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Distribution Custom Rate Application 2015-2019
Stakeholder Session #4December 2, 2013
Stakeholder Consultation
Agenda8:45 am Registration
9:05 am WelcomeAllan Cowan, Director Major ApplicationsHydro One Networks
9:10 am Introductions and Agenda Bob Betts, Facilitator, OPTIMUS|SBR
9:20 am Application Filing TimelineAllan Cowan, Director Major ApplicationsHydro One Networks
9:30 am Revenue Requirement and Common Costs and Facilitated Discussion
Glenn Scott, Director Corporate Planning & FinanceHydro One Networks
Bob Betts, Facilitator, OPTIMUS|SBR
10:30 am Break
10:45 am Core Work Programand Facilitated Discussion
Paul Brown, Director Distribution Asset ManagementHydro One Networks
Bob Betts, Facilitator, OPTIMUS|SBR
11:30 amDistribution Cost Allocation / Rate Design and Facilitated Discussion
Henry Andre, Manager Distribution PricingHydro One Networks
Bob Betts, Facilitator, OPTIMUS|SBR
12:30 pm LUNCH
1:30 pmCustom Framework – Adjustments and Reporting and Facilitated Discussion(includes a15min Break)
Allan Cowan, Director Major ApplicationsHydro One Networks
Bob Betts, Facilitator, OPTIMUS|SBR
3:30 pm Closing Remarks/Next Steps Allan Cowan, Director Major ApplicationsHydro One Networks
3:45 pm Adjourn 2
Facilitator’s Remarks
Introductions Facilitator, Bob Betts & OPTIMUS | SBR support team
Meeting Facilities
Safety Review
Note taking process
Participant Introductions
3
Meeting Process
Mobile phones “Off” or “Silenced”
Avoid side discussions while others speaking
All questions are good ones
All comments are appreciated
Materials and notes will be included in Hydro One’s rate application and will be posted on Hydro One’s Regulatory Website once application has been filed:
www.HydroOne.com/RegulatoryAffairs
4
2015-2019 Custom Distribution Rate ApplicationApplication Filing TimelineDecember 2, 2013
Allan Cowan
Director, Major Applications
6
Application Filing Timeline
Filing Dx Rate Application - December 19th, 2013
Supplemental Filing - January 31st, 2014
2013 Actual Results Update - May 2014
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
2015-2019 Custom Distribution Rate ApplicationRevenue Requirement &Common CostsDecember 2, 2013
Glenn Scott
Director, Corporate Planning and Finance
8
Presentation Overview
Overview of revenue requirement
Overview of rate increases
Regulatory asset recovery
Capital and OM&A expenditures– Corporate Common Cost details
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Forward-looking Financial StatementsWe have included forward-looking statements in this presentation thatare subject to risks, uncertainties and assumptions. Such informationrepresents our current views based on information as at the date of thisreport. Any statement contained in this document that is not current orhistorical is a forward-looking statement.
We have based these forward-looking statements on historicalexperience, current conditions and various assumptions believed to bereasonable in the circumstances. Actual results could differ materiallyfrom those projected in the forward-looking statements. Because of theserisks, uncertainties and assumptions, undue reliance should not beplaced on these forward-looking statements.
Except to the extent required by applicable securities laws andregulations, we undertake no obligation to update or revise any of theseforward-looking statements, whether to reflect new information, futureevents or otherwise.
9DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Value Proposition
Safe, Reliable & Affordable
Service
Keep Rates Low(annual total bill impact at/less than
inflation)
Improve Customer
Satisfaction and Build a
Trusted Partner Relationship
Preserve Net Income
Improve Operating
Efficiencies and Cost Savings
Full Visibility on Assets and
targeted investments to minimize customer
impacts
10DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Cost of Debt4.79%
Rate Base$6,477M
Cost of Capital6.76%
Cost of Equity9.71%
Capital Structure60/40
X
Return on Capital$438M
Cost of Service$918M
Income Taxes $55M
Revenue Requirement$1,411M
+
+
=
2015 Dx Revenue Requirement
11DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
OM&A$564M
Depreciation$354M
+
2.6% 3.3%
0.2%-0.6% -0.3%
12.8%
4.2%
3.5% 3.6% 3.5%
-1.2%
-3.3%
-1.3%
-1.2%
1.2%
1.8%
-0.1%-0.2%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
2013 2014 2015 2016 2017 2018 2019
OM&A and External Revenues Rate Base Smart Meter - OM&ASmart Meter - RB Smart Grid - OM&A Smart Grid - RBRiders Load, Rate Class & Seasonal Board Approved
2.6%
11.5%
7.4%
3.6% 3.0% 2.9%
1.4%
Distribution Rate Increase
12DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
7%
+18.5%
- 7.0%
Revenue Requirement
13
$Millions (Forecast) 2015 2016 2017 2018 2019
OM&A 564 610 614 604 600Dep. & Am. 354 373 391 405 417
Return On Debt 186 201 216 234 257
Return on Equity 252 269 288 307 323
Income Tax 55 62 62 66 69
Revenue Requirement 1,411 1,515 1,571 1,615 1,666
Less: External Revenue (45) (45) (46) (45) (45)
Distribution Riders 8 8 8 8 8
Rates Revenue Requirement 1,375 1,478 1,533 1,578 1,629
Dx Rate Increase 11.5% 7.4% 3.6% 3.0% 2.9%
Rate Base 6,477 6,759 7,097 7,512 7,917Capex 649 655 639 655 669
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Regulatory Asset Recovery
Net balance collected over a 5-year period* Includes RCVA, MicroFIT, SPC and Project Deferral balances
Regulatory Assets as of December 31st, 2013, plus forecasted interest ($Millions)Pension 55.6OEB 9.1Smart Meters 6.5DSC Exemption 5.5
Tax (20.7)Retail Settlement Variance Account (RSVA) (6.2)Smart Grid (5.2)Other* (4.2)
TOTAL 40.4
14DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
2.6% 3.3%
0.2%
-0.6%-0.3%
12.8%
4.4%
3.7% 3.6% 3.4%
-1.2%
-3.3%
-1.3%-1.2%
1.2%
1.8%
-0.2%
-4.5%
-0.6%
3.2% 3.9% 4.1%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
2013 2014 2015 2016 2017 2018 2019
OM&A and External Revenues Rate Base Smart Meter - OM&A Smart Meter - RB
Smart Grid - OM&A Smart Grid - RB Riders Load, Rate Class & Seasonal
Deferred Revenue Requirement Board Approved
2.6%
7.0%
7.0% 7.0% 7.0% 7.0%
1.4%
Smoothed Dx Rate Increase
15
- 11.5%
+18.5%
Deferred Revenue Requirement ($56M) ($66M) ($21M) $38M $105M
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
16
OM&A Expenditures Summary
$Millions (Forecast)
Forecast Bridge Test Years
2013 2014 2015 2016 2017 2018 2019
Sustaining 318 320 329 374 380 363 358
Development 12 18 15 18 17 17 18
Operations 23 30 30 34 35 42 41
Customer Service 137 134 118 116 114 113 115
Corporate Common Costs & Other
103 74 67 62 62 62 62
Property Taxes & Rights Payments
4 5 5 5 5 5 5
TOTAL 598 581 564 610 614 604 600
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
17
Capital Expenditures Summary
$Millions (Forecast)
Forecast Bridge Test Years
2013 2014 2015 2016 2017 2018 2019
Sustaining 303 286 308 335 360 380 383
Development 193 200 223 206 186 183 199
Operations 9 5 9 19 7 7 4
Customer Service 16 23 23 10 4 0 0
Corporate Common Costs & Other
128 110 85 85 83 84 82
TOTAL 649 624 649 655 639 655 669
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
18
What are Corporate Common Costs?
Hydro One Corporate Common Costs:
OM&A− Corporate Common Functions & Services
(HR, Finance, Law, Real Estate & Facilities, etc.)− Asset Management − Information Technology− Cost of Sales
Capital− Transport, Work & Service Equipment− Real Estate− Information Technology
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
19
OM&A Corporate Common Costs
$Millions (Forecast)
Forecast Bridge Test Years
2013 2014 2015 2016 2017 2018 2019
Total Tx & DxCorporate Common Costs
139 144 137 134 136 126 130
Transmission Allocation 36 71 70 71 73 64 67
Distribution Allocation 103 74 67 62 62 62 62
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
20
Capital Corporate Common Costs
$Millions (Forecast)
Forecast Bridge Test Years
2013 2014 2015 2016 2017 2018 2019
Total Tx & DxCorporate Common Costs
193 196 155 153 149 152 147
Transmission Allocation 66 86 69 69 65 68 65
Distribution Allocation 128 110 85 85 83 84 82
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
21
Questions?
DISCLOSURE NOTE:
FORWARD LOOKING STATEMENTS AND INFORMATIONWe have included forward-looking statements in this report that are subject to risks, uncertainties and assumptions. Such information represents our currentviews based on information as at the date of this report. Any statement contained in this document that is not current or historical is a forward-lookingstatement. We have based these forward-looking statements on historical experience, current conditions and various assumptions believed to be reasonablein the circumstances. Actual results could differ materially from those projected in the forward-looking statements. Because of these risks, uncertainties andassumptions, undue reliance should not be placed on these forward-looking statements. Except to the extent required by applicable securities laws andregulations, we undertake no obligation to update or revise any of these forward-looking statements, whether to reflect new information, future events orotherwise.
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
~BREAK~
2015-2019 Custom Distribution Rate ApplicationCore Work ProgramDecember 2, 2013
Paul Brown
Director, Distribution Asset Management
Presentation Overview
Overview of OM&A Expenditures− Sustaining, Development, Operating and Customer
Service details
Overview of Capital Expenditures− Sustaining, Development, Operating and Customer
Service details
24DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Forward-looking Financial Statements
We have included forward-looking statements in this presentation thatare subject to risks, uncertainties and assumptions. Such informationrepresents our current views based on information as at the date of thisreport. Any statement contained in this document that is not current orhistorical is a forward-looking statement.
We have based these forward-looking statements on historicalexperience, current conditions and various assumptions believed to bereasonable in the circumstances. Actual results could differ materiallyfrom those projected in the forward-looking statements. Because of theserisks, uncertainties and assumptions, undue reliance should not beplaced on these forward-looking statements.
Except to the extent required by applicable securities laws andregulations, we undertake no obligation to update or revise any of theseforward-looking statements, whether to reflect new information, futureevents or otherwise.
25DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
26
Hydro One’s Distribution Business
Customer Base– About 1.2 million customers– Rural and urban– Residential and small business– Local distribution companies– Large industrial customers – Generators connected to the distribution grid
Assets– Over 120,000 circuit-km of lines (3200 feeders)– Over 1.6 million poles – 1004 distribution stations– 50 kV or less– Rural system with low density throughout the province– Radial system with limited transfer capability
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
27
Managing Distribution Assets
System investment strategies to ensure safe, reliable and efficient power delivery and to create value for customers
Develop projects and programs to:– Address customer and system growth needs
– Renew assets at their end of life to ensure public/worker safety and service continuity
– Improve reliability/efficiency
– Modernize the distribution system to add customer value
– Effectively respond to unplanned system events
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
28
OM&A Expenditures Summary
$Millions (Forecast)
Forecast Bridge Test Years
2013 2014 2015 2016 2017 2018 2019
Sustaining 318 320 329 374 380 363 358
Development 12 18 15 18 17 17 18
Operations 23 30 30 34 35 42 41
Customer Service 137 134 118 116 114 113 115
Corporate Common Costs & Other
103 74 67 62 62 62 62
Property Taxes & Rights Payments
4 5 5 5 5 5 5
TOTAL 598 581 564 610 614 604 600
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
29
Sustaining OM&A
$Millions (Forecast)
Forecast Bridge Test Years
2013 2014 2015 2016 2017 2018 2019Stations 22 28 28 28 29 29 28Lines 148 134 141 150 152 155 157Metering 14 19 19 19 18 19 19Vegetation Management 134 139 142 178 180 161 153
TOTAL 318 320 329 374 380 363 358
Hydro One Sustaining OM&A Costs include: Planned & Corrective Maintenance; Trouble Call Response; Line Clearing & Brush Control; Cable Locates; Disconnects/Reconnects; and Environmental & Waste Management
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Vegetation Management
30
Trees were the largest contributor (at 44%) to Hydro One Corporate SAIDI in the 2007-12 period.
Shorter vegetation management cycle durations has been demonstrated to lower SAIDI.
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
31
$Millions (Forecast)
Forecast Bridge Test Years
2013 2014 2015 2016 2017 2018 2019
Development 12 18 15 18 17 17 18
Operating 23 30 30 34 35 42 41
Customer Service 137 134 118 116 115 113 115
Development, Operating, Customer Service OM&A
Hydro One Development OM&A Costs include: Engineering & Technical Studies (including Smart Grid Studies); Standards & Technology Support; and Distributed Generation Connections Support
Hydro One Operating OM&A Costs include: Operations Support; Maintenance of Operating Infrastructure; and Environmental, Health & Safety
Hydro One Customer Service OM&A Costs include: Customer Services; Smart Grid Pilot; and Conservation & Demand Management
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Smart Grid OM&A Expenditures
32
Total Smart Grid
Expenditures
Smart Grid Pilot
Deployment
+
$Millions (Forecast)
Forecast Bridge Test Years
2013 2014 2015 2016 2017 2018 2019Smart Grid Pilot(included in Customer Service)
7 9 5 4 2 0 0
Deployment(included in Operating)
0 6 5 9 10 17 15
TOTAL 7 15 10 13 12 17 15
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Aging assets and systemic problems – Large scale testing of transformers for PCB contamination
– Increasing focus on defect corrections
Reliability improvements and long-term cost optimization– Addressing vegetation maintenance backlogs and maintaining an
eight year clearing cycle
33
Sources of Change to OM&A CostMain Drivers for Year-over-Year Changes
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
34
Capital Expenditures Summary
$Millions (Forecast)
Forecast Bridge Test Years
2013 2014 2015 2016 2017 2018 2019
Sustaining 303 286 308 335 360 380 383
Development 193 200 223 206 186 183 199
Operations 9 5 9 19 7 7 4
Customer Service 16 23 23 10 4 0 0
Corporate Common Costs & Other
128 110 85 85 83 84 82
TOTAL 649 624 649 655 639 655 669
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
35
Sustaining Capital
$Millions (Forecast)
Forecast Bridge Test Years
2013 2014 2015 2016 2017 2018 2019Stations 48 51 64 68 69 76 77
Lines 213 204 228 247 267 283 296
Metering 43 32 17 21 24 21 11
TOTAL 303 286 308 335 360 380 383
Hydro One Sustaining Capital Costs include: Station Refurbishments; Mobile Unit Substations; Component Replacements; Trouble Call & Storm Damage Response; Large Sustaining Line Projects; and Meter Upgrades
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Distribution Wood Poles
36
Total Fleet of Distribution Wood Poles is approximately 1.6 million Expected Service Life of Distribution Wood Pole is 62 years Approximately 20,000 poles are installed each year (new installations &
end of life replacement) Hydro One is proposing increased funding to address premature decay
issues and mitigate risk of the approaching bow wave of poles reaching expected service life over the period.
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Distribution Stations
37
1, 004 Distribution and Regulating Station Facilities Expected Service Life of Distribution and Regulating Stations is 50 years Historical Replacement Rate has been approx. 4 stations/year Hydro One proposing increased funding to manage demographic
pressures and mitigate risk of the approaching bow wave of stations reaching expected service life over the period.
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
0
100
200
300
400
0-20 21-30 31-40 41-50 >50
25% of population is beyond expected
service life
Age Profile
# of
sta
tions
Age Group
38
Development Capital$Millions (Forecast)
Forecast Bridge Test Years
2013 2014 2015 2016 2017 2018 2019Connections &Upgrades 104 106 109 112 116 119 123
System Capability Reinforcement 65 61 81 72 61 62 74
Generation Connections 20 33 33 23 9 2 2
Wholesale Revenue Meters 3 0 0 0 0 0 0
TOTAL 193 200 223 206 186 183 199
Hydro One Development Capital Costs include: New Connections; Upgrades Driven by Load Growth; Reliability Improvements; and Capital Contributions to new Tx Connection Capacity
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
39
Operating & Customer Service Capital
$Millions (Forecast)
Forecast Bridge Test Years
2013 2014 2015 2016 2017 2018 2019
Operating 9 5 9 19 7 7 4
Customer Service 16 23 23 10 4 0 0
Hydro One Operating Capital Costs include: Upgrades and expansions to the operating infrastructure and control facilities.
Hydro One Customer Service Capital Costs include: Smart Grid Pilot
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Smart Grid Capital Expenditures
40
Total Smart Grid
Expenditures
Smart Grid Pilot
Deployment
+
$Millions (Forecast)
Forecast Bridge Test Years
2013 2014 2015 2016 2017 2018 2019Smart Grid Pilot(included in Customer Service)
16 23 23 10 4 0 0
Deployment(included in Sustaining)
0 6 7 15 16 20 20
TOTAL 16 29 30 25 20 20 20
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Aging assets and systemic problems – Increasing the replacement rate of wood poles
– Refurbishing aging distribution stations
– Replacing PCB contaminated equipment
Reliability improvements and long-term cost optimization– Increasing number of line refurbishment projects
41
Sources of Change to Capital CostMain Drivers for Year-over-Year Changes
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
42
Questions?
DISCLOSURE NOTE:
FORWARD LOOKING STATEMENTS AND INFORMATIONWe have included forward-looking statements in this report that are subject to risks, uncertainties and assumptions. Such information represents our currentviews based on information as at the date of this report. Any statement contained in this document that is not current or historical is a forward-lookingstatement. We have based these forward-looking statements on historical experience, current conditions and various assumptions believed to be reasonablein the circumstances. Actual results could differ materially from those projected in the forward-looking statements. Because of these risks, uncertainties andassumptions, undue reliance should not be placed on these forward-looking statements. Except to the extent required by applicable securities laws andregulations, we undertake no obligation to update or revise any of these forward-looking statements, whether to reflect new information, future events orotherwise.
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
2015-2019 Custom Distribution Rate ApplicationCost Allocation / Rate DesignDecember 2, 2013
Henry André
Manager, DistributionPricing
Presentation Overview
Load Forecast
Customer Classification
Cost Allocation
Rate Design
Bill Impacts
44DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Forward-looking Financial StatementsWe have included forward-looking statements in this presentation thatare subject to risks, uncertainties and assumptions. Such informationrepresents our current views based on information as at the date of thisreport. Any statement contained in this document that is not current orhistorical is a forward-looking statement.
We have based these forward-looking statements on historicalexperience, current conditions and various assumptions believed to bereasonable in the circumstances. Actual results could differ materiallyfrom those projected in the forward-looking statements. Because of theserisks, uncertainties and assumptions, undue reliance should not beplaced on these forward-looking statements.
Except to the extent required by applicable securities laws andregulations, we undertake no obligation to update or revise any of theseforward-looking statements, whether to reflect new information, futureevents or otherwise.
45DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Load Forecast AssumptionsKey Changes
46DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Same load forecast methodology used as in previous DX rate cases
All forecasts are weather-normal
Ontario economy is forecast to grow on average 2.4% over the 2015-2019 period
CDM forecasts are consistent with the current Long-Term Energy Plan
Smart meter hourly data was used in the load profile analysis by rate class
47
2015-2019 Load Forecast
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
GWh
Customer Classification Board-directed Rate Class Review
– Many customers will see lower bills as a result of the change however rates across all classes will increase by 3.4% to hold revenue requirement neutral
Board-directed review of Seasonal customer class– Moving ~11k Seasonal customers (out of 157k) with consumption pattern
similar to year-round customers to residential classes
– Decrease of $6.7M in revenue will result in average increase of 0.5% across all rate classes
New USL rate class per Board report48
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
# of Customers
% of Customers
Revenue Impact ($M)
Total 1,222,592 100%
No Change 1,087,345 89%
Change 135,247 11% (39.7)
Lower Rates 111,562 9% (80.9)
Higher Rates 23,685 2% 41.2
Cost Allocation
Using Board latest CAM
Updated customer load profiles
Incorporated Density Factors within CAM
Improvements to tracking of costs by USofA
Updated Billing and Services factors
Addressed # of issues raised at previous applications
49DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Rate Design
Increasing share of revenues recovered via fixed charges
Bringing revenue-to-cost ratios for all classes within 1.02 to 0.98 over 5 years
New Riders– deferral/variance account rider
– smoothing rider
RTSR updated to reflect proposed 2014 Provincial Transmission rates
50DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Average 2015 Bill Impact Components
51DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Distribution Impact
Total Bill Impact
Revenue Requirement 15.5% 5.2%Rate Class Review, Seasonal Review & Load Forecast 1.8% 0.6%Net Variance/Deferral Riders -5.8% -1.9%Smoothing Rider -4.5% -1.6%Fixed/Volumetric Changes No ImpactRevenue-to-Cost Ratio Changes No ImpactTOTAL 7.0% 2.3%
52
“Typical” Total Bill Impacts by Rate ClassRate Class
Bill Assumption 2015 2016 2017 2018 2019
UR 800 kWh -3.2% 0.6% 0.4% 0.4% 0.7%
R1 800 kWh -1.0% 1.4% 0.9% 0.7% 1.1%
R2 800 kWh 2.9% 4.4% 4.5% 5.0% 5.1%
Seasonal 400 kWh 2.9% 4.2% 4.6% 4.9% 5.0%
Gse 2,000 kWh 3.5% 2.4% 2.5% 2.7% 2.8%
Uge 2,000 kWh 8.3% 1.5% 2.4% 2.7% 2.5%
GSd 35,000 kWh120 kW 5.7% 2.9% 4.2% 4.7% 4.3%
Ugd 35,000 kWh120 kW 4.9% 1.9% 2.8% 3.2% 2.9%
St. Lgt 500 kWh 9.5% 4.0% 4.5% 4.5% 4.4%
Sen. Lgt 50 kWh 11.6% 8.8% 9.2% 9.2% 8.0%
USL 500 kWh 1.7% -0.3% 1.4% 0.5% 1.3%
Dgen 2,000 kWh 17.8% 15.1% 13.7% 12.3% 9.2%
ST 500,000 kWh1,000kW 2.1% 0.4% 0.3% 0.4% 0.4%
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
53
Questions?
DISCLOSURE NOTE:
FORWARD LOOKING STATEMENTS AND INFORMATIONWe have included forward-looking statements in this report that are subject to risks, uncertainties and assumptions. Such information represents our currentviews based on information as at the date of this report. Any statement contained in this document that is not current or historical is a forward-lookingstatement. We have based these forward-looking statements on historical experience, current conditions and various assumptions believed to be reasonablein the circumstances. Actual results could differ materially from those projected in the forward-looking statements. Because of these risks, uncertainties andassumptions, undue reliance should not be placed on these forward-looking statements. Except to the extent required by applicable securities laws andregulations, we undertake no obligation to update or revise any of these forward-looking statements, whether to reflect new information, future events orotherwise.
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
©2013 Navigant Consulting Ltd. Confidential and proprietary. Do not distribute or copy.
E N E R G Y
D I S P U T E S & I N V E S T I G AT I O N S • E C O NO M I C S • F I N A N C I A L A D V I S O RY • M A N A G E M E N T C O N S U LT I N G
December 2, 2013
Line Loss Study UpdatePrepared for Hydro One Networks, Inc.
55©2013 Navigant Consulting Ltd. Confidential and proprietary. Do not distribute or copy. E N E R G Y
DISCUSSION DRAFT
»Initial focus was on 2012 because of the availability of hourly data (from smart meters and interval meters) representing the majority (72%) of Hydro One customers’ electricity consumption»There are six major components to the loss calculation
Navigant was retained to calculate actual system‐wide losses from 2010 to 2012 and to recommend a methodology for Hydro One going forward
Line Loss Study Update
PURCHASES CONSUMPTION
IESO Settlement Data(monthly, daily)
Distributed Generation(monthly)
Transfers from Host
Distributors(monthly)
89% 9% 2%% of Total Purchases
72% 27% 1%% of Total Consumption
Street and Sentinel Lighting
(hourly est.)
Smart / Interval Metered(hourly)
‘Match’ to customers with hourly data to
estimate unbilled in 2012
Bulk Metered(billing period)
56©2013 Navigant Consulting Ltd. Confidential and proprietary. Do not distribute or copy. E N E R G Y
DISCUSSION DRAFT
»This is not the standard approach used in the industry»Most utilities rely on consumption data from their billing system
– Actual consumption for a given customer within a year, as measured by the consumption that occurs between the first and last actual meter read within the year, is augmented with:
(i) an estimate of the proportion of consumption in the last billing cycle before the first meter read that occurred within the year and
(ii) an estimate of unbilled consumption after the last actual meter read– Unbilled consumption is typically estimated based on an individual customer’s prior year or prior billing
period consumption
»Using this standard approach cumulatively over a number of years, the percentage of consumption that is ‘estimated’ is significantly reduced (e.g. over one year it might represent ~8%, but over five years it would be approximately ~1.5%)
Navigant’s calculation of actual losses in 2012 required the collation and analysis of a large quantity of hourly consumption data
Line Loss Study Update
Jan 1 Dec 31First actual meter read within the period Last actual meter read within the period
Actual Consumption
Estimate of Unbilled ConsumptionProportion of consumption in prior billing cycle within the year
57©2013 Navigant Consulting Ltd. Confidential and proprietary. Do not distribute or copy. E N E R G Y
DISCUSSION DRAFT
»Hydro One’s new CIS is capable of determining unbilled consumption for each of Hydro One’s ~1.2 million customers as of December 31 of each year»The CIS uses customer consumption data by billing cycle to estimate unbilled consumption and revenue on a monthly/annual basis»The system develops a kilowatt-hour per day metric during a specified base period and applies it to unbilled period
– The base period is developed using one of three methods, depending on the availability of data in the system (pictured, to the right)
»Navigant expects that this approach will yield similar results when compared to the approach implemented using 2012 hourly consumption data
Going forward, Navigant recommends that Hydro One use the capabilities of its new CIS to determine actual losses on an annual basis
Line Loss Study Update
• Based on actual meter reads• If an actual meter read is not
available the system will move to the next meter read
• System adjusts for changes billing cycle length
• If a full billing period is not available, system will pro-rate the consumption based on the meter read data available
• System will estimate consumption using a customer profile developed for each rate class (e.g. R1, R2, Seasonal, etc.)
1. Consumption in the same billing
period in the previous year, or
2. Consumption in the previous billing
period, or
3. Consumption estimation by
customer class
58©2013 Navigant Consulting Ltd. Confidential and proprietary. Do not distribute or copy. E N E R G Y
DISCUSSION DRAFT
»The amount of hourly consumption data for Hydro One customers declines prior to 2012– Interval metered customers, those for whom hourly consumption data would be available throughout the
period, represent ~20% of total consumption– Customers with smart meters and automated meter reads in 2012 represent ~50% of consumption
»As the amount of hourly data available declines, the reliance on billing cycle data increases
»As a results, Navigant recommends calculating the actual losses in 2010 and 2011 using an approach consistent with the approach that will be used going forward
»Navigant expects that this approach will yield similar results when compared to the approach implemented using 2012 hourly consumption data
The level of hourly data that was used to calculate actual losses in 2012 is not available for prior years
Line Loss Study Update
59
Questions?
DISCLOSURE NOTE:
FORWARD LOOKING STATEMENTS AND INFORMATIONWe have included forward-looking statements in this report that are subject to risks, uncertainties and assumptions. Such information represents our currentviews based on information as at the date of this report. Any statement contained in this document that is not current or historical is a forward-lookingstatement. We have based these forward-looking statements on historical experience, current conditions and various assumptions believed to be reasonablein the circumstances. Actual results could differ materially from those projected in the forward-looking statements. Because of these risks, uncertainties andassumptions, undue reliance should not be placed on these forward-looking statements. Except to the extent required by applicable securities laws andregulations, we undertake no obligation to update or revise any of these forward-looking statements, whether to reflect new information, future events orotherwise.
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
~LUNCH~
2015-2019 Custom Distribution Rate ApplicationCustom Framework:Adjustments & ReportingDecember 2, 2013
Allan Cowan
Director, MajorApplications
Presentation Overview
Annual Reporting/Outcome Measures
Annual Adjustments
Off Ramps
Adjustments Outside of Normal Course of Business
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Forward-looking Financial Statements
We have included forward-looking statements in this presentation thatare subject to risks, uncertainties and assumptions. Such informationrepresents our current views based on information as at the date of thisreport. Any statement contained in this document that is not current orhistorical is a forward-looking statement.
We have based these forward-looking statements on historicalexperience, current conditions and various assumptions believed to bereasonable in the circumstances. Actual results could differ materiallyfrom those projected in the forward-looking statements. Because of theserisks, uncertainties and assumptions, undue reliance should not beplaced on these forward-looking statements.
Except to the extent required by applicable securities laws andregulations, we undertake no obligation to update or revise any of theseforward-looking statements, whether to reflect new information, futureevents or otherwise.
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Annual ReportingOutcome Measures
Criteria:
Outputs to allow Board and Intervenors to monitor key outcomes committed to in the application
Metrics need to be measurable, controllable, and transparent
Manageable number of metrics
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Customer Focus− Customer Satisfaction (i.e. % satisfied)
Operational Effectiveness− System Reliability (i.e. # kms of forestry brush control & line clearing)− Asset Management (i.e. % of in-service capital to forecast)− Overall Cost Performance (i.e. % OM&A / gross fixed costs)
Public Policy Responsiveness− Conservation Demand Management (i.e. Net Annual Peak Demand
Savings (MW))− Renewable Generation (i.e. # of connections, etc.)
Financial Performance− Liquidity (i.e. current assets / current liabilities)
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Examples of DistributionOutcome Measures
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Annual Adjustments
Criteria:
Externally driven beyond utility’s control Ongoing / recurring changes either upward/downward Formula based
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Annual Adjustments
Adjustments:
(1) Cost of CapitalBased on OEB issued Return On Equity and deemed Short Term debt rate in Nov each year and on Hydro One’s actual long term debt issued
(2) Working CapitalBased on change in Commodity Prices (including global adjustment)
(3) Tax Rate Changes (100%)Based on government directed tax change within the year
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Adjustments (cont’d):
(4) 3rd party flow-through costs Based on change in:
- Retail Transmission Service Rate (RTSR), - Wholesale Meter Service Charge (WMSC), - Smart Metering Entity Charge (SME), - Rural Rate Protection Charge (RRRP), - OEB Charges
(5) Clearing of Variance Accounts (e.g. RSVAs, pension) Schedule bi-annually (i.e 2016 and 2018) based on the latest
year-end audited financial actuals.
Annual Adjustments
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Implementation:
Hydro One will present to the Board an update of adjustments for the upcoming year as part of the draft rate order filed in November of each year.
Annual Adjustments
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The Board’s Renewed Regulatory Framework for Electricity outlined that a regulatory review may be initiated if:
Return on Equity is outside the +/- 300 basis point earnings deadband; or
Performance erodes to unacceptable levels
Off-Ramps
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Criteria:
Externally driven beyond utility’s control Unexpected Very material impact
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Adjustments Outside of Normal Course of Business
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Adjustments:
Restructuring of the industry New Government Directives or Legislation Market Rules/Code changes Environmental law changes Technical standard changes New investments resulting from the newly developed
Regional Plans Material unforeseen weather events Accounting Framework changes
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Adjustments Outside of Normal Course of Business
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Implementation:
Hydro One will file when an event or cumulative events are materially impactive
Requires only a particular component of the plan to be examined and possibly tracked in a variance account and adjusted through a rate rider/adder
May require a written proceeding
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Adjustments Outside of Normal Course of Business
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Questions?
DISCLOSURE NOTE:
FORWARD LOOKING STATEMENTS AND INFORMATIONWe have included forward-looking statements in this report that are subject to risks, uncertainties and assumptions. Such information represents our currentviews based on information as at the date of this report. Any statement contained in this document that is not current or historical is a forward-lookingstatement. We have based these forward-looking statements on historical experience, current conditions and various assumptions believed to be reasonablein the circumstances. Actual results could differ materially from those projected in the forward-looking statements. Because of these risks, uncertainties andassumptions, undue reliance should not be placed on these forward-looking statements. Except to the extent required by applicable securities laws andregulations, we undertake no obligation to update or revise any of these forward-looking statements, whether to reflect new information, future events orotherwise.
DRAFT - 2013 CONFIDENTIAL - Preliminary Figures
Thank you for attending!Check our website for further information:www.HydroOne.com/RegulatoryAffairs
Any questions or comments can be directed to:[email protected]