Pricing & Rate Design

Whatever commercial enterprise you are involved in, the first question that you have to address is: how do I price my products and services? In all cases, you need two kinds of pricing models:

• A “bottoms-up” model which analyzes the components of the cost of acquiring, manufacturing and delivering the product to the customer

• A “top-down” model which analyzes the market trends and competing offerings (or price-to-compare) to determine a price that the “market will bear”.

In the energy world, this is especially complicated: the components include energy futures, ISO charges, transmission and delivery contracts. Using historical trends these then need to be forecast into the future; and then on top of that, layer in the multiple risks – volumetric, price variability, weather – in order to come up with just a basic cost of delivery.

The problem has completely changed in the last ten years. Today, determining a price offering – whether you are a retail energy supplier or a utility who is trying to design a rate based on the cost of service for a service class – you have to deal with a whole host of new components. Distributed generation has up-ended the supply chain and maintaining the balance between usage-based rates where distribution costs are nearly fixed is not nearly resolved either in terms of the technical aspects of price computation or the regulatory policy to address the “fairness doctrine”.

So, in the final analysis, pricing tends to be as much as an art form as a science. Our consultants have worked with many clients over the last twenty-five years building pricing models and rate designs for electricity, natural gas, energy services, solar installations, media properties, etc.  We bring the depth of experience and mathematical expertise needed to build the custom models.