( that is, cost and revenue projections ) in the regulatory process is now common. once the test year has been selected, the firm ’ s operating expenses, annual depreciation, annual taxes, and allowed profit are evaluated. the revenue requirement is determined by adding up these items. the second guiding principle is cost allocation. cost allocation refers to the distribution of costs among consumer classes. utility service is produced for different customer classes using the same facilities. as a result, it is difficult to indentify separate marginal costs for each customer class because a large part of the costs are common or joint. however, utility is produced for different customer classes in variable proportions, and separate marginal production costs can be identified as the increment to the total cost of the joint production process when output to one customer class is increased by one unit, holding the output of other customer classes fixed. various factors influence customer costs, including voltage differences, distances between generation points and consumption points, and customer - density. recognition of these factors has led to the development of cost allocation formulas that approximate the actual costs for which each customer class is responsible. in addition to being simple, the use of cost allocation formulas may reflect a desire to favor certain groups in terms of the prices bis central bankers ’ speeches they have to pay. cost allocation methods are broadly classified into two groups : ( 1 ) peak allocation methods and ( 2 ) energy allocation methods. peak allocations methods distribute cost responsibility to the various customer classes on the basis of their proportionate share in total demand placed on the system. meanwhile, energy allocation methods distribute costs to the various customer classes on the bases of the amount of energy used to serve each class. in contrast to the peak allocation method, this method takes load factors into consideration and therefore benefits low - load factor customer. as can be seen there are various ways and methodologies to price utility services. it is not an easy and clear cut as sometimes one may want it to appear. this issue is further complicated when one takes into considerations the various interest group that try to make the rates reflect their own objectives such as consumers advocate, environmentalists and industry lobbyists. ladies and gentlemen, before 1984 public ownership of utility companies was justified by the argument that these companies were natural monopolies. governments owned utility companies because it was not possible to prevent the abuse of market power under private ownership, because of economies of scale, competition in these industries would result in the inefficient duplication of assets.

in the mid 1980s. a changes occurred in this view. the focus became more on increasing efficiency in the utility companies. in addition, there was a growing realization that while a considerable part of the activities carried out by the utility companies had monopolistic characteristics, certain activities did not. the latter could in fact be provided in a competitive environment. hence, the utility industry or parts of it were liberalized by allowing competition. in addition, the ownership of certain companies was transferred from public to private hands. regulation was now aimed at facilitating the introduction of competition or “ creating a level playing field ”. the privatization of the uk energy sector in the 1980s triggered a wave of privatization attempts in other countries. although many countries opted to customize the uk ’ s privatization principles to fit their own specific circumstances, the common denominator in these approaches was the separation of the transmission and distribution of electricity from the production and retail sale thereof. bis central bankers ’ speeches however, the liberalization of energy markets has not always led to lower consumer prices, as expected. according to certain studies, prices might have only shifted between market segments, or even increased compared to prior to the liberalization. some studies indicate that energy prices dropped after the liberalization of the energy market, but only for businesses. private consumers, in contrast, ended up spending relatively more on their energy bill. in california, consumer prices rose following the liberalization of the energy market, while the number of power outages increased substantially. according to some energy market experts, liberalization on its own does not guarantee lower consumer prices. if private suppliers retain the possibility to ration their production and as such cause shortages, they can influence the price of electricity in their favor anyway. hence, they retain certain monopolistic powers, despite the liberalization of the market. these developments have slowed down the trend towards liberalization in recent years, and even spurred calls for the re - regulation of some liberalized energy markets including : ( 1 ) the prevention of market abuse in case of a monopoly and ( 2 ) the establishment and regulation of structures to facilitate competition in potentially competitive sectors. furthermore, independent regulatory agencies were established to execute these tasks. as a monopoly service provider, aqualectra until now has not been subject to economic regulation as there is not a body which has responsibility for regulating competition, controlling prices and protecting consumers in the water and electricity supply industry. in the past, the department of economic affairs used to advice the government on the tariffs