Cost of service studies

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There are a number of considerations in determing the level and structure of the rates that a utility should charge its customers. Any rate class with a rate of return that is less than the overall system rate of return is being subsidized by any rate class with a rate of return that is greater than the overall system rate of return. Minimum System vs. These costs include the cost of the minimum system necessary to provide a customer with access to the electric grid. These three steps are necessary to ensure that the costs allocated to a class of customers reflect as accurately as possible the costs that the particular customer class causes the utility to incur. Consequently, in the utility industry very few costs can be directly attributed to specific customers or specific customer groups. Thus the COSS allows the utility to price its offerings to customers with self-generation in a way that correlates to the costs of providing service to those customers, and in a way that the customers can use to perform their own power supply comparisons. Overview of Electric Cost of Service Studies For a pdf version of this article, please click here There are a number of considerations in determing the level and structure of the rates that a utility should charge its customers. Using a weighted regression analysis, the cost and diameter of each size conductor is, in effect, weighted by the number of feet of installed conductor.

  • The Benefits of Cost of Service Studies
  • REG CostofService Studies
  • Cost of Service Studies Utility Ratemaking Power System Engineering
  • The Prime Group LLC Overview of Electric Cost of Service Studies

  • Utilities perform cost of service studies to determine what it costs to provide service to its customers, both in total and by individual rate class (e.g.

    The Benefits of Cost of Service Studies

    residential. While a cost of service study can provide updated rates for a utility, it can also do While cost of service studies and rate design involve a significant amount of.

    Process of assessing cost of service study. – Issues arising in cost of service studies.

    Video: Cost of service studies √ Strategic Role of Operations Management - Business Studies

    • Practical considerations. – Study results vs. actual rates.
    Both methods have been accepted by utility regulators across the country.

    REG CostofService Studies

    These studies provide detailed cost information necessary for designing rates, showing cost differences among rate classes, unbundling rates into separate functional components, pricing special services, developing economic development incentives, responding to customer rate inquiries, and establishing line extension policies. The COSS shows the total distribution cost for each rate class and in total. Ordinarily, a residential customer with a rooftop solar implementation will not help the utility avoid any of the distribution costs, and may not help the utility avoid any production demand or transmission demand costs.

    The COSS provides a functionally-classified allocation of utility costs to the rate classes, which is very useful financial information for managing the utility.

    images cost of service studies

    In the zero-intercept methodology, a zero-diameter conductor is the absolute minimum system. In the second step, the major cost drivers are identified or "classified" for each group of functionally assigned costs.

    images cost of service studies
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    The theory supporting this approach maintains that in order for a utility to serve even the smallest customer, it would have to install a minimum size system.

    In a weighted regression analysis, the following weighted sum of squared differences. Utilities often perform cost of service studies in a crisis — when margins are tight or when an immediate rate change is needed. For each rate class these include:. Utilities perform cost of service studies to determine what it costs to provide service to its customers, both in total and by individual rate class e.

    It is important, then, for the utility to prepare a cost of service study using standard methodologies that have been established by industry experts, accepted by regulatory commissions, and approved by the courts. Contact the author at

    Power System Engineering, Inc. (PSE) can provide a full range of cost of service studies from Large Load Analysis to Retail Cost of Service studies.

    Cost of Service Studies Utility Ratemaking Power System Engineering

    Cost-of-service studies determine the total costs incurred by a utility in providing service to its customers and the allocation of those costs to customer classes. for those costs=Cost Causation. ◦ Nevada uses Marginal Cost Pricing to determine the fair share of electric service that each class of customer.
    The same concept applies to industrial customers who are considering installing some on-site generation; the COSS permits the utility to provide production energy cost values mostly driven by fuel that the industrial customer can then compare to the costs of self-generating using various fuel alternatives propane, gas turbines, etc.

    However, variations usually relate to specificity of data, not to the overall approach.

    The Prime Group LLC Overview of Electric Cost of Service Studies

    Any rate class with a rate of return that is less than the overall system rate of return is being subsidized by any rate class with a rate of return that is greater than the overall system rate of return.

    Therefore, the costs associated with the minimum system are related to the number of customers that are served, instead of the demand imposed by the customers on the system.

    images cost of service studies

    Thus the COSS allows the utility to price its offerings to customers with self-generation in a way that correlates to the costs of providing service to those customers, and in a way that the customers can use to perform their own power supply comparisons. Conclusion The COSS provides a functionally-classified allocation of utility costs to the rate classes, which is very useful financial information for managing the utility.

    images cost of service studies
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    Those assets are sized to meet the maximum demands customers place on the system at a given time.

    These costs include the cost of the minimum system necessary to provide a customer with access to the electric grid.

    images cost of service studies

    Fuel and purchased power expenses billed on the basis of an energy charge are examples of costs typically classified as energy related. The COSS shows which rate classes are being subsidized, which rate classes are providing subsidies, and by how much. This will help the utility to remain financially sound and promote equity among the utility customers.

    This means that a utility can use the total distribution costs to calculate the average distribution plant investment per customer, and use that average cost per customer to establish the amount that the utility should be willing to invest to connect any new customer to the distribution grid.

    The overall approach for performing a cost of service study is depicted in Figure 1.