Hydro-Québec
Transmission
Application R-3605-2006
GROSS DIRECT COSTS
Original: 2006-07-06
HQT-6, Document 2
Page 1
Hydro-Québec
Transmission
Application R-3605-2006
TABLE OF CONTENTS
1
2
SUMMARY 2005-2007............................................................................................. 3
SALARY COSTS (MASSE SALARIALE) ................................................................. 3
2.1
SALARY COST COMPONENTS ...................................................................... 3
2.1.1
Base Salary (Salaire de base) ................................................................... 4
2.1.2
Bonuses and Various Revenues (Primes et revenus divers) ..................... 5
2.1.3
Benefits (Avantages sociaux) .................................................................... 5
2.2
EVOLUTION OF THE WORKFORCE .............................................................. 6
2.3
UNIT LABOUR COSTS (COÛTS UNITAIRES DE MAIN-D’OEUVRE) ............. 7
2.4
VARIABLE REMUNERATION SCHEMES........................................................ 7
2.4.1
Performance Management Scheme (Régime de gestion de la
performance)............................................................................................................ 8
2.4.2
Profit-Sharing Scheme (Régime d'intéressement) ..................................... 8
2.4.3
Costs of the Variable Remuneration Schemes (Coûts de régimes de
rémunération variable) ........................................................................................... 11
2.4.4
Degree of Attainment (Degré d’atteinte) .................................................. 12
2.4.5
Maximum Percentage of Base Salary Payable as Bonus (Pourcentage
maximal du salaire de base pouvant être versé à titre de bonis) ........................... 12
2.4.6
Corporate Objectives of the Hydro-Québec TransÉnergie Division
(Objectifs corporatifs de la division Hydro-Québec TransÉnergie)......................... 13
2.5
PENSION COSTS (COÛT DE RETRAITE) .................................................... 16
2.6
SALARY COMPETITIVENESS STUDY (ÉTUDE SUR LA POSITION
SALARIALE) .............................................................................................................. 17
2.7
MAIN PARAMETERS IN THE COLLECTIVE BARGAINING AGREEMENTS
(PRINCIPAUX PARAMÈTRES DES CONVENTIONS COLLECTIVES).................... 18
3 OTHER DIRECT COSTS (AUTRES CHARGES DIRECTES) ............................... 20
3.1
EXTERNAL SERVICES (SERVICES EXTERNES) ........................................ 20
3.2
STOCK, PURCHASES OF GOODS, FINANCIAL RESOURCES, RENT AND
OTHERS.................................................................................................................... 20
4 COST RECOVERY (RÉCUPÉRATION DE COÛTS)............................................. 21
Original: 2006-07-06
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1
Application R-3605-2006
SUMMARY 2005-2007
The Transmission Provider’s gross direct costs are made up of three categories:
•
Salary costs
•
Other direct costs
•
Cost recovery.
The evolution of the gross direct costs since 2005 is as follows:
Gross direct costs
Table 1
(in millions of dollars)
Historic year
Base year
Test year
2005
2006
2007
Salary costs
345.5
378.9
384.9
Other direct costs
116.0
116.7
119.3
(3.8)
(1.7)
(1.7)
457.7
493.9
502.5
Cost recovery
Total
The following sections deal with each of the categories in more detail.
2
2.1
SALARY COSTS (MASSE SALARIALE)
SALARY COST COMPONENTS
Table 2 below details the salary costs components for the Transmission Provider from
2005 to 2007. The costs related to labour represent, on average, 76% of the
Transmission Provider’s gross direct costs.
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During the period of 2005-2007, the Transmission Provider’s salary costs increased at
an average annual rate of 5.5%. This growth is mainly the result of pension costs;
collective bargaining with the unions representing the Company’s employees; the
increase in the workforce of annual full-time equivalents (FTEs); as well as benefit
costs.
2.1.1 Base Salary (Salaire de base)
During this same period, the growth in base salaries of the Transmission Provider’s
employees was $19.8 million, which represents an annual average increase of 4.5%, as
a result of the following causes:
•
increases granted by virtue of signed collective bargaining agreements ($11.5
million);
•
growth in the workforce of annual FTEs ($5.8 million) as further described in
Section 2.2 below.
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2.1.2 Bonuses and Various Revenues (Primes et revenus divers)
Bonuses and various revenues amount to $22.5 million in 2007, a decrease of $1.8
million in comparison with 2005. This decrease is attributed mainly to a legal settlement
in 2005 with a group of employees.
Regarding the respective costs of $3.0 million and $7.4 million for the two variable
remuneration schemes, these relate to the performance management scheme (régime
de gestion de la performance) and the profit-sharing scheme (régime d’intéressement)
described in Section 2.4 of the current Exhibit.
2.1.3 Benefits (Avantages sociaux)
The cost of benefits includes a range of employee benefits schemes, in addition to
government plans, which are classified in line item of Benefits – Other (Avantages
sociaux – Autres). The cost of benefits also includes pension costs (coût de retraite), as
well as complementary pension benefits (avantages complémentaires à la retraite).
These different schemes are assigned to the Transmission Provider by means of a
benefit rate applicable to the forecast base salary costs. In the event of a significant
variance, the annual benefit expenditure is corrected by a rate adjustment at the end of
each year.
Increasing by $23.2 million from 2005 to 2007, the benefits costs are up largely due to
the evolution in pension costs ($19.1 million). Pension costs are described in Section
2.5.
The portion relating to government plans and insurance plans, in the line item Benefits –
Other (Avantages sociaux – Autres) shows an increase ($3.4 million) which can be
attributed to growth in overall salary costs, to the costs of the health insurance plan
which continue to increase, as well as to the temporary takeover by the employer of part
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of the group insurance costs (life and health insurance) which are normally borne by the
employees.
2.2
EVOLUTION OF THE WORKFORCE
Table 3 below shows the evolution by job grouping of the workforce in annual FTEs:
Table 3 – Full-time Equivalents by Job Grouping
(Équivalents Temps Complet (ÉTC) par groupe d’emploi)
Note: Bureau = Office; Métiers = Trades; Techniciens = Technicians; Ingénieurs = Engineers;
Spécialistes = Specialists; Professionnels = Professionals; Cadres = Management.
During the period of 2005-2007, the projected number of FTEs should increase by 89
over the previous year. The increase in the workload is set as a function of the
anticipated volume of activities for the preparation and the training of the new
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employees for the execution of the operating activities and the undertaking of
investment projects. Exhibit HQT-6, Document 4 provides the additional details on this
cost element.
2.3
UNIT LABOUR COSTS (COÛTS UNITAIRES DE MAIN-D’OEUVRE)
The following table shows the evolution by job grouping of the average base salary, as
well as that of the benefits of Hydro-Québec’s active employees over the period of 2005
to 2007.
Table 4 – Unit Labour Costs
The salaries and benefits reflect the parameters of the collective bargaining agreements
made with the Hydro-Québec employee unions. They also reflect the experience and
seniority of the employees.
2.4
VARIABLE REMUNERATION SCHEMES
The two variable remuneration schemes described below are in effect at Hydro-Québec.
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2.4.1 Performance Management Scheme (Régime de gestion de la performance)
This scheme targets the company personnel that are not subject to the collective
bargaining agreements. With respect to the Transmission Provider, the scheme has a
corporate component and an individual component specifically related to the HydroQuébec TransÉnergie division. The payment of a bonus by virtue of the corporate
component is contingent on attaining a financial trigger, the level of net profit targeted,
as approved by the Hydro-Québec Board of Directors. The level of net profit targeted
corresponds to 87.5% of the expected net profit. If the net profit targeted for a given
year is not met, there will be no bonus payment. If the financial trigger is attained, there
will be a bonus payment, of which the amount depends on the degree of attainment of
results specific to the division. Each division and other units of Hydro-Québec have
three categories of objectives to attain:
•
Objectives related to the customer base (customer satisfaction and service
continuity);
•
Objectives related to employees (mobilization, health and job security indicators);
•
Objectives related to the shareholder (indicators pertaining to the control of
operating costs and the division profits).
The second component of the scheme is a component by which individual objectives
are seen as contributing to the attainment of the division objectives. The amount paid
depends on the degree of attainment of the individual objectives.
2.4.2 Profit-Sharing Scheme (Régime d'intéressement)
This scheme targets company personnel subject to the collective bargaining
agreements. This is a corporate scheme similar to the corporate component of the
performance management scheme. It relies on the same financial trigger as the
performance management scheme. However, if a bonus is awarded, the amount
depends on the degree of attainment of results by Hydro-Québec’s CEO. These results
are a composite of the division results and those of the corporate units, calculated
according to a weighted average.
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The generation company (HQP), the Transmission Provider and the Distributor each
contribute 20% to the CEO’s results. The Hydro-Québec Equipment Division and SEBJ,
the Technology, Human Resources and Shared Services Groups, as well as the
General Audit contribute 40% to the CEO’s results.
It should be noted that as of January 1, 2007, following the renewal of the collective
bargaining agreement for specialists for the period of January 1, 2005 to December 31,
2009, the amount that can be paid by virtue of this component will depend on the
business results of the employee’s division.
Since 2004, the profit-sharing regime provides for the payment of an additional bonus of
1.5% related to the attainment of the net profit targeted by Hydro-Québec. The
functioning of the profit-sharing scheme is presented in Table 5 of the following page.
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Table 5 – Functioning of the Profit-Sharing Scheme
Note 1: Includes Hydro-Québec Equipment, and the Executive Vice-Presidencies of Human Resources and Shared
Services, Finance, Technology, Corporate Affaires and the General Secretariat, as well as General Audit.
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2.4.3 Costs of the Variable Remuneration Schemes (Coûts de régimes de
rémunération variable)
Table 6 below indicates, for each job grouping, the amounts paid in 2005 to the variable
remuneration schemes, as well as the projected amounts for 2006 and 2007.
Table 6 – Variable Remuneration Schemes by Grouping
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Note: s.o. means non-applicable.
2.4.4 Degree of Attainment (Degré d’atteinte)
In the calculation of the Cost of Service, the Transmission Provider assumes that the
company will attain the targeted net profit, thus triggering the bonus payment. Table 7
below presents the hypotheses which have been used to set the forecast amounts to be
paid by virtue of the variable remuneration schemes.
Table 7 – Degree of Attainment of the Business Results
Note: s.o means non-applicable. Note (1) Weighted average of the division results; Note (2) Contributory
to the attainment of HQT’s results.
2.4.5 Maximum
Percentage
of
Base
Salary
Payable
as
Bonus
(Pourcentage maximal du salaire de base pouvant être versé à titre de
bonis)
Table 8 below presents the maximum percentage of base salary payable as a bonus.
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Table 8 – Maximum Bonus as a % of Base Salary
Note: s.o means non-applicable. Note (1) Weighted average of the division results; Note (2) Contributory
to the attainment of HQT’s results.
2.4.6 Corporate Objectives of the Hydro-Québec TransÉnergie
(Objectifs corporatifs de la division Hydro-Québec TransÉnergie)
Division
Table 9 below presents the objectives and the corporate results of the Hydro-Québec
TransÉnergie Division for the year 2005, whereas Tables 10 and 11 present its
objectives for the year 2006.
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Table 9 – Hydro-Québec TransÉnergie 2005 Corporate Objectives and Results
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Table 10 – 2006 Corporate Objectives for the Purposes of the Profit-Sharing
Scheme and Variable Remuneration: Hydro-Québec TransÉnergie Division
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Table 11 – APPENDIX A: 2006 Corporate Objectives for the Purposes of the ProfitSharing Scheme and Variable Remuneration: Hydro-Québec TransÉnergie
2.5
PENSION COSTS (COÛT DE RETRAITE)
The Transmission Provider’s pension costs increase from an amount of $30 million in
2005 to $49 million for each of the years 2006 and 2007, as evidenced in Table 12
below. The increase of $19 million between the 2005 costs and the base year 2006 and
test year 2007 can be essentially explained by a decrease in long-term interest rates for
the markets between 2004 and 2005.
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2.6
Application R-3605-2006
SALARY COMPETITIVENESS
SALARIALE)
STUDY
(ÉTUDE
SUR
LA
POSITION
Hydro-Québec’s last job market evaluation (Study on Salary Competitiveness or Étude
sur la position salariale) was carried out in 2003. It was filed at the Régie de l’énergie
during phase 2 of Distributor’s R-3492-2002 application. Table 13 below recalls the
main points of the results of this study.
Table 13 – Salary Competitiveness Study
Note (1) Cash remuneration includes basic remuneration and bonuses.
Note (2) Overall remuneration includes basic remuneration, bonuses and benefits.
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A salary variance of +/- 5% is not considered significant. Within this range, it is
considered that there is no difference between the salary data of the companies being
compared.
2.7
MAIN PARAMETERS IN THE COLLECTIVE BARGAINING AGREEMENTS
(PRINCIPAUX PARAMÈTRES DES CONVENTIONS COLLECTIVES)
Table 14 below presents the main parameters in the collective bargaining agreements
concluded with the unions representing the employees of the Transmission Provider.
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Table 14 – Main parameters of the Agreements Negotiated between HydroQuébec and its Unions for the Year 2004 Onward
Note (1) Collective agreement renewed in September 2005 for the period of January 1 2004 to December
31 2009 with the Professional Union of Scientists of IREQ.
Note (2) Collective agreement renewed in June 2006 for the period of January 1 2005 to December 31
2009.
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OTHER DIRECT COSTS (AUTRES CHARGES DIRECTES)
The other direct costs represent on average close to 24% of the total of the gross direct
costs. Table 15 shows the evolution of the other direct costs for the years 2005 to 2007.
Showing an increase of $3.3 million, the other direct charges went from $116.0 million in
2005 to $119.3 million in 2007 mainly due to inflation ($4.7 million).
3.1
EXTERNAL SERVICES (SERVICES EXTERNES)
The external services total $46.4 million in 2007, an increase of $3.1 million with respect
to 2005. The 2007 test year includes, among others, the fees payable to the Régie de
l’énergie of $2.4 million and the Transmission Provider’s contribution in the order of $2.3
million to the Northeast Power Coordinating Council.
3.2
STOCK, PURCHASES OF GOODS, FINANCIAL RESOURCES, RENT AND
OTHERS
The line item of stock, purchases of goods, financial resources, rent and others totals
$61.2 million for 2007, an increase of $1.1 million. In 2005, the expenditure of $60.1
million took into account a negative non-recurring amount of $2.4 million related to stock
management activities and to a reversal of a provision of $1.7 million for unused stock.
Without these elements, the 2005-2007 variation would be a decrease of $3 million.
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COST RECOVERY (RÉCUPÉRATION DE COÛTS)
Cost recovery totals $1.7 million for 2007, a cost decrease of $2.1 million with respect to
2005, which is explained, in large part, by the implementation of the valorization plan for
Hydro-Québec’s foreign activities, leading to a decrease in the services provided to
affiliated entities ($1.1 million).
Table 16 below details the evolution from 2005 to 2007 of the cost recovery.
Note: Travaux ou services facturés à des tiers = Work or services billed to third parties; Revenus divers
= Various revenues; Entités affiliées = Affiliated entities.
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