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Cost of Service Regulation Wayne Taylor W. K. T AYLOR C ONSULTING L TD. June 22, 2015.

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Presentation on theme: "Cost of Service Regulation Wayne Taylor W. K. T AYLOR C ONSULTING L TD. June 22, 2015."— Presentation transcript:

1 Cost of Service Regulation Wayne Taylor W. K. T AYLOR C ONSULTING L TD. June 22, 2015

2 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Cost of Service Regulation l Revenue Requirement Applications (Phase I)  Revenue Requirement  Forecast Revenue at Existing Rates  Required Average Rate Increase l Rate Design Applications (Phase II)  Rate Classes  Cost of Service Study  Rate Rebalancing and Rate Design  Terms and Conditions of Service

3 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Typical Revenue Requirement Components l Capital-Related Costs  Depreciation  Interest  Return on Equity  Income Tax l Operating Costs  Labour  Materials and Supplies  Fuel and Purchased Power  Property Taxes

4 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Capital Expenditures and Additions

5 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Rate Base

6 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Rate Base

7 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Revenue Requirements

8 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Cost of Capital

9 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Cost of Capital

10 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Capital-Related Revenue Requirements

11 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Total Revenue Requirements

12 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Capital Cost Allowance

13 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Future Income Tax Account

14 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Future versus Flow-Through Income Taxes

15 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Future Income Tax Account

16 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Total Revenue Requirements – Flow-Through

17 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Comparison of Future and Flow-Through

18 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Depreciation Systems l Method of Allocation  Straight Line  Accelerated (e.g. Declining Balance)  Decelerated (e.g. Sinking Fund) l Group Procedure  Average Life Procedure  Equal Life Procedure l Adjustment Technique  Whole Life  Remaining Life

19 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Revenue Requirements – Different Lives

20 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Impact of Including CWIP in Rate Base

21 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Impact of Including CWIP in Rate Base

22 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Impact of Including CWIP in Rate Base

23 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Impact of Including CWIP in Rate Base

24 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Impact of Including CWIP in Rate Base

25 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Required Average Rate Increase

26 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Actual Net Income

27 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Typical Phase I Studies l Load and Revenue Forecast Study l Depreciation Study l Lead-Lag Study l Cost of Capital Studies l Compensation Surveys l Corporate Cost Allocation Study l Capital Overhead Study

28 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. BC Hydro Revenue Requirements

29 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. BC Hydro CWIP

30 CAMPUT 2015 Energy Regulation Course W.K. T AYLOR C ONSULTING L TD. Summary l Carefully test the capital forecast. Capital is expensive; once in rate base, a capital project impacts the revenue requirement for the life of the facility. l The choice of income tax method and CWIP treatment will shift costs between generations of customers, but impacts life-time revenue requirements and can impact the cost of raising capital. l Also carefully test the revenue forecast. l Watch the regulatory account and CWIP balances. l Study the financial schedules.

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