How Electric Rates Are Set: Rate Cases, Regulators and You

The Public Utilities Commission of Ohio describes a rate case as having two basic parts: determining the revenue requirement, and determining the rate structure, which asks what rates must be paid and by which customer classes. The other commissions listed below describe the same two steps.

1. How much money does the utility need? The revenue requirement covers operating costs, depreciation, taxes and a return on the value of the equipment in service.
2. How should that money be collected? The total is split among residential, commercial and industrial customers, and each class gets rates, often a fixed monthly charge plus a price per kWh.

Michigan's regulator describes the rate base as the book value of the utility's property that is used and useful, which is its cost less depreciation, and regulators let a utility earn a reasonable return on it. Here is how that turns into a price with invented figures.

Real cases have many more lines, and rates are rarely one flat number, but the logic is the same. A utility asks for a higher revenue requirement, and a lower or higher residential share changes the price a home pays.

Source: These figures are invented to show the method. They are not from a real utility.

1. The utility files an application that explains why it needs more money and which customer classes would pay. In Ohio, applications often run to several thousand pages.
2. Commission staff audit the filing. Staff are technical experts in auditing, finance and engineering, and they act as a party in the case.
3. Other parties join as intervenors. They include consumer advocates, businesses and environmental groups, and they usually file expert testimony.
4. The public can comment. Local public hearings let residents speak, and most commissions accept written comments.
5. Evidentiary hearings test the evidence. Witnesses are questioned, and the parties file written briefs.
6. The commission decides. It can approve the request, change parts of it or deny it. Costs the utility cannot justify are removed, which regulators call disallowances.
7. Parties can ask for reconsideration or appeal. Ohio, for example, gives 30 days to ask the commission to modify its order.

Source: New York Department of Public Service, Public Utilities Commission of Ohio, Minnesota Public Utilities Commission and California Public Utilities Commission pages listed in the sources. Other states differ.

Fuel and purchased power costs are often passed through separately. Michigan, for example, reviews them on an annual basis in separate proceedings, and Kentucky adjusts a fuel clause monthly. See the fuel adjustment charge. Riders for specific programs can also change a bill between cases.

Not every utility goes through a state commission for every rate. Municipal utilities and electric cooperatives often set their rates through a city council or a member-elected board, and the amount of state oversight varies. EIA also notes that some states mix unregulated generator prices with regulated transmission and distribution prices, which is the case in retail choice markets.

• Find the case on your state commission's website. It will have a docket number and list the schedule.
• File a public comment, or speak at a local hearing. Commissions say they weigh public comments.
• Read the consumer advocate's filings, if your state has one, for a plain view of the issues.
• Ask the utility what the request would mean for a bill like yours.

Our state pages link to each state's regulator.

• Public Utilities Commission of Ohio, Rate case process
• New York Department of Public Service, Major rate case process overview
• Michigan Public Service Commission, Ratemaking
• Minnesota Public Utilities Commission, General rate case
• EIA, Electricity explained: Factors affecting electricity prices