Seeking Greater Accuracy in Cost of Service Studies? Use kva as your guide!
In electric utility cost of service (COS) studies, accurately allocating costs to customer classes is essential to ensuring fairness, transparency, and long-term financial sustainability. One important technical consideration in this process is whether to use kilowatts (kW) or kilovolt-amperes (kVA) as the basis for demand-related cost allocation. While both are measures of electrical demand, they represent different aspects of how customers use the system—and kVA can offer a more complete picture.
kW, or real power, measures the energy actually consumed to do useful work, such as lighting, heating, or running motors. However, electrical systems also require reactive power, measured in kVAR, to support the magnetic fields in motors and transformers. The combination of real and reactive power is known as apparent power, or kVA. While reactive power doesn’t do “useful” work, it still places a load on the utility’s generation and delivery systems. Infrastructure such as transformers and distribution lines must be sized to handle the full apparent power (kVA)—not just the kW.
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Using kVA in a cost of service study more accurately reflects the total demand customers place on the utility, particularly for large commercial and industrial customers with low power factors. Customers who draw high levels of reactive power may not show high kW demand but still cause significant system strain. Allocating costs based on kVA ensures these impacts are accounted for and encourages customers to improve their power factor, reducing stress on the grid.
From a metering standpoint, utilities are increasingly equipped to handle kVA measurement, especially with the adoption of Advanced Metering Infrastructure (AMI). Many AMI meters are capable of capturing not only energy usage (kWh) and real demand (kW) but also reactive power (kVAR) and power factor.
However, to utilize this functionality, utilities must ensure that their meters are properly configured and that their data management systems are capable of storing and analyzing kVA-related values.
Incorporating kVA into COS studies supports accurate pricing, operational planning, and grid efficiency, while helping ensure that all customers contribute fairly to the cost of providing service.
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About Russ Hissom - Article Author
Russ Hissom, CPA is a principal of Utility Accounting & Rates Specialists a firm that provides power and utility cost of service and rate studies, expert witness, and consulting services, and online/on-demand courses on accounting, rates, FERC/RUS construction accounting, financial analysis, and business process improvement services. Russ was a partner in a national accounting and consulting firm for 20 years. He works with electric investor-owned and public power utilities, electric cooperatives, broadband providers, and gas, water, and wastewater utilities. His goal is to share industry best practices to help your business perform effectively and efficiently and meet the challenges of the changing power and utilities industry.
Find out more about Utility Accounting & Rates Specialists here, or you can reach Russ at russ.hissom@uarsconsulting.com.
The material in this article is for informational purposes only and should not be taken as legal or accounting advice provided by Utility Accounting & Rates Specialists, LLC. You should seek formal advice on this topic from your accounting or legal advisor.