EFFECTIVELY MANAGING SIGNIFICANT RATE CHANGES TPPA Annual Meeting - - PowerPoint PPT Presentation

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EFFECTIVELY MANAGING SIGNIFICANT RATE CHANGES TPPA Annual Meeting - - PowerPoint PPT Presentation

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July 30, 2019 EFFECTIVELY MANAGING SIGNIFICANT RATE CHANGES TPPA Annual Meeting Agenda NEWGEN STRATEGIES AND SOLUTIONS, LLC 2 INTRODUCTION TO RATE STUDY DYNAMICS Introduction to Rate Study Dynamics James C. Bonbrights Desirable Attributes

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July 30, 2019

EFFECTIVELY MANAGING SIGNIFICANT RATE CHANGES TPPA Annual Meeting

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Agenda

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INTRODUCTION TO RATE STUDY DYNAMICS

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Introduction to Rate Study Dynamics

James C. Bonbright’s Desirable Attributes

1. Simplicity, understandability, public acceptability, and feasibility of application 2. Freedom from controversies as to proper interpretation 3. Effectiveness of yielding total revenue requirements under the fair return standard (i.e., fair, just, and reasonable rates) 4. Revenue stability from year to year 5. Stability of rates themselves, with minimal unexpected changes seriously adverse to existing customers 6. Fairness in allocating cost of service among different consumers 7. Avoid “undue discrimination” in rates 8. Discouraging wasteful use (encouraging efficient use)

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Introduction to Rate Study Dynamics

Stakeholder Dynamics

  • Awakens customer base
  • Highlights utility operations and strategy
  • May be uncomfortable for Board and/or

Council

  • Often brings change resulting in winners and

losers

– Behavior incentives – Cost recovery – New service offerings

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  • Stakeholder resistance to significant change

can wreck your rate case

Introduction to Rate Study Dynamics

Stakeholder Dynamics

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SIGNIFICANT CHANGE

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Significant Change

A Subjective Measure

  • The maximum acceptable rate change

(increase) in a rate case:

– Is subjective and varies by utility, stakeholder group, customer class, and individual – Heavily influenced by individual personal values

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  • Financial distress

– Large load loss – Change in power supply – Capital Investment

Significant Change

At the System Level

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  • Customer class definitions

are changing

  • Customers grouped by cost
  • f service (COS) rather than

socio-economic or political descriptions

  • “Partial” rather than “Full”

requirements service

– Growing self-supply options – Load loss

Significant Change

Inter-class Subsidization

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Significant Change

Intra-class Subsidization

  • Rate Design

– Fixed cost recovery – Non-traditional rate design using advanced metering infrastructure (AMI) metering capabilities

  • Real-time communication
  • Time-of-Use (TOU)
  • Scarcity pricing
  • Pre-Pay
  • Etc.

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Significant Change

A Subjective Measure

  • Presentation of customer bill impacts to

stakeholders should be done with care

– Overly simplified presentation of results are easy to understand but often are misleading – Can erode public trust and be detrimental to a successful study

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Significant Change

A Subjective Measure

  • Examples

– Xcel energy looking to raise rates by 6% – AEP Texas seeks approval of $38.3M increase in base rate revenues

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Significant Change

A Subjective Measure

  • Utility is seeking a $17 million or

6.5% rate increase

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Costs of Service Results by Class Revenue Increase ($M) Percent Revenue Increase Residential 13.3 37.1% Small Commercial 1.4 5.3% Large Commercial 1.3 1.3% Lighting 1.0 17.4% Total System 17.0 6.5%

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Significant Change

A Subjective Measure

Residential Units Current 2019 2020 2021 2022 2023

Customer Charges $/Bill $0.0000 $4.00 $4.00 $6.75 $6.75 $9.50 Energy Charge Energy-T1 Summer $/kWh $0.0774 $0.0847 $0.0847 $0.0849 $0.0849 $0.0849 Energy-T2 Summer $/kWh $0.0752 Energy-T1 Winter $/kWh $0.0655 $0.0746 $0.0746 $0.0748 $0.0748 $0.0748 Energy-T2 Winter $/kWh $0.0353 EAC $/kWh $0.0781 $0.0643 $0.0656 $0.0653 $0.0652 $0.0652 Average Rate $/kWh $0.1463 $0.1508 $0.1521 $0.1574 $0.1573 $0.1626 Average Bill $/Bill $74.96 $77.28 $77.94 $80.66 $80.59 $83.34 Percent Change % N/A 3.09% 0.86% 3.49% (0.09%) 3.41% Total Percent Change % N/A 11.17%

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Significant Change

A Subjective Measure

16 $0.10 $0.12 $0.14 $0.16 $0.18 $0.20 $0.22 $0.24 250 500 750 1,000 1,250 1,500 1,750 2,000 2,250 2,500 5,000 10,000 15,000 20,000 25,000 30,000

Average Cost/Rate ($/kWh) Average Monthly Usage (kWh) Customer Count

Average Cost/Rate ($/kWh)

Customer Count Current Rate Cost of Service Phase 1

Proposed Rate Represents a significant increase to these customers

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Significant Change

A Subjective Measure

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Significant Change

A Subjective Measure

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EFFECTIVE STRATEGIES

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Effective Strategies

Management Techniques

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Effective Strategies

Management Techniques – Prepare

  • Understand Study objectives, policies, and

strategies

– What is the desired outcome from the:

  • Utility perspective
  • Customer perspective
  • Regulator perspective

– Develop a policy and principles document

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  • Policy and Principles

Document

– Excellent opportunity for safe early engagement of Board and/or City Council – Example rate-related goals

  • Meet the needs of the

community

  • Support of the City’s

renewable energy goals

  • Support local economic

development

  • Etc.

– Examples guiding policies and principles

  • Legality
  • Fairness, equity, and

defensibility

  • Conservation and demand

management

  • Etc.

Effective Strategies

Management Techniques – Prepare

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Effective Strategies

Management Techniques – Prepare

  • The reasonableness and defensibility of a

Study is directly proportional to quality of data and thoroughness of analyses

– Identify study weaknesses or “flash points” likely to create controversy in your study – Understand study results – Identify likely high-impact stakeholders

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Effective Strategies

Management Techniques – Develop a Theme

  • Develop a few key compelling points that

will be reiterated throughout the rate case process

– Direct utility communications – Media – Presentations – Public meetings – Etc.

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Effective Strategies

Develop a Theme – Example (AEP – Texas)

  • [AEP Texas] said the expanding economy and

population growth in its service territory, as well as the need to upgrade and maintain the existing transmission and distribution (T&D) infrastructure……., the company said that the additional T&D investment, for which AEP Texas requests a prudency determination, supports the new and expanding oil and gas businesses, as well as the expanding communities that create increased need for housing, schools, and commercial enterprises.

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Effective Strategies

Develop a Theme – Example (Xcel Energy – Colorado)

  • Important notice about your electric

service and prices

– On May 20, 2019, we [Xcel] submitted an electric regulatory rate review to the Colorado Public Utilities Commission that incorporates investments to expand and strengthen the electric grid, including protecting it from emerging risks, such as wildfires. The investments also begin to establish a platform for enhanced customer experiences.

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Effective Strategies

Management Techniques – Education, Policy & Early Engagement

  • Board and/or City Council

– Early engagement to clarify understanding and supporting policy

  • Rate Policy and Principles Document
  • Ratemaking 101

– Periodic check-ins to monitor support and direction

  • Financial Plan
  • Cost of Service
  • Rate Design
  • Develop engagement strategy cognizant of open

meeting regulations

– Public workshops – Public meetings – One-on-one communication

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  • Identify important

stakeholder groups requiring special attention

– Local media – Special interest

  • Local and national

– Significant rate impacts

  • Don’t forget the winners

– Internal functions

  • Customer service
  • Educate and engage

– Justification

  • Cost of service
  • Policy

– To follow Board and/or Council feedback – Keep it simple – Document and summarize

Effective Strategies

Education, Policy & Early Engagement – Other Stakeholders

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Effective Strategies

Management Techniques – Present Options

  • Develop options that meet your study objectives, yet give

stakeholders a choice

– Subsidization levels – Phase-in plans

  • Rate structures
  • Options help stakeholders understand the “cause and

effect” inherent in ratemaking

  • Helpful in achieving acceptable, compromise
  • utcomes

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Effective Strategies

Present Options – Rate Impact Examples (10% Increase)

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Item Current Rate Energy and Customer Charge Increase Energy Charge Increase Customer Charge Increase Inclining Block Declining Block Add Demand Charge TOU Rate Customer Charge $10.00 $11.00 $10.00 $21.00 $10.00 $10.00 $10.00 $10.00 Energy Charge 1 (All, Tier 1 or Off- Peak) $0.1000 $0.1100 $0.1110 $0.1000 $0.1000 $0.1242 $0.1000 $0.1000 Energy Charge 2 (Tier 2 or On-Peak) NA NA NA NA $0.1202 $0.1000 NA $0.1740 Demand Charge NA NA NA NA NA NA $1.68 NA Total Revenue $91,973,797 $101,171,177 $101,171,177 $101,171,177 $101,171,177 $101,171,177 $101,171,177 $101,171,177 Description Current Rate Structure Increase current customer charge and energy charge by 10% Increase energy charge to level required for total revenue increase of 10%. Increase customer charge to level required for total revenue increase of 10%. Add energy usage tier at 500kWh/ month. Set second tier's rate at amount needed to increase revenue by 10%. Add energy usage tier at 500kWh/ month. Set first tier's rate at amount needed to increase revenue by 10%. Add demand charge a level required to increase total revenue by 10% Add on-peak energy charge at level to increase total revenue by 10%.

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Effective Strategies

Present Options – Rate Impact Examples (10% Increase)

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Effective Strategies

Management Techniques – Cause and Effect

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Effective Strategies

Management Techniques – Full Disclosure (Monthly Bill Impacts - $ vs. %)

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Residential Large Commercial

Account Impact by Rank Rank by: Percent Rank Badge kWh/Month $/Month Percent 1 143117-135007 106.42 $133.92 960% 2 143117-133078 266.82 $132.39 379% 3 143117-137490 474.97 $130.22 209% 4 143117-132672 814.94 $131.64 102% 5 143117-132193 985.93 $124.77 96% 6 143117-96674 8,116.90 $128.67 10% 7 143668-93411 10,562.89 $87.81 5% 8 143984-93430 95,400.57 $558.54 4% 9 209976-106458 79,791.24 $327.98 3% 10 144383-94453 96,247.37 $335.86 3% 11 145287-95595 132,376.17 $389.67 2% 12 282384-119227 486,537.83 $1,467.06 2% 13 143117-126766 19,107.69 $60.64 2% 14 144490-94596 15,620.30 $47.06 2% 15 143233-92823 16,646.78 $45.13 2% Account Impact by Rank Rank by: $/Month Rank Badge kWh/Month $/Month Percent 1 328180-78851 10,327.72 $280.11 23% 2 213538-85489 10,972.86 $277.28 21% 3 297625-61083 12,787.34 $210.34 12% 4 80317-6297 7,661.34 $186.41 20% 5 106508-58581 7,524.83 $177.75 19% 6 319848-32820 6,968.14 $177.49 21% 7 318473-32122 6,086.27 $159.55 22% 8 327556-19517 6,416.01 $151.39 19% 9 227684-108348 6,169.45 $151.05 20% 10 324384-17861 6,443.03 $148.43 19% 11 318989-78799 6,383.86 $147.84 19% 12 75094-83610 5,818.46 $141.59 20% 13 212348-106804 5,475.66 $140.40 21% 14 320167-105402 6,125.64 $139.83 19% 15 311812-41340 5,463.96 $136.80 21%

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Effective Strategies

Management Techniques – Full Disclosure

  • Keep things in perspective!

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Effective Strategies

Management Techniques – Full Disclosure

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Cost of Service

Cost Classification Demand $60.00 Energy $40.00 Customer $15.00 Total $115.00 Rate Design 1 Part – Energy Only Rate $0.1150 2 Part – Customer/Energy Rate Customer Charge $15.00 Energy Charge $0.1000 3 Part – Customer/Demand/Energy Rate Customer Charge $15.00 Demand Charge $8.57 Energy Charge $0.0400

Billing Units

Demand (kW) 7.00 Energy (kWh) 1,000.00

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Effective Strategies

Management Techniques – Full Disclosure (Customer Specific Information)

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Effective Strategies Management Techniques – Adopt

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Summary

  • Do your homework
  • Develop a strategy & theme
  • Early stakeholder engagement

– Don’t forget internal stakeholders

  • Rally winners
  • Present Options

– Gradual change

  • Full disclosure
  • Stay on track, rely on strategy

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DISCUSSION

Joe Mancinelli

President/CEO jmancinelli@newgenstrategies.net Office: (720) 633-9509

Grant Rabon

Executive Consultant grabon@newgenstrategies.net Office: (512) 900-8232