Cost of service and rate design

Featured Image

E3 has decades of experience assisting utilities in traditional cost-of-service analysis and retail rate design. Drawing on our deep understanding of embedded costs, marginal costs, and rate design, E3 has supported many utilities and regulators in developing and implementing innovative tariffs.

As more customers seek to manage their energy bills through behind-the-meter solar generation, energy storage, and load management applications, E3 is helping clients devise tariffs that promote investments in distributed resources and reflect cost causation and equity principles. We also work with utilities, electric vehicle service providers, and automakers to design rates that promote transport electrification while ensuring cost-effective grid integration of electric vehicles and full recovery of utility costs.

Our cost-of-service and rate design services include:

  • Cost-of-service analysis and revenue allocation
  • Cost-of-capital analysis
  • Time- and area-specific marginal costing
  • Bill impact analysis
  • Retail rate design
  • Prepaid billing options
  • Time-of-use pricing
  • Inclining block and two-part retail rate designs
  • Rate designs for electric vehicle charging
  • Rate designs for producer-consumers (e.g., net energy metering)
  • Regulatory support and expert testimony


Cost of service and rate design projects

EV charging tariff design | San Diego Gas & Electric, 2014–15

E3 supported San Diego Gas & Electric (SDG&E) in its successful application to the California Public Utilities Commission to launch a pilot program that uses pricing to efficiently integrate electric vehicle (EV) charging in an increasingly renewable grid without contributing to local distribution capacity shortages. SDG&E devised a dynamic vehicle grid integration rate to encourage EV charging at times when high renewable generation depresses wholesale energy prices. The tariff also discourages charging during peak distribution hours. E3 used its EV Grid Impacts Model  to show that EV owners that shift their charging in response to the proposed rates would reduce their per-vehicle charging costs to under $600 annually from around $1,400 per year on the current time-of-use rate. The modeling used projected wholesale energy prices in high-renewable scenarios developed using E3’s stochastic production simulation tool, Renewable Energy Flexibility Model (REFLEX). The commission approved a modified version of the proposed program in 2016, and SDG&E is now implementing the pilot.

Innovative rate design for energy reform | NYSERDA, 2015–16

E3, working with the New York State Energy Research and Development Authority (NYSERDA),  developed an innovative retail electric rate design to encourage beneficial customer investment in distributed energy resources (DERs), a leading goal of the New York Public Service Commission’s Reforming the Energy Vision initiative. Our conceptual full-value tariff (FVT) has three components: a customer charge, a size-based network subscription charge, and a time-varying kWh price. The network subscription charge may vary by location to reflect local transmission and distribution costs. We modeled customer response to the FVT to assess its impact on the value proposition of DER technologies, such as energy storage, smart thermostats, and smart vehicle charging. The analysis showed that the FVT can yield savings from measures that are not encouraged under existing rates, while still compensating solar PV and energy-efficiency measures in high-value locations. The FVT conceptual framework underpins the Smart Home Rate demonstrations that New York’s investor-owned utilities filed with the commission in February 2017.


Residential, commercial, and industrial rate design | BC Hydro

Our work for Vancouver-based BC Hydro began with the design and implementation of an innovative multipart rate structure that included customized baselines for each of its 100 largest industrial customers. In 2008, E3 began assisting the utility with developing and implementing inclining block rate structures to encourage conservation. These ranged from a simple, two-step residential inverted block rate to more-complex baseline structures for commercial customers. Our process included surveying default rates for large general service and residential customers in other markets, analyzing usage characteristics, examining class segmentation options, and ensuring that our proposed rates adhered to BC Hydro’s cost of service principles and regulatory rate-making framework. E3 also developed materials for customer engagement, solicited feedback through moderated customer sessions, and provided expert witness testimony.

Residential rate design | Hawaiian Electric Company, 2005–present

E3 has supported electric rate design in Hawai‘i since 2005. Currently, E3 is assisting Hawaiian Electric Company (HECO) on next-generation retail pricing strategy and rate designs that align with the state’s goal of meeting its 100 percent renewable portfolio standard (RPS) requirements in a way that encourages cost-effective deployment of customer-owned distributed energy resources. HECO first retained E3 to recommend a strategy for developing rates that would encourage conservation to mitigate the impact of high electricity supply costs on its customers. We recommended a three-tier inclining block structure, which is still in place, to minimize increases on small customers and provide conservation incentives to large customers. We also helped get the rate approved, preparing direct testimony and presenting to the utility’s board of directors.

Scroll Up