Online Learning: Learning Paths

How Utilities Make Money

Length: 1.5 hours
Subscription: 2 months - 12 months
Cost: $295 - $350
Prerequisites: None

A surprising number of utility employees do not understand how their utility makes money! This How Utilities Make Money learning course explains the basics in simple and easy-to-understand terms. This online learning path introduces basic financial concepts for a non-regulated company (a lemonade stand) and then compares these concepts to those that apply to a regulated utility. In addition to answering the question "How do utilities make money?", the learning path also explains the basic concepts of utility regulation, why a utility operates under rules different from non-regulated companies, and how the revenue requirement is set such that the utility has the opportunity to collect enough to cover expenses as well as a reasonable return on its equity. Upon completing the online learning path, learners will be able to answer questions such as "How do electric utilities make money?" and "How do gas utilities make money?" Included are practical examples and exercises to help learners understand basic financial concepts and the unique way in which utilities earn a profit.

This course comprises the following modules:

  • Introduction
  • Business Basics for Competitive Companies
  • Business Basics for Regulated Companies
  • How and Why Utilities Are Regulated
  • How Authorized Earnings Are Determined
  • How Utilities Can Exceed or Fall Short of Authorized Earnings

Following is a more detailed outline of content contained in the How Utilities Make Money online course.

Business Basics for Competitive Companies

  • How to calculate earnings: revenue - expenses = earnings
  • Expenses and capital expenditures
  • Sources of investment
    • Equity
    • Debt
  • Capital structure
  • Pricing strategies
  • Revenue calculation
  • How to calculate return on equity (ROE)
  • Options for allocating the business' revenue

Business Basics for Regulated Companies

  • Capital assets
  • Utility expenses
    • Commodity
    • Non-commodity
    • Depreciation
    • Interest
    • Taxes
  • Sources of investment for a regulated utility
  • Typical utility capital structures
  • Pricing for utilities
  • Calculating a utility's revenues
  • Return on equity
  • Differences between a regulated utility and a competitive company

How and Why Utilities Are Regulated

  • What is regulation
  • Characteristics of a natural monopoly
  • Who are the regulators and what do they regulated?
    • FERC
    • State commissions
    • Local regulators
  • The regulatory compact (state and federal)
  • What does regulation do?
    • Determines services
    • Sets rates and terms of service
    • Approves new projects
    • Enforces safety and reliability standards
    • Enforces market behavior standards
    • Advances policy goals

How Authorized Utility Earnings Are Determined

  • The revenue requirement
  • Key financial terminology
  • The test year
  • The factors affecting a utility's potential return
  • Calculating rate base
    • Original capital cost
    • Depreciation
    • Working capital
  • Criteria for adding assets into rate base
  • Rate of return/cost of capital
  • What is a fair and reasonable return on equity?
  • How to calculated authorized earnings

How Utilities Can Exceed or Fall Short of Authorized Earnings

  • The difference between actual and authorized earnings
  • Factors that can affect utility earnings (depending on regulator)
    • Expenses
    • Balancing accounts
    • Energy deliveries
    • Decoupling and weather normalization
    • Additional services
    • Incentives
    • Lost revenue adjustments
    • Disallowances and fines
    • Formula rate plans
  • Traditional ways to increase earnings under cost-of-service ratemaking
  • Utility risks under cost-of-service ratemaking
    • Disallowances
  • Example of a utility's actual earnings

Contact us at 866-765-5432 or e-mail for more information.

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