Revenue Requirements and Ratemaking

• The three key types of ratemaking and when each is appropriate
• How a cost-of-service study is completed, how an energy company's rate base is determined and how an authorized rate of return is calculated
• How the revenue requirement is determined
• The process by which cost-based rates are set
• The principles of incentive ratemaking and market-based rates, and the situations in which they are commonly used
• How ratemaking differs for non-profit entities such as municipal utilities, co-ops and Independent System Operators
• How the ratemaking process impacts earnings for energy companies

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• Types of ratemaking
• Determining cost-based rates
  • Task 1: The cost-of-service study
    Forecasting costs
    Expense vs. capital items
    Determining the rate base
    Cost functionalization
    Cost classification
  • Task 2: Determining the cost of capital
    What is fair and reasonable rate of return on equity?
  • Task 3: Determining the actual rates
    Billing determinants
    Calculating a revenue requirement
    Allocation to customer classes
    Determining rate design
    Allocating revenue to charge types
    Calculating rates
• The rate case proceeding
• How rates are adjusted between rate cycles
• Setting rates for municipal utilities and co-ops
• Issues with cost-of-service ratemaking 
• Incentive regulation
  • Performance incentives
  • Market-based/benchmark incentives
• Market-based rates
• The unique case of the ISO
• Impacts on earnings from each type of ratemaking

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