# Presentation: 744827

## Desert Southwest RegionMultiple System Transmission RatePower Marketing Rates 

- April 23, 2003

## Meeting PurposeJack Murray

- To provide history—steps taken to date to design **M**ultiple **S**ystem **T**ransmission **R**ate (MSTR)
- To discuss status of MSTR process
- To illustrate/discuss options for MSTR implementation
- To obtain customer feedback/input

## Brief History

- Renewed interest by customers to investigate single DSW transmission rate
- Operationally 3 systems utilized as one – match product pricing with operational realities
- Initial attempt:  Combined total Revenue Requirements divided by un-pancaked reservations

## More History

- Overall reservations (denominator) decreased-most customers saw significant & immediate increases vs. today’s cost
- Investigated various calculations to mitigate cost increases

## And Still More History

- Brought in Rates Managers from other WAPA regions to discuss – how to bring MSTR to Reality
- Developed set of principles – detailed discussion to follow
- Basic concept—end state of a single un-pancaked rate with mitigation of cost shifting
- Using these principles, came up with a “convergence” model

## One Last History Slide!

- Basic Premise of “Convergence”
- Calculate a target rate that collects necessary revenue over five year evaluation period
- Calculate difference between Today’s cost and the target rate
- Implement 20% (1/5) of the difference between today’s cost and the target rate each year.  (2/5 in year 2, 3/5 in year 3, etc.)

## Possible Time Line

- Dependent on Customer Feedback/Input
- Additional Informal meetings (?)
- Assume additional Informal meeting in May and in June:
- Public Information Forum Late July 03
- Public Comment Forum Late August/Early Sept 03
- Comment Period Ends Mid October 03

## PRINCIPLES

- Gloria Jordan

## List of Principles

- > Eliminate Pan-caking Service Charges
- > Mitigate Cost Shifts to Customers
- > End State
- > Comparable Treatment
- > Increase Available Transmission Capacity (ATC)

## List of Principles (continued)

- > Close to Industry Standards
- > Simple and Transparent
- > Project Financial Integrity
- > Ensure Repayment of Project

## OVERVIEW OF RATE METHODOLOGIES

- Bill Snowden

## Pancaked Reservations

- Point of receipt on one system and point of delivery on a different system or
- Path which crosses to second system and back to the first
- The rate is applied on a contract basis
- If a part of the contract is pancaked, the rate is applied as if all reservations are pancaked

## Examples of Pancaked Reservations (losses included)

## Examples of Un-pancaked Reservations (losses included)

## Total Reservations Differences

- There are fewer total reservations when system is unpancaked
- Duplicate CROD is eliminated where the MSTR is applied.

## Six customers have reservations that are Pancaked

|  | Pancaked Res. | % of Delivery |
| --- | --- | --- |
| APA | 48,139 kW | 21% |
| APPA-SWTA | 72,690 kW | 37% |
| APPA-Mesa | 18,546 kW | 15% |
| CAWCD | 122,400 kW | 100% |
| IID | 120,000 kW | 75% |
| USBR | 25,673 kW | 100% |

## MSTR Only vs. Convergence Method

- In MSTR Only all customers pay the MSTR each year
- Convergence Method with two options
- Apply the MSTR in the 1st Year
- Apply the MSTR in the 5th Year

## Why more than one method?

- Balancing the Principals
- Eliminate pancaking
- Mitigate cost shifts
- Increase ATC
- Simple & Transparent

## MSTR Only

- All customers pay the same rate each year
- Rate is recalculated each year
- Similar to current rate calculation except on total system

## Calculation of MSTR

- Total Revenue Requirement divided by Total Reservations
- Example: FY04
- The sum of the Revenue Requirements for all projects is $71,578,795
- The sum of the unpancaked Reservations for all projects is 4,150,595 kW
- The rate is $71,578,795 / 4,150,595 kW / 12 or $1.44 /kW-mo

## MSTR ONLY SPREAD SHEET

- 1st block Revenue Requirements
- 2nd block: reservations with pancaking eliminated
- 3rd block: calculate rate for each year
- 4th block: Allocation percentages
- 5th block: Comparison to Revenue Requirements

## Convergence Method

- Those customers with CROD which is currently pancaked, pay the MSTR in the year it is applied.
- Pancaking is eliminated on these reservations
- Those customers with CROD which is _not _pancaked pay the step rate of the appropriate Project the first 4 years of the period.

## Calculation of Rate Convergence Method

- Set up Spread sheet
- 1st block: Revenue Requirements
- 2nd block: Capacity Reservations
- 3rd block: Calculation of yearly step rates

## First, Estimate Target MSTR

- Target MSTR must be large enough to insure collection equal to RR for each project for the 5 year period
- Choose a number in the range of the MSTR Only yearly rates
- For the values done in this study pick
- 	$1.35

## Next, Calculate difference between Target and FY03 Rates

- This must be done for each Project
- Example: FY04
- PDP: FYO3 Rate is $1.08 kW-mo
- Target MSTR is $ 1.35
- The difference is $ 0.27

## FY03 Rates

- These rates are the basis for the Step rate for each project
- PDP = 				$1.08 kW/mo
- CAP = 				$0.82 kW/mo
- IP 230/345 kV = 		$1.00 kW/mo
- IP 500 kV = 			$1.44 kW/mo

## Apply Discount or Adder to each Project Rate

- The discount is a per cent of the difference between the Target and Current Rate
- Example: 5 year period, use 20% per year
- For PDP w/ a $ 0.27 difference
- The discount is $0.22 for FY04 to get a rate of $1.13.  The FY05 discount is $0.19 for a rate of $1.19 Etc.
- In the 5th year no discount is applied
- IP requires an adder
- Block 3 shows the calculated step rates after the discount

## Calculate Revenue Allocation Percent for each Project

- The allocation percent :
- Applicable Revenue Requirement divided by the Total Revenue Requirement for the Year
- Example: Intertie Project for FY04
- IP Revenue Requirement is $ 33,247,603
- Total Revenue Requirement is $71,578,795
- IP Allocation percent is 46.45%
- Block 5 shows the Allocation % per year

## Calculate Revenue allocated to each Project for applicable rate

- Check Revenue recovery for period
- Sum the estimated Revenue for Projects

**Notes:**

Multiply 12 times the Discounted Rate times the Project Reservations and then by the  Allocation Percent

## Compare the estimated revenue to the Revenue Requirement

- Block 6 shows estimates of Revenue Allocated, the Revenue Requirement and estimate of Over (Under) Collect for the period for each project
- Negative value in “Over (Under) Collect” column indicates “under” collection