Cost of Service

Utilities’ revenue requirements (the amount of money needed for a utility to operate and maintain facilities, cover capital expenses, and provide an opportunity to earn a profit) are evaluated, and usually in a follow-up phase, rates to collect that revenue are set. For some utilities, the amount it costs to purchase water, electricity, or natural gas for their customers, and/or fuel to generate power is also part of their revenue requirement but may be reviewed more frequently or in a separate proceeding. Sometimes, these later expenses are approved based on forecasts, then reviewed again after purchased to ascertain if the expense was reasonable.