Fixed charges in electric rate design: A survey

Fixed charges collected from residential and small business customers are receiving increasing attention nationwide. The main driver of this greater role for fixed charges is the mismatch between the structure of utility costs and the structure of utility revenues. The vast majority of utility costs to serve residential and small commercial and industrial customers are fixed. However, for historical reasons, the vast majority of utility revenues being recovered from these customers are volumetric in nature. This paper reviews methodologies being used by a sample of utilities to establish fixed charges.