Rate Case Success Story

THE CLIENT

One of America's largest natural gas distributors, with operations in 12 states from the Rockies to the Blue Ridge Mountains, including Texas.

THE REGULATORY ENVIRONMENT

Through its Gas Utilities and LP-Gas Divisions, the Texas Railroad Commission oversees 222 private natural gas utilities and 364 natural gas pipelines. The commission oversees safety and has appellate jurisdiction over rates set by 84 public and municipally owned gas utilities.

THE RATE CASE

While the regulatory situation varies state by state, all U.S. states have jurisdictional reporting and filing requirements. One of the primary regulatory functions across all states is the approval of gas rates paid by customers - corporate, industrial, commercial, or consumer.

The rates for gas usage volumes follow an approval process and utilities are required to present rate cases to utility commissions in each state of operation. Certain costs are considered allowable and others and not. Rate cases are subject to negotiation and the utilities need the ability to make adjustments to their cost data from any line item such as property, plant and equipment (PP&E), or to specific expense line items.

THE REQUIREMENT

The ability to make cost adjustments in any period of time, to any relevant cost, and re-process the model in a timely manner, with all the necessary levels of details, is invaluable to a utility during rate case submittal and negotiation.

STANDARD APPROACH NOT EFFECTIVE

Before US-Analytics engaged with this utility, the standard method for rate case development was through a large collection of linked and unlinked Excel models. A full view of the rate case was impractical as the assumptions, calculations, and details for a rate case are extensive.

The process of "walking forward" a rate case included actual costs from the company's Oracle G/L, followed by the application of a large number of complex allocations, then a wide range of recurring and one-time adjustments and projections.

The level of detail and the number of exceptions in rate cases can vary across regulating state commissions, in addition to varying across organization levels, periods of time, and rate application methodology.

OLD DESIGN = PERFORMANCE PROBLEMS

Before US-Analytics engaged with this utility, the Essbase model provided only general ledger actual costs. Any revisions to rate case data (adjustments) were managed separately, in Excel. The solution was designed using a dated and incomplete method. A lack of advanced Essbase expertise in design, tuning and optimization prevented the original implementation from delivering the full set of project requirements.

Any cost data modification of the old Essbase model required 36 hours to process and recalculate. This meant that the solution was incapable of satisfying the business requirements, requiring the utility to adhere to the limitations of their spreadsheet-based manual data entry "exercises" every time a rate case filing was due. Such exercises were maintenance-intensive, error-prone, insecure, and time-consuming.

THE NEW PARADIGM

An entirely new approach was need for the utility to accurately and rapidly:

• Prepare rate cases for filing and jurisdictional reporting
• Perform monthly or periodic forecast revisions
• Produce annual budgets
• Perform better business analysis

US-Analytics' unique combination of broad business knowledge and seasoned Oracle|Hyperion expertise delivered a unique solution to a common challenge in regulated industries. This groundbreaking solution delivers value and performance to the business while easing maintenance requirements.

No longer limited to just an actuals-only reporting system, the utility has a full walk-forward multiple-scenario, rate case solution. The company can now make all of the necessary allocations, recurring and non-recurring adjustments, and the projections needed to rapidly prepare rate cases.

The model accommodates all of the disparate filing and costly requirements across a dozen jurisdictions. The model accommodates multiple cost-averaging methodologies, since different states sometimes require different methods. And the model accommodates "what if" cost and revenue scenarios.

By dynamically calculating revisions for a rate case in seconds or minutes, in contrast to the 36 hours required to simply recalculate the previous actuals-only solution, this utility has improved its operational performance and reporting capabilities allowing it to quickly and efficiently respond to changing market and regulatory demands.

SUMMARY

• Rate case development is crucial for every regulated utility
• Rate case development requires flexibility and speed in making a wide range
• of adjustments The traditional methods of solving rate case development will not perform
• satisfactorily and will constrain functionality (levels of detail, "what if" scenarios, multiple methods of calculation, jurisdictional differences) Solving complex modeling problems like rate case scenarios demands a sophisticated understanding of the utility business and an advanced understanding of the proper technology