Ahmad Faruqui and Robert Earle are economists with CRA International located in Oakland and Los Angeles. They would like to acknowledge many helpful discussions with their colleague, Stephen S. George. Contact Faruqui at email@example.com.
A new wave of rate cases is sweeping through the electric industry, as rate freezes of the mid- to late-1990s come to an end, and as utilities sense the need to modernize their electric grid. In addition, the Energy Policy Act of 2005 calls for an evaluation of time-based tariffs.
Staff turnover means that, since the last big wave of rate cases in the mid- to late-1970s, much of the organizational capability for ratemaking and rate design has disappeared in both utilities and commissions.
To remedy this gap in knowledge, this article provides an overview of ratemaking and rate-design principles to ease the myriad tasks awaiting new rate analysts and attorneys. It assumes no prior knowledge of ratemaking and is written primarily for the novice. It may trigger nostalgia in some of the “old salts” that are still manning the ratemaking stations, but it is our hope that even they may pick up a few new pointers.