Why will cost-of-service studies continue to prove useful in a competitive market?
Cost is one of more than a dozen factors to consider in setting prices, whether in a regulated environment or a competitive regime. However, the relative significance of these factors will change under competition, when understanding the true cost of an individual service will actually become more important than under regulation.
In a competitive environment, more accurate cost estimates should improve management's effectiveness by enabling them to:
s Dedicate resources more effectively
s Find sounder bases for "make-or-buy" decisions
s Select the most effective mix of services to provide
s Identify the controllable functions most critical to financial performance
s Make more knowledgeable pricing decisions.
The move from regulation to competition holds significance for cost-of-service studies in part
because it can change the apparent diversity of customer load. As a rule, loads are the least diversified at the meter; diversity increases as measurements move away from the meter and toward the power-supply system. Regulation focused on the overall system, where fully diversified loads tend to make all customers look similar. Competition moves the focus back to the meter, where diversity is less obvious and customer distinctions become paramount.