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Cost Allocation and Rate Design

The Brattle Group advises utilities and government agencies on the proper design of regulated rates in the electricity and natural gas industries. Our experts testify on rate structure and rate design matters before state regulatory commissions and the Federal Energy Regulatory Commission (FERC).

Recent advances in customer-side technologies and the ongoing rollout of advanced metering infrastructure are causing many in the industry to rethink rate design. Brattle has worked with a diverse range of international clients to design, test, and implement new rates to satisfy the ratemaking objectives of an evolving power grid. We prepare expert testimony and studies addressing electric retail ratemaking issues, such as automatic adjustment clauses, cost allocation, marginal cost of service, economic development rates, and performance-based ratemaking. We also provide consulting on incentives for energy efficiency programs, real-time pricing, interruptible demand tariffs, and other rate mechanisms designed to encourage greater demand response to changing wholesale prices. With regard to wholesale ratemaking, we address topics such as rate design for RTO transmission access and administrative charges, allocation of costs paid to “reliability must-run” generators, and allocation of gas pipeline expansion costs on an average versus marginal/incremental basis.

Our experts have experience in directing rate design studies, have frequently taught rate design and related subjects through organizations such as the Electric Power Research Institute (EPRI) and the Edison Electric Institute (EEI), and have presented before a number of industry groups, including the National Association of Regulatory Utility Commissioners (NARUC).

Engagements
REPRESENTATIVE ENGAGEMENTS

Below is a list of representative engagements for our Cost Allocation and Rate Design practice.

Alternatives for pricing of unbundled distribution services
For the U.S. Department of Energy (DOE), Brattle experts authored a whitepaper on methods for unbundling and pricing distribution services in an environment of high distributed energy resources (DER) market penetration. The report identified the various services that are provided by the utility to DER customers, the discrete services provided by DER customers to the utility, and various frameworks for packaging and pricing these services. The report included an assessment of the advantages and disadvantages of each pricing framework from the perspective of both the utility and its customers.
Analysis and support for new residential rate options
For a large utility, Brattle experts provided analysis and testimony in support of the utility’s proposal to offer new rate choices to its residential customers. In addition to the standard rate, the utility proposed to offer two new rate options: a rate with an increased fixed charge and a lower volumetric charge, and a three-part rate with a demand charge. Our work included bill impact analysis on the cost and risk shifting from the new structures across different types of customers within the same rate class, simulations of the likely adoption, and revenue impacts of the various rate options.
Cost allocation in the Midwest
For a Midwestern utility, members of The Brattle Group provided expert testimony on its rate design before the state commission. We assisted in the development of company witnesses’ rationale for the choice of cost of service allocation method, developed benchmarks for the rate increase against similarly situated utilities (as well as for other commodities’ escalations), and evaluated proposed demand-side management programs and rate options.
Gas distribution cost of service study
For a Mid-Atlantic municipal gas utility, Brattle developed a cost of service rate design model that incorporated updated standards for revenue adequacy based on achieving an improved bond rating, and which reflected a 10-year weather normalization test year. This was needed because recent warming trends were causing too much sales volume to be forecasted for winter demand. The cost of service rates were also used to justify a proposed shift in rate design towards higher fixed charges.
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