REGULATORY ASSETS, VARIANCE AND DEFERRAL ACCOUNTS

Transcription

1 EB-0-0 Exhibit J Tab Page of REGULATORY ASSETS, VARIANCE AND DEFERRAL ACCOUNTS This evidence provides a summary of THESL s regulatory assets, variance and deferral accounts. The account balances, when approved for clearance, are recovered through separate rate riders and not included in the revenue requirement. 0 THESL s use of these accounts, and amounts recorded in them, is in accordance with the methodologies and requirements provided by the OEB as set out in the Accounting Procedures Handbook ( APH ), and as set out in directions issued by the OEB from time to time. SUMMARY OF REGULATORY ASSET ACCOUNT BALANCES A detailed continuity of account balances in the format provided by the Board, including carrying costs, is shown in Exhibit J, Tab, Schedule. The December, 00 principal balances and carrying charges are summarized as follows: Table : Summary of Regulatory Asset Balances ($ millions) Interest to December 00 December, December, Principal plus 00 Principal 00 Interest RSVA Accounts (.) 0. (.) All Other Regulatory Asset, Variance and Deferral Accounts. 0.. Regulatory Asset Recovery Accounts ( RARA ) (.) (.) (0.) Total Balance. (.).0

2 EB-0-0 Exhibit J Tab Page of 0 RSVA accounts include the following OEB Accounts: 0 Wholesale Market Service Charges (RSVA WMS ) One-Time Wholesale Market Service (RSVA WMS One-Time ) Retail Transmission Network Charge (RSVA Network ) Retail Transmission Connection Charge (RSVA Connection ) Power (including Global Adjustment) (RSVA Power ) 0 Low Voltage Variance Account Other Regulatory Asset accounts for THESL include: 0 Other Regulatory Assets / Smart Meter Accounts 0 Low Voltage Variance Account Deferred PILS PILS and Tax Variances RARA accounts contain amounts which have been previously approved by the Board for recovery through rate riders. 0 CARRYING CHARGES Carrying charges have been applied to all accounts using the Board s Prescribed Interest Rates. For the periods up to 0 Q, the rates are as determined by the OEB. For the periods 0 Q through 0 Q, the 0 Q rate has been applied as a forecast. THESL proposes to update these rates for the actual approved rates at the time of clearance of these accounts in 0. The rates applied are shown in Exhibit J, Tab, Schedule.

3 EB-0-0 Exhibit J Tab Page of PLANNED DISPOSITION OF REGULATORY ASSETS On July, 00 the OEB issued its Report of the Board on Electricity Distributors Deferral and Variance Account Review Initiative ( EDDVAR ) (EB-00-00). The Board indicated that, at the time of rebasing, all accounts should be reviewed and disposed of unless otherwise justified by the distributor or as required by a specific Board decision or guideline (page of the Executive Summary). 0 In the June, 0 Updated Filing Requirements, the OEB directed Distributors to provide balances and detailed methods of recovery of existing accounts proposed to be cleared as part of the main rates case. 0 In July 0, the Board approved clearance of the 00 balances (plus carrying costs) of a number of deferral and variance accounts. The total amount approved to be cleared to customers was $. million (comprised of a $. million debit to customers for Late Payment Penalties, and an $. million credit to customers for other deferral and variance accounts), and has been charged as a number of rate riders effective August, 0. THESL has indicated below the accounts which it proposes to clear beginning May, 0 and the method proposed for clearing them. The balances reflect audited financial statements for the fiscal year ended December, 00, adjusted to reflect the Board s July 0 decision on clearance of 00 balances, as noted above. The amounts include the forecasted carrying costs calculated to April 0, 0. THESL is requesting disposition of the following Regulatory Asset accounts: All RSVA accounts. The total amount of all RSVA accounts is a $. million debit to customers. The accounts included are Account 0 Low Voltage Variance Account, Account 0 Wholesale Market Services, Account

4 EB-0-0 Exhibit J Tab Page of Network, Account Connection, and Account Power (including Global Adjustment sub-account). Account PILS and Tax variances for 00 and subsequent years. The amount proposed for clearance in this account is a $. million credit to customers. The amounts in this account reflect the differences that have resulted from a legislative or regulatory change to the tax rates or rules assumed in the rate adjustment model. 0 Account PILs and Tax Variances, Sub-account HST/OVAT Input Tax Credits (ITCs). In the approved Settlement Agreement for EB-00-0, THESL and parties agreed on the following related to the establishment of an HST deferral account: 0 In addition, as a result of the pending changes to Provincial Sales Tax regulations and the introduction of the Harmonized Sales Tax (HST) as of July, 00, THESL agrees to record in a deferral account the difference between any PST on forecast capital expenditures and expenses to be incurred, and any HST (% Ontario share) on similar capital and expense actual amounts for which it will be eligible for an HST Input Tax Credit ( ITC ). Beginning July, 00 and until THESL s next cost-of-service rebasing application, THESL will track in a deferral account the incremental Input Tax Credit it receives on non-pass-through items (the subject items ) that were previously subject to PST and become subject to HST. The intention of this account is to track the incremental change due to the shift from Provincial Sales Tax to the Harmonized Sales Tax and the amounts THESL receives through the incremental Input Tax Credit. Tracking of these amounts will continue in the

5 EB-0-0 Exhibit J Tab Page of deferral account until THESL s next cost of service application is determined by the Board or until the Board provides guidance on this matter, whichever occurs first. For example, Cost of Power and all other upstream charges applied to THESL by the IESO and/or Hydro One are excluded from this calculation. 0 To qualify for this treatment the cost of the subject items must be in the category of distribution revenue requirement. THESL will apply to clear the balance in the variance account as a credit to customers at the next opportunity for a rate change after the account balance information becomes available and is supported by audited financial statements. In practice, this treatment effects a refund to the ratepayer of the incremental ITC. THESL will file to dispose of the balance in this account at a future date. 0 The parties understand that as of the date of the filing of this settlement agreement, the Board has not established a deferral account to address the introduction of the HST for any rate regulated distributor. Parties recognize that if the Board establishes an HST account on a generic basis, the Board will likely provide specific directions on the accounting guidelines to be followed with regard to the HST account ( HST guidelines ). If the Board does so, the parties understand that the Board s HST guidelines will supersede the methodology noted above. The Board ordered in its decision that these amounts be recorded in Account PILs and Tax Variances, Sub-account HST/OVAT Input Tax Credits (ITCs). In the December 00 Accounting Procedures Handbook Frequently Asked Questions, issued by the Board, questions - related to the accounting for the

6 EB-0-0 Exhibit J Tab Page of HST variance account. Question specifically indicated a methodology LDCs could use to estimate the amounts for this account, if the tracking of the incremental ITCs on an individual transaction basis was not practical. This is the approach THESL has taken in determining the amounts recorded in the variance account. 0 THESL used the 00 actual PST paid as the basis for the calculation. Actual PST paid on aggregate operating and capital expenditure categories was used to determine the PST applicable proportion of these expenses. These proportions were then applied to actual expenditures for the July, 00 to December, 00 period to determine the amounts that would have been eligible for PST in the last half of 00. The PST rate of % was then applied to these PST eligible amounts to estimate the incremental ITC s. The following table shows the details of these calculations.

7 EB-0-0 Exhibit J Tab Page of Table : HST Deferral Account ($000s) A B = A / % 00 PST Paid 00 PST Eligible Expenses C D = B/C E F = E * D G = F * %/0% 00 Total Expenses PST Eligible proportion of Expenses July, 00 to Dec, 00 Actual Expenses Jul to Dec 00 Estimated Eligible Expenses Jul to Dec 00 Estimated ITCs Operating Expenses Inventory and Direct Purchases,,0 0,0.%**,, External Contract Services Office Supplies and Postage Rentals and Leases Utilities and Communications 0,00, 0.%,,,0.%, 0,.%,0 0,.%, Subtotal Capital Expendtures Inventory and Direct Purchases External Contract Services Office Supplies and Postage Utilities and Communications,,, 0.0%**,,,0 0,,0.%,,0 0.% *** *** *** 0.% *** *** *** Subtotal,0 Grand Total, ** Note: These values were set at 00% for calculation of 00 ITC estimate *** These amounts were not readily available, and would result in an immaterial amount of the ITC estimate

8 EB-0-0 Exhibit J Tab Page of During the 00 rate year, the PST amounts for Operating Expenses would have been a pass-through in rates. However, the PST amounts on Capital Expenses would have been included in the Capital additions, and amortized over the life of the assets. The amount recorded to the variance account is therefore calculated as the Revenue Requirement consequences of the ITC calculations. The following table shows the Revenue Requirement associated with the ITCs. Table : Revenue Requirement Associated with ITCs Amount ($M) Assumptions/Calculations Gross Fixed Assets. 0% of Capital Expenditures ITC (half year assumption) Accumulated (0.) Depreciation Net Fixed Assets. Working Capital.% As approved Allowance Rate Base. Net Fixed Assets plus WCA Return on Rate Base 0..0% times Rate Base Operating Expenses 0. Operating Expenditure ITC Depreciation Expense 0. Assume Year Amortization PILS 0. % Effective Tax Rate Revenue Requirement. 0 Based on the methodology described above, THESL proposes to clear the principal amount of $. million to customers. Carrying charges have also been calculated on this amount to date based on Board prescribed rates and will continue to accrue until the May, 0 clearance.

9 EB-0-0 Exhibit J Tab Page of Account 0 Gains of Sale of Properties. In the Board s EB-00-0 Decision, the Board ordered that the amount of $0. million (plus interest) be incorporated as a revenue offset to 00 revenue requirement. This amount reflected a forecast of capital gains related to properties planned to be sold by THESL at the time of its EB hearing. The Board s decision in EB was the conclusion of an appeal process by THESL arising from the earlier decision. Accordingly, a revenue offset of $0. million ($0. million gains plus $0. million interest) was incorporated into 00 rates. 0 The $0. million amount ordered by the Board was composed of the forecast capital gains of three named properties: Wilson Avenue, Goddard Street and Underwriters Road. The related paragraph from the decision is below: 0 To defray these substantial costs to the ratepayer, the Board finds that 00% of the net after tax gains from the sale of Wilson Avenue, Goddard Street, and Underwriters Road, the properties that are planned to be sold in 00, should go to the ratepayer. The Company s revenue requirement for the 00 test year shall be adjusted downward by $0. Million to reflect this finding. As the sale of 0 Eglinton West is planned for 00, it does not impact the rates being set in this proceeding. (see EB Decision with Reasons, page ) As was pointed out by THESL during the appeals processes, the $0. million amount ordered by the Board was not the correct forecast net after-tax gains on these properties. It appeared to THESL that the Board used information from an interrogatory in the EB filing (R, Tab,, Appendix A), which for the three named properties showed a combined net before-tax capital gain of $0. million. Nevertheless, an amount of $0. million was included as a revenue offset to 00 rates, as ordered by the Board.

10 EB-0-0 Exhibit J Tab Page 0 of The Board also ordered that a variance account be set up to record the difference between the gains reflected in rates (the $0. million) and the actual gains achieved from the sale of these properties in 00 or beyond. In addition, the Board further ordered that the actual capital gains associated with an additional four properties Bathurst, Birmingham, Sterling and Rustic also be recorded in this variance account. 0 A table summarizing the details forecast and actual capital gains related to the entire seven named properties is shown below. All properties were sold to third parties at market prices prevailing at the time of sale. Table : Capital Gains Related to the Sale of Property Property Forecast Net Date of Actual Actual Net Actual Net After- Before-Tax Sale Before-Tax Tax Capital Gain Capital Gain (as Capital Gain ($ ($ Millions) forecast in EB- Millions) 00-00) ($Millions) Wilson. Feb Goddard. Aug 00.. Underwriters 0. No longer for - - sale Subtotal Bathurst 0. Nov Birmingham 0. May Sterling 0. Q (forecast) (placeholder) (placeholder) Rustic 0. Sept Total..0.

11 EB-0-0 Exhibit J Tab Page of As THESL cleared $0. million (principal) to ratepayers, and collected a net gain of $. million on the named properties, the variance account carries a debit amount of $.0 million (before carrying charges). Carrying charges have been applied to the balances as of the date these properties have been sold. 0 The Sterling property has not yet been sold, however is in the process of being sold. THESL proposes that if the net after-tax gains on this property differ materially from the amount shown in the table above, THESL will seek clearance of that variance amount when it next applies for clearance of its deferral and variance accounts. Account 0 LRAM. A balance of $.0 million is proposed to be cleared related to LRAM amounts over the period. Further details of these amounts are found in Exhibit P. Accounts / Smart Meters. A balance of $. million is proposed to be cleared, related to the revenue requirement implications of smart meters installed over the period, which were not included in rates for those years. 0 In addition, the Board has indicated in the revised filing requirements that the NBV of stranded conventional meters, which was previously included in THESL s rate base, be removed and recorded as a regulatory asset to be disposed of separately. A balance of $0.0 has been calculated as the NBV of stranded conventional meters. Further details of all smart meter-related amounts are found in Exhibit P.

12 EB-0-0 Exhibit J Tab Page of 0 Account / Deferred PILs and Contra. In its June, 0 EB decision, the Board announced its expectation that all distributors will apply for final disposition of account in their next general rates filing. The Board noted that if the distributor files evidence in accordance with the various decisions made in the course of the proceeding, and uses the updated SIMPIL model, determination of the account balance would be handled expeditiously and in an administrative manner. THESL has conformed with these requirements, and proposes clearance of an amount of $. million as a credit to customers. A summary, supporting documents, and the updated SIMPIL models can be found at Exhibit J, Tab, Schedules to. Account Special Purpose Charge Assessment Variance Account. A debit balance of $0. is proposed to be cleared. This account records the variance between amounts remitted to the Minister of Finance related to THESL s Special Purpose Charge Assessment and the amounts recovered from customers through the Special Purpose Charge over the May 00 to April 0 period. 0 Account 00 Deferral and Variance Account Disposition. The balance in this account reflects the difference between amounts approved for clearance in THESL s 00 rate filing (EB-00-00) and amounts actually collected from customers through the implemented rate rider. The balance in this account is a $0. million credit to customers. THESL s proposed disposition of regulatory assets is summarized in the following table:

13 EB-0-0 Exhibit J Tab Page of Table : Summary of Proposed Disposition ($ millions) Principal Balance as at December, 00 Carrying Charges for Jan, 0 to April 0, 0 Balance for Clearance as at April 0, 0 Including Carrying Charges RSVA WMS (0) (.) (0.) (.) RSVA Network () RSVA Connection (). 0.. RSVA Power () RSVA Power GA Subaccount () Low Voltage Variance (0) Pils and Tax Variance () Pils and Tax Variance () HST Variance Subaccount Gains on Sale Variance (.) (0.) (.) (.) (0.0) (.). 0.. LRAM Smart Meter Capital and OPEX / Smart Meter Stranded Meters Deferred PlLS and Contra / Special Purpose Charge Variance Account (.) - (.) RARA variances (0.) (0.) (0.) Total Amount Requested for Disposition Notes:. Balances adjusted to reflect amounts previously approved by the Board for clearance in August 0 and 0 adjustments for selected accounts. See Exhibit J, Tab, Schedule notes.. Columns and rows may not add due to rounding.

14 EB-0-0 Exhibit J Tab Page of THESL proposes to clear the regulatory assets, except for the Smart Meter regulatory assets, by means of a rate rider over a -month period from May, 0 to April 0, 0. Further details on the clearance of the Smart Meter regulatory assets is in Exhibit P, Tab. Full details of the calculation and clearance of the LRAM account is found at Exhibit P, Tab. THESL is not seeking clearance in this application of balances in the following accounts: 0 Account 0 Transit City. This account, approved in THESL s 00 decision, captures the 00 revenue requirement impact of capital spending on Transit City projects. To date, there are no amounts recorded in this account. Account 0 Hydro One Capital Contributions. This account, proposed and approved in THESL s 00 decision, captures the difference between amounts included in rates for Hydro One Capital Contributions, and actual contributions. Amounts in this account will be cleared at a future date. 0 REGULATORY ASSET ALLOCATION AND RECOVERY METHOD Toronto Hydro proposes to allocate the Regulatory Assets to the customer classes based on the following principles: If costs are incurred based on energy consumption, Regulatory Assets will be allocated based on energy consumption. This applies to the RSVA accounts and to the Low Voltage Variance account. If costs have been incurred in the past from customers using distribution revenues, Regulatory Assets will be allocated based on distribution revenue. This applies to PILS and Special Purpose charge variances. In the case of the 00 RARA variance the allocation of the original rate rider amounts should be used to allocate the collection variance.

15 EB-0-0 Exhibit J Tab Page of In the case of Gains on Sales, the variance is allocated based on approved Revenue Offsets in 00, as this was how the original $0. million was allocated to customers. These allocations are consistent with the allocation methodology determined by the Board in its EDDVAR report. 0 Development of Rate Riders THESL proposes a single volumetric rate rider per rate class for clearance of all amounts, except for RSVA Power Global Adjustment (which will apply only to non-rpp customers), the Smart Meter accounts (as a separate rate rider), and the LRAM amounts (a separate rate rider). The treatment proposed by THESL for billing the regulatory asset recoveries is consistent with the Board s EDDVAR report. The development of the rate riders is shown in Exhibit J, Tab, Schedule. 0 The impacts of the rate riders are shown separately and combined with the distribution rate changes in Exhibit O, Tab, Schedule. CONTINUANCE OF DEFERRAL / VARIANCE ACCOUNTS APPROVED IN PREVIOUS HEARING As noted above, variance sub-accounts for Transit City and Hydro One Capital contributions were approved in EB-00-0 and are not being proposed for clearance at this time. THESL seeks approval to continue these accounts, and continue to record amounts if any, until they are cleared.