1 / 16

Utility Rate Making Process Theory and Practice

Utility Rate Making Process Theory and Practice . Marty Seitz, Manager – Financial Planning & Analysis - East. October, 2004. Rate Making – Theory and Practice. Learning Objectives : Understand the rate case process in general; Understand the major ratemaking principles in general;

Download Presentation

Utility Rate Making Process Theory and Practice

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Utility Rate Making ProcessTheory and Practice Marty Seitz, Manager – Financial Planning & Analysis - East October, 2004

  2. Rate Making – Theory and Practice • Learning Objectives: • Understand the rate case process in general; • Understand the major ratemaking principles in general; • Understand the basic components of rate making; • Understand the major differences in rate making that you may encounter in your positions; • Understand how capital and O&M spending impacts rate making. • Understand the effect of your decisions on these components.

  3. The Rate Case Process in WI * A quasi-legal process that replaces free-market. *File application, testimony and exhibits. *Commission Staff completes revenue requirements audit. • Preliminary hearing conducted by PSC. • Sets remaining schedule. • Sets issues in the case. *Commission Staff and Interested parties conduct discovery *All parties file direct testimony. *All parties file rebuttal, and surrebuttal testimony. *Hearings held. *Final order (approximately 10 months after filing date).

  4. Overview of WI Ratemaking Principles • Forecasted test year vs ? • 13 month average rate base and capital structure. • Use of deferrals for major out of period impacts. • Matching principle. • Use of CPCN, CA and PTF2 process for large investments. • Recent changes to WI ratemaking. • Fuel rule changes for fuel only rate cases vs FAC. • Rate design filing timing. • Use of Late Filed Exhibits. • Migration away from biennial base rate cases.

  5. Rate Making Formula Components Business Model: Revenues – Expenses = Earnings Utility Rate Making Model: RR = COS + (RB x ROR) RR = Revenue Requirement COS = Cost of Service (operating expenses) RB = Rate Base (capital investment) ROR = Rate of Return (cost of financing)

  6. Use of the Business Model in Rate Making • Utility rate making starts with the business model. • Determines what is the current Revenues. • Determines what is the current level of expenses. • Determines what is the current earnings.

  7. Wisconsin Rate Order for 2004 – Electric(Docket No. 6680-UR-113 Page 32)

  8. Wisconsin Rate Order for 2004 – Gas (Docket No. 6680-UR-113 Page 32)

  9. Three Major Components to Rate Base(The “RB” from our formula) • Net Investment in plant • Primarily UPIS, net of Accumulated Reserve for depreciation • Must be “in-service” and “used and useful” • Accumulated Deferred Income Taxes • Other smaller items • Working Capital • M&S, Prepayments, Fuel Inventory, & Cash Working capital

  10. Wisconsin Rate Order for 2004 – Rate Base (Docket No. 6680-UR-113 Page 34)

  11. The Formula for ROR(Docket No. 6680-UR-113 Pages 41 & 43)

  12. Wisconsin Rate Order for 2004 – Rate ChangeThis is the Computation of RR from our Formula (Docket No. 6680-UR-113 Pages 41 & 43)

  13. Review of Formula for Electric • Business Model: Revenue – Expenses = Earnings • $773,832 - $688,382 = $85,450 • Utility Model: RR = COS + (RB x ROR) • RR = $773,832 + $14,494 = $788,326 • COS = $688,382 + ($14,494 - $8,677) = $694,199 • RB = $920,064 • ROR = 10.23% • RB x ROR = $920,064 x 10.23% = $94,122

  14. Other Cost Recovery Mechanisms • Energy Adjustment Clauses • IA • Recovers fuel costs and energy portion of purchased power • WI • No FAC – Use of fuel only rate cases • Purchased Gas Adjustment Clauses • IA and WI • Recovers purchased gas costs dollar for dollar (WI PBR) • Conservation Costs (demand-side management) • IA – costs recovered in a separate, contested rate proceeding; • - unrecovered costs allowed to earn a return • - opportunity to earn an incentive • WI – Included in base rates

  15. How Your Decisions Effect These Components • Proper Charging of Costs • Important to get it right! • Capital vs O&M • Capital is part of Rate Base, earns a return • Capital defined by Property Unit Catalog • O&M recovered $1 for $1

  16. Rate Design?Questions?Thank you!

More Related