Hydro-Québec
Transmission
Application R-3605-2006
EVOLUTION OF EXPENDITURES NECESSARY
TO THE COST OF SERVICE
2005-2007
Original: 2006-07-06
HQT-6, Document 1
Page 1 of 9
Hydro-Québec
Transmission
Application R-3605-2006
TABLE OF CONTENTS
1
Summary 2005-2007............................................................................................... 3
2
Gross Direct Costs (Charges brutes directes) .................................................... 6
3
Shared Services Costs (Charges de services partagés) .................................... 6
4
Capitalized Costs (Coûts capitalisés) .................................................................. 7
5
Internal Billing (Facturation interne émise) ......................................................... 7
6
Purchase of Transmission Services (Achats de services de transport) ........... 7
7
Electricity Purchases (Achats d’électricité)......................................................... 7
8
Amortization (Amortissement).............................................................................. 7
9
Taxes....................................................................................................................... 8
10
Corporate Charges (Frais corporatifs) ............................................................. 8
11
Interest Related to the Government Reimbursement (Intérêts reliés au
remboursement gouvernemental) ............................................................................... 8
12
External Billing (Facturation interne émise)..................................................... 8
Original: 2006-07-06
HQT-6, Document 1
Page 2 of 9
Hydro-Québec
Transmission
1
Application R-3605-2006
Summary 2005-2007
Table 1 below presents a summary of the evolution of the expenditures necessary to
the cost of service of the Transmission Provider since 2005.
In summary, the expenditures necessary to the Transmission Provider’s cost of service
for the 2007 projected test year are set at $1,515.3 million.
Compared to the
expenditures necessary to the cost of service of the for the 2005 projected test year, set
at $1,368.1 million following decision D-2005-50 of March 31 2005 to establish the
transmission rates currently in effect, the increase amounts to $147.2 million.
Moreover, in Hydro-Québec’s 2006-2010 Strategic Plan, of which a copy is provided as
Exhibit HQT-2, Document 7, the Transmission Provider has made a commitment to
pursue the objective of improving its maintenance and operating practices, and plans to
take advantage of the benefits offered by new technologies. The actions that HQT plans
to undertake will permit it to meet the increased work load associated with the growth in
transmission needs and the aging of its equipment. These actions will help to limit the
increase in net operating costs to 2% a year as of 2007.
Original: 2006-07-06
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Hydro-Québec
Transmission
Application R-3605-2006
The increase in expenses necessary to the cost of service of the period of 2005-2007 is
$133.2 million and Table 2 below lists the main elements of the increase.
Original: 2006-07-06
HQT-6, Document 1
Page 4 of 9
Hydro-Québec
Transmission
Application R-3605-2006
Table 2
Increase of the Expenditures Necessary to the Cost of Service, 2005-2007 Period
(in millions of dollars)
Original: 2006-07-06
HQT-6, Document 1
Page 5 of 9
Hydro-Québec
Transmission
Application R-3605-2006
Note 1: Increase due to collective bargaining agreements: 2% in 2006, 2% in 2007 plus an increase of
0.6% for annual advancements for each of the years.
Note 2: CPI Inflation: 2% in 2006, 2% in 2007
The
following
sections
summarize,
while
referring
when
necessary
to
the
complementary exhibits providing more details, the evolution of the different
components of the expenses necessary to the Transmission Provider’s cost of service,
in the order in which they appear in Table 1 above.
2
Gross Direct Costs (Charges brutes directes)
These costs are made up of labour costs (on average 76%) and other costs related to
carrying out electric transmission activities (24%). The costs are slightly reduced due to
the recovery of certain costs, representing less than 1% of the whole.
3
Shared Services Costs (Charges de services partagés)
The costs of charged services, including the return on assets of the providers of these
services, represent for the Transmission Provider an amount of $379.1 million in 2007.
Exhibit HQT-6, Document 3 describes in more detail the evolution of the shared
services costs since 2005, which were set at $345.5 million.
The main in-house services used by the Transmission Provider are related to
specialized telecommunications for the transmission system, telecommunications
services (télécommunications de service), as well as innovation services, for a total of
$187.6 million. These services are provided by the Technology Group, of which the
financial data are presented in detail in Exhibit HQT-6, Document 3.1. The Centre for
Shared Services ($108.7 million), of which the financial data are presented in Exhibit
HQT-6, Document 3.2, provides procurement services and services ($88.4 million).
Moreover, the corporate units act also as providers of shared services ($27.0 million)
and their financial data are presented in Exhibit HQT-6, Document 3.3.
Original: 2006-07-06
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Hydro-Québec
Transmission
4
Application R-3605-2006
Capitalized Costs (Coûts capitalisés)
The capitalized costs ($106.1 million) are deducted from the gross direct costs and the
gross costs of the shared services in order to assign a fair portion of the costs incurred
to the Transmission Provider’s tangible capital assets and to the intangible assets.
Exhibit HQT-6, Document 4 provides, among others, additional details on this cost
element.
5
Internal Billing (Facturation interne émise)
Internal billing costs total $38.5 million in 2007, of which the majority of the costs relate
mainly to services rendered to the Hydro-Québec Production division for telecontrol
services (services de téléconduite), maintenance services, and services related to the
operation of installations. Addition details on the evolution of the Transmission
Provider’s internal billing are provided in Exhibit HQT-5, Document 5.
6
Purchase of Transmission Services (Achats de services de transport)
Purchases of transmission services have been stable at close to $21 million since 2005.
Exhibit HQT-6, Document 7 provides additional details on this subject.
7
Electricity Purchases (Achats d’électricité)
These purchases represent the internal usage of electricity by the Transmission
Provider, as billed by the Distributor, at the rates in effect according to the 2006 rates,
and those projected for 2007, on the basis of actual measured consumption. Electricity
purchases have increased by $0.6 million since 2005 and Exhibit HQT-6, Document 7
provides, among others, additional details on this cost element.
8
Amortization (Amortissement)
Amortization costs are set in conformity with accounting conventions summarized in
Exhibit HQT-4, Document 1. In 2007, an amount of $558.6 million is projected for these
costs, which evolve as a function of the average age of the Transmission Provider’s
assets, as well as revisions to their useful lifetimes. Exhibit HQT-6, Document 7,
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Hydro-Québec
Transmission
Application R-3605-2006
provides, among others, a more detailed description of the evolution of amortization
costs.
9
Taxes
The portion of taxes applicable to the transmission service comes to $164.6 million in
2007. While describing the main modalities of the taxes, Exhibit HQT-6, Document 7,
provides, among others, a more detailed description of the evolution of taxes assigned
to the Transmission Provider.
10
Corporate Charges (Frais corporatifs)
For the projected test year of 2007, the corporate charges are of $35.2 million. Exhibit
HQT-6, Document 6 provides more details on the evolution of these corporate charges.
11
Interest Related to the Government Reimbursement (Intérêts reliés au
remboursement gouvernemental)
The interest resulting from the government reimbursement of 1998 is assigned in a
specific manner to the Transmission Provider and the Distributor in proportions
corresponding to their respective quotas. This assignment avoids a situation in which
the interest is incorporated into the calculation of Hydro-Québec’s net cost of debt,
which would allow other divisions of Hydro-Québec to benefit unduly from this interest.
In 2007, the interest related to the government reimbursement totals $5.9 million.
12
External Billing (Facturation interne émise)
External billing costs for the Transmission Provider of $2.0 million in 2007 allow the
reduction of HQT’s cost of service. External billing represents revenues of minor
importance, external to Hydro-Québec, which are not derived from its core activities.
They are mainly derived from the rental of land and buildings, as well as from right-ofway charges for lines and pylons to telecommunications companies.
Original: 2006-07-06
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Transmission
Application R-3605-2006
The following table illustrates the evolution of the Transmission Provider’s external
billing over the years of 2005 to 2007.
Original: 2006-07-06
HQT-6, Document 1
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