RP-2005-0020/EB-2005-0422/0423/0424/0425
Veridian Connections Inc.
2006 Distribution Rate Application
Revised - August 29, 2005
Page 1 of 45
RP-2005-0020/EB-2005-0422/0423/0424/0425
Summary OF APPLICATION for electricity distribution rates effective mAY 1, 2006
veridian connections inc.
AUGUST 9, 2005
1. Handbook Chapter 1 - Introduction:
1.1 On May 11, 2005, the Ontario Energy Board (the "OEB") issued the 2006 Electricity Distribution Rate Handbook (the "Handbook"), "intended to provide applicants with a straightforward process by which to prepare their applications for 2006 electricity distribution rates."[1] The Handbook provides for the following three parts, at a minimum:
· The summary of the Application
· The completed 2006 EDR model (the "Model"); and
· Supporting Schedules
Veridian Connections Inc. (referred to herein as “Veridian” or the “Applicant”) is pleased to submit its Application for its 2006 electricity distribution rates. We confirm that this Application contains these three items, and that the Application complies with the requirements of the Handbook, subject to any exceptions described in this Summary. Any Schedules that have not been completed are not applicable to Veridian.
1.2 In addition to the prescribed provisions of the Handbook, this application contains one additional section entitled ‘Notes to the Model’. This section describes changes made to the Model to incorporate Veridian’s methodology of rate harmonization. The customization methodologies are outlined in this section, as are technical issues and calculations for various inputs to the Model.
1.3 In addition to the minimum requirements set out above, this Application includes a Form of Application, which sets out the relief being requested by the Applicant, and includes a proposed Schedule of Rates and Charges, to be implemented for May 1, 2006.
1.4 The Applicant submits that the anticipated bill impacts in this Application, which reflect the Applicant's mitigation plan, are reasonable and that no further mitigation measures are necessary. The Applicant requests that the OEB establish the rates and charges for the Applicant in the manner set out in the Model and Schedules submitted herewith.
1.5 The Applicant further requests that the scope of Account 1508 be modified, or that a new variance account be established, to allow the recording, for reconciliation at a later date, of the differences, if any, between the amounts recoverable in the Applicant’s OEB-approved revenue requirement on account of Electrical Safety Authority fees (subject to
any recovery of those fees that may be permitted by the OEB as part of its Tier 1 adjustment for OEB assessment and other fees paid to energy regulators) and regulatory costs associated with regulatory proceedings (including, without limitation, intervener, consultant, and legal costs), and the actual costs incurred by the Applicant in this regard. The basis for this request is discussed in Chapter 8 of this Summary.
1.6 Finally, the Applicant requests that the OEB establish a variance account to allow the recording, for reconciliation at a later date, of the differences, if any, between the amounts approved by the OEB in the Applicant's Tier 1 adjustments and recoverable on account of smart meters, and the actual costs incurred by the Applicant in this regard. The basis for this request is discussed in Chapter 3 of this Summary.
Organization of the Summary:
1.7 This Summary is organized so as to correspond to the Chapters in the Handbook. It performs three functions: it summarizes the Application; it includes the explanations and justifications that are not included in the Schedules or the 2006 EDR Model, and that the Handbook requires the Applicant to provide in the Summary; and it outlines any exceptions and the methodologies used for any specific calculations in the model or calculations of inputs to the model.
Rate Harmonization:
1.8 Veridian currently administers five geographically based approved rate schedules. They are segmented by communities served as follows:
1. Ajax, Clarington, Pickering, Uxbridge
2. Belleville
3. Brock Township
4. Port Hope
5. Scugog Township
Of these service areas, all but Scugog Township was served by Veridian during 2004, which is the historic test year being used as the basis for this application. Veridian’s service area in Scugog Township was acquired on July 1st, 2005, as approved by the Board in its EB-2005-0256 Decision and Order dated June 20th, 2005.
1.9 This application deals only with the re-establishment of Veridian’s revenue requirement related to the geographic areas served during the 2004 test year. A separate application pertaining to Veridian’s service area in Scugog Township will be filed with the Board in accordance with the group 3 filing schedule as detailed in section 1.1 of the Board’s 2006 Electricity Distribution Rate Handbook.
1.10 As noted within the 2006 EDR Model, Veridian is requesting approval for one harmonized rate schedule for all of its service areas, with the exception of Scugog Township. The harmonization plan is outlined within this Summary, under the section referencing Handbook Chapter 13 (‘Mitigation’).
2006 EDR Model:
1.11 Veridian is filing a completed version of the Model. Open Version 2.1 (released July 22nd, 2005) has been modified to meet Veridian’s specific requirements for harmonization and to provide workarounds for exceptions and limitations to the model to handle these exceptions. Customizations and/or additions to the model are disclosed within the Summary under applicable Chapter headings and details are provided in the “Notes to the Model” section.
Schedules:
1.12 As noted above, this Application includes the Schedules required by the Handbook that are applicable to Veridian. Where the OEB has not established forms of Schedules (i.e Chapter 2), Veridian has constructed forms for these purposes.
Regulatory Assets:
1.13 The OEB's Filing Guidelines for Applications for Final Recovery of Regulatory Assets for May 1, 2006 Distribution Rate Adjustments (the "Phase 2 Regulatory Asset Guidelines") were issued on June 16, 2005. Local electricity distribution companies ("LDCs") are required to file their "Phase 2" Regulatory Asset recovery applications in conjunction with their 2006 distribution rate applications. Veridian Connections Inc. is filing this application, concurrently, under separate cover.
1.14 The Phase 2 Regulatory Asset Guidelines also provide that "Distributors must indicate in their 2006 EDR Manager’s Summary whether a minimum or comprehensive review is requested." The Applicant confirms that, with a requested Transition Cost recovery of $7.74 per customer, it is requesting a minimum review of its Phase 2 Regulatory Asset claim, with exceptions as noted in the CEO certification of the application.
1.15 Veridian would be pleased to respond to any questions the OEB or OEB staff may have in respect of this Application.
2. Handbook Chapter 2 – Components of the Application And Schedules
2.1 Veridian has prepared the Schedules required by the Handbook, and they are contained in the Schedules Section of this Application, that follows this Summary. Due to certain filing requirements set out in the Handbook, however, Veridian has also included in the Schedules Section copies of company policies as required, such as its policy on employee meal, travel and business entertainment expenses (as required by Section 6.2.4 of the Handbook
2.2 Description of the Applicant:
Please refer to Schedule 2-1 for a description of Veridian and a listing of adjacent electricity distributors.
2.3 Corporate Structure:
Schedule 2-2 illustrates the parent, affiliate and subsidiary companies of the Applicant, and their relationships to the Applicant. The following are the members of the Applicant's corporate family:
· The Applicant; Veridian Connections Inc.
· Veridian Corporation
· Veridian Energy Inc.
Schedule 2-2 also contains the required summary description of the nature of each affiliate’s business; the products and services provided to each affiliate by the Applicant; the products and services received from each affiliate by the Applicant; and any corporate services shared with the Applicant.
Veridian Connections Inc. and Veridian Energy Inc. are wholly owned subsidiaries of Veridian Corporation. The shares of Veridian Corporation are held by the City of Pickering (41%), the Town of Ajax (32.1%), the Municipality of Clarington (13.6%) and the City of Belleville (13.3%).
2.4 Audited Financial Statements and Reconciliations:
Veridian has provided its audited financial statements for the years 2002, 2003 and 2004 as required by the Handbook. Prior to filing this application, an update and confirmation of Veridian’s Reporting and Record-Keeping Requirements ("RRR") filings was completed with the OEB's Chief Regulatory Auditor.
The confirmed RRR data was used as input to the model without change, and the data used in the Model is consistent with the audited financial statements filed in Schedule 2-3.
2.5 Compliance with Licence
There are no special conditions in the Applicant's licence, or exemptions from any conditions, that will affect the OEB's review of its Application.
2.6 Complete Listing of Rates and Charges (see Schedule 2-4)
Veridian has enclosed, as Schedule 2-4, a complete listing of rates and charges that have been approved by the OEB and are currently in effect.
2.7 The OEB has issued information on Retail Transmission Service (RTS) Rate Adjustments in its letter of July 5, 2005. It requires distributors with RTS rates that require adjustment, to address this issue as part of the 2006 EDR rate application process. Veridian has examined the balances in each of its two RTS-related RSVA accounts, has noted a consistent pattern of over-recovery, and is making application, within this 2006 EDR rate application, for an RTS rate adjustment.
3. Handbook Chapter 3 – Test Year and Adjustments
Historical Test Year versus Future Test Year:
3.1 The Handbook[2] allows applicants the option to apply for 2006 rates using one of the following four filing options:
Option 1: 2004 year with no adjustments;
Option 2: 2004 year with all applicable Tier 1 adjustments;
Option 3: 2004 year with all applicable Tier 1 adjustments, and Tier 2 adjustments, if the applicant meets the criteria specified for hardship.
Option 4: Forward test year with full supporting documentation commensurate
with the nature of the application.
3.2 Veridian confirms that this Application is being filed in accordance with Option 2 – the Applicant will use a 2004 test year, with all applicable Tier 1 adjustments. Veridian further confirms that 3 years of supporting data, where required, is included with this Application.
3.3 Veridian acknowledges the OEB's comment in the Handbook[3] that "An applicant that chooses to make any Tier 1 adjustment in its filing must make all Tier 1 adjustments that apply to the applicant’s situation. An applicant cannot pick and choose among Tier 1 adjustments." Veridian confirms that all applicable Tier 1 adjustments are being made.
3.4 The Applicant further confirms that it is not proposing any other post-2004 adjustments beyond those set out in the Table found at p.12 of the Handbook.
Tier 1 Adjustments: Summary:
3.5 Veridian is requesting a net amount of $2,617,130 on account of Tier 1 adjustments to distribution expenses, and a net amount of $10,625,824 on account of Tier 1 adjustments to its rate base. These adjustments are summarized as follows
Distribution Expenses – (See Sheet ADJ 3 of the Model)
OEB annual assessment and other fees
paid to energy regulators – adjust to 2005 actual: $154,145
Pensions – adjust to 2005 actual: $29,631
Insurance – adjust to 2005 actual: ($7,904)
LV/Wheeling adjustments: $1,754,815
CDM adjustments: Nil
Smart Meters adjustments: $228,381
Amortization Related to Tier 1 Adjustments to Rate Base $370,914
Non-routine/unusual for 2004 only and
exceeding materiality threshold of 0.2% of
total distribution expenses before PILs: $87,147
Net Tier 1 Distribution Expense Adjustments: $2,617,130
Rate Base (See Sheet ADJ 1 of the Model)
New transformer stations and directly associated
assets (e.g. feeders) with an in-service
date of 2005: Nil
Wholesale meters – adjust to 2005 actual: $633,812
CDM adjustments: $2,511,000
Smart Meters adjustments: $4,619,350
Retirements without replacement in 2005-
both rate base and income statement
(depreciation) - when net book value
exceeds 0.2% of net fixed assets: Nil
Adjustment to Cost of Power for “Normalization” $2,861,662
Non-routine/unusual for 2004 only and
exceeding materiality threshold of 0.2% of
net fixed assets before adjustments: Nil*
Tier 1 Adjustments to
The Rate Base $10,625,824
* - See reconciling note below
Tier 1 Adjustments: Distribution Expenses (see Schedule 3-1, and Schedule 3-2 for non-routine/unusual adjustments):
3.6 As noted above, all applicable Tier 1 adjustments are being made. Veridian makes the following comments in respect of its proposed Tier 1 Adjustments for Distribution Expenses:
OEB annual assessment and other fees paid to energy regulators:
3.7 Veridian has adjusted the 2004 base for its 2005 actual OEB assessment.
3.8 Veridian has included adjustment for the following energy regulator fees in addition to the OEB annual assessment.
NAME OF REGULATOR/FEE: Electrical Safety Authority (ESA)
AMOUNT OF FEE: $21,627 (incremental to 2004 Fee)
EXPLANATION: These fees are imposed by the ESA for 2005 Regulatory Oversight Cost Recovery. On February 11, 2004, the Ontario Government enacted Ontario Regulation 22/04, the Electrical Distribution Safety regulation. The Electricity Act establishes the ESA’s authority to establish and collect fees to recovery the cost of regulatory oversight. Oversight by the ESA is compulsory by law and Veridian is obligated to pay the assessed fees.
Pensions:
The Applicant has adjusted its 2004 base for its actual 2005 expense in Schedule 3-1.
Insurance:
3.9 The Applicant has adjusted its 2004 base for its actual 2005 expense in Schedule 3-1.
Low Voltage/Wheeling Adjustments:
A. Non-Hydro One Wheeling Charges:
3.10 The Applicant is not seeking the recovery of non-Hydro One wheeling charges.
B. Hydro One LV Charges – Account 1508 – January 2004 to May 2006:
3.11 On July 12th, 2005 the OEB updated its filing guidelines for Applications for Final Recovery of Regulatory Assets for May 1, 2006 Distribution Rate Adjustments to include direction on inclusion of Hydro One charges to embedded distributors for the period January 2004 – May 2006. Veridian has followed these updated filing guidelines in its Application for Final Recovery of Regulatory Assets. The allocated Hydro One amounts were received from the OEB on July 25th and are included in our application.
C. Post May 2006 Hydro One LV Charges:
3.12 Veridian Connections Inc. is a Hydro One embedded distributor and is subject to Hydro One LV charges. Veridian has included recovery of these costs as a Tier 1 adjustment based on the methodology outlined on page 13 of the Handbook. Veridian has included Specific LV Line charges and Shared DS Charges anticipated post May 2006. The Handbook provides[4] that the corresponding Tier 1 adjustment will be "calculated based on the currently approved LV charges as applied to the embedded distributor's 2004 consumption levels." Hydro One LV Charges of $1,754,815 have been included in Tier 1 adjustments on distribution expenses. Details are included in Schedule 3-1.