Hydro Ottawa Limited
RP-2005-0020
EB-2005-0381
Filed 2005-08-02
Page 13 of 14
ONTARIO ENERGY BOARD
IN THE MATTER OF the Ontario Energy Board
Act, 1998, S.O. 1998, c. 15, Sched. B, as amended;
AND IN THE MATTER OF an Application by
Hydro Ottawa Limited for an Order or Orders
approving or fixing just and reasonable distribution
rates, in the form of rate riders, for the recovery of
regulatory assets.
Hydro Ottawa Limited
Application for Final Recovery of
Regulatory Assets
August 2, 2005
2006 Rate Submission for Final Regulatory Asset Recovery
Hydro Ottawa Limited
RP-2005-0020
EB-2005-0381
Filed 2005-08-02
Page 13 of 14
1. Introduction
1.1 Hydro Ottawa Limited (“Hydro Ottawa”) is a distributor as defined in, and is licensed as such under, the Ontario Energy Board Act, 1998 (the “Act”). Hydro Ottawa holds Electricity Distribution Licence ED-2002-0556.
1.2 The following are the names and addresses of Hydro Ottawa’s authorized representative and its counsel in this proceeding:
(a) authorized representative:
Ms. Lynne Anderson
Director, Regulatory Services
Hydro Ottawa
Address for personal service: 3025 Albion Road North
Ottawa, Ontario
K1G 3S4
Mailing address: P.O. Box 8700
Ottawa, Ontario
K1G 3S4
Telephone: (613) 738-5499, ext. 527
Facsimile: (613) 738-5485
E-mail:
(b) counsel:
Ms. Helen T. Newland
Fraser Milner Casgrain LLP
Address for personal service
and mailing address: Suite 3900
1 First Canadian Place
100 King Street West
Toronto, Ontario
M5X 1B2
Telephone: (416) 863-4471
Facsimile: (416) 863-4592
E-mail:
1.3 Hydro Ottawa hereby applies to the Ontario Energy Board (the “Board”), pursuant to section 78 of the Ontario Energy Board Act, 1998 (the “Act”), for an Order or Orders approving or fixing just and reasonable distribution rates, in the form of rate riders, for the recovery of regulatory assets effective May 1, 2006.
1.4 In a letter, dated June 16, 2005, the Board provided distributors with guidelines (“Filing Guidelines”) for making Phase 2 applications to recover the balance of their regulatory assets, commencing May 1, 2006.
1.5 Hydro Ottawa received interim approval to recover a portion of its regulatory assets in the Board’s Phase 1 process. Hydro Ottawa makes this Phase 2 Application, in accordance with the Filing Guidelines, in respect of the unrecovered portion of its regulatory assets.
1.6 Hydro Ottawa qualifies for the minimum review process established by the Filing Guidelines because its per customer transition cost claim is significantly less than the $60 threshold established by the Board for this purpose. Hydro Ottawa accordingly elects to proceed in accordance with the minimum review provisions of the Filing Guidelines.
2. Supplemental Disclosure
2.1 Hydro Ottawa provides the following disclosure, in accordance with the Filing Guidelines:
a) As its per customer transition cost claim is significantly less than $30, Hydro Ottawa’s Chief Executive Officer (“CEO”) may certify its Supplemental Disclosure. Attached to this Application is a statement of certification by Hydro Ottawa’s Acting President and CEO.
b) The “accrual” approach has been used in respect of Account 1571 (Pre-Market Opening Cost of Power Variance) and all Retail Settlement Variance Accounts (“RSVA”). This approach has been used consistently, over time, for the principle amounts recorded in these accounts. Initially, interest amounts included in these accounts were calculated using the “billed” approach. Interests amounts were subsequently recalculated to reflect the accrual approach, following the issuance of the Board’s December 9, 2004 Decision Regarding the Recovery of Regulatory Assets - Phase 2 (the “Decision”). Accordingly, all interest amounts included in December 31, 2004 regulatory asset balances reflect the use of the accrual method.
c) Interest amounts were calculated using a simple interest rate of 6.9% for all accounts except Account 1508 (Other Regulatory Assets). For this account, a simple interest rate of 5.75% was used in accordance with the Board’s December 20, 2004 letter to distributors authorizing a deferral account for OEB cost assessments.
d) Account 1588 (RSVA-power) records the difference between the Board approved line losses and the actual line losses, for the period May 2002 (market opening) to December 2004.
e) The balance in Account 1571 (Pre-Market Opening Energy Variance) reflects energy variances for non Time-of-Use (TOU) customers only. Amounts related to TOU customers were subtracted from the balance in Account 1571. Such amounts were calculated on the basis of TOU customer revenue.
f) Amounts in Account 1525 (Misc. Deferred Debits) are only in respect of: (i) Bill 210 rebate costs related to the $75 rebate cheques; and (ii) the Hydro One Networks (“Hydro One”) environment costs that are allocated to Hydro Ottawa’s embedded delivery points.
g) The following table compares Hydro Ottawa’s Phase 1 regulatory asset claims (filed in January 2004 and January 2005) with its Phase 2 claim.
Table 1: Final Claim Compared to Interim Claims
Account Description / Account Number / 2004 filing (2002 balances) / 2005 filing (2003 balances) / Current Total Filing (2004 balances plus Hydro One charges plus 2005/2006 interest[1]RSVA - Wholesale Market / 1580 / $9,939,686 / $11,143,297 / $12,180,784
RSVA – One-time / 1582 / 48,546 / 286,402 / 622,808
RSVA – Transmission Network / 1584 / 1,386,636 / 2,786,436 / 3,059,101
RSVA – Transmission Connection / 1586 / (2,959,474) / (7,175,398) / (10,847,708)
RSVA – Power / 1588 / (3,540,021) / (3,045,293) / (3,200,051)
Other Regulatory Assets / 1508 / 0 / 0 / 341,352
RCVA – Retail / 1518 / 9,524 / 681,446 / 1,076,547
RCVA – STR / 1548 / 68,198 / 316,269 / 45,582
Misc. Deferred Debits / 1525 / 268,600 / 287,134 / 389,818
Pre-Market Opening Energy Variance / 1571 / 21,695,798 / 24,420,974 / 27,871,640
Transition Costs / 1570 / 5,778,594 / 7,183,716 / 4,816,318
Total / $32,696,087 / $36,884,983 / $36,356,190
• The differences in the three sets of balances (2004, 2005, 2006) are principally related to timing differences. The 2004, 2005 and 2006 filings were based on 2002, 2003, and 2004 closing balances, respectively.
• Two other factors contribute to the differences. The first is that the current filing includes a calculation for interest for the period January 1, 2005 to April 30, 2006, on the 2004 closing balances. The second is that the current filing includes an amount of $3,135,003 in respect of expected Hydro One regulatory asset recovery charges related to Hydro Ottawa’s embedded delivery points, up to and including April 30, 2006. Hydro Ottawa did not file for recovery of any of these amounts in its previous applications.
• The amounts in Account 1570 (Transition Costs), Account 1518 (RCVA - Retail) and Account 1548 (RCVA-STR) reflect adjustments that were made following Hydro Ottawa’s final review of all relevant Board decisions, guidelines and accounting procedures. These adjustments are discussed in more detail in Section 5 below.
h) Customer education costs are not included in Account 1570 (Qualifying Transition Costs) because they fall below Hydro Ottawa’s materiality limit.
i) Neither Electronic Business Transaction (EBT) costs nor settlement services costs are included in Account 1570 (Qualifying Transition Costs).
j) All categories of transition costs have been reviewed and any amounts not meeting the materiality limit have been removed.
k) With one exception, all balances are allocated to rate classes using the Board’s Regulatory Assets Recovery Worksheet, which allocates in accordance with the Decision. As the Board has not decided the basis for allocating amounts in Account 1508 (which includes OEB Cost Assessments), Hydro Ottawa proposes to allocate such amounts on the basis of distribution revenue.
l) Hydro Ottawa’s internal audit manager has reviewed the transition cost amounts sought to be recovered in this Application.
3. Qualification for Minimum Review
3.1 Hydro Ottawa qualifies for the minimum review process set out in the Filing Guidelines, for the following reasons:
a) Hydro Ottawa is applying for recovery of transition costs in the amount of $5,351,465. Based on a 2004 year-end customer base of 273,807 (Residential, General Service and Large User), the per customer transition cost is $19.54. This is well below the $60 and $30 thresholds set by the Board for assessing such costs.
b) Transition costs discounted to 90% are $4,816,318 or $17.59 per customer.
c) Hydro Ottawa is claiming 90% of its total filed transition costs in this Application.
d) Transition costs do not include customer education, EBT or settlement services costs. All transition costs claimed exceed Hydro Ottawa’s materiality limit of $352,613 (based on 0.25% of net asset balances).
e) As the per customer amount claim for transition costs is only $17.59, verification by Hydro Ottawa’s external auditor is not required.
f) Attached to the Application is a certification by Hydro Ottawa’s Acting President and CEO.
4. May 1, 2006 Implementation
4.1 Hydro Ottawa is seeking approval to implement distribution rate riders to its distribution rates on May 1, 2006, for a period of two years.
4.2 Hydro Ottawa has allocated charges from Hydro One as per the Decision. It proposes to allocate the new amount recorded in Account 1508, for Pension and OEB Assessment costs, on the basis of distribution revenue. The Regulatory Assets Recovery Worksheet has been modified to reflect this allocation. No other changes have been made to the allocations in the worksheet.
4.3 In accordance with the Filing Guidelines, the following information is provided:
a) Table 2 sets out the principal, interest, Hydro One charges and total amounts in each regulatory asset account for which Hydro Ottawa seeks recovery.
Table 2: Total Claim Disaggregated by Principal, Interest and Hydro One Amounts
Account Description / Account Number / Principal Amounts as of Dec-31 2004 / Interest to Dec 31-04 / Interest January 2005 to April 2006 / Charges from Hydro One (incl interest) / Current Total Filing (2004 balances plus Hydro One charges plus 2005/2006 interest[2]RSVA - Wholesale Market / 1580 / $9,680,195 / $1,511,470 / $887,528 / $101,591 / $12,180,784
RSVA – One-time / 1582 / 519,464 / 42,754 / 47,627 / 12,963 / 622,808
RSVA - Transmission Network / 1584 / 2,886,560 / 273,797 / 264,654 / (365,910) / 3,059,101
RSVA - Transmission Connection / 1586 / (11,898,806) / (1,073,762) / (1,090,941) / 3,215,800 / (10,847,708)
RSVA – Power / 1588 / (2,191,859) / (807,232) / (200,960) / (3,200,051)
Other Regulatory Assets / 1508 / 210,202 / 4,055 / 16,060 / 111,035 / 341,352
RCVA – Retail / 1518 / 919,761 / 72,457 / 84,328 / 1,076,547
RCVA – STR / 1548 / 37,234 / 4,934 / 3,414 / 45,582
Misc. Deferred Debits / 1525 / 268,600 / 37,118 / 24,627 / 59,474 / 389,818
Pre-Market Opening Energy Variance / 1571 / 21,654,896 / 4,230,389 / 1,986,356 / 27,871,640
Transition Costs [3] / 1570 / 3,660,012 / 820,688 / 335,568 / 50 / 4,816,318
Total / $25,746,259 / $5,116,668 / $2,358,260 / 3,135,003 / $36,356,190
b) Gross transition costs of $5,351,465 (before the 10% discount) do not include EBT, settlement and customer education costs.
c) Following its final review of all relevant Board decisions, guidelines and accounting procedures, Hydro Ottawa made adjustments to Accounts 1518 (RCVA-Retail), 1548 (RCVA-STR), and 1570 (Qualifying Transition Costs).
Account 1570 (Qualifying Transition Costs) was adjusted as follows:
• $218,810 was removed in respect of categories that did not meet Hydro Ottawa’s materiality threshold;
• $2,145,216 was removed as these costs had a substantial relationship to Hydro Ottawa’s November 2000 amalgamation; and
• the interest amount was recalculated on the new balance (using a simple rate of 6.9%).
Account 1518 (RCVA-Retail) and Account 1548 (RCVA-STR) were adjusted as follows:
• $67,895 in respect of work for retail services was transferred to Account 1548 from Account 1518 to better reflect cost attribution; and
• $413,525 in respect of Bill 210 rebate implementation costs (unrelated to the $75 rebate cheques) was removed;
• the interest amount was recalculated on each new balance (using a simple rate of 6.9%)
d) Projected interest to April 30, 2006 is included under section 4.3 a) above.
e) An amount of $3,135,003 is included in respect of Hydro One’s recovery of its regulated assets from embedded distributors, such as Hydro Ottawa.
f) Hydro Ottawa has allocated each regulatory account balance in accordance with the Decision and with the Board’s Regulatory Asset Recovery Worksheet.
g) Amounts recovered under Phase 1 for the period April 1, 2004, to April 30, 2006, have been calculated using the Board’s Regulatory Asset Recovery Worksheet. For the period January 2005 to June 2005, actual kilowatt and kilowatt-hour sales for each class were used in this calculation and a forecast of kilowatt and kilowatt-hour sales was used to calculate amounts for the period July 2005 to April 2006. This forecast was based on Hydro Ottawa’s 2006 Distribution Rate Application load forecast. The total recoveries under Phase 1 to April 30, 2006 have been estimated at $22,472,108.
h) Hydro Ottawa did not recover any interim transition cost amounts for the period March 1, 2002 to March 31, 2004.
i) The net total amount to be recovered through a rate rider, for the period May 2006 to April 2008, is therefore $36,356,190 – 22,472,108 = $13,884,082.
j) The net total amount to be recovered by rate class in each of the next two years is $13,884,082 / 2 = $6,942,041. This amount is then allocated to customers in each class on the basis of the energy use (kWh) or demand (kW), as appropriate.
5. Reporting and Record-Keeping Requirements (RRR)
5.1 The following table compares the amounts reported to the OEB on January 31, 2005 (for balances as at December 31, 2004) to the total amounts sought to be recovered in this Application (net of Hydro One charges and 2005/2006 interest).
Table 3: Final Claim for 2004 Compared to RRR Filing
Account Description / Account Number / Amount Reported for RRR’s / Total Claim (2004 balances) / CommentRSVA - Wholesale Market / 1580 / $11,191,665 / $11,191,665 / No Change
RSVA – One-time / 1582 / 562,218 / 562,218 / No Change
RSVA – Transmission Network / 1584 / 3,160,357 / 3,160,357 / No Change
RSVA – Transmission Connection / 1586 / (12,972,567) / (12,972,567) / No Change
RSVA – Power / 1588 / (2,798,635) / (2,999,091) / Hydro Ottawa made its RRR filing on January 31st. Subsequently, power expenses were updated, prior to closing the 2004 books. The revised number matches Hydro Ottawa’s audited financial statements.
Other Regulatory Assets / 1508 / 0 / 214,256 / Incremental OEB Cost Assessments were recorded at year-end, but not included in the RRR filing.
RCVA – Retail / 1518 / 929,447 / 992,218 / See discussion in section 4.3 c)
RCVA – STR / 1548 / 551,904 / 42,168 / See discussion in section 4.3 c)
Misc. Deferred Debits / 1525 / 305,718 / 305,718 / No Change
Pre-Market Opening Energy Variance / 1571 / 25,926,187 / 25,885,284 / In 2005, Hydro Ottawa reconciled long-term load transfers with Hydro One for the pre-market open period, resulting in a small decrease in costs.
Transition Costs / 1570 / 7,462,225 / 4,978,556[4] / See discussion in section 4.3 c)
Total / $34,318,519 / $31,360,782
6. Previously Denied Amounts