Comparing transmission cost and rate competitiveness (Transmission Cost / Rate Competitiveness)
“MCR has the full package; MCR brings the subject matter expertise and knowledge of transmission rates, rate structure, finance & accounting, and FERC policy.”
—Senior VP, cooperative
Background
A cooperative’s transmission rates had been escalating at a higher pace than the average of other transmission owners in the RTO. A senior vice president of the cooperative engaged MCR to compare their transmission-related costs and resultant rate to those of a peer group of neighboring utilities to understand the current and projected rate gap and the drivers of the cost differences.
Solution
MCR drilled down into the client’s transmission-related costs to conduct a comparison of cost components and determine the areas where the client’s costs were higher than the peer group. Costs comprising the transmission rate were scaled per dollar of transmission plant and as components of the client’s annual transmission revenue requirement (“ATRR”) to determine the high-cost areas and identify those costs having the largest impact on transmission rates. MCR also developed a five-year ATRR and transmission rate projection for the client compared to the peer companies using publicly available information for each peer. This projection illustrated the size and trajectory of the transmission rate gap between the client and the peer average.
Results
The Transmission Cost and Rate Competitiveness project led to the development of strategies to address the projected rate gap. These strategies included conducting a detailed transmission formula rate review that focused on ensuring all transmission-related costs were recorded in accordance with the FERC Uniform System of Accounts. As a result of the review, the client has made various changes in cost allocations and in the recording of costs to FERC accounts. The client has also identified other potential cost-reduction strategies to be implemented in the future to narrow the projected transmission rate gap. This effort also resulted in a more educated and knowledgeable staff related to the source of the costs populating the client’s formula rate and how these costs affect the client’s transmission rate.