The Brattle Group combines a thorough understanding of ratemaking and regulation with world-class knowledge in finance to provide our clients with new and innovative methods to structure rates, determine financing costs, and manage energy risk.
We apply finance and economic principles to advise clients on strategies pertaining to the utility of the future, cost of capital, risk management, and rate design. Our economists are also industry leaders in load forecasting and weather normalization methods for planning and ratemaking purposes.
We frequently serve as expert witnesses in rate cases and other finance matters, and as strategy consultants for utility management or other utility market participants. We are also called upon to prepare reports that provide a thorough analysis of regulatory finance issues. Our team of experts has published widely-regarded texts and articles on industry financial practices and policy questions. Our staff includes Stewart C. Myers, the author of the leading graduate-level textbook on corporate finance, and Daniel McFadden, a Nobel Laureate for his an expertise in applying statistical methods to economics. Our vast network of academic and industry experts and the worldwide focus of our practice keep us at the forefront of critical regulatory finance and ratemaking issues.
- Cost of Capital
The Brattle Group is an industry leader in the assessment, development, and application of demand forecasting tools and weather normalization methods. We have worked with utilities and government agencies around the world to improve the accuracy and decision-making information content of such models, from the initial data collection phases through the final steps of model calibration and forecasting. Our modeling capabilities are strengthened by our consultants’ extensive expertise in econometrics and economic forecasting.
We have presented our forecasts before state utility commissions and provided training sessions and workshops to state agencies and utility executives. Our demand forecasting models and recommendations have been used in the formulation of numerous integrated resource plans and have been adopted for use in several utilities’ long-term planning processes. We have also assisted utilities in reviewing and improving their suite of load forecasting models.
- Incentive Regulation
- Energy Risk Management and Prudence Review
- Retail Rates
- Cost Allocation and Rate Design
Published in Public Utilities Fortnightly
Brattle Principal Ahmad Faruqui has authored an article on the importance of customer centricity in utility industry strategy, which has been published in the November 2019 issue of Public Utilities Fortnightly.
Below is a list of representative engagements for our Finance & Ratemaking practice.
Brattle experts were engaged by the Australian Pipeline Industry Association and the Dampier to Bunbury pipeline to prepare reports on how regulators in various jurisdictions around the world use different models and market information to set the cost of equity and debt for regulated utilities, and to make recommendations for the development of guidelines by Australian regulators under the newly-adopted National Gas and Electricity Rules. As part of this work, the Brattle team critically assessed the pros and cons of commonly-used methodologies including, but not limited to, the Capital Asset Pricing Model and versions of the Discounted Cash Flow model.
On several occasions from 2011 to present, Brattle experts have reviewed statistical evidence for whether decoupling or other lost revenue recovery mechanisms have a discernable downward effect on the utility cost of capital. Those studies have repeatedly found there is no such reliable effect, probably because decoupling is introduced only in situations where revenue recovery risk has already increased. Hence, even though decoupling offsets some of this risk, there is no net effect.
Several utilities have noticed that since the Great Recession of 2008-2009, load forecasting models have been less accurate. New patterns of customer behavior plus increasing effects of global climate change may be causing this. Brattle has developed tests and alternative specifications for load modeling to deal with these changes. For example, for PJM Interconnection, the largest regional transmission organization (RTO) in North America, Brattle experts conducted a comprehensive review of its models for forecasting demand that had significantly under-estimated recent peak loads. We re-estimated new models with specifications that fit the historical data equally well and corrected for serial correlation in the error term. We found that the forecast error was entirely due to an inability to accurately forecast weather and recommended more detailed modeling of forecast uncertainty. More recently, Brattle recommended that a gas distribution utility in the Mid-Atlantic switch from a 30-year weather normalization to a 10-year normalization for similar reasons.