A small stuffed animal has a collar with a tag that says "OTR"

Desert Southwest gleans benefits by streamlining rates

Since 2020, beginning with a combined effort with the Colorado River Storage Project, WAPA’s Desert Southwest region has delved into how to consolidate the rates of its transmission systems. DSW staff knew this would dramatically simplify the rates-making process across the region and yield a range of benefits including cutting the administrative costs of managing rates across four major transmission projects.

Although the initial effort with CRSP was ultimately unsuccessful and concluded in September 2021, several customers urged DSW to further explore combining its transmission service rates. In response, DSW revived the process to unify the rates of its four major transmission projects, which began in earnest in April 2022.

“With strong support from our customers, DSW kicked off this exploration, which we named the One Transmission Rate initiative, to create a single rate for our transmission projects,” said DSW Rates Manager Tina Ramsey.

“Folks inside and outside WAPA saw it as an opportunity to streamline and simplify the pricing and use of the DSW transmission system,” she added.

In December 2023 that renewed OTR effort came to fruition. Through a Federal Register notice, WAPA announced new rate schedules for DSW transmission service that would become effective in January 2024.

The initiative successfully combined the rates for transmission service on the Parker-Davis Project, Intertie Project, Central Arizona Project and the facilities use charge for the Electrical District No. 5 to Palo Verde Hub Project.

“In arriving at consensus through a rigorous public process, both customers and internal stakeholders agreed the OTR provides multiple benefits,” said Vice President of Power Marketing for DSW John Paulsen. “It allows more efficient scheduling and use of DSW’s transmission systems, eliminates rate pancaking and provides rate and financial stability by leveraging a larger and more diverse revenue requirement.”

A natural convergence

WAPA aims to keep pace with the evolving energy industry across its regions, from exploring the myriad options offered by energy markets, to adapting hydropower and transmission system operations to accommodate the ever-changing resource mix that increasingly integrates renewable energy.

The OTR effort represents one way that WAPA may enhance the value of DSW’s transmission systems for its patchwork of customers, partners and stakeholders.

Until recently, each project had separate rates for transmission service. Over time, the transmission service rates of these projects reached near parity.

Line chart titled “Four single system transmission rates become OTR” showing the transition of four transmission projects' rates over fiscal years 2015 to 2024 into a unified One Transmission Rate (OTR). The chart tracks the rates in dollars per kilowatt-month on the Y-axis, ranging from $1.00 to $2.25, against fiscal years on the X-axis. The Intertie Project's rate is constant at $1.61, Parker-Davis Project's rate gradually increases from $1.28 to $1.89, Central Arizona Project's rate jumps from $1.03 to $1.75 and then remains flat, and the Electrical District No. 5 to Palo Verde Hub Project's rate fluctuates before settling at $1.78. In 2024, these lines converge into a single yellow line indicating the new OTR at $1.73. A gray shaded area from 2020 to 2024 highlights the collaboration period for creating the OTR.
This chart shows the natural convergence of DSW’s transmission system rates over time.

Observing this trend over the previous decade, DSW customers encouraged WAPA to investigate combining the transmission rates of the DSW projects, and in 2019, customers and DSW employees jointly agreed that exploring a combined transmission rate should become one of the top three initiatives for the region.

Wide-ranging benefits

As DSW’s experts mapped out what would be a robust public engagement process, they identified potential benefits of the OTR initiative to stake out its value proposition.

They focused on five major potential benefits:

  • Allowing more efficient scheduling and use of each project’s transmission facilities.
  • Eliminating multiple charges (rate pancaking) among the transmission systems for energy moved from one system to another.
  • Providing rate and financial stability for transmission service.
  • Reducing administrative costs for DSW to manage four different transmission rates.
  • Preparing for organized markets that would rely on the geographic reach of DSW’s transmission system.

“As WAPA collaboratively explored this concept with customers, we planned several workgroup-style meetings to analyze and evaluate the OTR,” said DSW Rates Specialist Todd Statler.

Meeting the moment

In 2022, Power Marketing, supported by other departments, initiated and conducted two large stakeholder meetings and met with smaller groups or one-on-one with customers numerous times to evaluate the OTR proposal. Staff provided customers with 10-year projections of the OTR and individual transmission system rates along with an analysis showing the costs and benefits for each customer.

The rate analysis presented to customers in November 2022 indicated that if placed into effect immediately the combined rate would be $21.00/kilowatt-year. That equated to 8.7% higher than the lowest rate (Intertie) and 14.8% lower than the highest rate (PDP).

“With all of the predicted benefits, we found the OTR to have robust customer support, so DSW moved forward with the next stages of the proposal,” said DSW Rates Specialist Kevin Schaefer.

By February 2023, based on analysis and stakeholder feedback, WAPA initiated a public process to propose placing the OTR into effect, and by June 30, WAPA issued a Federal Register notice that began the formal public process for new formula rates for transmission service.

In August, WAPA held two public meetings to engage customers and stakeholders, provide information and gather comments. The consultation and comment period concluded in late September.

Screenshot of a virtual public meeting, with a PowerPoint slide displayed in the main window and panelists displayed on the right side.
WAPA staff presents during a virtual public meeting held on Aug. 7, 2023.

Throughout the consultation process, participants discussed many issues including transmission scheduling, pancaking, prepayment, billing, funding, tariff alignment, rate design and rate calculations.

“In addition to dedicated OTR customer meetings, WAPA provided regular communications on our progress through emails,” said DSW Rates Specialist Shannon Joya. “We also created a handy dandy website full of information including meeting notes, presentations, data and correspondence.”

An OTR is born

In December, WAPA published the final Federal Register notice, which confirmed, approved and placed new formula rates into effect on an interim basis. DSW’s calculations under the formula rates resulted in an OTR of $20.76/kilowatt-year for 2024. The inputs to the formula rates will be updated annually and coordinated with DSW transmission customers through informal rate meetings each summer.

Repayment will continue at the individual project level, and the projects will remain financially independent. Revenue for each project will be based on its pro-rata share of the combined revenue requirement.

The provisional formula rates for DSW customers became effective Jan. 1, 2024, and will remain in effect through Sept. 30, 2028, pending final approval by the Federal Energy Regulatory Commission.

A united future

OTR implementation work continues across a wide swath of DSW functional areas including the Accounting and Finance, Power Contracts, Settlements, Power Billing and Transmission business units. Headquarters’ Finance, Budget and IT teams remain involved.

The core team – DSW’s Rates group – appreciates the support provided from across WAPA to bring this effort to fruition. Joya, Ramsey, Schaefer and Statler, as well as DSW Strategic Utility Industry Restructuring Advisor Scott Lund, who advised them during the project, know that a major initiative like the OTR requires a WAPA-wide effort.

As far as energy market participation, DSW does not expect the OTR to impact the California Independent System Operator’s Western Energy Imbalance Market in an adverse way; more likely, it should generate more interest in transmission service from participants.

During this time of change, WAPA remains proactive and collaborative, finding and implementing efficient and cost-effective solutions that preserve the value of hydropower, protect WAPA’s transmission system and spur successful public-private partnerships with customers.

“The OTR initiative is an excellent example of WAPA DSW’s collaborative approach with our customers,” said Senior Vice President and DSW Regional Manager Jack Murray. “From start to finish, we engaged, listened and honored our commitment to building consensus with customers as we face an evolving energy landscape. The OTR highlights DSW’s willingness to explore creative ways to continue to provide value to our customers, and facing our collective challenges with a united front.”

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