Providing economic analysis of a proposed new transmission investment for a G&T cooperative (Strategic Economic Analysis)
“MCR takes complicated concepts and presents them in a way that’s easily understood by our Board of Directors, who are not immersed in the transmission industry. MCR has a confidence when presenting in front of others and that comes from knowledge, knowing the business, which is quite valuable.”
—Transmission Planning Manager
Background
A generation and transmission (G&T) cooperative was considering investment in a highly visible regional transmission project that had complicated cost allocation methods. The client asked MCR to lead the client’s working team in conducting an analysis of the economics of the project and whether there was sufficient value for its members.
Solution
MCR led a client working team through a series of meetings designed to identify key assumptions of the analysis, including the cost allocation assumptions, and to review the results of the analysis. MCR’s Transmission Project Evaluation Tool™ was used to conduct the analysis, which included Monte Carlo risk analysis, to contemplate varying levels of key inputs, such as the equity ratio from a potential hypothetical capital structure.
The analysis showed there was substantial net present value to the G&T’s members of investing in the project, under all relevant ranges of assumptions. In conjunction with our client, MCR help present the analysis results to our client’s Project Review Committee, the Executive Review Committee, the Distribution Cooperative Managers Committee and ultimately the Board.
Results
Using the results of the analysis, our client helped change the mindset in the company to one that more actively supported transmission investment. By proceeding with the regional transmission project, our client increased reliability and created incremental value for its members.