Utility Rates and Comparison of Investor Owned vs. Municipal Utilities Presented by: Kent Taylor...
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Transcript of Utility Rates and Comparison of Investor Owned vs. Municipal Utilities Presented by: Kent Taylor...
Utility Rates and Comparison of Investor Owned vs. Municipal
UtilitiesPresented by:
Kent TaylorChairman
KTM
Energy Consulting Services777 29th Street, Suite 200, Boulder, Colorado 80303
March 5, 20151
2
Outline
I. Introduction
II. Rate Making Process – Municipal vs IOU
III. Cash Requirements vs Cost-of-Service Rate Making
IV. Issue: Compliance with Ballot Issue 2C
V. Issue: Customer Classes and Cost Allocation/Rate Design
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I. IntroductionA. KTM’s industry credential
B. Municipal utility appreciation
C. KTM has no direct financial interest in an outcome
D. Absence of evangelical fervor – getting it right
E. Technicians vs zealots
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II. Rate Making Process – Municipal vs IOU
A. Muni 1. Cash requirements.2. Utility management requests approval of next budget as the basis of
new rates. 3. Governing Body (City Council) approves.4. Absence of professional adversarial Staff.
B. IOU 1. Cost-of-service.2. Requests new rates from regulatory body. 3. CPUC Staff is paid to oppose.
C. Intervention Process Comparison – executable models required in IOU rate cases.
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III. Cash Requirements vs Cost-of-Service Rate Making
A. Revenue Requirement Comparisons
B. Cost Allocation and Rate Design
C. Cost Causation Differences
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Investor Owned Utility
O&M
Depreciation
Taxes other than Income Taxes
Income Taxes
Return on Rate Base
Municipal Utility
- O&M
- City Overhead
Debt Service - principal
Payments in Lieu of Property Taxes
Debt Service - Interest
Capital Improvements
IIIA. Revenue Requirement Comparisons
Total Revenue Requirement
Total Revenue Requirement
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IIIB. Cost Allocation & Rate Design
1. Utility Function – a sequential, value-added activity with identifiable costs.
2. Cost Classification – identification of costs based on customer attributes.
3. Cost Allocation – Assignment of costs to customer classes based on class usage attributes.
4. Rate Design – the method by which the costs are collected from customers.
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IIIB. Cost Allocation & Rate Design
Revenue Requirement
Revenue Requirement by Utility Function• Production• Transmission• Distribution• Customer
Revenue Requirement by Utility Function Classified by Cost Causation• Demand• Energy• Customer
Revenue Requirement by Utility Function Classified as Cost Causation Assigned (allocated) to Customer Classes
Rate Design (how the utility collects the money)• Customer
charges• Demand• Energy
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IIIC. Cost Causation Differences
1. Cost causation differences exist because
a. Different Customer Classes use different facilities.
b. Usage Profiles – peak hour usage compared average hour usage.
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IV. Issue: Compliance with Ballot Issue 2CA. “and charge rates that do not exceed those rates charged by Xcel
Energy at the time of acquisition and that such rates will produce revenues sufficient to pay for operating expenses and debt payments, plus an amount equal to twenty-five percent (25%) of the debt payments; and with the reliability comparable to Xcel Energy and a plan for reduced greenhouse gas emissions and other pollutants and increased renewable energy.”
B. Hypothesis: The City will not include debt service in revenue recovery.
C. Test: 1. Examine the debt service schedules which support the cash flow model. 2. Ask the City if hypothesis is true.
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IV. Issue: Compliance with Ballot Issue 2CD. Tentative Conclusions:
1. The interest/principal on the debt related to assets in service on day one should be included in currently recovered operating revenue.
2. Operating revenues should be matched with the costs to provide the service.
3. Capitalizing the interest related to in-service assets perverts the regulatory principles on AFUDC.
4. If hypothesis is correct, Ballot Issue 2C is not a constraint.
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IV. Issue: Compliance with Ballot Issue 2C
E. Normal Regulatory Principles:
1. Allowance for Funds Used During Construction (AFUDC)
2. Special Situations for Capitalizing Interest
a. Example: The City borrows money for system acquisition prior to service commencement
3. Current service should be responsible for current costs
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V. Issue: Customer Classes and Cost Allocation/Rate Design
A. Hypothesis: The City has not yet considered differences in customer class rates.
B. Discussion: Xcel performs a series of calculations to functionalize, classify, and allocate its annual revenue requirement and then design rates based on those calculations. How will the City recognize cost causation between customer classes?
C. Example: transmission customers take power on the high voltage side of a substation. Xcel assigns no distribution costs to that customer class.
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V. Issue: Customer Classes and Cost Allocation/Rate Design
D. Does the City intend to charge its transmission level customers for a portion of the distribution system costs. i.e., debt service on the distribution system acquisition?
E. Test:
1. Ask the City whether it intends to require primary general, secondary general, and transmission level customers to subsidize residential rate payers.
2. If the City intends to acknowledge cost causation attributes, what happens if a customer class does not satisfy the initial rate constraint of Ballot Issue 2C?
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68.2%
5.6%
20.3%
2.0% 3.7% 0.2%
Functional Cost of Service
Production
Transmission
Distribution
Customer operations
Demand side man-agement
Low Income Assistance
Total Cost = $2.397 billion
* Source: Public Service Company of Colorado, Statistics from CCOSS 2010 & 2011 FERC Form 1
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0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
38%47%
56%
71%66%
48%
100%
Load Factor by Customer Class
16* Source: Public Service Company of Colorado, Statistics from CCOSS 2010
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40.3%
6.1%
39.1%
7.9%3.7% 2.9% 0.1%
Share of Revenue Requirement
Residential
Small commercial
C&I secondary
C&I primary
C&I transmission
Street and Area Light-ing
Traffic signals
Revenue Requirement = $1.355 billion
17* Source: Public Service Company of Colorado, Statistics from CCOSS 2010
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0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
40%
6%
39%
8%
4% 3%0%
30%
5%
43%
12%9%
1% 0%
Share of Revenue Requirement Share of Energy
18* Source: Public Service Company of Colorado, Statistics from CCOSS 2010