Developing a transmission formula rate template for a joint action agency (Transmission Formula Rate Analysis)
“MCR’s forward-looking test year and construction work in progress analysis helped justify our filing with our internal Board, as well as the ultimate filing with FERC, which was subsequently approved.”
—Transmission Planning Manager
Background
A joint action agency decided to invest in two major new transmission projects. The client discussed with MCR the prospect of filing for transmission rate incentives and a forward-looking test year in order to optimize the cash flow benefits from the projects.
Solution
MCR conducted a quantitative analysis that showed there was substantial net present value benefits to the joint action agency from: (1) receiving incentives of a hypothetical capital structure and recovery of construction work in progress in rate base; and (2) changing from a historical-based formula rate to a forward-looking rate. MCR supported the client and its Washington-based legal counsel in its request for incentives.
Additionally, as a result of the incentives and a forward-looking test year, a separate Section 205 FERC filing was completed to implement the changes in the pro forma formula rate template. With regard to the request for a forward-looking test year, MCR developed the filing outline, drafted testimonies (sponsored by the client and MCR) and provided the required changes in the standard template to implement the changes in the pro forma formula rate.
Results
MCR’s client received a favorable ruling, allowing them to move to a forward-looking test year. We continue to work with our client and RTO tariff personnel to ensure a smooth transition to the new forward-looking rate.