Altreg Strategy Workshop
Dr. Mark Newton Lowry
President
Pacific Economics Group (“PEG”) Research, LLC
EEI Electric Rates Advanced Course
Madison, WI
23 July 2012
P E G
Pacific Economics Group Research, LLC
2
About the Workshop
Basic Idea
Team projects to develop multiyear regulatory strategy
Students divided into teams based on interest and experience


Vertically integrated utility (“Western Power”)
Wires-only utility (“Eastern Lighting”)
Premise:
Company currently in rate case
Altreg an issue in September settlement discussions
P E G
Altreg Strategy Workshop
Pacific Economics Group Research, LLC
3
About the Workshop
Information Sources

Rate school presentations (e.g. Rate Design, Altreg)

“Regulatory Strategy Workshop 2012” handout

Innovative Regulation: A Survey of Remedies for
Regulatory Lag (EEI)

Faculty will field questions during strategy sessions
P E G
Altreg Strategy Workshop
Pacific Economics Group Research, LLC
4
Deliverables
20-minute presentation detailing regulatory strategy proposal
Address: Altreg plan (or not), rate design
4-year planning period (2013-2016)
Power Point (10-slide max) and/or flipchart
Include cost and revenue growth projections (2 decimals)
e.g.
2013
2014
2015
2016
AVE
Revenue
3.25% 4.00% 4.50% 3.75% 3.88
Assume settlement terms, NOT “going in” proposal
How do company, customers benefit?
Add a dash of salesmanship!
Altreg Strategy Workshop
P E G
Pacific Economics Group Research, LLC
5
Schedule
Tuesday
Altreg Presentation (1-3:45)
Team work on proposals (3:45-5:30)
Continue work in team reception (5:30-6:30)
Wednesday (9:00-11:30 AM)
Working lunch (11:45-1:00)
Finalize presentation (1:00-2:00)
Work group presentations and debried (2:00-4:00)
P E G
Altreg Strategy Workshop
Pacific Economics Group Research, LLC
6
Western Power
The Basics
Vertically integrated utility
Mountain West service territory
Several sister utilities
Slowing cost growth save for plant acquisition
P E G
Altreg Strategy Workshop
Pacific Economics Group Research, LLC
7
Western Power
Demand
1% annual customer growth, 0.6% growth in average use
>>> 1.5% growth in billing determinants
DSM program
Traditional rate designs
Low load factor
Price-sensitive industrial customers
AMI installed for large-volume customers
P E G
Altreg Strategy Workshop
Pacific Economics Group Research, LLC
8
Western Power
Cost
Slow input price inflation
Slow rate base growth
But capex surge expected for steam plant acquisition
Cost growth forecast
w/o plant acquisition
w/plant acquisition
2013
2014
2015
2016
2%
2%
2%
2%
2%
5%
2%
2%
Confidential cost saving plan
P E G
Altreg Strategy Workshop
Pacific Economics Group Research, LLC
9
Western Power
Regulation
Rate Cases


Historical test years
Controversy common (e.g. A&G cost allocation)
>>> New rates typically 1% short of needs
Precedents in state for capex trackers, multiyear rate plans
P E G
Altreg Strategy Workshop
Pacific Economics Group Research, LLC
10
Eastern Lighting
The Basics
Northeast US
T&D utility
Several sister utilities
Growing rate base
Poor reliability has triggered penalty
Commission recently established rising productivity targets
P E G
Altreg Strategy Workshop
Pacific Economics Group Research, LLC
11
Eastern Lighting
Demand
Slow (0.5% annual) customer growth
Static average use
>> Billing determinants grow by 0.5% annually
Company-administered DSM program
Traditional rate designs
Residential & commercial customers 95% of revenue
P E G
Altreg Strategy Workshop
Pacific Economics Group Research, LLC
12
Cost
Slow input price inflation
Growing rate base
Accelerated system modernization to improve reliability


Smart grid investments
Accelerate replacement of old facilities
Cost growth forecast
w/ reliability capex
w/o reliability capex
w/o all capex
2013
2014
2015
2016
2%
2%
1%
4%
2%
1%
4%
2%
1%
4%
2%
1%
Confidential cost saving plan
P E G
Altreg Strategy Workshop
Pacific Economics Group Research, LLC
13
Regulation
Rate Cases


Partially forecasted test years
Controversy common (e.g. A&G cost allocation)
>>> New rates chronically 1% short of needs
Precedents in state for decoupling, capex trackers, multiyear rate
plans
P E G
Altreg Strategy Workshop
Pacific Economics Group Research, LLC