Connection Assets

1
Connection Assets

• The definition of connection assets needs to
  match the following documents
• OATS
• TWRG
• Connection Charging Policy
• TRANSCO/PSALM Application
• Draft Determination
• The ERC has a significant concern that the
  provisions under these documents shall be
  consistent
• As defined in the following slides

2
Connection Assets TWRG

• Regulated Transmission Services
• (d) until the commencement of the Second
  Regulatory Period, Transmission Connection
  Services
• Transmission Connection Services
• (a) the provision of capability at a Connection
  Point to deliver electricity to or take
  electricity from the Connection Point
• (b) the conveyance of electricity
• (i) from the User System or Equipment of a
  Customer to the Connection Point or
• (ii) from the Connection Point to the User System
  or Equipment of a Customer
• Transmission Connection Assets
• The components of the Grid used to provide
  Transmission Connection Services
• Connection Point
• The point of connection of a User System or
  Equipment to the Grid.
• User System
• User System as defined in the Grid Code. (from
  TWRG)
• Refers to a System owned and operated by a User
  of the Grid or Distribution System (from Grid
  Code)

3
Connection Assets OATS Rules

• Connected Transmission Customer
• Any Transmission Customer with Facilities
  directly connected to the Grid at one or more
  Points of Connection. For the avoidance of
  doubt, this includes Generation Customers and
  Load Customers.
• Connection Definition Method
• The method used by the Transmission Provider to
  distinguish Connection Assets from Grid Assets.
• Connection Facilities
• The Transmission Providers Connection Facilities
  and the Connected Transmission Customers
  Connection Facilities.
• Connection Point
• See Point of Connection.
• Grid
• As defined in the Grid Code.
• Point of Connection
• A point where Electricity may flow into or out of
  the Grid.
• Also known as Connection Point.
• Point of Delivery
• A Point of Connection on the Grid where
  Electricity may flow out of the Grid.
• Point of Receipt
• A Point of Connection on the Grid where
  Electricity may flow into the Grid.

4
Connection AssetsConnection Charging Policy
(Aug 2005)

• Connection Assets are those assets that are put
  in place for the primary purpose of connecting a
  customer. These assets may be bypassed or removed
  from the network without affecting any customer
  except those that are directly connected to it.
  Even though transmission power flows on portions
  of these assets, that is just the consequence of
  connecting the customer to the Grid.
• TransCo will also consider the inclusion of
  those assets defined as Subtransmission Assets by
  the ERC in its Order of 17 October 2003. To the
  extent possible, TransCo shall treat all
  Subtransmission Assets covered by the ERC Order
  as Connection Assets until such time that the
  assets are sold.

5
Connection AssetsTRANSCO/PSALM Application

• TRANSCO/PSALM claims that it is consistent with
  its proposed Connection Charging Policy dated
  August 2005
• TRANSCO/PSALM claim that these assets either
  directly benefit a particular user or a
  specified group of users
• SKM et al appears to have implemented shallow
  connection and unshared assets following its
  classification in the RAB

6
Connection Assets Draft Determination

• To use SKM definition as implicitly provided in
  its spreadsheet on substation assets.

7
RAB Outcome

• Table 5.8
• Table 5.9

8
Weighted Average Cost of Capital

• David Dawson
• ERC Regulatory Expert

9
WACC (a)

• Follow TWRG
• Recognize differences between TRANSCO Independent
  Expert and TWRG
• Review values for parameters separately
• Summary follows mid-point analysis

10
WACC (vanilla)

• WACC Re x E / V Rd x D / V
• WACC Re x E / (D E) Rd x D / (D E)
• WACC 0.1832 x 0.5 0. 1256 x 0.5
• WACC 0.1544 of 15.4

11
Return on Equity Debt

• Re Rf Be x MRP
• Re 0.1131 1.17 x 0.0600
• Re 0.1832 or 18.3
• Rd Rf DM
• Rd 0.1131 0.0125
• Rd 0.1256 or 12.6

12
Risk Free Rate (a)

• Two measures explored
• Internal measure using Philippine Treasury Bonds
• External measure using US Treasury Bonds
• Internal
• Use Philippines 10y Treasury Bond for August 2005
• Rf 0.1173 or 11.7

13
Risk Free Rate (b)

• External
• Use average 6 USA 10y Treasury Bond for August
  2005
• Rf (1RfUSA) x (1iUSA) / (1iPhil) x
  (1CRP) 1
• Rf (10.0461) x (10.0710) / (10.0469) x
  (10.04)
• Rf 0.1131 or 11.3
• Both measures close, but took 11.3

14
Inflation Rates

• Spread for long-term average versus spot
  average is similar
• Spot data better matches bond data which is
  average spot as well

15
CRP (a)

• Two measures explored
• Philippine vs USA US bond yields
• CRP statistical method using Country Ratings
• US Bond yields, 20 year bonds
• CRP 8.2 - 4.8 3.4

16
CRP (b)

• Statistical on Country Rating 4.0

17
Return on Equity Debt

• Re Rf Be x MRP
• Re 0.1131 1.17 x 0.0600
• Re 0.1832 or 18.3
• Rd Rf DM
• Rd 0.1131 0.0125
• Rd 0.1256 or 12.6

18
Beta

• Followed TWRG
• Equity Beta average of 5 transcos and 5
  distribution businesses
• Ba Be / 1(1-Te) x D/E for Market
• Ba 0.58
• Be Ba x (1D/E) for TRANSCO
• Be 1.17

19
Return on Equity Debt

• Re Rf Be x MRP
• Re 0.1131 1.17 x 0.0600
• Re 0.1832 or 18.3
• Rd Rf DM
• Rd 0.1131 0.0125
• Rd 0.1256 or 12.6

20
WACC (vanilla)

• WACC Re x E / V Rd x D / V
• WACC Re x E / (D E) Rd x D / (D E)
• WACC 0.1832 x 0.5 0.1256 x 0.5
• WACC 0.1544 of 15.4

21
Return on of Capital

• Table 7.2

22
Performance Incentive Scheme

• Lawrence Luczon
• Engineer II

23
Proposed Performance Indices
24
TransCo Proposed Weightings

25
ERC Proposed Weightings

Note Weightings by Grid - based on proportional
average performance from 2000-2004 with higher
proportion given to a bad performing grid
26
TransCo Proposed Bandwidth
27
ERC Proposed Bandwidth
28
ERCs Approach
1st Step Set the Target based on whichever is
better between the mean (i.e. from 2000 to 2004)
and the last years (i.e. 2004) measure of the
PI 2nd Step Set the Deadband to minus
one-half (-1/2) STDEV and plus two (2)
STDEV 3rd Step Change the Target to mean value
(or last years measure) if Cap value is falling
beyond the Maximum Measure 4th Step Reduce the
2 STDEV to a lower STDEV (i.e. 1½, 1 or 1/2)
until such time that Cap will not fall beyond the
maximum measure Adjustment on the Reward
29
(ERCs Approach) On the Proposed Targets
30
On the Deadband
(ERCs Approach)
31
ERCs Proposed Standard Deviation
32
(ERCs Approach) Adjustment on the Reward
X
a
b
X 3 a b
33
(ERCs Approach) Adjustment on the Reward
34
END OF PRESENTATION