TRANSFERS FROM BP: FOR WHAT TIME PERIOD?

June 28, 2011 Mike Proctor

Purpose for Transfers

Portions of the existing SPP transmission system going into the BP were not equally balanced in terms of congestion. Thus, areas that are more highly congested

would have higher benefits than areas that had less congestion.

Instead of allocating costs in proportion to benefits, the BP allocated the cost on a load ratio share and used transfers so that no zone would have a B/C < 1. Calculation: Transfers existing zonal costs to

the region wide rate for those whose B/C < 1, thereby bringing their B/C = 1.

2

Results of BP

All of these calculations were based on a PV calculation over 10 years of benefits and 10 years of annualized/levelized costs.

3

# ZonePortfolioBenefits

PortfolioCosts

Gross BenefitsBefore

Adjustments

B/CBefore

AdjustmentsLRS

1 AEPW $224.211 $154.539 $69.672 1.5 22.5%2 EMDE -$2.465 $18.117 -$20.582 -0.1 2.6%

3 GRDA $6.214 $13.448 -$7.234 0.5 2.0%

4 KCPL $60.833 $53.115 $7.718 1.1 7.7%

5 MIDW $92.745 $4.946 $87.799 18.8 0.7%

6 MIPU -$9.457 $27.829 -$37.285 -0.3 4.1%

7 MKEC $85.556 $7.708 $77.848 11.1 1.1%

8 OKGE $192.965 $97.477 $95.488 2.0 14.2%

9 SPRM -$0.697 $10.655 -$11.352 -0.1 1.6%

10 SUNC $27.060 $7.344 $19.716 3.7 1.1%

11 SWPS $406.582 $79.375 $327.207 5.1 11.6%

12 WEFA $57.802 $21.738 $36.064 2.7 3.2%

13 WRI $102.979 $79.428 $23.551 1.3 11.6%

14 NPPD $39.839 $55.125 -$15.286 0.7 8.0%15 OPPD $16.376 $42.731 -$26.355 0.4 6.2%16 LES -$22.149 $13.199 -$35.348 -1.7 1.9%

Total $1,278.394 $686.775 $591.619 1.86 100.00%

Portfolio 3E: PV$ Over 10 Years(in millions)

9 Zones had B/C > 1

3 Zones had 0 < B/C < 1

4 Zones had B/C < 0

Transfer Calculations

Transfers to a Region-Wide rate has a two-part impact. Decrease in Zonal Rate Cost = 100% of zone’s

transfer for zones with B/C <1. Increase in Region-Wide Costs = load ratio

share of the sum of all the transfers for all zones.

Result can be that zones with B/C > 1 whose costs go up can end up with B/C < 1 after the transfer. When this happens, additional transfers are

required from those zones. Final results reflect these additional transfers.

4

Calculation of Transfers from BP7 zones with B/C >1 B/C > 1; 2 zones with B/C >1 B/C = 1; 7 zones with B/C < 1 B/C = 1

5

# ZonePortfolio Benefits

Portfolio Costs

Zonal ATRR Transfers

Out (Col. 5 Attach H)

Regional Allocation of Zonal

ATRR Transfers

Net of Zonal

Transfers

Net Benefit

B/CB/C

Before Transfers

1 AEPW $30.939 $21.325 $0.000 $6.982 $6.982 $0.151 1.093 1.451

2 EMDE -$0.340 $2.500 -$3.659 $0.819 -$2.840 $0.138 1.000 -0.1363 GRDA $0.857 $1.856 -$1.606 $0.608 -$0.998 $0.138 1.000 0.462

4 KCPL $8.394 $7.329 -$1.335 $2.400 $1.065 $0.138 1.000 1.145

5 MIDW $12.798 $0.683 $0.000 $0.223 $0.223 $1.949 14.125 18.750

6 MIPU -$1.305 $3.840 -$6.402 $1.257 -$5.145 $0.138 1.000 -0.340

7 MKEC $11.806 $1.064 $0.000 $0.348 $0.348 $1.154 8.362 11.100

8 OKGE $26.627 $13.451 $0.000 $4.404 $4.404 $0.206 1.491 1.980

9 SPRM -$0.096 $1.470 -$2.048 $0.481 -$1.566 $0.138 1.000 -0.065

10 SUNC $3.734 $1.013 $0.000 $0.332 $0.332 $0.383 2.776 3.685

11 SWPS $56.104 $10.953 $0.000 $3.586 $3.586 $0.532 3.859 5.122

12 WEFA $7.976 $3.000 $0.000 $0.982 $0.982 $0.276 2.003 2.659

13 WRI $14.210 $10.960 -$0.339 $3.589 $3.250 $0.138 1.000 1.297

14 NPPD $5.497 $7.607 -$4.600 $2.491 -$2.109 $0.138 1.000 0.723

15 OPPD $2.260 $5.897 -$5.567 $1.931 -$3.637 $0.138 1.000 0.383

16 LES -3.05631 $1.821 -$5.474 $0.596 -$4.878 $0.138 1.000 -1.678

$176.406 $94.768 -$31.030 $31.030 $0.000 $5.893 1.86 1.86

$1,278 $687 $224.874 -$224.874 $0 $592 1.86

32.74%

10 Years

Total per Year

Total PV

Attachment H Transfer Adjustments - Portfolio 3E "Adjusted" - Annualized

Estimates of BP Cost Increases From Original Estimates Costs estimates have increased by approximately 25% > initial

planning estimates. Balanced Portfolio still has a B/C > 1.

8 zones with B/C > 1; 4 zones with 0 < B/C < 1, and 4 zones with B/C < 0.

6

# ZonePortfolioBenefits

PortfolioCosts

Gross BenefitsBefore

Adjustments

B/CBefore

AdjustmentsLRS

1 AEPW $224.211 $189.097 $35.114 1.2 22.5%2 EMDE -$2.465 $22.168 -$24.633 -0.1 2.6%

3 GRDA $6.214 $16.456 -$10.242 0.4 2.0%

4 KCPL $60.833 $64.993 -$4.160 0.9 7.7%

5 MIDW $92.745 $6.052 $86.693 15.3 0.7%

6 MIPU -$9.457 $34.052 -$43.508 -0.3 4.1%

7 MKEC $85.556 $9.431 $76.124 9.1 1.1%

8 OKGE $192.965 $119.275 $73.690 1.6 14.2%

9 SPRM -$0.697 $13.038 -$13.735 -0.1 1.6%

10 SUNC $27.060 $8.986 $18.074 3.0 1.1%

11 SWPS $406.582 $97.125 $309.457 4.2 11.6%

12 WEFA $57.802 $26.598 $31.203 2.2 3.2%

13 WRI $102.979 $97.190 $5.789 1.1 11.6%

14 NPPD $39.839 $67.452 -$27.613 0.6 8.0%15 OPPD $16.376 $52.287 -$35.911 0.3 6.2%16 LES -$22.149 $16.151 -$38.299 -1.4 1.9%

Total $1,278.394 $840.352 $438.042 1.52 100.00%

Portfolio 3E: PV$ Over 10 Years: 25% Increase(in millions)

Prev B/C >1

BP Transfers with 25% Costs

6 zones with B/C >1 B/C > 12 zones with B/C >1 B/C = 18 zones with B/C < 1 B/C = 1

Multiplier Effect: a 25% in costs resulted in a 119% increase in transfers.

7

# ZonePortfolio Benefits

Portfolio Costs

Zonal ATRR Transfers

Out (Col. 5 Attach H)

Regional Allocation of Zonal

ATRR Transfers

Net of Zonal

Transfers

Net Benefit

B/CB/C

Before Transfers

1 AEPW $30.939 $26.093 -$10.490 $15.336 $4.845 $0.138 1.000 1.186

2 EMDE -$0.340 $3.059 -$5.197 $1.798 -$3.399 $0.138 1.000 -0.1113 GRDA $0.857 $2.271 -$2.748 $1.335 -$1.413 $0.138 1.000 0.378

4 KCPL $8.394 $8.968 -$5.845 $5.271 -$0.574 $0.138 1.000 0.936

5 MIDW $12.798 $0.835 $0.000 $0.491 $0.491 $1.332 9.651 15.324

6 MIPU -$1.305 $4.699 -$8.765 $2.762 -$6.004 $0.138 1.000 -0.278

7 MKEC $11.806 $1.301 $0.000 $0.765 $0.765 $0.788 5.713 9.071

8 OKGE $26.627 $16.459 $0.000 $9.673 $9.673 $0.141 1.019 1.618

9 SPRM -$0.096 $1.799 -$2.953 $1.057 -$1.895 $0.138 1.000 -0.053

10 SUNC $3.734 $1.240 $0.000 $0.729 $0.729 $0.262 1.897 3.011

11 SWPS $56.104 $13.402 $0.000 $7.877 $7.877 $0.364 2.637 4.186

12 WEFA $7.976 $3.670 $0.000 $2.157 $2.157 $0.189 1.369 2.173

13 WRI $14.210 $13.411 -$7.083 $7.882 $0.799 $0.138 1.000 1.060

14 NPPD $5.497 $9.308 -$9.281 $5.470 -$3.810 $0.138 1.000 0.591

15 OPPD $2.260 $7.215 -$9.196 $4.240 -$4.955 $0.138 1.000 0.313

16 LES -3.05631 $2.229 -$6.595 $1.310 -$5.285 $0.138 1.000 -1.371

$176.406 $115.960 -$68.153 $68.153 $0.000 $4.455 1.52 1.52

$1,278 $840 $493.896 -$493.896 $0 $438 1.52

10 Years

Total per Year

Total PV

Attachment H Transfer Adjustments - Portfolio 3E "Adjusted" - Annualized

The Costs Will be Trued Up to Actual Costs When 10% or greater of the revised cost

estimates go into rates the transfers begin.

The transfers will increase each year thereafter.

When all the costs are into rates there will be a true up of the transfers to match the costs.

There will be no true up of benefits.

8

Time Period for Transfers

RSC approves, and CAWG makes a recommendation.

Various Options to Consider: Permanent Transfers

Theoretical Option – calculations based on infinite sum of levelized transfers = PV of transfers.

Transfers for Limited Time Periods Starting with time that costs are trued up From 10 years to Depreciated Life of

Transmission Upgrades.

9

Ten-Year Calculations

These calculations would use ten-years of ARRs for the trued-up costs and the PV of the ten year benefits (see previous tables) to calculate the PV of transfers to be implemented on a levelized basis over the next ten-years. To be determined: (These are technical

questions to be determined by the RTWG) Calculation for the ARRs for the trued-up costs. Appropriate Discount Rate Treatment of costs and transfers phased-in prior to

the true up.

10

10-yr Costs: Levelized vs. Front-Loaded Costs Front-Loaded = Costs Recovered in ARR each year

over first 10 years. Levelized = Same Costs Recovered each year over 30

years but applied for only 10 yrs. Levelized costs have same PV as FL costs when applied over 30 years.

11

8% F-L Discount Levelized Discount LEV DiscountYear Discount ARR ARR ARR ARR ARR ARR2012 1.0000 $150 $150 $136 $136 $116 $1162013 0.9259 $146 $135 $136 $126 $116 $1072014 0.8573 $143 $122 $136 $116 $116 $992015 0.7938 $139 $110 $136 $108 $116 $922016 0.7350 $135 $99 $136 $100 $116 $852017 0.6806 $131 $89 $136 $92 $116 $792018 0.6302 $128 $81 $136 $85 $116 $732019 0.5835 $124 $72 $136 $79 $116 $682020 0.5403 $120 $65 $136 $73 $116 $632021 0.5002 $117 $58 $136 $68 $116 $58

7.2469 $983 PV $983 PV $840

Levelized CostsFront Loaded Costs

10-yr ARRs Front Loaded12

# ZonePortfolioBenefits

PortfolioCosts

Gross BenefitsBefore

Adjustments

FL B/CBefore

Adjustments

LEV B/CBefore

AdjustmentsLRS

1 AEPW $224.211 $221.242 $2.969 1.0 1.2 22.5%2 EMDE -$2.465 $25.937 -$28.402 -0.1 -0.1 2.6%

3 GRDA $6.214 $19.253 -$13.039 0.3 0.4 2.0%

4 KCPL $60.833 $76.041 -$15.208 0.8 0.9 7.7%

5 MIDW $92.745 $7.081 $85.664 13.1 15.3 0.7%

6 MIPU -$9.457 $39.840 -$49.297 -0.2 -0.3 4.1%

7 MKEC $85.556 $11.035 $74.521 7.8 9.1 1.1%

8 OKGE $192.965 $139.551 $53.414 1.4 1.6 14.2%

9 SPRM -$0.697 $15.254 -$15.951 0.0 -0.1 1.6%

10 SUNC $27.060 $10.514 $16.546 2.6 3.0 1.1%

11 SWPS $406.582 $113.636 $292.946 3.6 4.2 11.6%

12 WEFA $57.802 $31.120 $26.682 1.9 2.2 3.2%

13 WRI $102.979 $113.712 -$10.733 0.9 1.1 11.6%

14 NPPD $39.839 $78.918 -$39.079 0.5 0.6 8.0%15 OPPD $16.376 $61.175 -$44.799 0.3 0.3 6.2%16 LES -$22.149 $18.896 -$41.045 -1.2 -1.4 1.9%

Total $1,278.394 $983.205 $295.189 1.30 1.52 100.00%

Portfolio 3E: PV$ Over 10 Years: 25% Increase / Front Loaded(in millions)

10-yr: Transfers for Front-Loaded Costs

13

# ZonePortfolio Benefits

Portfolio Costs

Zonal ATRR Transfers

Out (Col. 5 Attach H)

Regional Allocation of Zonal

ATRR Transfers

Net of Zonal

Transfers

Net Benefit

B/CB/C

Before Transfers

1 AEPW $30.939 $30.529 -$37.034 $37.444 $0.410 $0.138 1.000 1.013

2 EMDE -$0.340 $3.579 -$8.309 $4.390 -$3.919 $0.138 1.000 -0.0953 GRDA $0.857 $2.657 -$5.058 $3.258 -$1.799 $0.138 1.000 0.323

4 KCPL $8.394 $10.493 -$14.968 $12.870 -$2.099 $0.138 1.000 0.800

5 MIDW $12.798 $0.977 $0.000 $1.198 $1.198 $0.812 5.882 13.097

6 MIPU -$1.305 $5.498 -$13.545 $6.743 -$6.803 $0.138 1.000 -0.237

7 MKEC $11.806 $1.523 $0.000 $1.868 $1.868 $0.481 3.482 7.753

8 OKGE $26.627 $19.257 -$16.248 $23.618 $7.371 $0.138 1.000 1.383

9 SPRM -$0.096 $2.105 -$4.783 $2.582 -$2.201 $0.138 1.000 -0.046

10 SUNC $3.734 $1.451 $0.000 $1.779 $1.779 $0.160 1.156 2.574

11 SWPS $56.104 $15.681 $0.000 $19.232 $19.232 $0.222 1.607 3.578

12 WEFA $7.976 $4.294 -$1.585 $5.267 $3.682 $0.138 1.000 1.857

13 WRI $14.210 $15.691 -$20.726 $19.245 -$1.481 $0.138 1.000 0.906

14 NPPD $5.497 $10.890 -$18.749 $13.356 -$5.393 $0.138 1.000 0.505

15 OPPD $2.260 $8.442 -$16.535 $10.354 -$6.182 $0.138 1.000 0.268

16 LES -3.05631 $2.607 -$8.862 $3.198 -$5.664 $0.138 1.000 -1.172

$176.406 $135.673 -$166.402 $166.402 $0.000 $3.329 1.30 1.30

$1,278 $983 $1,205.899 -$1,205.899 $0 $295 1.30

122.65%

Total per Year

Total PV

Attachment H Transfer Adjustments - Portfolio 3E "Adjusted" - Annualized10 Years

Depreciated Life of Upgrades or Beyond 10-Years

Benefits are increasing over time.If you don’t include increasing benefits, the transfer payments will increase.

2012

20172022

2041

$0$50

$100$150$200$250$300$350$400$450

2010 2015 2020 2025 2030 2035 2040 2045

($ M

illio

ns)

Year

Projected Benefits Over 30 Years

14

30-yr (Depreciated Life) Before Transfers

15

30-yr costs were calculated using and Benefits were assumed to increase over last 20 years. B/C increased from 1.48 for 10 year to 2.30 for 30 year.

# ZonePortfolioBenefits

PortfolioCosts

Gross BenefitsBefore

Adjustments

30-yr B/CBefore

Adjustments

10-yr B/CBefore

AdjustmentsLRS

1 AEPW $458.420 $317.255 $141.165 1.4 1.2 22.5%2 EMDE -$3.519 $37.193 -$40.712 -0.1 -0.1 2.6%

3 GRDA $17.212 $27.608 -$10.396 0.6 0.4 2.0%

4 KCPL $128.526 $109.041 $19.485 1.2 0.9 7.7%

5 MIDW $172.680 $10.154 $162.526 17.0 15.2 0.7%

6 MIPU -$9.929 $57.130 -$67.059 -0.2 -0.3 4.1%

7 MKEC $183.816 $15.824 $167.993 11.6 9.0 1.1%

8 OKGE $359.447 $200.113 $159.334 1.8 1.6 14.2%

9 SPRM $1.674 $21.874 -$20.200 0.1 -0.1 1.6%

10 SUNC $79.748 $15.076 $64.672 5.3 3.0 1.1%

11 SWPS $1,004.675 $162.951 $841.724 6.2 4.2 11.6%

12 WEFA $89.097 $44.625 $44.471 2.0 2.2 3.2%

13 WRI $233.280 $163.060 $70.220 1.4 1.1 11.6%

14 NPPD $65.840 $113.167 -$47.327 0.6 0.6 8.0%15 OPPD $25.699 $87.724 -$62.025 0.3 0.3 6.2%16 LES -$43.037 $27.097 -$70.134 -1.6 -1.4 1.9%

Total $2,763.631 $1,409.893 $1,353.738 1.96 1.51 100.00%

(in millions)

Portfolio 3E: PV$ Over 30 Years: 25% Increase

30-yr After Transfers16

# ZonePortfolio Benefits

Portfolio Costs

Zonal ATRR Transfers

Out (Col. 5 Attach H)

Regional Allocation of Zonal

ATRR Transfers

Net of Zonal

Transfers

Net Benefit

B/CB/C

Before Transfers

1 AEPW 37.70396 $26.093 $0.000 $8.380 $8.380 $0.090 1.094 1.445

2 EMDE -0.28942 $3.059 -$4.331 $0.982 -$3.348 $0.082 1.000 -0.0953 GRDA 1.415649 $2.271 -$1.584 $0.729 -$0.855 $0.082 1.000 0.623

4 KCPL 10.57097 $8.968 -$1.278 $2.880 $1.603 $0.082 1.000 1.179

5 MIDW 14.20256 $0.835 $0.000 $0.268 $0.268 $1.059 12.872 17.006

6 MIPU -0.81661 $4.699 -$7.024 $1.509 -$5.515 $0.082 1.000 -0.174

7 MKEC 15.11847 $1.301 $0.000 $0.418 $0.418 $0.723 8.793 11.617

8 OKGE 29.56365 $16.459 $0.000 $5.286 $5.286 $0.112 1.360 1.796

9 SPRM 0.13772 $1.799 -$2.239 $0.578 -$1.661 $0.082 1.000 0.077

10 SUNC 6.559112 $1.240 $0.000 $0.398 $0.398 $0.329 4.004 5.290

11 SWPS 82.63212 $13.402 $0.000 $4.304 $4.304 $0.384 4.667 6.166

12 WEFA 7.327987 $3.670 $0.000 $1.179 $1.179 $0.124 1.511 1.997

13 WRI 19.18673 $13.411 $0.000 $4.307 $4.307 $0.089 1.083 1.431

14 NPPD 5.415206 $9.308 -$6.882 $2.989 -$3.893 $0.082 1.000 0.582

15 OPPD 2.11372 $7.215 -$7.418 $2.317 -$5.101 $0.082 1.000 0.293

16 LES -3.5397 $2.229 -$6.484 $0.716 -$5.768 $0.082 1.000 -1.588

$227.302 $115.960 -$37.241 $37.241 $0.000 $3.568 1.96 1.96

$2,764 $1,410 $452.786 -$452.786 $0 $1,354 1.96

32.11%

Total PV

Total per Year

Attachment H Transfer Adjustments - Portfolio 3E "Adjusted" - Annualized30 Years

Comparing 10 to 30 Years:After Transfers

Compare PV L: 30-yr has the lowest PV = $453 Million M: 10-yr Levelized is $41 Million higher than 30-yr H: 10-yr Front-Loaded is $753 Million higher than 30-yr

Compare Per Year L: 30-yr has lowest per year transfers = $37 Million M: 10-yr Levelized is $31 Million per year higher than 30-yr H: 10-yr Front-Loaded is $129 Million per year higher than 30-yr

17

10 yr FL 30 yr DifferencePer Year $166.402 $37.241 -$129.162

PV $1,205.899 $452.786 -$753.11310 yr Lev 30 yr Difference

Per Year $68.153 $37.241 -$30.912PV $493.896 $452.786 -$41.111

10 yr Lev 10 yr FL DifferencePer Year $68.153 $166.402 $98.249

PV $493.896 $1,205.899 $712.002

Compare Transfers

10-yr Front Loaded

These reflect the true costs that will actually be paid over a 10 year period.

This has the highest transfer payments of any of the alternatives.

Significantly overstates the true PV of transfers

Arguments For Arguments Against

18

30-yr (Depreciated Life)

Has the lowest transfer payments

Also reflects the true PV of costs paid over a 30-yr period

Transfer payments go over a long period of time

Have to decide how to treat last 20 yrs of benefits

Arguments For Arguments Against

19

10-yr Levelized

Is only slightly higher than 30-yr PV transfers

Pay out is for limited time period

Don’t have to extrapolate benefits

Has high per year payments; almost double that of 30-yr

Arguments For Arguments Against

20

Examples for Other Years

We can also consider 15, 20 or 25 year levelized payments.

This will lower the per year payments from the 10-yr levelized, and will get closer to 30-yr PV

21

10 yr 15 yr 20 yr 25 yr 30 yrPer Year $68.153 $52.135 $39.883 $37.942 $37.241

PV $493.896 $481.951 $422.907 $437.420 $452.786

Compare Transfers: All Levelized Cost

$0

$100

$200

$300

$400

$500

$600

10 15 20 25 30

PV ($

Mill

ions

)Years of Levelized Transfer Payments

PV of Transfer Payments

Other Alternatives Considered Set 20 year out benefits = 2022 benefits that were

calculated in the study. This actually results in lower benefits and greater

transfers. Set PV of transfers = those calculated for the 30-

year (depreciated life) Determine the # years for transfers Calculate the levelized payments that gives the PV for the # years

chosen.

22

10 yr 15 yr 20 yr 25 yr 30 yrPer Year $62.480 $48.980 $42.701 $39.274 $37.241

PV $452.786 $452.786 $452.786 $452.786 $452.786

Compare Per Year Transfers: All Levelized Cost

Decisions for CAWG23

Time Frame

10 YearsBeyond 10 Years

11 yrsto

Dep Life

UsingDepreciated

Life Transfers

# Years

Yes

No

CAWG Recommendation to RSC

FL Costs

LEV Costs

Summary & Recommendation 10-year front-loaded significantly overstates the

PV of transfers and should be rejected. 10-levelized has the shortest payout period, but

the per-year transfers are very large ($68M/yr). 30-year has the lowest per-year transfers

($37M/yr), but they extend over a long time period.

15-year modified to collect the same PV as the 30-yr (depreciated life) lowers the per-year transfers to $49M/yr and cuts the payment period in half, and may therefore be a good compromise.

24