It’s been more than a year since the U.S. Energy Information Administration reported that electricity rates have outpaced inflation since 2022, and the agency predicts that trend will continue through 2026. The higher bills have been a focus of local elections and spurred public interest in public utility commission proceedings.
With a reputation for affordability, public power providers face substantial challenges to keep rates down and equitable. Amid mounting economic pressures, utilities are responding with a closer look at ways to manage demand, developing new rate structures for emerging loads, and staying in tune with their financial health indicators to find potential savings for customers.
Strategies for Keeping Up
“The public power sector is facing multiple, simultaneous pressures,” said Amanda Guci, senior manager for Raftelis, a management and consulting firm that advises local governments and utilities. One major pressure is the scale of capital investment across power systems nationwide, from system upgrades to new generation and transmission facilities. Guci noted industry estimates project these investments to reach up to $1.4 trillion through 2030. These investments include replacing aging infrastructure and meeting accelerated load growth, particularly from data centers. At the same time utilities have these development needs, they are facing increased costs for materials, equipment, and construction.
Given the considerable time, cost, and effort of constructing new plants and infrastructure, Guci noted that some utilities are turning to load flexibility strategies to manage the high demand placed on the grid.
In Virginia, the Harrisonburg Electric Commission uses load flexibility as a day-to-day strategy for managing the coincident-peak-based demand charge it pays to Dominion Energy, its generation supplier.
“We have several C&I customers that we have on load reduction rates, and some of them are interruptible,” said Brian O’Dell, HEC’s general manager. “That helps us keep our peak charges down each month.”
So does conservation voltage reduction, which is when the utility brings down distribution system voltage to the lower end of the allowable range to reduce energy consumption, peaks, and line losses. The approach typically cuts usage by 1% to 3% without affecting customer service.
O’Dell said advanced metering infrastructure helps the utility with load studies and verifying that customers on interruptible rates are participating in peak reduction.
Guci gave the example of an investor-owned utility in the Pacific Northwest that partnered with a company specializing in AI-driven forecasting and load modeling. By optimizing flexible resources like batteries and onsite generation, she said the utility was able to avoid building new infrastructure and the initiative “freed up more than 80 megawatts for data center interconnections.”
Guci noted that while such approaches represent a promising direction for the power sector, they have not yet achieved widespread implementation.
Regular Reviews
Another strategy Guci recommends to keep rates fair and equitable (and one she sees utilities increasingly adopting) is conducting more frequent financial plans and cost-of-service studies.
“We historically recommended cost-of-service studies on a five-year cycle. These studies explore how costs are allocated across customer classes based on the demand they place on the system,” she said. “With all the changes that are happening within the industry, things look very different from one year to the next. Now, we are recommending cost-of-service studies every three to five years, supplemented by annual financial planning updates.” The same principle applies to long-range financial planning. “It is essential to monitor how projections compare to actual results on a year-over-year basis.”
California’s San Francisco Public Utilities Commission is already doing financial updates annually, and actual rate calculations happen annually, too, said Matt Freiberg, SFPUC’s rates manager. “We take a look at billing data every year, and we calculate an effective rate for each rate tariff. And then we look at the overall load for each of these rate tariffs, and we project out our revenues using those effective rates. We reevaluate every year, and it's a big reason why we only adopt a one-year rate at a time,” he said.
“San Francisco also has a rate fairness board, which is a group of people that represent city departments as well as representatives from different customer classes,” said Mike Hyams, deputy assistant general manager at the PUC. That team — plus anyone from the public who attends the Commission’s multiple meetings each year — also informs the city's ratemaking.
New Approaches for New Loads
As new technologies put pressure on utility rates, new ratemaking approaches are emerging.
“When EV charging stations first started coming online, they were typically classified as standard commercial rates,” Guci said. “However, EV charging stations — especially the DC fast chargers — spike the demand of the system while they're charging. Their load profile does not align with that of a typical commercial customer, so utilities need to establish an appropriate demand charge and/or an appropriate kilowatt-hour charge.”
O’Dell said regulators in Virginia have recognized the large loads data centers bring. Last November, the Virginia State Corporation Commission approved a new, mandatory "GS-5" rate class aimed at high-load customers. The new rate class, which takes effect in January 2027, requires high-load customers to cover 85% of their contracted distribution and transmission demand, as well as 60% of the generation demand they place on the system.
Another emerging trend Guci sees is “rate structures designed to screen out uncertain projects” on data centers and other large load customers. With AI-driven data center proposals rapidly expanding interconnection queues, utilities are implementing large-load tariffs designed to ensure that only projects that are sure to go online get into the queue, she said.
An APPA report, What Public Power Needs to Know About Serving Data Centers, includes a summary of how public power utilities have structured rates for large loads including data centers. Santee Cooper, a public power utility with 208,000 customers in South Carolina, has implemented a large-load tariff and requires customers to pay a deposit to cover capital costs and line extensions. The large-load rate includes a monthly customer charge, plus a demand and coincident-peak demand charge, a seasonal time-based energy charge, and a peak power charge.
Santee Cooper also expects large-load customers to pay for delivery-point and transmission construction costs, network upgrades, and any additional facilities needed. In addition, large-load customers must sign a service agreement, ensuring that they won’t drop load below 50,000 kW and will stay in the system — at least financially — for 15 years.
Yet another trend is time-based pricing, especially rates that incentivize overnight EV charging to help utilities improve load factor and shift charging load to off-peak hours.
Customer Impact
Rates may be rising overall across the U.S., but both Harrisonburg and San Francisco have reduced costs for customers in recent years.
Harrisonburg’s rates have historically been on the low side. According to APPA’s latest Average Revenue per Kilowatt Hour report, in 2024, the utility’s average residential rate was 15% lower than Virginia’s public power average, 22% lower than the state’s IOU average, and 17% lower than the rate residential customers were paying to cooperatives.
That same year, HEC saw a 5% increase in its wholesale power costs. Fortunately, the fuel-cost component of the utility’s rates from Dominion Energy dropped. “By the time we got our fuel factor adjusted, it more than offset what our base rate increases would have been for the year,” O’Dell said. The result was a $5.45 monthly reduction in power bills for the average residential customer.
O’Dell modestly maintained that this rate decrease was mechanical, and benefited from running a system with a high load factor. “We have a lot of diversity in our load. We have a lot of industry, residential, and commercial loads, as well. Our load factor tends to run relatively high, so our overall cost of power on a kilowatt-hour basis benefits from that,” he said.
The utility also has a highly efficient staff. There are only 41 employees for the utility, which serves 56,000 residents (21,800 meters) spread over 18 square miles. Its service area includes James Madison University.
Good financial stewardship played a role in SFPUC’s ability to lower rates this year for CleanPowerSF, the community choice aggregator serving the city. The CCA, combined with the city’s Hetch Hetchy hydroelectric plant, provides more than 75% of the electricity consumed in San Francisco.
Last year, SFPUC staff saw a rate increase on the horizon due to one of the fees charged by Pacific Gas & Electric, the IOU that provides the city’s distribution infrastructure. “We had been monitoring what was going on with this fee, and we knew several months in advance that it was going up because of changes in the market prices for various power supply products,” Hyams said. After starting to prepare a rate action, the city found out that PG&E’s fee was rising 400%.
The number is a big one, but that impact was significantly reduced when SFPUC decided to lower CleanPowerSF electricity supply rates by 25% for residential and some commercial customers and by 20% for all others.
“We have a strong financial reserve policy for CleanPowerSF,” Hyams added. “We keep a certain amount of cash on hand to help us manage both fluctuations in the PG&E rates and power market prices. This reserve, plus an anticipated reduction in power supply costs, made the case for drawing down the reserve over the next two years. “We're projecting that in 2028, we will need to increase our rates again, but we'll be starting from that lower base that we've just implemented.”
Freiberg added, “We knew that any rate decrease would have a requisite rate rebound, so we evaluated various scenarios. Even with the rate rebounds, it won't be until 2031 before our rates are back to where they were before we made the rate reduction.”
Without that subsidy from the reserves, Freiberg said residential and large commercial customers would have been those most heavily impacted by the increase in PG&E rates and fees. Now, residential customers will only see a $1 or $2 increase.
Along with financial reserves, SFPUC is leveraging supply budget flexibility to provide the CleanPowerSF rate reductions. “We build in some conservatism, and we call it a contingency in case power supply market prices change relative to what we were forecasting at the time that we put our budget in place. And that contingency serves almost like another buffer against having really volatile rates,” Hyams said.
Freiberg summed up the value of this conservative approach. “If I had to generalize why we're able to decrease CleanPowerSF rates, it's really just old-fashioned risk management,” he said.
