COST ALLOCATION. Cost Allocation Informational Filing Guidelines for Electricity Distributors dated November 15, 2006.

Transcription

1 Filed: October 10, 2008 Schedule 1 Page 1 of COST ALLOCATION PowerStream submitted a cost allocation informational filing with the Board on January 12, This filing comprised a "Manager's Summary" and related material that was prepared in accordance with the following: Board Directions on Cost Allocations Methodology for Electricity Distributors dated September 29, 2006 (EB , Cost Allocation Review); and Cost Allocation Informational Filing Guidelines for Electricity Distributors dated November 15, PowerStream filed an application with the Board on March 7, 2007 to harmonize its rates across the four municipalities that constitute its service area. The harmonization process included the following steps: an allocation of the 2006 revenue requirement to the rate classes, using the Boarddeveloped cost allocation model, and a comparison of the allocated costs to the revenues from the 2006 rates to determine the difference between the rates and the allocated costs; and a realignment of the 2006 rates by closing the differences by 25% between the allocated costs and the rates for each rate class. The Board approved the harmonized rates in its Decision and Order dated July 26, 2007 (EB ). The harmonized rates became effective on November 1, PowerStream has prepared a cost allocation study for 2009 ("2009 CAS") in accordance with the Board's cost allocation directions and guidelines, including the cost allocation model, that are cited above. The 2009 CAS is underpinned by revenues at rates calculated based on the proposed revenue requirement and existing rate class revenue allocation, forecast customer numbers, forecast kwh consumption, forecast demand and updated load profiles from Hydro One.

2 Filed: October 10, 2008 Schedule 1 Page 2 of PowerStream has used the 2009 CAS to adjust rates calculated at the current revenue allocation so that the proposed rates for May 1, 2009 result in revenuetocost ratios that fall within the ranges established by the following Report of the Board: Application of Cost Allocation for Electricity Distributors dated November 28, 2007 (EB ). Revenue adjustments were required to bring the Large Use, Sentinel Lighting and Street Lighting classes within the required range for each class. PowerStream has used the Monthly Service Charge ( MSC ) ceiling calculated in the 2009 CAS in determining the proposed MSC for each rate class as follows. Where the current 2008 MSC is at or above the 2009 ceiling, the proposed MSC has been capped at the 2008 MSC. Otherwise the proposed MSC has been determined as the lower of the 2009 MSC (calculated at the current fixedvariable revenue split) and the 2009 ceiling.

3 Filed: October 10, 2008 Updated: January 30, 2009 Schedule 2 Page 1 of RESULTS OF COST ALLOCATION STUDY UPDATE The Board's policy on revenuetocost ratios is set out in the following Report of the Board: Application of Cost Allocation for Electricity Distributors dated November 27, 2007 (EB ). This report established "ranges of tolerance around revenuetocost ratios of one" (p. 4) for each customer class. The report stated that the Monthly Service Charge ("MSC") the fixed rate component of the distribution rates would be examined in the Board's consultation process on rate design for recovery of electricity costs (EB ). Accordingly, in the meantime, the Board does not expect any distributor to make any changes that would raise its MSC above the ceiling nor, for any distributor with an MSC currently above the ceiling, any changes to reduce its MSC to or below the ceiling (pp. 1213). PowerStream has prepared a Cost Allocation Study for 2009 ( 2009 CAS ). The 2009 CAS is described in,, Schedule 1. Table 1 on the next page provides the revenuetocost ratios for 2006 from the cost allocation informational filing and for 2009 in two separate columns. The first 2009 column is based on the calculated rates, before any cost allocation adjustment. As can be seen, these do not reflect the Boardapproved revenuetocost ratio range for some customer classes. The second 2009 column is based on the proposed rates; that is, the rates that do reflect those ranges for all customer classes.

4 Filed: October 10, 2008 Updated: January 30, 2009 Schedule 2 Page 2 of 4 20 Table 1: PowerStream RevenuetoCost Ratios Customer Class Board Approved Range 2006 Filing 2009 Calculated Ratios 2009 Proposed Ratios Residential 85% 115% 93.4% 93.3% 93.3% GS<50 80% 120% 113.5% 113.5% 113.5% GS>50 80% 180% 108.1% 107.2% 107.2% Large Use 85% 115% 75.9% 413.1% 115.0% USL 80% 120% 169.6% 119.5% 119.5% Sentinel Lighting 70% 120% 16.4% 46.0% 70.0% Street Lighting 70% 120% 54.4% 64.7% 70.0% Revenue allocation adjustments were required to the Large Use (a decrease), Sentinel Lighting (an increase) and the Street Lighting (an increase) classes to bring their revenuetocost ratios within the Boardapproved ranges. The net adjustment to these classes left a small revenue deficiency of $56,472 to be recovered from other classes. PowerStream proposes to recover the entire revenue deficiency from the residential class because doing so would move its revenuetocost ratio closer to 1.00 (i.e., fully allocated costs). There would not be a similar outcome for any other customer class. The resultant impact on a typical residential customer's bill is de minimus. This is particularly so when viewed with the other changes that affect the distributionrelated portion of the bill: rebasing, smart meter rate adders, regulatory asset recovery rate riders, and LRAM and SSM rate riders. More detail is provided in Exhibit I, Tab 6, Schedule 3. There has been a dramatic change in the revenue cost ratio for the Large Use class from the 2006 CAS to the 2009 CAS. This is due to a reduction in the number of customers in this class from five to one in the interval. PowerStream now has a single large use customer who uses dedicated feeder lines from a transformer station. Accordingly only the cost of the dedicated assets and the >50kV assets are allocated to this class.

5 Filed: October 10, 2008 Updated: January 30, 2009 Schedule 2 Page 3 of The proposed Large Use rates reflect the unique circumstances of this one customer. In the eventuality of additional customers entering the Large Use class, these rates would not reflect the cost of service for these customers. PowerStream proposes that any new or existing customers with average monthly demand of 5,000 kw or greater be treated as GS>50 kw customers until such time as rates for the Large Use class are revised based on a cost allocation study reflecting the change in the composition of large use customers. Table 2 compares the 2008, the 2009 calculated (before application of the ceiling) and the 2009 proposed monthly fixed service charge ( MSC ) to values in the 2009 CAS. Table 2: PowerStream Monthly Fixed Service Charges ($) Customer Class 2009 CAS 2008 Charge 2009 Calculated Charge 2009 Proposed Charge Floor Ceiling Residential GS< GS> Large User , , , USL Sentinel Lighting Street Lighting Note: Sentinel and Street Lighting rates are per connection. Above rates are before Smart Meter rate adder. The 2009 Calculated Charges were determined using the current fixed/variable revenue split for each customer class. Where the current 2008 MSC is at or above the ceiling calculated in the 2009 CAS, no change is proposed (e.g., GS<50 Class). If the 2008

6 Filed: October 10, 2008 Updated: January 30, 2009 Schedule 2 Page 4 of MSC is below the ceiling, then the proposed MSC is the lower of the 2009 calculated MSC and the ceiling (e.g., Residential Class). Once the MSC for each class is determined, the fixed distribution revenue from the MSC is calculated and subtracted from the total class revenue allocation. The remainder is the variable distribution revenue for the class. This variable distribution revenue value is then used to determine the variable charge. PowerStream has maintained the current transformer ownership allowance of.60 per kw, pending the results of further cost allocation refinements by the OEB. PowerStream has not entered the transformer ownership allowance amount into the cost allocation model (2009 CAS) to prevent the model from allocating this cost to rate classes that do not receive this allowance. In rate design the amount of transformer ownership allowance has been allocated only to the classes that receive it. PowerStream has used ten year weather normalization in preparing the load forecast which in turn has been used to create the load profiles used in the Cost Allocation Study. See Exhibit C1 Schedule 2 for more information on the Load Forecast and its use of weather normalization. PowerStream s Load Profiles used in the cost allocation update were based on preliminary load forecasts as of February 2008 before the adjustments for CDM and more up to date information. The final forecast decreased 406,474,909 kwhs or 5.5% from the preliminary forecast used for the load profiles. The main reason for the decrease was updating to more current parameters such as the forecasted Real GDP Index. Another significant factor was incorporating the results of CDM into the load forecast. The effect of these changes on the relative consumption by customer class was plus or minus 0.2% or less in all cases.

7 2009 COST ALLOCATION INFORMATION FILING POWERSTREAM INC , EB EB Friday, October 10, 2008 Sheet I2 Class Selection Schedule 3 Instructions: Step 1: Pleae input your existing classes Step 2: If this is your first run, select "First Run" in the dropdown menu below Step 3: After all classes have been entered, Click the "Update" button in row E41 Click for DropDown Menu If desired, provide a summary of this run (40 characters max.) Utility's Class Definition Current 1 Residential YES 2 GS <50 YES 3 GS>50Regular YES 4 GS> 50TOU NO 5 GS >50Intermediate NO 6 Large Use >5MW YES 7 Street Light YES 8 Sentinel YES 9 Unmetered Scattered Load YES 10 Embedded Distributor NO 11 Backup/Standby Power NO 12 Rate Class 1 NO 13 Rate class 2 NO 14 Rate class 3 NO 15 Rate class 4 NO 16 Rate class 5 NO 17 Rate class 6 NO 18 Rate class 7 NO 19 Rate class 8 NO 20 Rate class 9 NO Update ** Space available for additional information about this run

8 Schedule COST ALLOCATION INFORMATION FILING POWERSTREAM INC Friday, October 10, 2008 Sheet I4 Break Out Worksheet Instructions: This is an input sheet for the Break Out of Distribution Assets, Contributed Capital, Amortization, and Amortization Expenses. **Please see Handbook for detailed instructions** Enter Net Fixed Assets from approved EDR, Sheet 31, cell F12 $459,051,009 8A Rate Base'!$I$10 BALANCE SHEET ITEMS EXPENSE ITEMS RATE BASE AND DISTRIBUTION ASSETS Asset net of Accumulated Accumulated Amortization Amortization of Amortization of Accumulated Accumulated Amortization of Break out Contributed Depreciation Depreciation Expense Intangibles and Electric Plant Account Description BREAK OUT (%) BREAK OUT ($) After BO Depreciation Depreciation and Limited Term Functions Capital Capital 2105 Fixed Property, Plant, Other Electric Acquisition 2120 Contributed Electric Plant Contribution Assets Only and Equipment Plant Adjustments Capital Conservation and Demand 1565 Management 1805 Land $3,144,995 ($3,144,995) Land Station $3,050,645 3,050,645 >50 kv 97.00% 3,050, Land Station <50 kv 3.00% $94,350 94,350 94, Land Rights ($581,621) $581, Land Rights $314, ,076 Station >50 kv 54.00% ($63,297) 250, Land Rights Station <50 kv 46.00% $267, ,546 ($53,919) 213, Buildings and Fixtures ($3,845,612) $3,845, Buildings and Fixtures $3,807,156 3,807,156 > 50 kv 99.00% ($600,077) 3,207,079 ($362,861) Buildings and Fixtures < 50 KV 1.00% $38,456 38,456 ($10,488) 27,969 $ Leasehold Improvements Leasehold Improvements >50 kv 0.00% Leasehold Improvements <50 kv % Transformer Station Equipment ,029,987 57,416,286 $97,029,987 Normally Primary above 50 kv ($16,607,951) $4,892,789 ($27,898,540) $1,811,794 Distribution Station Equipment 1820 $10,963,166 ($10,963,166) Normally Primary below 50 kv Distribution Station Equipment Normally Primary below 50 kv 0.00% (Bulk) Distribution Station Equipment Normally Primary below 50 kv 80.00% $8,770,533 8,770,533 5,134,251 Primary) ($13,856) $1,508 ($3,623,934) $227,431 Distribution Station Equipment Normally Primary below 50 kv 20.00% $2,192,633 2,192,633 1,283,563 (Wholesale Meters) ($3,464) $377 ($905,984) $57, Storage Battery Equipment Storage Battery Equipment > % kv Storage Battery Equipment <50 kv % 1830 Poles, Towers and Fixtures ($96,460,083) $96,460,083 Poles, Towers and Fixtures % Subtransmission Bulk Delivery Poles, Towers and Fixtures % $94,530,881 94,530,881 Primary Poles, Towers and Fixtures % $1,929,202 1,929,202 Secondary ($10,874,386) $1,948,388 ($30,394,878) ($221,926) $39,763 ($620,304) 55,210,005 1,126,735 $2,914,517 $59, Overhead Conductors and Devices $124,302,147 ($124,302,147) Overhead Conductors and Devices Subtransmission Bulk Delivery Overhead Conductors and Devices % $113,114, ,114,953 Primary Overhead Conductors and Devices % $11,187,193 11,187,193 Secondary 1840 Underground Conduit $52,186,020 ($52,186,020) ($17,755,097) $4,334,001 ($56,401,676) ($1,755,999) $428,637 ($5,578,188) 43,292,180 4,281,644 $3,435,901 $339, Underground Conduit Bulk Delivery Underground Conduit Primary % $52,186,020 52,186,020 ($12,077,561) $1,875,879 ($24,111,138) 17,873,201 $1,408, Underground Conduit Secondary 0.00% Underground Conductors and 1845 ($261,382,305) $261,382,305 Devices Underground Conductors and % Devices Bulk Delivery Underground Conductors and % $261,382, ,382,305 89,691,459 Devices Primary ($51,359,448) $8,844,001 ($129,175,399) $7,292,072 Underground Conductors and % Devices Secondary 1850 Line Transformers $209,746, ,746,030 ($48,773,425) $10,352,597 ($104,349,733) 66,975,469 $5,532, Services $96,241,694 96,241,694 ($24,570,572) $3,798,690 ($44,491,991) 30,977,821 $3,313, Meters $59,756,517 59,756,517 ($6,878,672) $1,312,398 ($27,019,315) 27,170,928 $2,195,169 Total $1,015,640,178 $1,015,640,178 ($190,892,357) $37,829,028 ($455,298,861) 407,277,988 $28,225,188 SUB TOTAL from I3 $1,015,640, Accumulated Accumulated Amortization Amortization of Amortization of Accumulated Amortization of General Break out Contributed Depreciation Depreciation Expense Intangibles and Electric Plant Depreciation Net Asset Limited Term Plant Functions Capital Capital 2105 Fixed Property, Plant, Other Electric Acquisition 2120 Electric Plant Contribution Assets Only and Equipment Plant Adjustments 1905 Land $4,840,524 4,840,524 4,840,524 $ $112 $ 1906 Land Rights $ 23,766,066 $ Buildings and Fixtures $24,306,597 24,306,597 ($540,531) $924,323 $ $148,443 $ Leasehold Improvements $1,649,160 1,649,160 ($1,297,196) 351,964

9 Schedule COST ALLOCATION INFORMATION FILING POWERSTREAM INC Friday, October 10, 2008 Sheet I4 Break Out Worksheet Instructions: This is an input sheet for the Break Out of Distribution Assets, Contributed Capital, Amortization, and Amortization Expenses. **Please see Handbook for detailed instructions** Enter Net Fixed Assets from approved EDR, Sheet 31, cell F12 $459,051,009 8A Rate Base'!$I$10 RATE BASE AND DISTRIBUTION ASSETS Account Description Break out Functions BREAK OUT (%) BREAK OUT ($) After BO BALANCE SHEET ITEMS Contributed Capital 1995 Accumulated Depreciation 2105 Capital Contribution Accumulated Depreciation 2105 Fixed Assets Only Accumulated Depreciation 2120 Asset net of Accumulated Depreciation and Contributed Capital EXPENSE ITEMS Amortization Expense Property, Plant, and Equipment Amortization of Limited Term Electric Plant Amortization of Intangibles and Other Electric Plant 1915 Office Furniture and Equipment $5,547,250 5,547,250 ($2,818,473) 2,728,777 $ $444,568 $63 $ 2,826,115 $1,317,791 $ Computer Equipment Hardware $9,662,124 9,662,124 ($6,836,009) $ 4,919,158 $4,425,743 $ Computer Software $15,047,417 15,047,417 ($10,128,260) $ 3,536,296 $ Transportation Equipment $13,016,642 13,016,642 ($9,480,346) $ $ Stores Equipment $455, ,960 ($400,559) 55, Tools, Shop and Garage Equipment $4,252,801 4,252,801 ($2,927,723) 1,325,078 $ $ Measurement and Testing Equipment $ $ 1950 Power Operated Equipment $ 1,514,046 $ Communication Equipment $2,649,819 2,649,819 ($1,135,773) $215,239 $ $2,835 $ Miscellaneous Equipment $28,352 28,352 ($2,835) 25, Load Management Controls Customer Premises $ 1975 Load Management Controls Utility Premises $ $ 5,783,992 $ System Supervisory Equipment $14,769,529 14,769,529 ($8,985,537) $829,056 $ 1990 Other Tangible Property $ $ 2005 Property Under Capital Leases $ 2010 Electric Plant Purchased or Sold Amortization of Electric Plant Acquisition Adjustments Total $96,226,174 $96,226,174 ($44,553,242) $51,672,932 $8,308,000 $1,200 SUB TOTAL from I3 $96,226,174 I3 Directly Allocated $100,089 Grand Total $1,111,966,441 $1,111,866,352 ($190,892,357) $37,829,028 ($499,852,103) $458,950,920 $36,533,188 $1,200 To be Prorated 1995 Contributed Capital 1995 ($190,892,357) Distn assets cost $1,015,640,178 ($568,960,822) $190,892,357 Balanced 2105 Accumulated Depreciation ($462,023,075) contr cap ($190,892,357) $106,937, ,023,075 Balanced 2120 Accumulated Depreciation 2120 $824,747,821 ($462,023,075) Total ($652,915,432) Net Fixed Assets Net Assets $459,051,009 Match EDR Balanced Amortization Expenses 5705 Amortization Expense Property, $36,533,188 ($36,533,188) Balanced Plant, and Equipment Amortization of Limited 5710 Term Balanced Electric Plant Amortization of 5715 Intangibles and $1,200 ($1,200) Balanced Other Electric Plant Amortization of Electric 5720 Plant Balanced Acquisition Adjustments Total Amortization Expense $36,534,388

10 2009 COST ALLOCATION INFORMATION FILING POWERSTREAM INC EB /EB /EB , EB EB Friday, October 10, 2008 Sheet O1 Revenue to Cost Summary Worksheet Filed: October 10, 2008 Updated: January 30, 2009 PowerStream Inc Schedule 3 Class Revenue, Cost Analysis, and Return on Rate Base Rate Base Assets Total Residential GS <50 GS>50Regular Large Use >5MW Street Light Sentinel Unmetered Scattered Load crev Distribution Revenue (sale) $120,304,162 $61,125,021 $18,143,886 $39,193,181 $215,920 $1,132,849 $12,162 $481,142 mi Miscellaneous Revenue (mi) $6,568,046 $3,593,024 $1,596,411 $1,273,225 $884 $17,138 $521 $86,843 Total Revenue $126,872,208 $64,718,044 $19,740,298 $40,466,407 $216,805 $1,149,987 $12,683 $567,985 Expenses di Distribution Costs (di) $11,996,591 $6,403,606 $1,404,337 $3,973,640 $4,668 $178,756 $3,020 $28,565 cu Customer Related Costs (cu) $10,473,500 $6,296,950 $2,222,094 $1,746,985 $503 $90,815 $1,282 $114,870 ad General and Administration (ad) $22,628,209 $12,725,612 $3,599,883 $5,878,970 $5,631 $275,435 $4,370 $138,308 dep Depreciation and Amortization (dep) $36,534,388 $20,353,895 $4,415,221 $11,088,071 $8,823 $570,854 $9,135 $88,389 INPUT PILs (INPUT) $8,897,366 $4,645,885 $1,130,725 $2,963,680 $4,570 $129,906 $1,916 $20,685 INT Interest $18,397,525 $9,606,527 $2,338,055 $6,128,147 $9,449 $268,613 $3,962 $42,772 Total Expenses $108,927,579 $60,032,474 $15,110,314 $31,779,494 $33,642 $1,514,379 $23,686 $433,590 Direct Allocation $9,627 $9,627 NI Allocated Net Income (NI) $17,935,002 $9,365,014 $2,279,276 $5,974,083 $9,211 $261,860 $3,863 $41,697 Revenue Requirement (includes NI) $126,872,208 $69,397,488 $17,389,590 $37,753,577 $52,480 $1,776,238 $27,548 $475,287 Revenue Requirement Input equals Output Rate Base Calculation Net Assets dp Distribution Plant Gross $1,015,640,178 $548,684,868 $125,668,342 $322,398,477 $344,398 $15,831,664 $241,974 $2,470,454 gp General Plant Gross $96,226,174 $51,318,282 $11,987,962 $31,185,080 $42,106 $1,443,046 $22,159 $227,540 accum dep Accumulated Depreciation ($462,023,075) ($253,435,899) ($56,698,120) ($142,981,664) ($102,150) ($7,529,404) ($114,489) ($1,161,348) co Capital Contribution ($190,892,357) ($106,343,682) ($22,761,660) ($58,192,886) ($52,572) ($3,023,945) ($50,029) ($467,582) Total Net Plant $458,950,920 $240,223,569 $58,196,524 $152,409,006 $231,782 $6,721,361 $99,615 $1,069,063 Directly Allocated Net Fixed Assets $100,089 $100,089 COP Cost of Power (COP) $453,444,523.8 $135,081,124 $53,325,076 $259,551,645 $2,085,845 $2,811,356 $45,344 $544,133 OM&A Expenses $45,098,300.1 $25,426,168 $7,226,314 $11,599,596 $10,801 $545,007 $8,672 $281,743 Directly Allocated Expenses.0 Subtotal $498,542,824 $160,507,291 $60,551,390 $271,151,241 $2,096,646 $3,356,363 $54,017 $825,876 Working Capital $74,781,423.6 $24,076,094 $9,082,708 $40,672,686 $314,497 $503,454 $8,102 $123,881 Total Rate Base $533,832,432 $264,299,662.8 $67,279,232.8 $193,081,692 $646,367 $7,224,815 $107,717 $1,192,945 Rate Base Input equals Output Equity Component of Rate Base $213,532,973 $105,719,865 $26,911,693 $77,232,677 $258,547 $2,889,926 $43,087 $477,178 Net Income on Allocated Assets $17,935,003 $4,685,570 $4,629,983 $8,686,913 $173,536 ($364,391) ($11,003) $134,395 Net Income on Direct Allocation Assets $1,768 $1,768 Net Income $17,936,770 $4,685,570 $4,629,983 $8,686,913 $175,303 ($364,391) ($11,003) $134,395 RATIOS ANALYSIS REVENUE TO EXPENSES % % 93.26% % % % 64.74% 46.04% % EXISTING REVENUE MINUS ALLOCATED COSTS $1 ($4,679,443) $2,350,708 $2,712,830 $164,324 ($626,251) ($14,866) $92,698 RETURN ON EQUITY COMPONENT OF RATE BASE 8.40% 4.43% 17.20% 11.25% 67.80% 12.61% 25.54% 28.16%