Retail Rates
 Conducting useful cost of service studies and developing effective rates for electric cooperatives and electric municipal systems requires far more than a basic understanding of financial or accounting principles. For utilities to truly benefit from the cost of service study and achieve rate design objectives, a complete understanding of utility operations, managerial principles and the market are required. GUERNSEY consultants are industry leaders in providing consulting services to electric cooperatives and electric municipal systems throughout the U.S.
Four basic activities are involved in GUERNSEY’s rate analysis and cost of service studies for utilities. The four steps to the study are:
1. Develop the overall Revenue Requirement:
- Capital requirements as defined by the two-year work plan, the long-range plan and the financial forecast
- Financial objectives established by the board of directors
- Cost associated with operating the system, based on the most recent twelve-month period or test year
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2. A Cost of Service Study that develops:
- The class revenue requirements
- The allocation of costs to each class, using appropriate demand, energy and customer allocation factors to assign plant investment, revenues and expenses
- The unbundled cost of providing service to each customer class/service level
- Demand, energy and customer cost components by function for generation, transmission and distribution wires and services
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3. A good Rate Design that:
- Develops the revenue requirement to individual customers
- Incorporates the results of the cost of service study
- Considers competitive issues
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4. A cost-based Line Extension Policy that allows recovery of investment
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