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Incremental and average cost methods in rate design
Author(s) -
Mann Patrick C.,
Beecher Janice A.
Publication year - 1996
Publication title -
journal ‐ american water works association
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.466
H-Index - 74
eISSN - 1551-8833
pISSN - 0003-150X
DOI - 10.1002/j.1551-8833.1996.tb06569.x
Subject(s) - activity based costing , marginal cost , computer science , jurisdiction , reliability engineering , operations research , economics , mathematics , engineering , microeconomics , accounting , political science , law
Integrating average cost and incremental cost methods in water rate design is not without problems but does offer advantages over a single‐method approach. Debate continues over the practicality of integrating incremental and average costs in water rate design. State regulatory commissions and local agencies having jurisdiction over municipalities have traditionally used average or embedded costing in water rate design. Although employing marginal or incremental cost in water rate design is far from perfect, incremental cost results can be used both as the basis for determining rate differentials and a standard for setting specific rates. Rate designers should give serious consideration to integrating incremental and average costs in rate design.