Factors in Making Rates

Abstract

Public utilities, as they effect life in our metropolitan areas, may be classified as: (1) Telephones, (2) electric, light and power, (3) gas, (4) water, and (5) to a more limited extent, sanitary sewers. The development of public utilities during the last quarter century has been most interesting. Today the telephones, electric light and power systems, and gas systems are usually parts of an integrated intra-state or inter-state system. With comparatively few exceptions, these public utility systems are privately owned. Rate making for these public utilities is complex, due partly to the transmission lines connecting the various town plants. The factors to be considered in rate making for these utilities have been developed largely by a process involving court decisions and regulatory rulings. On the other hand, water systems and sewerage systems are, in general, municipally owned. It is estimated that 70 percent of the water systems in Texas are municipally owned, with 30 percent privately owned. The percent of municipally owned sewerage systems is even higher. Usually no inter-city connections exist, thereby simplifying the problem. In considering the factors involved in making rates, a further distinction could be made between privately and municipally owned plants. For the purpose of this discussion, however, the factors involved in making rates for both municipally and privately owned utilities are discussed. Some factors involved in making rates for privately owned utilities are not involved in the making of rates for municipally owned utilities. On the other hand, some additional factors are involved in the making of rates for municipally owned public utilities which do not appear in the making of rates for privately owned utilities. Texas has never adequately regulated the rates to be charged by