Definitions

The total operation and maintenance, capital and administration costs necessary to provide safe and reliable utility services. An electric utility’s revenue requirement also typically includes a provision for a return on investment.

A cost of service study analyses the costs to provide service to each customer class (e.g. residential, commercial, industrial) and allocates the revenue requirement based on cost drivers. The study results are compared to revenues at existing rates to calculate a revenue cost coverage ratio (RCC ratio).

A RCC ratio of greater than 100% indicates current rates recover more than the costs to serve that customer class. A RCC ratio of less than 100% indicates current rates do not recover the full costs of serving a customer class.

Rate design is the process by which rates for each customer class of a utility are developed. Utility rates typically include fixed components (such as a standard monthly customer charge) and variable components (such as a charge per kilowatt hour or litre of water).

Rate design seeks to achieve a reasonable balance between factors such as measured cost of service, competitiveness, ease of administration, customer preferences and gradualism in rate changes. Perspectives of City Council and stakeholders are also important considerations.

The fee or overhead cost charged to each utility. Typically based on salaries.

The amount of money earned over and above the cost of providing a service that can then be saved for future repairs or investment in a reserve account or used to address other capital requirements.