review of saskpower's cost allocation and rate design
TRANSCRIPT
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John Todd, Michael Roger March 30, 2017
Review of SaskPower’s Cost Allocation and Rate Design Methodologies – Progress Report
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Agenda 1. Project Description 2. Elenchus 3. Background 4. Methodology and Preliminary Elenchus
Recommendations 5. Next Steps
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SaskPower’s RFP: Review SaskPower’s Cost Allocation and Rate Design
Methodologies Identify Main Classification and Allocation Methodologies Survey Canadian and US Utilities’ practices Review items identified by SRRP Make Recommendations to SaskPower Progress Report March 30 Presentation May 15 Final Report June 30
Project Description
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John Todd, President Founded 1980 Michael Roger joined Elenchus in 2010 Prior responsibilities included cost allocation
www.elenchus.ca
Elenchus
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Main Grid 72 kV Radial Lines 25 kV Radial Lines 14.4 kV Radial Lines
Generation Transmission Distribution Customer Services
Farm Residential Small Commercial
Small Industrial Large Commercial
Large Industrial Customer
Generating Station
138/72 kV Substation
Meter Reads Billing Etc.
72/25 kV Sub
SaskPower Rate Base & Expense $$$
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Shared Utility Assets and Expenses Cost Causality is main criteria Goal is Fair and Reasonable Rates
Cost Allocation Methodologies
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Functionalization Categorization or classification Allocation
Cost Allocation Methodology Steps
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Group similar assets and expenses E.g. Uniform System of Accounts Meter readings Fuel costs
Functionalization
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Generation Transmission Majority of Power Customers (72 kV)
Distribution Residential, commercial, farm, standard oilfield and some
Power customers
Customer Service
Example Functionalization
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Demand related Energy related Customer related
Classification
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Demand, Energy & Peak Demand
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Customer groups Primary Allocators
kWh (energy including losses) kW (demand including losses) # of customers Weighted # of customers
Direct Assignment (Streetlights)
Allocation
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Revenue to cost ratios by customer group Above range – providing subsidy Below range – receiving subsidy Range 0.95 to 1.05, or 0.90 to 1.10
For Test Year, SaskPower attempts 0.98 to 1.02
Starting step for Rate Design
Cost Allocation Results
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Bonbright Principles (1961 and 1988) Revenue Related Cost Related Practical Related
Generally Accepted Rate Making Principles – Cost Allocation and Rate Design
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Based on Bonbright: Meeting revenue requirement Fairness and equity Economic efficiency Conservation of resources Simplicity and administrative ease Stability and gradualism
SaskPower Principles
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Review model and documentation Survey of other jurisdictions Exchange of information with SaskPower staff Compare with standard practice based on survey and
Elenchus experience
Elenchus’ Review Approach
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SaskPower follows traditional approach 2015 data Includes generation, transmission and distribution Average embedded cost data
Elenchus supports approach
Cost Allocation Methodology
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Report will document main methodologies used in
North American jurisdictions
Elenchus still reviewing classification alternatives
Elenchus agrees with using 2 CP as allocation method for demand related
Identify Main Classification and Allocation Methodologies (Generation)
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Variable costs are energy related Such as fuel costs
How to classify capital and other fixed costs? NARUC Manual (January 1992) identifies many acceptable
options to use for the demand/energy split Peak Demand Methods (five methods identified) Energy Weighting Methods (four methods identified) Time Differentiated Embedded Cost of Service Methods
(four methods identified)
Generation Classification Methodologies
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Peak Demand Methods (five methods identified) Single Coincident Peak (1-CP) Summer and Winter Peak (Average of 3 CPs in each
season) Sum of 12 Monthly Coincident Peaks (12-CP) Multiple Coincident Peak All Peak Hours
Reflects a view that generation is built to meet the capacity requirements (i.e., caused only by demand, not energy requirements)
Generation Classification Methodologies (2)
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Energy Weighting Methods Average and Excess Equivalent Peaker Base and Peak Judgmental Energy Weightings
Reflects view that generation is built to meet both energy and demand drivers Widely accepted; must meet annual GWh energy needs as
well as peak GW demand Should demand/energy split reflect supply mix or
customer load profile?
Generation Classification Methodologies (3)
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Time Differentiated Embedded Cost of Service Methods Production Stacking Base-Intermediate-Peak (BIP) Loss of Load Probability (LOLP) Production Cost Probability of Dispatch
These methods are not commonly used Can be complex Can be unstable if supply mix is changing
Generation Classification Methodologies (4)
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Report will document main methodologies used Elenchus agrees with classifying 100% demand
related and 2 CP allocation
Identify Main Classification and Allocation Methodologies (Transmission)
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Report will document main methodologies used Elenchus views: Use Minimum System Method for classification of lines
and transformers Agrees with 2 CP for sub-transmission and NCP allocation
of distribution demand related costs Agrees with number of customers for customer related
costs
Identify Main Classification and Allocation Methodologies (Distribution)
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SaskPower uses fixed and variable charges: Basic monthly charge and Energy Charge (¢/kW.h) for
Residential and energy billed small commercial customers Diesel supplied customers have a monthly charge and an
inclining energy rate Farms and larger commercial customers with demand
meters have a basic charge, demand rate above 50 kVa/month and energy rate that declines once the demand rates is applied
Larger customers, (power standard, resellers), have a monthly charge, a demand charge and an energy charge
Rate Design Methodology
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For larger customers, rate design adjustment increases energy charge and reduces demand charge
Elenchus supports approach
Rate Design Methodology (cont.)
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Utilities responses received from: ATCO Electric BC Hydro Newfoundland Power Georgia Power Nova Scotia Power Hydro Quebec Manitoba Hydro Hydro One Consumers Energy
Survey of Classification and Allocation Methodologies
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Equivalent Peaker Method calculations Correctly done Data issues Different results
Exploring alternative classification methodologies Alternatives are more stable Average and excess Load factor
SRRP Identified Issues
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Minimum System Method Reviewing results Low density utilities have large customer component
SRRP Identified Issues (cont.)
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Customer Class Consolidation Two main phases
Main goal is to reduce number of rate codes SaskPower has looked at bill impacts
Elenchus supports as long as bill impacts managed
SRRP Identified Issues (cont.)
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Winter/Summer 2 CP Allocation SaskPower uses average of 3 peak hours in winter and 3
peak hours in summer months over 5 years (excluding outliers) Reduces volatility Values are close for each season
Elenchus accepts SaskPower’s method as a valid
approach
Based on discussions with planners, 2 CP is still appropriate
SRRP Identified Issues (cont.)
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Coincident and non-Coincident Peak allocators SaskPower uses 3 to 5 years of historical data (excludes
outliers) Result reflects the most likely maximum/peak demand
Elenchus supports
SRRP Identified Issues (cont.)
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Functionalization of Overhead Costs Based on how other costs functionalized
Elenchus supports
SRRP Identified Issues (cont.)
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Impact of demand response Program Based on historical data does not impact system peak
Elenchus supports
SRRP Identified Issues (cont.)
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Finalize draft report (end of April) Final presentation (May 15) Stakeholder Questions on Elenchus Report Elenchus responds to stakeholder questions (May 30) Final report June 30
Next Steps
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THANK YOU
Questions?
Wrap-up