Transcript Stakeholder Consultation Distribution Custom IR Rate Application 2015-2019 Stakeholder Session #2 June 26, 2013

Stakeholder Consultation
Distribution Custom IR Rate
Application 2015-2019
Stakeholder Session #2
June 26, 2013
Agenda
10:30 a.m. Registration
10:35 a.m. Welcome
10:40 a.m. Introductions and Agenda
10:50 a.m. Progress Update on Stakeholder
Session #1
11:20 a.m. Update on Line Loss Study
and Facilitated Discussion
12:00 p.m. Lunch
12:45 p.m. Update on Seasonal Rate Initiative
and Facilitated Discussion
1:30 p.m.
Overview of CIR Annual Adjustments
and Facilitated Discussion
2:30 p.m.
2:40 p.m.
Break
3:25 p.m.
Overview of CIR Annual Reporting &
Performance Metrics
and Facilitated Discussion
4:25 p.m.
Closing Remarks/Next Steps
4:30 p.m.
Adjourn
Overview of CIR Off-Ramps/Re-Openers
and Facilitated Discussion
Susan Frank, Vice-President & Chief Regulatory Officer
Hydro One Networks
Bob Betts, Facilitator,
OPTIMUS|SBR
Bob Betts, Facilitator,
OPTIMUS|SBR
Stan But, Manager Economics & Load Forecast
Hydro One Networks
Bob Betts, Facilitator, OPTIMUS|SBR
Henry Andre, Manager Distribution Pricing
Hydro One Networks
Bob Betts, Facilitator, OPTIMUS|SBR
Susan Frank, Vice-President & Chief Regulatory Officer
Hydro One Networks
Bob Betts, Facilitator, OPTIMUS|SBR
Susan Frank, Vice-President & Chief Regulatory Officer
Hydro One Networks
Bob Betts, Facilitator, OPTIMUS|SBR
Jim Malenfant, Senior Regulatory Advisor
Hydro One Networks
Bob Betts, Facilitator, OPTIMUS|SBR
Susan Frank, Vice-President & Chief Regulatory Officer
Hydro One Networks
2
Facilitator’s Remarks

Introductions Facilitator, Bob Betts & OPTIMUS | SBR
support team

Meeting Facilities

Safety Review

Note taking process

Participant Introductions
3
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
Progress Update on
Stakeholder Session #1
Stakeholder Feedback
Status
Custom IR
 Hydro One to review how to address updating Compensation Study over 5 year plan.
 Hydro One to discuss off-ramps, annual adjustments, and scorecard/reporting requirements in
more detail (taking into consideration stakeholder suggestions).
 Hydro One to consider pursuing CDM as part of business and investment planning.
 Hydro One indicated that rate smoothing would need further discussion.
Study RFP’d
To be discussed at
today's session
Future Session Topic
Future Session Topic
Customer Survey
 Stakeholders suggested Hydro One needs to understand what priorities are important to which
groups and do further customer research on: smaller business customers, self-generation and Future Session Topic
large customers. Hydro One advised results would be shared at another session.
 Stakeholders suggested that Hydro One focus on the poorest performing areas to ensure they Consideration
have the right information to support the decisions Hydro One is making in those poor
included in Regional
performing areas as part of the regional plan.
Planning Process
Seasonal Customer Rates
 Stakeholders suggested several alternatives to how Hydro One could seek seasonal customer
input (i.e. FOCA list, questionnaire insert with bill, structured survey, town council meetings).
 Hydro One to discuss the options for addressing seasonal stakeholder key issues.
To be discussed at
today's session
To be discussed at
today's session
Rate Class Review
 Stakeholders raised concerns about how and when customers would be informed about rate
class changes.
Future Session Topic
5
Update on Line Loss Study
June 26, 2013
Stan But
Manager, Economics & Load
Forecasting
6
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 bring this analysis to its
next cost of service proceeding so that this issue may be
further examined.
2
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
Break
Lunch
Update on Seasonal
Customer Initiative
June 26, 2013
Henry Andre
Manager, Pricing
21
Topics

Existing Seasonal customer feedback

Planned Seasonal customer consultation

Possible Options for Modifying Seasonal Rates
2
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 show similar trends)
 The % of seasonal respondents indicating “Distribution Charge /
Delivery charges” as driver for low satisfaction were higher than other
classes
 Two main themes in comments from customers:
-
high bills for times they are not using property
Estimated bills and meter reads not done monthly
“For seasonal service, it
is every three months. It
is turned off, but I get
delivery charges of $70”
“The cottage is not in use
during the winter time.
Last month I got a bill for
$23 when I did not use
power at all”
“I was trying to get my
meter read rather than
estimated for my
seasonal residence”
3
Customer Call Centre –
Escalated complaints
High consumption customers generate majority of Seasonal customer complaints:
Differences in type of rates/billing complaints based on level of energy
consumption:
 Monthly Service Charge issues account for ~25% of complaints for low
energy users but only ~2% for high energy users
 Rate classification issues account for ~26% of complaints for high energy
usage but only ~10% for low energy users
Mr Y questioning
delivery charges when
seasonal property
isn't in use and hardly
any consumption is
being used
Customer is very upset that
he pays higher delivery
charges as a seasonal
resident in comparison to
his neighbor who is a full
time resident…
Customer advised that
he was very concerned
with his high bills the
last few months as
they are much higher
than in the past …
4
Planned Seasonal Consultation
 Have engaged CitizenOptimum to conduct focus groups with
seasonal customers
 Two focus groups in each of four regions in Ontario (North,
South, East and West)
 Will engage local cottagers’ associations to send one or two
representatives to local focus groups of 6 to 8 participants
– Provide some information on cost allocation and rate design
– Get input on customer concerns
– Solicit feedback on possible options for rate class changes
 To be completed by mid August
5
Possible Options for
Seasonal Rates
1. Status Quo
 Outcome of harmonization process that combined
Seasonal rate classes (R3 and R4) into one class
 The harmonization process adopted the lower R3 fixed
charge as the “target” for the harmonized class
– shifted revenue to be collected from fixed to variable charge
– revenue requirement increases since 2008 largely absorbed by
higher variable charges
Consumption
(kWh)
2013
Typical 100
Monthly 500
Bill
1000
Fixed
Charge
($)
Variable
Charge
($)
Total
Delivery
Cost ($)
Total
Bill
($)
23.42
8.12
31.54
43.20
23.42
40.59
64.01
119.73
23.42
81.17
104.59
221.88
6
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 harmonization revenue split was ~ 70% fixed & ~ 30% variable
 Changes to Fixed charge will have significantly different
impacts depending on consumption level
- e.g. increasing Fixed charge to $30/month will increase Total Bill by 8%
for 200 kWh customer and decrease Total Bill by 8% for 1,000 kWh
customer
7
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 eligible for RRRP
 Expect small impact to residential classes
 Seasonal customers moving to R1 rate class would see a significant
decrease, but smaller decrease for those moving to R2
 Customers remaining in Seasonal class will see an increase in rates
2013
Typical
Monthly
Bill
(@ 1000 kWh)
Seasonal
R2
R1
Dx Delivery Charge
104.59
97.73
57.38
Total Bill
221.58
215.44
174.17
8
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 Low consuming customers given lower revenues
currently collected
9
Criteria for Evaluating Options
 Delivery Charge Impacts
 Total Bill Impacts
 # of customers with positive and negative impacts
 Consistency with rate making principles
10
Overview of Custom IR
 Annual Adjustments
 Off-Ramps/Re-Openers
 Annual Reporting & Performance Metrics
June 26, 2013
Susan Frank
Vice-President & Chief Regulatory
Officer
Jim Malenfant
Senior Regulatory Advisor
31
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)
 Smoothed Annual Requirement (Nov)
 Rate Schedules (Nov)
Adjusting/Monitoring of the Plan (over 5 year period):
 Annual adjustments, off-ramps/re-openers (June)
 Annual reporting and performance metrics (June)
2
Custom IR Framework
3
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 and outputs for a 8 year period.
 The model includes an Annual Iteration Process, Uncertainty
Mechanisms (i.e. Off-Ramps/Re-Openers), and Incentives (i.e.
rewards/penalties) based on performance.
 The new model is intended to mitigate concerns with the prior
incentive framework; including:
-
Lack of ownership of the distributor plans due to regulator driven templates
Higher long-term costs based on uneven incentives between operating and
capital costs
Lack of customer engagement
4
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 promoting the long term
interests of electricity consumers.
 The improved framework is intended to address concerns with the
prior incentive framework; related to high capital spending.
5
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 issuance of its Performance Based
Regulation framework.
 The model is based on a productivity-inflation rate setting
mechanism for a 5 year term (including Annual Adjustment, ReOpeners, and Capital Trackers).
6
Annual Adjustments
Criteria
Annual Adjustment Options
Questions?
Hydro One’s Options for
Annual Adjustments
Criteria:
 Externally driven beyond utility’s control
 Ongoing / recurring changes either upward/downward
 Formula based
7
Hydro One’s Options for
Annual Adjustments
Annual 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 adjustment)
 3rd party flow-through costs
- Based on change in RTSRs, WMSC, SME charge, RRRP, OEB Charges
 Tax Rate Changes
 CDM based on change in cost or change in load
 Clearing of Variance Accounts based on prior year-end audit
financials (e.g. RSVAs, pension)
8
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
Off-Ramps and Re-Openers
Criteria
Off-Ramp Options
Re-Opener Options
Questions?
Hydro One’s Options for
Off-Ramps and Re-Openers
Criteria:




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.
10
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
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 changes
12
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 filing period
or require immediate funding thru use of rate riders?
 Should re-openers be combined to trigger materiality?
13
Reporting & Performance Metrics
Criteria
Metrics for Delivery of Plan
Questions?
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
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)
New Connections (S/connection)
 Customer Satisfaction
 Metrics associated with significant change in
performance/reliability (e.g. Innovation–Smart Grid)
15
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’s reporting?
 How far off target can a utility go before the OEB intervenes?
16
Thank you for attending!
Check our website for further information:
www.HydroOne.com/RegulatoryAffairs
Any questions or comments can be directed to:
[email protected]