Energy rates 101

With so much in the news lately about Avista rates and rate cases, we thought this would be a good time for a short primer on all things rates.

It’s common to think Avista can raise rates whenever we want, but in fact the opposite is true. Avista is a regulated utility. That term “regulated utility” is important because it means that regulators set or approve our rates. Avista’s rates can only change with approval from state public utility commissions.   

How Rates are Set

1. Avista Files a Rate Request – When our costs for providing energy service to our customers change, we file a rate request (‘rate case’) with the commissions to adjust rates. We must go through a detailed public process and demonstrate the need for a rate change.
2. Commission Reviews Request – The commission then reviews our costs, reviews volumes of data and takes public testimony.
3. Commission Sets or Approves Rates – Based on its findings, the commission sets or approves rates it believes serve the public interest – rates that are reasonable and fair to customers, while allowing Avista the opportunity to be a viable, healthy business and earn a fair return for shareholders.

As an investor-owned utility (IOU), Avista operates a little differently from public or city utilities that are not regulated. In addition to shareholder dollars enabling us to invest in infrastructure and technology, we pay significant taxes that contribute to healthy communities.

Through investment in new technologies and systems and the development of businesses that fuel innovation, IOUs like Avista are driving economic growth – helping to create jobs and strengthen our communities.

What Rates Cover

Rates cover two types of costs:

1. The cost of generating or purchasing energy – about 50% of monthly bill
2. The cost of safely and reliably delivering that energy to customers – about 50% of monthly bill

The cost of wholesale energy is a major rate-driver. Our costs fluctuate up and down based on the energy market. Avista is fortunate to own and operate the majority of the power it generates, which gives us more control over the entire energy-delivery process, from generation to transmission to distribution. This helps keep our costs to customers more stable.

Investing in our Future

The cost of delivering safe and reliable energy includes more than one might think. It includes maintaining and improving a massive infrastructure made up of pipes, poles, dams and substations as well as technology. Many parts of our system are more than 30, 40 and 50 years old. These expenses are part of ensuring that we can continue to provide our customers with safe, efficient and reliable power.

Keeping costs affordable for customers is at the forefront of the decisions we make. We aim to save our customers money in a variety of ways, including implementing intentional purchase plans, offering natural gas for the same price we pay and continuing to be thoughtful in how we prepare our generation mix.

Even with these efforts in place, the costs to purchase power can and do fluctuate, and Avista will need to continue to invest hundreds of millions of dollars in our system every year to continue providing safe, reliable service for our customers now and into the future. This means rates will likely continue to go up.

Let’s compare

Across the nation, all communities and utilities are dealing with a similar reality: rising energy costs. Faced with this reality, Avista has put in much planning and effort to keep our electric and natural gas rates competitive.

Read more about rate definitions.