Beyond the cost-of-service study: A road map for modernizing your utility’s rate design

The electric utility industry is undergoing a profound transformation as it adapts to new technologies and changing consumer behaviors. Modern rate design must balance multiple objectives, including grid reliability, cost recovery and cost-based pricing. While the evolution of electric rate design is complex, it is manageable with the right data and skill sets, whether developed internally or through partnerships with the right external expertise. Based on our experience and broader industry analysis, the following key trends are shaping electric rate structures:

Trend one: The demand shift from volumetric to capacity-based pricing

Advanced metering infrastructure (AMI) enables time-of-use (TOU) and dynamic pricing for all customer classes, offering variable rates throughout the day. TOU rates encourage customers to shift usage to off-peak hours, reducing strain on the grid while providing opportunities to lower bills for the customer and utility.

Demand-based rate structures are also gaining prominence as utilities seek to better align pricing with infrastructure costs. Charging customers based on peak demand rather than total consumption more accurately reflects each customer’s contribution to system capacity requirements.

A recent cost-of-service study performed by Baker Tilly analyzed two years of rate class comprehensive 15-minute AMI interval data for a southern utility to support improved load management and customer choice. Using large-scale data analytics and enterprise AI tools, new rates were designed that smoothed peak demand and flattened the load curve, optimizing generation and purchased power costs.

Trend two: Prosumer integration for distributed energy resources (DERs)

The growth of distributed energy resources (DERs) has led utilities to develop new rate structures for solar, battery storage and other customer-owned generation. While state laws may modify traditional ratemaking principles, adhering to cost-based DER rate design helps ensure participating customers pay their share of grid infrastructure costs while receiving appropriate compensation for energy exported to the grid, without creating cross-subsidies.

A recent Baker Tilly rate design for a Northeast utility established DER compensation based on avoided day-ahead market costs, which treats DER and non-DER customers equitably.

Trend three: Managing electric vehicle load

Growing electric vehicle (EV) adoption may be reshaping utility load curves. TOU rates can shift charging to off-peak hours, fill load valleys and reduce the need for new infrastructure investment. Our work with a Northeast utility showed that treating EV load as more than a “plug-in appliance” led to TOU rates aligned with off-peak wholesale pricing and lower system costs.

Trend four: Managing customer energy affordability

Energy affordability is addressed by aligning fixed and variable charges with cost-of-service principles while maintaining predictable bills. Targeted assistance programs—such as income-qualified discounts, flexible payment options and budget billing—help vulnerable customers manage costs without shifting costs to other customer classes.

Trend five: Bridging the data–human capital gap

Modern ratemaking increasingly depends on strong data analysis and technical skills to evaluate load patterns, cost drivers and customer impacts. Proficiency with data tools, digital twins, advanced spreadsheet models, artificial intelligence and rate simulation software enables more transparent, flexible and scenario-based rate design.

How Baker Tilly can help

Modern rate design extends well beyond a traditional cost-of-service study, requiring utilities to integrate advanced data, evolving technologies and changing customer behaviors into pricing decisions. By understanding these trends and investing in the right analytical capabilities and partnerships, utilities can design rates that are fair, flexible, financially sustainable and responsive to evolving customer desires and abilities.

Baker Tilly helps utilities and cooperatives move beyond traditional cost-of-service studies to implement modern, data-driven rate designs that reflect how customers use electricity. Our specialists combine deep ratemaking expertise with advanced analytics, AMI interval data analysis and software tools to evaluate capacity costs, DER impacts, EV load growth and customer affordability across multiple scenarios. Our approach connects regulatory compliance, financial sustainability and customer impacts—supporting TOU rates, demand-based pricing, DER compensation structures and targeted affordability programs—so your organization can modernize rates with confidence while reducing customer inter-class subsidies, increasing transparency and promoting long-term system reliability.