Demande portant sur les coûts marginaux de prestation de services de long terme appliqués à l analyse de rentabilité, R

Transcription

1 Société en commandite Gaz Métro Demande portant sur les coûts marginaux de prestation de services de long terme appliqués à l analyse de rentabilité, R RÉPONSE DE SOCIÉTÉ EN COMMANDITE GAZ MÉTRO (GAZ MÉTRO) À LA DEMANDE DE RENSEIGNEMENTS N O 2 D OPTION CONSOMMATEURS (OC) À SOCIE TE EN COMMANDITE GAZ ME TRO (GM) GAZ METRO S PROFITABILITY ANALYSES FOR SYSTEM EXPANSION PROJECTS 1. Reference: i) Exhibit B-0277, GM-7, Doc 4, page 13, lignes Preamble: Gaz Metro states: Les coûts de renforcement sont ainsi considérés globalement dans la rentabilité du plan de développement et non projet par projet. Questions: 1.1. Please provide a detailed calculation showing how the costs of reinforcement of the distribution network are calculated for evaluating the profitability of a development plan, using a recent development plan as an example. Réponse : À partir de la Cause tarifaire 2007, Gaz Métro a intégré une enveloppe de renforcement du réseau de distribution au plan de développement. Gaz Métro évalue cette enveloppe globale selon une moyenne des besoins historiques. Ces besoins sont généralement associés à de multiples conduites qui dépendent de conditions de vente difficilement prévisibles. Ces besoins s identifient en cours d année lorsque les ventes s effectuent. Gaz Métro bonifie néanmoins, au meilleur de ses connaissances, le montant de renforcement de l année à venir lors de la réalisation des plans de développement à la cause tarifaire. Basé sur la référence de la pièce B-0264, Gaz Métro-9, Document 6, page 3, Gaz Métro a réalisé environ 16 M$ de renforcement en distribution au cours des 13 dernières années. Le montant annuel moyen du renforcement en distribution est donc d environ 1,2 M$. Veuillez vous référer à la pièce R , B-0196, Gaz Métro-7, Document 2, colonne 15 afin de visualiser comment le renforcement a été intégré au plan de développement de la Cause tarifaire Certains renforcements importants sont également présentés au cas par cas à la Régie lorsque les investissements dépassent 1,5 M$ et sont généralement des projets visant les réseaux d alimentation et de transmission tels que Pétromont (R et R ), Pont Jacques-Cartier (R ) et Saguenay (R ). Original : Gaz Métro 9, Document 12 Page 1 de 15

2 Société en commandite Gaz Métro Demande portant sur les coûts marginaux de prestation de services de long terme appliqués à l analyse de rentabilité, R Please explain how reinforcement costs are estimated and calculated on a regional or service area basis for any given development plan. Explain how specific projects are identified, if at all, and explain how costs per unit of increased demand are developed, if they are developed. Provide work papers showing sample calculations. Réponse : Veuillez vous référer à la réponse à la question For how many years out (i.e. until what year in the future) is the potential for reinforcement cost calculated, and how is the cost apportioned between current and future development? Réponse : Veuillez vous référer à la réponse à la question Please identify specific near-term or intermediate-term reinforcements and their respective costs for individual very large projects at the time of their initial development, rather than including those costs in the development plan for all projects? If so, please explain how those reinforcements could be identified. If not, why not? Réponse : Veuillez vous référer à la réponse à la question 1.6 de la pièce B-0264, Gaz Métro-9, Document How are operations and maintenance costs associated with the reinforcement (for main inspection and main maintenance, as well as operations and maintenance of new regulating stations and compressor stations) included, if at all, in the profitability of the development plan? Réponse: Considérant que la preuve de la phase 3A est complète et que la Régie en a été saisie et est présentement en délibéré, Gaz Métro soumet respectueusement que les questions portant sur les dépenses d opération déjà traitées lors de la phase 3A ne sont pas pertinentes à l étude de la présente phase 3B. Original : Gaz Métro 9, Document 12 Page 2 de 15

3 Société en commandite Gaz Métro Demande portant sur les coûts marginaux de prestation de services de long terme appliqués à l analyse de rentabilité, R If operations and maintenance costs are included, provide work papers showing sample calculations that demonstrate how those costs are calculated and included. Réponse: Considérant que la preuve de la phase 3A est complète et que la Régie en a été saisie et est présentement en délibéré, Gaz Métro soumet respectueusement que les questions portant sur les dépenses d opération déjà traitées lors de la phase 3A ne sont pas pertinentes à l étude de la présente phase 3B If operations and maintenance costs are not included, please explain why it is reasonable not to include them. Réponse: Considérant que la preuve de la phase 3A est complète et que la Régie en a été saisie et est présentement en délibéré, Gaz Métro soumet respectueusement que les questions portant sur les dépenses d opération déjà traitées lors de la phase 3A ne sont pas pertinentes à l étude de la présente phase 3B. 2. Reference: i) Exhibit B-0264, GM-9, Doc 6, GM Response to ROEE Expert Paul Chernick s No. 2 IRs in Phase 3, Question 1.6, pp Question: 2.1 Please identify the length of each reinforcement project listed in this response in metres. Response: Classe de pression N bre de projets Définition de projet N bre de mètres linéaires de conduite Distribution 1 Bouclage de la 640, Terrebonne 1,956 Distribution 2 Bouclage Croissant des Iles, Laval 52 Distribution 3 Bouclage Repentigny - Résidentiel 5,207 Distribution 4 Bouclage Syst.Polymère Structural, Magog 314 Distribution 5 Bouclage Beloeil - St-Jean-Baptiste 4,120 Distribution 6 Bouclage Bromont - Rue des Carrières 1,182 Distribution 7 Bouclage Montcalm, Candiac 1,189 Original : Gaz Métro 9, Document 12 Page 3 de 15

4 Société en commandite Gaz Métro Demande portant sur les coûts marginaux de prestation de services de long terme appliqués à l analyse de rentabilité, R Classe de pression N bre de projets Définition de projet N bre de mètres linéaires de conduite Distribution 8 Renforcement St-Sébastien 2,204 Distribution 9 Renforcement St-Valérien 2,975 Distribution 10 Bouclage réseau cl 400 de St-Jérôme 72 Distribution 11 Bouclage Boisbriand, 3825 Alfred-Laliberté 508 Distribution 12 Véolia, rue Pion, St-Hyacinthe 1,902 Distribution 13 Meubles Ashley, Sherbrooke 69 Distribution 14 Renforcement Asphalte générale 2,300 Distribution 15 Renforment réseau, Pierrefonds 1,712 Distribution McArthur, St-Laurent 89 Distribution 17 Émile Giroux Renforcement, Qc 2,992 Distribution 18 UDM campus Outremont 282 Distribution 19 Rang St-Paul, St-Rémi 2,862 Distribution 20 Groupe Robin, Trois-Rivières 1,897 Distribution 21 Sani Estrie, 405 Rudolphe Racine, Sherbrooke 419 Distribution 22 Renforcement réseau - dév région Bedford 900 Distribution , avenue Marie-Curie, St-Laurent 310 Distribution 24 Poste de livraison, St-Jérôme N/A Distribution 25 Bouclage - Fruit D'Or 4,260 Distribution 26 Bouclage boul. Mercure, St-Nicephore 3,175 Distribution rue du parc industriel, Lanoraie 236 Distribution 28 Bouclage Petites Soeurs Ste-Famille 45 Distribution 29 Serres Marian Vinet St-Rémi 184 Distribution 30 Boul. de Portland, Sherbrooke 930 Distribution 31 campus Outremont UDM 348 Distribution 32 Marché aux puces / Faubourg Carignan 542 Distribution 33 NRC St-Paul d Abbotsford 1,196 Distribution 34 Enveloppe renforcement développement N/A Distribution 35 Sherbrooke est / Georges V N/A Distribution 36 Bouclage réseau, ville de Labaie 470 Distribution 37 Bouclage auto 13 & boul. Ste-Rose 1,223 Distribution 38 Qc-Bouclage rue St-Jean 235 Original : Gaz Métro 9, Document 12 Page 4 de 15

5 Société en commandite Gaz Métro Demande portant sur les coûts marginaux de prestation de services de long terme appliqués à l analyse de rentabilité, R Classe de pression N bre de projets Définition de projet N bre de mètres linéaires de conduite Distribution 39 Bouclage St-Valérien-de-Milton 1,506 Distribution 40 Bouclage de réseau - St-Lambert 846 Distribution 41 Renforcement réseau PL Oka/St-Eustache 1,623 Distribution 42 Renforcement réseau Guthrie Dorval 105 Distribution 43 Bouclage Ste-Marie 3 km 6'' plastique 2,010 Distribution 44 Bouclage rue des Châteaux, Blainville 782 Distribution 45 Renforcement PD Lachute 679 Distribution 46 QC-bouclage St-Amable (La Chevrotière-Art) 124 Distribution 47 Qc-Boucl. réseau - rue Guimont, Beauport 349 Distribution 48 Qc-bouclage Pionnières-de-Beauport 293 Distribution 49 Bouclage parc indus., Terrebonne 1,413 Distribution 50 Bouclage des Hêtres, Shawinigan 198 Distribution 51 Renforcement Ste-Elizabeth Laurentides 2,225 Distribution 52 Bouclage aut. 15/30 Delson 88 Distribution 53 Estrie-Bouclage St-Georges Drummondville 125 Alimentation 54 Rempl.supports/Revêt-Pont-Jacques Cartier 397 Distribution 55 Bouclage réseaux Vaudreuil 94 Distribution 56 (ES)Sag-Lac-Bouclage 160m De Monfort 169 Distribution 57 ES/Ph3 Renforcement réseau Fleury et CN 311 Distribution 58 Renforcement réseau Clark-Graham 427 Distribution 59 Augmentation de pression réseau St-Clet N/A Distribution 60 Sag-Lac Ab-reconst ligne rég PL4024-Chic - Distribution 61 Capacité hydraulique rue St-Antoine 94 Distribution 62 Renforcement réseau 32e avenue Lachine 26 Distribution 63 Renforcement réseau, boul. Dagenais 316 Distribution 64 Renforcement réseau rue Norman 210 Distribution 65 Renf. du réseau boul. Tecumseh 1,197 Distribution 66 Enveloppe amélioration capacité hydraulique N/A Transmission 67 Poste de compression, St-Maurice 1,117 Transmission 68 Poste de compression, La Tuque 2,078 Alimentation 69 Pétromont 1,400 Original : Gaz Métro 9, Document 12 Page 5 de 15

6 Société en commandite Gaz Métro Demande portant sur les coûts marginaux de prestation de services de long terme appliqués à l analyse de rentabilité, R COST OF CAPITAL AND OTHER ECONOMIC PARAMETERS FOR EVALUATION 3. Reference: i) Exhibit B-0258, GM-9, Doc 4, GM Response to OC No. 1 IRs in Phase 3B, Question 7.2, pp Questions: 3.1 Is the cost of debt of 2.82% an embedded cost or an incremental cost? Réponse : Le coût de la dette de 2,82 % est un coût prospectif. Il représente le coût combiné de la nouvelle dette à moyen et à long termes ainsi que de la dette à court terme (à taux variable) que devrait émettre Gaz Métro pour financer le projet. 3.2 Is the cost of debt net of the income tax deduction on debt interest? Réponse : Il s agit du coût de la dette avant impôt. 3.3 In any case, please provide derivation or substantiation of the cost of debt. Réponse : Veuillez vous référer à l annexe Q Is the cost of preferred stock of 4.44% an embedded cost or an incremental cost? Réponse : Le coût des actions privilégiées est aussi un coût prospectif. Il représente le coût d une émission d actions privilégiées en que Gaz Métro devrait assumer pour financer le projet. 3.5 In any case, provide derivation or substantiation of the cost of preferred stock. Original : Gaz Métro 9, Document 12 Page 6 de 15

7 Société en commandite Gaz Métro Demande portant sur les coûts marginaux de prestation de services de long terme appliqués à l analyse de rentabilité, R Réponse : Le coût prospectif des actions privilégiées de 4,44 % est basé sur le rendement courant du 16 février 2016 de l émission la plus récente de Canadian Utilities, choisie parce qu elle se rapproche le plus de Gaz Métro de par sa cote de crédit et son industrie, parmi d autres entreprises comparables. S&P a confirmé que les actions privilégiées de Gaz Métro, si émission il y avait, bénéficieraient d une cote de P-2 (H), la même que Canadian Utilities. 3.6 Under item (xi), the volume of sales is identified as an item included in the analysis. Explain how the volume of sales is forecast for new residential customers and for new business customers? Réponse : Veuillez vous référer à la réponse à la question 14.2 de la demande de renseignements n o 9 de la Régie (B-0253, Gaz Métro-9, Document 1) et à la réponse à la question 7.6 de la demande de renseignements n o 1 d OC (B-0258, Gaz Métro-9, Document 4). 3.7 Under item (xi), it appears that the customer charge is missing from the list of specific entries of revenue received from each project. Is this correct? If so, why is it not included? Réponse : Le taux du service de distribution qui est appliqué aux volumes prévus pour chaque client tient compte des frais de base applicables à ce tarif. Chaque client se voit attribuer selon son volume estimé le taux unitaire ainsi que les frais de base selon les conditions de service en vigueur. Veuillez-vous référer à la réponse de la question 4.2 de la DDR 3 de l ACIG (Gaz Métro-9, ddcument 10). Original : Gaz Métro 9, Document 12 Page 7 de 15

8 Société en commandite Gaz Métro Demande portant sur les coûts marginaux de prestation de services de long terme appliqués à l analyse de rentabilité, R LONG-RUN MARGINAL OPERATION COSTS THAT ARE NOT DIRECT COSTS OF CUSTOMER CONNECTION 4. Reference: i) Exhibit B-0258, GM-9, Doc 4, GM Response to OC No. 1 IRs in Phase 3B, Question 4.4, pp Questions: 4.1 Please provide the costs of operating the corporate human resources department in each year from 2012 to 2016 inclusively. Réponse : Le coût d opération du département des ressources humaines, incluant salaires, avantages sociaux et autres dépenses pour les années 2012 à 2016 est présenté dans le tableau suivant Dépenses d'opération $ $ $ $ $ 4.2 What percentage of these costs is capitalized and what percentage is expensed? Réponse : Pourcentage capitalisé 0% 0% 0% 0% 0% Original : Gaz Métro 9, Document 12 Page 8 de 15

9 Société en commandite Gaz Métro Demande portant sur les coûts marginaux de prestation de services de long terme appliqués à l analyse de rentabilité, R PROFITABILITY OF NETWORK ADDITIONS IN RECENT YEARS References: i) Exhibit B-0258, GM-9, Doc 4, GM Response to OC No. 1 IRs in Phase 3B, Question 6.2, p. 21. Question: 5.1 Please provide the direct cost in total for each type of project for which cumulative customers and revenues are estimated. Réponse : Les coûts directs représentent les coûts d investissements excluant les frais généraux corporatifs et les frais généraux entrepreneurs. Coûts directs prévus des extensions approuvées en 2016 Par type Coûts directs (000 $) An0 An1 An2 An3 An4 An5 Projet résidentiel Rentable SMA Projet affaires Rentable SMA SMA Parc industriel SMA Repavage Original : Gaz Métro 9, Document 12 Page 9 de 15

10 Société en commandite Gaz Métro Demande portant sur les coûts marginaux de prestation de services de long terme appliqués à l analyse de rentabilité, R MARKETING AND ADMINISTRATION OF NEW CUSTOMER CONNECTIONS 6 Reference: i) Exhibit B-0258, GM-9, Doc 4, GM Response to OC No. 1 IRs in Phase 3B, Question 4.2, pp ii) Exhibit B-0264, GM-9, Doc 6, GM Response to ROEE Expert Paul Chernick s No. 2 IRs in Phase 3, Question 11.11, p. 25. iii) Hearing Exhibit C-OC-0032 (Phase 3A) Questions: Preamble: In Document C-OC-0032 presented in the Phase 3A hearing, on item 19 line extension administration (pre-commitment), the position of OC is shown as not included but should be part of profitability analysis (Regie IR 1.3) and the position of ROEE is shown as figure not developed yet but should be included. These intervenors indicated that the information was relevant to a determination of profitability in Phase 3A but was not available. 6.1 Please provide an organization chart showing those employees who are involved with the planning and marketing of new customer connections, and where they fit in the overall Gaz Metro organization. If there are separate groups serving new residential and new business connections, please identify them. Réponse : Considérant que la preuve de la phase 3A est complète et que la Régie en a été saisie et est présentement en délibéré, Gaz Métro soumet respectueusement que les questions portant sur les dépenses d opération déjà traitées lors de la phase 3A ne sont pas pertinentes à l étude de la présente phase 3B. 6.2 Please identify the cost of the planning and marketing of new customer connections by these employees (ie. those involved in the planning and marketing of new customer connections) in 2015 and Réponse : Considérant que la preuve de la phase 3A est complète et que la Régie en a été saisie et est présentement en délibéré, Gaz Métro soumet respectueusement que les questions portant sur les dépenses d opération déjà traitées lors de la phase 3A ne sont pas pertinentes à l étude de la présente phase 3B. Original : Gaz Métro 9, Document 12 Page 10 de 15

11 Société en commandite Gaz Métro Demande portant sur les coûts marginaux de prestation de services de long terme appliqués à l analyse de rentabilité, R METHODOLOGY FOR PROFITABILITY IN OTHER PROVINCES 7 Reference: i) Exhibit B-0278, GM-7, Doc 5, pp Questions: 7.1 Please provide a copy of the E.B.O. 188 Final Report of the Board and the Ontario Energy Board Guidelines for Assessing and Reporting on Natural Gas System Expansion in Ontario, Dated January 30, Réponse : Veuillez vous référer aux annexes Q-7.1a) Final report of the Board et Q-7.1b) Appendix B Guidelines for assessing and reporting on natural gas system expansion in Ontario. 7.2 Please describe any differences in methodology of determining profitability and/or the components included in a profitability analysis between the Ontario Energy Board s report and Gaz Metro s proposal in this case, including but not limited to the concept of tax savings identified by the OEB. Réponse : Gaz Métro souligne qu un balisage des méthodologies et des pratiques employées pour d autres utilités gazières a été effectué dans le rapport de B&V (Gaz Métro 7, document 5). Gaz Métro a également revu à haut niveau les lignes directrices de l OEB (voir référence à la réponse de la question 7.1. Tout d abord, il est à noter que les méthodes sont similaires, autant pour ce qui est des revenus et des coûts totaux considérés, qu en regard de l évaluation de l indice de profitabilité. Les principales différences notées entre les 2 méthodologies se résument aux éléments suivants : - Les flux d opération et les investissements (excepté l investissement initial) sont considérés comme des flux de mi-année (OEB) versus de fin d année (Gaz Métro) pour fin d actualisation. À cet égard, l approche de Gaz Métro est plus conservatrice que celle de l OEB. - L économie d impôt relative à l amortissement fiscal est considérée comme une perpétuité pour l OEB alors que Gaz Métro ne considère l économie d impôt que pour les 40 premières années. À cet égard, l approche de Gaz Métro est plus conservatrice que celle de l OEB. Original : Gaz Métro 9, Document 12 Page 11 de 15

12 Société en commandite Gaz Métro Demande portant sur les coûts marginaux de prestation de services de long terme appliqués à l analyse de rentabilité, R Enfin, à noter que conformément à la décision D de la Régie, Gaz Métro, tout comme l OEB, utilise un taux d actualisation dans l évaluation de la rentabilité des projets correspondant au taux du coût moyen pondéré du capital prospectif après impôt. Toutefois, Gaz Métro a noté que le calcul de ce taux pour la cause tarifaire 2017, et depuis plusieurs années, a été fait en considérant le taux de la dette prospective avant impôt plutôt qu après impôt, ce qui surestime légèrement le coût moyen pondéré du capital prospectif. Le calcul sera ainsi corrigé à partir du dossier tarifaire Please describe any differences in methodology of determining profitability and/or the components included in a profitability analysis between the Fortis BC method and Gaz Metro s proposal in this case. Réponse : Gaz Métro souligne qu un balisage des méthodologies et des pratiques employées pour d autres utilités gazières a été effectué dans le rapport de B&V (Gaz Métro 7, Document 5). Gaz Métro a également revu à haut niveau le document FortisBC Energy Inc (FEI) 2015 System Extension Application. Tout d abord, il est à noter que les méthodes sont très similaires, autant pour ce qui est des revenus et des coûts totaux considérés, qu en regard de l évaluation de l indice de profitabilité. Les principales différences notées entre les 2 méthodologies se résument aux éléments suivants : - Les «Municipal Tax» et «Property Tax» de FEI sont remplacées par la taxe sur les services publics et les redevances à la Régie de l énergie et à la Régie du bâtiment, chez Gaz Métro. - Les coûts de capital de FEI incluent une allocation pour fonds de roulement, alors que ceux de Gaz Métro considère des frais à l Union des municipalités du Québec et des incitatifs commerciaux (PRC et CASEP). - Le taux d actualisation de FEI est le taux moyen pondéré du capital après impôt alors que celui de Gaz Métro constitue, conformément à la décision D de la Régie, le coût moyen pondéré du capital prospectif après impôt. Toutefois, Gaz Métro a noté que le calcul de ce taux pour la cause tarifaire 2017, et depuis plusieurs années, a été fait en considérant le taux de la dette prospective avant impôt plutôt qu après impôt, ce qui surestime légèrement le coût moyen pondéré du capital prospectif. Le calcul sera ainsi corrigé à partir du dossier tarifaire Original : Gaz Métro 9, Document 12 Page 12 de 15

13 Société en commandite Gaz Métro Demande portant sur les coûts marginaux de prestation de services de long terme appliqués à l analyse de rentabilité, R INDIRECT COSTS 8 Reference: i) Exhibit B-0278, GM-7, Doc 5, p. 31 Questions: 8.1 Please confirm that the Capitalized General Contractors fees are paid as a percentage of the cost of each individual project, so that if a project were not completed, the capitalized general contractor s fee would be different. If you cannot confirm this point, please explain in detail. Réponse : Dans la méthodologie actuelle de l évaluation de la rentabilité d un projet de développement, Gaz Métro alloue 27,1 % de frais généraux entrepreneurs dans le calcul du coût du projet. Cette allocation spécifique à un projet sert à l évaluation a priori de la rentabilité du projet de développement afin de déterminer s il sera approuvé ou non. Une fois le projet approuvé et réalisé, il n y a pas d attribution de frais généraux entrepreneurs à chacun des projets de développement dans les livres comptables de Gaz Métro. Les frais généraux entrepreneurs payés par Gaz Métro représentent un montant fixe par entrepreneur établi initialement dans le contrat général et sont capitalisés en totalité indépendamment du nombre de projets réalisés. 8.2 Please define Capitalized General Overhead Expenses, and in particular, specify if those expenses include costs such as workers compensation insurance, employee benefits, and other costs that could be directly associated with a given worker. Réponse : Veuillez-vous référer à la réponse à la question 2.1 de la demande de renseignements n o 3 de la FCEI (Gaz-Métro 9 - Document 11) pour la description de la composition des frais généraux corporatifs. Les coûts inclus dans les frais généraux corporatifs correspondent aux dépenses d opération des centres des coûts, ce qui inclut des avantages sociaux. Original : Gaz Métro 9, Document 12 Page 13 de 15

14 Société en commandite Gaz Métro Demande portant sur les coûts marginaux de prestation de services de long terme appliqués à l analyse de rentabilité, R SYSTEM INCREMENTAL CAPITAL INVESTMENT 9 Reference: i) Exhibit B-0278, GM-7, Doc 5, p. 32 Question: 9.1 Please explain how Black and Veatch would calculate the System Incremental Capital investment and would determine whether to assign portions of it to specific customers or at the portfolio level. Réponse: Gaz Métro Gaz Métro n a pas donné le mandat à Black and Veatch d évaluer la projection des investissements nécessaires aux renforcements de réseau (premier volet de la question «would calculate») et n entendait pas le faire. Veuillez vous référer à la réponse à la question 1.1. Black & Veatch Black & Veatch would determine the investment-related costs of the facilities needed by Gaz Métro (as part of the reinforcement budget in its development plan) to reinforce its existing gas distribution system to enable the connection of new customers to the existing system and to increase the existing system s operational capacity and flexibility to the benefit of the new and existing customers. System Incremental Capital Investments should be assigned to new customers in a manner that best aligns the number of customers to be served and their associated capacity needs with the investment level needed to satisfy those customer requirements. To accomplish this, it is reasonable and appropriate to assign the cost of such facilities to new customers on a portfolio basis to recognize the lumpy nature of these system investments (see also answer to question 7.2b of the ROEÉ Expert (Gaz Métro-9, Document 14). Even though gas load may grow gradually each month, capital expenditures to build upstream gas transmission or distribution projects are typically done less frequently reflecting the fact that economies of scale exist in upstream projects (i.e., it is more cost-effective on a unit basis when larger projects are undertaken compared to smaller projects). The decision of how much investment, the location, and the timeframe for completing these types of projects is typically made by the gas utility s distribution system planning area as part of the ongoing review of its future capacity needs. Multiple factors are considered by system design and planning professionals including the current gas loads, estimates of shortterm and long-term growth in load, right of ways, material costs, gas supply considerations, Original : Gaz Métro 9, Document 12 Page 14 de 15

15 Société en commandite Gaz Métro Demande portant sur les coûts marginaux de prestation de services de long terme appliqués à l analyse de rentabilité, R and modeling of current system capacity. Importantly, there is not a direct relationship between adding a single new customer or undertaking a development project and adding a unit of upstream capacity. Therefore, it is not feasible or equitable to assign a portion of the cost of these system facilities to specific customers. Please see also the response to answer to question 12.3 of the ROEÉ Expert (Gaz Métro-9, Document 14). Original : Gaz Métro 9, Document 12 Page 15 de 15

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17 Société en commandite Gaz Métro Demande portant sur les coûts marginaux de prestation de services de long terme appliqués à l'analyse de rentabilité, R Société en commandite Gaz Métro Cause tarifaire 2017, R No de ligne 1 DETTE À : 54,00% Calcul du coût en capital prospectif pour l'année 2017 conformément à la décision D ,00% TAUX VARIABLE Pondération Taux 3 Titrisation 0,00% 0,00% 0,000% 4 Papier commercial 100,00% 1,141% 1,141% 5 Marché monétaire 0,00% 0,00% 0,000% 6 Rendement annuel - Taux variable : 1,14% 0,29% 7 10,00% MOYEN TERME À TAUX FIXE 8 Obligation Cda 5 ans 0,85% 9 Obligation Cda 10 ans 1,35% 10 Moyenne des taux 5-10 ans : 1,10% 11 Écart corporatif moyen : 1,42% 12 Taux coupon : 2,52% 13 Commission : 0,375% 14 Frais d'émission : 0,260% 15 Sur base annuelle : 0,08% 16 Rendement annuel - Moyen terme : 2,60% 0,26% 17 65,00% LONG TERME A TAUX FIXE 18 Obligation Cda 10 ans : 1,35% 19 Obligation Cda 30 ans : 1,97% 20 Moyenne des taux ans : 1,66% 21 Écart corporatif moyen : 1,80% 22 Taux coupon : 3,46% 23 Commission : 0,450% 24 Frais d'émission : 0,260% 25 Sur base annuelle : 0,04% 26 Rendement annuel - Long terme : 3,50% 2,27% 27 TAUX PROSPECTIF DE LA DETTE : 2,82% 28 COUT EN CAPITAL PROSPECTIF : 29 DETTE : 54,00% 2,82% 1,52% 30 ACT. PRIVILÉGIÉES : 7,50% 4,44% 0,33% 31 ACT. ORDINAIRES : 38,50% 8,90% 3,43% ,00% 33 COUT EN CAPITAL PROSPECTIF PONDÉRÉ : 5,28% Original : Révisé: Gaz Métro - 7, Document 8 B-0200 Page 1 de 1 Original : Gaz Métro - 9, Document 12 Annexe Q-3.3 (1 page)

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19 Société en commandite Gaz Métro Demande portant sur les coûts marginaux de prestation de services de long terme appliqués à l'analyse de rentabilité, R REPORT OF THE BOARD E.B.O. 188 IN THE MATTER OF the Ontario Energy Board Act, R.S.O. 1990, c. O.13; AND IN THE MATTER OF a hearing to inquire into, hear and determine certain matters relating to natural gas system expansion for The Consumers' Gas Company Ltd., Union Gas Limited and Centra Gas Ontario Inc. BEFORE: G.A. Dominy Presiding Member R.M.R. Higgin Member J.B. Simon Member FINAL REPORT OF THE BOARD January 30, 1998 Original : Gaz Métro - 9, Document 12 Annexe Q-7.1a) (40 pages en liasse)

20 2 REPORT OF THE BOARD

21 REPORT OF THE BOARD TABLE OF CONTENTS 1. THE PROCEEDING THE BACKGROUND INTERVENTIONS 4 2. THE PORTFOLIO APPROACH INTERIM REPORT CONCLUSIONS POSITIONS OF THE PARTIES BOARD S COMMENTS AND FINDINGS 9 3. COMMON METHODS FOR FINANCIAL FEASIBILITY ANALYSIS INTERIM REPORT CONCLUSIONS POSITIONS OF THE PARTIES BOARD'S COMMENTS AND FINDINGS CUSTOMER CONNECTION AND CONTRIBUTION POLICIES INTERIM REPORT CONCLUSIONS POSITIONS OF THE PARTIES BOARD'S COMMENTS AND FINDINGS ENVIRONMENTAL PLANNING REQUIREMENTS FOR SYSTEM EXPANSION INTERIM REPORT CONCLUSIONS POSITIONS OF THE PARTIES BOARD'S COMMENTS AND FINDINGS MONITORING AND REPORTING REQUIREMENTS INTERIM REPORT CONCLUSIONS POSITIONS OF THE PARTIES BOARD'S COMMENTS AND FINDINGS COMPLETION OF THE PROCEEDING AND COSTS COMPLETION OF THE PROCEEDING COSTS 35 APPENDICES Appendix A: Parties Concurring with the ADR Agreement Parties Substantially Supporting the Dissent Document i

22 REPORT OF THE BOARD Appendix B: Guidelines for Assessing and Reporting on Natural Gas System Expansion in Ontario ii

23 REPORT OF THE BOARD 1. THE PROCEEDING 1.1 THE BACKGROUND In a Notice of Public Hearing dated July 31, 1995, the Ontario Energy Board ("the Board") made provision to hold a public hearing under subsection 13(5) of the Ontario Energy Board Act ("the OEB Act", the Act ) to inquire into, hear and determine certain matters relating to the expansion of the natural gas systems of The Consumers' Gas Company Ltd. ("Consumers Gas"), Union Gas Limited ("Union") and Centra Gas Ontario Inc. ( Centra ), (collectively "the utilities"). The proceeding was given Board File No. E.B.O In Procedural Order No. 1 the Board ordered the utilities to file their current policies for determining the feasibility of proposed system expansions and the application of environmental study reports The Board held an Issues Day meeting on September 11, 1995 and heard submissions on a proposed Issues List. The Board finalized the Issues List in Procedural Order No. 2 dated September 14, Procedural Order No. 3, dated October 27, 1995, made provision for parties to file evidence and interrogatories on the evidence. The Order also provided for an alternative dispute resolution ("ADR") conference to be held commencing December 11, 1995 ( the first ADR Conference ). 1

24 REPORT OF THE BOARD The Board received the Report to The Ontario Energy Board on The Alternative Dispute Resolution Conference in E.B.O. 188 A Generic Hearing on Natural Gas System Expansion in Ontario, on December 21, 1995 ("the first ADR Report"). There were divergent views expressed in the first ADR Report by the parties with respect to the principles involved in system expansion Having reviewed the first ADR Report, the Board issued Procedural Order No. 4 on January 11, In that Order, the Board directed that the parties choosing to file argument and reply should focus their submissions on the following issues: 1.1 Should financial feasibility be the only determinant for expansion or should it include, apart from security of supply and safety: (1) an obligation to serve in areas where existing service is available; (2) externalities; If externalities are to be included, what specific externalities, i.e. economic, social, environmental, should be considered? What tests should be applied and in what sequence? 1.2 Given the answer to 1.1, what level of financial subsidy, if any, should be applied to system expansion; 1.3 Should a portfolio of projects be utilized or should the utilities account for expansion on a project-by-project basis? How should the portfolio be defined? Submissions were filed on February 2, 1996 and reply submissions were filed on February 19, An Interim Report of the Board ( Interim Report ) was issued on August 15, In that Interim Report the Board made a determination of the issues and set out the principles that would apply to system expansion projects. The Board directed the parties to develop guidelines and policies reflecting the Board s conclusions. The Board also determined that the continuation of the proceeding should be by way of written submissions and a further ADR Settlement Conference ( the second ADR Settlement Conference ). 2

25 REPORT OF THE BOARD A written common submission was filed by the utilities on September 30, 1996, and submissions and comments on the utilities' common submission were received from Board Staff, Consumers' Association of Canada, Canadian Industry Program for Energy Conservation, Industrial Gas Users Association/City of Kitchener, Green Energy Coalition, Northwestern Ontario Municipal Association/Federation of Northern Ontario Municipalities, Pollution Probe and Ontario Federation of Agriculture/Ontario Pipeline Landowners' Association In January 1997, the second ADR Settlement Conference was held. This resulted in the submission of:! an ADR Agreement filed with the Board on March 14, 1997, subscribed to by the utilities and supported by a number of other parties ( ADR Agreement ), which included proposed System Expansion Guidelines;! a dissent in the form of a document entitled Deficiencies of the E.B.O. 188 ADR Agreement and their Rectification dated April 1, 1997 ( Dissent Document );! letters of comment from various parties on the ADR Agreement and Dissent Document; and! responses (dated July 25, 1997) to a set of Board clarification questions to the utilities The parties concurring with the ADR Agreement and those substantially supporting the Dissent Document are listed in Appendix A In preparing this Final Report, the Board has considered the above documents. The resulting Guidelines for Assessing and Reporting on Natural Gas Distribution System Expansion in Ontario (1998) ( the Guidelines ) are issued as Appendix B to this Report The following chapters set out the issues and the principles established in the Interim Report by quoting directly from that document. The positions of the parties are outlined by referencing the ADR Agreement, the Dissent Document and the various comments and clarifications made. 3

26 REPORT OF THE BOARD The Board s comments and findings are structured as:! The Portfolio Approach! Common Methods for Financial Feasibility Analysis! Customer Connection and Contribution Policies! Environmental Planning Requirements for System Expansion! Monitoring and Reporting Requirements As of January 1, 1998, Union and Centra merged into a single company, Union Gas Limited. The Board s findings in this Report and in the Guidelines are applicable to the new company and to Consumers Gas. 1.2 INTERVENTIONS The following parties intervened in the proceeding:! Canadian Association of Energy Service Companies! City of Kitchener! Consumers' Association of Canada! Energy Probe! Federation of Northern Ontario Municipalities! Green Energy Coalition! Grenville-Wood! The Heating, Ventilation, Air Conditioning Contractors Coalition Inc.! Industrial Gas Users Association! Municipal Electric Association! Natural Resource Gas Limited! Northwestern Ontario Municipal Association! Ontario Coalition Against Poverty! Ontario Federation of Agriculture! Ontario Hydro! Ontario Native Alliance! Ontario Pipeline Landowners' Association! Ottawa-Carleton Gas Purchase Consortium 4

27 REPORT OF THE BOARD! Pollution Probe! Power Workers' Union! TransAlta Energy Corporation! TransCanada PipeLines Limited! Woodland Hills Community Inc. Late Interventions! The British Columbia Ministry of Energy, Mines and Petroleum Resources! Canadian Industry Program for Energy Conservation! Ecological Services For Planning Inc.! F & V Energy Co-operative Inc.! StampGas Inc. 5

28 6 REPORT OF THE BOARD

29 REPORT OF THE BOARD 2. THE PORTFOLIO APPROACH 2.1 INTERIM REPORT CONCLUSIONS The Board believes that utilities are in the best position to plan their distribution systems and, therefore, they should have flexibility in choosing the optimal system design for their distribution system expansions. The Board also believes that if the utilities are allowed to assess the financial viability of all potential customers as a group [using a portfolio approach] more marginal customers could be served as a result of assessing the cost of serving them together with more financially viable customers The Board is of the view that all distribution system expansion projects should be included in a utility's portfolio. This includes projects being developed for security of supply and system reinforcement reasons. The Board will be prepared on an exception basis to consider a utility's submissions as to why a proposed project should not be included in the portfolio but treated separately The Board believes that the issue of the timing of projects can be mitigated by the use of a rolling P.I. [Profitability Index] or benefit to cost ratio in the portfolio. The Board finds that using a rolling P.I. such as the approach used by Union will allow more opportunity for new projects to be added to the portfolio in a more timely fashion and that this is in the public interest. Union's rolling P.I. is a weighted average calculation of the cumulative net present value ("NPV") inflows divided by the cumulative NPV outflows during the preceding 12 months. 7

30 REPORT OF THE BOARD The Board expects the utilities to develop common policies on calculating rolling P.I.s. The forecast rolling P.I.s at a given point in time will be compared to the actuals in each utility's rates case to determine if any action needs to be taken with regard to forecast variances The Board recognizes that subsidization can be measured at both the project and portfolio level. An overall rolling portfolio P.I. of 1.0 means that existing customers will not suffer a rate increase over the long term as a result of distribution system expansion. The Board is therefore of the view that an overall portfolio P.I. of 1.0 or better (emphasis added) is in the public interest. Using this approach will obviate the need for the intense scrutiny of the financial viability of each project; will ensure that existing ratepayers are not negatively impacted by new projects (given the Board's proviso above on the sharing of risks); and assist communities to obtain gas service where otherwise it would not be financially feasible on a stand-alone basis However, at the present time the utilities calculate the DCF [ discounted cash flow ] for proposed projects over long periods of time. The P.I. or benefit to cost ratio is based on this calculation. In the early years, the costs shown in the calculation generally exceed the revenues and there is a greater impact on rates than in the later years when revenues generally exceed costs. The Board is concerned that even if a utility demonstrates that its portfolio of distribution system projects shows a P.I. of at least 1.0 the impact on rates in a given year may be undue. For this reason, the Board expects the utilities to demonstrate in their rates cases that the short-term rate impact of the cumulative effect of the portfolios will not cause an undue burden on existing ratepayers The Board has considered whether or not it should impose a minimum threshold P.I. for projects to be included in the portfolios. The Board is concerned that the utilities may proceed with a number of projects with low P.I.s even though the P.I.s of the portfolios remain at 1.0 or greater. The cumulative impact of these projects may result in economic inefficiencies that outweigh the public benefit of the portfolio approach. From time to time, the Board will review the project specific data to monitor the operation of the portfolios in order to determine whether the cumulative 8

31 REPORT OF THE BOARD economic inefficiency of proceeding with financially unfeasible projects outweighs the public interest in using the portfolio approach. 2.2 POSITIONS OF THE PARTIES The ADR Agreement proposed that each utility group all proposed new distribution customers and new facilities to serve them, for a particular test year into one portfolio (the Investment Portfolio ). The Investment Portfolio would be designed to achieve a NPV of zero or greater (including normalized reinforcement costs) The ADR Agreement proposed that each utility also maintain a rolling 12 month distribution expansion portfolio (the Rolling Project Portfolio ). The cumulative result of project-specific discounted cash flow ("DCF") analyses from the past 12 months would be calculated monthly. The costs and revenues associated with serving customers on existing mains would not be included. The Rolling Project Portfolio would be used as a management tool by the utilities to decide on appropriate distribution capital expenditures The Dissent Document listed three concerns with the Investment Portfolio proposed in the ADR Agreement: i. service lines off existing mains are included; ii. security of supply projects are not included; and iii. reinforcement costs have been normalized rather than using forecast actual costs. 2.3 BOARD S COMMENTS AND FINDINGS Investment Portfolio The Board accepts the ADR Agreement proposal that each utility would group into one portfolio, the Investment Portfolio, all proposed new distribution customer attachments and facilities for a particular test year. The Investment Portfolio would 9

32 REPORT OF THE BOARD be designed to achieve a positive NPV (greater than zero) in the test year (including normalized reinforcement costs) The Board considers that a primary purpose of the Investment Portfolio analysis is to provide the Board with sufficient evidence to decide whether a utility s test year system expansion plan will result in undue rate impacts The Board understands that the ADR Agreement s proposed Investment Portfolio contains the capital costs of facilities for all new customers added during a test year. The analysis of system expansion financial feasibility includes revenues and operation and maintenance ( O&M ) costs associated with these new customers over horizons as proposed up to 40 years. The utilities propose to include an allowance for reinforcement costs to supply the new projects on a normalized basis Since the Investment Portfolio analysis is intended to predict the financial and rate impacts of test year incremental system expansion capital expenditures and associated revenues and expenses, it is inappropriate to include historic capital expenditures or revenues from attachments in prior periods The Board accepts the difficulty in isolating test year customers attaching to new mains only (versus those attaching to mains built in prior years). However, as specified in the Guidelines attached as Appendix B, an estimate of the NPV without attachments to prior expansions will be required. This will enable the Board to better monitor the overall economic feasibility of such projects The Board s interpretation of the Investment Portfolio analysis and its associated rate impacts was assisted by reference to Consumers Gas interrogatory response [Exhibit I, Tab 7, Schedule 8] in the E.B.R.O. 495 Consumers Gas 1998 rates case. The Board directs the utilities to file future impact analyses in a similar form (see paragraph 6.3.4) The Board sought further explanation for the proposed treatment of reinforcement costs in the Investment Portfolio in its letter of July 4, 1997 to the utilities. The utilities responded that normalized reinforcement costs were categorized into 10

33 REPORT OF THE BOARD special reinforcement and normal reinforcement. The costs of the former are those associated with specific major reinforcements of the system and are amortized over a period of years. The normal reinforcement costs are the residual of the total identified reinforcement costs after the special reinforcement costs are deducted. The historical average for the special and normal reinforcement costs will then be used as the normalized amount to be included in the portfolio analysis as a percentage of the total capital expenditure in the year The Board finds the proposed treatment of reinforcement costs to be included in the Investment Portfolio as proposed in the ADR Agreement appropriate for overall portfolio analysis purposes. Union currently includes an allowance related to the carrying costs for advancement of reinforcement expenditures resulting from a new project and the Board finds this approach to be appropriate The Board does not agree that a design target of zero NPV and a P.I. of 1.0 is appropriate given the forecast risks inherent in the Investment Portfolio analysis. As the Investment Portfolio NPV approaches zero the marginal projects will be those with long cash flow break-even periods. Such projects require subsidy for long periods and hence increase short term rate impacts disproportionately In addition, the Board notes that the Investment Portfolio includes the costs and revenues associated with attaching customers to existing mains (i.e. mains constructed prior to any given test year). These projects by their nature will be more profitable for the utilities, since the costs of the mains are not included in the Investment Portfolio calculation. The Board concludes that the Investment Portfolio should be designed to achieve a positive NPV including a safety margin (for example, corresponding to a P.I. of 1.10). The Board believes that a portfolio designed in this way will minimize the forecast risks and hence more likely achieve the desired results of no undue rate impacts. 11

34 REPORT OF THE BOARD Rolling Project Portfolio The Board also accepts the ADR Agreement proposal to maintain a Rolling Project Portfolio. The Rolling Project Portfolio provides an ongoing method of determining the financial feasibility and rate impact of expansion projects over a previous 12 month period. The Rolling Project Portfolio excludes the costs and revenues associated with new customers attaching to mains built prior to the last 12 month period. The Rolling Project Portfolio also provides a basis to compare a utility s Investment Portfolio with actual system expansion. Union has used a Rolling Project Portfolio approach for some time and has filed rate impacts from significant individual projects in its rates cases (e.g. E.B.R.O. 493/494 Exhibit B1, Tab 4, Appendices C and D) As noted above the Board finds the proposed treatment for reinforcement costs to be included in the Rolling Project Portfolio to be appropriate The Board finds the Rolling Project Portfolio as proposed by the utilities to be a useful management tool. This Portfolio provides a mechanism for facilitating review of the financial status of overall distribution system expansion at the time that individual major projects are before the Board for either franchise and certificate approval, or for approval of leave to construct and also for monitoring purposes The Board has previously expressed its position that inclusion in the Investment Portfolio, of revenues and costs for infill customers connecting to existing mains may provide a mismatch between periodic costs and revenue. The Board notes that the Rolling Project Portfolio, which is the utilities primary management tool, does not include such infill customers. Therefore, the Board finds that the Rolling Project Portfolio does provide appropriate matching and that an NPV of zero (or greater) is appropriate. 12

35 REPORT OF THE BOARD 3. COMMON METHODS FOR FINANCIAL FEASIBILITY ANALYSIS 3.1 INTERIM REPORT CONCLUSIONS The Board believes that a further review of the methodology to be used by the utilities in assessing the project and portfolio financial feasibility is necessary. Among the factors to be considered are the period for new attachments and the time period over which the DCF analysis is calculated. The Board expects utilities to develop common methods for the Stage I Financial Feasibility test that will be used to show whether or not each utility's portfolio of distribution system expansion projects is profitable. 3.2 POSITIONS OF THE PARTIES The ADR Agreement set the following parameters for the DCF analysis: (a) Customer Attachment Horizon A maximum 10 year forecast horizon will be utilized. For customer attachment periods of greater than 10 years an explanation of the extension of the period will be provided to the Board. 13