Alternative
Energy Economics
The client asked us to review a supply contract for wind
generation. We analyzed the contract and explained to the
client that the contract lacked some important price and
supply protections and did not take into account potential
changes that could reduce the value of the offer.
Asset Valuation
A small water company was an asset in a bankruptcy case.
The court needed a valuation to determine if a fair price
was being offered to buy it. A major issue was a
substantial amount of excess capacity. We provided a
valuation based on two approaches, which the court
accepted.
Bill
Audits
We often review the bills of clients in regulatory
proceedings or contract disputes to determine the dollar
impact of any proposals or claims. Also, if you have a
problem with a malfunctioning meter, an audit of prior
months' bills is needed to determine the proper
adjustment. Auditing utility bills for errors is rarely
useful, unless you have a special rate and very
complicated bill.
Contract Analysis, Interpretation and Negotiation
Our client had a contract to supply cogenerated power to
the local utility. One year, the utility requested a
refund, claiming that the client had not met the
reliability standard in the contract. Our analysis showed
that the customer had met the reliability criterion
according to the terms of the contract, although the
contract itself used a non-standard definition of
reliability. Further, we showed that the utility’s meters
were not sufficiently precise to support its claim. The
case was settled on terms completely satisfactory to our
client.
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Cost Allocation (Class
Cost of Service Studies)
We have prepared and analyzed scores of cost of service
studies. We were hired by a gas utility to evaluate its
transmission division and distribution division cost of
service studies to determine their consistency with
general practice. The utility accepted the changes that we
recommended.
Cost of Capital
We have prepared and submitted evidence and argument in
both utility-specific cases and generic cost of capital
cases.
Demand Response Programs and Interruptible Rates
Interruptibility may mean different things–and have
different values–in traditional, integrated electric
markets and in deregulated markets. We have advised
clients on how to define and value interruptibility in
both types of markets.
Distributed Energy and Self-Generation
We have helped clients evaluate the value of installed
self-generation. Part of this includes determining the
appropriate cost for backup service for the utility. In
one case, we showed that the utility’s proposed rate for
backup service would cost a self-generating customer more
than if the customer continued to take full service from
the utility. The utility eventually modified its proposal.
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Distribution Rates
We have submitted testimony regarding delivery rates for
both electric distribution and natural gas distribution
utilities.
Financial Modeling
In a jurisdiction with a newly-restructured electric
utility market, a single proceeding encompassed the rates
of multiple generating utilities, a power pool that
aggregated and re-distributed the cost of those
generators, multiple transmission providers, a similar
transmission-aggregation utility and multiple distribution
utilities. A change in the cost of any one affected
several of the others. We prepared a suite of linked
financial models that enabled the regulator to evaluate
the effect of changes in the values (e.g., in return on
equity) and how those flowed through to all the other
utilities. Few projects are this complex, but we often
provide regulators and clients with financial models that
enable them to test the effects of different assumptions
and inputs.
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Market Structure and Competition
In the process of restructuring the Alberta electricity
market, we acted as advisors to the industrial group and
as its representative in the working group that designed
the new market. This included the development of the
vesting contracts to cover existing generation, (both
generator obligations and distributor entitlements), as
well as a host of other policy and technical issues
related to the transition.
A client group asked us to evaluate proposed
legislation that would pave the way for deregulation of
the local utility. We reviewed the legislation and pointed
out that although “deregulation” was mentioned two dozen
times, the legislation said nothing about “competition.”
The result would have been a deregulated monopoly–hardly
what the clients thought they were getting.
Among the issues that arise in competitive markets are:
- Identification and control of market power, the
advisability of market price caps;
- treatment of “heritage” power;
- stranded costs; and
- rate unbundling
We have advised clients in all of these issues.
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Natural Gas
Liquids Issues
A client with a natural gas liquids extraction plant was
concerned about a proposal for a “midstream” NGL
extraction plant. We submitted evidence explaining the
problems of consistency involved with this proposal,
including the need for component tracking in order to
provide fairness to both producers and extraction plants.
The proposal for the midstream plant was rejected by the
regulator.
Performance-Based Rates (Incentive Regulation)
A client group asked us to develop the parameters for
negotiating an incentive contract with a pipeline. Our
analysis explained the different types of incentive
arrangements and provided a basis for them to negotiate a
deal successfully.
We have also advised clients where we thought that an
arrangement of the “CPI-X” form would be disadvantageous
to them.
In another case, the utility proposed a set of
benchmarks for evaluating performance. We provided a more
comprehensive set of benchmarks, which the regulator
accepted as the basis for tracking utility performance
over time.
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Pipeline
Services and Rates
We developed a method of disaggregating a postage stamp
rate into location-based rates for gas pipeline service.
Initially, this was opposed by several other stakeholders,
but eventually the pipeline itself implemented rates on a
very similar basis.
We prepared the revenue requirements and rate design
component of the filing for a FERC-regulated green field
pipeline.
Price Forecasts
We have prepared forecasts of electricity and natural gas
prices for several clients. Frankly, we believe that
energy price forecasts are of limited reliability. It is
more important to understand the factors that drive the
forecast and the sensitivity of the forecast to different
assumptions.
Purchased
Power Contracts
A municipality asked us to evaluate competing proposals
for the supply of electricity to its utility. Our analysis
covered the difference in cost as proposed, potential
differences under different market conditions and other
variables that could affect the final cost of power.
In a market that was restructured, the clients asked us
to provide input on the development of the vesting
contracts to cover the soon-to-be deregulated generating
plants owned by the utilities. After the development
process was finished, we were retained by a coalition of
all the consumer groups to submit evidence and recommended
changes to the proposed vesting contracts.
A major industrial user retained us to advise them on
bidding for “slices” of the vesting contracts, which were
being auctioned in multi-year strips. Our analysis
included forecast costs under high, medium and low power
cost conditions. In the end, the client did not purchase
any of the strips and was able to purchase spot market
power at much lower costs.
Rate Design
Rate design issues include: the level of demand versus
energy rates; the split of electric transmission costs
between generators and loads; stand-by rates; demand
ratchets; peak load pricing; real time pricing;
interruptible rates (or credits); distance-based versus
postage stamp pipeline rates; customer charges versus
usage charges; and unbundling, to name a few. We have, at
one time or another, dealt with all these issues on behalf
of various clients.
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Regulatory Principles and Procedures
On behalf of a regulatory agency, we did an evaluation of
its procedures in order to see how the process could be
improved and speeded up. On behalf of a municipal utility
regulated by city counsel, we have developed the
principles and criteria to use in order that both sides
understand better their roles and obligations.
Reliability
A client group had us evaluate and present evidence on the
appropriate generation reserve margin for a jurisdiction
comprising several integrated utilities. Reliability is
not a question of "how much do you want?", but of "how
much do you want to pay for?" The reliability of the
system can always be increased at a price, so the question
is "At what point does the cost outweigh the benefits?"
In another proceeding, we applied this concept to the
issues of transmission congestion and the appropriate
degree of reliability of an independent transmission
operator.
Revenue
Requirements
We have submitted issues on all aspects of revenue
requirements–rate base valuation, operating expenses,
depreciation expense, taxes and cost of capital.
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Transmission services and rates
The client, who acts as both a major consumer and
producer, retained us to develop and present a position on
congestion management. In our evidence, we pointed out
that “congestion” is an issue much like generation
reliability, wherein there is a trade-off between the cost
of reducing congestion (like increasing reliability) and
the value of doing so. Out of several competing proposals,
the regulator adopted our recommendation and directed the
transmission utility to implement it. Subsequent to the
decision, the transmission utility retained us to assist
in implementing the proposal. |
