The multiple plant method for the equitable apportionment of fixed charges

It is the intent of this discussion to present, as simply as possible, a logical and fully reliable method for computing the “fixed charge” portion of commodity rate schedules. The hypothesis that the Service plus Quantity principle in rate-making is widely applicable, even far beyond the field of utility rates, emphasizes the necessity for an equitable basis for the computation of both portions of this dual rate structure. Moreover, since the billings of many customers, if computed strictly according to the cost of service, would be only negligibly affected by their Quantity use, the Service portion of their charge becomes of prime importance. The widely-used Peak Responsibility method, while undoubtedly a first approximation to the correct procedure, leads at times to gross inequity. The Eisenmenger method, while technically exact, is tedious in application. The Multiple Plant method, here presented for the first time, is believed to combine the virtues and eliminate the vices of both these methods. Moreover, since the Service plus Quantity principle was found to control in so remote a field as the freight schedule for car lots of logs, it is entirely possible that the simple and equitable analysis outlined below, may, with proper adaptations, become standard in a wide variety of commodity rate-schedule computations.