Whole Population Rate Analysis for Strategic Rate Design

September 2, 2020
Blog
Strategy

Whole Population Rate Analysis is the process of calculating bills for an entire utility’s customer population on a current and alternative rate plans using each customer’s individual historic load profile.  Typically used during the rate making process and the rate education processes, the Rate Analysis is useful to both internal and external audiences at utilities.  When fully aggregated, the Whole Population Rate Analysis provides a revenue impact analysis for the utility to measure the impact of transitioning from a current to future rate plan.

  • In 2018, 89 utilities—or nearly half of all major U.S. electric utilities—tried to change electricity rates by filing rate cases with state regulatory commissions; this number was the largest number since 1983. – eia.gov
  • About half of U.S. investor-owned utilities have optional time varying rates for residential customers. New programs are being tested or talked about in at least ten states… – utilitydive.com

With the increase in new rate plans in the utility industry, performing whole population rate analysis is becoming a strategic differentiator.

It may seem that performing a whole population rate analysis is rather straight forward and a capability that every utility already has, given that utilities have data warehouses and data lakes containing historic customer load information and billing engines for calculating customer’s monthly bills.  However, that is not the case.

  • The customer information systems (CIS), the systems responsible for calculating the customer’s bill, were originally set up to calculate customer’s bills only once a month, the generally accepted timeframe for sending bills and requesting payment.
  • Utility bill calculations are extremely data intensive.  The utility has between 720 and 2,880 meter reads per customer per month.  Each customer bill may have 10 line items.  The most complete rate analysis needs to be done over a minimum of 12 months.  For a utility with one million meters, this can equate to trillions of calculations to compare bills for the utility’s entire customer population across multiple rate plans.  CIS systems were sized based on the requirement of calculating bills once per month and just do not possess the necessary computing power.
  • Also, the CIS has a long list of responsibilities beyond bill calculations.  The CIS runs the collections and dunning process, issues and manages work-orders, and provides support to the customer service agents fielding customer calls.  All of these processes need to fit into a tight window.  That window was never intended to include rate analysis.

In short, the current CIS billing engine was not designed for whole population rate analysis.  Reconfiguring the CIS to do so is neither feasible nor cost effective.  In addition, it can put critical CIS functions such as collecting revenue, at risk, by over taxing the CIS system.

To perform whole population rate analysis, utilities can employ an Enterprise Rating Engine.  Enterprise Rating Engines are separate but integrated with the Utility CIS billing engine.  They are calibrated with the CIS so bill calculations match.  The Enterprise Rating Engine can calculate the utility’s whole customer population on multiple rate plans using 12 month (or longer) historic load information at the rate of millions of bills calculated per hour.

“Utilities need to make significant progress to overhaul their rate designs.” – mckinsey.com  Whole population rate analysis can help utilities on this journey.