Hydro- Québec
TransÉnergie
Application R-3605-2006
SELECTED RESPONSES OF THE TRANSMISSION PROVIDER
TO INTERROGATORY REQUESTS (IRs) No 1
OF THE RÉGIE DE L’ÉNERGIE (RÉGIE)
(IRs #1.1 to 2.3 ; 14.1 to 14.6 ; 17.1 to 17.2 ; and 23.1 to 25.1)
Original : 2006-09-21
HQT-13, Document 1
Page 1 of 17
Hydro- Québec
TransÉnergie
Original : 2006-09-21
Application R-3605-2006
HQT-13, Document 1
Page 2 of 17
Hydro- Québec
TransÉnergie
Application R-3605-2006
PERFORMANCE INDICATORS
1. References:
(i) Exhibit HQT-3, Document 1, pages 10 et 11;
(ii) Decision D-2005-50, Application R-3549, Phase 1, page 23.
Preamble:
(i)
Table 1 shows the 2005 results for Direct Operation, Maintenance and
Administration Charges by kilometre of circuit 230 kV-equivalent.
Table 2 shows the number of kilometre of circuit 230 kV-equivalent included in the
calculations of the ratio.
(ii) Decision D-2005-50 mentions:
“The Régie accepts the Transmission Provider’s proposal concerning the Direct
Operation, Maintenance and Administration Charges by kilometre of circuit 230 kVequivalent Performance Indicator. However, it orders the Transmission Provider to
add to the data included in the COPE study, the overall results of the other
businesses excluding its own data. It also orders the Transmission Provider to revise
the conversion factoring favour of a factor or an indicator related to costs. It appears
to the Régie that a comparison of costs by voltage level could compensate for the
weakness of the actual conversion factor.”
Questions:
1.1 Please present the results over the last 5 years for each of the Indicators
in Table 1 and, if relevant, the target for 2005.
R1.1) The following Table shows the historic data over the last 5 years
and, when relevant, the target for the 23 performance indicators
selected by the Régie:
Original : 2006-09-21
HQT-13, Document 1
Page 3 of 17
Hydro- Québec
TransÉnergie
Application R-3605-2006
2001
2002
2003
2004
2005
2005
Target
n.a.
n.a.
n.a.
n.a.
7.0
n.a.
7.6
7.7
7.8
7.9
7.5
843
903
846
861
1 086
85
44
207
39
48
55
0.51
103
78
0.55
46
71
0.44
200
110
0.45
40
82
0.93
56
0.79
0.62
0.63
0.72
0.75
Optimization of operation and management
(O&M)
CPS1 (Control Performance Standard 1)
CPS2
Compliance rate with NERC/NPCC
176%
99.9%
98%
163%
99.9%
98%
158%
99.9%
99%
150%
99.6%
100%
165%
99.8%
100%
Corporate social responsibility
Frequency of work accidents
Deaths by million of population served
4.44
0
3.55
0
3.43
0.14
2.72
0
3.63
0
2.10
2.07
2.19
2.42
2.44
3.20
3.04
3.18
3.40
3.43
15.65
15.52
16.45
16.94
16.91
76.86
73.74
75.35
76.84
74.83
376.31
375.84
390.04
382.40
377.76
13.61
12.83
12.09
11.87
12.48
66.64
65.39
62.59
59.07
63.01
33
n.a
47
n.a
37
3 854
51
4 225
59
4 713
n.a
n.a
95.3%
96.6%
89.9%
Customer satisfaction
Quality of partnership with the Distributor
Quality of partnership with point-to-point customers
Reliability of service
Number of scheduled outages and service
interruptions
Average duration of scheduled outages and
service interruptions
G1 and G2 Gravity indicators
IC-Transmission
Average duration of service interruptions by
delivery point (SAIDI)
Average frequency of service interruptions by
delivery point (SAIFI)
Evolution of net O&M costs
Direct O & M, maintenance and administration
costs by kilometer of circuit 230 kV equivalent
Net O&M charges as a function of the energy
transmitted
Net O&M charges as a function of the capacity of
the transmission system
Evolution of the cost of capital assets
Cost of net capital assets as a function of the
energy transmitted
Cost of net capital assets as a function of the
capacity of the transmission system
Evolution of the cost-of-service
Total cost-of-service, excluding taxes, as a function
of the energy transmitted
Total cost-of-service, excluding taxes, as a function
of the capacity of the transmission system
Environmental indicators
Accidental spills
Surfaces treated with phytocides in the right-of way
of transmission lines
Rate of reuse of insulating mineral oils
Original : 2006-09-21
HQT-13, Document 1
Page 4 of 17
90
0.65
93%
3.83
Hydro- Québec
TransÉnergie
Application R-3605-2006
1.2 Please present the details of the calculations used to determine the value
per kilometre of circuit 230 kV-equivalent and explain how the Régie’s
request was met.
R1.2) The following Table presents the information regarding the
calculations used to determine the value per kilometre of circuit 230
kV equivalent by voltage level.
Conversion
rate
Voltage
765 and 735 kV
450 kV c.c.
315 kV
230 kV
161 kV
120 kV
69 kV or less
Kilometres of transmission
circuit 230 kV-equivalent
14.80
14.80
6.90
1.80
1.00
0.49
0.25
0.10
169 046
16 808
14 141
3 389
988
2 111
356
TOTAL- KILOMETRES OF CIRCUIT 230 KV-EQUIVALENT
206 839
In addition, the Transmission Provider is working to develop new
cost indicators with the other participants of the COPE. These
indicators should be available in 2007. Moreover, HQT is also
participating in 2006 benchmarking activities with P.A. Consulting
regarding 2005 data. The benchmarking is currently in progress and
the presentation of results is expected for spring 2007.
OPERATING COSTS
2. References:
(i) Exhibit HQT-1, document 2, pages 13 et 14, Request R-35492004, phase I;
(ii) Decision D-2005-50, Request R-3549-2004, Phase 1, page 29; 15
(iii) Exhibit HQT-6, document 1, page 5;
(iv) Exhibit HQT-6, document 1, page 7;
(v) Exhibit HQT-6, document 2, page 5.
Preamble:
(i) “The Transmission Provider will maintain, for 2005 as well as for 2006, its costs
[net operating costs] to a comparable level as planned in 2003…”.
Original : 2006-09-21
HQT-13, Document 1
Page 5 of 17
Hydro- Québec
TransÉnergie
Application R-3605-2006
(ii) In this context, the Régie considers it appropriate for the Transmission Provider to
set the objective of maintaining its net operating costs. On these grounds, it approves
the addition of $34 M to take into account the evolution of pension costs.”
(iii) “These [the actions the Transmission Provider expects to carry out] will help to
limit the increase in net operating costs to 2% a year as of 2007.”
(iv) The Transmission Provider uses 2 % as an inflation factor for 2006 as well as
2007.
(v) According to Table 1, Gross Direct Costs increase by nearly 10% for the period
between 2005 and 2007.
Questions:
2.1
Please conciliate the results for 2005 and 2006 with the objective of
“maintaining net operating costs to the level planned in 2003.”
R2.1) The Transmission Provider wishes to remind the Régie that, in
regards to the maintenance of net operating costs between 2004 and
2006, which are comparable to those of 2003, the objective takes into
account
variations
resulting
from
the
transfer
of
activities,
uncontrollable elements, such as pension costs and those to improve
the security of installations. In addition, the return on assets, used by
the suppliers for the services rendered, which is only considered for
regulatory purposes, is also excluded.
The following Table shows the results of variations made to the
objective of maintaining operating costs for 2005 (historic year) and
2006 (base year).
Original : 2006-09-21
HQT-13, Document 1
Page 6 of 17
Hydro- Québec
TransÉnergie
Application R-3605-2006
2005 (HISTORIC YEAR) AND 2006 (BASE YEAR) COMPARED WITH THE MAINTENANCE
OF NET OPERATING COSTS PLANNED IN 2003
Projected
2005 Historic 2006 Base
2005
year
year
D-2005-50
Planned net operating costs 2003
606.9
606.9
606.9
- Pension costs
34.0
50.9
76.2
- Program to increase security of installations
0.0
11.1
20.4
- Transfer of activities having an impact on
corporate charges
2.3
2.3
2.3
- Variance between the activity level and the
portion of the activity billed as shared service
costs
2.5
2.8
4.1
- Allowances to the Régie
1.2
0.5
0.7
- Adjustments / Corrections after grids were
received from suppliers
0
10.8
9.7
- Increases in cost of service and gross direct
costs ($7.2M) and decrease in shared service
and other costs ($11.7M)
0
-18.9
0.0
-1.3
0.0
-0.7
2.5
-.0.4
2.7
-7.2
0.0
0.0
640.9
666.0
722.3
- Other
- Return on assets used by suppliers
(used for regulatory purposes)
- Expenses not approved by the Régie (D2005-50)
Net operating costs
2.2
Please justify the 10% increase in gross direct costs between 2005 and
2007 in the context of limiting the increase in operating costs.
Original : 2006-09-21
HQT-13, Document 1
Page 7 of 17
Hydro- Québec
TransÉnergie
R2.2)
Application R-3605-2006
As presented in Exhibit HQT-6, Document 1, page 7, Table 2,
the increase in gross direct costs is primarily attributed to the cost of
retirement, the increase in personnel primarily attributable to
investment projects and collective bargaining agreements. Thus, by
taking into account the cost of retirement which is not under the
Transmission Provider’s direct control (more than 4% of the
increase), and capitalized costs stemming from the projected
workforce attributable to investments, the increase in direct gross
costs is considerably lower than 10%. Moreover, it should be noted
that a limited increase is applied to net operating costs.
The Transmission Provider’s objective to limit the annual increase to
2% starting in 2007, thereby takes into account elements that are out
of HQT’s control, such as pension costs and increasing the security
of installations. Furthermore, the return on assets used by suppliers
used by suppliers, only used for ratemaking purposes, is also
excluded. By excluding these factors, the increase is below 2%
compared with 2006.
2.3
Please justify the objective of limiting the increase of costs to 2%, in
accordance with the current application, compared with maintaining costs,
as announced in the Transmission Provider’s 2005 application.
R2.3) In its 2004-2008 Strategic Plan, the company’s objective was to
maintain net operating costs for 2004 to 2006, while in the 2006-2010
Strategic Plan limits the increase of the Transmission Provider’s net
operating costs to the inflation rate, despite the significant increase
in the workload.
Original : 2006-09-21
HQT-13, Document 1
Page 8 of 17
Hydro- Québec
TransÉnergie
Application R-3605-2006
Working Capital (“fonds de roulement”): Inclusion of a New Inventory Account
(“compte de stocks”)
14.1 References:
(i) Exhibit HQT-7, Document 1, page 23
(ii) Exhibit HQT-7, Document 1, page 25
Preamble:
(i) Table showing the components of the working capital
(ii)
(iii) “The Transmission Provider notes that the variance between the projected
amount authorized in 2005 and the actual amount for 2005 is the result of the
creation of a new inventory account in 2004. The latter is intended to account for
the returned material attributable to suspended projects and surpluses at the
end of projects. This account was not included in the 2005 projections for the
rate base.”
Questions:
14.1
Please justify the inclusion of the inventory account in the working
capital.
R14.1) This new inventory account was added to the “Materials, Fuels and
Supply” of the working capital. It includes returned material
attributable to suspended projects and surpluses at the end of
projects. Priority for this material should be given to new projects.
14.2
Please specify the elements that fall within the new inventory account. Is
it material for which the Transmission Provider already has a guarantee
of return?
R14.2
See answer to question 14.1
14.3
Please identify the suspended projects and specify the amounts involved.
R14.4) On December 31, 2005, a value of $13,5 million could be attributed
to the Grand Brûlé-Vignan suspended project. An additional $12.5
million is attributed to the Hertel des Canton Project.
14.4
Please specify how the time-frame between the entrance and exit of funds
is established.
Original : 2006-09-21
HQT-13, Document 1
Page 9 of 17
Hydro- Québec
TransÉnergie
R14.4)
Application R-3605-2006
Non-applicable. This account is not included in regulatory cash
balances (“encaisse règlementaire”).
14.5
Please specify the impact of introducing this inventory account for 2004
and 2005 on the results of the lead-lag study.
R14.5)
Non-applicable. This account is not included in regulatory cash
balances.
14.6
Please comment on the fact that the inclusion of the account in question
has generated an increase in funds of approximately 25% in 2005.
R14.6) See answer to question 14.1
17. Reference:
Exhibit HQT-8, document 1, page 15
Preamble:
“ In Particular, the cost of debt becomes much less sensitive to the impacts of an
increase or a decrease in the exchange rate, which eliminates a major volatility factor
in the cost of debt.”
Questions:
17.1
Please submit and explain the results of a sensitivity analysis that examines
the effects of a variation of 25 basis points (bp) of short-term, medium-term
sand long-term interest rates for Hydro-Quebec loans on the average cost
of the integrated debt for 2006 and 2007, and this, after the effect of
derived products is taken into account. Please submit separate results for
short-term, medium-term and long-term rates as well as for a variation of
the rates as a whole, that is to say the curve for all interest rates combined.
R17.1) The following Table shows the requested sensitivity analysis.
Original : 2006-09-21
HQT-13, Document 1
Page 10 of 17
Hydro- Québec
TransÉnergie
Application R-3605-2006
Sensitivity to the interest rate1
In thousands of dollars
2006
1 Numerator
Net interest on long term debt
Losses (gains) in exchange rate
Costs of guarantee (“frais de garantie”)
2,534
3
2,515
2,532
162
162
165
165
2,697
165
1.1 Denominator
35,428
Long-term debt and perpetuity
MS: Financial assets
2,568
MS: Reported gains on exchange
(1,744)
MS: Other reported charges related to
debt
(728)
MS: Adjustments
1,142
34,190
7.89%
2006
+25 bp
2007
2007
+25 bp
2,681
2,698
35,428
34,250
34,250
2,568
(1,744)
1,701
(1,675)
1,701
(1,675)
(728)
1,142
(773)
1,053
(773)
1,053
33,945
33,945
7.90%
7.95%
34,190
0.48%
Note 1:
The results in the Table above reflect the impact of a 25 basis point increase of short- term
rates. Moreover, the 2006 cost of debt is not sensitive to the impact of long-term rates since
the 2006 loans program was complete when the calculations were carried out.
Consequently, the long-term rates of borrowing included are the real rates.
Also, the 2007 cost of debt is not sensitive to the long-term rate because, in order to
maintain a part of the floating debt rate at 20%, we had to project the new financing rates at
rates applied for the short-term.
17.2
Please present, for 2007, a sensitivity analysis on the effect of 2 cent and 5
cent variations in the exchange rate (Canadian $ / American $) on the
different components of the numerator and denominator of the cost of
debt, before and after the effect of derived products.
R17.2) The following Table shows the requested sensitivity analysis.
Original : 2006-09-21
HQT-13, Document 1
Page 11 of 17
Hydro- Québec
TransÉnergie
Application R-3605-2006
Sensitivity to the interest rate1
In thousands of dollars
2006
2 Numerator
Net interest on long term debt
Losses (gains) in exchange rate
Costs of guarantee
2,515
2,519
2,523
165
166
167
2,681
2,685
2,691
2.1 Denominator
34,250
Long-term debt and perpetuity
MS: Financial assets
1,701
MS: Reported gains on exchange
(1,675)
MS: Other reported charges related to
debt
(773)
17.2
MS: Adjustments
1,053
17.2
17.2
33,945
17.2
7.90%
34,311
34,403
1,677
(1,590)
1,641
(1,462)
(773)
1,053
(773)
1,053
33,945
33,945
7.91%
7.93%
2006
2007
+2 cents +5 cents
The weak residual sensitivity to the exchange rate is attributable to two
factors:
a) The gains or losses of the exchange rate on the interest calculated for
the hedging of sales. In fact, this interest is not currently included in the
hedging of sales. Following the implementation of new standards, it will
be integrated in the accounting hedging relationship starting January 1,
2007. At that time, the related gains and losses of the exchange rate will
no longer be included in the Financial Costs;
b) The costs of guarantee on the debt in American dollars, which are
calculated in accordance with the value of the debt evaluated at the
exchange rate on December 31 of the previous year.
Original : 2006-09-21
HQT-13, Document 1
Page 12 of 17
Hydro- Québec
TransÉnergie
Application R-3605-2006
Transmission service requirements
23. Reference:
Exhibit HQT-10, Document 2, page 5
Preamble:
Table 1 - Transmission Service Requirements (Including Losses)
Questions:
23.1
Conciliate actual results for 2005 with the amounts projected in decision D2005-50 and explain variances.
R23.1) The Transmission Provider presents the data in the following Table.
Original : 2006-09-21
HQT-13, Document 1
Page 13 of 17
Hydro- Québec
TransÉnergie
Application R-3605-2006
2005
Projected1
2005
Actual
2006
Projection
2007
Projection
w.o.
w.o.
34 060
34 429
34 974
34 060
w.o.
w.o.
35 371
w.o.
w.o.
35 862
Annual point-to-point
(MW)
Hydro-Quebec
Production
Others
405
0
405
0
479
0
479
0
Monthly point-to-point
(MW)
Hydro-Quebec
Production
Others
0
0
0
72
442
200
0
0
Weekly point-to-point
(MW)
Hydro-Quebec
Production
Others
0
0
0
383
0
0
0
0
5 882
0
13 203
971
22 998
927
18 101
588
8.9
0.4
9.1
0.8
10.1
0.6
10.5
0.6
Native load (MW)
Coincident peak
Normalized peak
Projections
Daily point-to-point
(MW)
Hydro-Quebec
Production
Others
Hourly point-to-point
(TWh)
Hydro-Quebec
Production
Others
w.o. = without object
(1) According to the Request R-3549-2004 Phase 2 in Exhibit HQT-6, Document 1, Page 12,
Table R8.1 (revised on October 5, 2005).
Original : 2006-09-21
HQT-13, Document 1
Page 14 of 17
Hydro- Québec
TransÉnergie
Application R-3605-2006
In its 2005 forecast for the monthly Point-to-Point service, the
Transmission Provider did not anticipate any reservations for the
Generator, given the significant decrease in demand for this service
for the period ranging between 2001 and 2004. The same point is
made for weekly Point-to-Point transmission services.
As for the daily Point-to-Point transmission service, the projections
of requirements of 5 882 MW for the Generator and other customers
were also coherent with their historical reservations over the 20012004 period. The same point is made for the hourly Point-to-Point
transmission service.
23.2
Please explain the decrease in projected reservations for Point-to-Point
transmission services in 2006 and 2007.
R23.2) The Transmission Provider made the forecasts for short-term Pointto-Point transmission services for 2006 based on Hydro-Quebec’s
2006-2010 Strategic Plan and it took into account an amount, similar
to
the
2006
amount,
for
other
customers
of
Point-to-Point
transmission services. HQT then adjusted this projection with actual
data to May 2006 from which it extrapolated a tendency for the rest of
2006.
Short-term revenue
24. References: (i) Exhibit HQT-10, document 2, page 10
(ii) Decision D-2006-66, Request R-3549-2004 Phase 2, Page 23
Preamble:
(i)
Table 5 - Revenues from Short-Term Point-to-Point Services ($ million), lineitem Reservations of Other Customers
(ii)
Decision D-2006-66 rendered in the Transmission Provider’s 2005 Rate
Application states the following:
“ The long-term rate allows for the recovery of the residual revenue requirement. The
latter corresponds to the $2 591 million revenue requirement reduced by the $78
million revenue from short-term point-to-point services. This revenue is based on
Original : 2006-09-21
HQT-13, Document 1
Page 15 of 17
Hydro- Québec
TransÉnergie
Application R-3605-2006
projected reservations for 9.3 TWh of which 9.2 TWh is for the hourly point-to-point
transmission service and 0.1 TWh for the daily point to point Transmission service.”
Questions:
24.1
Please specify whether revenues from the Distributor’s point-to-Point
transmission services are included in the aforementioned revenues of
other customers shown in Table 5.
R24.1) Exhibit HQT-10, Document 2, page 10, does not include any actual or
projected revenue coming from the Distributor for Point-to-Point
transmission services.
24.2
Please explain the variance between actual 2005 revenues ($87.7 million)
and projected 2005 revenues ($78 million).
R24.1) The following Table shows the variance between actual and projected
revenues for 2005.
Also see answer to question 23.1.
2005 Actual ($M)
2005 Projections
Variance
($M)
($M)
Monthly Point-to-Point
0.4
-
0.4
Weekly Point-to-Point
0.5
-
0.5
Daily Point-to-Point
4.0
1.0
3.0
Hourly Point-to-Point
82.8
77.0
5.8
Total – Short-term ($M)
87.7
78.0
9.7
24.3
Please explain the decrease in revenues from short-term Point-to-Point
services between 2006 and 2007.
R24.3) See answer 23.2.
Moreover, as indicated in answer to question 23.2, the Transmission
Provider determined the projection of revenues from Point-to-Point
transmission services by taking into account actual reservations until
May 2006. However, in light of the data available until July 2006, the
Original : 2006-09-21
HQT-13, Document 1
Page 16 of 17
Hydro- Québec
TransÉnergie
Application R-3605-2006
Transmission Provider notes that actual revenues from short-term
Point-to-Point transmission services are below projections by about
$9 million.
RATEMAKING FOR TRANSMISSION SERVICES
25. Reference:
Exhibit HQT-12, Document 1, pages 18, 19, 22 and 23
Preamble:
Each of these pages shows a Table with the rates for different ancillary services. The
value for each of these services is shown. These are: $13.4 M, $13.9 M, $49.7 M,
and $24.8 M
Question:
25.1
R14a)
Please explain how each of these values was determined
The values for the ancillary services cited in the preamble are
determined as follows:
Voltage Control Service
270 MW x 0.67 x 0.33 x 8760 hours x 2.79¢/kWh / 1.0874 / 1 000
= $13.4 million
System Control Service
180 GWh x 7.50¢/kWh
= $13.5 million
Service for the Maintenance of Spinning Reserves
1 000 MW x 0.67 x 0.33 x 8760 hours x 2.79¢/kWh / 1.0874 / 1 000
= $49.7 million
Service for the Maintenance of Non-Spinning Reserves
500 MW x 0.67 x 0.33 x 8760 hours x 2.79¢/kWh / 1.0874 / 1 000
= $24.8 million
Original : 2006-09-21
HQT-13, Document 1
Page 17 of 17