilities. They also have to determine if it is only the public or private enterprises as well that are to be regulated. The conditioning factor for this element is that the rates have to be fair to all the stake holders involved, that is both the customers and the utility providers.
They rates of prices decided upon need to ensure that there is fair rate of returns. Economics of the public utility regulations are other elements of utility pricing. This elements ensures that the impacts of the regulation on the economy are positive. This possible through creating opportunity for competition which eliminates monopoly. This element is conditioned by how prefect the regulations are. Imperfect regulations have negative impacts on the environment. The final element is the regulated industries.
The pricing will depend on the utility industry and how it operates. Utility industries include the telecommunication services. It involves providing of telephone networks to all areas of the country so that individuals can communicate with each other without necessarily having to meet. This is a utility which is essential to public members as they can not efficiently operate without it. The government thus extended regulations of its operation and pricing so as to ensure that all parts of the country including rural areas had the access to the service and could communicate.
Electricity industry which involves generation of electricity and steam is another example of utility industries. This is because it is a service that is required by all members of the public. The public can almost not function without electrical energy as it is used in almost all the tasks performed whether it is in home or in offices. This utility needed to be regulated as it is very vital and could result to public members being exploited if competition is not encouraged and the pricing rates controlled.
Water services is a utility industry that is very vital to human beings of any population.. It involves providing both clean water and sewerage services to members of the public. Water is an essential resource that is needed by everyone hence the government’s need in regulating its supply and sale to reduce monopoly and promote competition hence reduce exploitation of customers price wise. Natural gas is another utility industry that involves production of gas from natural resources and supplying it to the public for sale.