Hydro- Québec
TransÉnergie
Application R-3605-2006
THE TRANSMISSION PROVIDER’S
CORPORATE PERFORMANCE REGULATION
Original : 2006-07-06
HQT-3, Document 1
Page 1 of 16
Hydro- Québec
TransÉnergie
Original : 2006-07-06
Application R-3605-2006
HQT-3, Document 1
Page 2 of 16
Hydro- Québec
TransÉnergie
Application R-3605-2006
TABLE OF CONTENTS
1. CONTEXT .....................................................................................................................4
2. PERFORMANCE INDICATORS................................................................................... 8
3. CORPORATE OBJECTIVES ..................................................................................... 10
Tables
Table 1 – Results of performance indicators for 2005…………...………………………9
Table 2- Basic data for the cost ratios……………………………………………………10
Table 3 – 2005 Corporate objectives and results……………………………………….11
Table 4 – 2006 Corporate objectives……………………………………………………..14
Table 5 - Annex- Corporate objectives 2006…………………………………………….15
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1
1. CONTEXT
2
In order to adequately set the context for the information presented in the current exhibit,
3
the Transmission Provider considers it important to reiterate the key elements of the
4
Régie‘s recent decisions and orders relative to the Transmission Provider‘s performance
5
indicators and benchmarking, as well as the responses and steps taken by the
6
Transmission Provider to this effect. The following paragraphs report on those key
7
issues.
8
Decision D-2005-50 on Phase 1 of the Transmission Provider’s Rate Application for
9
2005
10
In decision D-2005-50, the Régie upheld the performance indicators that it had selected
11
in its decision D-2002-95 relative to its rate application for 2001, with the exception of the
12
indicator for telecommunication services. It accepted the performance indicators
13
proposed by the Transmission Provider and added indicators regarding the evolution of
14
costs, as a function of the energy and power offered, of net capital assets and of total
15
cost-of-service. It also added environmental indicators. In this way the Régie set the list
16
of the 23 indicators it had selected. Furthermore, the Régie indicated that it continued to
17
expect that the Transmission Provider develop an indicator related to the evaluation of
18
investments relative to projects for which the individual project cost is inferior to $25
19
million.
20
Moreover, the Régie addressed the topic of incentive regulation and pointed out that it
21
sought to put in place incentives. It ordered the Transmission Provider to set new and
22
more ambitious targets and it added a target for the re-establishment of service following
23
a service interruption to the indicator related to the service continuity index.
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Hydro- Québec
TransÉnergie
Application R-3605-2006
1
As for the Benchmarking, the Régie ordered the Transmission Provider to continue its
2
participation in the program of the Committee on Corporate Performance and
3
Productivity Evaluation (COPE) of the Canadian Electricity Association (CEA) and to
4
extend its benchmarking, over time, with data coming from other organizations. In
5
particular, the Régie ordered the Transmission Provider to examine the possibilities
6
offered by the International Council on Large Electric Systems (ICLES), of which it is a
7
member, and to submit its report of the results obtained when it submits its annual
8
report. The Régie also asks the Transmission Provider to submit, in its annual report, the
9
progress status for the works carried out as well as the results.
10
Phase 2 of the Last Rate Application for 2005 (R-3549-2004)
11
In exhibit HQT-1, document 2, Phase 2 of its rate application for 2005, the Transmission
12
Provider commented on the performance indicators selected by the Régie and their
13
targets. The Transmission Provider namely explained that, in its opinion, certain
14
indicators selected by the Régie in decision D-2005-50 did not constitute performance
15
indicators but rather management information or benchmarking indicators. The
16
Transmission Provider also pointed out that it was carrying out the required work to
17
validate and classify these indicators. The Transmission Provider specified that the
18
setting of targets would take place following its evaluation of the work results and that
19
the targets would be included in Hydro-Quebec’s strategic plan and integrated in the
20
Transmission Provider’s business plan.
21
In that same exhibit, the Transmission Provider stated that it would submit, as it had
22
committed itself to doing, a report to present the results of its reflections on incentive
23
regulation as well as a working plan with the Régie and with intervenors.
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HQT-3, Document 1
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Hydro- Québec
TransÉnergie
Application R-3605-2006
1
Report on the Transmission Provider’s Performance Regulation
2
In the Report dated December 2005 regarding its performance regulation, following the
3
example of the expert it called upon, the Transmission Provider states that it believes
4
that it is premature to put in place an incentive regulation regime. As for improving its
5
performance, it proposes to hold technical meetings with Régie representatives and with
6
the interested intervenors. The objective of these meetings is to provide information on
7
the different aspects of the Transmission Provider’s activities and responsibilities as well
8
as to present the main performance indicators and the analysis of their evolution so as to
9
guide the Transmission Provider in the development of strategies and of means geared
10
at improving its efficiency.
11
All the while remembering the difficulties related to benchmarking which are caused by
12
its particular situation, in its report, the Transmission Provider mentions that the
13
benchmarking question can be discussed during the technical meetings, insofar as
14
reliable and relevant data permits.
15
Transmission Provider’s Annual Report
16
In its 2005 annual report, the Transmission Provider presents the results of the
17
performance indicators selected by the Régie as well as information regarding the
18
progress status of the benchmarking work that was carried out. The Transmission
19
Provider reiterates its position insofar as holding technical meetings with the Régie and
20
with intervenors regarding its performance.
21
Decision D-2006-99 Concerning the Creation of a Working Group on the Transmission
22
Provider’s Performance Regulation
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Hydro- Québec
TransÉnergie
Application R-3605-2006
1
In decision D-2006-99 of June 7 2006, the Régie orders the creation of a working group
2
to examine, as a follow-up of decision D-2005-50, the Transmission Provider’s
3
performance regulation. It entrusted the following mandate to the working group:
4
To determine whether indicators must be added to those specified by the Régie
5
in its decision;
6
To set targets for those indicators in compliance with the Régie’s instructions;
7
To determine the means of implementation of these indicators within the
8
Transmission Provider’s activities;
9
To exchange on the use of benchmarking and identify the sources of
10
benchmarking useful to the Transmission Provider’s regulation; and
11
To examine incentives adapted to the Transmission Provider’s regulation.
12
The Régie specified that the meetings must be held between now and October 31, 2006
13
and that the working group will have to produce a report in the 45 days following the date
14
of the last meeting. The report will have to summarize the common and individual
15
positions and recommendations of the participants with respect to the stakes raised by
16
the mandate that was entrusted to the group.
17
Letter from the Transmission Provider Dated July 4, 2006 and Sent to the Working
18
Group
19
Following decision D-2006-99 by the Régie, the Transmission Provider sent a letter to
20
the working group on July 4 2006, within the scope of the work related to its performance
21
regulation, to propose that meetings aimed at addressing four thematic blocks be held.
22
A copy of this letter, including the suggested dates for the meetings and the identification
23
of subjects to be discussed, is included in annex 1.
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Hydro- Québec
TransÉnergie
Application R-3605-2006
1
Because the corporate performance indicators, targets, incentives and benchmarking
2
are subject to discussion, to the taking of positions and to recommendations to the Régie
3
resulting from the working group created by the Régie in decision D-2006-99, in the
4
current application, the Transmission Provider considers it appropriate, as an
5
exceptional and transitional measure, to present only the results until December 31,
6
2005 of the 23 performance indicators selected by the Régie in its decision D-2005-50,
7
as well as the basic data for the cost ratios. It consists of the results and data which
8
were presented in the 2005 Annual Report submitted to the Régie on June 1, 2006, in
9
compliance with Article 75 of the Act respecting the Régie de l’énergie.
10
Moreover, the Transmission Provider supplied information on the corporate objectives
11
established for the profit-sharing and variable remuneration regimes.
12
2. PERFORMANCE INDICATORS
13
Table 1 hereafter shows the measure units as well as the results of the Transmission
14
Provider’s corporate performance indicators on December 31, 2005.
15
Thereafter, table 2 shows the basic data for the establishment of the ratios related to the
16
evolution of costs.
17
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HQT-3, Document 1
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Hydro- Québec
TransÉnergie
1
Application R-3605-2006
Table 1 – Results of Performance Indicators for 2005
Measure units
Results
Customer satisfaction
Quality of partnership with the Distributor
Quality of partnership with point-to-point customers
Indicator 1 to 10
Indicator 1 to 10
7.8
7.9
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)
Number
Minutes
Number
Hour/customer
Minutes
Number
1 086
48
82
0.93
56.0
0.75
Optimization of operation and management (O&M)
CPS1 (Control Performance Standard 1)
CPS2
Compliance rate with NERC/NPCC
%
%
%
165.3
99.8
100
Rate
3.63
0
$k/230kV
1.80
$k/GWh
$k/MW
3.43
17.31
$k/GWh
$k/MW
74.83
377.76
$k/GWh
12.48
$k/MW
63.01
Number
Hectares
59
4 713
%
89.9
Corporate social responsibility
Frequency of work accidents
Deaths by million of population served
Evolution of net O&M costs
Direct O & M, maintenance and administration costs by 230 kV
equivalent kilometer of circuit
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
2
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Hydro- Québec
TransÉnergie
1
Application R-3605-2006
Table 2- Basic data for the cost ratios
Numerators
Measure
2005
actual
Direct operation, management, maintenance and
administration costs
$ million
372.7
Net operation and management costs
$ million
666.0
Cost of capital assets (on December 31, 2005)
$ million
14 537.0
Total cost of service excluding taxes
$ million
2 424.7
Denominators
Measure
2005
actual
230 kV equivalent kilometer of circuit
Km
206 839
Transmitted energy
GWh
194 257
Network capacity
MW
39 233
2
3
3. CORPORATE OBJECTIVES
4
In this section, the Transmission Provider provides information regarding the corporate
5
objectives established for the profit-sharing and variable remuneration regimes during
6
the annual planning process of the business plan.
7
The Transmission Provider begins by indicating the corporate objectives and results
8
achieved for 2005 in table 3 hereafter, which it summarily comments upon. Later, it
9
presents the 2006 corporate objectives approved by Hydro-Quebec’s administration
10
council.
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TransÉnergie
1
Application R-3605-2006
Table 3 – 2005 Corporate objectives and results
Hydro
2005 Corporate objectives
Quebec
Hydro Quebec TransEnergy Division
For profit-sharing and variable remuneration regimes
Trigger
Hydro Quebec's net consolidated benefit must at least be equal to $1 785 million. This financial
trigger applies to all corporate objectives. Note: The administration council can revise the
financial trigger in events circumstances or events outside of the Board's control that have
occurred during the year and that have had one or several major impacts on the net benefit.
Results
Net Benefit on December 31 2005
Maximum
weighting
Actual
results
Actual
weighting
Threshold
Target
Ideal
Continuity index- Transmission
6.0
0.85
0.65
0.55
0.93
0.00
Reduction rate for point-to-point service
transactions (originating from HQT's
activities)
2.0
1.0%
0.6%
0.40%
0.18%
2.00
Quality of partnership with Distributor
Results
for the
division
CATEGORY A: CUSTOMERS - 40%
2.0
7.1
7.5
7.7
7.8
2.00
Rate of compliance with NERC/NFCC
norms
2.0
90%
93%
97%
100%
2.00
Total for category A
12.0
CATEGORY B: EMPLOYEES - 20%
Employee mobilization index
3.0
6.24
6.34
6.58
6.60
3.00
Rate for frequency of accidents involving
lost time and medical assistance (per
200 000 hours worked)
3.0
4.23
3.83
3.43
3.63
2.50
Total for category B
6.0
$496.8 M +
2006
optimizati-on
plan
approved by
the PDG
8.00
$1227.2 M
4.00
CATEGORY C: SHAREHOLDER – 40%
Net O&M costs excluding participations,
retirement costs and the impact of norm
3110 ($million)
(Net O&M costs minus the revenues
from internal billing)
Benefit prior to financial fees, taxes and
corporate charges (BAII) ($M) (activities
of the electric transmission and
telecommunications network, excluding
the wholesale market point-to-point
transmission service, the revenues for
the return on equity, the rate case, the
retirement charge and the impact of the
norm 3110.)
8.0
$530.6 M
$525.3 M
$525.3 M +
2006
optimizati-on
plan
approved by
the PDG
4.0
$1 173.5 M
$1 188.5M
$1 193.5M
Total for category C
12.0
TOTAL WEIGHTING
30
23.50
Revised objectives approved by the AC on November 11, 2005
2
Continuity index of the transmission service
Original : 2006-07-06
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78.33%
Hydro- Québec
TransÉnergie
Application R-3605-2006
1
The continuity index of the transmission service measures the average duration, in
2
hours, of service interruptions per customer, taking into account scheduled outages and
3
service interruptions on the transmission network.
4
Since the beginning of the 1990s, we observe a net improvement of the continuity index
5
(CI). However, in 2005, this indicator deteriorated and reached 0.93 hour/customer on
6
December 31, 2005. This result can be explained by five major events which, on their
7
own, have contributed to 0.55 hour/customer in the final value of the index.
8
The main causes to have affected the CI in 2005 are related to equipment, atmospheric
9
conditions, fires, human interventions, animals, programmed works or load shedding.
10
However, three causes are at the root of 66% of cases having affected the CI. These
11
are: equipment failure (21%), atmospheric conditions (30%) and planned works (15%).
12
Reduction Rate for Point-to-Point Service Transactions
13
The index measures, as a percentage, the reduction in transactions of confirmed point-
14
to-point transmission services (import-export) with neighbouring networks caused by the
15
Transmission Provider.
16
Quality of Partnership with the Distributor
17
This indicator, developed jointly with Hydro-Quebec’s personnel in its distribution
18
activities (the Distributor) over the past few years, allows for an annual evaluation of the
19
quality of services rendered by the Transmission Provider in following 27 different
20
criteria, grouped in the three following spheres of activity:
21
Native load transmission service;
22
Customer service, communication and billing; and
23
General appreciation.
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TransÉnergie
Application R-3605-2006
1
Essentially, this evaluation is carried out by following a format developed jointly with the
2
Distributor, which is based on the quality partnership model with its Large power
3
customers.
4
Compliance Rate with NERC and NPCC Standards
5
The compliance rate with the regulation of the North-American Electric Reliability
6
Council (NERC) and the Northeast Power Coordinating Council (NPCC) measures, as a
7
percentage and on an annual basis, the number of standards with which the
8
Transmission Provider has complied relative to all the standards included in the annual
9
compliance program of the NERC and of the NPCC.
10
Employee Mobilization Index (Indice de mobilization des employés)
11
The employee mobilization index measures the level of satisfaction in the work
12
environment. The index is measured by a survey which is led by a research consulting
13
company.
14
This survey evaluates 29 expectations (defined by the Human Resources function)
15
related to corporate and operational aspects. It consists of a single questionnaire for all
16
units and divisions. The study is carried out via a paper questionnaire and the Internet.
17
The average score or mobilization index corresponds to the average of the 29
18
expectations.
19
Frequency Rate of Accidents Involving Lost Time and Medical Assistance (per
20
200 000 hours worked)
21
The indicator represents the number of accidents involving medical assistance and lost
22
time per 200 000 hours worked.
23
For 2005, we notice an increase in hours worked annually, which amount to 6 088 563,
24
compared with 5 966 695 in 2004. Despite this fact, we note an increase in the rate
25
relative to previous years.
26
The main increase for 2005 is attributable to medical assistance. Falling on the ice at
27
the end of the winter has contributed to the frequency rate.
28
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TransÉnergie
1
Application R-3605-2006
Table 4 – Corporate Objectives 2006
Hydro
Quebec
CORPORATE OBJECTIVES 2006
For profit-sharing and variable remuneration regimes
Hydro Quebec TransEnergy Division
Trigger
Hydro Quebec's net consolidated benefit must at least be equal to $2 100 million on December 31, 2006. This financial trigger
applies to all corporate objectives.
Note: The administration council can revise the financial trigger in events circumstances or events outside of the Board's
control that have occurred during the year and that have had one or several major impacts on the net benefit.
Maximum
weighting
Threshold
Target
Ideal
6.0
0.80
0.60
0.45
CATEGORY A: CUSTOMERS - 50%
Continuity index- Transmission
Quality of partnership with Distributor - 3 priority
actions:
Strategic and regulatory harmonization (arrimage)
HQT-HQD
- Step-down voltage
- Satellite posts
5.0
Rate of compliance with NERC/NFCC norms
3.0
Security of TransEnergy's installations of levels 3 and
4
1.0
Total for category A
15.0
See Annex A
94%
97%
100%
Threshold +
Threshold + 95%
No
80% compliance
compliance with
intrusions in
with interior
interior perimeters by
installations perimeters by
DSI audits
DSI audits
CATEGORY B: EMPLOYEES - 20%
Employee mobilization index
3.0
6.30
6.45
6.60
Rate of frequency of accidents involving lost time and
medical assistance (per 200 000 hours worked)
3.0
4.57
3.85
3.51
Total for category B
6.0
CATEGORY C: SHAREHOLDER - 30%
Benefit prior to financial fees, taxes and corporate
charges (BAII) ($M) (activities of the electric
transmission network, excluding variations for the
following elements: inter-unit sales, revenues for the
return on equity, the security of installations and
amortization (1)
9.0
$1 388.2 M
$1 403.2M
$1 410.7M
Total for category C
9.0
TOTAL WEIGHTING
30.0
(1) Budget to be revised after validation of budget transfers – April 2006 review.
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TransÉnergie
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Application R-3605-2006
Table 5 – Annex- Corporate Objectives 2006
Hydro
2006 CORPORATE OBJECTIVES
For profit-sharing and variable remuneration regimes
Quebec
Hydro Quebec TransEnergy Division
Maximum
weighting
CATEGORY A: CUSTOMERS
Threshold
Target
Ideal
50%
Quality of partnership with Distributor
5.0
1-Strategic and regulatory harmonization
(arrimage) HQT-HQD:
1.5
2- Step-down voltage
2.0
A-Threshold
A
Establish action plan, complete March 15, 2006
(CME + VPEI + HQD)
- Tests calendar (CME)
- Availability (VPEI)
- Step-down addition (HQD)
B-Target
B
Draw up action plan + carry out tests to
quantify the expected contribution
C- Ideal
C
Integrate as management means to a level
superior to alert 2
3- Satellite posts:
1.5
a) % of solutions identified on May 31, 2006 - for
substations in exceeding capacity (postes en
dépassement) between 2005 and 2010, conditional
to obtaining the required information from HQD
0.75
70%
85%
100%
0.75
70%
85%
100%
b) % of new developments for projects
concluded by 23 December 2006
2
3
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TransÉnergie
Application R-3605-2006
1
Annex 1
2
Letter from the Transmission Provider dated July 4, 2006, sent to the working group
3
(original letter attached hereafter)1
1
Please note that the translator has not translated the letter sent by HQT to the working group on July 4,
2006. The original French letter is attached. The word count for the letter was not included in the word
count submitted to the Régie in the intervention request submitted by the intervenor, OC, on August 1,
2006.
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