Step 7: Explore whether tariff formula should include flow-through elements

Under a PBR tariff formula, flow-through (or pass-through) elements can be incorporated to account for uncontrollable costs incurred by the utility that arise during the normal course of business. In most cases, expense items are estimated with the expectation of being fixed throughout the tariff period, subject to true-up procedures. But there are some circumstances where one or more expense items are provided pass-through treatment. This is appropriate when the expense item has three characteristics:

  • mostly beyond the ability of utility management to control;
  • volatile, and therefore difficult to forecast; and
  • comprising a significant portion of the utility’s revenue requirement.
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