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Cost of Service & Rate Studies

PRMG has prepared hundreds of Cost of Service and Revenue Sufficiency (Rate) Studies for water, sewer, reclaimed water, electric, natural gas, solid waste, and stormwater enterprises that provide service to millions of customers. Aspects of cost of service and rate studies include the preparation of detailed customer forecasts and billing analyses, identification of expenditure requirements to be funded from rates, development of capital improvement funding plans, evaluation of financial performance and policy development, and design of various utility rates and service charges.  PRMG offers exceptional client support throughout all stages of the cost of service process, including development of presentations and participation in the public hearing process for rate approval, assistance in drafting of rate ordinances and resolutions, and other related services.

Our approach to Cost of Service and Rate Studies involves interactive working group meetings with our clients to perform sensitivity analyses, and evaluation of study assumptions that enhance the decision-making process for management.

We Have Experience in the Development of:

Water and Wastewater Cost of Service and Rate Studies

PRMG has prepared hundreds of Water and Wastewater Cost of Service and Rate Studies for water and wastewater utilities across the Country.Objectives of Water and Wastewater Cost of Service and Rate Studies prepared by PRMG include:

  • Meet the utility system's financial obligations and performance objectives.
  • Maintain the overall financial position consistent with management policies and strategic business objectives.
  • Promote compliance with rate covenant, additional bonds test, and flow funds provisions based on authorizing bond documents and maintain credit rating position.
  • Provide capital for system expansion and renewal and replacement. 
  • Develop equitable and defensible retail and bulk service rates and fees based upon cost of service principles.
  • Encourage and promote conservation of water resources.
  • Incorporate newly-acquired business segments to consolidate utility rate schedules within the expanded service territories.

Services offered related Water and Wastewater Cost of Service and Rate Studies include:

  • Develop comprehensive cost recovery utility business plans.
  • Develop detailed bill frequency and customer usage profiles.
  • Establish water conservation pricing policies.
  • Develop ERC based and meter equivalence based rate structures.
  • Prepare capital financing plans and cost sensitivity analyses.
  • Develop rates designed to recover carrying cost of investment of capital facilities.Conduct public relations programs for customer information and rate impact needs.
  • Develop performance measurements, financial targets and compliance analyses to promote creditworthiness of utility.

Water and Wastewater Impact Fees (Capacity Charges)

PRMG has extensive experience developing water and wastewater impact fees (sometimes referred to as capacity charges). Impact fees developed by PRMG meet the conditions set forth in statutory and case law and are:

  • Designed to meet the "rational nexus" test
  • Designed so that there is not an intentional windfall to existing users
  • Designed, to the extent practical, to only cover the capital cost of construction and related costs (engineering, legal, financing, administrative, etc.) for capital expansions or other additional capital requirements that are required solely due to growth.

PRMG also offers expert witness services in impact fee challenges. Additionally, PRMG has developed numerous line extension and other capital recovery fees for our clients.

Municipal Impact Fee Studies

PRMG has extensive experience developing municipal impact fee studies for different services such as fire, police, recreation, library, and administrative service. Our services also include:

  • Development of non-ad valorem assessments for stormwater, fire, and highway maintenance/districts
  • Development of municipal rates and fees for stormwater, solid waste permitting, building inspection, and various miscellaneous services
  • Development of internal administration cost allocation methods

Wholesale Service

PRMG has extensive experience drafting contracts for service and assisting in negotiation of large user agreements; development of capacity and variable allocation factors for cost apportionment; analysis of avoided cost of utility services; development of bulk rate methods and "true-up" formulas for full cost recovery.

Solid Waste Rate Studies

PRMG offers preparation of solid waste rate studies. Our approach to solid waste rate studies include:

  • Development of rates for full-recovery of cost
  • Allocation costs for disposal (experience in both landfill and waste-to-energy facilities) and collection and recycling services
  • Evaluation of financial objectives and needs of system
  • Analysis for long-term closure / new disposal site development requirements

Our services related to solid waste rate studies include:

  • Development of detailed financial forecasts of solid waste operations
  • Allocation of costs between classes of customers for collection and recycling service
  • Assistance in development of solid waste collection agreements and evaluation of proposals
  • Development of solid waste residential and commercial rates billed as a non-ad valorem assessment
  • Development of other solid waste fees including roll-off fees, license fees, and new customer service initiation fees
  • Development of tipping fees for various waste disposal requirements
  • Assistance in evaluation of public / private service options
  • Assistance in developing and review of collection service request for proposals

Stormwater Client Services

Our services related to stormwater client services include:

  • Development of cost of service rates based on effective impervious service method that recognize runoff contribution by parcel characteristics
  • Evaluation of operating and capital budgets and five-year financial program
  • Development of capital finance plans recognizing funding alternatives such as stormwater enterprise fund revenues and other traditional sources (gas tax revenue, bond financing)
  • Development of detailed customer billing database for program implementation and perform billing audits for application correctness

Reclaimed Water Services

Objectives of reclaimed water rate studies prepared by PRMG include:

  • Comply with regulatory requirements
  • Expand alternative water supply resources
  • Reduce irrigation demands on potable water system
  • Provide for effluent disposal
  • Identify revenue impacts due to new water alternatives
  • Minimize the impact on water and sewer system costs and rates

Our services related to reclaimed water rate studies include:

  • Development of business policies for reuse service
  • Identification of reuse system costs
  • Analysis of least-cost alternative effluent disposal system
  • Allocation of reuse system costs among water, wastewater, and reclaimed water customers
  • Development of reclaimed water rates for bulk, residential and small commercial users (high and low pressure use)
  • Evaluation of the impact of reclaimed water service on water and wastewater sales and revenues
  • Development of service extension policies and ancillary fees and charges
  • Assistance in preparing rate resolutions and ordinances and negotiating reclaimed water service agreements
  • Preparation of rate and fee evaluations for reuse feasibility studies submitted to regulatory agencies

Water Conservation Rates

Objectives of water conservation rates include:

  • Develop rates to provide incentives to eliminate excessive use of water resources
  • Meet the conservation program goals
  • Reflect cost of service principles and equitable distribution of costs to users and customer classes
  • Reduce water system peak demands of system

Our services related to water conservation rates include:

  • Development of rates that encourage conservation for residential, commercial, and multi-family customers
  • Identification of essential, discretionary, and excessive use by customer class for ratemaking considerations
  • Recognition of pricing differentials based on incremental costs, peak use factors, and other means
  • Evaluation of price elasticity considerations based on class of customers and level of use
  • Development of innovative conservation rates using inverted, peak demand surcharge, seasonal and pervious surface area-based rate structures
  • Development of customer usage profiles based on detailed billing data

Electric Rate Studies

PRMG provides electric consulting services to municipal and cooperatively owned utilities that provide electric service. Our services include:

  • Supply cost analyses
  • Cost of service studies
  • Alternative pricing methods that include wholesale and retail:
    • Economic development rates
    • Time-of-use rates
    • Interruptible rates
    • Rates for non-firm economic services
    • Expert testimony before regulatory agencies

PRMG also assists our clients in updating their financial policies and establishing new guidelines for financial performance in competitive business environments. These guidelines include earnings targets, capital funding criteria, and cash reserves optimization.

PRMG prepares electric financial forecasts that allow for evaluation of capital funding alternatives on distribution systems revenue requirements. We also develop analyses to benchmark operating costs with competing regional electric systems.


Our Approach to Cost of Service and Rate Studies: