SUMMARY OF APPLICATION

Transcription

1 Filed: September, 00 EB Schedule Page of SUMMARY OF APPLICATION Hydro One Networks ( Hydro One or Hydro One Transmission ) is applying for an Order approving the revenue requirement, cost allocation and rates for Hydro One s Transmission Business for years 00 and 00 ( test years ) in accordance with the Notice of Hearing, dated October, 00, provided by the Ontario Energy Board (the Board or OEB ), under Docket Number EB This summary provides a brief description of the approvals being sought through this Application and a summary of reasons for the increase in revenue requirement. 0 SCOPE OF APPLICATION The scope of this Application is taken from the Board s Notice of Hearing of October, 00. This Notice provided for: 0 the review of Hydro One s evidence in support of transmission revenue requirements for 00 and 00, the review of revised transmission rates expected to be implemented in 00, consideration of an adjustment formula to be applied to the 00 revenues for 00 and consideration of alternatives for treatment of utility earnings for the period of January, 00, until revised rates may be implemented. The Board s Phase Decision issued on February, 00, addressed the 00 treatment of utility earnings. That Decision specified the application of an earnings sharing mechanism to transmission earnings in excess of the approved return of.% from January, 00 until the implementation of revised transmission rates. This mechanism would be applied to Hydro One s 00 earnings, based upon the Transmission Business

2 Updated: February, 00 EB Schedule Page of actual 00 audited financial statements. This audit will be completed during the first half of 00. In the meantime, Hydro One Transmission has determined its 00 earnings on a pre-audit basis and accordingly, calculated the earnings sharing amount and proposed a disposition plan in this Application. 0 The Board s letter to Hydro One accompanying the Notice of Hearing acknowledged the impact on other Provincial transmitters of establishing interim rates for Hydro One Transmission. This Application provides information on Hydro One Transmission s revenue requirement and charge determinants by rate pools to assist in the development of uniform Provincial transmission rates. The Board s letter also requested that the Company discuss the nature of the rate filing and the schedule for its review with the Board s Director of Applications with the objective of developing an efficient and timely process, given the delay in the Integrated Power System Plan ( IPSP ) approval. Hydro One held several discussions related to the scope, content and timing of the Application with Board staff in the course of preparing this filing. 0 The Board s Decision on Hydro One s Distribution rates for 00 under Proceeding RP /EB-00-0, approved methodologies to establish corporate cost allocation, working capital and depreciation. For regulatory efficiency and consistency, the Company has utilized these methodologies where applicable, to ensure alignment of common costs between the Transmission and Distribution Businesses. Accordingly, Hydro One is submitting studies for these elements which utilize the approved methodologies, but with updated content for the 00 and 00 period. The Board, in the same Decision respecting the Company s 00 Distribution rates, also prescribed the Company s embedded cost of long term debt as the rate to be applied to the Allowance

3 Updated: February, 00 EB Schedule Page of for Funds Used During Construction ( AFUDC ). That rate has been used in this Application. 0 The Company has undertaken studies to assess the condition of its transmission assets and the resulting Asset Condition Assessment report has been used to shape the Sustainment OM&A and Capital plans set out in Exhibits C and D. The Company also undertook an extensive stakeholder consultation process to increase understanding of the issues in this Application and to more clearly scope the issues, particularly those of bench-marking and rate design, which are of interest to stakeholders. The report for the stakeholder process, prepared by an external consultant, is provided in this Application. On July, 00, Board staff issued draft minimum filing requirements for distribution and transmission rate applications. Hydro One believes this submission is substantively consistent with the intent of the draft filing requirements. It is also consistent with the Company s Application for 00 Distribution rates, which the Board approved. 0 The Company intends to address through this Application, all outstanding Board directives with respect to its Transmission Business. A listing of all relevant directives and the corresponding exhibit or a statement of status is provided in, Tab, Schedule. APPROVALS REQUESTED Revenue Requirement Respecting Hydro One s revenue requirement in the years 00 and 00 for its Transmission Business, the Company is seeking approvals for:

4 Updated: February, 00 EB Schedule Page of 0 0. A revenue requirement of $, million and $, million for the 00 and 00 test years, respectively, as set out in Exhibit E, Tab, Schedule on the basis of the methodology described in Exhibit E, Tab, Schedule. These revenue requirements reflect a.0% and.% increase in 00 and 00, respectively, which translates into less than a 0.% increase on the average customer s total bill.. Changes in Hydro One s current capital structure of 0% debt, % preference equity and % common equity, as approved in the Board s Phase Decision noted above, to % debt, % preference equity and 0% common equity, with an accompanying increase in the return on common equity ( ROE ) from the approved level of.%, to 0.%. The Company s request for this approval is supported in Exhibit B by the expert evidence of Kathleen McShane of Foster Associates Inc., which explains the basis of calculating the cost of capital.. An OM&A cost expenditure forecast of $ million in 00 and $ million in 00 for the Transmission Business as summarized in Exhibit C, Tab, Schedule. The Company s request for this approval is supported by detailed evidence in various schedules in Exhibit C.. Other components of the Cost of Service, as summarized in Exhibit C, Tab, Schedule and Exhibit C, Tab, Schedule. These include Hydro One s depreciation rates proposed for application to the Transmission Business commencing January, 00, and Payments in Lieu of corporate income taxes ( PILs ) for the Transmission Business for each of 00 and 00.. A rate base forecast of $, million in 00 and $, million in 00 for the Transmission business as summarized in Exhibit D, Tab, Schedule. The Company s request for this approval is supported by a discussion of the assets and the capital expenditures forecast for 00 and 00 as found in Exhibit D.. The need to reinforce the existing kv transmission connection lines between Leaside TS and Birch Junction in the City of Toronto. This will address the need for load curtailment during certain power system contingencies. The required

5 Updated: February, 00 EB Schedule Page of 0 magnitude of load curtailment could reach MW by the summer of 00. The need justification is provided in Exhibit D,, Schedule.. The inclusion in rate base of certain capital costs incurred in the year for transmission development projects which are required in order to implement the Provincial Government s supply mix decisions and which represent a very significant expenditure for the Company. This proposal is described and supported with evidence in Exhibit D, Tab, Schedule, which identifies other jurisdictions where this practice has been adopted.. Hydro One s proposed mechanism to adjust revenue requirement components to create 00 and 00 revenue requirements, as a means of improving regulatory efficiency. This includes a review of approaches used in other jurisdictions and is provided in, Tab, Schedules through.. Regulatory assets with a total credit balance of $ million to April 0, 00, which would be used to reduce the annual revenue requirement over a four-year period, as summarized in Exhibits F, Tab, Schedule and F,, Schedule. Cost Allocation and Rates The Company is seeking approvals of: 0 0. Hydro One Transmission s proposed cost allocation methodology, as described in Exhibit G,, Schedule and supported by the remainder of the G Exhibit.. The creation of a wholesale metering services pool, as discussed in Exhibit G, Tab, Schedule.. Maintenance of the Uniform Transmission rate methodology, as discussed in Exhibit H, Tab, Schedule and supported by the remainder of the H Exhibit.

6 Updated: February, 00 EB Schedule Page of. Charges for the provision of wholesale metering services and export transmission services performed by the utility as set out at Exhibit H, Tab, Schedule and Exhibit H, Tab, Schedule, respectively.. The disposition of the balances accumulated in Regulatory Accounts as shown in Exhibit F,, Schedule.. Appropriate revisions to the Uniform Transmission Rates to allow for the recovery of the items set out above. 0 0 Other. Hydro One seeks approval of its proposal for disposition of the ratepayer s portion of 00 excess earnings as capital contributions. These earnings, based upon 00 results, comprise $ million and have been calculated using the earnings sharing principles and methodology outlined in the Board s Decision (EB-00-00) of February, 00. The financial impacts of this capital contribution in 00 are fully integrated into the financial results and revenue requirement of this Application. The Company s proposal for disposition is provided in, Tab, Schedule.. Hydro One also seeks approval of variance accounts to track the impact of tax rate changes, incremental OEB costs, variances between Hydro One s planned and actual pension costs, the amounts paid to third parties as a result of changes to the Transmission System Code between rate re-sets, and the deficiency in 00 revenues, given the anticipated time to obtain a rate adjustment, as described in Exhibit F, Tab, Schedule. CAUSES OF THE INCREASE IN REVENUE REQUIREMENT The Company s forecasted revenue requirement for 00 of $, million and for 00 of $, million is provided in Exhibit E, Tab, Schedule. These requirements

7 Updated: February, 00 EB Schedule Page of represent an increase of.0% and.% increase in Transmission revenues in 00 and 00, respectively, which translates into less than a 0.% increase on the average total customer bill. The main contributions to the increase in revenue requirement in 00 are: 0 0 Growth of almost $00 million in the installed asset base since rates were established in the year 000. This expansion was required to meet load growth requirements, expand interconnection capability to enable export and import of electrical energy, connect new generators, re-configure the system to accommodate a new supply mix and improve customer delivery point reliability, replace end of life facilities and improve productivity. Increases in OM&A requirements, largely precipitated by increased need for preventative and corrective maintenance associated with an aging fleet of delivery assets, along with an increase in regulatory and industry compliance requirements and the effects of escalation in labour rates, replacement parts and materials. Increases to the Hydro One Transmission Business common equity component and the associated ROE from the current level of.% to 0.0%, based on: the importance of maintaining continued access to long-term debt at reasonable rates, the need to counteract increasing risk factors placing downward pressure on credit ratings, such as uncertainties surrounding timing, completion and ability to recover required new investments and the need to maintain a risk-return profile which is consistent with that of comparable utilities on a global basis, allowing the Company to respond to increasing competition for long-term debt within Canada. These increases, totaling % in 00, are off-set by an % reduction in interest rates and taxes, resulting in a net increase of %.

8 Updated: February, 00 EB Schedule Page of The increases identified within the Application will ensure that customers within the Province will continue to be supplied in a secure and reliable manner, thereby contributing to the health and competitiveness of the Province s economy.