Methodology
Our Approach to
Utility Ratemaking
Utility ratemaking should not be a black box. Rate360 follows established industry methodology used by utilities, consultants, and regulators — structured into three distinct stages that most platforms blur together.
Three stages. One connected workflow.
The traditional ratemaking process moves sequentially from Revenue Requirement through Cost Allocation to Rate Design. Rate360 structures each stage as a distinct discipline — because the analytical rigor of each depends on keeping them clearly separated.
Start with the revenue requirement
Every sound rate study begins with the same foundational question: how much revenue does the utility need to recover?
Rate360 organizes the core financial and operating inputs that drive this calculation — expenses, plant investment, purchased power, depreciation, customer counts, sales, demand data, and other billing determinants. From there, the platform establishes the revenue requirement based on the utility's business model, financial targets, and operating realities.
For cooperatives and other not-for-profit utilities, this includes margin or coverage targets needed to fund plant growth, retire capital credits, maintain healthy equity, and satisfy lender requirements. For public power and regulated utilities, the framework adapts to the governing financial and policy context.
Revenue Requirement Formula
RR = r(RB) + E + D + T
r = rate of return · RB = rate base · E = operating expense · D = depreciation · T = taxes
Rate base = net plant + working capital (from balance sheet)
Determine the cost to serve each customer class
A cost of service study is not the same thing as rate design — and Rate360 treats them as the distinct disciplines they are.
Once the revenue requirement is established, Rate360 applies the core mechanics of a cost of service study. Costs are organized into the major utility functions that drive service delivery — power supply, transmission, and distribution. Those costs are then classified into the components that matter most for rate design:
- Customer-related costs tied to serving a customer regardless of usage
- Capacity-related costs tied to meeting peak demand and system sizing
- Energy-related costs tied to kWh consumption
Rate360 helps utilities evaluate how costs are distributed across classes — residential, commercial, industrial, lighting, irrigation, and others — where cross-subsidies may exist, and whether current revenues align with underlying cost responsibility. This gives leadership a clear picture of who is paying what today, who should be paying what based on cost, and where changes may be warranted.
Translate study results into real-world rate design
Once class revenue responsibility is established, the next step is rate design — and Rate360 keeps these two stages separate because conflating them is where most studies go wrong.
Rate design is how utilities decide how to recover class costs through actual tariffs and billing components:
- Customer charges
- Demand charges
- Energy charges
- Seasonal and time-of-use rates
- Riders and adjustments
- Minimum bills and other tariff features
Rate360 treats rate design as both an analytical and strategic exercise. The platform supports practical decision-making by balancing cost-of-service results with implementation realities such as customer impact, rate continuity, simplicity, conservation goals, and board or regulatory considerations.
Model scenarios before making changes
In real utility practice, the "indicated" change from a study is not always the exact change that gets implemented — and Rate360 is built around that reality.
Utilities often phase in changes, smooth customer impacts, prepare for future capital needs, or reposition rates over time. Users can test multiple scenarios, compare alternatives, and understand the tradeoffs between strict cost alignment and real-world implementation constraints. That means utilities can move from theory to action with more confidence and fewer surprises.
Indicated results ≠ implemented rates
The revenue requirement and cost of service study determine what the data indicates. Final rate decisions may differ based on implementation strategy, phasing, customer impact, and policy considerations. Rate360 supports both the technical math and the decision-support layer — because that is where most utilities struggle.
Deliver transparent, defensible outputs
Rate360 is designed to produce more than calculations — it produces clarity.
Our approach gives utilities and their advisors a structured way to document assumptions, trace results, compare scenarios, and communicate findings to management, boards, regulators, and other stakeholders. Instead of relying on disconnected spreadsheets and consultant-only workpapers, Rate360 creates a consistent and auditable process from data intake through final rate recommendation.
How Rate360 works in practice
The Rate360 process follows the same sequence used in actual utility cost of service studies, giving you a practical path from financial need to implementable rates.
The result
Rate360 helps utilities move toward rates that are:
We do not treat rate studies as static reports. We treat them as a decision system.
Support ongoing rate strategy, not just one-time studies
A cost of service study should not sit on a shelf after it is completed. Utility costs, loads, customer mix, and policy priorities change over time.
Rate360 is built to support an ongoing rate strategy — making it easier to refresh inputs, revisit assumptions, update scenarios, and plan future adjustments as system conditions evolve.
Refresh inputs annually
Update billing determinants and financials each test year without rebuilding from scratch.
Revisit assumptions
Adjust return metrics, allocation factors, and policy choices as conditions change.
Plan future adjustments
Model multi-year phasing strategies and prepare for capital-driven rate changes before they arrive.
Ready to bring discipline to your rate process?
Rate360 combines the technical math with the decision-support layer utilities actually need.