Hydro- Québec
TransÉnergie
Application R-3605-2006
COST-OF-SERVICE
ALLOCATION METHOD
Original : 2006-07-06
HQT-11, Document 1
Page 1 of 12
Hydro- Québec
TransÉnergie
Original : 2006-07-06
Application R-3605-2006
HQT-11, Document 1
Page 2 of 12
Hydro- Québec
TransÉnergie
Application R-3605-2006
TABLE OF CONTENTS
1. CONTEXT .....................................................................................................................4
2. ALLOCATION METHOD .............................................................................................. 5
2.1 Allocation by Function ......................................................................................... 5
2.2 Allocation by Component..................................................................................... 9
2.3 Allocation by Service.......................................................................................... 10
Original : 2006-07-06
HQT-11, Document 1
Page 3 of 12
1
1. CONTEXT
2
In its application for the modification of its service conditions (R-3549-2004 Phase 2), the
3
Transmission Provider proposed a cost-of-service allocation method. This proposal
4
followed up on the orders prescribed by the Régie de l’énergie (the Régie) in its
5
decisions D-2002-95 and D-2004-206, relative to its 2001 rate application and to the first
6
phase of its 2005 rate application respectively.
7
The Transmission Provider notes that the method proposed at the time included the
8
three steps generally recognized in cost-of-service allocation. These are:
9
Allocation by function
10
Allocation by component
11
Allocation by service
12
On April 18, 2006, the Régie rendered decision D-2006-66 in which it approved certain
13
aspects of the cost-of-service allocation method proposed by the Transmission Provider
14
and it ordered the use of different approaches for other aspects. As a result, the Régie
15
ordered the Transmission Provider to provide the results of the cost-of-service allocation
16
method applied to the projected test year, in conformity with its decision.
17
The current document shows the cost-of-service allocation method selected by the
18
Transmission Provider for 2007 while taking into account the Régie’s orders and
19
orientations. The results of the Transmission Provider’s cost-of-service allocation
20
method are presented in greater detail in exhibit HQT-11, document 2.
Original : 2006-07-06
HQT-11, Document 1
Page 4 of 12
Hydro- Québec
TransÉnergie
Application R-3605-2006
1
2. ALLOCATION METHOD
2
The allocation method selected by the Transmission Provider for year 2007 respects all
3
the orders and orientations of the Régie as per pages 7 to 21 of decision D-2006-66,
4
concerning the three steps of the cost-of-service allocation method.
5
Therefore, the Transmission Provider submits the results of the cost-of-service allocation
6
method for 2007, namely, by carrying out the allocation1 of the rate base according to
7
the average of 13 monthly balances, the categorization in two parts of its extra high
8
voltage transmission network as well as the use of an energy component and a power
9
component for the transmission equipment associated by the Régie to production and to
10
interconnections.
11
2.1 Allocation by Function
12
The Allocation by function step is intended to assemble all the costs associated with a
13
function on the network. Hereafter, the Transmission Provider lays out the elements of
14
decision D-2006-66. In that decision, the Régie has ruled on this step.
15
Allocation of the rate base
16
The Régie accepted the cost-of-service allocation method founded on the balance of the
17
rate base on December 31 and it recognized that an allocation method based on the
18
average of 13 monthly balances requires great efforts as well as a delay to update the
19
Transmission Provider ‘s accounting system.
20
However, the Régie highlights the fact that, in future, it wishes to refine the Transmission
21
Provider’s cost-of-service allocation method and asks the Transmission Provider to
1
The word “répartition” is used in the original French version. This concept is rendered in English as
“allocation” or, occasionally, as “classification”.
Original : 2006-07-06
HQT-11, Document 1
Page 5 of 12
Hydro- Québec
TransÉnergie
Application R-3605-2006
1
explore the means to ensure there is coherence between its accounting system and its
2
allocation method. It orders the Transmission Provider to submit the results of this
3
exercise in its next rate application.
4
In order to answer to this request by the Régie, the Transmission Provider submits, in
5
the current application, the cost-of-service allocation method for 2007 by using the
6
average of 13 monthly balances.
7
Moreover, Table 1 below shows, for comparative purposes, the summary of the results
8
of the cost-of-service allocation method according to the average of 13 monthly balances
9
and according to the balance on December 31.
10
Table 1- Cost-of-Service Allocation According to the 13 monthly Balances and
11
According to the Balance on December 31 ($M)
Functions
2007- According to the
average of 13 monthly
balances
Native
PointTotal
load
topoint
2007- According to the balance on
December 31
Native
load
Point-topoint
Total
Generation step-up:
Step-up substations
Connection lines
229.8
51.8
3.3
0.8
233.2
52.6
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
349.6
854.7
112.9
485.5
4.7
12.4
1.6
6.5
354.3
867.1
114.6
492.0
350.9
841.0
110.1
501.6
4.7
12.2
1.6
6.7
355.6
853.2
111.7
508.3
Subtransmission plant:
Step-down stations
Connection of high-voltage customers
405.9
57.3
0.0
0.0
405.9
57.3
406.2
56.9
0.0
0.0
406.2
56.9
Interconnections:
Churchill Falls
Others
23.1
127.6
0.3
1,8
23.4
129.5
22.8
125.1
0.3
1.8
23.1
126.9
2 698.2
31.4
2 729.7
2 698.3
31.4
2 729.7
Total
12
The Transmission Provider brings to the attention of the Régie the minor difference
13
between the results of the allocation by function according to the average of 13 monthly
Original : 2006-07-06
HQT-11, Document 1
Page 6 of 12
Hydro- Québec
TransÉnergie
Application R-3605-2006
1
balances and that according to the balance on December 31. More specifically,
2
according to the 13 monthly balances method, the Native load corresponds to $2 698.24
3
million and the Point-to-point service corresponds to $31.43 million. According to the
4
balance on December 31, the Native load corresponds to $2 698.26 million and the
5
Point-to-point service corresponds to $31.43 million. Therefore, the amounts of the
6
allocation by service are fundamentally equivalent, since the differential of $0.02 M is
7
negligible.
8
Consequently, the Transmission Provider upholds the opinion that the allocation
9
according to the balance on December 31 remains appropriate and that it provides
10
reliable results.
11
Furthermore, the Transmission Provider reiterates that the allocation by function
12
according to the average of the 13 monthly balances has required significant time and
13
effort, namely in view of the fact that this data is not tracked as such in its routine
14
management. The accounting system can namely provide data for historic years and
15
allow for projections, for future years, of the net value of fixed assets that are in service.
16
However, it does not allow for the projection of the net value of new assets that are put
17
in service and for a direct allocation by function. Thus, the Transmission Provider has
18
used the full potential of the accounting system for the cost-of-service allocation method
19
to then complete the required activities outside the accounting system.
20
Considering the above and the fact that there were demonstrably similar results between
21
the results of the allocation carried out according to the 13 monthly balances and the
22
balance on December 31, the Transmission Provider does not consider it appropriate to
23
devote additional financial and human resources to this specific task in future. Also, in a
24
perspective of efficiency and of regulatory streamlining, for this aspect of the rate base
Original : 2006-07-06
HQT-11, Document 1
Page 7 of 12
Hydro- Québec
TransÉnergie
Application R-3605-2006
1
allocation the Transmission Provider asks the Régie to grant it the necessary flexibility to
2
determine the approach to use in future rate applications to limits delays and optimize
3
the use of its resources, all the while ensuring that the Régie’s concerns are addressed.
4
Allocation of the Support and SCC/CT functions
5
In decision D-2006-66, the Régie recognized that a cost-of-service allocation related to
6
the Support function and categorized into the four main function of the network and pro-
7
rated based on their net assets is justified by the nature of the costs of this function.
8
Moreover, the particular characteristics of the System Control Centre and Telecontrol
9
Centre (SCC/TC) equipment lead the Régie to keep them as a separate function.
10
However, the Régie did approve the Transmission Provider’s proposal to allocate the
11
costs of this function on a pro-rata basis with the net capital assets of the other
12
functions.
13
In renewing these approaches, the Transmission Provider provides the results of the
14
categorization for the Support and SCC/TC functions in exhibit HQT-11, document 2,
15
tables 1 to 3.
16
Allocation of the functions of the transmission network
17
The Régie approved the cost-of-service allocation by function proposed by the
18
Transmission provider in the application R-3549-2004-Phase 2, subject to a modification
19
for the Network function for which it ordered the categorization of the extra high voltage
20
transmission network in two sub-functions: on the one hand, the substations and 735 kV
21
lines between Montreal and Quebec and the Montreal surrounding area. On the other
22
hand, the rest of the extra high voltage transmission network.
Original : 2006-07-06
HQT-11, Document 1
Page 8 of 12
Hydro- Québec
TransÉnergie
Application R-3605-2006
1
To follow up on that order, the Transmission Provider established the cost-of-service
2
allocation for 2007 according to the following functions and sub-functions:
3
Generation step-up:
4
o
Step-up substations;
5
o
Connection lines;
6
Network:
7
o
Extra high voltage: Montreal-Quebec and Montreal surrounding area;
8
o
Extra high voltage: others;
9
Subtransmission plant:
10
o
Step-down stations;
11
o
Connection of high voltage customers;
12
Interconnections:
13
o
Churchill Falls;
14
o
Others.
15
The results of the allocation by function for 2007 are presented in greater detail in
16
exhibit HQT-11, document 2, table 1.
17
2.2 Allocation by Component
18
In this step, the cost by function is allocated according to the technical components of
19
the service provided. To this end, the Transmission Provider also takes into account the
20
orders set forth by the Régie in its decision D-2006-66:
21
Transmission equipment used for generation:
22
o
Generation step-up Function;
23
o
Extra high voltage Sub-function-Others;
Original : 2006-07-06
HQT-11, Document 1
Page 9 of 12
Hydro- Québec
TransÉnergie
1
o
450 kV Sub-function;
2
o
Churchill Falls Sub-function.
Application R-3605-2006
3
Use of an energy component and of a power component, determined according
4
to the network’s use factor, for the classification of transmission equipment
5
associated with generation. For 2007, the energy component is 60% and the
6
power component is 40%;
7
Use of a power component of 100% for the allocation of the Sub-function Extra
8
high voltage - Montreal-Quebec and Montreal surrounding area as well as for the
9
High voltage sub-function;
10
Specific assignment of the Connection of customers to the transmission service
11
(Subtransmission plant) function for the supply of native load.
12
The results of the allocation by function are presented in exhibit HQT-11, Document 2,
13
table 7.
14
2.3 Allocation by Service
15
The allocation by service consists of dividing the cost of service between the different
16
transmission services offered by the Transmission Provider.
17
In decision D-2006-66, the Régie found that the Transmission Provider’s proposal to
18
divide the components of its cost-of-service between the transmission service for the
19
supply of native load and the transmission service for long-term point-to-point was
20
adequate. In fact, the Régie noted that only those services are considered for network
21
planning and that they are at the root of significant investment expenses.
22
The Transmission Provider renews the approach for 2007, by taking into account the
23
specific orders of the Régie:
Original : 2006-07-06
HQT-11, Document 1
Page 10 of 12
Hydro- Québec
TransÉnergie
Application R-3605-2006
1
Use of the part of the annual energy requirements for the service with respect to
2
all the energy requirements considered for allocation purposes of the energy
3
component between services;
4
Use of the coincident peak for allocation purposes of the power component
5
between services.
6
Table 2, hereafter, summarizes the results of the cost-of-service allocation by service
7
for 2007. Additional details are available in exhibit HQT-11, Document 2, table 7.
8
Original : 2006-07-06
HQT-11, Document 1
Page 11 of 12
Hydro- Québec
TransÉnergie
1
Application R-3605-2006
Table 2- Cost-of-Service Allocation by Service ($M)
2007
Functions
Native
load
Pointtopoint
Total
Generation step-up:
Step-up substations
Connection lines
229.8
51.8
3.3
0.8
233.2
52.6
Network:
Extra high voltage-Mtl-Qc and Mtl surrounding area
Extra high voltage-others
450 kV
High voltage
349.6
854.7
112.9
485.5
4.7
12.4
1.6
6.5
354.3
867.1
114.6
492.0
Subtransmission plant:
Step-down stations
Connection of high-voltage customers
405.9
57.3
0.0
0.0
405.9
57.3
Interconnections:
Churchill Falls
Others
23.1
127.6
0.3
1,8
23.4
129.5
2 698.2
31.4
2 729.7
Total
2
In comparing these results to those of 2005 provided by the Régie on page 21 of its
3
decision D-2006-66 (that is $2 564.2 million for Native load and $26.8 million for
4
Point-to-point), the Transmission Provider notes that the cost of service has
5
increased by about 5% for Native load, and by approximately 17% for Point-to-point.
6
These percentages are comparable to the increase in transmission requirements for
7
each of these services. Therefore, the results for 2007 are coherent with those of
8
2005 approved by the Régie.
Original : 2006-07-06
HQT-11, Document 1
Page 12 of 12