In electric power, telecommunications, water, and natural gas, the costs of local distribution make up a significant share of the cost of providing services. For any network or system, the cost of distribution facilities is largely or entirely independent on usage; i.e., such costs are largely invariant to the number of phone calls, kilowatts, British thermal units (BTUs), or gallons that customers use. How these costs are recovered is of critical importance, especially as utilities face increased competitive pressures.ACCESS:
A SERVICE IN ITS OWN RIGHT
Access to any system or network represents a service in its own right. If I own a vacation cabin with telephone, electric, water, and gas services available, I may never use any of these services over the course of a year. However, simply having the option to use these services is of value to me. For each of the utilities, providing me with the option to use these services imposes a substantial cost as well.
In real estate, financial markets, and contracts in general, options are well developed and are
generally recognized to have a separately identifiable price and cost. For example, most businesses leasing office space will also purchase the option to expand to larger quarters if the need arises. For utility customers as well as businesses leasing space, the option to use facilities has a value. Similarly, having the facilities to provide this option has a separately identifiable cost.