Slide 1: LEI Density Study Stakeholder Consultation
PNXA London Economics International LLC PowerNex Associates Inc.
Slide 2: Plan of Presentation
MIMI Lis Plan of Presentation LONDON ECONOMICS Review of Study Objectives 2 Implementation of Methodology 3 Summary of Results and Findings 4 Questions and Answers
Slide 3: Objectives
TTIHI Objectives LE tte study had three objectives LONDON ECONOMICS > The study was initiated in response to a request from the Ontario Energy Board (“OEB”) > The objectives closely follow the OEB’s direction « Evaluate the relationship between customer density and distribution service costs " Asses
Slide 4: Plan of Presentation
MIMI = Lis Plan of Presentation LONDON ECONOMICS 1 Review of Study Objectives Implementation of Methodology 3 Summary of Results and Findings 4 Questions and Answers
Slide 5: Methodology » Analyses Techniques
Methodology » Analyses Techniques I |e Methodology consisted of two separate but complementary analyses > Econometric Operating Areas in HONI’s Distribution Service Territory " Operating area level data «= 48 HONI operating areas were analyzed * Data reflects natural observations « Statistical analy
Slide 6: Econometric cost function equation
► 1 ln 𝐶 = 𝑎0 + 𝑎𝑖 ln 𝑌𝑖 + 𝑎𝑗 ln 𝑊𝑗 + 𝑎𝑘 ln 𝑍𝑘 + 𝑎𝑡 𝑇 + 𝑏𝑖 ln 𝑌𝑖 ln 𝑌𝑖 + 𝑏𝑗 ln 𝑊𝑗 ln 𝑊𝑗 2 𝑖 𝑗 𝑘 𝑖 𝑗 +𝜀 ε ► ►
Slide 7: Methodology » Econometrics » Independent Variables
Methodology » Econometrics » Independent Variables I LE Determining the cost function was an iterative process, where a number of different specifications were tested > Concerns such as the sign of the estimated coefficients, the statistical significance of the coefficients, and the overall “fit” of
Slide 8: Methodology » Direct Cost Assignment » Selecting the Sample Areas
Methodology » Direct Cost Assignment » Selecting the Sample Areas MII 1B A representative cross section of sample areas was selected > A total of 11 operating areas were utilized for the direct cost assignment analysis « Bracebridge, Dryden, Essex, Kingston, Newmarket, Owen Sound, Perth, Peterboroug
Slide 9: Low Density Medium Density High Density
► ► ► 0 25 50 75 0 100 200 300 400 500 600 700 Low Density Medium Density High Density Customer per Square Kilometre ►
Slide 10: Methodology » Direct Cost Assignment » Assignment of Costs to Sample Areas
Methodology » Direct Cost Assignment » Assignment of Costs to Sample Areas MII |e Costs were directly assigned to the individual sample areas > Lines & Stations Operations, Maintenance and Administrative Costs " Costs were assigned based on seven unique assignment factors « Factors consider number o
Slide 11: Plan of Presentation
MIMI ~S Lis Plan of Presentation LONDON ECONOMICS 1 Review of Study Objectives 2 Implementation of Methodology Summary of Results and Findings 4 Questions and Answers
Slide 12: Costs Modeled in Econometric Model Density Estimated Coefficients
► Costs Mod e le d in De nsity E stima te d 9 5 P e rce nt Confid e nce Inte rva l E conome tric Mod e l Me a sure Coe fficie nt Low High OM&A CDciircuit-km -0.299 -0.368 -0.23 OM&A CDkm 2 -0.100 -0.124 -0.076 OM&A and Capital Proxy CDciircuit-km -0.121 -0.349 -0.225 OM&A and Capital Proxy CDkm 2 -0
Slide 13: OM&A and Asset Replacement Cost per Customer by Density
► 2,000 OM&A Cost ($) per Customer 1,500 1,000 500 ► - 0 100 200 300 400 500 600 700 800 LD MD HD Customers per Square Kilometre 70,000 Asset Replacement Cost ($) 60,000 ► 50,000 per Customer 40,000 30,000 20,000 10,000 - 0 100 200 300 400 500 600 700 800 LD MD HD Customers per Square Kilometre
Slide 14: Asset Replacement Cost per Customer
Asset Replacement Cost ($) per Customer 10,000 15,000 20,000 25,000 30,000 5,000 - 5,244 HD 140 Asset Intensity 10,792 MD 210 27,925 LD 462 OM&A Costs 0 200 100 300 400 500 600 OM&A Cost ($) per Customer ► ► ►
Slide 15: Results » Objective » Customer Density as a Differentiator
LONDON ECONOMICS Results » Objective 2 » Customer Density as a Differentiator Four elements of HONI’s existing rate class structure to consider: type of rate classes, number of rate classes, demarcation points, and the cost allocation factors > Type of Rate Classes Analyses demonstrate that HONI’s c
Slide 16: Asset Intensity Ratio, OM&A Cost Ratio, Combined Ratio
6 6 5 5 4 4 3 3 5.3 5.3 4.4 2 2 3.8 3.3 2.1 2.1 2.1 1 1 1.8 1.7 1.5 1.2 1.0 1.0 1.0 1.0 1.0 1.0 - - HD MD LD HD MD LD Asset Intensity Ratio OM&A Cost Ratio Combined Ratio Asset Intensity Ratio OM&A Cost Ratio Combined Ratio
Slide 17: Combined Ratio: Direct Cost Assignment vs HONI CAM
► 4.0 LD 3.5 ► 3.0 R2 ► 2.5 2.0 3.8 ► MD R1 1.5 2.8 HD UR 1.0 ► 1.7 1.6 0.5 1.0 1.0 - Combined - Direct Cost Assignment HONI CAM
Slide 18: Conclusions
TTIHI Conclusions 18 LE Study objectives were accomplished Objective 1: Evaluate the relationship between customer density and distribution service costs > Two independent analyses demonstrated that there is a statistically significant negative relationship between customer density and HONI’s distri
Slide 19: Plan of Presentation
MIMI XS Lis Plan of Presentation LONDON ECONOMICS 1 Review of Study Objectives 2 Implementation of Methodology 3 Summary of Results and Findings 4 | Questions and Answers