HYDRO ONE NETWORKS INC. DISTRIBUTION Revenue Deficiency/(Sufficiency) Year Ending December 31, 2010 and 2011 ($ Millions)

Transcription

1 HYDRO ONE NETWORKS INC. DISTRIBUTION Revenue Deficiency/(Sufficiency) Year Ending December, 0 and 0 ($ Millions) Updated: September, 00 Schedule Attachment Page of Line No. Particulars 0 0 Revenue requirement (excl. riders) $,.,. External revenues..0 Rates Revenue Requirement (excl. riders),.,. Disposition of deferral accounts.. Total revenue requirement (incl. riders),.,0. Revenue at prior-year rates (incl. riders),0.,. Revenue deficiency/(sufficiency) $..

2 Updated: September, 00 Schedule Page of 0 REVENUE REQUIREMENT.0 SUMMARY OF REVENUE REQUIREMENT Hydro One Distribution follows standard regulatory practice and has calculated revenue requirement consistent with the principles of the 00 Electricity Distribution Rate Handbook as follows: Sum of: Table ($ Millions) 0 0 OM&A 0 Exhibit C, Tab, Schedule Depreciation and Amortization Exhibit C, Tab, Schedule Capital Taxes 0 Exhibit C, Tab, Schedule Income Taxes 0 Exhibit C, Tab, Schedule, Att A Return on Capital Exhibit B,, Schedule Total Revenue Requirement $, $, Exhibit E,, Schedule The resultant Revenue Requirement of $, million for 0 and $, million for 0 is the amount required by Hydro One Distribution to ensure the most appropriate, cost-effective solution to respond to corporate objectives mainly related to public and employee safety, electricity market and regulatory requirements..0 CALCULATION OF REVENUE REQUIREMENT The details of the Revenue Requirement components are as follows:

3 Updated: September, 00 Schedule Page of. OM&A Expense 0 0 Sustaining. 0. Development.. Operations.. Customer Care.. Shared Services and Other Costs.. Taxes Other Than Income Tax.. Total OM&A Depreciation and Amortization Expense Depreciation.. Amortization..0 Total Expense... Capital Taxes Capital Tax. 0.0 Total Capital Tax Payments in Lieu of Corporate Income Taxes Income before PILs.. Tax Rate.00%.% Total PILs... Return on Capital Return on Capital.0. Adjusted for R&D ITC and Ontario Education Credit see Exhibit C, Tab, Schedule, Attachment A for detailed calculation

4 Updated: September, 00 Schedule Page of 0.0 REVENUE REQUIREMENT COMPARISON OF YEAR 00 TO YEAR 0 Table below compares, by element, the Year 00 approved Revenue Requirement (as per EB-00-0) against the Year 0 proposed Revenue Requirement. Table Comparison of Revenue Requirements: 00 vs. 0 ($ Millions) Line No Description Year 00 OEB Approved Year 0 Difference OM&A 0 Depreciation 0 Capital Taxes () Income Taxes () Return Total Revenue Requirement,0, Deduct External Revenues () () () Revenue Requirement less External Revenues, External Revenues are discussed in,, Schedule There are a number of key operational and financial factors contributing to the increased revenue requirement that have an impact across the cost components in Table. The increase in Total Revenue Requirement is largely attributable to the $ million increase in OM&A costs, and the $ million impact of rate base growth offset by increased external revenues of $() million, the $() million tax timing difference related to CCA amounts in excess of depreciation, lower cost of capital of $() million and lower capital and income tax rates of $() million. Table illustrates the value of the key impacts of the increase in the Revenue Requirement.

5 Updated: September, 00 Schedule Page of Table Components of Change to Revenue Requirement Previously OEB-Approved (00) vs. Proposed (0)Description Amount ($ millions) Increase in OM&A Impact of increased rate base Increase in asset removal costs Increased external revenue () Tax timing differences and other () Lower ROE () Impact of lower capital tax rate () Lower cost of debt () Impact of lower income tax rate () Other (includes OPEB) () Total Change.0 RATES REVENUE REQUIREMENT - COMPARISON OF YEAR 0 TO YEAR 0 Table compares, by element, the 0 rates revenue requirement against the 0 rates revenue requirement. Table Comparison of Rates Revenue Requirements 0 vs. 0 ($ Millions) Line no. Description Year 0 Year 0 Difference OM&A 0 Depreciation Capital Taxes 0 () Income Taxes 0 Return Total Revenue Requirement,, Deduct External Revenues () () 0 Revenue Requirement less External Revenues,, External revenues, addressed in,, Schedule.

6 Updated: September, 00 Schedule Page of The increase in 0 revenue requirement is primarily due to the increase in rate base as reflected in the higher return on capital and depreciation amounts, and an increase in Sustaining OM&A driven primarily by increased vegetation management spending relating to an increase in Forestry work. The increase in rate base over the time period is primarily the net result of asset replacement and expansion needs as described in Exhibit D, Tab, Schedule. Table illustrates the value of the key impacts on the movement in the rates revenue requirement. Table Components of Change to Rates Revenue Requirement: Proposed 0 vs. Proposed 0 Description Amount ($millions) Impact of increased rate base Tax timing differences and other Higher ROE 0 Increased OM&A Higher cost of debt Impact of lower income tax rates () Impact of lower capital tax rates () Other Total change

7 Updated: September, 00 Schedule Page of EXTERNAL REVENUE.0 STRATEGY Hydro One Distribution s strategy is to focus on core work and continue to be responsive to external work requests and accommodate customer needs where Hydro One Distribution can provide value and have the resources and/or assets to do so. External revenues are equivalent to % (or $.M and $.M respectively) of Hydro One Distribution s revenue requirement in 0 and 0. The increase in 0 and 0 from 00 levels is primarily due to the additional revenues forecasted for contestable work activities relating to costs recoverable from the Ministry of Transport infrastructure work, in which Hydro One Distribution is expected to be involved. This category of revenue is earned through the provision of services to third parties and through joint use of Hydro One Distribution s assets by third parties. These revenues are used to offset the revenue requirement from Hydro One Distribution s tariff and thereby reduce the required revenue to be collected from distribution ratepayers. External revenues are categorized as regulated and unregulated. 0.0 COSTING AND PRICING The costing of external work is determined on the basis of cost causality with estimates calculated in the same way as internal work estimates using the standard labour rates, equipment rates, material surcharge, and overhead rates (see Exhibit C, Tab, Schedule for a description of Costing of Work). The costs associated with this work are described in Cost of Sales - External Work (see Exhibit C, Tab, Schedule ).

8 Updated: September, 00 Schedule Page of For unregulated work an appropriate margin is added to cover, as a minimum, the risk of non-payment by third parties in order to ensure there is an overall benefit for the distribution ratepayers..0 DESCRIPTION Regulated external revenues for test years 0 and 0 are $0. million and $0. million respectively, and account for % of external revenues in both years. These revenues, shown in Table, cover a wide range of miscellaneous services (e.g. joint use of poles for attachment of Telecommunications, sentinel light services) based on rates and underlying costs per the 00 Electricity Distribution Rate Handbook issued May 00. Table Regulated Revenues ($M) $M Joint Use Sentinel Lights Retail Service Revenue Other Regulated Misc. Services Totals Unregulated external revenues, such as contestable new connection and upgrade work and emergency support to other North American utilities, are shown in Table. The unregulated external revenues for test years 0 and 0 are $. million and $. million respectively, and account for the remaining % of external revenues in both years.

9 Updated: September, 00 Schedule Page of Table Unregulated Revenues ($M) $M Joint Use New Connects/Upgrades Generation Studies Other External Work Non-Regulated Misc. Rev Totals A detailed summary of both regulated and unregulated revenues is provided in Exhibit E, Tab, Schedule.. Regulated Revenues.. Joint Use Revenues 0 Joint-use revenues are generated from third parties who jointly use Hydro One Distribution s poles by stringing various attachments to the poles, mostly wire cables, and in return Hydro One Distribution charges a per pole attachment fee. At the end of 00, there were approximately,00 joint use poles being used by customers including Bell Canada, Telecommunications companies, independent telephone companies, LDCs, fiber companies and municipalities. About 0% of the revenue in this segment comes from Bell Canada and Telecommunications companies. The Ontario Energy Board sets the rates for Joint-use service, for Telecommunications companies. Other Joint-use rates/contracts are negotiated and include other considerations such as reciprocal pole sharing arrangements and vegetation management services are unregulated and discussed in Section.. Table below is a summary of the s (# of pole attachments) for the regulated segment of Joint-use.

10 Filed: July, 00 Schedule Page of Table Volume of Joint Use permits by Customer Category Telecommunications,,,,, 0, Street Lighting,, 0,00,0,000,00 As can be seen from the table, the number of attachments is increasing over the -year period. The increase is due to new Telecommunications companies attaching to poles and existing companies expanding their service areas... Sentinel Light Revenues The sentinel light rental program is designed to provide rural customers with low-cost security lighting. The service is provided primarily to rural residential, farm, and cottage customers, for whom street lighting is not available. Exhibit A, Tab, Schedule, section., provides reference to the legislation that allows the sentinel light program to continue for existing Hydro One Distribution customers. 0 Table summarizes the historical s of sentinel lights and poles owned and maintained by Hydro One Distribution. The decrease over the five-year period 00 to 0 reflects the absence of new customers and a continuing decrease in the number of existing customers, as discussed in Exhibit C, Tab, Schedule.

11 Filed: July, 00 Schedule Page of Table Year-End Volume of Sentinel Lights in service Sentinel Lights,,,0,00,, Sentinel Light Poles,,,,0,, Total, 0, 0,,,,0.. Other Regulated Miscellaneous Services Hydro One Distribution provides a number of other regulated miscellaneous services as identified in Table below. The rates for these services are approved and regulated by the Ontario Energy Board. A description for items through can be found in the 00 Electricity Distribution Rate Handbook, Chapter. The associated s of items through (as identified in Table ) are shown in Table along with the information for the historical, bridge and test years. A brief description for items and follows the tables. Table Service Description. Dispute Meter Test. Collection of Account, Disconnect/load Limiter/Reconnect Trips. Account Set-up Charge. Arrears Certificate. NSF Cheque Charge. Easement Charge for Unregistered Rights. Late Payment Charge. Tingle Voltage Test. Standby Rate

12 Filed: July, 00 Schedule Page of 00 Table Other Regulated Miscellaneous Services 00-0 Volumes Revenue ($) 0 Revenue ($) Dispute Meter Test 0 $,0 $,0 Collection of Account, $,000 $,000 Disconnect/load Limiter/Reconnect Trips, $,,000 $,,000 Account Set-up Charge,,,0,0,, $,0,0 $,0,0 In-Sufficient Funds (NSF) Cheque Charge,0,,0,,, $0,0 $, Easement Charge for Unregistered N/A 00 Rights (approx) $,00 $,00 Late Payment Charge applied to number of distinct accounts N/A N/A N/A N/A N/A N/A $,, $,,0 Revenue for 0 and 0 $,, $,,0... Tingle Voltage Test Tingle voltage (also known as high neutral voltage) is undesirable as it may have an adverse effect on dairy cattle, and in extreme cases may be noticeable by humans. Hydro One Distribution strives to limit neutral voltage to V. In cases where customers deem the voltage to be excessive, a voltage test is conducted to determine the cause of the abnormality. Usually, there is no charge to the customer for this type of analysis; however, should the customer request further testing, the additional costs are recovered from the customer. Historically, additional testing is requested approximately 0 times per year.... Standby Charges 0 A standby charge is a monthly fee that is applied to a customer that has their own generation facilities and addresses those instances when the customer is dependent on Hydro One Distribution for their electricity supply whenever their own generation

13 Filed: July, 00 Schedule Page of facilities are out of service. The monthly charge marginally offsets the cost to Hydro One Distribution of having facilities available to ensure emergency supply whenever the customer s facilities are out of service. The charge is only applicable when electricity is not supplied by Hydro One Distribution. The 00 Electricity Distribution Rate Handbook allows standby administration charge to cover the incremental cost of monitoring, billing and administration. The Board approved this charge on an Interim basis as part of the Generic Decision on 00 EDR issues in proceeding RP /EB In its decision in EB-00-0, the OEB directed Hydro One Distribution to establish such a variance account which it has done. Hydro One will place any revenues received from the application of this rate into this variance account and will be credited back to the customers of this province, as part of the next distribution rate hearing process. To-date there have been no such charges and it is expected that there will be none in 00.. Unregulated Revenue.. Joint-Use Revenue 0 As noted in section.. above, the rates for Bell Canada and Local Distribution Company ( LDC ) attachments are based on a negotiated price rather than rates approved by the OEB due to other considerations such as reciprocal pole sharing arrangements and vegetation management services.

14 Filed: July, 00 Schedule Page of Table Volume of Joint-Use permits Unregulated Bell Canada,,,00,000,00,000 LDCs,,,,,,.. New Connections and Upgrades Hydro One Distribution connects approximately,00 new customers to its distribution system each year consisting primarily of subdivision and rural residential customers along with farms, cottages, and industrial customers. Approximately,00 upgraded services are also completed each year that involves increasing a customer s existing supply capacity to meet their increased electricity requirements. Both the new connection service and the upgrade service have elements of work that must be done by Hydro One Distribution under its Distribution License. This includes: working within Limits of Approach [working within pre-determined boundaries of live equipment which is voltage level dependent but nominally for distribution equipment is metres or feet] of the distribution equipment to install any required equipment; connect the customer to Hydro One s distribution system; and connect the meter at the customer site. 0 The remainder of the new connection and upgrade work may be performed by a qualified contractor of the customer s choice. As required by the Distribution System Code, Hydro One Distribution will carry out this work, if requested by the customer at Hydro One s fully burdened cost, since crews are usually on-site and set up. For an above ground new connection, this work would include the installation of poles, conductor, and related equipment to run from the distribution line to the meter at the customer site. Similarly, for an underground connection, this would include digging the trench and laying the

15 Filed: July, 00 Schedule Page of cable and related equipment. This type of project is known as contestable work and is what contributes to the external revenues for this segment. Table represents the number of New Connections and Upgrades Hydro One Distribution provides to customers each year. Table Volume of New Customer Connections & Upgrades New Connections & Upgrades,,0,,, 0, The in 00 is expected to be lower than 00 due to the current economic downturn. Hydro One Distribution is anticipating a slight growth in new connections and upgrades in 0 and 0... Distribution Generation Studies 0 Hydro One Distribution recognizes revenues for undertaking Connection Impact Assessments in response to requests from generation proponents across the province of Ontario. Hydro One does assessments based on the customer request that includes the proposed size of the generator and where it will be located. Connection impact assessments are technical studies that determine the impact of new generation facilities on the Distribution System and ensure that the generator will comply with the technical requirements. The technical requirements that generators must meet to connect to Hydro One distribution system are outlined in Technical Requirements for Generators Connecting to Hydro One's Distribution System. These requirements exist to ensure public and employee safety, protect the integrity of Hydro One s Distribution

16 Updated: September, 00 Schedule Page of System and guarantee reliable and quality service to our customers. For more information on these studies, refer to Exhibit C, Tab, and Schedule. As shown in Table, the of Connection Impact Assessment studies in 0 and 0 is expected to decrease as Hydro One has already completed many of the studies for preferred Distributed Generation locations, with only those locations deemed less economically-desirable remaining for future years. Table Volume of Generation Studies Completed Distribution Generation Studies Other External Work Hydro One Distribution performs a number of additional services that generate external revenues. These services include contestable work such as costs recoverable from MTO related work, as well as minor amounts from forestry and brush control work, HS&E training, streetlight maintenance, subdivision redesign and emergency services. 0 For test years 0 and 0, revenues relating to costs recoverable from the MTO work relating to increased incentives for transportation infrastructure spending are expected to total $ million in each of 0 and 0. External training covers a wide range of practical and classroom delivered courses. These include courses like Electrical Safety Awareness, a mandatory course for anyone working

17 Filed: July, 00 Schedule Page of in the proximity of live electrical apparatus regardless of trade or occupation. Packaged delivery of technical courses for numerous trade and professional types are delivered for Lines, Forestry, Power Electricians, Metering technicians, Protection engineers and technicians. Customers include large (Toronto Hydro) and small utilities (Peninsula West Utilities Limited), large (INCO) and small (Wardrop Engineering) companies including Non Utility Generators (Trans Alta, Brighton Beach) that send trainees to a cross section of courses in various trades/disciplines. Hydro One Distribution will provide an initial subdivision design and will recover this cost through the staking fee charged to the developer. When the developer revises the subdivision plan, a redesign of the subdivision is needed. The cost of the redesign is borne by the developer. If a subdivision design has been completed but construction has not commenced for a period of months or more, a review of the subdivision design is necessary. This review includes a field visit and is necessary to determine if the original design is still viable or if a revised design is needed to supply the subdivision. The cost to do this additional work is also covered by the developer. 0 Table Number of Subdivision Redesigns Subdivision Redesign Other external work also includes, from time to time, emergency services provided by Hydro One Distribution crews to restore power to neighboring Canadian and U.S. utilities affected by natural disasters such as ice storms and hurricanes.

18 Filed: July, 00 Schedule Page of.. Un-Regulated Miscellaneous Revenues... Under-density Billing Under-density Billing revenues for northwestern Ontario are generated through annual fees levied upon five large companies that utilize dedicated under density distribution lines operated and maintained by Hydro One Distribution. The load on these underdensity lines does not cover the annual costs of maintenance and therefore an annual fee is charged and is designed to recover maintenance costs for servicing these lines. The revenues collected by Networks represent the recovery of costs for maintenance and forestry work on the under-density distribution lines. Table Volume of Under-density Billings Under-density Billings (# of customers)... Inergi Royalties 0 0 As a result of the outsourcing agreement with Inergi LP royalty revenue is received by Hydro One Networks Inc. to compensate it for the use of Hydro One resources by Inergi LP to service other third party customers.... Unregulated Miscellaneous Revenues Unregulated Miscellaneous Revenues includes $. million in 0 and 0 for work related to other Hydro One entities as follows: $.0 million is forecasted for work related

19 Filed: July, 00 Schedule Page of to Hydro One Remotes Inc; $0. million is forecasted for work related to other Hydro One entities; and, $0. million for other third party work. For work related to other Hydro One entities, see the Affiliate Service Agreements in Exhibit A, Tab, Schedule.

20 Regulated Revenues External Revenues Historic, Bridge Year and Test Year Hydro One Networks Inc. $M's Updated: September, 00 Tab Schedule Page of Joint Use Revenue Telecommunications Street Lighting Sentinel Revenue Retail Service Revenue N/A Miscellaneous Charges Late Payment Charges Other Miscellaneous Charges Total Regulated Unregulated Revenues Joint Use Revenue Bell Canada LDC's DX Generation Studies New Connects/Upgrades & Other Contestable Work New Connects & Upgrades Lines - Other Contestable Work Forestry Contestable Work Health, Safety & Environment Training Non-Regulated Miscellaneous Revenue Total Unregulated Total External Revenue......