Incremental and Decremental Rate Making by LDCs
he FERC's rule making about incremental T versus rolled-in pricing has brought considerable attention to the question of paying for system expansions. The question is also important at the retail level.
LDCs constantly need to extend their networks to serve new markets. These new markets include suburban growth, new industrial customers, and the introduction of natural gas service to areas not previously served. How does the debate of incremental versus rolled-in pricing play for the facilities to serve these new markets?
Plain Vanilla Please
As it is at FERC, rolled-in pricing is the usual and preferred method for pricing additions to distribution plants. The reasons for averaging new facilities are born mostly of convenience. These investments are added to the same "plant in service" accounts that contain the existing plant. Separate subaccounts would add complexity to the utility's accounting system.
There are usually logical reasons for viewing the new facilities as a part of an integrated system. They bring service, safety, or reliability benefits to the entire customer body. Rate experts can explain how every customer presents a unique cost pattern-one house required a longer service line to go around the old oak tree, another customer adjusts the thermostat more carefully, and people across the interstate use more distribution mains than those in the older part of the city. Rate making would become impossible if it tried to recognize these minute variations in cost-causative factors.
Treating new investment "incrementally" ~ ~~~ Wiliiam H. Smith Jr. is chief of the Bureau of Rate and Safety Evaluation for the Iowa Utilities Board and dlrects the Board's FERC participation.