Question

Briefly describe how Utility rates are set.

Answer 1

The investor-owned utilities sporadically submit Associate in Nursing Application to the CPUC requesting to gather an explicit quantity of revenue from its customers. This quantity of revenue is meant to hide the utility’s prices and a pre-approved rate of come, established within the price of Capital continuing. The CPUC reviews this request and approves or modifies the amounts requested. this is often the final Rate Case part onemethod. think about this as determinative the dimensions of the “pie” that the utility will have.

Next, the utility submits Associate in Nursing Application to work out what quantity of the revenue (or “pie”) ought to be collected from totally different customers. for instance, what quantity of the pie residential customers ought to get versus business or agricultural customers. this is often determined by examining what and the way abundant of every of the utility’s services square measure employed by differing kinds of shoppers. In most cases, every kind of shoppers use all of the utility’s services, however some styles ofcustomers might use a lot of or less of some services than others. this is often a part of the final Rate Case part a pair of method. One will think about this as "slicing the pie."

Lastly, the utilities propose totally different strategies for grouping the 'slice' of the pie from every clientcategory (e.g. residential, commercial, agricultural). At its most simple, a utility divides {the quantity|the quantity|the number} that has to be collected from every category by the forecasted or historical amount of sales in this category, leading to a ¢/kWh rate. alternative rate elements are derived from this method.