| Utilities Filing Rate Cases Increased costs have made it necessary for electric, gas and water utilities to consider rate increases in order to protect their financial integrity. No one benefits from a financially weak utility. The Prime Group can assist utilities with these initiatives. Marty Blake and Steve Seelye have years of experience testifying before regulatory commissions in support of proposed rate structures, cost of service studies, revenue requirements, cost of capital, lead/lag studies and depreciation studies. In addition to providing expert testimony in rate case proceedings, The Prime Group's team of accountants, economists, and engineers can also assist your organization in preparing a rate case management plan and serve as a technical resource to your legal staff. Please contact Steve Seelye at (502) 241-4463 to discuss how The Prime Group can assist your organization in preparing for a rate case or other regulatory filing, developing pre-filed testimony, providing technical assistance in developing responses to data requests, and providing technical assistance to your attorneys.
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Time-of-Use Rates & Smart Grid Customer interest in closely managing energy consumption continues to grow. Technologies are emerging that enable customers to manage their usuage in an automated fashion. Time-of-Use ("TOU") rates and various forms of Real Time Pricing ("RTP") allow customers to embrace these technologies and will advance the emergence of the "smart grid" in many areas. Additionally, many wholesale suppliers are migrating their rate structure towards TOU rates and RTP; utilities that purchase wholesale power on a TOU rate face significant exposure if their retail rate structure is not aligned with those TOU rates. Effective TOU and RTP rate design at both retail and wholesale levels will mitigate that financial exposure while offering customers the opportunity to manage their own energy consumption more closely and effectively. The Prime Group has assisted several utilites with the move to TOU and RTP rates. Please contact Marty Blake at (502) 425-7882 to discuss how The Prime Group can provide assistance in developing TOU and RTP rate designs and performing costs benefit analysis of Smart Grid initiatives.
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| Rate Design for Energy Efficiency Proper rate design is an essential ingredient for the success of utility energy efficiency program offerings. Rates that establish fixed and variable billing components in a way that align with actual utility expeditures will send the right price signal to consumers and allow them to participate more fully in any energy efficiency programs offered by your utility, without sacrificing the financial position of the utility. Fundamentally, the objectives of the utility and the aims of the consumer are at odds unless the utility rate structure allows the utility to recover its fixed costs at the same time that customers reduce their consumption. An effective rate design is the foundation upon which a portfolio of energy efficiency and conservation offerings can be established. The Prime Group has developed Straight Fixed Variable (SFV) rate designs and decoupling mechanisms to support the energy efficiency initiatives of electric and gas utilities. SFV rate designs are being developed by both local gas distribution companies (LDCs) and electric cooperatives to create an environment that allows the utility to develop energy efficiency initiatives without jeopardizing the recovery of fixed costs. |
Economic Development & Rate Design Rate Design can be an effective tool for creating economic development opportunities. Energy costs are consistently cited as one of the top ten reasons some manufacturerers select a paticular site to locate new facilities. Actions that can be taken to make your service territory more attactive to potential commercial and industrial customers include (1) reducing existing cross-subsidization among customer classes to enhance the ability of large customers to compete in their industries; (2) properly aligning fixed and variable components of your rates so businesses can optimize their operational efficiencies in the most economical manner; (3) developing pricing structures that create operational efficiencies; (4) developing targeted rate structures for specific commercial or industrial operations, including the potential implementation of incentive rates; and (5) developing a strategy to promote partnerships with new businesses that taps into the full value of your utility expertise, services, and knowledge. The Prime Group has assisted many utilities with developing rate design to achieve these objectives. Please contact Marty Blake at (502) 425-7882 or John Wolfram at (502) 290-0283 to discuss how we can assist you with you economic development efforts.
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| Line Extension Policies Does your utility fully recover the cost of adding a new customer? We have found that inadequate line extension policies harm utility financial performance, create pressure for rate increases, and result in new customers being subsidized by existing customers. Good line extension policies are a challenge because they require a balance between the interests of new customers and those of existing customers. If the credit allowed for a line extension to a new customer is too high, the new customer receives a subsidy that is paid by existing customers. If the credit allowed for a line extension to a new customer is too low, it is the new customer who is paying more than his fair share of the utilities costs. A line extension policy can be stated as a flat dollar amount, stated in terms of feet of line that are provided for free by the utility or stated in terms of a multiple of net revenue that the utility expects to receive from the new customer. We have extensive experience in discussing the different approaches with decision makers and in helping them to select the approaches that make the most sense for their particular application. In developing line and facilities extension policies, it is important to balance the interests of new and existing customers an to ensure economic development is not deterred.
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Individual Customer Profitability In a competitive market, alternative energy suppliers will focus on attracting customers who will generate good margins. Unfortunately, these are the most profitable customers that a utility serves and losing these customers to another supplier will have a significant negative effect on utility margins. In order to compete in this environment, utilities need to be able to identify the profitability of individual customers and to design marketing programs to retain high margin customers and improve the profitability of negative and low margin customers. The Prime Group has developed techniques for calculating the individual profitability of every customer that a utility serves, even customers who are not demand metered. Individual customer profitability analysis picks up where cost of service leaves off and allocates costs down to the individual customer level using the same cost of service principles that are widely accepted in the utility industry. Combined with the revenue received from each customer, it is possible to calculate the margin and the rate of return received from each customer. This analysis is essential in ensuring the utility is collecting adequate financial recovery from these customers. |
| Cost Recovery Mechanisms The Prime Group can assist your utility in developing cost recovery mechanisms such as fuel adjustment clauses ("FACs"), purchased power adjustment clauses ("PPAs"), environmental cost recovery mechanisms ("ECRs'), demand side management ("DSM") cost recovery mechanisms, gas cost recovery adjustments ("GCRs"). These mechanisms provide for proper cost recovery while helping protect the utility from earnings erosion. We can also help you develop alternative rate mechanisms such as earnings sharing mechanisms and performance based rates. The Prime Group has testified as expert witnesses in federal and state jurisdictions regarding these cost recovery mechanisms.
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The Prime Group LLC
The Prime Group is committed to providing our electric, gas and water utility clients with leading-edge support in the areas of pricing, cost of service studies, customer profitability, financial forecasting, economic analysis, marketing, strategic planning, regulatory support and training that are essential for sustained success.
We have helped electric, gas and water utilities all over the United States and Canada achieve their financial and marketing objectives. Our utility rate consultants have testified before the Federal Energy Regulatory Commission (FERC) and numerous state regulatory commissions. We have submitted expert testimony regarding rate design, cost of service studies, revenue requirements, return on equity, depreciation studies, prudence investigations, territory disputes, affiliate transactions, market power studies, open access transmission tariffs, and reactive power services.
We offer personalized service. The Prime Group expert working on your project will have years of experience in the industry. We will not turn your project over to a junior associate. Additionally, it is our policy to provide our clients with the model that we use to perform the studies. Providing the model to clients allows them to get maximum benefit out of the work product and gives them the ability to perform their own scenario analysis. It also makes it easier for clients to comply with the regulatory requirement in many states to provide model and analysis to intervenors.
The Prime Group takes great pride in being easy to work with while providing consulting support that is unsurpassed in the industry. We tailor our models to meet your needs rather than force your needs to meet the requirements of a standard, off the shelf model. We don’t try to be everything to everybody. We stick closely to what we are good at – performing cost of service studies, designing rates, preparing economic evaluations, performing depreciation studies, and addressing complex regulatory issues.
