Why do cost studies have such a bad reputation, and are they really as confusing or unreliable as people say?
If you’ve ever worked around utility regulation or public policy, you’ve probably heard the skepticism. Cost studies are often described as complicated, technical, and easy to manipulate. Some even believe they can be made to “say anything.” But in Don’t Fear the Cost Study, Clark Kaml takes a closer look at where this mistrust comes from—and why the problem isn’t the tool itself, but how it’s misunderstood and used.
The Perception Problem
One of the strongest themes in the book is that cost studies suffer from a communication gap. Decision-makers often encounter them late in the process, when the analysis has already been completed and presented in dense technical form. By that stage, the study can feel inaccessible, almost like a finished product meant only for specialists.
When policymakers or stakeholders cannot see how assumptions were made or how conclusions were reached, skepticism is almost inevitable. Instead of viewing the study as a decision-support tool, it begins to look like a black box designed to justify a predetermined outcome.
This lack of transparency is a major reason cost studies get a bad rap.
Too Often Reduced to Accounting
Another source of confusion is the tendency to treat cost studies as accounting exercises. Kaml makes a clear distinction among three concepts that are frequently conflated: accounting records, revenue requirements, and cost studies.
Accounting tells us what was spent. Revenue requirements determine how much money a utility needs to collect. A true cost study, however, is meant to analyze how costs arise, how they behave over time, and how different customers contribute to those costs.
When cost studies are reduced to simple allocations of past spending, they lose their analytical purpose. At that point, they become mechanical tools rather than instruments for understanding efficiency, future planning, and economic signals. The result is frustration from both regulators and stakeholders.
The “You Can Make It Say Anything” Myth
Perhaps the most damaging criticism is the belief that cost studies can be manipulated to produce any result. Kaml acknowledges that different allocation methods or cost definitions can lead to very different outcomes. But he argues that this variation reflects the system’s complexity, not dishonesty.
There is no single, universal definition of cost in utility regulation. Analysts may work with embedded costs, marginal costs, incremental costs, fixed costs, or other measures. Each serves a different purpose. The real issue is not that results vary, but whether the assumptions are clearly defined and appropriate for the decision being made.
In other words, disagreement over results often reflects differences in policy goals, not flaws in the analytical process.
Misusing Cost Studies for The Wrong Questions
The book also highlights a common misuse: relying on cost studies to prove the existence of subsidies between customer groups. Traditional cost-of-service studies are based on average accounting costs, which may not reflect marginal or economic costs.
Using them to make claims about cross-subsidies can create misleading conclusions and fuel conflict. When cost studies are asked to answer questions they were never designed to address, their credibility suffers.
Don’t Fear the Cost Study highlights that cost studies are not formula machines, political tools, or accounting summaries. They are analytical frameworks that help decision-makers understand trade-offs, identify cost drivers, and anticipate future impacts.
The real value of a cost study lies in its structure and assumptions, not just its final numbers. When regulators and stakeholders engage with the underlying logic instead of treating the results as absolute truth, the study becomes far more useful.
Changing the Narrative
Cost studies get a bad reputation because they are often seen only at the end of the process, stripped of context and reduced to numbers. But when used properly, they are essential for making informed decisions about rates, investments, and system efficiency.
Kaml’s message is straightforward: the problem isn’t that cost studies are unreliable. The problem is that they are misunderstood, oversimplified, and sometimes asked to do jobs they were never meant to do.
Once you see them for what they really are: tools for thinking rather than tools for justification, the bad reputation starts to fade.
Read the book, learn the true power of cost studies.
