Utility ratemaking

Utility ratemaking is the formal regulatory process by which public utilities set the prices (more commonly known as "rates") they will charge consumers. Ratemaking, typically carried out through "rate cases" before a public utilities commission, serves as one of the primary instruments of government regulation of public utilities.

Historically, many different classes of business have been classified as public utilities, and thus have been legally mandated to go through the ratemaking process in order to determine the allowable service charges for their industry. Although the classification of public utilities has changed over time, typically such businesses must constitute a de facto monopoly (or "natural monopoly") for the services they provide within a particular jurisdiction. Prominent public utilities which must utilize ratemaking to set rates include railroads, natural gas distribution, telecommunications, and electricity generation and distribution.

In the United States, where many industries classified as public utilities are either private businesses or publicly traded corporations, ratemaking is typically carried out through the authority of a state regulatory body, most often a public utilities commission in an administrative law format. At the national level the Federal Energy Regulatory Commission (formerly the Federal Power Commission) also exercises authority over matters of intrastate wholesale sales of electric power.

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