Cost of Service Study Framework
Allocate utility costs across rate classes using regulatory-compliant methodology
What You Can Do
You can build comprehensive Cost of Service studies that quantify actual costs incurred by utilities serving different customer classes, establish causal relationships between costs and the customers who cause them, and allocate $50M–$500M+ in annual expenses across 3–8 rate classes. The framework guides you through methodology selection, cost driver identification, allocation procedures, and validation—producing rate design recommendations that meet regulatory standards and support rate case filings.
Features
Systematically identify and document the causal factors linking costs to rate classes (e.g., demand, energy, customer count, distance)
Align your study methodology with FERC, state utility commission, and industry standards (NARUC, EPRI best practices)
Structure step-by-step allocation procedures for 3–8 rate classes (residential, commercial, industrial, special contract) with clear documentation
Build transparent audit trails and supporting schedules that demonstrate regulatory defensibility in hearings and settlement negotiations
Test allocation outcomes across alternative methodologies, cost driver definitions, and load assumptions to identify risks
Generate detailed cost-of-service breakdowns by class with unit costs (per kWh, per kW, per customer) for rate design input
Evaluate your utility's methodology against industry peers and regulatory precedents
Pre-built response formats for regulatory challenges, stipulations, and rate case testimony
Example Output
Example 1: Multi-Class Allocation Summary
Cost of Service Study Results – Fiscal Year 2024
Total Utility Costs: $285M
Residential Class:
- Allocated Cost: $142.5M (50%)
- Customer Count: 85,000
- Unit Cost: $1,676/customer/year
- Revenue Requirement: $148M
Commercial Class:
- Allocated Cost: $95.2M (33%)
- Peak Demand: 250 MW
- Unit Cost: $380.8/kW/year
- Revenue Requirement: $99M
Industrial Class:
- Allocated Cost: $47.3M (17%)
- Annual Energy: 520 GWh
- Unit Cost: $91/MWh
- Revenue Requirement: $52M
Example 2: Cost Driver Documentation Distribution Plant ($120M) → 60% demand-based, 40% customer-count-based allocation [justification: peak load drives transformer/line sizing; customer count drives meter/service equipment]. Results in residential share: 48%, commercial: 35%, industrial: 17%.
Example 3: Regulatory Compliance Checklist ✓ Cost allocation methodology matches NARUC accounting guidance ✓ Cost drivers supported by engineering analysis and historical correlation ✓ All assumptions documented with source data and audit trail ✓ Sensitivity analysis shows outcomes remain defensible across ±10% cost driver variation
What's Included
- SKILL.md instruction file: Complete framework for designing, executing, and validating COS studies
- Cost driver identification template: Worksheet to systematically identify and document causal relationships for each cost category
- Multi-class allocation workbook: Step-by-step allocation procedure with built-in formulas for 3–8 rate classes
- Regulatory compliance checklist: Audit tool aligned with FERC, state commission, and NARUC standards
- Hearing testimony and settlement response templates: Pre-built formats for regulatory defense and stakeholder communication
Who It's For
- Rate analysts and regulatory affairs managers — Conducting formal cost of service studies for rate case filings and regulatory compliance
- Utility financial planners and controllers — Allocating costs across operational and financial reporting structures for rate design input
- Regulatory counsel and hearing representatives — Preparing defensible methodologies and testimony for rate case proceedings and settlement negotiations
- Engineering and operations teams — Documenting cost drivers and causal relationships supporting allocation methodology
- Consultants and third-party advisors — Benchmarking utility methodologies against industry standards and regulatory precedents
Best For
- Designing Cost of Service studies for biennial or triennial rate case filings
- Responding to regulatory audit requests and cost allocation challenges
- Evaluating new rate classes or restructuring existing class definitions
- Defending rate design methodology in regulatory hearings and settlement negotiations
- Analyzing impacts of electrification, distributed resources, or demand-side management on cost allocation
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