Expertise Cost of Service and Rate Design

Electric rates are the interface between the customer and the electricity system. As the electricity system evolves, cost allocation and rate design must keep pace to recover costs equitably, provide economically efficient price signals, and support policy objectives including affordability.

E3 analyzes electric and gas utility cost of service, develops fair and economically justified cost allocation approaches, and designs wholesale and retail rates and tariffs. Our work includes financial modeling, embedded and marginal cost-of-service studies, time-of-use and dynamic pricing, fixed and demand charge reform, and compensation for distributed energy resources.  We support regulators, utilities, ratepayer advocates, nonprofits, and large customers with analysis and expert testimony, giving us a broad perspective on how rate design issues are evaluated across contested proceedings.

Rates are under pressure from several directions at once. In many jurisdictions, the composition of utility costs is shifting as variable fuel costs decline as a share of total costs while distribution and transmission costs grow. Distributed generation technologies like rooftop solar give customers new ways to reduce their bill while raising questions about cost shifts and fair cost recovery. Electrification and customer batteries are changing both the level and timing of customer load, while creating new opportunities for load flexibility. At the same time, rapid growth in large loads is raising fundamental questions around fair cost recovery and potential impacts for affordability.

Our approach to cost allocation and rate design is grounded in economic fundamentals and established regulatory practice, while recognizing that widespread changes to the electricity system may require updated approaches to cost allocation and cost recovery. We use scenario-based analysis to evaluate bill and revenue impact across customers groups, including disadvantaged customers, in order to identify the tradeoffs created by alternative cost recovery approaches. We bring this analysis into regulatory proceedings through filings, discovery, critique of competing proposals, and expert testimony.