Desirable characteristics of a Tariff

Desirable characteristics of a Tariff

  • Proper Return: The tariff should be such that it ensures the proper return from each consumer. In other words, the total receipts from the consumers must be equal to the cost of producing and supplying electrical energy plus a reasonable profit.
  • Fairness: The tariff must be fair so that different types of consumers are satisfied with the rate of charge of electrical energy. Thus a big consumer should be charged at a lower rate than a small consumer. It is because increased energy consumption spreads the fixed charges over a greater number of units, thus reducing the overall cost of producing electrical energy.
  • Simplicity: The tariff should be simple so that an ordinary consumer can easily understand it. A complicated tariff may cause an opposition from the public which is generally distrustful of supply companies.
  • Reasonable Profit: The profit element in the tariff should be reasonable. The investment is relatively safe due to non-competition in the market. This calls for the profit to be restricted to 8% or so per annum.
  • Attractive: The tariff should be attractive so that a large number of consumers are encouraged to use electrical energy.

Electricity Tariff

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