# Service / Cost Dependent Tariffs

The tariffs for a service can be made to depend on the costs of supplying that service. The tariffs can represent a proportion of the cost or be totally cost dependent. You can model different tariffing policies to suit your requirements for each service.

## Independence Weighting

The proportion of the Cost Independent Tariff which contributes to the total tariff.

Composite tariffs are calculated as the weighted average of the cost-independent and cost-dependent tariffs, according to the Independence Weighting.

Default: Constant {1.0}. Tariffs are cost independent.

## Cost Independent Tariff

The cost-independent part of a composite tariff, the latter of which is calculated as a weighted average of the cost-independent and cost-dependent tariffs, according to the Independence Weighting.

Default: Constant {0.0}.

Note: The simple Tariffs dialog just shows the Cost Independent Tariffs, which are also shown in the more detailed Cost Dependent Tariffs dialog.

Cost Dependent Tariff

## Initial Cost Dependent Tariff

The Cost Dependent Tariff for a Service in the first year when there is demand for that Service. In subsequent years, the Cost Dependent Tariff is calculated from the previous year’s feedback cost and the Charge Multiplier.

The feedback cost is the proportion of costs allocated to a Service, earmarked for a particular tariff. This initial tariff is required because no costs will be allocated to a Service before it has demand. It may be necessary to run the model in order to match the initial value to subsequent calculated values.

Default: 0.0.

## Charge Multiplier

The margin applied to a Service’s cost per connection, fed back from the previous year, in order to calculate the cost-dependent tariff for the current year. For example, a value of 1.2 would represent a 20% margin for the cost-dependent tariff.

Default: Constant {1.0}. No margin is applied.

## Max Change

The maximum proportional change in a tariff permitted between one year and the next. The factor 1 allows 100% change.

It is possible to construct a model in which feedback will cause demand and tariffs to oscillate. The circumstances in which this may occur are where elasticity is high, the charge per connection depends on demand, and the Initial Cost Dependent Tariff is very different from the tariff calculated from feedback. To control the instability, you must either correct the Initial Cost Dependent Tariff or specify a Max Change.

Default: Constant {999.0}. No effective constraint.

## Step (2)

A choice controlling how often STEM re-calculates cost-dependent tariffs when running with shorter time periods. By default, tariffs are only re-calculated annually.

Default: Year.