THESL S REGULATORY REGIMS

Transcription

1 THESL S REGULATORY REGIMS PRESENTED BY: ARTHUR BERDICHEVSKY P.ENG., MBA TORONTO HYDRO December 4, 2012

2 CORPORATE STRUCTURE Shareholder Direction Regulated by Ontario Securities Commission Governance Financing OEB s Affiliate Relationship Code Regulated by Ontario Energy Board (OEB) Local Distribution Company Contractual Relationship with City of Toronto Owns and operates street lighting 1% of Revenue 2

3 TORONTO S SYSTEM RELIABILITY COMPARED TO OTHER WORLD CLASS CITIES Comparison Outage of Frequency SAIFI between (SAIFI) Toronto & Other (interruptions/customer) World Class Cities Comparison Outage of Duration SAIDI between (SAIDI) (hours/customer) Toronto & Other World Class Cities Tokyo Hong Kong New York Paris London Vancouver Toronto Montreal Tokyo Hong Kong New York Paris London Miami Toronto Vancouver Montreal Source: Reliability Peer Group Cities Comparison Capgemini

4 COMPETING DEMANDS Increasing stakeholder expectations and demand Aging Infrastructure, Increasing Load AM Aging workforce and growing skills gap Increasing performance expectations 4

5 Ontario Energy Board Act, 1998 Board Objectives, Electricity 1. (1) The Board, in carrying out its responsibilities under this or any other Act in relation to electricity, shall be guided by the following objectives: 1. To protect the interests of consumers with respect to prices and the adequacy, reliability and quality of electricity service. 2. To promote economic efficiency and cost effectiveness in the generation, transmission, distribution, sale and demand management of electricity and to facilitate the maintenance of a financially viable electricity industry. 5

6 Cost of Service The Cost of Service model provides for an in-depth review of the future expenditures of a utility (Future or Historic, but not both) Evidentiary requirements: must provide evidence that the expenditures are prudent Prudence: Need (Asset assessment studies, asset age) Timing (Priority tool) Cost effective (market / productivity) Finally, the OEB also considers the capacity of the utility to deliver the proposed plan from a workforce and financial perspective along with the capacity for the ratepayers to afford the related electricity rates 6

7 ONTARIO ENERGY BOARD DECISION On January 5, 2011, the Ontario Energy Board (OEB) informed Toronto Hydro that it will not be allowed a Cost of Service (CoS) hearing to set its rates. The decision effectively moved Toronto Hydro to an Incentive Regulation Mechanism (IRM) process for rate setting which has placed significant strain on the company s operating and capital budgets. Since the decision, Toronto Hydro has reduced its operating budget by $20 million or 10% and has re-prioritized its capital plan. Capital projects throughout the city have been placed on hold as the company has explored all regulatory options available to seek out the funding necessary to maintain infrastructure at remaining levels. 7 Rate Filling Update December 4, 2012

8 NEW REGULATORY FRAMEWORK Following OEB direction, on May 10 th, Toronto Hydro filed a three year IRM application with an Incremental Capital Module (ICM) Component to the regulator. The ICM allows a distributor to seek additional capital funding during the IRM period, when its needs exceed the level of capital funding available through the IRM formula. The application includes infrastructure renewal projects which are most essential to the grid---must be undertaken in the next three years to maintain (but not improve) current overall levels of system reliability and safety. A total of 855 jobs have been grouped into 10 projects, representing a three year investment of $1.4 billion dollars and, if approved, a rate impact of approximately 4.4% on an average monthly bill. 8 Rate Filling Update December 4, 2012

9 STATE OF TORONTO S ELECTRICITY SYSTEM CONDITION OF ASSETS $580M per year over the next 10 years is needed to make upgrades, based on our analysis of our system $3.3B of asset replacement value is currently beyond useful life Additional $2.2B of assets will pass end-oflife in the next 10 years Assets Past End-of- Life $3.3B 28% $6.5B 54% $2.2B 18% Will Reach Endof-Life by 2021 Assets Prior to End-of- Life *Percentages are approximate 9 Rate Filling Update December 4, 2012

10 ICM S BUSINESS CASE STRUCTURE Incremental Capital Module (ICM): Non-discretionary - Problem Definition and deferral impact. Prudent - Mitigation options and most prudent choice. Incremental Requested Capital is outside of the currently approved rates. Discrete - Project Descriptions including costs, year of execution, location and asset counts to be installed. 10 Rate Filling Update December 4, 2012

11 CANCELLED PROJECTS DURING IRM No modernization leverage such as: Circuit redesign (Installing looped configuration for alternative supply point) Operating flexibility (New unique tie points to be installed on feeders with two or less distinct tie points) New technology standards (Installation of new components to monitor asset performance) Sustaining asset investments not addressed - XLPE in conduit and PILC will not be proactively managed under this program Proactive equipment failure management continue with run to failure assets such as overloaded and end-of-life transformers IRM will not deliver improved reliability service as defined in COS 11 Rate Filling Update December 4, 2012

12 ICM BUSINESS CASES Pro je cts Se g me nts Underground Infrastructure Und e rg ro und Infra structure a nd Ca b le Paper Insulated Lead Covered Cable - Piece Outs and Leakers Handwell Replacem ent Overhead Infrastructure Box Construction Ove rhe a d Infra structure a nd Eq uip me nt Rear Lot Construction Polym er SM D-20 Switches Scadam ate R1 Switches Network Vault and Roofs Ne two rk Infra structure a nd Eq uip me nt Fibertop Network Units Autom atic Transfer Switches and Reverse Power Breakers Sta tio n Infra structure a nd Eq uip me nt Stations Power Transform ers Stations Switchgear - M unicipal and Transform er Stations Stations Circuit Breakers Stations Control and Com m unication System s Downtown Station Load Transfers Bre mne r T ra nsfo rme r Sta tio n Hyd ro One Ca p ita l Co ntrib utio ns Fe e d e r Auto ma tio n Me te ring Pla nt R e lo c a tio ns Brem ner Transform er Station Hydro One Capital Contributions Feeder Autom ation Wholesale and Sm art M etering Externally-Initiated Plant Relocations and Expansions 12 Rate Filling Update December 4, 2012

13 Assets Past Useful Life ($ BILLIONS) ASSETS PROFILE - BEYOND USEFUL LIFE $4.50 $4.00 Assets Past Useful Life with COS Assets Past Useful Life with PCI + ICM Assets Past Useful Life with PCI Assets Past Useful Life - Run to Fail 33.1% $3.50 $3.00 $ % 26.1% 28.6% 27.9% 24.8% 23.9% 30.0% 28.6% 31.0% 25.4% 23.3% $2.00 $1.50 $1.00 $0.50 $ Year 13 Rate Filling Update December 4, 2012

14 Assets At Risk ($Millions) ASSETS AT OPTIMAL INTERVENTION TIME $1,400 Assets at Risk with COS Assets at Risk with PCI + ICM Assets at Risk with PCI Assets at Risk with Run To Fail $1, % 20.1% 20.8% $1,000 $ % 15.6% 14.5% 17.2% 16.6% 12.3% $ % 9.2% $400 $ % $ Year Note: The graph represent the Asset Replacement Value where the risk exceeds the Capital Cost 14 Rate Filling Update December 4, 2012

15 Asset Lifecycle AVERAGE ASSET LIFECYCLE PCI framework represents a worst case scenario running asset infrastructure to failure Years With ICM program THESL can maintain a closer lifecycle to the COS Years 31.1 Years 40.5 Years COS 2012 COS PCI + ICM PCI Applied Regulatory Framework Note: The total replacement Value of Assets for 2011 was $12.2B and for 2006 $11.6B 15 Rate Filling Update December 4, 2012

16 Questions? 16 Rate Filling Update December 4, 2012