Power and Utilities Cost of Service and Rates
Best Practices in Electric Cost of Service Studies
Using FERC accounting drives electric cost of service studies and electric rates. Electric rates drive revenues and recover the full costs of operations, debt service, and capital additions of a utility. While most investor-owned utilities, electric cooperatives, and large municipal utilities use the “utility method” to develop electric rates, many small to mid-sized utilities base their rates on utility cash flows. What’s the difference? Does it matter? This article dives into the differences between the two methods and provides an opinion on what method would benefit your utility’s ratemaking and cost recovery.
Encouraging water conservation and cost of service water rates
The utility and electric co-op business model walks a fine line between encouraging customer conservation to be a steward of the environment and recovering the utility's cost of providing service to its customers. Other factors in play, such as greater efficiencies in water use in plumbing fixtures, recycled water, and smart watering, naturally drive down water use. In the electric business, reductions in electric use due to more efficient appliances, air conditioning, hearting, lighting, and computers, coupled with increase in electric use due to electric cars (just the start of that trend) leads to an interesting landscape when it comes to electric rates.
But our topic in this article is how to connect the recovery of the costs of serving water customers and reduce consumption by all customers.
Are you part owner of a power plant? Regular joint power supply contract audits will help you sleep at night
A common arrangement in the power supply process is joint ownership of power plants. Joint ownership arrangements involve two or more owners of a power plant, with one of the owners called the operator owner, who operates the power plant, bills the owners for operating costs, and all owners partake of the power supply. The joint ownership is governed by an overall power supply agreement, which designates various committees (management, operating, and finance) that are charged with the governance and management of the contract.
The contracts generally have audit provisions that allow any owner to audit billings under the contract, using their own personnel or through an independent party such as an accounting firm. Regular audits are beneficial to all owners - we’ll discuss the areas why.
Electric Cost of Service Rates and Rates for New Technology - One Utility’s Approach
An electric utility recognized that it needed to increase electric rates after developing its budget for the coming year (also known as a revenue requirement). The utility had not increased rates in 5 years and wanted to take the opportunity to move customer rates towards their cost of service and to incorporate distributed energy resources (DER) and electric vehicle charging into their rate structure.
Here are the steps they took to move to cost of service rates and implement innovative rates for residential, DER, and EV customers.