Developing a Strategic Business Plan for a Cooperative (Strategic Economic Analysis)
“This Transmission Business Strategy was a great opportunity to get in front of our Board of Directors and our senior staff and do an education piece on the key industry issues, but also to inform them of our transmission strategies. I’m very happy with how it turned out.”
—Vice President of Transmission, Cooperative
Background
A Midwestern cooperative was faced with increased interconnection requests and wanted to ensure that its transmission OATT and rate formula was equitable and in line with general FERC and industry practices. Moreover, the client wanted to ensure that its transmission-related costs and appropriate return were recovered. Ensuring the cost recovery formula was consistent with industry practices was particularly important given the company was faced with multiple staff retirements, including accounting positions who would be responsible with updating the formula rate.
In addition, the company wanted to develop a Transmission Business Plan to transition it from a company that largely views the Transmission function as an operational necessity to one that views Transmission as a business that actively can contribute substantial revenue and value for its member-owners. This strategic transition was particularly timely given the transmission business function had new management and staff.
Solution
In Phase 1, MCR reviewed the clients’ interconnection and grandfathered agreements and identified ways to revise its interconnection policies to ensure alignment to typical RTO policies. We then conducted a transmission formula rate review to identify potential improvements in how costs are recorded and how transmission revenue can be optimized. In Phase 2, MCR led a senior client working team through multiple meetings to develop a five-year Transmission Strategic Business Plan. Our approach included identifying and prioritizing key transmission industry issues/trends and methods for creating member value, and developing a vision, objective areas and strategies. It also included identifying transmission project opportunities for improving member reliability and creating financial value. We used MCR’s Transmission Project Evaluation Tool™ to conduct a financial analysis of one potential project. We also incorporated investment metrics from MCR’s Proprietary Transmission Investment and Load data base into the analysis to compare the client’s rate of transmission investment to its peers. The results of the Transmission Strategic Business Plan, including an education session on key industry issues were presented to the senior management team and the Board.
Results
The client made changes to its OATT and interconnection policies to more closely align with continuing changes to standard industry approaches in order to proactively address any potential interconnection customers’ issues. Based on the transmission formula rate review, the company is considering making changes to how some costs are recorded, thus improving its annual transmission revenue requirement (ATRR) by 5%. The client is moving forward with its Transmission Business Plan, including implementing about 18 high priority strategies that address the top issues, and create value for its members through reliability improvements, better access to additional resources, or enhanced transmission revenue from third parties. Lastly, the client management, Board and staff are better educated on industry issues, allowing for improved decision-making, consistent with their vision and strategies.