EEI Members Advanced Rates Course

Rates to Meet New Market Opportunities and Constraints – July 22-25th 2012

Note that Sunday, July 22,  is an optional session that  starts at 3:00 pm

On Wednesday  we will be in session until 4:00 pm  — Flights can be scheduled to leave Madison any time after 5:30 pm

EEI’s 2012 Electric Rate Advanced Course teaches students ratemaking tools to meet today’s business challenges. This year, the curriculum presents:·  An overview of ratemaking basics a review of what the student should know to get the most benefit from the course·  Current ratemaking issues, such as those surrounding the prospective implementation of the Smart Grid·  Rate policies needed to build sustainable energy efficiency businesses

·  Rate policies (and issues) likely to be encountered in context of policy mandates to promote renewable resources

·  New technical issues associated with determining the cost of equity in today’s risk-averse, turbulent capital markets, and related issues of rate case strategy

·  New information on customer attitudes, and what they mean for the development of effective regulatory and marketing strategies.

·  Ratemaking issues associated with alternative regulatory mechanisms to address contemporary operating challenges without chronic underearning or the need for annual rate cases.

EEI’s advanced rate course provides a unique opportunity for senior staff to practice developing regulatory strategies to address an increasingly complex set of technical and financial challenges.

Agenda (Detailed Agenda Below)

Sunday, July 22  3:00 – 6:30 pm

·         Overview of Rate Basics (Optional) – This session will give students an overview of costing and pricing concepts.  It is designed to give students a refresher and starting point on embedded cost of service studies and basic rate design.

Monday, July 23 – 7:45 – 5:15

·         Team Assignments – Students will be assigned to teams that develop and present regulatory strategies as the conclusion of the course.  Each team will be presented with a set of real-life issues their strategy must address, and will be instructed to draw on class room presentations to configure their strategies.

·         Regulatory Accounting – A review of revenue requirements, income statement, balance sheet, rate base, operating expenses, rate of return, and tax treatment concepts.

·         Cost of Capital – Uncertainty about the cost of debt and equity and the growing challenges of estimating cost of equity with traditional methods (DCF, CAPM).

·         Demand Rate Design Methodology – Development and application of the coincidence factor – load factor (Bary Curve) relationship for designing embedded cost-based rates.

·         Cost Allocation and Marginal Costs – Review the allocation of costs to generation, transmission, and distribution functions (and the development of cost of service for stand-alone distribution services). Hands-on numeric examples that allow students to practice methods of embedded cost analysis (functionalization, classification, allocation), and marginal cost analysis (the development of incremental and decremental costs).

Tuesday, July 24 – 7:45 – 5:15

·         Customer Trends & Perspectives – Using customer usage trends and perspectives on energy policy, rates, & pricing options to develop more effective regulatory, pricing, and marketing strategies

·         Pricing as a Strategy for Helping Customers Adapt to Increasing Costs – Managing price risk for dynamic pricing.  Hedging.  Moving to more efficient rates.

·         Alternative Regulation – Alternative approaches to regulating traditional vertically integrated utilities and power distributors in an era of increased investment needs and slower demand growth.  Includes discussion of multi-year rate plans, revenue decoupling, formula rates, CWIP in rate base, accelerated depreciation, and capex trackers.

·         Regulatory Strategy Workshop – Students break into teams to craft regulatory strategies that respond to scenarios that reflect today’s business conditions.  Separate scenarios for traditional vertically integrated utilities and power distributors.

Wednesday, July 25 – 7:45 – 4:00

·          Designing Efficient Rates – The role of efficient price signals in guiding efficient consumer consumption and industry investment decisions and the drivers for adopting efficient pricing.

·         Application of Efficient Rates – The design along with examples of time-differentiated (dynamic) rates, and effective pricing for risk management.

·         Energy Efficiency and Renewables – Rate mechanisms and policies needed to deliver energy efficiency services on a sustainable basis (e.g., DSM trackers, decoupling mechanisms, fixed/variable rate design, business models – shared savings, rate base premium return, virtual power plant, performance contracts), and issues associated with rate policies to encourage renewable resources (e.g., feed in tariffs, net metering, DG interconnection procedures).

·         Summation – Assigned teams present their results of the regulatory strategy work groups.   Concluding with a round-table discussion that encourages students to integrate information from the previous two and one-half days into a strategic perspective on rate making.

Instructors

  • Larry Blank – Center for Public Utilities, New Mexico State University
  • John Caldwell – EEI
  • Bente Villadsen  – The Brattle Group
  • Philip Hanser – The Brattle Group
  • Larry Vogt – Mississippi Power Company
  • Dick Wight – Energy Market Solutions
  • Eric Ackerman – EEI
  • Steve Braithwait – Christensen Associates Energy Consulting
  • Jonathan Kubler – Energy Pricing Solutions
  • Mark Lowry – Pacific Economics Group Research

Registration Information

The registration fee for this course is $1,900, and includes instruction, course materials, continental breakfasts and lunches Monday – Wednesday,  coffee breaks and working group receptions.  Deadline for registration at the Fluno Center is June 15th (please see below).  Deadline for registration with EEI is July 13.  However, until registration is full, late registrations will be accepted.  Registration is limited to 35 attendees to assure optimum interaction between participants and the course leaders.  Registration withdrawal after July 13 will be subject to a $600 cancellation fee.

To register, go to EEI Registration Link and click on the register online link.  If you have additional questions, please contact Cass Bielski at cbielski@eei.org.

Continuing Education Credits

The course offers the following continuing education credits for participants attending the pre-course workshop.

  • 22   CLE Continuing Legal Education
  • 2.2  CEU Continuing Education Units
  • 22   CPE For Public Accountants

For those participants  not attending the pre-course workshop the credits are as follows:

  • 19   CLE Continuing Legal Education
  • 1.9  CEU Continuing Education Units
  • 19   CPE For Public Accountants

Dates and Accommodations

The EEI Electric Rate Advanced Course will run from Sunday, July 22 through 4:00 pm on Wednesday, July 25, 2012 at the University of Wisconsin-Madison in the Fluno Center for Executive Education in Madison, WI.  The course is sponsored and developed by the Edison Electric Institute Rates and Regulatory Affairs Committee.

A block of rooms has been reserved at the Fluno Center for Executive Education at the University of Wisconsin-Madison until June 15th.  The rate is $144/night.  To ensure the availability of a room, please make your reservations before June 15th by calling (877) 773-5866, or go on-line:  www.fluno.com.  Please mention you will be attending the EEI Electric Rate Advanced Course.

The Fluno Center is a short 15-minute taxi ride from the Dane County Regional Airport. Renting a car is unnecessary as this site.is located three blocks from Lake Mendota in the heart of Madison and the University.  It is located in walking distance to over 100 restaurants, bike/sailboat rental among other activities and offers biking and running  trials of any duration over various forms of terrain.  The Financial Times of London has ranked the Fluno Center in the top 2 worldwide for food and accommodations for custom programs.

Detailed Agenda

Sunday

3:00 – 6:00 p.m.Overview of Electric Ratemaking Basics
Larry Blank – Center for Public Utilities, New Mexico State University
State Regulatory Commissions: Organization and Process
•    Basic Components of Revenue Requirements
•    Technology basics to understand energy-related costs, demand-related costs,
and customer-related costs
•    Basic Rate Design
o    Energy charge vs. Fixed Customer charge
o    Energy charge vs. Demand charge
o    Block rate design
o    Time-of-use rate design
Two 10-minute
breaks

6:00 – 8:00 Welcome Reception – Fluno Center Study Pub 8th Floor

MONDAY

7:45 – 7:50 a.m. Welcome and Introduction
Cass Bielski(EEI) and Cara Lee (Sam) Mahany Braithwait (WPUI)

7:50 – 8:05     Course Introduction and Description
Phil Hanser – The Brattle Group

8:05 – 8:25    Description of Team Projects—Assign Groups
Mark Lowry – Pacific Economics Group Research
Developing Regulatory Strategies to Meet Today’s Issues

8:25 – 9:55 Regulatory Accounting
John Caldwell – Edison Electric Institute
Review of Revenue Requirements
Regulatory Accounting vs. “Regular” Accounting
The Income Statement and Balance Sheet
The Rate Base and its Components
Operating Expenses
Rate of Return and Capital Structure
Tax Treatment

9:55 – 10:05 am    Break

10:05 – 11:35     Current Issues in Cost of Capital
Bente Villadsen – The Brattle Group
Cost of capital and revenue requirement
How markets affect cost of capital
Traditional COE Methods and Their Use Across Jurisdictions
Sources of Risk, Old and New
Earned Returns vs. Allowed Returns
Rate Design and the Effect on the Cost-of-Capital
Risk Management vs. Risk Compensation Discussion

11:35 – 11:45     Break

11:45 am – 12:30 pm Issues in Cost Allocation
Philip Hanser – The Brattle Group
Cost of Service
Types of Costs
Functionalization
Classification
Rate Class Cost Allocation
Cost Allocation and Revenue Requirements

12:30 – 1:30    Lunch

1:30 – 2:15 pm    Introduction to Marginal Costs
Philip Hanser – The Brattle Group
Traditional Markets and Restructured Markets
Steps in Developing Marginal Costs
•Annualization
•Marginal Demand Costs – Generation, Transmission, Distribution
•Marginal Energy Costs
•Costing Periods and Attributing Costs to Costing Periods
•Adjusting Marginal Costs for Losses
Other Uses for Marginal Costs
•Smart Grid
•Distribution Utility of the Future

2:15 – 2:30 pm    Break

2:30 – 4:00 pm    Embedded Cost-Based Demand Rate Design
Larry Vogt – Mississippi Power
Significance of the coincidence factor – load factor relationship
Development of load-diversified unit demand costs
Cost allocation across the hours use of demand spectrum
The principle of rate tilt
Selection of a demand rate structure

4:00 – 4:15     Break

4:15 – 5:15    Rate Design by Objective
Phil Hanser
Increasing Block Rates and Dynamic Rates
Setting Objectives
Measuring How Well Objectives Are Met
Examples

5:15 – 6:15    Reception all in the Study Pub
(You will be on your own for dinner to enjoy one of Madison’s many restaurants)

TUESDAY

7:45 – 9:15 am Using Customer Information to Develop Better Regulatory & Pricing Strategies
Dick Wight – Energy Solutions
Customer kWh Usage Trends & Customers’ Potential/Willingness to Change Usage
Differences in Customers’ Energy Service/Price Expectations & Values
Why Utilities Will Be Expected & Required to Change Strategies to Be More Customer and Energy Efficiency Focused
Applying Customer Information to Improve Regulatory & Pricing Strategies

9:15 – 9:30     Break

9:30 – 9:45     Class Discussion of Customer-Focused Strategies

9:45 – 11:30 am    Energy Pricing Solutions
Jonathan Kubler, Energy Pricing Solutions
Pricing as a Strategy for Helping Customers Adapt to Increasing Costs
Managing Price Risk for Dynamic Pricing
Hedged Rate Options
Shifting Risk to Customers
Lessons Learned When Moving to More Efficient Rates
Barriers (Smart Meters, Administration, and Making Changes)
Missed Opportunities
Educating Customers

11:30 am – Lunch

12:30 – 1:00    Discussion on Customers Response to Rate Options
Jonathan Kubler, Energy Pricing Solutions

1:00 – 2:30 pm    Alternative Regulation
Mark Lowry – Pacific Economics Group Research
Performance-Based Regulation (“PBR”)
•Rate caps
•Revenue caps for revenue decoupling
•Benchmark PBR

2:30 – 2:45    Break

2:45 – 3:45    Alternative Regulation (con’t)
Mark Lowry – Pacific Economics Group Research
•Formula Rates
Recent Developments and Key Precedents
Crafting an Altreg Strategy
Applications to Vertically Integrated Utilities and Distributors Forward Test Years
Altreg for Investment Surges

3:45 – 5:30    Configuring Proposals
Alternative Regulation Scenario Work Groups
Design Regulatory Strategies that Respond to Scenarios Reflecting Today’s Business Challenges
Reduced Volume Growth
Mounting Investment Needs
Increased Emphasis on Conservation and Renewable
Separate Scenarios for Traditional Vertically Integrated Utilities and Power Distributors

5:30 – 6:30     Team Receptions
Each team will meet in their “study room” to start to outline their response to the case study.  Specific tasks will be laid out for each team for this first meeting.

6:30 – 7:30    Reception – Fluno Center Study Pub 8th Floor (Cash Bar)
(You will be on your own for dinner to enjoy one of Madison’s many restaurants)

WEDNESDAY

7:45 – 9:15 am        Designing Efficient Rates
Steve Braithwait – Christensen Associates Energy Consulting
Features of Traditional Rates
Role of Smart Metering in Expanding Efficient Pricing
Dynamic Pricing – Design and Issues
Features of Efficient/DynamicPricing Designing Efficient Rates
•Results from Recent Rate Pilot Programs:  Who Responds, How Much and Going Forward

9:15 – 9:30    Break

9:30 – 10:30 am Rate Design for Distributed Energy
Eric Ackerman – Edison Electric Institute
Fixed/Variable Rate Design
Business/Incentive Models
Issues Associated with Renewable Resources
Feed in Tariffs
Net Metering
DG Interconnection Procedures
Debt Imputation
Dealing with Changes in Revenue Streams
DSM Cost Trackers
Decoupling Mechanisms

10:30 – 10:45     Break

10:45 – 11:45    Case Study

11:45 – 1:00 pm    Working Lunch

1:00 – 2:00    Final Draft of Strategy Prep

2:00 – 4:00    Work Group Presentations and Debrief
Mark Lowry (Session Coordinator)

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