The new tax law reduces the income tax rate for IOUs. What does that mean for public power and cooperatives when it comes to transmission investing? The enclosed MCR Point of View discusses the impact of the tax rate reduction on transmission investing and whether it will affect the relative cost competitiveness of public power and cooperatives compared to IOUs.Download the tax law point of view
MCR’s Formula Rate Review is beneficial in a number of ways. It ensures you are:
MCR has developed or reviewed over 100 formula rates for clients in SPP, MISO and PJM. Through this extensive experience, MCR has developed a Formula Rate Review to assess whether transmission revenue is being left on the table and whether your transmission-related costs are “bulletproof” against third-party scrutiny.
MISO transmission owners are currently developing new criteria and cost allocation methods for market efficiency projects. The new criteria could include lowering the voltage level threshold from the current 345 kV to a lower level, which would increase the number of transmission projects open to competitive bidding. However, this may exacerbate the existing problem of underinvestment by public power and G&Ts in MISO. Thus, public power, G&Ts and T&D cooperatives need to be aggressive and propose creative solutions they can own to partially offset increasing transmission tariffs in their local pricing zones.Download the cost allocation paper
The “arms race” for transmission investments continues. In addition to investor-owned utilities (“IOUs”) and transmission companies (“Transcos”), generation and transmission cooperatives (“G&Ts”) and public power in MISO are increasing their levels of investment. But in many cases, G&Ts and public power make transmission investments at a disproportionally lower percentage than their load ratio share. This mismatch results in substantial exposure to transmission rate increases for their members and customers. In order to mitigate the impacts of these transmission rate increases, public power and cooperatives need to focus on how transmission investing can create value for their members.Download the transmission investment white paper
DEERFIELD, IL, June 1, 2017: MCR Performance Solutions, LLC, a leading management consulting firm serving electric, natural gas and water utilities, will be participating in the G&T Accounting and Finance Association’s annual conference on June 19-22 in Anchorage, Alaska. This annual conference provides an opportunity for G&T finance and accounting professionals to discuss recent events and trends impacting the industry.
Jim Pardikes, Vice President, and Ron Kennedy, Director, of MCR’s Transmission Strategy practice, will provide insights on transmission investing for G&Ts on Wednesday, June 21 at 9:00 am. The presentation shows how investing in transmission can create value for its members. Transmission investing not only can enhance reliability, but also provides G&Ts an opportunity to own rather than “rent,” because owning transmission can partially hedge rapidly rising transmission rates; the higher the investment, the larger the hedge.
“Many G&Ts are beginning to run transmission like a business—a core element includes proactively looking for profitable opportunities to invest in transmission,” Pardikes said in anticipation of participating in the upcoming conference.
MCR’s Transmission Strategy practice specializes in the MISO and SPP transmission marketplace. Our clients—G&T cooperatives, municipals, joint action agencies and public power districts—have a goal of optimizing the value of their current and future investments in electric transmission. We help them realize the full revenue potential from their transmission assets. Through our consulting assignments, we have created millions of dollars in value for our clients and broken new regulatory ground for our client base with landmark decisions in FERC rulings.
MCR is a management consulting firm specializing in the electric, natural gas and water utility industries. MCR helps clients achieve superior performance through innovative and effective solutions in their strategies, operations, processes, finances, forecasting, organizational designs, economics, testimony, and business cases. Our practices include Transmission Strategy, Financial Advisory, Regulatory Services, Energy Efficiency, Nuclear Generation, and Utility Transformation Services. For more information, please visit www.mcr-group.com.
There has been an “arms race” for transmission investments among investor-owned utilities (“IOU”) and transmission companies (“Transcos”), resulting in substantial increases in transmission rates for all MISO pricing zones. By contrast, many generation and transmission (“G&T”) cooperatives have not increased their transmission investment at the same rate of growth, resulting in substantial exposure to transmission rate increases for their cooperative members. In order to mitigate these rate increases, a G&T needs to run transmission as a business and put in place a business plan and disciplines that focus on creating value for its members.Download the transmission vision white paper
Of the 13 new public power and Generation & Transmission (“G&T”) transmission owners entering the Southwest Power Pool (“SPP”) in the Upper Missouri Zone effective October, 2015, all 13 have filed for recovery of their transmission costs using formula rates rather than stated rates. This is in sharp contrast to the condition previously where 13 out of the 18 public power and G&T transmission owners in SPP used a stated rate to recover their transmission costs under the SPP tariff. As these new entities have come to realize, formula rates provide a distinct advantage for transmission owners in SPP to recover their due costs as transmission costs rise. Put simply, if you are using stated rates, you may be leaving transmission revenue on the table.Download the SPP migrating to a formula rate white paper
MCR helps G&T cooperatives, municipals, public power districts and joint action agencies in SPP and MISO realize the full revenue potential from their transmission assets. We use a collaborative approach for all our transmission engagements with the goal of finding and generating value for our clients. Download our brochure to learn more about the services that add value to our clients.Download the transmission strategy services brochure
Transmission rates across the country, including the Southwest Power Pool (SPP), will be dramatically increasing over the next ten years due to new high voltage transmission projects and the steady stream of local transmission facility replacements and upgrades. Municipal joint action agencies, municipals and G&T transmission owners have the opportunity to mitigate or partially hedge these rate increases if they implement an offensive transmission investment strategy. This strategy involves thinking about transmission investment “as a business” and pursuing investments more aggressively than in the past.Download the SPP transmission investment white paper
As interest rates remain at historically low levels, pressure is building on FERC to lower the returns on equity used in transmission rate formulae across the country. This pressure has come to a boiling point in MISO as industrial and commercial customers have filed a joint complaint challenging the reasonableness of ROEs, equity adders and the percentage of equity allowed in capital structures for IOUs and independent transmission companies. Based on precedent, any reduction in the standard MISO ROE will likely also apply to public power entities. Although a lower ROE will reduce revenue generated from transmission investments, it is likely that most public power entities in MISO will see a net benefit through lower transmission tariffs. That, combined with continued healthy margins from new transmission investment, will be an important strategy for joint action agencies, municipals and G&T. Understanding the dynamics of this potential new environment will be important for many public power entities.Download the MISO falling returns white paper
In mid-2013, FERC handed down a ruling that required MISO transmission owners (TO) to file revised rate protocols. The new protocols required greater transparency for costs included in formula rates and opened TOs to deeper scrutiny from third parties. Download our brochure to learn more about these new protocols and how MCR assists our joint action agency, municipal and G&T clients to ensure their formula rate optimizes revenue and withstands the increased scrutiny of outside parties.Download the MISO Attachment O brochure
Transmission rates across the country and, particularly, in the Midwest Independent System Operator (MISO) will be dramatically increasing over the next ten years due to new high voltage transmission projects and the steady stream of local transmission facility replacements and upgrades. Municipal joint action agencies, municipals and G&T transmission owners have the opportunity to mitigate or partially hedge these rate increases if they implement an offensive transmission investment strategy. This strategy involves thinking about transmission investment “as a business” and pursuing investments more aggressively than in the past.Download the transmission investment white paper
As more transmission owners utilize formula rates for transmission cost recovery and transmission investment continues to increase, the impact of formula rates on ratepayers is increasingly significant. Additionally, state commissions have been vocal challengers to several transmission owner formula rate protocols, claiming the protocols are insufficient to ensure just and reasonable rates. In 2012, FERC initiated an investigation to determine whether the formula rate protocols under the MISO tariff were sufficient to ensure just and reasonable rates. This hot topic discusses areas related to formula rates which FERC is considering and what transmission owners should expect as a result of FERC’s increased scrutiny.Download the MISO rate protocols hot topic
Cost allocation of transmission investment costs continues to be a major obstacle to building large new transmission and achieving renewables generation goals in the Midwest ISO (MISO) region. Existing methods of cost allocation can result in disproportionate impacts on certain utilities in close proximity to new transmission, so new methods of cost allocation are being proposed. Like the carnival game of Whac-a-Mole, any particular cost allocation method that eases the annual transmission revenue requirement on some MISO regions or utilities will inevitably burden other MISO regions or utilities.Download the MISO cost allocation white paper