Abstract
Stand-alone cost (SAC) is the cost of providing one service (or group of services) o f a multiproduct fiirm on its (their) own, without producing any of the firm's other services. This paper spellsout the proper use of stand-alone cost in public utility regulation and also notes some of the more common abuses of the SAC concept. The proper use is as a test for sources of cross-subsidy. Common abuses include: using SAC to allocate shared costs; use of incorrect or incomplete sets of criteria in testing for cross-subsidies; and using SAC when incremental cost should really be used.
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