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Analyzing the rate impact of joining an RTO


“They were very knowledgeable. That’s why we hired them; we wanted to tap into that knowledge. If they didn’t know, they would say they didn’t know. I got a great sense of integrity out of them as we went through the project.”

—Chief Financial Officer, G&T cooperative


Background

A G&T was interested in exploring the possibility of joining a major RTO in its region. The G&T wanted to know which of its transmission-related costs would typically be included in the RTO transmission rate and how the RTO rate compared to the current transmission rate paid by their members.

Solution

MCR conducted an in-depth review of the client’s transmission costs to organize costs into a formula rate under typical RTO rules. MCR then forecasted the client’s annual transmission revenue requirement (“ATRR”) under different formula rate methods and calculated sample client network service rates and costs under different possible pricing zone scenarios in an RTO.

Results

MCR produced a detailed analysis for the client, which showed that moving to an RTO would mean a significant portion of their costs that are currently included in their own transmission rate would not be recovered in the transmission rate under typical RTO rules. The analysis also showed that the preferred template method (return on rate base or debt service plus margin) depended heavily on the forecast assumptions. Lastly, if the client were to join an RTO, the pricing zone it joins would significantly affect the economics of future transmission investment.