CLECO TRANSMISSION RATE CASE

AGENDA

• Welcome and Introduction

• Purpose of Meeting

• Transmission System Update

• Formula Rate Overview

• Formula Rate Protocols

• Transmission Losses

WELCOME

• Meeting Logistics

• Standards of Conduct Reminder

• Presenter Introductions

BACKGROUND

• Current transmission rates• ESIA Rates based on 1990 costs• OATT Rates based on 1996 compliance filing

• Transmission rates recover operating costs of the transmission system and return on transmission investments

• Since 1989, transmission improvements have been made to maintain adequate and reliable service

• By managing costs and matching new investment to load growth Cleco has avoided requesting a change in transmission rates

TODAY’S OBJECTIVES

• Purpose of the Meeting• Cleco will be requesting a change in wholesale transmission and

distribution rates • Want to engage and involve transmission customers and other

stakeholders in the process

• Timeline• By March 30, 2012 – transmission rate filing with FERC• June 1, 2012 – proposed effective date of new rates using formula

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OBJECTIVES

• Cleco will change from a Stated Rate to a Formula Rate for impacted customers.• Cleco has and continues to have major investment s in the transmission

system.  The cost should be shared between retail and wholesale customers.

• Order 1000 may require Cleco to invest in upgrades on its system to support regional reliability, Cleco will need a method to share costs between wholesale and retail customers.

• Major changes to current methodology• Cleco will start to invoice all customers using billing demand at coincident

peak, unless there is a stated contract demand. • All customers will be reflected at  Points of Receipt. All rates are developed

using the Points of Receipt.• Network Service will no longer be billed on LRS, it will be a fixed rate for

load at coincident peak.• Distribution rate has changed.  All “ratchet” demands will be replaced with

Coincident peak billing.

TRANSMISSION SYSTEM UPDATE

TRANSMISSION SYSTEM

• How we plan the transmission system

• Where we spend money on transmission

• Significant transmission projects

HOW WE PLAN THE TRANSMISSION SYSTEM

• Annually, perform an assessment and plan looking out ten years, with emphasis on first three to five years

• Plan the system to meet NERC Reliability Standards as well as to meet Cleco planning guidelines

• Perform assessments and studies with other neighboring utilities.

ACADIANA LOAD POCKET UPDATE

WHERE WE SPEND MONEY ON TRANSMISSION

• Capacity-load growth driven

• Reliability and system integrity • Upgrades of equipment to deal with performance issues,

aging infrastructure, end of life issues

• Transmission service requests

• Meeting pending NERC reliability standards

ACADIANA LOAD POCKET (ALP) PROJECT

To address Reliability and EconomicsCleco Portion:• $125 million• 87% complete as of December 31, 2011• Anticipate 100% Complete by December 31,

2012

FORMULA RATE OVERVIEW

CHANGE IN COSTS

• Proposed revenue requirement based on 2010 costs = $33.1 million

• Primary driver of increase is higher investment in transmission plant: net plant grew from $152.4 million to $276.9 million • Transmission plant increased approximately

182% over the last 21 years

• Transmission average peak demand has grown from 1,446 MW (1989) to 2,652 MW (2010)

STATED RATE VS FORMULA RATE

• A standard rate is a fixed charge set in a regulatory process through a rate case– The fixed rates do not change unless another rate case is

filed

• A formula rate is a fixed method for calculating a rate based upon set inputs– The formula is the filed rate – not the results in any one

year– The charges to customers update annually– Data input comes from public sources (Form 1) and

company data– Recalculation of the charges is done pursuant to a set of

protocols– Forecast elements are subject to true-up

DETERMINATION OF REVENUE REQUIREMENTS

• Basic calculation is return on rate base + operating expenses

• Rate base components:– Transmission plant balance less accumulated depreciation• Excludes generator step-up transformers

– Allocated general and intangible plant less accumulated depreciation

– Accumulated deferred income taxes associated with items included in revenue requirements

– Working capital– Other rate base adjustments necessary to reflect funds

supplied by investors

DETERMINATION OF REVENUE REQUIREMENTS (CONTINUED)

• Return is determined by applying weighted average cost of capital percent to rate base– Cost of capital rate incorporates cost of debt and cost of

equity (i.e., ROE) weighted in proportion to capital structure

• Operating expenses:– Depreciation expense for transmission plant and

allocated general/intangible plant– O&M expense, including transmission O&M and allocated

A&G expense– Allocated general tax expense:• Property tax, payroll tax, other non-income taxes

– Income taxes

DETERMINATION OF REVENUE REQUIREMENTS (CONTINUED)

• Revenue credits:• Revenues received that offset costs included in

revenue requirements, primarily non-firm and short-term firm revenues for transmission service, and lease payments associated with transmission facilities

• The load divisor used to develop the unit charges is stated at Points of Receipt (or system input), so all billing determinants will be the customers demands at the Points of Receipt. This does not change the Contract Demands or Reserved Capacity that may be stated at the Points of Delivery.

FORMULA RATE

• Determination of revenue requirements is stated as a formula that uses cost inputs from FERC Form 1 and company records

– The Form No. 1 (FN1), a detailed and audited publicly available source of data.

– Workpapers provide additional detail or data required by the utility, FERC or intervenors

– Detailed cost support attachment to allow more detailed functionalizations and allocations to better sync with ratemaking.

• The resulting revenue requirement is recomputed annually.• The annual revenue requirement is divided by calendar year

average transmission system peak demand for long-term firm service to determine the rate per MW.

• Revenue requirements and rates are billed initially using estimated annual revenue requirements and trued-up to actual revenue requirements when known.

FORMULA RATE

• Revenue requirement used for billing is for a projected test year

• A “true-up” calculation is done each year to compare the actual revenue requirement to the projected

• Any difference is an adjustment to the revenue requirement for the next projected period

ADVANTAGES OF FORMULA RATE

• Annual rate adjustment to reflect new investment, load growth, and usage credits

• Right to have data requests answered during the annual review period

• Review input• Point out input errors• Procedures to handle disputes are predetermined

through the protocols

• Improve transparency by providing data, changes in accounting practices, and customer meetings

• Set forth annual update procedures, dates, timing, etc.

• How to handle data input or accounting errors

• Allow for customers to budget for upcoming rate changes

WHOLESALE DISTRIBUTION RATES

• Cleco will be submitting revised Wholesale Distribution Rates.

• The revenue requirement is calculated based on cost of non-secondary poles, towers, conductors and substation investments multiplied by the fixed charge rate.

• The rate is derived by dividing the revenue requirement by the 12 CP load on the distribution system.

FORMULA RATE PROTOCOLS

FORMULA RATE PROTOCOLS & TIMELINE ILLUSTRATION

•Cleco will implement a formula methodology to calculate its transmission service rates for Network Integration Transmission Service, Point-to-Point Transmission Service, and ESIA service•The revenue requirements and rates will be recalculated annually using the approved formula and in accordance with the established formula protocols. The protocols are separated into the following categories:–Annual update process–Annual review procedures–Resolution of challenges

ANNUAL UPDATE PROCESS

• Each year the ATRR and the PTP transmission rates will be projected based on prior calendar year data. This represents the annual update for the upcoming rate year– The annual update will be posted to the OASIS website– An informational filing will be made with FERC– The date on which these events occur is the publication

date

• The annual update will also include the true-up for the prior year ATRR– True-up amount (including interest) increases or

decreases ATRR for upcoming billing period

PROPOSED ANNUAL REVIEW PROCEDURES

• Each annual update shall be subject to the annual review procedures

• Interested parties will have up to 105 days after the publication date to serve information requests to Cleco (i.e., Discovery Period)

• Cleco will respond to requests within 10 business days in most circumstances

• Any interested party will have up to 135 days after the publication date to review calculations and notify Cleco of any specific challenges

• Preliminary challenges will be posted to the OASIS website

RESOLUTION OF CHALLENGES

• For any preliminary challenges to the Annual Update not resolved, the interested party may make a formal challenge with FERC

TRANSMISSION LOSSES

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SUMMARY OF LOSS FACTORS

Cleco evaluates system losses every two years based on the system configuration and loads in the odd years. The most recent completed study was for the year 2009. These loss factors were taken or developed from that study and used in the transmission rates to be filed.

Energy Losses

Voltage Loss ExpansionLevel Factor Factor

Transmission (≥ 69kV) 0.0168 1.0171

Subtrans. (34.5 kV to < 69 kV) 0.0290 1.0299

Primary (13.8 kV to < 34.5 kV) 0.0388 1.0403

Demand Losses (Average 12 Coincident Peaks)

Voltage Loss ExpansionLevel Factor Factor

Transmission (≥ 69kV) 0.0170 1.0173

Subtrans. (34.5 kV to < 69 kV) 0.0324 1.0335

Primary (13.8 kV to < 34.5 kV) 0.0443 1.0463

Losses = Receipt x Loss FactorReceipt = Delivery x Expansion Factor

Questions and Discussion