Electric Cost-of-Service - Essential Concepts for a Changing Industry

February 6-7, 2023 | Denver, CO and Online

This two-day course will lead participants through the cost-of-service process from start to finish in detail. Our experienced team of instructors will guide attendees through:

• Discussion and comparison of investor-owned utilities, municipal utilities, and electric cooperatives in cost-of-service principles and techniques
• Traditional cost-of-service analytical techniques
• Unbundled cost-of-service analytical techniques

Each participant will complete a sample cost-of-service analysis during the course and training materials will be provided.

Learning Outcomes

• Discuss FERC Uniform System of Accounts
• Identify revenue requirements
• Examine utility case studies
• Discover energy allocation factors
• Define the steps in the ratemaking process
• List cost classifications

Recommended Background And Requirements

No prior cost-of-service experience is required, although knowledge of utility system infrastructure, business environment, and operations will be helpful. To participate in model development, a laptop computer with Microsoft Excel 2003 or later is required.

MONDAY, FEBRUARY 6, 2023

Short breaks will be taken throughout the course

Course Overview and Introduction

• Course objectives
• Course overview
  • Steps in ratemaking process
  • Steps in cost-of-service process
  • Developing cost-of-service analysis – different perspectives
  • Interpreting cost-of-service results

Overview of Cost-of-Service Process

• Process overview
• Introduction
• State regulatory process
• Local regulatory process
• Federal mandates
• The cost-of-service team
• Stakeholders

Study Preparation

• Introduction
  • Four important considerations
  • Common supporting analyses to ensure success
• Financial planning
• Study period selection
  • Load research study
  • System loss study
  • Resource planning studies
  • Minimum system studies
  • Accounting for direct assignment
  • Lighting study
  • Load forecasting

 Morning Break

Policies, Objectives, and Strategies

• Introduction
• Policies
• Objectives
• Strategies
  • Marginal vs. embedded costs
  • Cost unbundling
  • Competitive pricing
  • Time-of-use pricing support
  • Real-time pricing support
  • Varying return on investment
  • Cost recovery through rules and regulations
  • Other strategies

 Lunch Break

Revenue Requirement

• Introduction
  • Steps in rate design process
  • Definition
  • What is included in revenue requirements
• Test year concept
  • Known and measurable adjustments
  • Used and useful adjustments
  • Components
• Utility approach (IOU)
  • FERC Uniform System of Accounts
  • Rate base
    • Components
    • Definitions
  • Return on rate base
    • Weighted average cost of capital (WACC)
    • Cost of debt
    • Cost of equity
  • Utility Case Studies
• Utility approach (regulated cooperative)
• Cash approach (municipal)
• Debt service coverage ratio
• Comparison
• Adjustments to base rates
• Introduction to cost-of-service model
• ATTACHMENTS: revenue requirements examples 5-1 through 5-4

 Afternoon Break

Revenue Requirement (cont.)

• Classroom exercise No. 1: revenue requirement test year adjustment – adding a new load
• Classroom exercise No. 2: revenue requirement test year adjustment – adding a new resource

Cost Allocation Methodologies

• Introduction
  • Steps in ratemaking process
  • Sample cost allocation methods
• Common approaches to cost allocation
  • Embedded
  • Marginal
• Common approaches to cost allocation
  • Bundled
  • Unbundled

TUESDAY, FEBRUARY 7, 2023

Short breaks will be taken throughout the course

Review of Day 1

Functionalization of Costs

• Introduction
  • Steps in ratemaking process
    • Bundled approach
    • Unbundled approach
• Business unit concept
  • Products and services
  • Allocations
    • Direct
    • Derived
• Classroom exercise No. 3: functionally unbundling costs

 Morning Break

Classification of Costs

• Introduction
  • Steps in ratemaking process
  • Basic cost categories
• Fixed and variable costs
• Cost classifications
  • Demand-related
  • Energy-related
  • Customer-related
  • Revenue-related
  • Direct assignments
• Classification of functions
• Special studies
  • Minimum systems
  • Zero intercept
• Classroom exercise No. 4: classification of distribution plant

Rate Class Determination

• Overview of issues
  • Rate classes
  • Number of classes
  • Type of classes
  • Classes within classes
  • Rate class trends: community solar
  • Cost-of-service support

 Lunch Break

Development of Allocation Factors

• Introduction
  • Steps in ratemaking process
• Demand allocation factors
  • Coincident peak
  • Non-coincident peak
  • Sum of max demands
  • Average and excess
  • Other
  • Utility Case Studies
• Energy allocation factors
• Customer allocation factors
• Revenue allocation factors
• Direct assignment
• Classroom exercise No. 5: development of demand allocation factors

Allocation of Costs

• Classroom exercise No. 6: allocated cost-of-service

 Afternoon Break

Interpreting Cost-of-Service Results

• Introduction
• Subsidization
  • Inter-class subsidization
  • Intra-class subsidization

 Course Wrap-Up

_________________________________

Electric Utility Pricing - Trends in Cost Recovery

February 8-9, 2023 | Denver, CO and Online

“Very helpful class to a new rate designer! Important to understand as our industry is facing very challenging times.” Rate Specialist, Alabama Power Company

“Excellent overview of how rates are designed and the many political and economic factors that go into them.” Budget & Rates Analyst, Great River Energy

“The course was very informative and very relevant to the rate design professionals.” Rate and Business Consultant, NRUCFC

“Awesome course for novices and experienced rate-designers. Speakers were knowledgeable and knew their material.” Senior Regulatory Accountant, National Rural Utilities Cooperative Finance Corporation

“The EUCI Rate Design workshop helped me understand the wide array of rate design options we can bring to our customers. I look forward to the next rate case and incorporating these new rate designs for our customers.” Regulatory Affairs Analyst, Indianapolis Power & Light

Read more

Building upon information discussed and developed in the Introduction to Cost-of-Service Concepts and Techniques for Electric Utilities course, this two-day course will introduce rate design concepts to participants. Our instructors will discuss:

• General ratemaking and regulatory principles
• Current trends in utility pricing
• Traditional rate design
• Unbundled rate design
• Marginal cost pricing
• Time based rates and demand management
• Special rate provisions

Each participant will work through sample rate design exercises during the course and training materials will be provided.

Learning Outcomes 

• Discuss pricing interface and implications of risk
• Examine how to develop cost curves
• Review classroom exercises on developing cost curves, solar installation, and designing bundled rates
• List ratemaking guidelines
• Identify special rate provisions

Recommended Background And Requirements

No prior rate design experience is required, although knowledge of utility system infrastructure, business environment, and operations will be helpful. To participate in model development, a laptop computer with Microsoft Excel 2003 or later is required.

WEDNESDAY, FEBRUARY 8, 2023

Short breaks will be taken throughout the course

Course Overview and Introduction

• Introduction
  • Building on cost of service
  • Overlap
  • Background and requirements
• Instructors
• The process

General Ratemaking and Regulatory Principles

• Introduction
• Bonbright principles
• Regulations
• Factors
• Objectives
• Ratemaking guidelines
  • Factors
  • Rate adjustments
  • Competing objectives
• Equity
• Rate levels
• Social engineering
• Competition
• Simplicity

Electric Utility Pricing: Trends That Matter

• Fundamental trends affecting electric utility pricing
  • Global changes
  • Utility environment
  • Advanced metering infrastructure
  • Customer environment
• Pricing interface
• Pricing implications of risk
• Transactional risk/decoupling
• Risk management strategies
• Pricing strategies

Morning Break

Electric Utility Pricing: Trends That Matter (Continued)

• Storage
• Solar rate considerations/value of solar
• Classroom exercise No. 1: special rate design – solar installation

Lunch Break

Applying Cost-of-Service Results

• Cost of service overview
• Developing cost curves
  • Bundled embedded cost
  • Unbundled embedded cost
  • Marginal cost
• Evaluation of competitive alternatives
• Classroom exercise No. 2: developing cost curves

Afternoon Break

Traditional Rate Design

• Rate overview
• Flat rate (energy only)
• Two-part rate (customer/energy or energy/demand)
• Three-part rate (energy/demand/customer)
• Blocked rates
  • Declining
  • Inverted/inclining
• Wright rate
• Relationship between rate design and cost curves
• Classroom exercise No. 3: designing bundled rates

Unbundled Rate Design

• Unbundled rate overview
• Traditional bundled vs. unbundled
• Unbundling strategies

THURSDAY, FEBRUARY 9, 2023

Short breaks will be taken throughout the course

Marginal Cost Pricing

• Resources
• Application and use
• Short run and long run
• Marginal capacity costs
• Production cost modeling
• Marginal energy costs
• Marginal transmission costs
• Revenue reconciliation
• Dilemma of reconciliation

Time Based Rates and Demand Management

• Review of EPAct 2005
• Time‐of‐use overview
• Real time pricing
• Critical peak pricing
• Load reduction credits
• Other approaches
• Smart metering
• Time‐of‐use
  • Seasonal
  • Daily/hourly
  • Cost differentials
  • Variations
• ATTACHMENT: Examples of rate design 8‐1 through 8‐6
• Designing time‐of‐use rate
• Time periods
• Cost differentials
• Price elasticity
• Changes – Class load characteristics
• Changes – Revenue
• Changes – Time related costs
• Rate level adjustments
• Demand management

Morning Break

Special Rate Provisions

• Minimum bills
• Demand ratchets
• Power factor
• Service voltage
• Paying for growth
• Customer ownership of facilities
• Energy cost adjustment charges
• Net metering
• Standby rates
• Feed‐in tariffs
• Special contracts
• Others

Lunch Break

Classroom Exercise No. 4a – Residential Rate Design

Afternoon Break

Classroom Exercise No. 4b – Commercial Rate Design

Interclass Transitions and Communicating the Plan

• Introduction
• Rate Form Transition Problems
• Promotional and Special Rates
• Communicating the Plan
  • Confidence in Data
  • Summarize Process
  • Known and Measurable Changes to Test Year
  • Do not Hide Facts
• Example Graphs
• Communications Summary

Course Wrap-Up

Scott H. Burnham, Executive Consultant, NewGen Strategies & Solutions LLC

Mr. Burnham has over 18 years of experience in consulting, management, cost-of service, feasibility analyses and valuation services. His responsibilities include development of revenue requirements, costs-of-service allocation methodologies, rate design and revenue adequacy studies, utility valuation analyses and other engineering economic analysis. His project feasibility, financing and system acquisition projects have provided clients with a sound financial basis upon which to make decisions on purchasing, selling or modifying facilities. His rate related projects have included those that required the development and review of retail and wholesale electric rates, and rate structures, and analysis of rate riders for interruptible industrial rates, environmental cost adjustment rates, energy / fuel cost recovery and others. He has also assisted industrial customers in rates negotiation and evaluation.

Mr. Burnham has also been involved in feasibility and implementation studies, independent engineering reviews, operation and maintenance reviews, planning studies and valuation studies for generation assets. He has led multiple projects that have focused on determining the value of distributed solar resources to specific utilities. His clients have included municipal utilities, investor-owned utilities, electric cooperatives, and private sector clients.

David A. Berg, P.E., Principal, Dave Berg Consulting, LLC

Mr. Berg is a Principal with Dave Berg Consulting, LLC, and has more than 32 years of experience. He specializes in consulting services requiring a combination of technical and financial expertise. His electric industry restructuring and pricing work has assisted utilities in stabilizing their customer base and revenues in an increasingly complicated environment as well as in educating them on the particular industry changes that could affect their operations most significantly. His project feasibility, financing and system acquisition projects have provided clients with a sound technical and financial basis upon which to make decisions on purchasing, selling or modifying facilities. He understands the special issues confronting small and medium size municipal utilities, as well as the joint action agencies serving these utilities. He has also assisted industrial customers in analyzing particular industry issues that impact their operations.

Mr. Berg has also been involved in financial and technical evaluation of power generation projects that utilize alternative fuels. These have included landfill gas, biomass and wind generation projects.

Mr. Berg is a popular speaker both at utility training sessions and state and national conferences, due to his ability to focus on the essential points of complicated issues and to recommend actions appropriate to the audience.