Most U.S. homes buy power from a utility that has no competition for the wires to their house. In exchange, a state commission regulates its prices. The utility cannot simply raise rates; it has to file a rate case and prove its costs.
Rate cases decide most of what you pay for electricity delivery. Here is how they work.
The Short Version
| Step | What happens |
|---|---|
| 1. Filing | The utility asks for a revenue increase and proposes new rates |
| 2. Discovery | Other parties request documents and data from the utility |
| 3. Testimony | Commission staff, consumer advocates and others file their positions; the utility responds |
| 4. Hearing | Evidence is examined; parties file briefs |
| 5. Settlement (optional) | Some or all parties agree on terms, which the commission may accept |
| 6. Order | The commission decides the revenue and the rates |
| 7. New rates | The utility files tariffs; bills change on the effective date |
This sequence follows a 2023 training presentation from the National Association of State Utility Consumer Advocates (NASUCA). Details vary by state.
The Revenue Requirement
The core question in a rate case is how much money the utility needs to collect in a year. The standard formula, as NASUCA presents it:
Revenue requirement = O&M + taxes + depreciation + r × rate base
- O&M: operating and maintenance costs, such as staff, tree trimming and fuel where it is not billed separately.
- Depreciation: the yearly write-down of the utility’s plant.
- Rate base: “Value of in-service, used and useful, utility plant funded by investors in utility.”
- r, the rate of return: a blend of the cost of debt and the allowed return on equity (ROE).
r = (cost of debt × debt share) + (ROE × equity share)
The return on rate base is where the utility’s profit opportunity comes from. That is why the allowed ROE and the capital structure are among the most contested items in any case.
Worked Example: Why ROE Matters
Take a hypothetical utility with a $10 billion rate base. Use the capital structure and ROE from Public Service Company of Oklahoma’s January 2025 settlement (51.12% equity, 48.88% debt, 9.5% ROE, as reported by Southwest Ledger) and an assumed 5% cost of debt.
| Item | Calculation | Result |
|---|---|---|
| Rate of return | (5% × 48.88%) + (9.5% × 51.12%) | 7.30% |
| Return on rate base | $10 billion × 7.30% | $730.0 million a year |
| Effect of +0.5 point on ROE | 0.5% × 51.12% × $10 billion | +$25.6 million a year |
The rate base and the 5% debt cost are invented for the example. The point stands: a half-point change in ROE on a large utility is tens of millions of dollars a year, collected from customers.
From Revenue to Your Bill
Once the commission sets the revenue requirement, two more steps decide what you pay:
- Cost allocation: splitting the total among customer classes, such as residential, commercial and industrial. NASUCA calls this “how to cut up the pie.”
- Rate design: turning each class’s share into charges: a fixed monthly charge, per-kWh prices, time-of-use periods, demand charges. NASUCA’s phrase is “how to collect the pieces of pie.”
Rate design is where solar owners are most affected. Moving revenue from per-kWh charges into fixed charges or demand charges lowers the value of each solar kWh even if the total revenue does not change. Our guides to fixed charges and solar and residential demand charges show the math.
What Is Not Usually in a Rate Case
Many bills have charges that change outside rate cases:
- Fuel and purchased power adjustments, often updated monthly, quarterly or yearly.
- Riders for specific costs, such as storm recovery, energy efficiency programs or transmission.
- Supply prices in states where customers can choose a supplier, set by auctions or contracts.
This is why a bill can rise while base rates are frozen, or fall right after a rate increase. Our guide to reading your electric bill shows where each charge appears.
Why Approved Amounts Are Usually Lower
Commission staff and intervenors challenge costs, the rate base and the requested ROE. Examples from our coverage:
| Case | Requested | Approved |
|---|---|---|
| DTE Electric, Michigan, decided Feb. 2026 | $574.1 million | $242.4 million |
| Public Service Co. of Oklahoma, decided Jan. 2025 | $217.6 million | $119.5 million |
| Mon Power and Potomac Edison, West Virginia, 2026 | 13% bill increase | 4.25% over two years |
Requests are rising. PowerLines counts $23.1 billion in electric and gas requests through the third quarter of 2026. See our summary of that report.
Interim Rates and Settlements
- Interim rates: some states let a utility start charging part or all of a request before the final order, subject to refund. Public Service Company of Oklahoma’s interim rates took effect October 23, 2024, months before the January 2025 order made them permanent.
- Settlements: most cases end in an agreement among some or all parties. A settlement usually trades a lower revenue figure for other terms, such as a promise not to file again for a set period. In West Virginia, Mon Power and Potomac Edison agreed not to file an overall rate case before April 1, 2028.
How to Take Part
- Find the docket. Search your commission’s website for your utility’s name and “rate case.” Note the docket or case number.
- Read the notice. Utilities usually must notify customers of a request and its estimated bill impact.
- Submit a written comment. Most commissions accept comments online. Specific, factual comments are most useful.
- Attend a public hearing. Commissions often hold evening or virtual sessions in rate cases.
- Contact your consumer advocate. Most states have an office that represents residential customers.
Limitations
Procedures, timelines and terms differ by state. This guide describes the general process for investor-owned utilities. City-owned utilities and cooperatives are usually governed by their own boards or city councils. The worked example uses invented figures for the rate base and cost of debt.
Sources
- National Association of State Utility Consumer Advocates, “Regulatory Basics: Introduction” (Accounting & Finance Committee, Spring 2023)
- Southwest Ledger, “State regulators approve scaled-down PSO rate hike despite AARP protest,” January 21, 2025
- Michigan Advance, “MPSC approves $242.2 million rate increase for DTE customers,” February 19, 2026
- The Dominion Post, “Explaining the most recent electric rate case,” October 9, 2026
- PowerLines, “Utilities Request $23.1 Billion in Rate Increases Through Third Quarter of 2026,” October 7, 2026
Frequently asked questions
What is an electric rate case?
A formal proceeding in which a regulated utility asks its state commission to change its rates. The commission reviews the utility's costs and investments, hears from other parties, and issues an order setting how much revenue the utility may collect and how it is charged to customers.
How is a utility's revenue requirement calculated?
The standard formula is operating and maintenance costs plus taxes plus depreciation plus the rate of return multiplied by the rate base. The rate base is the value of the utility's in-service plant funded by investors.
How long does a rate case take?
Usually many months. Some states set a deadline by law, and some allow interim rates while the case is decided. Our state guides note the timelines where we could confirm them.
Can customers participate in a rate case?
Yes. Most commissions accept written public comments and hold public hearings. Consumer advocates, and sometimes the state attorney general, intervene formally on behalf of residential customers.
