How do you allocate the revenue requirement among customers?

Once the revenue requirement is established, the next task is to determine which customer pays what portion of these revenue requirements. The ideal approach would be to equitably and proportionately allocate the revenue among all individual customers. However, this approach is rarely feasible or desirable, and as such, the utility needs to establish customers classes that appropriately reflect its customer base, while also allowing the efficient collection of the required revenues.

The parameters on which customer classifications are based can be usage patterns (e.g., streetlight versus restaurant), geographic locations (e.g., rural versus urban), type (e.g., private residence versus industry), volume of use (e.g., large industrial versus small industrial), or any other number of parameters that are deemed appropriate. While there is no limit to the number of parameters used to establish customer classes, the most commonly used metrices are the number of customers, peak demand utilized (in kW), and the total energy consumed (in kWh).
illustrative cost allocation process
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