Why are customers charged a Fixed Monthly charge?
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Electricity service is associated with huge amounts of fixed costs. Unlike other services like telecom where the infrastructure is available to everyone, electricity installations are exclusive to a customer at a service delivery point or in a given location. Once fixed costs have been incurred, the installation is exclusive to a given customer or customers in a given location. Fixed costs have to be recovered irrespective of the level of consumption/amount of electricity consumed. If the costs are not recovered from the customers to whom they are attributed, the costs would still have to be recovered from energy consumed by other customers. This would be unfair and encourage inefficiency. Therefore, fixed charges help recover fixed costs and also help send a signal for efficient allocation and use of resources.