Conducting a review of the transmission formula rate of neighboring IOU (Transmission Formula Rate Analysis)
“MCR went through the cost data with a fine tooth comb and asked the incumbent IOU some very hard questions.”
—Financial Planning Manager, joint action agency
Background
A joint action agency was faced with an unusually large transmission true-up charge and was concerned the neighboring IOU made a significant analytical error. The agency engaged MCR to conduct a review of the IOU’s transmission rate true-up and its projected transmission formula rate for the upcoming year to better understand the causes of the true-up amount, and to ensure the rate calculation was accurate and all of the included costs were appropriate.
Solution
MCR conducted an in-depth review of the IOU’s formula rate and supporting work papers. This analysis included identifying the variances and the drivers of the variances between the forecasted costs and load, and the actual costs and load. MCR worked with the client to develop a series of questions for the IOU about areas requiring further explanation or areas of concern.
Results
MCR produced a detailed analysis for the client reflecting the causes of the transmission rate increases for both the true-up and the forecasted changes in the upcoming year compared to the prior year. In some cases, the IOU made corrections to the revenue requirement or added additional information based on the questions from the review. The client was pleased that it could report to its Board that an in-depth review of the IOU’s costs was conducted and that the true-up amount was correct with some minor adjustments. The client used the report as back-up in case its auditors asked any questions. The client later engaged MCR to review the IOU’s production formula rate and the transmission formula rate in subsequent years.