Natural Gas Cost of Service and Rate Design

Live Streaming Online June 29-30, 2022

A Program

Click Here to register ($1295)

If you are unable to attend at the scheduled date and time, we make recordings available to all registrants for three business days after the event

This two-day course is designed to explore the basic structure of cost of service applied to natural gas delivery at the state jurisdictional level. The course begins by setting cost of service and pricing questions in the context of the overall regulatory structure. Through this approach students are exposed to the two major approaches to cost of service: embedded and marginal cost. Applications of these approaches are taken from state rate setting proceedings with the major areas of contention among parties to regulatory proceeding highlighted. The course will also discuss the basics of rate design from a historical approach and trace the evolution of pricing as the concern over efficiency has grown and the potential for alternatives to grid-delivered energy evolve.  

The course is designed in a lecture format with enough flexibility for student activities and group discussion. The intent is that participants will be able to apply the information learned the first day they return to their jobs. Hands-on activities will be included throughout the day.  

Learning Outcomes

  • Discuss FERC Uniform System of Accounts 
  • Identify revenue requirements 
  • Examine utility case studies 
  • Discover energy allocation factors 
  • Define the steps in the ratemaking process 
  • List cost classifications



9:00 a.m. – 4:30 p.m. Central Time

Introduction and Regulation of Public Utilities

  • The origin and meaning of the public utility concept
  • The rationale for regulation
  • The regulatory compact: duties and obligation
  • The evolution of regulation and introduction of competitive markets
  • Evolution of industry structure


  • The revenue requirement: assumptions and principles
  • Principles applied to pricing
  • Economics of natural monopoly
  • Foundations of public utility pricing
  • Pricing strategies and special topics

Cost of Service Overview

  • Basic approach of cost of service
  • Marginal vs. Embedded
  • Pricing traditional services
  • Unbundling

Embedded Cost of Service

  • Functionalization
  • Classification and allocation
  • Interclass revenue allocations

Exercise: Embedded cost and interclass revenue allocation

Marginal Cost of Service

  • Purpose of a marginal cost study
  • Planning and marginal cost
  • Customer, T&D and generation costs
  • Data used in MC studies
  • Reconciliation with revenue requirement and interclass revenue allocation


9:00 a.m.– 4:30 p.m. Central Time

Traditional Rate Design

  • Flat rates
  • Two-part and multi-part rates
  • Pricing capacity and access
  • Volumetric rates
  • Issues in using embedded costs for unbundling rates

Modern Rate Design

  • Straight-fixed variable pricing
  • Modern demand-based pricing
  • AMI and smart metering
  • Special pricing topics: demand management, TOU rates, load retention, NGV pricing

Special Topics in Rate Design

  • Tracking mechanisms
  • Volumetric risk
  • Net energy metering
  • Standby/buyback rates
  • Special contracts and economic development rates

Alternative Regulation

  • PBR and incentive regulation
  • Utility of the future and platforms
  • Revenue stabilization plans
  • Multi-year ratemaking

Wrap-up and Discussion of Future Directions