#1OF THE STATE OF IND Presentation to Representatives SEAL of the Electricity Regulatory Authority of Albania (ERE) Industrial Rates in Indiana Jerry Webb Director Gas, Water and Sewer Division Indiana Utility Regulatory Commission (IURC) June, 2005#2OF THE SEAL STATE 1816 2 OF INDIANA#3OF THE Utilities Regulated by IURCE • • ● ● Electric Gas Telecommunications Water ● Sewer STATE 1816 OF IND 3#4OF THE STATE OF IND Electric Utilities • 5 Investor owned ● . SEAL 1816 79 Municipals, 25 under IURC jurisdiction 43 Rural Electrical Member Cooperatives, 4 under IURC jurisdiction • 9 Independent Power Producers 4#5Generation by Fuel Type In Indiana Coal 94.5% OF THE SEAL STATE 1816 OF Petroleum 0.7% Natural Gas 4.3 % Hydro 0.5 % 48 generation stations = 20,470 MW 5 IND#6Map U.S. Total Average Price per kWh is 7.42 Cents OR ID 五憶 5.77 WY HI 14.47 ND 5.47 AR 621 OF THE VT HN 10.80 12.4 STATE DC 741 Average Price (Cents per kWh) 4.00 to 5.59 5.60 to 6.14 6.15 to 6.40 6.41 to 8.00 8.01 to 14.47 OF IND 6#7A Checkerboard of Deregulation Restructuring Delays Implemented Restructuring Legislation Rescinded Restructuring Legislation Enacted Comprehensive Regulatory Order Issued Commission or Legislation Investigation Ongoing No Ongoing Significant Activity Source: Cambridge Energy Research Associates OF THE SEAL STATE 1816 7 OF INDIANA#8Vertically Integrated Utility Generation (Power Plants) Transmission Networks (Grid) Local Distribution System 日 Final Customers (Retail Sales)#9OF INDIANA Witness/Party CAPM Morin/PSI 10.20-10.70% Summary of ROE Estimates and Areas of Disagreement Inman/IURC 9.21% STATE Gorman / PSI- Kaufman/OUCC IG 7.98 -8.59% 9.50 -9.80% Original Updated DCF RP ARP 10.70 -13.60% 10.90-12.30% 11.30-11.40% 10.42 -13.52% 7.94 10.12% 10.10% 9.69 - 11.02% 11.30-11.40% NA NA NA 9.40 10.90% Recommendation 11.50% 10.25 -10.50% 9.15% 10.00% CAPM 10.90 -11.40% NA 8.48-9.09% NA DCF 10.30-12.10% NA 8.02-9.67% NA RP 10.90-12.50% NA NA NA ARP 11.30-11.40% NA NA NA Recommendation 11.20% 10.35 -10.55% 9.25% NA Major Areas of Disagreement - All Models All Floatation costs Adjustment 0.30% 0.15% 0.05 -0.10% 0.00% Beta 0.72 0.72 0.65 -0.70 0.64 CAPM Market Risk Premium Mean "Arithmetic vs. Geometric Arithmetic Both Both Arithmetic ECAPM Accept Reject Reject Reject Half - vs. Full-Year Div. Growth Full-Year Half-Year Half-Year Full-Year DCF Quarterly Compounding Adj. 0.20% 0.20% 0.00% 0.00% RP Risk Premium Mean "Arithmetic vs. Geometric" Arithmetic Both NA NA 6#10OF THE STATE OF IND Cost of service/rate design Inter class subsidies • How the issue is addressed: • SEAL 1816 Each class allocated costs and plant as if it were a company • An income statement is prepared for each class A rate of return and dollar return is derived for each class 10#11Cost of Service/rate design OF THE SEAL STATE • 1816 The general concept is that if each class is earning the same return, that is the overall return for the company, no subsidies exist. What to do if the returns are unequal • The concept of gradualism. 11 OF IND#12Types of Industrial rates • ● ● ● Typical tariff Complex tariff Interruptible Economic Development Rate • Customer Specific Contract OF THE SEAL STATE 1816 12 OF IND#13OF THE SEAL STATE 1816 Eligible Customers and Suppliers • SOLR (Supplier of Last Resort) Affiliated Interests and Codes of Conduct 13 OF IND