Cost of Service Study

A Cost of Service Study (COSS) is a tool to help utilities establish fair and equitable rates that recover the cost to provide service. ACEC utilizes a specialized consultant to conduct this study. The Cooperative has an internal committee of staff that work with the consultant to provide data, verify the study and assist with the rate schedule design.

The first step of a COSS is to determine the total revenue requirement. Electric sales revenues are analyzed for the current audited year, as well as the next few budget years. This helps to see if rates are projected to need adjustment to recover costs that rise annually with inflation. A rate may require adjustment for any operational changes in our distribution system design. All operational expense, depreciation, interest, taxes, and margins requirements needed to continue to provide power to our members are factored into this analysis.

The next step is to perform the cost of service analysis which takes our members’ meter usage data and revenues by rate class to perform a more detailed analysis.  The systems’ assets for items such as electric lines, transformers and meters are factored into this analysis. We allocate expenses into categories that include consumer fixed costs (facility charges), energy costs (kWh charges) and capacity costs (demand charges).  All expenses are allocated to each rate class by what drives that cost.

We evaluate this data to see if each rate class is adequately covering their expenses.  Once we have the needed cost recovery, the current rate schedules are compared with the rate proposal. A plan is created for when a rate adjustment would be needed by rate schedule. Depending on the financial impact a rate increase may be implemented in smaller increments over a couple years.

The ACEC committee then brings forward the recommended rate schedules to the board of directors for approval. Once approved by the board of directors any rate changes are then communicated to the members.