Drive Thy Business - CAPX Update
Benjamin Franklin, often considered the Father of Electricity, gave sage investment advice, “Drive thy business or It Will Drive Thee”. This advice especially rings true for public power utilities as they seek to get in the driver’s seat as transmission owners to mitigate related rising prices. According to CMPAS analyses and that of others, transmission ownership is the only long-term hedge against increasing transmission rates. To demonstrate this point, CMPAS recently hosted a CAPX Brookings Project overview for 15 Minnesota and Iowa public power participants that invested in the Agency-sponsored project.
With the completion of 2016 MISO Attachment O regulatory filings and an outside financial audit, CMPAS provided a comprehensive overview that made a strong case for continued investment. As the project aggregator, CMPAS serves as the fiduciary advisor for the group’s 3.9 percent investment in the CAPX Brookings Project.
Although most of the “heavy lifting” for the CAPX project is completed, bond covenants require CMPAS to monitor and maintain numerous funds over the 30-year life of the investment. Prior to the distribution of revenue to participants, bond requirements must be satisfied including higher debt principal payments in the first five years. The project’s debt obligation will be completely paid in the year 2041 as represented in the chart below.
CMPAS utilities are learning first hand that transmission ownership brings a rate of return and other financial benefits that mitigate transmission cost increases. Over the 40-year life of the CAPX Brookings project, participants are projected to earn a return of $17.8 million dollars in excess of expenses in the form of distributions and savings from their $32 million investment. CMPAS also recovers a portion of the expenses attributable to its transmission function that the Agency uses to reduce A&G cost by nearly $1/MWh.
At the meeting, Chris Kopel, Chief Operating Officer, discussed the Agency’s long term plan to help utilities increase their load ratio share of transmission. He reminded attendees that failure to adequately invest in the still young MISO marketplace could expose their customers to substantially higher transmission rates.
Waverly Utilities CEO Darrel Wenzel welcomes the opportunity to work with CMPAS in the future. “The August presentation was a continuation of the transparent process that CMPAS consistently follows. Waverly looks forward to collaborating with CMPAS as transmission opportunities occur in the future,” he said.
Within days of the Agency’s CAPX update, a report, “2017 MISO Transmission Investment Analysis”, validated CMPAS’s assessments of transmission investment benefits. The MCR Performance Solutions report also shows how municipal utility and generation and transmission cooperatives have not invested at a rate consistent with their load ratio share and have not produced enough transmission revenue to offset transmission tariff costs. In fact, only 11 of 31 MISO municipals are investing at a level sufficient to replace annual depreciation.
To prepare for future transmission purchases, CMPAS recommends that municipal utilities educate local commission and city council members about the financial and risk management benefits of transmission ownership. Local leaders should understand the process and necessary commitments so that they are ready to participate in and approve CMMPA transmission opportunities when they occur.
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