2018-067 TCOSDate: 06/01/2018 Report No. 2018-067
INFORMAL STAFF REPORT
TO MAYOR AND CITY COUNCIL
SUBJECT:
Transmission Cost of Service (TCOS) Expense and Revenue
BACKGROUND:
The purpose of this Informal Staff Report is to provide an overview of TCOS Expenses and
Revenues.
DISCUSSION:
Transmission Cost of Service (TCOS) is both: (i) DME’s cost for using the state’s (ERCOT’s)
transmission system to deliver power and (ii) the revenue DME’s receives from other load
serving entities in ERCOT that use DME’s transmission system. Statewide transmission costs
increase as a result of the construction of new transmission infrastructure throughout the state.
As new transmission infrastructure is added to the Texas electric grid (or to DME’s transmission
system), these costs are included in TCOS.
DME’s share of ERCOT transmission costs (TCOS Expense) varies year-to-year based on two
factors: (i) rising statewide transmission costs and (ii) DME’s share of those costs based on
energy demand during four 15-minute peak usage periods of the months of June, July, August
and September (typically occurring between 2 and 6 p.m.). These are referred to as 4CP events
and they determine DME’s share of statewide transmission costs the following year.
In 2003, DME filed its first TCOS rate filing which resulted in a capital recovery rate of
28.047% of DME’s filed transmission capital costs (TCOS Revenue). The 28.047% cost
recovery factor allowed for the recovery of the following amounts:
Bond Principal/Interest
Bond Reserve
Franchise Fees (4.0%)
Return on Investment (3.5%)
Total
Since that time, DME has filed four interim TCOS filings to increase its TCOS Revenue. The
periodic filings add DME’s new transmission infrastructure to the state-wide TCOS. The interim
filings have not changed DME’s 28.047% “rate of return” however.
The Bond Principal/Interest and Bond Reserve components are intended to reimburse DME for
the cost of its transmission investments. Similarly, the Franchise Fees component reimburses
DME for the cost it incurs in this regard (franchise fees will be updated to the current 5.0%
franchise fee level when a full TCOS case is filled at a later time). The Return on Investment line
item can be viewed as reimbursing DME for its time, trouble and risk of making transmission
Date: 06/01/2018 Report No. 2018-067
investments for the betterment of the ERCOT grid. Therefore, after considering all costs
associated with the transmission projects, the City’s total “return” component is 7.5% (will be
8.5% when franchise fee is updated in a future filing).”
While DME’s TCOS Revenue has consistently increased due to new transmission infrastructure,
its TCOS Expenses have also increased due to other entities building new transmission
infrastructure and increases in DME’s 4CP allocation factor.
For the years 2014 through 2018, Exhibit 1 (attached) shows the amount of DME’s new electric
transmission infrastructure/investment, its TCOS Revenue and its TCOS Expenses.
The TCOS Revenue line item is what DME receives from other electric load serving
entities in ERCOT for their use of the DME transmission network. (In DME’s FY19-23
budget, the TCOS Revenues are accounted for in the “Other Revenue” line item.)
The TCOS Expense line item is what DME pays for using the transmission facilities
owned/operated by other ERCOT entities. (In DME’s FY19-23 budget, DME’s TCOS
Expenses are listed separately as “Transmission for Others”.)
ATTACHMENT:
Exhibit 1
STAFF CONTACT:
George Morrow, DME General Manager
2014 2015 2016 2017 2018
New Electric Infrastructure 1 18,780,858$ 11,503,281$ 19,960,623$ 24,176,219$ 38,637,385$
TCOS Revenue 10,315,030$ 12,854,843$ 19,738,159$ 26,842,822$ 38,517,892$
TCOS Expense 9,271,591$ 9,924,045$ 11,631,308$ 12,088,065$ 12,500,000$
1. From 2003 to 2014 DME filed only one TCOS Filing. The $18.7 Million shown in FY 2013-14 represents all of the new plant-In-service energized
from 2003 until the 2014 Filing.
EXHIBIT 1 - DME Transmission Cost of Service