RÉGIE DE L’ÉNERGIE
AGENCE DE L’EFFICACITÉ ÉNERGÉTIQUE
BUDGET APPLICATION
FOR 2010-2011
FILE: R-3709-2009
EVIDENCE OF
WILLIAM HARPER
ECONALYSIS CONSULTING SERVICES
ON BEHALF OF:
OPTION CONSOMMATEURS
JANUARY 29, 2010
TABLE OF CONTENTS
1
INTRODUCTION...................................................................................................... 1
2
PURPOSE OF EVIDENCE ...................................................................................... 2
3
COST ALLOCATION: PURPOSE AND PRINCIPLES ............................................ 4
3.1
General Purpose and Principles in Utility Ratemaking .......................................... 4
3.2
Applicability of Cost Allocation to the AEÉ ............................................................... 6
3.3
Principles Employed by the AEÉ in Cost Allocation ............................................... 6
3.4
Association with Rate Classes of Distributors ......................................................... 9
4
THE AÉÉ’s PROPOSED COST ALLOCATION METHODOLOGY ........................ 10
4.1
Overview ...................................................................................................................... 10
4.2
Regulated Programs in the Operational or Pilot Phase ....................................... 11
4.3
Regulated Programs in the Design Phase ............................................................. 14
4.4
Programs Associated with the Development of the Comprehensive Plan........ 15
4.5
Programs Associated with Complementary Activities .......................................... 17
4.6
Administration and Contingency .............................................................................. 19
5
OTHER ISSUES .................................................................................................... 20
5.1
Transparency .............................................................................................................. 20
5.2
Non-Quota Allocations .............................................................................................. 21
6
CONCLUSIONS ..................................................................................................... 23
6.1
Cost Allocation Principles ......................................................................................... 23
AEÉ’s Cost Allocation Methodology – Operational and Pilot Phase
6.2
Regulated Programs ................................................................................................. 23
6.3
AEÉ’s Cost Allocation Methodology – Regulated Programs in the Design
Phase ........................................................................................................................... 23
6.4
AEÉ’s Cost Allocation Methodology – Programs Associated with
Development of the Comprehensive Plan ............................................................. 23
6.5
AEÉ’s Cost Allocation Methodology – Complementary Program Activities ...... 24
6.6
AEÉ’s Cost Allocation Methodology – Administration and Contingency ........... 24
6.7
Transparency .............................................................................................................. 24
6.8
Non-Quota Allocations .............................................................................................. 25
Attachments
Appendix:
CV for ECS Consultant
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
1
2
In 1996 the Québec government set out a new energy policy for the Province. Within
3
this policy, energy efficiency was a favoured means of contributing to sustainable and
4
economic development and to increase the energy resources available in Québec.
5
Consistent with this policy, in 1997 the Québec government passed a bill creating the
6
Agence de l’efficacité énergétique (AEÉ). The mission of the AÉE is to, with a focus on
7
sustainable development, promote energy efficiency and the development of new
8
technologies for all forms of energy in every sector of activity, for the greater good of all
9
regions throughout Québec. Consistent with this mission the AEÉ is responsible for
INTRODUCTION
10
developing a comprehensive plan for energy efficiency and new technologies.
11
Funding for the AEE comes primarily from three sources1:
12

13
The Green Fund, if the program is one of the actions in the Action Plan on Climate
Change (PACC) for which the AEÉ is responsible,
14

The federal government, if the program is related to a federal initiative, and
15

The Quota (which is approved by the Régie) if the program stems from the
16
Comprehensive Plan developed by the AEÉ. The amount approved for the Quota is
17
then allocated to energy sources and the AEÉ is financed accordingly.
18
In October 2009, the AEÉ filed an Application with the Régie de l’énergie (the “Régie”)
19
for approval of it 2010-2011 budget and the associated allocation of the budget to
20
energy sources. This is the second such budget (and allocation) that the AEÉ has
21
submitted for approval. The first Application was with respect to its Comprehensive
22
Plan for the period 2007 – 2010 (R-3671-2008) and also included an allocation of each
23
year’s revenue requirement to each energy source. In its decision2 regarding this first
24
Application the Régie provided both general direction as to how the cost allocation
25
should be performed in the current Application and also raised issues regarding a
1
2
AEÉ-4, Doc 2, pages 6-7
D-2009-046, Section 7.1
1
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
number of the program-specific allocation factors. Recognizing that cost allocation is a
2
complex and technical subject the Régie directed3 the AEÉ to create a working group to
3
review the issue. The current Application includes the AEÉ’s proposals resulting from
4
this review.
5
2
6
After reviewing the AEÉ’s Application and the Procedural Order4 issued by the Régie,
7
Option Consommateurs (OC) retained Econalysis Consulting Services (ECS), a
8
Canadian consulting firm offering regulatory services to clients in the electricity and
9
natural gas sectors to provide evidence that would assist OC and the Régie in
PURPOSE OF EVIDENCE
10
assessing the cost allocation aspects of the AEÉ’s proposal.
11
The Evidence was prepared by Bill Harper who, prior to joining ECS in July 2000,
12
worked for over 25 years in the energy sector in Ontario, first with the Ontario Ministry
13
of Energy and then, with Ontario Hydro and its successor company Hydro One. Since
14
joining ECS, he has assisted various clients participating in regulatory proceedings on
15
issues related to electricity and natural gas utility revenue requirements, cost
16
allocation/rate design and supply planning. Mr. Harper has served as an expert witness
17
in public hearings before the Manitoba Public Utilities Board, the Manitoba Clean
18
Environment Commission, the Régie, the Ontario Energy Board, the Ontario
19
Environmental Assessment Board and a Select Committee of the Ontario Legislature on
20
matters dealing with electricity regulation, rates and supply planning. His most recent
21
experience includes:
22

The preparation of evidence and appearance as an expert witness on behalf of OC
23
in the Régie proceeding (R-3541-2004) dealing with HQD’s rate design proposals for
24
2005.
25

26
The preparation of evidence and appearance as an expert witness on behalf of OC
in the Régie proceedings (R-3579-2005; R-3610-2006, R-3644-2007 and R-3677-
3
4
D-2009-042, Section 7.2
D-2008-103
2
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
2008) dealing with HQD’s cost allocation and rate design proposals for 2006, 2007
2
2008 and 2009 respectively.
3

The preparation of evidence and appearance as an expert witness before the
4
Manitoba Public Utilities Board with respect to the Board’s Generic Review of
5
Manitoba Hydro’s 2006 Cost Allocation Proposals.
6

BCUC proceedings dealing with BCHydro’s 2007 Rate Design Application5.
7
8

9
Preparation of a Report for clients in Saskatchewan regarding SaskPower’s 2008
proposed cost allocation methodology for submission to the Saskatchewan Rate
10
11
Providing expert advice and support to clients in British Columbia participating in the
Review Panel.

Participating as a technical expert on the OEB’s 2005/2006 Cost Allocation Working
12
Group and, subsequently, assisting clients participating in the review of cost
13
allocation proposals by Ontario electricity distributors as part of their 2008, 2009 and
14
2010 rate applications.
15
A full copy of Mr. Harper’s CV is attached in Appendix A.
16
The current evidence addresses both the AEÉ’s overall approach to cost allocation, as
17
well as the specific allocation factors used for its different program activities (P/As).
18
Applicable comments are noted throughout the text and summarized in the concluding
19
section.
20
21
5
The Application also included a proposed cost allocation methodology.
3
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
3
2
3.1
3
One of the generally accepted principles in utility rate making is that rates should be fair.
4
While what is “fair” is open to interpretation, in terms of utility rate making, it is generally
5
accepted as meaning that rates should track costs to the extent feasible based on the
6
principle of cost causality. Therefore, as a guide for determining the appropriate rates
7
to be charged to each class of customers, gas and electric utilities generally perform a
8
cost of service or cost allocation study. A cost allocation study analyzes the
9
components of the Company’s costs and assigns or directly allocates plant investments
COST ALLOCATION: PURPOSE AND PRINCIPLES
General Purpose and Principles in Utility Ratemaking
10
and other assets as well as operating expenses among the various customer classes
11
receiving service. The purpose of the study is to determine both the total and the unit
12
costs of providing service to various customer classes. The results are then used to
13
provide guidance in establishing the rate levels and designing the rate structures for
14
each customer class so as to fairly apportion the total costs between customer classes
15
and provide proper price signals.
16
Cost allocation studies generally employ a three step process of cost analysis:
17
1) Functionalization of assets and annual expenses (including the cost of capital)
18
according to the services (or functions) the utility provides such as production,
19
transmission, distribution and customer service. However, these functions are
20
frequently broken down further to capture specific activities.
21
2) Classification of each function’s costs according to the system design or
22
operating characteristics that caused those costs to be incurred (i.e., the cost
23
drivers).
24
3) Allocation of each functionalized and classified cost component to specific
25
customer classes based on each class’ contribution to the specific cost driver
26
selected.
4
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
While the process appears straightforward and logical, the nature of utility operations is
2
characterized by the existence of common or joint use facilities (and activities) that are
3
used to support the provision of more than one product/service and/or serve more than
4
one customer class. As a result, while cost analysts may strive to identify and isolate
5
plant and expenses incurred exclusively to serve a specific customer class or group of
6
customers, it is unrealistic to assume that large portions of a utility’s plant investment
7
and expenses can be directly assigned. In addition, there are practical constraints (e.g.
8
time and budgets) that will limit the extent to which costs can be directly tracked and
9
assigned.
10
In evaluating any cost allocation methodology, primary consideration should be given to
11
the need to reflect cost causality to the extent possible. Other considerations include
12
equity, efficiency, stability of results over time, transparency, logical consistency and
13
practical limits of implementation. The core principle of cost causality reflects the widely
14
accepted view that rates are fair when the costs incurred are recovered from the
15
“customers” that “caused” the utility to incur them and benefit from the associated
16
services. Generally, costs are incurred to provide customers with a range of services.
17
This has commonly led to a “user pay” principle when allocating costs of a particular
18
service and reflects the view that if the service was not required (i.e. used) the costs
19
would not be incurred. However, circumstances can arise where this user pay principle
20
does not necessarily reflect cost causality for a service or track those who benefit from
21
the service.
22
One example is off-peak users of gas and electric transmission and distribution
23
facilities. Typically, the capacity and therefore the investment required in such facilities
24
is driven by their peak use (i.e., maximum usage) and it is customers’ requirements at
25
the time of peak use that dictate the overall investments required. As a result, off-peak
26
use of such facilities does not contribute to the cost driver for the associated services.
27
This can lead to somewhat of disconnect between the principle of “cost causality” and
28
“user pay”, particularly if certain customer classes’ usage is virtually all off-peak.
5
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
Another example is an Energy Efficiency Plan, where programs are predicated on the
2
view that energy efficiency improvements are a more cost effective way of meeting
3
incremental supply requirements than constructing new facilities. In such cases the
4
Energy Efficiency Plan benefits all customers of utility, not just those participating in the
5
Energy Efficiency programs. This again can lead to a disconnect between the principle
6
of cost causality and the user pay principle.
7
3.2
Applicability of Cost Allocation to the AEÉ
8
The Quota portion of the AEÉ’s costs is recovered from the various energy sources in
9
Québec, with the exception of wood and biomass6. To facilitate this, the AEÉ is
10
required7, as part of its budget application to the Régie, to provide an allocation of its
11
proposed budget by energy source. As result, there is a strong parallel between the
12
typical cost allocation undertaken by a regulated utility and the cost allocation exercise
13
that the AEÉ is required to undertake. In the case of the AEÉ:
14

The difference energy sources can be viewed as the customer classes,
15

The different program areas (P/As) can be viewed as functions,
16

The determination of an appropriate cost driver for each P/A can be viewed as
17
equivalent to the classification stage of the cost allocation process, and

18
19
The quantification of each energy source’s contribution to the cost driver can be
viewed as equivalent to the allocation stage of the process.
20
3.3
Principles Employed by the AEÉ in Cost Allocation
21
In its D-2009-046 decision, the Régie indicated that the preferred cost allocation
22
methodology, when applicable, is the direct allocation of a cost to the type of energy,
23
sector of activity and rate class targeted by the energy efficiency measure. It also
24
indicated that when a direct allocation is not applicable, it favours the use of sectoral
6
7
D-2009-046, Section 7.1
AEÉ-4, Doc 2, page 8
6
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
energy balances in order to more precisely target the energy source and customer class
2
targeted by the measure (P/A). Moreover, in its direction regarding the scope of the
3
Working Group’s tasks, the Régie stated that all allocation factors should be examined
4
except those related to programs in which the participants are already known. In such
5
cases, the Régie indicated that if the number of participants was known, the
6
remuneration and expenses associated with the P/A should be allocated pro-rata based
7
on the number of participants by energy source8. In the current Application, the general
8
approach outlined9 by the AEÉ is consistent with the Régie’s direction.
9
Comments
10
The approach directed by the Régie and adopted by the AEÉ reflects a direct
11
application of the “user pay” principle. With respect to P/As for operational or pilot
12
programs, where the actual participants (users) are known, remuneration and operating
13
costs are to be allocated to energy sources based on the number of users (participants)
14
by source. Where this information is not available, an estimate of participant numbers
15
by energy source is developed and used to allocate the costs. For P/As related to
16
program design or new technologies (where the concept of “participant count” may not
17
apply), the AEÉ seeks to match the costs as closely as possible to the targeted sector
18
and related energy sources using a relevant cost driver. Finally, for complementary
19
activities that support various P/As, the proposal is to allocate the costs in the same
20
manner as the relevant P/As. In the case of administration costs, these are pro-rated to
21
energy sources in a manner consistent with that of all non-administrative P/As.
22
The stated objectives of the AEÉ (and therefore the reasons for providing various
23
programs and incurring the associated costs) are to promote sustainable and economic
24
development and to increase the energy resources available in Québec.
25
To the extent reductions in energy use occur for a particular energy source, this
26
effectively increases the resources available to other users of the same energy source
27
and benefits the users of that energy source. Allocating the costs of a program based
8
9
D-2009-046, Section 7.1
AEÉ-4, Doc 2, pages 15-17
7
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
on participants by energy source will therefore track the costs to the users of the energy
2
sources that are benefitting from this increased availability. As a result, the application
3
of the user pay principle and allocation based on participant is reasonable for programs
4
developed to meet this objective.
5
However, the link between the AEÉ’s other two objectives and the proposed approach
6
to cost allocation (i.e., the user pay principle) is not as clear. In the case of economic
7
development, the economic spinoffs from a particular energy efficiency program benefit
8
could benefit all sectors of the economy and, if this was the primary purpose for the
9
program, it would not be reasonable for the “costs” to be borne entirely by the energy
10
sector/source where the program was taking place. Within this context, the program is
11
not “required” by the users of that sector but rather is deemed necessary in order to
12
promote economic benefits across the province overall.
13
In the case of the sustainable development objective, an argument can be made similar
14
to that in the preceding paragraph that the programs are being undertaken to provide a
15
more sustainable environment for all of Québec and that the costs should be allocated
16
accordingly. The counter argument is that the programs are targeted at those sectors
17
and energy sources where efficiency improvements are required to ensure a
18
sustainable future and that, on this basis, it is fair that the users of the associated
19
energy sources bear the costs.
20
While there is not a perfect alignment between the AEÉ’s objectives and the application
21
of the user pay principle for purposes of cost allocation, there is some degree of
22
alignment. On this basis, and given the Régie’s direction in favor of direct cost
23
allocation, the use of the user pay principle appears reasonable in this Application.
24
However, as discussed above, the user pay principal does not always best reflect cost
25
causality, and as such, should not be followed indiscriminately.
8
Evidence of
William Harper
1
3.4
AEÉ 2010-2011 Budget
R-3709-2009
Association with Rate Classes of Distributors
2
The AEÉ acknowledges10 that it is the responsibility of the Régie to determine the
3
amount of the allocated Quota that is payable by each Distributor of an energy source
4
and that it is the Distributors (subject to Régie approval) that determine the allocation to
5
customer classes. However, as part of the Application, the AEÉ has included
6
information regarding the customer classes for each Distributor that would be
7
associated with (i.e., participate in) each of its operational and pilot programs in order to
8
facilitate these subsequent allocations.
9
Comment
10
The applicability of the user pay (participant) principle in the allocation by the AEÉ to
11
energy sources is founded primarily on the view that reductions in energy use will
12
benefit the users of that energy source by making more supply available (and reducing
13
the need for investments in new facilities). However, as noted in Section 3.1, this
14
rationale breaks down when considering how spending on energy efficiency should be
15
allocated to customers within a distributor. Indeed, strict adherence to the user pay
16
principle would result in distributors allocating the entire “cost” of any financial
17
incentives directly back to the participants, which would effectively claw back any
18
financial incentive provided to participants.
19
ECS agrees with the AEÉ that these issues are to be dealt with by the Régie within the
20
context of individual distributors’ rate proceedings. As a result, ECS does not propose
21
to address these matters further at this time and recommends that if the AEÉ has views
22
or positions on these matters, they should be brought forward and tested in the relevant
23
proceedings.
10
AEÉ-4, Doc 2, page 14
9
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
4
2
4.1
3
The AEÉ has 38 program areas for which costs are allocated to energy sources using
4
its proposed cost allocation11. Each of the program and activity areas (i.e., P/As)
5
financed by the Quota12 can be grouped into one of the following four categories13:
THE AÉÉ’s PROPOSED COST ALLOCATION METHODOLOGY
Overview

6
7
Actual programs in the operation, pilot or design phase (referred to as
“Regulated Programs”),
8

Activities related to the development of the Comprehensive Plan,
9

Complementary Activities that support the delivery of programs and the
10
Comprehensive Plan, and

11
12
Administrative Activities related to the management and daily operation of the
Agency.
13
The following paragraphs outline the general approach taken for each category. More
14
specific details and comments are provided in the subsequent sections.
15
For Regulated Programs in the operational or pilot phase, the objective is to allocate the
16
costs for remuneration and other expenses based on number of participants. However,
17
in most cases this number is not known since the allocation is dealing with forecast
18
costs. As result, some alternative proxy is frequently used based on available
19
information14. In the case of financial assistance costs, the relative level of financial
20
assistance is also taken into account if it varies by energy source15. For Regulated
21
Programs in the design phase, the allocation is generally done based on the costs of
22
the specific design activities that will be undertaken in 2010 and the energy balances for
23
the sub-sectors that are targeted16.
11
AEÉ-10, Document 5.2, Annexe 1.1 (excluding the Contingency Allowance)
The Complementary and Administrative activities are also partially financed by from the Agency’s other funding
sources.
13
AEÉ-4, Doc 2, pages 5-6
14
AEÉ-4, Doc 2, page 8
15
AEÉ-4, Doc 2, page 9
16
AEÉ-10, Doc 5.2, #20.1
12
10
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
In the case of the costs associated with the development of the Comprehensive Plan,
2
the intent is to allocate the costs based on the energy balance for the sectors targeted
3
by the Plan. To achieve this, the costs are pro-rated to energy sources based on the
4
allocation of costs associated with the non-Administrative P/As financed by the Quota17.
5
For the Complementary Activities, the cost of each P/A is allocated based on the
6
allocation results for the program activities it is meant to support18.
7
For the Administrative Activities, the costs are allocated based on the allocation results
8
for all non-administrative program activities19.
9
4.2
Regulated Programs in the Operational or Pilot Phase
10
There are 22 such P/As in the 2010-2011 proposed budget for the Quota. Attachment 1
11
lists these programs and summarizes ECS’s understanding of the allocation factor used
12
for remuneration and operating expenses in each case. Attachment 2 summarizes
13
ECS’s understanding of the allocation of financial assistance costs, where they exist.
14
For most programs, the number of participants by energy source is based either on:
15

16
17
Historical participation levels in the same (or similar) programs. This applies to P/As
2010, 2011, 2014, 2015, 2020 and 2031, or

When historical data was not available, the relative historical importance of each
18
energy source for the particular sector/sub-sectors being targeted by the program.
19
This applies to P/As 2033, 2034, 3050, 4020, 8030, 7020, 7030, 7050, 9021 and
20
130.
21
For a limited number of programs, neither the number of historical participants nor the
22
relative historical importance of each energy source by sector/sub-sector was used to
23
allocate remuneration and operating expenses. In some cases, (P/As 2032 and 6020)
24
a more appropriate allocation factor was determined to be available. In other cases
25
(P/As 8022, 9010 and 9030), the effort required by the AEÉ was considered to be linked
26
directly to the level of financial assistance provided by energy source and the allocation
17
AEÉ-4, Doc 2.3, page 29 and AEÉ-4, Doc 2, page 9
AEÉ-4, Doc 2, page 11
19
AEÉ-4, Doc 2, page 7, Footnote #6
18
11
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
reflected this. Finally, for the Information and Awareness Program (P/A 120), the
2
overall Quebec energy balance was used pending the availability of more details
3
regarding the focus of the program20.
4
Comments
5
For the AEÉ’s operational and pilot phase Regulated Programs generally the same
6
“service” is being provided to participants regardless of energy source. As result, it is
7
reasonable to expect that the same level of effort on the part of AEÉ staff would be
8
required for each participant. Therefore the number of participants would be an
9
appropriate allocation factor for remuneration and operating expenses.
10
The AEÉ’s use of historical participation levels for the six programs identified above is
11
reasonable. For the four of these six programs currently in operation (P/A 2010, 2014,
12
2020 and 2031), the AEÉ has confirmed that there are no program changes for 2010-
13
2011 that would suggest a change in participation by energy source21. With respect to
14
the two new programs (P/As 2011 and 2015) of the six, these programs are both
15
refinements of an existing program. Therefore the use of the related existing program’s
16
historical participation by energy source is a reasonable basis for allocation until some
17
experience with the new program is obtained.
18
As noted above, the remuneration and operating costs for almost half the programs in
19
this category (10 out of 22) are allocated using the relative historical importance of each
20
energy source for the particular sector/sub-sectors being targeted by the program.
21
Again, in principle this approach represents a reasonable proxy for the breakdown of
22
participation by energy source in absence of historical data on the program’s
23
participation or other insight into what the participation by energy source might be.
24
However, in these instances, care must be taken to ensure that the appropriate energy
25
sectors have been identified based on the program’s focus for 2010-2011.
20
21
AEÉ-10, Doc 10, #37.2
AEÉ-10, Doc 5.2, #12.2, #14.2, #15.1 and #18.2
12
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
Of the remaining six Regulated Programs, using neither the number of historical
2
participants nor the relative historical importance of each energy source by sector/sub-
3
sector as an allocation factor, the allocation factors for remuneration and operating
4
expenses of P/As 8022, 9010 and 9030 are based on the relative financial assistance
5
provided to the participants for each energy source22. For these three programs, this
6
approach is appropriate. For P/A 8022 (Greenhouse Energy Efficiency) there are a
7
number of sub-programs (Audit, Support and Implementation) each with a different level
8
of financial assistance23. It is reasonable to assume that programs with higher levels of
9
financial assistance will be more complex and require more support from AEÉ staff.
10
This same logic applies to P/As 9010 and 9030 where both programs involve providing
11
financial assistance to support various initiatives each of which is different in scope and
12
focus.
13
For P/As 2032 (Rénoclimat – Low Income Private) and 6020 (Equipment Regulation),
14
alternate allocation factors are used that better reflect the nature of the program. For
15
P/A 2032 the allocation factor was based on input from an external consultant regarding
16
the energy sources in the Low Income sector that would be affected by the planned
17
measures24. For P/A 6020, the allocation is based on the number of equipment units by
18
energy sources that that is likely to be affected by changes in regulation25.
19
Finally, for P/A 120, the use of the overall Québec energy balance appears to be a
20
“placeholder” until better information is available regarding the focus of the program26.
21
If better information is made available during the course of the current proceeding, then
22
is should be possible for the AEÉ to submit it and revise its proposed allocation
23
accordingly. Otherwise, use of the currently proposed allocation factor should be
24
adopted for the 2010-2011 Budget allocation.
22
AEÉ-10, Doc 5.2, #24.3.2; AEÉ-10, Doc 6, #42.1 and AEÉ-10, Doc 5.2, #32.2
AEÉ-4, Doc 2.3, page 18
24
AEÉ-10, Doc 10, #36.3
25
AEÉ-10, Doc 5.2, #8.1
26
AEÉ-10, Doc 10, #37.2
23
13
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
4.3
2
There are eight AEÉ program areas27 that are categorized as being in the design
3
phase. There is one “design” program for each major sectoral area (i.e., Regulation,
4
Residential, Business, Industry, Transport and New Technologies). There are also two
5
for the Multi-Sector area. One deals with sustainable urban development while the
6
other deals with building science28.
7
The five design programs that are specific to a sector involve the development of new
8
sector-specific programs that will eventually come into operation in future years. In
9
each case, the allocation factor is based on the relative costs of the different design
Regulated Programs in the Design Phase
10
activities to be undertaken and the energy sources targeted by each29.
11
In the case of the two Multi-Sector program areas, the AEÉ’s Application indicates a
12
similar principle is followed. For P/A 7080 (Sustainable Urban Development) the
13
allocation factor is based on a 50/50 weighting of i) number of residential dwellings by
14
primary energy source and ii) proportion of light transport vehicles that consume diesel
15
and gasoline in Quebec’s fleet30. The AEÉ’s rationale is that the initiatives planned for
16
2010-2011 are primarily oriented towards the residential and light transport sectors31.
17
For P/A 1905 (Studies & Research), the allocation factor reflects the relative use of
18
different energy sources in buildings in the residential, business and industrial sectors32
19
based on Québec’s 2006 energy balance.
20
Comments
21
ECS’s only concern regarding the allocation factors used for these program areas is
22
with respect to P/A 7080 (Sustainable Urban Development). In its pre-filed description
23
of the program33, the AEÉ describes how Sustainable Urban Development is aimed at
24
defining a coherent approach to urban planning that will improve energy efficiency for
27
Per AEÉ-4, Doc 2.3
AEÉ-2, Doc 2
29
AEÉ-10, Doc 5.2, #20.1
30
AEÉ-10, Doc 5.2, #10.5
31
AEÉ-10, Doc 5.2, #10.3
32
AEÉ-10, Doc 5.2, #11.1
33
AEÉ-2, Doc 2, pages 10-11
28
14
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
buildings and transport, as well as on-site energy generation. However, there is nothing
2
in the Application, nor in response to the interrogatories requesting more detail
3
regarding the planned activities, that would suggest the focus is strictly residential
4
buildings as opposed to urban buildings generally. Indeed, the response to UMQ’s
5
questions34 suggests that the activities for 2010-2011 are looking at urban development
6
from an overall perspective. Unless more specifics are provided substantiating the
7
focus on the residential sector, a more appropriate allocation factor for 2010-2011
8
would be a 50/50 weighting of i) energy use in all urban buildings by energy source and
9
ii) the proportion of light transport vehicles that consume gasoline and diesel in
10
Quebec’s fleet.
11
4.4
12
There are three program areas that fall into this category35: Development of the
13
Comprehensive Plan (P/A 110); Consultations for the Comprehensive Plan (P/A 140)
14
and Régie Hearings (P/A 160). For purposes of allocating the costs associated with
15
P/As 110 and 160, the AÉE has developed an allocation factor (FD_GLOBAL QP_10-
16
11 P) which reflects the total costs by energy source for all Regulated Programs in the
17
operation, pilot or design phase36. Attachment 3 identifies the specific P/As included in
18
the allocation factor. For P/A 140 (Consultations for the Comprehensive Plan), the
19
allocation factor is based on the energy sources associated with the different sectoral
20
consultations37.
21
Comments
22
In principle, the allocation of the costs associated with the Development of the
23
Comprehensive Plan and the associated Régie Hearings should reflect the relative
24
benefits to be gained by each energy sector from the implementation of the Plan. As a
25
result, use of an allocation factor (such as FD_GLOBAL QP_10-11 P) which reflects the
Programs Associated with the Development of the Comprehensive Plan
34
AEÉ-10, Doc 14, #3.1
AEÉ-10, Doc 5.2, Annexe 1.1
36
AEÉ-10, Doc 1, Annexe 2.1, page 10 (Note – The allocation factor shown on page 4 is also labelled
FD_GLOBAL QP_10-11 but should have been labelled FD_PA_OPERATIONS_10-11)
37
AEÉ-10, Doc 5.2, #35.2
35
15
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
allocation by energy source of the Plan’s pilot and operational programs (i.e. those that
2
are having a direct effect on each energy sector) is a reasonable approach to use.
3
An alternative would have been to base the allocation factor (to the extent feasible) on
4
all of the programs included in the Plan for approval. Indeed, this is the approach that
5
the AEÉ appears to be taking based on its written evidence38 and responses to OC’s
6
interrogatories39. Under this approach the allocation factor would have also captured
7
the energy source allocation for the Complementary Activities of Monitoring (P/A 150)
8
and Customer Service (P/A 1055)40. In reality, there is not likely to be a material
9
difference between the two allocation approaches since these Complementary Activities
10
are allocated to energy sources based on the allocation factors that are driven largely
11
by the allocation of the costs of the programs used for FD_GLOBAL QP_10-11 P.
12
The only issue ECS has with the definition of the allocation factor actually proposed by
13
the AEÉ for purposes of allocating the costs of these two P/As (110 and 160) is that the
14
allocation factor includes P/A 140 – Consultation for the Comprehensive Plan. In ECS’s
15
view, this activity is an input to the development of the plan and should be considered
16
as comparable to the other costs included in P/A 110. As a result, its allocation should
17
not be used to determine the allocation of P/As 110 and 160.
18
Indeed, in the case of P/A 140 (Consultation for the Comprehensive Plan), it is not clear
19
why a different allocation factor is used for this particular activity. This activity
20
represents the costs of various consultations in support of designing the
21
Comprehensive Plan and has a budget of approximately $190,000. However, P/A 110
22
itself includes the costs of various studies and activities many of which could likely be
23
more directly attributed to energy sources and has total budget of almost $1.8 million41.
24
ECS questions the value of trying to more specifically allocate only a small portion of
25
the overall costs of Developing the Comprehensive Plan. ECS is also concerned that
26
the approach proposed for P/A 140 is not based on those energy sources (and
38
AEÉ-10, Doc 2.3, page 29
AEÉ-10, Doc 5.2, #34.3
40
Administration and Legal are excluded on the basis that they also support the Development of the Comprehensive
Plan.
41
AEÉ-1, Doc 3
39
16
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
ultimately consumers) who will benefit from the proposed Comprehensive Plan. In
2
ECS’s view the costs for P/A 140 should be allocated using the same factor as is used
3
for P/As 110 and 160: FD_GLOBAL QP_10-11 P (excluding P/A 140).
4
See Attachment 4 for ECS’s recommendation as to the P/As that should be included in
5
the allocation factor for these three program areas.
6
4.5
7
There are four complementary activities (Monitoring System; Support for
8
Communications; Customer Service and Legal) and the AEÉ’s proposed allocation
9
factor for each is identified in Attachment 3.
Programs Associated with Complementary Activities
10
Comments
11
The costs for the Monitoring System and the Customer Service program are allocated
12
based on the energy source allocation derived for all the operational and pilot phase
13
Regulated Programs in the Residential, Business, Industry, Transport and New
14
Technologies sectors. Despite requests from various parties42, there is minimal
15
information available as to what activities are associated with these two programs areas
16
other than they support the monitoring and delivery of programs for which there are
17
participants. In the absence of additional specific information, it is difficult to determine
18
whether the allocation factor used for these two P/As is appropriate.
19
Based on the information available, it is not immediately clear why Information &
20
Awareness (P/A 120) and Training & Education (P/A 130) were excluded from the
21
allocation factor. They both have “participants” in terms of 3rd parties involved with the
22
delivery of the programs. If the purpose of Monitoring is solely to track “individual”
23
participant’s activities and “savings”, then exclusion of these two P/As from its allocation
24
base can be explained. However, this does not explain the exclusion of these P/As
25
from the allocation base for Customer Service since, presumably, the related 3rd parties
26
will be interacting with the AEÉ. The AEÉ should be required to more clearly delineate
42
AÉE-10, Doc 1, #2.2 and AÉE-10, Doc 5.2, #36.1 & 42.1
17
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
the activities associated with these two P/As and how they are linked to the proposed
2
allocation factor. In the meantime, based on the available information, it would be
3
reasonable to include Information & Awareness (P/A 120) and Training & Education
4
(P/A 130) in the derivation of the allocation factor for Customer Service (P/A 1055).
5
The costs related to Support for Communications (P/A 121) are allocated using the
6
same allocation factor as for the Development of the Comprehensive Plan (i.e.
7
allocation factor FD_GLOBAL_QP 10-11 P)43. In response to an HQD interrogatory the
8
rationale offered for this approach was that the communications support constituted
9
activities related to the development, filing and study of the Comprehensive Plan44.
10
However, there are other descriptions45 of the activities associated with this program
11
area that suggest it provides communications support to all directorates (areas) of the
12
Agency and for general activities such as the Regulation Respecting the Distribution of
13
Information and the Protection of Personal Information. Based on these descriptions, it
14
would be more appropriate to allocate the cost for this P/A using a factor that reflects all
15
of the activities of the AEÉ – such as that ECS is proposing below for Administration
16
and Legal.
17
The costs associated with the Legal (P/A 1030) are allocated to energy sources based
18
on the energy source allocation of all the AEÉ’s P/As with the exception of the
19
Monitoring System, Customer Service, Legal, and Administration (see Attachment 3). It
20
is not clear why the energy source allocations associated with the Monitoring System
21
and Customer Service should be excluded from the allocation factor. Based on the
22
AEÉ’s descriptions46, the Legal program provides “legal” support for all the Agency’s
23
program areas and therefore there is no apparent reason to exclude these two.
24
Attachment 4 set out ECS’s recommendation as to the P/As that should be included in
25
the allocation factor for these four program areas.
43
AEÉ-4, Doc 2.3, page 35
AEÉ-10, Doc 1, #2.2
45
AEÉ-2, Doc 8, page 10 and AÉE-9, Doc 1, #3.1
46
AEÉ-2, Doc 8, page 11; AÉE-9, Doc 1, #3.1, AÉE-10, Doc 5.2, #41.3 and AÉE-10, Doc 1, #2.2
44
18
Evidence of
William Harper
1
2
4.6
AEÉ 2010-2011 Budget
R-3709-2009
Administration and Contingency
3
Administration costs (including spending on fixed assets47) are allocated to energy
4
sources based on the energy source allocation of all the AEÉ’s P/As with the exception
5
of the Monitoring System, Customer Service, Legal, and Administration (see
6
Attachment 3 – FD_GLOBAL_AEE 10-11 P). Contingency costs are allocated using the
7
same allocation factor as proposed for the Comprehensive Plan (FD_GLOBAL_QP 01-
8
11 P).
9
Comments
10
The response to HQD Interrogatory #2.248 sets out the components of allocation factor
11
FD_GLOBAL_AEE 10-11 P, which the AEÉ claims to have used for Administration
12
costs and which are summarized in Attachment 3. However, the pre-filed Application
13
suggests49 that Administration costs are pro-rated across the non-Administrative P/As
14
based on the number of FTEs associated with each. When initially asked to reconcile
15
this discrepancy, the AEÉ stated50 that the allocation factor used in the Application was
16
that set out in AÉE-4, Doc 2.3 (i.e., FD_GLOBAL_AEE 10-11 P) but that it was
17
requesting approval of the FTE approach described in AÉE-4, Doc 2 (pages 10-11).
18
The Régie Staff subsequently asked for further clarification and documentation of the
19
proposed method set out in AÉE-4, Doc 2. In its response51, the AEÉ indicated that
20
method described in AÉE-4, Doc 2 is consistent with that presented in AÉE-4, Doc 2.3
21
(i.e., FD_GLOBAL_AEE 10-11 P) and filed an Appendix purportedly setting out the
22
allocation method per AEÉ-4, Doc 2.
23
In ECS’s view there is still some confusion as to precisely what the AEÉ’s proposal is
24
for the allocation of Administration costs. Unfortunately the Appendix52 provided in
25
response to the Régie Staff interrogatory does not set out a separate allocation of
47
AEÉ-10, Doc 5.2, #6.5.2
AEÉ-10, Doc 1, Annexe 2.1
49
AEÉ-4, Doc 2, pages 10-11
50
AEÉ-10, Doc 5.2, #5.1
51
AEÉ-9, Doc 8, #1.1 & 1.2 and Annexe 1
52
AEÉ-9, Doc 8, Annexe 1
48
19
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
Administration costs but rather shows results that have embedded Administration costs
2
(along with the cost of Monitoring, Customer Service and Legal) in the remuneration
3
costs of the other P/As. Furthermore, the total Quota costs have changed from those
4
previously presented in the allocation tables53. As a result, it is difficult to determine if
5
the results presented are consistent with the allocation of Administration costs based on
6
FD_GLOBAL_AEE 10-11 P. Subject to further clarification, ECS has limited its
7
comments to the appropriateness of using FD_GLOBAL_AEE 10-11 P as the allocation
8
factor for Administration costs.
9
Administration includes functions such as Human Resources, Financial Services, Real
10
Estate and the Executive Office that support the AEÉ’s overall operation54. As a result,
11
there is no reason to exclude either the Monitoring System or Customer Service from
12
the allocation factor.
13
With respect to Contingency costs, the AÉE states that these are based on 1.2% of the
14
Agency’s overall budget55. As result, a more appropriate allocation factor for this cost
15
element would be one that reflects the allocation of all of the AÉE’s program costs to
16
energy sources. As a result, the allocation factor should also include Customer Service
17
(P/A 1055), Régie Hearings (P/A 160), Monitoring System (P/A 150) and Development
18
of the Comprehensive Plan (P/A 110). It is unnecessary to include either
19
Communications Support, Legal or Administration costs in the allocation base as
20
(based on ECS’s recommendations for these three P/As), they would also be pro-rated
21
using the costs from all of the other P/As.
22
5
23
5.1
24
As a general rule, the development of regulated rates and charges should be as
25
transparent as possible. Transparency facilitates the understanding of how charges are
OTHER ISSUES
Transparency
53
$98,778,315 (per AEÉ-1, Doc 5) versus $97,825,274 (per AEÉ-9, Doc 8, Annexe 1)
AEÉ-9, Doc 1, #3.1 and AEÉ-10, Doc 1, #2.2
55
AEÉ-9, Doc 6, #40.1
54
20
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
developed and reduces the potential for controversy regarding future interpretation and
2
application of the underlying methodologies used to develop the rates and charges.
3
Overall, transparency fosters acceptability – since parties naturally find it difficult to
4
accept what they don’t understand.
5
However, in the case of the AEÉ’s cost allocation methodology, the definition and
6
development of the proposed allocation factors are not fully transparent. For many
7
allocation factors the only information available is a general description of the allocation
8
factor, a general description of the data sources used and the final percentages, by
9
energy source, as calculated by the AEÉ. In a number of instances interrogatories56
10
were posed requesting further details as to precisely how various allocation factors were
11
derived. However, the responses did not provide the requested information. ECS
12
understands that similar concerns were raised during the Working Group meetings
13
regarding the need for the AEÉ to fully document the determination of each of the
14
proposed allocation factors in terms of: i) the sources of the data used, ii) the actual
15
values employed, and iii) the formulae/calculations employed.
16
In future filings, the AEÉ should provide a more detailed description of each allocation
17
factor and schedules setting out precisely how they were derived, including the data
18
used and the sources of such data.
19
5.2
20
The AEÉ’s activities are funded by the Quota (which is approved by the Régie) and also
21
by funds received through the Green Fund and from the Federal Government57. The
22
funds from the latter two sources are used largely to funded specific initiatives. For
23
some common activities such as the Monitoring System58 and Customer Service59, it
24
appears that a portion of the overall cost of the activity is allocated to and recovered
25
from these other funding sources. However, for other common activities, such as
Non-Quota Allocations
56
For examples see AEÉ-10, Doc 5.2, #8.1, #9.1, #10.5, #11.1, #20.1, #23.1, #26.1, #29.1, and #33.1
AEÉ-4, Doc 2, pages 6-7
58
AEÉ-10, Doc 5.2, #36.2
59
AEÉ-10, Doc 5.2, #42.2
57
21
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
Administration60, the treatment of the associated costs is not as clear. The lack of
2
clarity is partly due to the fact that the AEÉ is unwilling to provide the details regarding
3
its overall budget as opposed to just that funded by the Quota61.
4
As a matter of practice, when regulated entities also engage in non-regulated activities,
5
the Regulator typically reviews those instances where services are shared between the
6
regulated and non-regulated activities to ensure there is no cross-subsidization
7
occurring. To this end, some regulators have established guidelines as to how such
8
costs should be apportioned between the regulated and non-regulated “businesses”
9
when there is a sharing of common costs.
10
There is a direct parallel between such situations and the Régie’s need to approve the
11
Quota portion of the AEÉ’s overall budget. Furthermore, the Régie has recognized this
12
issue in previous decisions and acknowledged that it needs to examine the allocation of
13
administrative costs between regulated and non-regulated activities62. Indeed, in the
14
decision following AEÉ’S first Comprehensive Energy Efficiency Plan, the Régie
15
directed the AEÉ to file the necessary information in the current application63.
16
ECS recommends that the Régie require the AEÉ to specify, as part of its next
17
application, those common activities that support both Quota-funded and non-Quota
18
funded activities and clearly set out for each how the portion of the costs for activity that
19
is to be funded by the Quota is determined. Furthermore, if the allocation to the Quota
20
is not consistent with the methodology approved by the Régie for allocating the cost of
21
the Quota-funded portion to energy sources, the AEÉ should be required to identify and
22
explain the difference.
60
AEÉ-10, Doc 5.2, #43.1
AEÉ-9, Doc 1, #1.1
62
D-2009-018, page 28
63
D-2009-046, pages 51-52
61
22
Evidence of
William Harper
1
6
2
3
CONCLUSIONS
6.1

AEÉ 2010-2011 Budget
R-3709-2009
Cost Allocation Principles
There is a degree of alignment between the AEÉ’s objectives and the application of
4
the user pay principle for purposes of cost allocation. On this basis, and given the
5
Régie’s direction in favour of direct cost allocation, the use of the user pay principle
6
is reasonable for purposes of allocating the AEÉ’s Quota costs to energy sources.
7
However, the same conclusion may not apply for purposes of allocating AEÉ’s costs
8
to consumers within each energy sector.
9
6.2
10
11
AEÉ’s Cost Allocation Methodology – Operational and Pilot Phase Regulated
Programs

The AEÉ’s proposed allocation factors for its Regulated Operational and Pilot Phase
12
programs are reasonable for purposes of allocating the 2010-2011 Quota Budget to
13
energy sectors. However, it should be possible to improve the factors in future
14
years as more information is available regarding the individual Programs.
15
16
6.3

AEÉ’s Cost Allocation Methodology – Regulated Programs in the Design Phase
ECS’s only concern regarding the allocation factors used for these program areas is
17
with respect to P/A 7080 (Sustainable Urban Development). Unless more specifics
18
are provided substantiating the focus on the residential sector, a more appropriate
19
allocation factor for 2010-2011 would be a 50/50 weighting of i) energy use in all
20
urban buildings by energy source and ii) the proportion of light transport vehicles
21
that consume gasoline and diesel in Quebec’s fleet.
22
6.4
23
24
AEÉ’s Cost Allocation Methodology – Programs Associated with Development of
the Comprehensive Plan

In principle, the allocation of the costs associated with the Development of the
25
Comprehensive Plan and the associated Régie Hearings should reflect the relative
26
benefits to be gained by each energy sector from the implementation of the Plan.
27
As a result, use of the AEÉ’s FD_GLOBAL QP_10-11 P allocation factor, which
23
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
reflects the allocation by energy source of the Plan’s pilot and operational programs,
2
is a reasonable approach to use.
3

However, in ECS’s view Consultation for the Comprehensive Plan (P/A 140) should
4
not be included in the allocation factor. Rather, it too should be allocated to energy
5
sectors on the same basis as the P/As 110 and 160. Attachment 4 sets out the P/As
6
that should be used to allocate the costs for all three program areas associated with
7
the development of the Comprehensive Plan.
8
6.5
9

AEÉ’s Cost Allocation Methodology – Complementary Program Activities
For the Monitoring System and Customer Service program areas there is a need
10
for the AEÉ to more clearly delineate the associated activities and how they are
11
linked to its proposed allocation factor (FD_PA_OPERATIONS). In meantime,
12
based on the information available, it would be reasonable to also include the
13
programs Information & Awareness (P/A 120) and Training & Education in the
14
derivation of the allocation factor for Customer Service.
15

16
17
Legal (P/A 1030) and Support for Communications (P/A 121) should be allocated
using a broad based factor that reflects all of the activities of the AEÉ.

Attachment 4 summarizes the P/As that should be included in the allocation factors
18
for each of these four program areas for purposes of allocating the 2010-2011
19
Quota Budget.
20
6.6
21

22
AEÉ’s Cost Allocation Methodology – Administration and Contingency
These two program areas should also be allocated using a broad factor that
reflects all of the activities of the AEÉ as set out in Attachment 4.
23
6.7
24

Transparency
In future filings, the AEÉ should provide a more detailed description of each
25
allocation factor and schedules setting out precisely how they were derived,
26
including the data used and the sources of such data.
24
Evidence of
William Harper
1
6.8
2

AEÉ 2010-2011 Budget
R-3709-2009
Non-Quota Allocations
The Régie should require the AEÉ to specify, as part of its next application, those
3
common activities that support both Quota-funded and non-Quota funded activities
4
and clearly set out for each how the portion of the costs for activity that is to be
5
funded by the Quota is determined. Furthermore, if the allocation to the Quota is
6
not consistent with the methodology approved by the Régie for allocating the cost
7
of the Quota-funded portion to energy sources, the AEÉ should be required to
8
identify and explain the difference.
9
25
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
ATTACHMENT 1 - ALLOCATION FACTORS FOR REMUNERATION AND OPERATING COSTS
FOR REGULATED PROGRAMS IN OPERATION OR PILOT PHASE
Program
P/A # Allocation Factor Description
Regulation
Equipment Regulation
Based on the types of equipment targeted for Federal regulation modification, allocation
6020 factors were developed that reflect the number of pieces by energy source
Multi-Sector
Sustainable Urban Dev
50/50 Weighting of a) number of buildings by primary energy source and b) number of light
7080 transport vehicles by fuel
Residential
Novoclimat I-Single F
2010 Historic participation over the 2007-2009 period by energy sector
Novoclimat II-Single F
2011 Same as for P/A 2010 - difference in allocation values is due to rounding
Novoclimat - Apart
2014 Historic participation over the 2007-2009 period by energy sector
Novoclimat II-Apart
2015 Same as for P/A 2014 - difference in allocation values is due to rounding
Renoclimat
Renoclimat - LI Priv
2020 Historic participation over the 2007-2009 period by energy sector
Weightings provided by consultant - reflects energy balance for LI households weighted
2032 according to applicable measures for each source
Renoclimat - LI Comm
2033 Relative importance of light fuel oil and propane in Quebec co-op residences
Econologis - II
2031 Historic participation over the 2007-2009 period by energy sector
EEI - Inuit/FN
2034 Relative importance of each energy sector in Remote Communities
Business
Building Efficiency
Building Renovation
3050 Relative importance of light fuel oil and propane in the business sector
Relative importance of light fuel oil and propane in the business sector. Difference from P/A
4020 3050 due to rounding
Industry
Greenhouse Efficiency
Energy Management
Participants in each of the three sub-programs were based on number of consumers by
energy source used for heating.. Allocation factors were weighted based on level of financial
8022 assistance provided in each sub-program
Relative importance of each energy sector in the 2006 energy balance for the industrial sector
8030 of Quebec
Transport
Training-Light Vehicles
7020 Based on relative number of light transport vehicles that use gasoline vs. diesel
Insp/Main-Light Vehicles 7030 Based on relative number of light transport vehicles that use gasoline vs. diesel
Training-Heavy Vehicles 7050 Based on relative number of heavy transport vehicles that use gasoline and diesel
New Technologies
Energy Innov Assist
Historic participation over the 2007-2009 period by energy sector - weighted by financial
9010 assistance provided
Domestic Solar WH
9021 Residential hot water heating energy use
Tech Innov Networking
9030 Based on anticipated financial assistance to be provided by energy source
Common Activities
Info & Awareness
1
Training & Education
120 Overall Quebec energy balance for 2006
Based on sub-program budget activities and the energy balance for each. Most significant
130 portion is for general consumer education and is based on overall Quebec energy balance
26
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
ATTACHMENT 2 - ALLOCATION FACTORS FOR FINANCIAL ASSISTANCE
FOR REGULATED PROGRAMS IN OPERATION OR PILOT PHASE
Program
P/A # Treatment of Financial Assistance
Regulation
Equipment Regulation
6020
N/A
7080
N/A
Multi-Sector
Sustainable Urban Dev
Residential
Novoclimat I-Single F
2010 Participants by energy sector weighted by unit financial assistance
Novoclimat II-Single F
2011 Number of Participants - Same unit financial assistance for all energy sources
Novoclimat - Apart
2014 Participants by energy sector & by sub-sector weighted by unit financial assistance
Novoclimat II-Apart
2015 N/A
Renoclimat
2020 Participants by energy sector & by sub-sector weighted by unit financial assistance
Renoclimat - LI Priv
2032 Number of Participants - Same unit financial assistance for all energy sources
Renoclimat - LI Comm
2033 Number of Participants - Same unit financial assistance for all energy sources
Econologis - II
2031 Number of thermostats by energy source weighted by unit financial assistance
EEI - Inuit/FN
2034 Participants by energy sector weighted by unit financial assistance
Business
Building Efficiency
3050 Participants by energy sector and by sub-sector weighted by unit financial assistance
Building Renovation
4020 Number of Participants [- Same financial assistance for all sub-sectors and energy sources
Industry
Greenhouse Efficiency
Energy Management
8022 Participants by energy sector and by sub-sector weighted by unit financial assistance
# of Participants - Same financial assistance for energy sources. However, special funding for
8030 3 large projects allocated to energy sources based on Industrial 2006 energy balance
Transport
Training-Light Vehicles
7020 Participants by energy source and sub-sector weighted by unit financial assistance
Insp/Main-Light Vehicles 7030 Participants by energy source and sub-sector weighted by unit financial assistance
Training-Heavy Vehicles 7050
N/A
New Technologies
Energy Innov Assist
New projects based on financial assistance by energy source provided over the 2007-2009
9010 period. Existing projects allocated according to energy sources targeted
Domestic Solar WH
9021 Participants by energy source and sub-sector weighted by unit financial assistance
Tech Innov Networking
9030 Based on anticipated financial assistance to be provided by energy source
Common Activities
1
Info & Awareness
120
N/A
Training & Education
130
N/A
27
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
ATTACHMENT 3 - P/As USED FOR AEE's ALLOCATION FACTORS
Program Name
P/A # Category
In FD_PA_Operatons
In FD_Global_QP
In FD_Global_AEE
Regulation
Equipment Regulation
6020 Operation
Y
Y
Building Regulation
6010 Design
Y
Y
Sustainable Urban Dev
7080 Design
Y
Y
Studies & Research
1905 Design
Y
Y
MultiSector
Residential
Novoclimat I-Single F
2010 Operation
Y
Y
Y
Novoclimat II-Single F
2011 Operation
Y
Y
Y
Novoclimat - Apart
2014 Operation
Y
Y
Y
Novoclimat II-Apart
2015 Operation
Y
Y
Y
Renoclimat
2020 Operation
Y
Y
Y
Renoclimat - LI Priv
2032 Operation
Y
Y
Y
Renoclimat - LI Comm
2033 Operation
Y
Y
Y
Econologis - II
2031 Operation
Y
Y
Y
EEI - Inuit/FN
2034 Operation
Y
Y
Y
Residential Design
-
Y
Y
Design
Business
1
Building Efficiency
3050 Operation
Y
Y
Y
Building Renovation
4020 Operation
Y
Y
Y
Business Design
-
Y
Y
Design
28
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
Program Name
P/A # Category
In FD_PA_Operatons
In FD_Global_QP
In FD_Global_AEE
Y
Y
Y
Y
Y
Y
Y
Y
Industry
Energy Management
Operation
8022 - Pilot
Operation
8030 - Pilot
Industry Design
-
Greenhouse Efficiency
Design
Transport
Training-Light Vehicles
Operation
7020 - Pilot
Y
Y
Y
Insp/Main-Light Vehicles
7030 Pilot
Y
Y
Y
Training-Heavy Vehicles
7050 Pilot
Y
Y
Y
Y
Y
Transport Design
Design
New Technologies
2
Energy Innov Assist
9010 Operation
Y
Y
Y
Domestic Solar WH
9021 Pilot
Y
Y
Y
Tech Innov Networking
9030 Operation
Y
Y
Y
New Technology Design
-
Y
Y
Design
29
Evidence of
William Harper
Program Name
AEÉ 2010-2011 Budget
R-3709-2009
P/A # Category
In FD_PA_Operatons
In FD_Global_QP
In FD_Global_AEE
Used For
Y
Y
Y
Used For
Y
Common Activities
Regie Hearings
110 Design
Operation
140 - for Plan
Operation
150 - Compl
Operation
160 - for Plan
Info & Awareness
120 Operation
Y
Y
130 Operation
Operation
121 - Compl
Operation
1030 - Compl
Operation
1055 - Compl
Operation
- Compl
Y
Y
Used For
Y
Develop Compr Plan
Consult for Compr Plan
Monitoring System
Training & Education
Support for Commun
Legal
Customer Service
Administration
Contingency
Notes:
Used For
Used for
Used For
Used for
Used For
Y - Means the P/A is included in the Allocation Factor
Used For - Means the Allocation Factor is used to Allocate the cost for the P/A
1
30
Evidence of
William Harper
AEÉ 2010-2011 Budget
R-3709-2009
1
ATTACHMENT 4 - ECS RECOMMENDATIONS RE
ALLOCATION FACTORS FOR COMMON COSTS
Program Name
P/A #
P/A 150, 1055,
P/A 110, 140, 160
P/A 121, 1030, Administration and
Contingency
Regulation
Equipment Regulation
6020
Y
Y
Building Regulation
6010
Y
Y
Sustainable Urban Dev
7080
Y
Y
Studies & Research
1905
Y
Y
MultiSector
Residential
Novoclimat I-Single F
2010
Y
Y
Y
Novoclimat II-Single F
2011
Y
Y
Y
Novoclimat - Apart
2014
Y
Y
Y
Novoclimat II-Apart
2015
Y
Y
Y
Renoclimat
2020
Y
Y
Y
Renoclimat - LI Priv
2032
Y
Y
Y
Renoclimat - LI Comm
2033
Y
Y
Y
Econologis - II
2031
Y
Y
Y
EEI - Inuit/FN
2034
Y
Y
Y
Residential Design
-
Y
Y
Business
2
Building Efficiency
3050
Y
Y
Y
Building Renovation
4020
Y
Y
Y
Business Design
-
Y
Y
3
31
Evidence of
William Harper
Program Name
AEÉ 2010-2011 Budget
R-3709-2009
P/A #
P/A 150, 1055,
P/A 110, 140, 160
P/A 121, 1030, Administration and
Contingency
Industry
Greenhouse Efficiency
8022
Y
Y
Y
Energy Management
8030
Y
Y
Y
Industry Design
-
Y
Y
Transport
Training-Light Vehicles
7020
Y
Y
Y
Insp/Main-Light Vehicles
7030
Y
Y
Y
Training-Heavy Vehicles
7050
Y
Y
Y
Y
Y
Transport Design
New Technologies
Energy Innov Assist
9010
Y
Y
Y
Domestic Solar WH
9021
Y
Y
Y
Tech Innov Networking
9030
Y
Y
Y
New Technology Design
-
Y
Y
Common Activities
1
Develop Compr Plan
110
Use For
Y
Consult for Compr Plan
140
Use For
Y
Monitoring System
150
Regie Hearings
160
Info & Awareness
120
Training & Education
130
Support for Commun
121
Use For
Legal
1030
Use for
Customer Service
1055
Administration
Contingency
-
Notes:
Y - Include in Allocation Factor
Use For - Means the Allocation Factor is used to allocate the cost of the P/A
Y
Use For
Use For
Y
Y (1055 Only)
Y
Y
Y (1055 Only)
Y
Y
Use For
Y
Use For
Use For
32
APPENDIX A
CV FOR ECS CONSULTANT
33
ECONALYSIS CONSULTING SERVICES
William O. Harper
Mr. Harper has over 25 years experience in the design of rates and the regulation of
electricity utilities. While employed by Ontario Hydro, he has testified as an expert
witness on rates before the Ontario Energy Board from 1988 to 1995, and before the
Ontario Environmental Assessment Board. He was responsible for the regulatory policy
framework for Ontario municipal electric utilities and for the regulatory review of utility
submissions from1989 to 1995. Mr. Harper also coordinated the participation of Ontario
Hydro (and its successor company Ontario Hydro Services Company) in major public
reviews involving Committees of the Ontario Legislature, the Ontario Energy Board and
the Macdonald Committee. He has served as a speaker on rate and regulatory issues for
seminars sponsored by the APPA, MEA, EPRI, CEA, AMPCO and the Society of
Management Accountants of Ontario. Since joining ECS, Mr. Harper has provided
consulting support for client interventions on energy and telecommunications issues
before the Ontario Energy Board, Manitoba Public Utilities Board, Québec’s Régie de
l’énergie, British Columbia Utilities Commission, Saskatchewan Rate Review Panel and
CRTC. He has also appeared before the Manitoba’s Public Utilities Board, the Manitoba
Clean Environment Commission, the Ontario Energy Board and Quebec’s Régie de
l’énergie. Bill is currently a member of the Ontario Independent Electricity System
Operator’s Technical Panel.
EXPERIENCE
Econalysis Consulting Services- Senior Consultant
2000 to present

Responsible for supporting client interventions in regulatory proceedings,
including issues analyses & strategic direction, preparation of interrogatories,
participation in settlement conferences, preparation of evidence and appearance as expert
witness (where indicated by an asterix). Some of the more significant proceedings
included:

o
o
o
o
o
o
o
o
o
o
Electricity (Ontario)
IMO 2000 Fees (OEB)
Hydro One Remote Communities Rate Application 2002-2004
OEB - Transmission System Code Review (2003)
OEB - Distribution Service Area Amendments (2003)
OEB - Regulated Asset Recovery (2004)
OEB - 2006 Electricity Rate Handbook Proceeding*
OEB - 2006 Rate Applications by Various Electricity Distributors
OEB - 2006 Guidelines for Regulation of Prescribed Generation Assets
OEB -2007 Rate Applications by Various Electricity Distributors
OEB- 2007 Cost of Capital and 2nd Generation Incentive Regulation Proceeding
34
o
o
o
o
OEB - Hydro One Networks 2007/2008 Transmission Rate Application
OEB – 2008 Rate Applications by Various Electricity Distributors
OEB - Hydro One Networks 2009/2010 Transmission Rate Application
OEB – 2009 Rate Applications by Various Electricity Distributors

Electricity (British Columbia)
o BC Hydro IPP By-Pass Rates
o BC Hydro Heritage Contract Proposals
o BC Hydro’s 2004/05; 2005/06; 2007/09 and 2008/10 Revenue Requirement
Applications
o BC Hydro’s CFT for Vancouver Island Generation – 2004
o BC Hydro’s 2005 Resource Expenditure and Acquisition Plan
o BC Hydro’s 2006 Residential Time of Use Rate Experiment Application
o BC Hydro’s 2006 Integrated Electricity Plan
o BC Hydro’s 2007 Rate Design Application
o BC Hydro’s 2008 Residential Inclining Block Rate Application
o BC Transmission Corporation – Open Access Transmission Tariff Application 2004
o BCTC’s 2005/06; 2006/07 and 2008/10 Revenue Requirement Applications
o BCTC’s – 2005 Vancouver Island Transmission Reinforcement Project
o BCTC’s – 2007 Interior-Lower Mainland Transmission Application
o Fortis BC’s 2005 Revenue Requirement and System Development Application
o Fortis BC’s 2006; 2007, 2008, 2009 and 2010 Revenue Requirement Applications
o Fortis BC’s 2007/08 and 2009/10 Capital Plan and System Development Plans
o FortisBC’s 2007 Rate Design Application
o Fortis BC’s 2009 Cost Allocation and Rate Design Application

Electricity (Quebec)
o Hydro Québec-Distribution’s 2002-2011 Supply Plan*
o Hydro Quebec-Distribution’s 2002-2003 Cost of Service and Cost Allocation
Methodology*
o Hydro Québec - Distribution’s 2004-2005 Tariff Application*
o Hydro Québec - Distribution’s 2005/2006 Tariff Application*
o Hydro Québec - Distribution’s 2005-2014 Supply Plan*
o Hydro Québec - Distribution’s 2006/2007 Tariff Application*
o Hydro Québec - Transmission’s 2005 Tariff Application*
o Hydro Québec - Distribution’s 2006 Interruptible Tariff Application
o Hydro Québec - Distribution’s 2006 Cost Allocation Work Group
o Hydro-Québec - Transmission’s 2007 Tariff Application
o Hydro-Québec - Distribution’s 2007/08 Tariff Application*
o Hydro-Québec - Transmission’s 2008 Tariff Application
o Hydro-Québec - Distribution’s 2008/09 Tariff Application*
o Hydro Québec - Distribution’s 2008-2017 Supply Plan
o Hydro-Québec - Transmission’s 2009 Tariff Application
o Hydro-Québec - Distribution’s 2009/10 Tariff Application*
35

o
o
o
o
o
o
o
o
o

Electricity (Manitoba)
Manitoba Hydro’s Status Update Re: Acquisition of Centra Gas Manitoba Inc.*
Manitoba Hydro’s Diesel 2003/04 Rate Application
Manitoba Hydro’s 2004/05 and 2005/06 Rate Application*
Manitoba Hydro/NCN NFAAT Submission re: Wuskwatim*
Manitoba Hydro’s 2005 Cost of Service Methodology Submission*
Manitoba Hydro’s 2007 Rate Adjustment Application
Manitoba Hydro’s 2008 General Rate Application*
Manitoba Hydro’s 2008 Energy Intensive Industry Rate Application
Manitoba Hydro’s 2009 Rate Adjustment Application
Electricity (Saskatchewan)
o Saskatchewan Power’s 2008 Cost Allocation Methodology Review

o
o
o
o
Natural Gas Distribution
Enbridge Consumers Gas 2001 Rates
BC Centra Gas Rate Design and Proposed 2003-2005 Revenue Requirement
Rate of Return on Common Equity (BCUC)
Terasen Gas (Vancouver Island) LNG Storage Project (2004)

Telecommunications Sector
o Access to In-Building Wire (CRTC)
o Extended Area Service (CRTC)
o Regulatory Framework for Small Telecos (CRTC)

Other
o Acted as Case Manager in the preparation of Hydro One Networks’ 2001-2003
Distribution Rate Applications
o Supported the implementation of OPG’s Transition Rate Option program prior to
Open Access in Ontario
o Prepared Client Studies on various issues including:
o The implications of the 2000/2001 natural gas price changes on natural
gas use forecasting methodologies.
o The separation of electricity transmission and distribution businesses in
Ontario.
o The business requirements for Ontario transmission owners/operators.
o Various issues associated with electricity supply/distribution in remote
communities
o Member of the OEB’s 2004 Regulated Price Plan Working Group
o Member of the OEB’s 2005/06 Cost Allocation Technical Advisory Team
o Member of the OEB’s 2008 3rd Generation Incentive Regulation Working Group
o Member of the IESO Technical Panel (April 2004 to Present)
36
Hydro One Networks
Manager - Regulatory Integration, Regulatory and Stakeholder Affairs
(April 1999 to June 2000)

Supervised professional and administrative staff with responsibility for:
o providing regulatory research and advice in support of regulatory
applications and business initiatives;
o monitoring and intervening in other regulatory proceedings;
o ensuring regulatory requirements and strategies are integrated into
business planning and other Corporate processes;
o providing case management services in support of specific regulatory
applications.

Acting Manager, Distribution Regulation since September 1999 with
responsibility for:
o coordinating the preparation of applications for OEB approval of changes
to existing rate orders; sales of assets and the acquisition of other
distribution utilities;
o providing input to the Ontario Energy Board’s emerging proposals with
respect to the licences, codes and rate setting practices setting the
regulatory framework for Ontario’s electricity distribution utilities;
o acting as liaison with Board staff on regulatory issues and provide
regulatory input on business decisions affecting Hydro One Networks’
distribution business.

Supported the preparation and review before the OEB of Hydro One Networks’
Application for 1999-2000 transmission and distribution rates.
Ontario Hydro
Team Leader, Public Hearings, Executive Services (Apr. 1995 to Apr. 1999)

Supervised professional and admin staff responsible for managing Ontario
Hydro’s participation in specific public hearings and review processes.

Directly involved in the coordination of Ontario Hydro’s rate submissions to the
Ontario Energy Board in 1995 and 1996, as well as Ontario Hydro’s input to the
Macdonald Committee on Electric Industry Restructuring and the Corporation’s
appearance before Committees of the Ontario Legislature dealing with Industry
Restructuring and Nuclear Performance.
Manager – Rates, Energy Services and Environment (June 1993 to Apr. 95)
Manager – Rate Structures Department, Programs and Support Division
(February 1989 to June 1993)

Supervised a professional staff with responsibility for:
o Developing Corporate rate setting policies;
o Designing rates structures for application by retail customers of Ontario
Hydro and the municipal utilities;
o Developing rates for distributors and for the sale of power to Hydro’s
direct industrial customers and supporting their review before the Ontario
Energy Board;
37



o Maintaining a policy framework for the execution of Hydro’s regulation
of municipal electric utilities;
o Reviewing and recommending for approval, as appropriate, municipal
electric utility submissions regarding rates and other financial matters;
o Collecting and reporting on the annual financial and operating results of
municipal electric utilities.
Responsible for the development and implementation of Surplus Power, Real
Time Pricing, and Back Up Power pricing options for large industrial customers.
Appeared as an expert witness on rates before the Ontario Energy Board and
other regulatory tribunals.
Participated in a tariff study for the Ghana Power Sector, which involved the
development of long run marginal cost-based tariffs, together with an
implementation plan.
Section Head – Rate Structures, Rates Department
November 1987 to February 1989

With a professional staff of eight responsibilities included:
o Developing rate setting policies and designing rate structures for
application to retail customers of municipal electric utilities and Ontario
Hydro;
o Designing rates for municipal utilities and direct industrial customers and
supporting their review before the Ontario Energy Board.

Participated in the implementation of time of use rates, including the development
of retail rate setting guidelines for utilities; training sessions for Hydro staff and
customers presentations.

Testified before the OEB on rate-related matters.
Superintendent – Rate Economics, Rates and Strategic Conservation Department
February 1986 to November 1987

Supervised a Section of professional staff with responsibility for:
o Developing rate concepts for application to Ontario Hydro’s customers,
including incentive and time of use rates;
o Maintaining the Branch’s Net Revenue analysis capability then used for
screening marketing initiatives;
o Providing support and guidance in the application of Hydro’s existing rate
structures and supporting Hydro’s annual rate hearing.
Power Costing/Senior Power Costing Analyst, Financial Policy Department
April 1980 to February 1986

Duties included:
o Conducting studies on various cost allocation issues and preparing
recommendations on revisions to cost of power policies and procedures;
o Providing advice and guidance to Ontario Hydro personnel and external
groups on the interpretation and application of cost of power policies;
o Preparing reports for senior management and presentation to the Ontario
Energy Board.
38

Participated in the development of a new costing and pricing system for Ontario
Hydro. Main area of work included policies for the time differentiation of rates.
Ontario Ministry of Energy
Economist, Strategic Planning and Analysis Group
April 1975 to April 1980

Participated in the development of energy demand forecasting models for the
province of Ontario, particularly industrial energy demand and Ontario Hydro’s
demand for primary fuels.

Assisted in the preparation of Ministry publications and presentations on
Ontario’s energy supply/demand outlook.

Acted as an economic and financial advisor in support of Ministry programs,
particularly those concerning Ontario Hydro.
EDUCATION
Master of Applied Science – Management Science

University of Waterloo, 1975

Major in Applied Economics with a minor in Operations Research

Ontario Graduate Scholarship, 1974
Honours Bachelor of Science

University of Toronto, 1973

Major in Mathematics and Economics

Alumni Scholarship in Economics, 1972
39