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Proposed Line Equalization Changes Member Meeting

August 2012


Line Equalization 

PRECorp’s Standard and CBM Line Extension Policies allows members who fund line extensions for new services to recoup portions of the line extension costs from other members that later utilize the same facilities for their new service requests. PRECorp administers the process, as well as the receipt and disbursement of funds for the process. 2


Issues With Line Equalization Interactions 

The CBM Line Extension policy was modified in June 2009 to address numerous issues. 

Numerous items in the line extension policy were modified One item that was addressed was to modify the methodology for administering line equalization from a footage and meter count methodology to a geographical section methodology. The change greatly improved the ease of administration for line equalization for CBM line extensions and addressed other issues with the older policy.

3


Issues With Line Equalization Interactions 

One item that was not clearly addressed in the June 2009 CBM Line Extension changes was how to administer the line equalization where interactions occur between the CBM Line Extension Policy and the Standard Line Extension Policy. Since they are extremely different methodologies, they are difficult to administer in a fair and equitable manner. 

The Standard Line Extension Policy is administered using line footage and number of meters involved to simulate the costs as if the new member had shared in the costs to install the original infrastructure. The CBM Line Extension Policy utilizes a geographical section approach to reduce the amount of labor and complication involved with administering the process.

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R 71 W

2,640'

S

M

2

1

T 50 N

Standard Line Extension Policy Based on the number of meters located on a line extension

WO# 70100 totals 7,694 feet long

M 11 WO# 70500

12

totals 4,507 feet long.

Work Order #:

M

Line Extension Costs (New Line) Equalization Investment Credits

70100

70500

1/1/2003

6/15/2007

1/1/2008

$76,940

$45,070

$10,000

$0.00

$38,470

$8,800

(38,470)

80500

($4,400)

($4,400)

The total length of line is shared proportionally by meter counts.

Customer Investment

$76,940

$83,540

$18,800

Adjusted Investment

$76,940 $38,470 $34,130

$79,140 $83,540

$18,800

44.4%

94.7%

100%

% of Original Investment

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R 71 W

S

M

2

1

WO# 80500

T 50 N

1,867' WO# 70500 totals 4,507 feet long.

5,827' WO# 70100 totals 7,694 feet long

M

1,867'

11

12

CBM Line Exension Policy Socializing Each section Based on thethe investment within section has a “value” rather each geographical than the whole section line.

Work Order #: 2,640'

M

Line Extension Costs (New Line) Equalization Investment Credits

70100

70500

80500

1/1/2003

6/15/2007

1/1/2008

$76,940

$45,070

$10,000

$0.00

$9,335

$29,135

($9,335) ($29,135)

New customers areissharing The balance sheet cleaner the Equalization is approximately the “value” in thetosection they and much easier administer. same but the process is much are building in, not the entire cleaner to administer line.

Customer Investment

$76,940

$54,405

$39,135

Adjusted Investment

$76,940 $38,470 $67,605

$54,405

$39,135

50%

100%

100%

% of Original Investment

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Issues With Line Equalization Interactions ď Ž

With the decline of CBM line extensions and an increase of other industrial loads in recent years, the number of interactions between the two policies is becoming more prevalent; and in some cases have significant financial impacts

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Proposed Solutions for Line Equalization Interactions 

We believe that these interaction issues can be resolved by:

Applying the CBM Line Extension Policy line administration process to other rate classes that are industrial in nature.

1)

By defining other companies that have similar characteristics to the services provided to the CBM industry together with the CBM industry as “industrial” services; the number of interactions between the two policies should be significantly reduced or eliminated. Proposed definitions for these other industrial businesses were derived from OSHA’s Standard Industrial Classification codes and apply to the following types of services: •

Metal Mining, Coal Mining, Oil and Gas Extraction, and Other Mining and Quarrying

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Proposed Solutions for Line Equalization Interactions ď Ž

We believe that these interaction issues can be resolved by: 2)

Defining how the two methodologies interact when collisions between the two methods do occur. •

The intent of the proposed interaction process is that the new member makes the original member(s) whole according to the methodology used for the original line extension.

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71W RRR71 71 WW S2S2

T 50 N T 50 N

S1 S1

5827' 18

67

'

67 '

S11 S11

Commercial shopand owner “Grey” an A line extension service for arequests commercial in-line service Section 2 for without a line shop “Blue” isin completed afor total of 4,507 A line extension and service CBM extension. Since Section 2 hasSections an ftProducer and cost “Red” of $45,070 across 1 and is completed forindustrial a total section value, “Grey” isline required to provide 12. In addition tocost theof extension costs, a of 7,694 ft and $76,940 across line equalization of $46,616.00 Sections 1 andalso 2payment from existing Producer Blue paysan $14,936 inline line that equals ofcosts the sharable value the of the that is80% no longer shareable. equalization that equalizes full 80% section. PRECorp1.will collect collects this payment value of Section PRECorp this line and provide it to “Red”. equalization amount and pays it back to CBM Producer “Red”.

Section 2: Shareable Value of this section remains at $58,270

18 S12 S12

2640'

Existing Power Line

INTERACTION INTERACTION– –SCENARIO SCENARIO3P 21

Proposed Interaction Examples

Section 2: Shareable value of Section 1: Shareable this section is reducedvalue to $0.of this section is now $0 for Section 2: The shareable value industrial members although Section 1: Shareable value of added this is $58,270 the linesection constructed by this section remains $29,016.98. (5,827 feet times $10 per foot). commercial service Blue has sharable value. Section 12: Shareable value of Section 1: The shareable valueof Section 12: remains Shareable value this section $54,241.44. added tosection this section is $18,670 this is remains $0 (1,867 feet times $10 per foot).

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Proposed Implementation of Solutions 

We propose that these solutions could be implemented by generating a new section within the Rules and Regulations that describes the two line equalization methodologies and interaction.  The new section will include the definitions used for industrial members.  The majority of the language will be taken directly from the existing line extension policies with added language describing the interactions.

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Other Comments ď Ž

We recommend the following other items: ď Ž

ď Ž

Continue the policy that residential, seasonal, and irrigation members are not required to share against line constructed for Industrial services. The maximum shareable amount that can be returned in the present SLEP is 90%, and 80% maximum in the present CBM LEP. We would recommend making both new methodologies having an 80% maximum return.

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Implementation Plan ď Ž

ď Ž

We provided a letter to the PSC notifying them of PRECorp’s intent to apply the proposed solution on an interim basis during the final application process. Based on the discussion and issues raised in this meeting, we plan to implement the proposed process and plan to file the formal application that will take a minimum of three months.

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Discussion


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