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The Basics Of Alternative Ratemaking Mechanisms For Utilities

January 24-25, 2022 | Online

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Ratemaking is a major regulatory function that touches all aspects of utility operations. It also has wide-ranging ramifications for the different objectives that state utility regulators try to achieve.

Traditional ratemaking which is referred to as “Rate of Return (ROR) ratemaking”, or “Cost-of-Service Regulation” has been a mainstay of state public utility regulation since its inception.

However, over time, state utility commissions have modified ROR ratemaking to accommodate changes in the regulatory ratemaking landscape such as volatility in fuel prices, changing public policy mandates, incentives to deploy new technologies, changes in environmental conditions, competition, customer choice and numerous other factors which have called for the use alternative ratemaking mechanisms instead of traditional ROR ratemaking practices. Although ROR ratemaking is still prominent in the regulatory landscape, alternative ratemaking mechanisms now occupy a greater role in the current and ever-changing regulatory environment.

This training will systemically discuss the various alternatives to traditional ratemaking which regulators utilize to set rates for cost recovery while addressing an ever-changing regulatory environment.

Learning Objectives

Upon completion of this course, participants will be able to successfully:

  • Define what is traditional rate of return ratemaking
  • Discuss the positive and negative effects of rate of return ratemaking
  • Explain why rate of return ratemaking is still appropriate in certain instances
  • Define what is alternative ratemaking mechanisms
  • Explain the reasons for interest in alternative ratemaking mechanisms
  • Discuss the objectives of alternative ratemaking mechanisms
  • Explain what are the most common forms of alternative ratemaking mechanisms are



9:00 a.m. – 4:00 p.m. Central Time

Module 1: Traditional Rate of Return Ratemaking

  • Discuss the Positive Effects of Traditional Rate of Return Ratemaking
  • Discuss the Negative Effects of Traditional Rate of Return Ratemaking
  • Current Status of Traditional Rate of Return Ratemaking

Module 2: Alternative Ratemaking

  • What is Alternative Ratemaking?
  • Reasons for Interest in Alternative Ratemaking Mechanisms

Module 3: The Objectives of Alternative Ratemaking Mechanisms

  • Reduce Utility Financial Risk
  • Reduce Regulatory Lag
  • Reduce the Frequency of Rate Cases

12:00 – 12:30 p.m. :: Lunch Break

Module 3 (Continued): The Objectives of Alternative Ratemaking Mechanisms

  • Promote Renewable Energy
  • Eliminate Utility Disincentive for Energy Efficiency by Reducing the Risk of Revenue Erosion
  • Promote Specific Activities

Module 4: Specific Alternative Ratemaking Mechanisms

  • Cost Trackers
  • Infrastructure Surcharges
  • Straight Fixed-Variable Rates (SFVR)

Day 1 Questions and Concluding Remarks


12:00 p.m. Central Time

Module 4 (Continued): Specific Alternative Ratemaking Mechanisms

  • Revenue Decoupling (RD)
  • Lost Revenue Adjustment Mechanisms (LRAMS)
  • Future Test Years (FTY)
  • Formula Rate Plans (FRP)
  • Multi-Year Rate Plans (MYRP)
  • Performance Based Regulation (PBRs)
  • Performance Incentive Mechanisms
  • Price Cap Plans

Module 5: Hands on Problems

Questions and Concluding Remarks