Slide 1: Stakeholder Consultation Distribution Custom IR Rate Application 2015-2019
Stakeholder Consultation Distribution Custom IR Rate Application 2015- 2019 Stakeholder Session #2 June 26, 2013
Slide 2: Agenda
Agenda 10:30 Registration a.m. 10:35 Welcome Susan Frank, Vice-President & Chief Regulatory a.m. Officer Hydro One Networks 10:40 Introductions and Agenda Bob Betts, Facilitator, a.m. OPTIMUS|SBR 10:50 Progress Update on Stakeholder Bob Betts, Facilitator, a.m. Session #1 OPTIMUS|SBR 11:20 Update on
Slide 3: Facilitator's Remarks
Facilitator’s Remarks Introductions Facilitator, Bob Betts & OPTIMUS | SBR support team Meeting Facilities Safety Review Note taking process Participant Introductions 3
Slide 4: Meeting Process
Meeting Process Mobile phones “Off” or “Silenced” Avoid side discussions while others speaking All questions are good ones All comments are appreciated Materials and notes will be posted on Hydro One’s Regulatory Website: www.HydroOne.com/ RegulatoryAffairs 4
Slide 5: Progress Update on Stakeholder Session #1
Progress Update on Stakeholder Session #1 Stakeholder Feedback Status Custom IR Hydro One to review how to address updating Compensation Study over 5 Study RFP’d year plan. Hydro One to discuss off-ramps, annual adjustments, and To be discussed scorecard/reporting requirements in more detail (ta
Slide 6: Update on Line Loss Study
Update on Line Loss Study Stan But June 26, 2013 Manager, Economics & Load Forecasting 6
Slide 7: OEB Directive
OEB Directive In its Decision with Reasons for EB-2009-0096 released on April 9, 2010, the OEB directs Hydro One to track the dollar value of variances between the Board approved losses recovered in rates, and actual line losses, commencing January 1, 2010. The OEB also directs Hydro One to brin
Slide 8: Status of the Line Loss Study
Status of the Line Loss Study To develop a well-defined and defendable methodology for the line loss study, Hydro One has recently engaged Navigant to assist in this analysis. Hydro One plans to file the line loss analysis in the upcoming cost of service application. 3
Slide 9: Summary of Proposed Approach to Determining Loss Variance
NAVIGANT ENERGY Summary of Proposed Approach to Determining Loss Variance Prepared for Hydro One Networks, Inc. Stakeholders hydro yaro one June 26, 2013 ©2013 Navigant Consulting, Ltd. Confidential and proprietary. Do not distribute or copy.
Slide 10: Disclaimer
Approach to Determining Loss Variance Disclaimer This presentation was prepared by Navigant Consulting Ltd. (“Navigant’), a wholly owned subsidiary of Navigant Consulting, Inc., exclusively for the benefit and use of Hydro One Networks, Inc. and/or its affiliates or subsidiaries. No part of it may b
Slide 11: Approach to Determining Loss Variance » Overview
Approach to Determining Loss Variance » Overview Navigant’s proposed work plan consists of three phases q Finalise Design of, Implement Support and and Test, Proposed Methodology q Participate in Methodology Regulatory s = = Proceedings a 4 ® s 2 7) = = = oO. a Ge ee) X% Ne) Ne) SS Ss Vv Vv Ss & Q ©
Slide 12: Approach to Determining Loss Variance » Overview
Approach to Determining Loss Variance » Overview Proposed methodology consists of two components 4 ) System-wide Variance Difference between actual and approved losses for all of HONI ©2013 Navigant Consulting, Ltd. Confidential and proprietary. Do not distribute or copy. 2 } Class-specific Variance
Slide 13: Approach to Determining Loss Variance » Overview
Approach to Determining Loss Variance » Overview The proposed approach for each component addresses two major questions 1 » Whatis the variance in terms of energy (kilowatt-hours) between the actual and approved losses 2 » Whatis the variance in terms of dollars between the revenue/cost of the appro
Slide 14: Approach to Determining Loss Variance » System-wide
Approach to Determining Loss Variance » System-wide For a given time period, to determine the variance in terms of energy compare actual losses to approved losses Actual Purchases (kWh) Metered Usage Approved Loss Approved Losses (kWh) x Factors = (kWh) By customer ae including an estimate for unmet
Slide 15: Approach to Determining Loss Variance » System-wide
Approach to Determining Loss Variance » System-wide Likewise, for a given time period, to determine the variance in terms of dollars compare cost of approved losses with cost of actual losses Cost of Purchased Energy ($) Cost of Metered Approved Loss Usage ($) x Factors Cost of A Losses ($) Cost of
Slide 16: Approach to Determining Loss Variance » System-wide
Approach to Determining Loss Variance » System-wide Five major steps to determine system-wide losses Select an analysis period » Given the availability of hourly meter data for customers with smart meters, Navigant proposes to focus the analysis on calendar year 2012 » The results of the calendar ye
Slide 17: Approach to Determining Loss Variance » Class-specific
Approach to Determining Loss Variance » Class-specific Class-specific technical losses driven by system configuration and usage profiles Simplified Radial Distribution System Model 115 or 230kV Transmission Line a Transmission == \_A__A . Station High-voltage Sub- transmission (ST) Customer 27.6, or
Slide 18: Approach to Determining Loss Variance » Class-specific
Approach to Determining Loss Variance » Class-specitic To determine class-specific loss variance need to allocate losses at primary and secondary voltage level Illustrative Representative System Configuration 1150r230kKV_ POO Tansmesontine | transmission = \_A__A_) | __ Aggregate Hourly Metered Purc
Slide 19: Approach to Determining Loss Variance » Class-specific
Approach to Determining Loss Variance » Class-specific Proposed methodology consists of engineering analysis focused on representative system configurations » » » » Engineering studies designed to calculate the magnitude, composition and allocation of losses based on aggregate metering information f
Slide 20: Lunch
Lunch
Slide 21: Update on Seasonal Customer Initiative
Update on Seasonal Customer Initiative Henry Andre June 26, 2013 Manager, Pricing 21
Slide 22: Topics
Topics Existing Seasonal customer feedback Planned Seasonal customer consultation Possible Options for Modifying Seasonal Rates 2
Slide 23: Corporate Customer Satisfaction – Seasonal
Corporate Customer Satisfaction – Seasonal Satisfaction with how Hydro One “calculates their bill” and “fairness of charges” lower for Seasonal as compared to all respondents Overall satisfaction with rates and charges on the bill shows a decrease with increase in consumption (other rate classes
Slide 24: Customer Call Centre – Escalated complaints
Customer Call Centre – Escalated complaints High consumption customers generate majority of Seasonal customer complaints: Differences in type of rates/billing complaints based on level of energy consumption: Monthly Service Charge issues account for ~25% of complaints for low energy users but only
Slide 25: Planned Seasonal Consultation
Planned Seasonal Consultation Have engaged CitizenOptimum to conduct focus groups with seasonal customers Two focus groups in each of four regions in Ontario (North, South, East and West) Will engage local cottagers’ associations to send one or two representatives to local focus groups of 6 to
Slide 26: Possible Options for Seasonal Rates
Possible Options for Seasonal Rates 1. Status Quo Outcome of harmonization process that combined Seasonal rate classes (R3 and R4) into one class The harmonization process adopted the lower R3 fixed charge as the “target” for the harmonized class – shifted revenue to be collected from fixed to var
Slide 27: Possible Options for Seasonal Rates
Possible Options for Seasonal Rates 2. Revise revenue collected via fixed and variable rates Increase fixed charges from current $19.50 - R2 Fixed charge ($57), R1 ($20), OEB Minimum System ($24) Current Seasonal rates recover 38% of revenue via fixed & 62% via variable charges - Prior to harmon
Slide 28: Possible Options for Seasonal Rates
Possible Options for Seasonal Rates 3. Revise Seasonal rate class criteria Exclude Seasonal customers with greater than 1,000 kWh avg monthly consumption over the prior year High consuming seasonal customers move to respective residential classes Seasonal customers moving to R2 rate class not
Slide 29: Possible Options for Seasonal Rates
Possible Options for Seasonal Rates 4. Split Seasonal rate class into High and Low volume classes Where to draw the dividing line? No impact on other residential rate classes Expect rates to drop for High consuming customers given higher revenues currently collected Expect rates to climb for
Slide 30: Criteria for Evaluating Options
Criteria for Evaluating Options Delivery Charge Impacts Total Bill Impacts # of customers with positive and negative impacts Consistency with rate making principles 10
Slide 31: Overview of Custom IR
Overview of Custom IR Annual Adjustments Off-Ramps/Re-Openers Susan Frank Annual Reporting & Performance Metrics Vice-President & Chief Regulatory Officer June 26, 2013 Jim Malenfant Senior Regulatory Advisor 31
Slide 32: Timeline for Custom IR Stakeholdering
Timeline for Custom IR Stakeholdering Process: Economic Outlook (Sept) Business Planning (Sept) Studies (April, June, Sept) Strategy (Sept) Knowledge of Assets -Asset Analytics (Sept) Customer Information (April, Nov) The Cost of Service Plan: Annual Revenue Requirement (Nov) Smoothe
Slide 33: Custom IR Framework
Custom IR Framework G OEB Model 5 year Annual Approved Plan Cr Ramps Monitoring Hydro One Customized Features Annual Adjustments Annual Re-Openers Reporting Externally Driven Externally Driven Metrics Ongoing Shock/Surprise Cumulative Formula Based Very Material OEB Response No Hearings Basic Plan U
Slide 34: Hydro One Research for Custom IR Design: UK
Hydro One Research for Custom IR Design What Performance-Based or Incentive Regulation is Elsewhere? UK Introduced new RIIO (Revenue using Incentives to deliver Innovation and Outputs) model in Mar 2013. Outcome focused model, distributors required to develop plans and define performance measures
Slide 35: Hydro One Research for Custom IR Design: Australia
Hydro One Research for Custom IR Design What Performance-Based or Incentive Regulation is Elsewhere? Australia Currently in the midst of major review of its regulatory policy (“Better Regulation program”). The Better Regulation program is to deliver an improved regulatory framework focused on prom
Slide 36: Hydro One Research for Custom IR Design: Alberta
Hydro One Research for Custom IR Design What Performance-Based or Incentive Regulation is Elsewhere? Alberta ENMAX initiated a Formula Based Ratemaking model in Alberta which was approved in 2009. The regulator expanded this concept to all Alberta utilities (gas & electric) in 2012 with the issuan
Slide 37: Annual Adjustments
Annual Adjustments Criteria Annual Adjustment Options Questions?
Slide 38: Hydro One's Options for Annual Adjustments: Criteria
Hydro One’s Options for Annual Adjustments Criteria: Externally driven beyond utility’s control Ongoing / recurring changes either upward/downward Formula based 7
Slide 39: Hydro One's Options for Annual Adjustments
Hydro One’s Options for Annual Annual Adjustments Adjustments Options: Cost of Capital - Based on OEB issued Return On Equity and deemed Short Term debt rate in Nov each year - Based on Hydro One’s actual long term debt issued Working Capital - Based on change in Commodity Prices (including global
Slide 40: Annual Adjustments: Facilitated Discussion
Hydro One’s Options for Annual Adjustments Facilitated Discussion Questions: Should there be materiality thresholds? Should the annual adjustments be based on forecasts or actuals? How to address prudency review during the annual adjustment process? 9
Slide 41: Off-Ramps and Re-Openers
Off-Ramps and Re- Openers Criteria Off-Ramp Options Re-Opener Options Questions?
Slide 42: Hydro One's Options for Off-Ramps and Re-Openers: Criteria
Hydro One’s Options for Off-Ramps and Re- Criteria: Openers Externally driven beyond utility’s control Unexpected Very material impact Off-ramps result in whole Custom IR plan to be examined and possibly terminated; whereas with Re- Openers only a particular component of the plan is adjusted.
Slide 43: Off-Ramp Options
Hydro One’s Options for Off-Ramps and Re- Openers Off-Ramp Options: Return on Equity (+/- 300 basis point thresholds) as per OEB’s RRFE Performance erodes to unacceptable levels as per OEB’s RRFE Restructuring of the industry 11
Slide 44: Re-Opener Options
Hydro One’s Options for Off-Ramps and Re- Openers Re-Opener Options: New Government Mandates Market Rules/Code changes Environmental law changes Technical standard changes New investments resulting from the newly developed Regional Plans Material unforeseen weather events Accounting Framework
Slide 45: Off-Ramps and Re-Openers: Facilitated Discussion
Hydro One’s Options for Off-Ramps and Re- Openers Facilitated Discussion Questions: What is the level of materiality to trigger a re-opener? Different levels for Capital and OM&A? How to incorporate re-openers into the plan: track in variance accounts and seek recovery in next cost of service fili
Slide 46: Reporting & Performance Metrics
Reporting & Performance Metrics Criteria Metrics for Delivery of Plan Questions?
Slide 47: Reporting and Performance Metrics: Criteria
Hydro One’s Options for Reporting and Performance Metrics Criteria: Outputs to allow Board and Intervenors to monitor key outcomes committed to in the plan Metrics need to be measurable, controllable, and transparent Manageable number of metrics 14
Slide 48: Metrics for Delivery of Plan
Hydro One’s Options for Reporting and Performance Metrics Metrics for Delivery of Plan: Level of Spend (Capital In-Service and OM&A) Productivity/Cost Effectiveness Forestry Brush Control & Line Clearing ($/km) Planned End of Life Wood Pole Replacements ($/pole) Cable Locates ($/locate)
Slide 49: Reporting and Performance Metrics: Facilitated Discussion
Hydro One’s Options for Reporting and Performance Metrics Facilitated Discussion Questions: Should there be incentives (i.e. rewards/penalties) related to metrics? How to develop the targets for each metric? Should the targets be annual or cumulative? How to validate the accuracy of the metric
Slide 50: Thank you for attending!
Thank you for attending! Check our website for further information: www.HydroOne.com/RegulatoryAffa irs Any questions or comments can be directed to: Regulatory@HydroOne.com