Hydro- Québec
TransÉnergie
Application R-3605-2006
ANSWERS OF THE TRANSMISSION PROVIDER
TO INTERROGATORY REQUESTS No 1
OF OPTION CONSOMMATEURS
(OC)
Original : 2006-09-21
HQT-13, Document 8
Page 1 of 40
Hydro- Québec
TransÉnergie
Original : 2006-09-21
Application R-3605-2006
HQT-13, Document 8
Page 2 of 40
Hydro- Québec
TransÉnergie
Application R-3605-2006
Question #1
Reference: HQT-1, Document 1, page 6, lines 9-13
HQT-4, Document 2
Question:
a) Please identify specifically (with reference to the relevant sections in HQT4, Document 2) what is HQT proposing to defer to the next rate application
as a result of the changes in accounting principles. Is it just the impact on
the cost of regulatory long-term debt as discussed on pages 20-21 of HQT4, Document 2?
R1a) As indicated in Exhibit 4, Document 2, pages 15 to 22, it is elements
of new accounting standards that potentially affect the cost of longterm debt. Such as:
-
The accounting of derivative instruments and the application of
hedge accounting;
-
Long-term debt;
-
The hedging of sales: including interest on the hedging of sales.
However, as indicated in Exhibit HQT-8, Document 1, page 11 and in
Exhibit HQT-4, Document 2, pages 11 to 12, the re-classification of
foreign exchange gains or losses related to elements in the sales
hedging relationship has been applied since January 1, 2006, in
accordance with the standards that are currently in effect. It was
therefore reflected in the 2007 projection for the cost of debt, along
with the other existing practices and standards.
Question #2
Reference: HQT-1, Document 1, page 7, lines 5-8 (Table)
Question:
a) What was HQT’s actual return on equity (ROE) for the historic year 2005?
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TransÉnergie
Application R-3605-2006
R2a) As shown in Exhibit HQT-5, Document 1, page 4, the Transmission
Provider’s return on equity for 2005 is 10.32%
b) What is HQT’s projected ROE for the base year 2006?
R2b) As shown in Exhibit HQT-5, Document 1, page 4, the Transmission
Provider’s projected return on equity for 2006 is 8.58%.
Question #3
Reference: HQT-3, Document 1, page 7, lines 17-21
Question:
a) Please indicate where in the 2005 Annual Report the results for the
Régie’s performance indicators were presented.
R3a) As indicated in Exhibit HQT-2, Document 11, the Transmission
Provider presented the results for the 2005 performance indicators
selected by the Régie in its 2005 annual report.
Question #4
Reference: HQT-3, Document 1, page 10, Table 1
Question:
a) Please provide the results for the same 23 performance indicators for 2003
and 2004.
R4a) See Exhibit HQT-13, Document 1, answer to question 1.1 of the
Régie’s interrogatory request.
b) Based on current load forecasts and projected investments & financial
results for 2006 and 2007, please provide the projected 2006 and 2007
results for:
R4b) The three performance indicators related to net O&M costs,
R4b) The two performance indicators related to cost of capital assets,and
R4b) The two performance indicators related to the cost of service.
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TransÉnergie
Application R-3605-2006
R4b) As shown in Exhibit HQT-3, Document 1, Annex 1, these subjects will
be addressed in technical meetings with the Régie and intervenors
which will take place at the end of September in the context of the,
working
group
on
the
Transmission
Provider’s
performance
regulation.
Question #5
Reference: HQT-3, Document 1, page 12, Table 3 and page 13, lines 2-15
Question:
a) With respect to the Continuity Index for Transmission Service, please
provide the comparable results for the years 1990 to 2004 inclusive.
R5a) The Transmission Provider reminds the intervenor that the current
application covers the 2005 historic year, the 2006 base year and the
2007 projected test year. However, out of courtesy, the Transmission
Provider provides the data for 2001 to 2004.
CI-Transmission
2001
2002
2003
2004
0.50
0.55
0.44
0.45
b) With respect to the Continuity Index for Transmission Service, please
identify the 5 events referred to on line 8.
R5b) The Transmission Provider’s major events in 2005 which led to a
service interruption to customers are:
1. On April 5, 2005, the air system for the 120 kV breakers at the
Beaumont substation (Island of Montreal) was contaminated,
which contributed to 0.06 on the CI.
2. On June 2, 2005, there was an automated load shedding
(“télédélestage”) due to forest fires in the James Bay region,
which contributed to 0.09 on the CI.
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TransÉnergie
Application R-3605-2006
3. On June 17, 2005, there was an automated load shedding caused
by an operating incident coupled with the malfunction of a line
protection in the James Bay region, which contributed to 0.08 on
the CI.
4. On December 21, 2005, a jumper broke down at the Bout-de-l’Ile
substation (island of Montreal), which contributed to 0.10 on the
CI.
5. On December 26, 2005 there was a galloping of overhead
transmission lines caused by ice in the Montérégie region, which
contributed to 0.05 on the CI.
c) With respect to the Continuity Index for Transmission Service, please also
indicate how many events of a similar magnitude occurred in each of the
years 1990 to 2004 and what the effect of these events was in each year
on the Continuity Index for Transmission Service.
R5c) In the past, the Transmission Provider had major events that
contributed to the Transmission-CI:
•
On January 17, 2001, a breaker broke down in the James Bay region,
which contributed to 0.10 on the CI.
•
On March 21, 2002, violent winds in the Montérégie region
contributed to 0.05 on the CI.
•
On July 5, 2002, there was a forest fire in the James Bay region,
which contributed to 0.12 on the CI.
•
On October 11, 2003, there was a short-circuit on the transmission
line caused by an airplane in the Laurentians, which contributed to
0.05 on the CI.
•
On July 5, 2004, an operating incident during the maintenance work
for a line protection required an automatic load shedding in the
James Bay region, which contributed to 0.09 on the CI.
As for 1990 to 2000, the Transmission Provider reiterates the
comments made in response to question 5a.
d) Does energy receipt imbalance service apply to parties who are importing
(i.e., where the point of receipt is one of HQT’s interconnection points)? If
not, why not?
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TransÉnergie
Application R-3605-2006
R5d) It is the Transmission Provider’s understanding that the current
question does not apply to the reference indicated in question 5, but
assumes that it deals with the Energy receipt imbalance ancillary
service as described in Exhibit HQT-10, Document 1, page 18.
The Transmission Provider proposes to apply the Energy receipt
imbalance service to all receipts of point-to-point customers whose
generation source is located within the Transmission Provider’s
control area. In the case of receipts for which the source is located
outside of the Transmission Provider’s control area, such as receipts
coming from New Brunswick, New England, New York or Ontario, the
provisions related to inadvertent energy are applied. Transmission
service customers are therefore not directly implicated in such cases
since they do not control the fluxes between neighbouring systems.
Question #6
Reference: HQT-3, Document 1, page 12, Table 3 and page 13, lines 17-19
Question:
a) With respect to the Reduction Rate for Point-to-Point Transactions, please
explain more fully what this performance measure is based on and how it
is calculated.
R6a) This indicator measures, as a percentage, confirmed reductions in
point-to-point
transactions
(import-export)
with
neighbouring
networks, for which the reduction is attributable to the Transmission
Provider’s responsibilities.
The calculation method is the following:
The sum of the reductions in MWh, divided by the energy total for the
transactions in MWh, multiplied by 100.
Question #7
Original : 2006-09-21
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TransÉnergie
Application R-3605-2006
Reference: HQT-3, Document 1, page 12, Table 3 and page 13, line 21- page
14, line 6
Question:
a) With respect to the indicator of Quality of Partnership with the Distributor,
does the determination of the performance measure involve soliciting input
from HQD staff? If yes, please describe how this input is obtained and
specifically address what measures, if any, are taken to ensure the
confidentiality of the responses by individual HQD staff.
R7a) As indicated in Exhibit HQT-3, Document 1, pages 13 and 14, the
annual evaluation of the quality of the services rendered by the
Transmission Provider is carried out together with the Distributor.
However, since it entails the evaluation of certain criteria in
designated spheres of activity, the data that is obtained is not the
confidential data of the Distributor’s employees.
Question #8
Reference: HQT-3, Document 1, page 12, Table 3 and page 14, lines 15-22
Question:
b) With respect to the indicator of Employee Satisfaction, please describe
what measures, if any, are taken to ensure the confidentiality of the
responses by individual HQT staff.
R8b) An external agency administrates the survey to ensure complete
confidentiality of the results. Hydro-Quebec submits the list of
employees to be surveyed to the surveying agency. A Personal
Identification Number (PIN) derived from a random sequence and
specific to the survey is attributed to each employee.
The survey is placed and hosted on the agency’s server. The majority
of employees are reached by e-mail, directly by the surveying
agency. Employees that do not have access to a computer receive a
paper questionnaire by internal mail, which they return directly to the
surveying agency.
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TransÉnergie
Application R-3605-2006
To ensure the confidentiality of employee’s responses, no reports are
published for units with less than ten (10) respondents.
Question #9
Reference: HQT-3, Document 1, page 12, Table 3
Question:
a) With reference to the footnote in the Table, what were the Corporate
objectives originally approved by the administration council for 2005?
R9a) See the 2005 Corporate Objectives shown hereafter.
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TransÉnergie
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TransÉnergie
Application R-3605-2006
b) What was the total payout to employees based on the profit sharing and
variable remuneration regimes and the 2005 actual results?
R9b)
As indicated in Exhibit HQT-6, Document 2, page 13, Table 6, the
payout for profit-sharing schemes and for Performance Management
Schemes totaled $11.93 million in 2005.
Question #10
Reference:
HQT-3, Document 1, page 16, Table 4 and page 17, Table 5
Question:
a) Why were the threshold and target values for the Continuity Index
increased for 2006?
R10a)
Regarding the Transmission Continuity Index, the Transmission
Provider notes that the threshold and the target did not increase in
2006. In fact, the Transmission Provider set more ambitious
objectives for 2006, based on the analysis of historical data. This was
done in response to a request by the Régie and out of concern for
improvement. Therefore, relative to the 2005 values, the 2006
objectives have decreased: the threshold went from 0.85 to 0.80 in
2006 and the target went from 0.65 to 0.60 in 2006.
b) Please describe more fully the three priority actions associated with the
Quality of Partnership with the Distributor index.
R10b)
For the year 2006, the three priority actions associated with the
Quality of Partnership with the Distributor are the following:
i. HQT-HQD Strategic and regulatory harmonization
(“arrimage”)
ii. Step-down voltage
iii. Satellite posts
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TransÉnergie
Application R-3605-2006
In terms of strategic and regulatory harmonization, the objective is
the review the Transmission Provider’s ratemaking model, i.e. the
main ratemaking mechanisms and regulatory principles applicable to
the Transmission provider, in order to ensure that the native load
bears the right proportion of transmission costs according to the
different elements included in the Rates and Conditions, Investment
Plans and in the Transmission Provider’s efficiency strategies.
As for Step-down voltage, the objective that was agreed upon with
the Distributor consists in implementing an action plan to ensure the
contribution of step-down voltage on the system, within acceptable
limits for voltage, as a means of managing the system.
Finally, in regards to the satellite posts that supply the Distributor’s
loads, it consists, on the one hand, of identifying solutions related to
satellite posts for which excesses in capacity are expected between
2005 and 2010. It also consists of carrying out at least 85% of
projected new developments prior to December 31, 2006.
c) Why was the index related to Reduction Rate for Point-to-Point service
transactions dropped for 2006?
R10c)
The objectives contribute to achieving the goals set out in HydroQuebec’s Strategic Plan and in the division’s business plan. The
number of annual objectives that were selected is limited.
d) Based on the projected financial result for 2006, please provide a schedule
that calculates the projected value for the Benefit Index for 2006. Please
indicate, with reference to the Application, the source of the various inputs
used in the calculation.
R10d) The table below shows, within Hydro-Quebec’s financial framework for
approval of the business plan, the contribution of Hydro-Québec’s
TransÉnergie division to the Benefit before financial charges, taxes
and corporate charges (BAII) are applied.
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TransÉnergie
Application R-3605-2006
Benefit Prior to Financial Charges, Taxes and
Corporate Charges
Target
443.5
Net profit (excluding CRT)
1.9
Minus: Interest on loan – CRT
Plus: Financial charges
767.4
Plus: Taxes
158.9
Plus: Corporate charges
35.3
BAII
1 403.2
e) When will the Corporate Performance Objectives for 2007 be established?
R10e) The 2007 Corporate Performance Objectives of Hydro-Quebec’s
TransÉnergie division will be established during the fall 2006 and
they
will
be
presented
and
approved
by
Hydro-Quebec’s
administration council in December 2006.
f) If the Corporate Performance Objectives for 2007 are established in time
will they be filed as part of the current proceeding?
R10f)
Considering the time-frame indicated in response to question 10e
regarding
the
establishment
of
2007
Corporate
Performance
Objectives, the Transmission Provider does not believe that these
Objectives will be available for filing within the schedule set by the
Régie, by decisions D-2006-119 and D-2006-126, for the current
application.
g) The 2005 and 2006 Corporate Objectives both had unique Category A –
Customer objectives. What “customer objectives” are being considered for
2007?
R10g)
See answer to question 10e.
Original : 2006-09-21
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TransÉnergie
Application R-3605-2006
Question #11
Reference: HQT-4, Document 2, page 12, lines 3-26 and page 21, line 26 –
page 22, line3
Hydro Québec’s 2005 Annual Report
(http://www.hydroquebec.com/publications/en/annual_report/2005/
index.html)
Question:
a) Please confirm that the removing the hedging effect (per lines 17-20) does
not impact on Hydro Québec’s overall corporate financial results in terms
of reported net income. If it does, please explain why.
R11a) The change in presentation stems from the accounting principle that
seeks to present the effects of hedging instruments (gains and
losses on the exchange rate for elements of the hedging of sales)
through the hedged elements (products). The impacts of this
presentation
stem
from
the
fact
that
the
regulated
units
(Transmission and Distribution), bear approximately 50% of HydroQuebec’s financial charges while these same units do not bear risks
related to the exchange rate for the company’s income in American
dollars. These risks, related to the exchange rate, are borne by the
Generator.
Prior to re-classification, through the cost of debt, the regulated units
assumed approximately 50% of the gains or losses in the exchange
rate related to the Generator’s hedging of sales strategy, set by
Hydro-Quebec, without having to bear the effects of compensation on
their income. As for Hydro-Quebec, it was deprived of half of the
compensation effects related to its hedging strategy, to which it was
entitled, all the while continuing to bear 100% of the risks related to
the exchange rate on the Generator’s sales.
The exchange rate is a very volatile economic variable and,
depending on its level, the regulated units and the shareholder can
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TransÉnergie
Application R-3605-2006
either be advantaged or disadvantaged when the cost of debt is
influenced by the effects of the exchange rate on certain elements of
the hedging of sales.
The Transmission Provider and the Distributor have already raised
the issue of applying a cost of debt that includes a significant
exposure to the risks in the exchange rate, while they are not
exposed to the effects of compensation on their income. Therefore,
on an isolated basis, these two units would not have maintained
significant exposure to the risks of the exchange rate on their debt.
As indicated in Exhibit HQT-13, Document 1, answer to question 17.2
of interrogatory requests no.1 of the Régie, after re-classification, the
projected cost of debt for 2007 is practically no longer sensitive to
the exchange rate.
b) The Application states that the hedging effect is reclassified to the
Products line-item in the Financial Statements. Hydro Québec’s 2005
Financial Statements do not appear to include a specific line item entitled
“Products”. Please indicate, with reference to the 2005 Financial
Statements, which specific line items in the Financial Statements will be
impacted by the reclassification of the effect of hedging sales in American
dollars with debts and swaps.
R11b) In the consolidated statement for the results of Hydro-Quebec’s 2005
Annual Report, on page 69, the line-item “Products” in French is
labelled “Revenue” in English.
c) Does removing the hedging effect from the financial costs impact on the
cost of debt for HQT in 2006 and 2007, as presented in the Application? If
no, please explain why not. If yes, please indicate what the anticipated
impact is for 2006 and 2007.
R11c) The re-classification of the gains and losses in the exchange rate
have an impact on the projected costs of debt for 2006 and 2007.
Without this re-classification, and in accordance with the exchange
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TransÉnergie
Application R-3605-2006
rates selected for the projection, the cost of debt would have
continued to decrease following the gains associated with the sales
hedging strategy; gains that should normally have been entirely
assigned to compensating the unfavourable effects of the foreign
currency on the Generator’s sales.
The impact on the cost of debt of not reclassifying the gains and
losses of the exchange rate, is presented in Exhibit HQT-8,
Document 1, annex 10.
d) Is the offsetting impact of reclassifying the impact of the hedging effect
also captured in the HQT costs presented in the Application? If so, please
explain how and where the offset occurs.
R11d) As indicated in response to question 11 a) above, the cost of debt is
the only element of the Transmission Provider’s financial framework
that is affected by the re-classification. Indeed, the Transmission
Provider does not have income in American dollars.
e) Does this change in cost classification impact at all on the overall revenue
requirement requested by HQT for 2007. If no, please explain why. If yes,
please indicate the magnitude of the impact and explain how the impact
was calculated.
R11e) See answers to questions 11 c and 11 d.
Without re-classification, the Transmission Provider’s revenue
requirement in 2007 would have dropped by $63 million to the
detriment of Hydro-Quebec as a whole, since the risk of the exchange
rate on income is entirely assumed by the Generator. Hydro-Quebec
would therefore have been deprived of a $63 million part of profits
resulting from its sales hedging strategy in American dollars.
Finally, the Transmission Provider notes that the amount in question
is the product of three terms:
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TransÉnergie
Application R-3605-2006
•
The 0.59% variance between the cost of debt with and
without re-classification;
•
The presumed proportion of the debt of 70%; and
•
The Transmission Provider’s rate base of $15 302
million.
Question #12
Reference: HQT-4, Document 2, page 13
Question:
a) Please confirm that the change in what falls under the Scope of Chapter
3065 of the CICA Manual has no effect on HQT’s overall revenue
requirement for 2007.
R12a) The Transmission Provider confirms that, pursuant to the agreements
that are currently in effect, following the entry into force of CPN-150
on January 1, 2005, changes made to the application area of Chapter
3065 do not affect the revenue requirements for 2005, 2006 and 2007.
b) If this is not the case, please explain why and provide a schedule that sets
out the calculation of the impact.
R12 b) Non applicable
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TransÉnergie
Application R-3605-2006
Question #13
Reference: HQT-4, Document 2, pages 15-21
Question:
a) Do the changes in accounting norms for financial instruments (as
discussed in section (a), pages 15-21) have any impact on HQT’s overall
revenue requirement requested for 2007? If yes, please explain why and
provide a schedule that sets out the calculation of the impact.
R13a)
The impact of the new accounting norms presented in Exhibit HQT4,
Document 2, pages 15 to 22 is not taken into account in the
evaluation of the projected cost of debt for 2007.
Question #14
Reference: HQT-6, Document 2, page 6, lines 9-15
Question:
a) The identified causes account for $16.3 M of the $19.8 M increase in base
salaries. Please explain what the reasons were for the remaining $2.5 M
increase.
R14a)
The residual increase of $2.5 million for the base salaries of the
Transmission Provider’s employees stem from elements of minor
importance such as legal obligations.
Question #15
Reference: HQT-6, Document 2, page 6, Table 2 and page 7, lines 5-8
HQT-3, Document 1, page 12, Table 3
Question:
a) Are the two variable remuneration schemes referred to HQT-6, Document
2 (i.e., régime de gestion de la performance and regime d’intéressement)
the same schemes as those referred to in Table 3 of HQT-3, Document 1
(i.e., regime d’intéressement et de remuneration variable)? If not, please
explain the differences and provide the 2005 and 2006 costs for the
schemes referenced in Table 3.
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TransÉnergie
Application R-3605-2006
R 15a) They are the same remuneration schemes.
b) Please provide an explanation as to what is included in the “Other”
category under Bonuses and Other Revenues in Table 2, HQT-6,
Document 2 (i.e., the $12.1 M in 2007).
R15b) The “Other” category in Table 2 includes all of the compensation
given to employees for specific, difficult or constraining work
conditions. For example, it includes bonuses for shift work (“quart de
travail”), isolated post allowances (“primes d’éloignement”), bonuses
for work management or for the replacement of higher-level
employees, as well bonuses for work in emergency conditions.
Question #16
Reference: HQT-6, Document 2, page 7, lines 21-26
Question:
a) Please provide further details regarding the requirement for HQT to
temporarily pay part of the group insurance costs (e.g., why is HQT
required to pay, how much is the payment for 2007, how long will HQT be
required to pay)?
R16a) As shown in Table 14, page 21 of the document cited in the reference,
the temporary requirement to pay part of the group insurance costs
covered the years 2004, 2005 and 2006. Therefore, there are no costs
related to this measure for 2007.
The Table also shows that improvements to the Benefit Schemes are
the result of negotiations that led to the renewal of collective
bargaining agreements in 2003 (for 2004 and beyond) for all
unionized personnel.
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TransÉnergie
Application R-3605-2006
Question #17
Reference: HQT-6, Document 2, page 8, Table 3
HQT-2, Document 1, First Chart
Question:
a) Please provide a schedule that, for the years 2005 and 2007, breaks down
HQT’s workforce (i.e., FTEs) by organizational unit. For purposes of the
response please provide the breakdown according to the 15 organizational
units shown for HQT in the first chart of HQT-2, Document 1.
R17a) The following Table provides the requested information.
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TransÉnergie
Administrative unit
Application R-3605-2006
Annual full-time equivalents (FTE)
Historic year
Base year
Test year
(actual data)
(projected data)
2005
Total
2006
2007
3 373
3 437
Hydro-Quebec TransÉnergie
Presidency
2
5
Vice-presidency, Operation of
installations
1
3
Regional Management- Saguenay
Lac-Saint-Jean and TransmissionNorth
427
429
Management - Transmission–South
622
618
Management - Transmission–East
572
577
Management – Transmission–West
584
618
Management - Remote Management
452
438
24
33
Management - Control of Energy
Movements
164
174
Management - Planning of Assets
126
126
Management – Transmission Service
Technical Support Expertise
227
233
15
22
117
120
39
41
Management – Business Plans and
Strategies
Management – Marketing and
Regulatory Affairs
Management – Human Resources
Control Bureau
3 462
b) For each of the 15 organizational units please indicate the reasons for the
change in workforce levels between 2005 and 2007. In doing so, please
distinguish between changes that were due to transfer of responsibilities
and staff from one business unit to another versus increases in total staff
levels.
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TransÉnergie
R17b)
Application R-3605-2006
The details of the deployment of the level of full-time equivalents
(FTE), by administrative unit, that are planned for 2007, will be known
at the end of the annual business planning cycle. The Transmission
Provider notes, however, that the projected increase, between 2006
and 2007, of 25 temporary FTE, comprised of 12 temporary “Trades”
FTE and 13 temporary “Technicians” FTE, will be divided between the
four managers of the vice-presidency - Operation of Installations, in
accordance with the requirements needed to carry out several
investment projects.
For the 2005-2006 period, variations in the level of FTE basically stem
from an increase in the workload due to the undertaking of
investments projects and preparation and employee training needs:
•
Hydro-Quebec
TransÉnergie
Presidency
(+3):
temporary
creation of the management –Special Projects unit;
•
Management – Transmission West (+34): increase in personnel
to catch up on maintenance and investment projects;
•
Management – Transmission East (+5): increase in personnel
due to investment projects;
•
Management – Business Plans and Strategies (+10): the
Management of Business Plans and Strategies organization
was completed in 2006 with the implementation of 10 FTE;
•
Management – Control of energy movements (+10): Increase in
maintenance needs and improving the security of control
systems in order to ensure HQT’s compliance with NERC
standards;
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TransÉnergie
Application R-3605-2006
•
Management – Planning of assets (0) transfer of 7 FTE towards
Management – Marketing and Regulatory Affairs. The increase
in 7 FTE was due to investment projects and the preparation of
employees;
•
Management
–
Transmission
Service
Technical
Support
Expertise (+6): Increase of employees due to the preparation of
employees (transfer of expertise);
•
Management – Marketing and Regulatory Affairs (+7): Transfer
of 7 FTE coming from the Management – Planning of Assets;
•
Management – Human Resources (+3): Increase in personnel
due to investment projects (increase of security training for
entrepreneurs.)
Question #18
Reference: HQT-6, Document 2, page 9, line 13 to page 10, line 17
Question:
a) With respect to the Performance Management scheme, for each of the
years 2005 to 2007 how much of the total payment shown in Table 6 is
contingent upon achievement of the “financial trigger”?
R18a) Having achieved the financial trigger in 2005 and assuming that it will
be in 2006 and 2007, as shown in Table 6 of the document cited in
the reference, the amounts paid out by virtue of the Performance
Management Scheme for the Business Results component were
$1.07 million in 2005, and should be $0.93 million in 2006 and $0.95
million in 2007.
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b) With respect to the Performance Management scheme, for each of the
years 2005 to 2007, how much of the payment which was contingent on
achieving the financial trigger (per response to part (a)) is directly related
to attaining the objectives of the shareholder?
R18b) By approving Hydro-Quebec’s Strategic Plan, the shareholder
expects Hydro-Quebec to achieve a certain profit level. The financial
trigger approved by the Administration Council is directly based on
this profit level.
Question #19
Reference: HQT-6, Document 2, page 10, line 19 to page 11, line 12
Question:
a) The Application states that as of January 1, 2007, the amount that can be
paid to specialists is dependent upon the business results of the
employee’s division. Please indicate whether the reference to business
results is just the financial results of the employee’s division or whether the
business results would include other performance measures as well.
R19a) As explained in Exhibit HQT-6, Document 2, page 24, section 2.4.1,
lines 7 to 14, the business results of each division or unit are
comprised of three types of objectives to be met: those related to
customers, those related to employees, and those related to
shareholders.
b) With respect to the Profit Sharing scheme, for each of the years 2005 to
2007 please indicate how much of the total payment was due to the
payment of an additional bonus of 1.5% related to the attainment of the net
profit targeted by Hydro-Québec.
R19b) As shown in Table 6 of the document cited in the reference, the
payout related to the financial trigger in virtue of the profit-sharing
scheme amounted to $2.32 million in 2005 and should be set at
$2.37million in 2006 and 2.42 million in 2007.
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c) With respect to the additional 1.5% bonus, please confirm that the financial
trigger is based on the profit of Hydro-Québec overall and not linked to
HQT’s profit levels.
R19c) Indeed, the financial trigger is based on the net profit of HydroQuebec as a whole.
Question #20
Reference: HQT-6, Document 2, page 19, lines 5-7
Question:
a) Does HQT use any external information sources or consultants to assess
the competitiveness/reasonableness of its employees’ salaries on an
annual basis? If not why not? If yes, please provide the most recent
results of any such comparisons or analyses.
R20a) The labour market evaluation carried out in 2003 remains the primary
source of information on the salary positions of Hydro-Quebec
employees.
Two main sources of information are used by Hydro-Quebec to verify
the competitive position of employee compensation for different
posts. On the one hand, specialized consulting firms offering
services in Human Resources have databanks from which salary
information for different posts can be extracted. On the other hand,
certain businesses carry out their own labour market evaluations or
outsource them to consultants in Human Resources.
When a business is invited to participate and it agrees to participate,
it is good business practice to provide it with the results of the study.
Hydro-Quebec also consults other studies, such as the study on
direct employee compensation for engineers, carried out by the
Ordre des ingénieurs du Québec, or inquiries carried out by the
Canadian Institute for Chartered Accountants among its members.
The results of these inquiries can be obtained from each of these
Original : 2006-09-21
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Application R-3605-2006
organizations. In addition, the Institut de la statistique du Québec,
releases, on an annual basis, the Comparison of the State and
Evolution of Compensation for Salaried Employees (“Rémunération
des salaries - État et évolution comparés”), which can be obtained
from Les Publications du Québec.
Question #21
Reference: HQT-6, Document 3, page 7, lines 15-16
Question:
a) Please provide more details regarding the $7 M expenditures planned for
2007 for applications to the transmission networks automation equipment
(e.g., what is the work involved, why is it required, etc.).
R21a) The budgeted amount of $7 million in 2007 is attributable to additions
and modifications to the system automation equipment known as
Rejection of Generation and Automated Load Shedding (RPTC)
(“Rejet de Production et Télédélestage de Charge”). This sum will
allow for activities to be carried out for twenty posts on the
Transmission Provider’s main system as well as the Churchill Falls
installations. There will be two types of activities: logistic and
material.
RPTC automation equipment is important to the reliability of the
transmission system. One major component to which this sum can
be attributed seeks to make the maintenance of the RPTC
automation equipment more secure, by reducing the probability of
human error. The other component is to add functionalities that will
allow this automation equipment to respond better to multiple transit
conditions on the system with the aim of reducing the number of
unnecessary operations of the automation equipment.
Question #22
Original : 2006-09-21
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Reference: HQT-6, Document 3, page 9, Table 2
Question:
a) The actual costs of the shared services provided by the Technology Group
increased by 5.5% from 2005 to 2007. However, the “return” component
of the total charges increased by 68%. Please explain the significant
increase in the “return” component of the charges from the Technology
Group.
R22a) At the time of setting the adjustment on the return, the financial
charges from the rate grids were reduced and replaced with regulated
financial charges in accordance with the rate of the Transmission
Provider’s average weighted cost of capital. The financial charges
included in the 2007 rate grid for the provider of this service ($37.9
million) are inferior by $9.7 million compared to regulated financial
charges ($47.6 million). This variance has an impact on the upward
adjustment of the return. It is relevant to note that there was
practically no variance between both in previous years.
Question #23
Reference: HQT-6, Document 3, page 11, Table 3
Question:
a) The actual costs of the services provided by the Shared Services Centre
increased by 7.5% from 2005 to 2007. However, the “return” component
of the total charges increased by 52%. Please explain the significant
increase in the “return” component of the charges from the Shared
Services Centre.
R23a) This increase is primarily explained by an increase in the share of
assets attributable to the Transmission Provider.
Question #24
Reference: HQT-6, Document 6, page 4, Table 1 and page 4, lines 7-12 and 1317
Question:
Original : 2006-09-21
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Application R-3605-2006
a) How much was the 2006 insurance premium refund referred to in lines 11
to 13 of HQT-6, Document 6?
R24a) The non-recurrent insurance premium refund received by the Finance
Group in the course of 2006 was of $2 million.
b) Is this insurance refund reflected in the 2006 costs reported in Table 1 for
2006?
R24b) This insurance refund was reflected in the 2006 corporate charges
shown in table 1 of the reference.
c) The Application suggests that most of the increase for 2006 was due to
higher payroll costs as a result of pension cost increases. Year 2006 total
salary increases for HQT attributable to pension costs were roughly 6.4%
of 2005 total salary costs (per HQT-6, Document 2, Table 2). Similarly, the
increase in total Corporate costs in 2006 due to pension costs is 6.1% (i.e.,
6.6/108.9). Please explain more fully the 140% increase in total corporate
Human Resource costs between 2005 and 2006 (i.e., $2 M to 4.8 M).
R24c) The differential is mainly due to the fact that actual corporate charges
for Human Resources in 2005 led to a favourable variance compared
with the level of the original 2005 budget. In 2006, the projection took
into account the level of the original 2005 budget.
Question #25
Reference: HQT-7, Document 1, page 23, lines 4-5 and page 25, lines 6-11
Question:
a) Please explain more fully the reason for the increase between the
approved and the actual inventory levels for 2005 (e.g., how were the
returned materials from suspended projects and from surpluses at the end
of projects treated prior to 2004?).
R25a) See Exhibit HQT-13, Document 1, answer to question 14.1 of the
interrogatory request no.1 of the Régie.
Question #26
Original : 2006-09-21
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Application R-3605-2006
Reference: HQT-9, Document 1, page 9, lines 4-17
Question:
a) When are the standards being developed by the new ERO likely to come
into play?
R26a) On July 20, 2006, the NERC officially achieved ERO status. The
application of the new structure is set for January 1, 2007. In the
midst of the restructuring of the electricity industry, the NERC’s
reliability standards, either existing or those currently being
evaluated, continue to be applicable. The important upcoming
change deals mainly with choosing the standards that must
necessarily be respected and for which financial sanctions will be
applied in case of non-conformity. For many of these standards, it is
likely that this change will take place in 2007.
b) Is there any indication as to whether the standards that the ERO will
develop will be stricter than those currently established by NERC and the
NPCC? If yes, please discuss what the impact will be on HQT.
R26b) The primary objective of the ERO is to apply compulsory, but not
necessarily superior, reliability standards and to associate these
standards to financial sanctions in the case of non-conformity.
Essentially, the ERO standards are the same as NERC and NPCC
standards.
c) Could new (stricter) standards by the ERO impact at all on HQT’s revenue
requirement?
R26c) The new compulsory standards enacted by the ERO will have to be
applied by all systems in North America. Only when these
compulsory standards are known will the Transmission Provider be
able
to
evaluate
Original : 2006-09-21
whether
investments
are
required
on
the
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Application R-3605-2006
transmission system to ensure conformity and obtain the required
approval by the Régie.
d) If the response to (c) is yes, has any allowance for such impacts been
included in HQT’s proposed 2007 revenue requirement? If yes, please
indicate the dollar value, where it has been included and the assumptions
on which the value was based.
R26d) See answer to question 26c.
Question #27
Reference: HQT-9, Document 1, page 14, Tables 2 & 3
HQT-9, Document 1, page 15, Table 5
Question:
a) Please explain the basis for the significant increase in long term point-topoint service requirements starting in 2008 (per Table 5).
R27a) See Exhibit HQT-13, Document 12, answer to question 14.4 of UC.
b) Does the significant increase in long-term point-to-point service
requirements in 2008 trigger the need for any of the investments reported
in Table 2? If yes, please identify the projects and the associated
expenditures by year.
R27b)
Indeed.
These
are
primarily
investments
required
for
the
interconnection with Ontario. Exhibit HQT-9, Document 1, Table 1
shows the investments by year for this project.
c) If the response to (b) is yes, are any of these expenditures being paid for
by the “new” long-term point-to-point customers? If so, how much is being
contributed by these customers? If not, why not?
R27c) The Transmission Provider notes that 100% of these expenditures
will be covered by revenues from point-to-point transmission
services.
d) Are any of the new assets reported in in-service in 2006 or 2007 (per Table
5) the result of expenditures to accommodate the increase in long-term
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Application R-3605-2006
point-to-point sales in 2008? If so, please estimate the values and the
impact on the 2007 Rate Base.
R27d) The Transmission Provider does not expect projects to be put in
service in 2006 and 2007 for which long-term point-to-point sales of
the transmission service would have been concluded in 2008.
Question #28
Reference: HQT-10, Document 1, pages 12-16
HQT-12, Document 1, page 15, lines 23-26
Question:
a) Please confirm that with the exception of System Control Service,
the revenues collected by HQT for Ancillary Services are all
remitted to 3rd party suppliers of the services (e.g. Hydro Quebec
Production) and that HQT neither gains revenue nor is out of pocket
due to offering these services. If this is not the case, please
explain.
R28a) The intervenor’s interpretation is accurate.
Question #29
Reference: HQT-10, Document 1, page 15, Table 1
Question:
a) Please provide a table similar to Table 1, but setting out HQT’s proposed
application of Ancillary Services per its 2005 Rate Application (R-35492004, Phase 2).
R29a) Table 1 of Exhibit HQT-10, Document 1, page 15 of 22 describes the
application areas of ancillary services that are applicable to point-topoint transmission services, as approved by the Régie in decision D2006-66, which results from the Transmission Provider’s rate
application R-3549-2004 Phase 2. Moreover, in its decision D-2006126, rendered on August 18, 2006, the Régie found that the
applicability of voltage control and maintenance of spinning and nonOriginal : 2006-09-21
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Application R-3605-2006
spinning reserve ancillary services were not included among the
subjects to be discussed in the current application. As for the energy
receipt imbalance ancillary service, in Exhibit HQT-10, Document 1,
page 18 of 22, the Transmission Provider proposes to apply this
service to all receipts for which the source is located in the
Transmission Provider’s control area.
Question #30
Reference: HQT-10, Document 2, page 5, Table 1; page 6, lines 19-20; and
page 7, lines 5-12
Question:
a) Please replicate Table 1 and include a column setting out the 2005
projected requirements for each service as presented in HQT’s 2005 Rate
Application.
R30a) See Exhibit HQT-13, Document 1, answer to question 23.1 of
Interrogatory Requests no.1 of the Régie.
b) Please replicate Table 1 expressing all of the requirements in GWh so as
to reconcile with the values reported on page 7.
R30b) See Exhibit HQT-13, Document 12, answer to question 19.2 of
Interrogatory Request no.1 of UC.
c) Please explain what is unique about the 2006 use of Monthly Point to Point
service that HQT does not expect the service to be used at all in 2007.
R30c) See Exhibit HQT-13, Document 1, answer to question 23.2 of
Interrogatory Requests no.1 of the Régie.
d) For the years 2005, 2006 and 2007 and for each of the Short Term Point to
Point services, please breakdown the values in Table 1 into the following
components:
a. Service where the point of generation is in HQT’s control area but the
load destination is not,
b. Service where the load destination is in HQT’s control area but the
generation is not,
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c. Service where neither the generation nor the load destination are in
HQT’s control area, and
d. Service where both the generation and the load destination are in
HQT’s control area.
In preparing the response please clarify whether generators such as
Brascan that are located in Quebec are considered to be within HQT’s
system when they are either a point of delivery or a point of receipt.
R30d) a. The following Table shows the requested data for the year 2005.
However, the Transmission Provider does not have data to this effect
for 2006 and 2007.
Power in MW
2005
Actual
Monthly Point-to-Point (MW)
0
Weekly Point-to-Point (MW)
164
Daily Point-to-Point (MW)
13 679
Hourly Point-to-Point (TWh)
b.
No
reservations
for
point-to-point
9.8
transmission
services
corresponded to this scenario for 2005. Moreover, the Transmission
Provider does not have data to this effect for 2006 and 2007.
c. The following Table shows the requested data for the year 2005.
However, the Transmission Provider does not have data to this effect
for 2006 and 2007.
Power in MW
d.
No
2005
Actual
Monthly Point-to-Point (MW)
72
Weekly Point-to-Point (MW)
219
Daily Point-to-Point (MW)
495
Hourly Point-to-Point (TWh)
0.1
reservations
for
point-to-point
transmission
services
corresponded to this scenario for 2005. Moreover, the Transmission
Provider does not have data to this effect for 2006 and 2007.
Original : 2006-09-21
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Application R-3605-2006
Question #31
Reference: HQT-11, Document 1, page 6, Table 1 and page 7, lines 20-23
Question:
a) Please provide a schedule similar to Table 1, but instead of calculating the
cost of service allocation based on the 13 monthly balances use the
average of opening (i.e., December 31st, 2006) and closing (i.e., December
31st, 2007) balances for the rate year.
R31a) The following Table shows the 2007 cost allocation according to the
average balance on December 31, 2006 and the average balance on
December 31, 2007 as well as according to the actual balance on
December 31, 2007.
It can be noted that according to these approaches, the amounts of
the allocation by transmission service, between native load and
point-to-point, are fundamentally the same.
Original : 2006-09-21
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Application R-3605-2006
Functions
2007
According to the average
balance on Dec. 31, 2006 and
the average on Dec. 31, 2007
Native
load
PointtoPoint
Total
2007
According to the Balance
on December 31
Native
load
PointtoPoint
Total
Connection of generating stations (Generation step-up):
Step-up substations
Connection lines
230.6
51.4
3.3
0.7
233.9
52.2
233.1
50.6
3.4
0.7
236.5
51.3
Network:
Extra high voltage-Mtl-Qc and Mtl surrounding area
Extra high voltage-others
450 kV
High voltage
346.2
850.9
112.1
492.8
4.6
12.3
1.6
6.6
350.8
863.2
113.7
499.3
350.9
841.0
110.1
501.6
4.7
12.2
1.6
6.7
355.6
853.2
111.7
508.3
407.2
57.3
0.0
0.0
407.2
57.3
406.2
56.9
0.0
0.0
406.2
56.9
23.0
126.8
0.3
1,8
23.4
128.7
22.8
125.1
0.3
1,8
23.1
129.6
2 698.3
31.4
2 729.7
2 698.3
31.4
2 729.7
Customer connections (Subtransmission plant):
Step-down stations
Connection of high-voltage customers
Interconnections:
Churchill Falls
Others
Total
b) Please comment on the relative complexity and resources involved in
performing the calculation based on the average of the opening and
closing annual balances as opposed to the year end balance.
R31b) The Transmission Provider comments as follows on the three
approaches according to which it determined the cost-of-service
allocation for 2007, for which the comparative application required a
significant amount of effort.
•
As detailed in Exhibit HQT-11, Document 1, page 9, using the
average of 13 monthly balances to follow-up on Régie decision
D-2006-66 involved a significant amount of time and effort,
namely as a result of the activities required outside the
accounting system for a very large quantity of data. In this
sense, here the level of complexity reaches its peak.
Original : 2006-09-21
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Application R-3605-2006
•
An allocation by function on the basis of the average of assets
on December 31, 2006 and December 31, 2007, allows the
Transmission
Provider
to
complete
the
cost-of-service
allocation in a lesser amount of time than required to calculate
the average of 13 monthly balances. Basically, it consists of
dealing with information on the basis of 2 balances rather than
13 balances. However, even if this approach reduces the
amount of work required outside of the accounting system, the
level of complexity remains high since the average is
determined by comparing the information for each of the two
balances.
•
As for an allocation based on the balance on December 31,
2007, the Transmission Provider maintains the opinion that this
approach is the most efficient, all the while ensuring a high
level of precision, and that it would be justified to select it for
the cost-of service allocation. Finally, it can be noted that the
amounts of the allocation by transmission service for the three
aforementioned approaches are comparable.
Question #32
Reference: HQT-11, Document 1, page 11, lines 6-10
HQT-11, Document 2, page 21, Table 7
Question:
a) Please provide a schedule that sets out the data used and the calculation
of HQT’s 60% load factor.
R32a) In compliance with decision D-2006-66, page 16, the load factor for
2007 is determined from the total energy and coincident peak,
including Churchill Falls.
Load factor
Original : 2006-09-21
= Annual energy / coincident peak / 8760 hours
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Application R-3605-2006
= 190 624 GWh
36, 341 GW / 8760 hours
= 60%
b) Please also provide a schedule that sets out for native load and point-topoint service the demand and energy values used to determine the
allocation of demand and energy costs in Table 7.
R32b) The energy and power components used to determine the 2007 costof-service allocation are shown in the table below.
TABLE KEY:
Column 1: FUNCTIONS; Connection of Generating Stations (Generation step-up); Step-Up Substations;
Connection Lines; System; Extra High Voltage-Mtl-Qc and Mtl Surrounding Area; Extra High Voltage-Other; 450
kV; High Voltage; Customer Connections; Step-Down Stations; Connection of High-Voltage Customers;
Interconnections; Churchill Falls; Others; Total.
Column 2: COST OF SERVICE BY FUNCTION; Column 3: ENERGY;
Column 4: POWER
Column 5: ALLOCATION FACTOR
(A) Allocation factor ordered by the Régie and which is based on the system’s load factor
(B) Allocation factor ordered by the Régie which allocates 100% in power
(C) Energy Portion including Churchill Falls: Native load 187758 GWh, LT Point-to-Point service = 2865 GWH.
Power Portion including Churchill Falls: Native load 35862 MW, LT Point-to-Point service = 479 MW.
(D) Direct allocation to the native load
Question #33
Reference: HQT-12, Document 1, pages 18 (Table 8), 22 (Table 12) and 23
(Table 13)
Régie Decision D-2006-66, page 30
Question:
Original : 2006-09-21
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Application R-3605-2006
a) Please confirm that in its D-2006-66 the Régie did not approve a
methodology for setting the rates for voltage control service, maintenance
of spinning reserves and the maintenance of non-spinning reserves but,
rather, simply maintained the existing rates.
R33a) In its Decision D-2006-66, page 30, the Régie indicates the following
regarding the Voltage Control, Maintenance of Spinning Reserves
and Maintenance of Non-Spinning Reserves ancillary services:
“ When additional ancillary services will be required, beyond
those acquired by the Distributor pursuant to the order, then the
factual and juridical situation presented to the Régie will justify
a review of the methodology.” (HQT’s emphasis)
The Transmission Provider understands that the existing rate-setting
method, which is in effect since 2001, is upheld. Consequently, the
Transmission Provider set the rates for ancillary services according
to this method for the aforementioned ancillary services for 2007.
The Transmission Provider believes that its proposal fully reflects the
terms of decision D-2006-66, and notes that the rates it proposes are
slightly inferior to existing rates.
b) Please confirm that in the calculation of the proposed rates for voltage
control, maintenance of spinning reserves and maintenance of nonspinning reserves:
1. The costs used in the numerator of each calculation are the 2001
costs presented in HQT’s first application (R-3401-1998)
2. The loads used in the denominator are the forecast 2007
requirements.
R33b) The rate-setting method for Voltage Control, Operating Reserve Maintenance of Spinning Reserves and Maintenance of Non-Spinning
Reserves
ancillary
services,
as
well
as
the
corresponding
transmission services, are presented in detail in Exhibit HQT-12,
Document 1, Tables 8, 12 and 13. See also HQT-13, Document 1,
answer to question 25.1 of interrogatory requests no.1 of the Régie.
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c) Please explain why the approach used by HQT for establishing the rates
for these three ancillary services is considered appropriate and consistent
with D-2006-66.
R33c) See answer to question 33a.
d) Please explain why simply maintaining the rates for these services at their
current levels would not be more consistent with D-2006-66.
R33d) See answer to question 33a.
Question #34
Reference: HQT-12, Document 1, pages 18-19
Question:
a) Please confirm that in the calculation of the proposed rates for frequency
controls and maintenance of non-spinning reserves:
1.
The costs used in the numerator are the 2005 costs presented in
HQT’s second application (R-3549-2004, Phase 2)
2.
The loads used in the denominator are forecast 2007
requirements.
R34a) The rate-setting method for Voltage Control, Operating Reserve Maintenance of Spinning Reserves and Maintenance of Non-Spinning
Reserves
ancillary
services,
as
well
as
the
corresponding
transmission services, are presented in detail in Exhibit HQT-12,
Document 1, Tables 9 and 13 respectively. See also HQT-13,
Document 1, answer to question 25.1 of interrogatory requests no.1
of the Régie.
b) Please explain why the costs used in the calculation were not updated to
2007 values in order to be consistent with the basis for the load data.
R34b) See answer to question 34a.
Original : 2006-09-21
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Application R-3605-2006
c) Please provide a schedule that recalculates the proposed frequency
control rate based on updated 2007 costs as well as loads.
R34c) See answer to question 34a.
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