Rate design is the process of determining how authorized revenues will be collected from customers through utility charges. Once a revenue requirement has been determined in the rate case process and then allocated to the various customer classes, the structure of the rates that each customer class will pay is determined in the rate design phase of the proceeding. Rates for gas consumers are typically divided into four distinct components:
- Customer charge — A per-customer charge independent of usage typically stated in $ per month.
- Demand charge — Charges based on the maximum usage placed on the system during a specified period of time. Examples include maximum monthly usage during a 12-month period or total annual usage. These charges are typically stated in $/therm or $/Mcf per month.
- Contractual demand charge — Charges based on the firm capacity allocated to a customer in the service contract. These charges are typically stated in $/therm per month.
- Usage charge — Charges based on actual usage during a specified period of time typically stated in $/therm or $/Mcf.
Most commonly demand and contractual demand charges are applied only to large commercial, industrial, and power plant customers. In some regions, there are two usage charges, one for delivery and another for supply. That way if a customer purchases supply from a non-utility supplier they are only charged the delivery charge by the utility. In other regions, the two are bundled into one energy charge.
Rates for gas pipeline customers typically include at least three components:
- Reservation charges (applicable to firm customers only) – A monthly charge based on the maximum daily demand quantity specified in the shipper’s contract multiplied by the number of days in the month; this charge is typically stated in $/Dth per day
- Commodity, transportation, or delivery charges – Charges based on the total amount of gas transported in a month, stated in $/Dth
- Fuel and line loss charge – Charges to provide the pipeline fuel to cover operations such as running compressor stations and to account for gas lost during transport, most commonly paid through a percentage of gas transported during the month (i.e. the pipeline takes a percentage of the gas transported in a month) or occasionally as a separate charge in $/Dth
If rates are the same no matter where the gas is received and delivered the rate design is called postage stamp. But in some cases rates vary by where the gas is received and delivered. In this case rates may be zonal meaning that any transport within a zone pays the same rate but transport between different zones is different or may be mileage-based meaning rates are paid per mile of transport.