BARRIE HYDRO DISTRIBUTION INC.
2006 ELECTRICITY DISTRIBUTION RATES FILING
SUMMARY OF APPLICATION
RP-2005-0020 EB-2005-0338
Please find enclosed Barrie Hydro Distribution Inc.’s (BHDI), licence # ED-2002-0534, 2006 Distribution Rate Application. Barrie Hydro Distribution Inc. requests approval of the rates as filed in the 2006 EDR model.
As per section 2.1.4 of the 2006 EDR handbook, BHDI has no special conditions in, or any exemptions of conditions of its licence, that will affect the review of this application.
Contained in this application are:
1. a completed 2006 EDR model, a PILS model, and a Regulatory Asset model;
2. Schedules outlined in the 2006 EDR handbook, as applicable; and,
3. the “Summary of Application” formatted in chapters corresponding to the handbook as requested in section 2.1.6.
BHDI does not propose to make any changes to its Retail Transmission Service Rates in this application. Having reviewed the activity in the RSVA accounts 1584 and 1586 between January 1, 2002 and December 31, 2004, there is not a material enough change in the balances to warrant a change in rates at this time. BHDI will continue to monitor these balances and will apply for a change in rates when warranted.
CHAPTER 2 – COMPONENTS OF THE APPLICATION AND SCHEDULES
Under this chapter we are filing the requested information in Schedules 2-1, 2-2, 2-3, and 2-4. Attached to these schedules are any required attachments or explanations.
Schedule 2-1 – Description of the Distributor
Schedule 2-2 – Corporate Organization Chart – attachment
Schedule 2-3 – Audited Financial Statements and Reconciliations – attachment
Schedule 2-4 – Complete Listing of Rates and Charges – attachment
CHAPTER 3 – TEST YEAR AND ADJUSTMENTS
BHDI has chosen to file our rate application under Option 2: 2004 year with all applicable Tier 1 adjustments. This is outlined in section 3.1 of the handbook.
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2006 Electricity Distribution Rates Filing Summary
Under this chapter we are filing the requested information in Schedules 3-1, 3-2, 3-3, and 3-4. Attached to these schedules are any required attachments or explanations. Further explanatory notes are detailed in this summary as well.
Schedule 3-1 – Tier 1 Adjustments
Section 1 of this Schedule details Standard Distribution Expense Adjustments that include:
OEB Assessment Fee – We have calculated the amounts expensed in 2004 and 2005. This was calculated in the following manner:
2003-2004 assessment $67,235 @ 25% = $16,809.
2004-2005 assessment $138,774 @ 75% = $104,081.
Total expensed in 2004 = $16,809 + $104,081 = $120,890.
2004-2005 assessment $138,774 @ 25% = $34,694.
2005-2006 assessment $242,804 @ 75% = $182,103.
Total expensed in 2005 = $34,694 + $182,103 = $216,797.
The adjustment applied for is a difference of $95,907.
We would note that in EDR model sheet ADJ 3 we have entered the difference of $95,907 as we have recorded this expense in account 5630 as opposed to account 5655.
Pensions – BHDI is a member of the OMERS pension group. OMERS pension premiums expensed in 2004 were $419,774. For 2005 we have estimated premiums expensed by the following method – June 30, 2005 YTD actual premiums expensed = $206,882 / 25 weeks @52 weeks = $430,315.
The adjustment applied for is a difference of $10,541.
We would note that our OMERS expense is not recorded in account 5645.
Insurance – The amounts shown in this section only represent property insurance and do not include liability and vehicle insurance. This is indicated in the EDR model sheet ADJ 3 where only account 5635 property insurance is indicated. The 2004 and 2005 amounts are our actual insurance premiums.
Section 2 of this Schedule details Other Standard Distribution Expense and Rate Base Adjustments, which include:
Low Voltage/wheeling adjustments – BHDI has included this as a Distribution Expense Tier 1 Adjustment. The types of adjustments are detailed on page 13 of the handbook. They fall under three types:
A – Non Hydro One Wheeling Charges – BHDI does not have this type of expense.
B – Hydro One LV Charges – Account 1508 – January 2004 to May 2006 – The OEB has issued a guideline that these expenses will be dealt with in the Regulatory Asset filing.
C – Post May 2006 Hydro One LV Charges – As discussed with OEB staff, an estimate should be made on the following premise; based on Hydro One’s approved Low Voltage Facilities Charges which were approved by the OEB in August of 2002 but were never implemented and using BHDI’s 2004 consumption levels. This amount has been calculated and explained in Schedule 3-1 in the amount of $1,104,354 and has been entered in the model on sheet Adj 3.
Smart Meter Initiatives – At the time of this application BHDI has no planned expenditures on Smart Meters either expense or rate base.
New transformer Stations with a 2005 in-service date – BHDI will not have any new transformer stations in service in 2005.
Wholesale Meters to the 2005 Actuals – BHDI has forecasted additions of $493,000 on wholesale meters in 2005. This amount has been added as a rate base adjustment in the EDR model in sheet ADJ 1. Depreciation expense representing ½ year has been calculated in the amount of $8,208 and added into the model in sheet Adj 3b. Further details are included in Schedule 3-1.
Retirements Without Replacement – BHDI does not anticipate any 2005 retirement with a net book value exceeding our materiality level of $150,000.
Schedule 3-2 – Tier 1 Non Routine/Unusual Adjustments
BHDI has one non-routine/unusual adjustment of a rate base nature. This pertains to the adjustment of 2003 construction work in progress, which is detailed in Schedule 3-2 and adjusted in sheet Adj 1a of the model.
BHDI has two non-routine/ unusual adjustments of a distribution expense nature. They are:
1. post retirement benefits adjustment
2. severance package affecting wages
Both of these adjustments have been explained in detail in the attached schedule. The corresponding adjustments have been entered in the EDR model in sheet Adj 3A
Schedule 3-3 – Tier 2 Adjustments
BHDI does not meet the criteria for Tier 2 adjustments therefore this schedule is not applicable.
Schedule 3-4 Conservation and Demand Management
BHDI is not seeking approval of CDM spending in 2006 that is incremental to funding previously approved by the OEB from a rate base or distribution expense perspective.
BHDI is seeking approval for the addition of third traunche CDM spending as a Tier 1 rate base adjustment in the amount of $975,000. A listing of the amounts being added is attached to this schedule (3-4). No spending of these amounts occurred in 2004. This amount has been included in the EDR model under sheet ADJ 1. Depreciation expense representing ½ year has been calculated in the amount of $15,746 and added into the model in sheet Adj 3b. Further details are included in Schedule 3-4.
CHAPTER 4 - RATE BASE
In 2004 BHDI paid a capital contribution to Hydro One in the amount of $475,185 for upgrades of their plant at the Midhurst TS [$261,076] and at the Brownhill Feeder servicing Bradford [$214,109]. BHDI has recorded these costs in account 1525. As identified on page 26 of the handbook these amounts can be recorded in rate base. In sheet 2-4 of the model Adjusted Accounting Data, column E, we have moved these amounts from account 1525 to account 1815, so as to be included in rate base. BHDI would request that for the purpose of this application the amounts in account 1815 be deemed to be distribution assets.
BHDI has also made an adjustment in sheet 2-4 Adjusted Accounting Data, column E in account 2055, Construction Work in Progress – Electric. The amount in this account of $18,484,899 represents distribution assets in progress but not in service. Account 2055 is not counted in the calculation of rate base. BHDI feels that these should be included in rate base as they were in the original RUD model, as they are an investment in fixed assets.
A similar adjustment was made in Tier 1 non-routine/rate base adjustments for the 2003 year-end “Construction in Progress” balance. To make this adjustment in sheet 2-4 we have removed the amount of $18,484,899 from account 2055 and entered the amount in the appropriate fixed asset account to which the spending pertains. The amounts added are: account 1980 - $514,950, account 1820 - $3,010,181, account 1835 - $3,928,953, account 1830 - $616,471, account 1845 - $9,225,116, and, account 1925 - $1,189,228.
Section 4.1 of this chapter deals with amortization rates. BHDI notes that Software account 1925 is not listed in Appendix B, Amortization Rates, thus, for software amortization; BHDI follows the recommendations of the CICA handbook.
Further in section 4.1 BHDI is making the following request regarding rolling stock and equipment amortization. Since 1995 BHDI has amortized all rolling stock (account 1930) over a 5-year life. Our former regulator approved this practice and the depreciation amounts included in the original RUD model were based on this amortization period. Appendix B notes that large vehicles should be amortized over an 8-year life. We have noted that the difference in the 2004 amortization expense included in distribution expense is as follows: under 5 year rate is $300,807 and the under 8 year rate is $190,435, for a difference of $110,372 included in rates.
Offsetting this increase would be the restating of rate base for the adjusted net fixed assets. Net fixed assets included in this application for rate base under the 5 year rate is $920,750, the adjusted net fixed assets included in rate base under a 8 year rate would be $1,235,612, for a difference in rate base of $314,862. If this amount were added to rate base and our cost of capital of 7.85% calculated on this it would equate to $24,717. Overall the change in amounts recovered through rates would be $110,372 less $24,717 = $85,655. Please see the calculation sheet, which is attached (attachment #11).
BHDI requests for consistency sake with past rate applications that the amortization expense and rate base amounts be accepted as per test year 2004 filed amounts.
As requested in section 4.2 Capital Investments, BHDI has filed Schedule 4-1 with attachments describing projects over the materiality level of $150,000.
As requested in section 4.4, BHDI currently does not have a formalized capitalization policy. Our capitalization practices have been guided by section 4000 of the “Accounting for Municipal Electric Utilities in Ontario”. These guidelines were established by our former regulator.
In section 4.6, Treatment of Capital Gains and Losses, BHDI did not have any gains or losses on non-depreciable assets.
CHAPTER 5 - COST OF CAPITAL
BHDI is seeking the maximum return on equity of 9.00% in this application.
In section 5.2 of this chapter, calculation of debt rate is discussed. BHDI has completed schedule 5-1 showing the calculation of this rate.
Section 5.3 of this chapter discusses capital structure. BHDI has completed schedule 5-2 comparing actual to deemed capital structure. As part of schedule 5-2 we have noted the account numbers used in the calculation of the actual capital structure.
CHAPTER 6 - DISTRIBUTION EXPENSES
BHDI has completed and attached the following schedules from this chapter; schedule 6-1, 6-2, 6-3, 6-4, 6-5, 6-6, 6-7, 6-8, 6-9, and 6-10.
BHDI has also made an adjustment to the distribution expenses in the EDR model in sheet 2-4 Adjusted Accounting Data. Account 5330 represents funds received for collection charges and is a credit in 2004 of $233,239. This amount is charged through collection charges, which is a Specific Service Charge. In the EDR model, the revenue collected from Specific Service Charges is calculated in sheet 5-2 Specific Service Charges. The collection charges amount is included in this sheet. The total amount from sheet 5-2 is brought forward to sheet 5-5 Base Revenue Requirement as an offset to the Service Revenue Requirement. Therefore, the amount collected from collection charges is subtracted from the Service Revenue Requirement in sheet 5-5. In sheet 2-4, Adjusted Accounting Data, account 5330 is included as a credit or reduction in the calculation of Distribution expenses that is brought forward to sheet 5-1 Service Revenue Requirement. This in effect is deducting the revenue received from Collection Charges twice. We have made the following adjustment in sheet 2-4 Column E to alleviate this problem. We have debited account 5330 Collection Charges in the amount of $233,239 and put the corresponding credit in account 5195 that is a non-distribution expense and is therefore not included in the calculation of Distribution Expense.
In section 6.2.1 information on insurance expense is requested. BHDI has third party insurance and has filed the required detail in schedule 6-1.
In section 6.2.1 Bad Debt Expense information is discussed. BHDI has filed the requested information in schedule 6-2.
Section 6.2.3 Information Technology Expenses, requests information on BHDI’s organization for IT services and its methodology of recording expenses. BHDI has an in house IT department. Some specific and specialized hardware and software requirements are contracted through third party suppliers. All IT expenses are charged to the IT department and these expenses are captured in accounts 5610, 5615, 5620, 5630, and 5665.
Section 6.2.4 discusses a number of different expenses of which the individual expenses are detailed as follows.