Rate Impact Task Force’s
Updated Results
for it’s
Report to the SPP Regional
State Committee
January 24, 2011
1
General Rate Impact Task Force (RITF) Notes

RITF was formed in May, 2010 by the SPP Regional State Committee to develop
monthly rate impact of transmission investment on retail residential and small
commercial ratepayers

Transmission investments costs were allocated to Transmission Owning Zones
by the following Cost Allocation rules:

Traditional Base Plan Funding for Notifications to Construct (NTC) issued
before June 19, 2010


33% Regional using Load Ratio Share (LRS) + 67% Zonal assignment
using Mega Watt-Mile beneficiary metric
Highway Byway Funding for NTCs issued on or after June 19, 2010:

over 300kV using 100% LRS

between 100kV and 300kV using 33% Regional LRS + 67% Zonal direct
assignment

under 100kV directly assigned to host Zone
2
General RITF Notes, cont.

Using the Cost Allocation Rules described in the previous slide, an Annual
Transmission Revenue Requirements (ATRR) Forecast was developed for
each Transmission Owning Zone including:

Accumulated Depreciation, Balanced Portfolio Balancing Transfers,
and Construction Work In Progress for Upgrades Novated to Transcos

Incremental ATRR costs are offset by select “quantifiable” benefits of
Balanced Portfolio and Priority Projects

Incremental ATRR costs and offsetting benefits were further allocated to
Retail Residential and Small Commercial ratepayers by the Transmission
Owners reducing ATRR and offsetting benefits to a $ / month level

Net Results presented as 2017 monthly incremental effect
3
RITF Inputs

Annual Transmission Revenue Requirement Cost Forecast relies on Transmission
Owner’s:

Upgrade Level Cost Estimates

Net Plant Carrying Charge % (NPCC), used to Annualize Upgrade Costs

Upgrade’s In-service Date

3% Annual Straight-Line Depreciation to Rate Base

As used in this presentation, Reliability and Economic Upgrades are terms of “art”. This is
not to say that Economic Projects do not provide Reliability benefits or vice-versa.

Select “Quantifiable” Benefits from Economic Upgrades offset costs

Balanced Portfolio: Adjusted Production Costs (APC) + Reliability

Priority Projects: APC + Reliability + Reduction in Losses

Gas Price Impact not included

Benefits of Reliability Upgrades, Transmission Service Upgrades, and Generation
Interconnection Upgrades were not included

11 GW of wind assumption used, Wind Revenue Impact was not included

Positive Benefit Reduces Costs, Negative Benefit Increases Costs
4
Updates to ATRR Forecast

Annual Transmission Revenue Requirements (ATRR) Zonal Cost Forecast
Updated in December 2010:

New Cost Estimates for Economic Upgrades:

Priority Projects (PP) increased from $1.15B to $1.42B

Balanced Portfolio (BP) increased from $692M to $826M

Updated In-Service Dates for PP, from “all-in” in 2015 to individually
estimated in-service dates of 2011, 2014, and 2017

Re-calculated BP Transfers from $31.2M/yr to $64M/yr , as required to
ensure all Zone’s Benefit/Cost ratios are at least 1.0 for BP Upgrades

Costs Updated in Each Zone’s ATRR Forecast Results

New Graphical Output: Monthly Incremental Cost Results Split
Between Reliability and Economic Upgrades
5
Differential ATRR of Cost Estimate Updates for Balanced
Portfolio and Priority Projects
6
Differential ATRR of Cost Estimate Updates for
Balanced Portfolio and Priority Projects
7
Incremental Upgrades used in ATRR forecasting
8
9
RITF Results
Four Types of Customers Considered:
1.
1,000 kWh/mo residential
2.
4,000 kWh/mo small commercial
3.
Actual average residential
4.
Actual average small commercial

Focus on 2017 Test Year, Incremental Cost Peak Year

Monthly Net Impact in Addition to Current Typical Bill
10
Detailed Results by Type

For Each Customer Type Graphs are Presented:

Monthly Cost Incremental to Current Bill (Red Bar)

Monthly Benefits Offsetting Costs (Green Bar)


Green bar below the zero line reduces net monthly costs

Green bar above the zero line increases net monthly costs
Monthly Net Impact Incremental to Current Bill (Orange Bar with
$/Month Values)
11
12
Summary RITF 2017 Results, 1,000 kWh/mo Incremental Residential Costs
green benefits bar below the zero line
reduces net costs, above the zero
line increases net costs
13
14
Summary RITF Results, 4,000 kWh/mo Incremental Small Commercial Costs
green benefits bar below the zero line
reduces net costs, above the zero
line increases net costs
15
16
Summary RITF 2017 Results, Incremental Actual Average Residential Costs
green benefits bar below the zero line
reduces net costs, above the zero
line increases net costs
17
18
Summary RITF Results, Incremental Actual Average Small Commercial Costs
green benefits bar below the zero line
reduces net costs, above the zero line
increases net costs
19
Investment Splits by Type
20
ATRR Cost Split Between Reliability, TSR, GI and Economic
Upgrades
 2017 Total Incremental ATRR: $822M/yr
 2017 Reliability, Transmission Service, Generation
Interconnection, and Sponsored Upgrades ATRR: $453M/yr;
55% of total
 2017 Economic Upgrades ATRR, Balanced Portfolio, Priority
Projects: $369M/yr; 45% of total
21
2017 Cost Results, 1,000 kWh/mo Residential (not offset by Benefits)
22
2017 Cost Results, 4,000 kWh/mo Small Commercial (not offset by Benefits)
23
2017 Cost Results, Average Residential (not offset by Benefits)
24
2017 Cost Results, Average Small Commercial (not offset by Benefits)
25
CWIP vs. AFUDC
1.
Select projects have approval from FERC to recover Construction Work In
Progress (CWIP) before an individual upgrade is placed in-service.
2.
The following slides explore the difference between CWIP and traditional
Allowance for Funds Used During Construction (AFUDC) to the Ratepayer.
3.
AFUDC is treated as a capital investment and is added to the Rate Base of
an Upgrade when it is placed in rates. There is no recovery of AFUDC
before the facility is placed in rates.
4.
For the preceding slides, CWIP is included in the cost forecast but did not
effect the 2017 results because the last project eligible for CWIP is
completed in 2014.
26
CWIP vs. AFUDC, cont.
•
The Present Value (PV) of the ATRR stream of the Novated Balanced
Portfolio (KETA Plan) projects and Priority Projects (V Plan) were
compared when construction was hypothetically financed with AFUDC
verse CWIP.
•
A discount rate of 6% was chosen as representative of a consumers
costs of funds (i.e. mortgage). This rate is higher than inflation and
lower than a utility’s long term cost of capital.
–
Higher discount rate favors the use of AFUDC
–
Lower discount rate favors the use of CWIP
27
Novated Economic Upgrades
28
CWIP Estimates for Novated Econ. Upgrades
29
ITC’s Hypothetical AFUDC Calculations
30
30
Prairie Wind Present Value of Discounted Cash Flows: AFUDC v.
CWIP, Priority Projects
Difference = Present Value (PV) of AFUDC scenario less PV of CWIP scenario, therefore positive value is a CWIP savings
to the Ratepayer. Discount Rate of 6% chosen as higher than inflation, lower than corp. cost of capital.
CWIP v. AFUDC break even at a discount rate of 6% occurs in 2034, 19 years after the in-service date.
31
ATRR for Priority Projects Novated to Prairie Wind, AFUDC vs.
CWIP
PWT Annual Revenue Requirement
$45,000
ATRR ($/yr)
$40,000
$35,000
Up Tick: Expiration of Kansas Property Tax Exemption
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$-
AFUDC revenue requirement
CWIP revenue requirement
Total AFUDC added to Upgrade: $28.1M
32
ITC Present Value of Discounted Cash Flows: AFUDC v. CWIP,
Balanced Portfolio’s KETA Plan
Difference = PV of AFUDC scenario less PV of CWIP scenario, therefore positive value is a CWIP net savings to the
Ratepayer. 6% Discount Rate chosen as higher than inflation and lower than corp. cost of capital.
CWIP v. AFUDC break even at a discount rate of 6% occurs in 2027, 14 years after the in-service date.
33
ITC Great Plains, Balanced Portfolio’s KETA Project, AFUDC v. CWIP
34
ITC Present Value of Discounted Cash Flows: AFUDC v. CWIP,
Priority Project’s V-Plan
Difference = PV of AFUDC scenario less PV of CWIP scenario, therefore positive value is a CWIP net savings to the
Ratepayer. Discount Rate of 6% chosen as higher than inflation and lower than corp. cost of capital.
CWIP v. AFUDC break even at discount rate of 6% occurs in 2028, 14 years after the in-service date.
35
ITC Great Plains, Priority Project’s V Plan, AFUDC v. CWIP
36
CWIP Cost Allocation per Year, 2009-2014
37
RITF Roster
Barry Smitherman - (Chairman)
Michael Siedschlag - (Member)
Thomas Wright - (Member)
Larry Altenbaumer - (Member)
Ricky Bittle - (Member)
Mike Palmer - (Member)
Les Dillahunty - (Staff Secretary)
38
Pat Bourne
Director Transmission Policy
pbourne@spp.org
501-614-3249
Dan Jones, PE
Lead Regulatory Policy Engineer
djones@spp.org
501-688-1717
Dee Edmondson
Engineer I
dedmondson@spp.org
501-688-1778
39 39