COMPARISON: PROJECT or FULL REQUIREMENTS
Markedly different from an “all in” full-requirements agency, utilities in a project joint action agency:
- belong as either a full or partial requirements member,
- choose to participate in projects, and
- possess independent wholesale rate structures based on project subscriptions and local power supply and transmission resources.
Another noticeable difference between the two business models occurs while allocating costs. Unless members choose to participate, they do not pay for the recovery of costs involved in procuring and managing new power supply and transmission projects needed by others.
While a project agency, like CMPAS, conducts the majority of the “heavy lifting” associated with due diligence, the member utility is thoroughly involved in the planning, evaluation, and decision-making process of their portfolio. Members retain ownership of their power portfolio and can meet their desired objectives with contractual rights to specific quantities of power from specific resources.
In a full-requirements model, the agency does the planning and makes all the portfolio decisions based on what it thinks is best for the whole. As a result, utility members are part of a “one size fits all” socialized portfolio.
A municipal utility’s optimal resource mix varies according to its load profile and load factor, existing resources, and characteristics. In a project-oriented agency, each member’s portfolio is optimized independently, taking into account the unique differences that often exist among members.
In a full requirements agency, the socialized portfolio is optimized on a group basis rather than for each member independently. Cities with higher load factors typically have a cost advantage, and within a full-requirements model, they tend to subsidize cities with low load factors.
Since each utility of a project-oriented agency holds contractual rights to specific assets and maintains an independent wholesale rate structure, a utility’s embedded cost structure is not at risk of being used to subsidize future agency projects or membership growth.
Comparatively, it is easier to join a project agency than a full-requirements agency. Obstacles to joining a full requirements agency that are absent when joining a project agency include:
- upfront fees or charges to “buy in” to a full-requirements portfolio
- reassignment of ownership rights to pre-existing, power supply assets from a local utility to the joint power agency, and
- agreement on the valuation assessed to pre-existing assets that could be used to offset full requirements “buy-in” costs.
Cost Segregation and Allocation
At CMPAS, only subscribing members of particular projects and services share in related costs. To appropriately distribute, the Agency functionalizes and segregates costs, including administrative and general (A&G) operating costs, by project and service offering.
For energy scheduling operational support, CMPAS allocates a portion of its energy scheduling costs as a fixed cost that is shared equally across all participating scheduling customers. The Agency allocates the remaining portion on an MWh volumetric basis. By incorporating the scheduling volume of participating utilities into the allocation formula, costs are more equitably shared between small and large members.
By contrast, in a full-requirements agency, the majority of A&G costs are assessed almost exclusively on a volume basis. As a result, larger than average municipals often support a disproportionate share of a full requirements agency’s A&G costs. By contrast, the volumetric impact of scheduling is taken into consideration at a project-based agency.