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Paying for Load Growth and New Large Loads

American Public Power Association Business & Financial Conference. Paying for Load Growth and New Large Loads. September 24, 2007 | Presented by: Joe Mancinelli. The Bottom Line. Load growth pricing strategies must be in alignment with marginal cost and average cost. MC. AC.

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Paying for Load Growth and New Large Loads

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  1. American Public Power Association Business & Financial Conference Paying for Load Growth and New Large Loads September 24, 2007 | Presented by: Joe Mancinelli

  2. The Bottom Line Load growth pricing strategies must be in alignment with marginal cost and average cost MC AC Cost per Unit APPA – Business & Financial Conference

  3. Significant Upward Pricing Pressure in Today’s Marketplace APPA – Business & Financial Conference

  4. Cost of Service Comparison •QTotal Price Quantity CostTotal QuantityTotal Price Quantity • Adj. Factor • Adj. Factor APPA – Business & Financial Conference

  5. Cost of Service Comparison (cont.) APPA – Business & Financial Conference

  6. Cost of Service Considerations

  7. Who Benefits from Infrastructure Installed to Meet Growth? High VoltageTransmission Residential Customer Commercial Customer Distribution Substation Industrial Customer Transmission Substation Generating Station APPA – Business & Financial Conference

  8. Cost Implications Distribution Substation Industrial Customer Residential Customer Commercial Customer • Distribution: Customer-specific usefulness • Non-coincident demand • High correlation between benefit of new infrastructure and new load APPA – Business & Financial Conference

  9. Cost Implications High VoltageTransmission Transmission Substation • Generation and Transmission:Used and useful by all • Coincident demand • Lower correlation between benefit of new infrastructure and new load Generating Station APPA – Business & Financial Conference

  10. Key Considerations Effective rate & fee structures balance multiple considerations Rates and Fees APPA – Business & Financial Conference

  11. Pricing Considerations by Load Size

  12. Class-specific Marginal cost pricing Customer pay majority of connection costs through CIAC Gen/Trans stranded investment less of a concern Customer-specific Marginal cost pricing Customer pays for majority of connection costs through CIAC Customer may pay for Gen/Trans costs Gen/Trans stranded investment less of a concern Economics Politics Fairness Competition kW • Marginal cost or subsidies (varies depending upon persuasiveness and constituency) • Growth pays for growth • Low CIAC • Average cost pricing • Residential subsidies • Growth pays for growth MC > AC • Differentiate on benefits rather than price • Subsidies • Differentiate on benefits rather than price • Subsidies

  13. Class-specific pricing Embedded cost pricing Utility pays majority of connection costs; minimal CIAC Gen/Trans stranded investment more of a concern Customer-specific pricing Embedded cost pricing Customer pays for majority of connection costs Gen/Trans stranded investment more of a concern Economics Politics Fairness Competition kW • Residential subsidies • Everyone pays the same • Marginal cost pricing (favor lowest pricing alternative) • Everyone pays the same MC < AC • Waive connection fees • Economic development rates

  14. Rate Design and Fee Strategies

  15. Rate Design & Fee Strategies (MC > AC) Distribution Function • Contributions in Aid of Construction • Trend toward full cost recovery • Vintage-based rates • Rate phase-out strategies • Increased complexity • Accounting • Administration • Long term rate volatility • Equitable cost recovery • Location-based rates • Density • Construction costs APPA – Business & Financial Conference

  16. Rate Design & Fee Strategies Generation & Transmission Function • Time of Use Load reduction Baseline APPA – Business & Financial Conference

  17. Rate Design & Fee Strategies Very Large Commercial and Industrial Loads • Pay full cost of facilities required to connect • T&D infrastructure • Insulate system from negative economic impacts • Customer-specific rates • Minimum charges • Deposits • Disconnect or exit fees (stranded cost) APPA – Business & Financial Conference

  18. Final Thoughts APPA – Business & Financial Conference

  19. Questions? Joe Mancinelli Vice President (303) 299-5233 jmancinelli@rwbeck.com APPA – Business & Financial Conference

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