Frequently
Asked Questions concerning the Rate Handbook
Board staff attempts to provide as
complete answer as possible to the questions, however rate applications
are subject to Board review and final disposition of any matter
is subject to the Board’s decisions based on the evidence provided
by the applicant. Questions and Answers are provided under the
following subject areas:
Impact of the Directive
Filing Guidelines
Rate Mitigation
RUD Model
Application of Rates
Impact of the Directive
What are the basic changes to
the Rate Handbook and distribution rate setting process that occurred
due to the RP-2000-0069 Decision?
The Board’s RP-2000-0069
Decision determined that LDCs will still be able to earn market
based returns but will have to phase-in their incremental revenue
requirements evenly over three years to lessen the impact on consumers.
Utilities will not be able to recover any shortfalls in earnings
relating to the phasing-in of market based returns. However, utilities
will be allowed to retain additional earnings from productivity
improvements during the first 3 years of the initial PBR term.
Utilities with special circumstances
leading to financial distress may seek a skewed phase-in of
market returns. Having provided for a skewed phase-in for special
financial circumstances, the Board did not also allow recovery
of the re-engineering costs (e.g. transition costs) with the
setting of initial rates. As soon as practical following market
opening, the Board will initiate a review of the appropriate
timing and mechanism toward the recovery of re-engineering costs.
All electricity distribution utilities
must file or refile their rate applications for unbundled rates
no later than November 30, 2000. Further details can be found
in the RP-2000-0069 Decision.
How has the RP-2000-0069 Decision
affected the timing/schedule of the original PBR scheme?
As all LDCs are now required
to file or refile by November 30, 2000 the PBR schedule will be
amended in the following manner:
The first year of the PBR plan will run from
the approval of unbundled rates until February 28, 2002. The
second year will run from March 1, 2002 to February 28, 2003
and the third year will commence on March 1, 2003 and run until
February 28, 2004. More detail can be found in the Revised
Rate Handbook, Chapter 12.
Top
of page
Filing Guidelines
If a utility does not wish to
apply for the maximum ROE or chooses to remain at existing return
level, do they have to go to the OEB to get their rates approved?
All electric utilities must
file rate applications to the Board to have their unbundled rates
approved and to initiate their PBR plan. Only those utilities
provided an exemption to section 26(1) and/or section 78 of the
Ontario Energy Board Act are not required to have unbundled rates
approved by the OEB.
After an utility or local distribution
company (LDC) has submitted an application to the Ontario Energy
Board for Unbundled Rates using the revised Rate Handbook and
RUD Model, what happens?
Once the Board receives
the LDC’s Application, the Application it will be assigned a Board
file or docket number. The Application should include the LDC’s
evidence, background material (RUD Model Spreadsheets) and the
completed draft Notice. The draft notice found Appendix B of the
Handbook should be completed indicating the average rate impacts
for the residential and general service rate classes. A template
of the Notice can be downloaded from the Board’s website and customized
by the specific LDC (the Board is currently reviewing the format
of the draft notice, the most current version will be on the Web
site).
A Board staff member is assigned
to the application and would check to see that the application
is complete, basically going through the checklist found in
the Handbook at Appendix F and reviewing the draft Notice of
Application and Notice of Written Hearing (for publication)
that is to be submitted with the application.
In particular, the Notice information
regarding the rate impact on a representative residential customer
would be reviewed for accuracy and applicability. The LDC should
indicate the origin of the rate impact percentage change in
the draft Notice with a reference to the appropriate RUD spreadsheet.
If there are questions or concerns, the assigned Board staff
member will contact the LDC contact person.
After review of the draft Notice,
the Board Secretary will issue a "Letter of Direction" and a
final Notice. The LDC will be required to publish the Board
issued Notice in the local newspaper with the widest circulation.
For LDCs located in designated French language areas, a French
language version of this Notice must also be published in one
issue of a local French language paper. If the LDC serves a
French language designated area, the LDC will be notified and
a French translated Notice will be provided. The LDC will be
required to provide the Board with the date of publication.
Further details are provided in the Board’s "Letter of Direction"
to the LDC.
After filing an Application, the
LDC is required to have copies of the complete Application available
for convenient public perusal at the LDC’s head office. The
LDC will also be required to provide a copy of its submissions
to any intervenor upon request.
Persons or groups who desire to
intervene or comment on the application have 14 days from the
date of publication to register their intent to intervene or
comment. Depending on the level of response, the Board will
determine whether the application will face no hearing (only
the applicant’s evidence will be considered by the Board), a
written hearing (only written submissions from the applicant
and intervenors will be considered by the Board) or an oral
hearing where oral submissions will be heard by the Board from
all parties.
After the evidence is considered,
the Board will issue a Decision with Reasons and, if approval
is granted, a new rate schedule for the LDC. In total, the Notice
and hearing process could span anywhere from 8 to 12 weeks depending
on the number of interventions, the time frame for publication
of the Notice, complexity of the Application, and/or whether
an oral hearing is held.
What is the procedure for those
larger LDCs that have already filed an application with the Board
prior to the issuance of the Directive?
The larger LDCs that filed
earlier due to the previous filing deadline should submit amended
applications reflecting the RP-2000-0069 Decision. In general,
or unless other key aspects of the application have changed, it
is not expected that a new Notice will have to be published. However,
the LDC must provide a copy of the new application to any parties
that were granted intervenor or observer status and to those that
had previously requested to comment on the application. A Procedural
Order will be issued to allow these parties the opportunity to
provide submissions on the amended application.
When can LDCs expect first year
rates to be approved?
LDCs should indicate in
their applications, the date for which they are requesting unbundled
rates to be in place. A utility should also indicate how many
days prior to the implementation date are required to program
systems and complete other work necessary to put the new rates
into effect.
The Board will make every effort to approve
rates as quickly and efficiently as possible, however, with
over 200 applications expected by November 30, applicants cannot
be guaranteed that they will be provided with approval by the
date requested.
) In light of the RP-2000-0069
Decision, what is the status of Standard Supply Service (SSS)
applications? When are these filings expected?
The previous SSS deadline
is no longer valid. The SSS application process is separate from
the rate unbundling application process and SSS rates are not
required until market opening. The Board will provide further
direction to LDCs on the timing of SSS filings. There is nothing
in the RP-2000-0069 Decision that affects SSS.
How does an LDC which is subject
to a merger, acquisition, amalgamation or divestiture (MAADs)
file its rates?
Unbundled rates must be
in place prior to market opening. While no market opening date
has been announced, the Board has indicated that all unbundled
rates should be in place by the spring of 2001. In order to achieve
this objective, the Board requires all LDCs to file on or before
November 30, 2000.
However, if an LDC is part of a
merger or acquisition proposal that was filed with the Board
on or before November 7, the utility may contact the Board’s
Rate Section for filing directions. If it is determined that
a MAADs application cannot be considered in time for rates to
be filed as a single entity, the utilities subject to the transaction
will be required to file separate applications.
While LDCs who have not received
Board approval for their MAADs transaction must file separate
applications the LDCs may wish to work together with an aim
of developing a single set of rates that might be merged subsequent
to transaction being approved. If the proposal is approved,
the application could be amended with a rate harmonization plan
for the new, larger service territory.
If a merger/acquisition has taken
place, should separate RUD Models be submitted for the former
separate service areas?
Yes, a separate RUD Model
is required for each of the service areas/municipal utilities
in place in 1999. As the RUD Model uses 1999 data for unbundling
rates, this is a necessary step. Determination of unbundled rates
of the previous service territory allows the Board to examine
the impacts of the unbundling proposal on all rate classes. Once
this is determined, the new merged entity may chose to file a
harmonized rate filing to request approval of the harmonized rates
in the new service territory. In this step the LDC should show
the progression of rate changes/impacts from initial unbundled
rates calculated prior to harmonization in each territory and
the final harmonized unbundled rates for the combined service
territory.
Top
of page
Rate Mitigation
How does an LDC adjust its application
to comply with the one third phase-in? And, as the date of Market
Opening is still uncertain, how should LDCs treat the PILs issue
in their applications?
The municipally owned LDC
should determine its incremental revenue requirement exclusive
of PILS to meet its chosen rate of return. Once this is determined,
one third of this amount should be used to generate rates for
the first year. The RUD Model can be adjusted to do this on the
MARR (no tax) calculation (sheet #7) by entering 2/3 of the additional
required amount in the "deferred amount" line. This will leave
the 1/3 amount to be allocated and the rest of the calculations
will proceed automatically. Alternatively, you can divide the
formula in the "change in revenue to be allocated" line by 3 (leave
the "deferred amount" line blank or enter zero) and achieve the
same result. While only the first year rates will be reviewed
for approval, the LDC must provide all relevant information regarding
its mitigation plan. For example, while it is not necessary to
provide rate schedules for all three years the utility should
ensure that each year’s revenue requirement is identified. The
Board will compare this information to that filed by the applicant
when implementing rates for the subsequent 2 years.
All applications from municipally-owned
utilities should only deal with non PILs rates. The effects
of taxes should not be included. There are two reasons for this:
1) the date for market opening is uncertain so there is no knowledge
at this time of when PILs adjusted rates would apply, and 2)
the rate to be used to determine PILS is set according to corporate
tax rates in force at the time of market opening. As stated
in the Revised Rate Handbook, the Board will issue instructions
prior to market opening to adjust rates for PILs so that appropriate
rates are in place when required.
Utilities who are not municipally-owned
and who are responsible for paying PILS or corporate taxes before
market opening, should include the PILS or corporate tax amount
in their incremental revenue requirement. The tax rate should
be equivalent to the current applicable corporate tax, exclusive
of capital tax and large corporations tax. The utilities must
indicate in their application what the appropriate tax rate
is. This rate will be subject to approval by the Board.
How will the future mitigated
rates be implemented?
The Board will provide further
direction for implementing the additional two-thirds of the revenue
requirement into rates in the 2nd and 3rd years after first year
rates are set. In addition, as the Board stated in the RP-2000-0069
Decision, the issue of treatment of re-engineering (transition)
costs will be reviewed after market opening and a mechanism of
approving and bringing these costs into rates will be devised.
The RP-2000-0069 Decision allows
utilities with special circumstances leading to financial distress
to seek a skewed phase-in of market returns. How does this work?
In its application for a
skewed phase-in of market returns, the LDC must demonstrate that
it will suffer financial distress, defined in the Decision as,
"the inability to meet financial obligations incurred prudently"
if the standard one third phase-in is used. If approved by the
Board, the LDC would then be able to phase-in market returns at
a higher percentage in the first year, thereby raising revenues
and increasing income.
Top
of page
RUD Model
If an LDC owns assets that have
been designated as transmission assets (ie, over 50kv) how should
these assets be treated in the rate base for determining unbundled
rates?
As indicated in Appendix
D, Page 13 of the Rate Handbook, these assets should be included
in the net fixed asset calculation and included in Table A3 under
"Other amounts not listed above" as applicable. The methodology
and reasons should be clearly documented and made available for
the Board’s review when the application is filed.
How is the Diversity Credit for
Large Users of an MEU treated in the RUD Model?
The Diversity Credit is
applicable to Large User rates set before market opening but not
for rates to be applied after market opening as the credit will
cease to exist at that time. After market opening, a large use
customer has the option of buying from the competitive market.
In the competitive market place, commodity prices may be equal
or less than previous prices that included the diversity credit.
The diversity credit appears as a separate line item under Miscellaneous
items.
When using the RUD Model and testing
for the impact of the rate structure change, is the 10% impact
guideline to be used for each class? And, if the impact is over
10% for a certain rate class, can the service charge be reduced
to zero to mitigate the rate impact? If the impact is less than
10% in the initial analysis, can an LDC still adjust the service
charge?
The test for the rate impact
of the rate structure change is to be used for each rate class
and each class should have its rate impact evaluated separately.
When adjusting the rate structure proportions to mitigate rate
shock, the service charge should never be reduced to zero as the
Board Decision (RP-1999-0034) indicates that the rate structure
is mandated to include a service charge and a volumetric rate.
If the impact on the initial analysis passes the guideline test
(ie, is about 10% or less), the LDC may still adjust the rate
structure components, as long as the Incremental Distribution
Rate (IDC) is at least 0.0062 cents/kWh. However, some utilities
may need to go below 0.0062 cents/kWh to achieve a viable two
part rate structure. If this is the case, it should be highlighted
in the Manager’s Summary as a deviation from the norm. For more
information, see the question below regarding Sensativity Analysis.
How are distribution rates for
General Service TOU customers determined if the LDC’s TOU rate
design does not fit the RUD Model methodology?
Ideally, when determining
rates for General Service TOU customers, an LDC would remove the
Cost of Power for the TOU customers, leaving the distribution
rates that are the same for the TOU and non-TOU General Service
customers.
In some rate designs it may be that there is
a cost-basis for a difference in the TOU and non-TOU GS Rates
other than that accounted for by the incremental cost for the
time of use metering. In this case, the LDC should remove the
COP from the TOU revenue requirement, take the TOU distribution
Revenue Requirement, add it to the non-TOU distribution Revenue
Requirement, and then divide by total GS (>50 kW) number of
customers (i.e. both non-TOU and TOU customers). Remember to
remove the Revenue Requirement for the incremental TOU metering
cost and add this as a line item for the TOU customers. Then
the LDC can continue developing distribution rates using the
RUD spreadsheet. Any adjustment of this type should be highlighted
as a change to the standard unbundling model as part of the
Manager's summary.
) If an LDC has acquired service
territory from Hydro One-Distribution over the past year, how
should the LDC incorporate the former Ontario Hydro rate classes
associated with this annexed territory into the RUD Model?
The LDC should prorate their
1999 results to account for the additional service territory/customers
that were acquired in that year.
The existing RUD Model does not take this situation
into account so additional class categories have to be added
to the spreadsheet and several new cell linkages need to be
created. Board staff have created a modified spreadsheet which
takes into account residential urban, residential year round
suburban and residential seasonal suburban rates, and a general
service category. Rather than doing the modifications themselves,
LDCs are welcome to request this version by contacting Board
staff.
How are the Sensitivity Analysis
sheets in the RUD Model used?
The "Sensitivity Analysis
1" sheet is designed to assist LDCs in adjusting the restructured
(unbundled) rates to mitigate the rate impact of the new rate
structure if it exceeds 10% for low-end customers within each
class. The RUD Model requires the LDC to input a proportion for
variable and service charge revenue. The LDC must enter the proportions
that pertain to the specific utility, not necessarily the 40 -
60 split that is currently entered on the sheet (those values
are for illustrative purposes only).
Utility proportions can be obtained
by looking at any of the classes (other than residential) on
the "Revenue Reqts and Distr. Charges" sheet under the section
"to calculate variable and service charge revenue". A table
showing distribution revenue, variable revenue and service charge
revenue for the residential class (eg. Line 118) appears. On
the next line (line 119) revenue share numbers are shown. These
are the numbers that should be entered on the "Sensitivity Analysis
1" sheet on the chosen revenue shares line for each class.
These numbers are the starting
point for the analysis. The sheet compares the total bill under
restructuring with the total bill under existing rates and provides
the impact for a number of consumption levels within each class.
Consumption levels can be adjusted to fit specific utility profiles.
The variable revenue proportion
can be moved upwards (the service charge proportion automatically
decreases) as much as necessary to reduce the impact on low
consumption customers. However, the variable revenue portion
cannot go below the starting level. The final level chosen for
the variable revenue and service charge proportions must be
the same for all consumption levels within a class, but can
differ across classes.
Changes to the "Sensitivity Analysis
2" and "Sensitivity Analysis 3" sheets are not required unless
consumption levels were changed on the "Sensitivity Analysis
1" sheet. In this case, the same consumption level changes should
be made to the latter sheets.
How does an LDC deal with unbilled
revenue?
The retail energy numbers
required by the RUD Model should include a full 12 months data.
If, for example, energy consumed in December of 1999 that wasn’t
billed until January 2000 should be included in 1999 sales data
if December 1998 sales that were billed in January 1999 were included
in 1998. To include unbilled amounts, the amount that belongs
in each rate class block should be estimated and added to the
respective amounts for regularly billed sales.
The methodology for the estimation and the estimated
amount of unbilled revenues should be highlighted in the Manager’s
Summary.
An LDC bills its customers on
the basis of the greater of 90% kVa or peak kW used. Billed demand
may therefore overstate the actual total wholesale kW that the
utility is charged for and lead to an overestimate of the cost
of power for the affected classes (namely large users, intermediate
users and large general service TOU customers). How should we
account for this in the RUD Model?
If the LDC knows the class
peak kW for the relevant classes, it should use this quantity
instead of the billed demand amount in the RUD Model for calculating
cost of power. Enter the class peak kW demand on the DATA sheet
in the cost of power calculation section for the affected classes
(ie. the section where you enter class coincident factors) by
overwriting the kW numbers which automatically appear for these
classes on the DATA sheet. The RUD Model will then use these numbers
to calculate the cost of power and the rest of the model calculations
will proceed automatically with no further changes necessary.
The LDC should clearly state that this adjustment has been made
in Manager’s Summary so Board Staff are aware of this power factor
adjustment when the application is reviewed.
If you do not know the class peak kW, continue
to use the billed amounts as this will provide the best readily
available estimate of demand for determining cost of power given
data limitations and short filing time frames. No changes to
the RUD Model are required in this case.
Top
of page
Application of Rates
All LDC unbundled rate applications
will only apply to pre-market opening rates, what commodity rates
should be used for charging customers before the market opens?
The commodity rates that
are generated by the RUD Model should be used until the market
opens when market determined commodity rates apply. The COP rate
should be clearly identified by the LDC for approval on the new
rate schedule.
The RP-2000-0069 Decision indicated
that the provisions in the Distribution System Code that determine
whether capital contributions should be collected, and the methodology
and assumptions for an economic evaluation (DSC, Section 3: Connections
and Expansions) are in force upon the issuance of the Decision
(September 29, 2000). What rates should an LDC use as an input
to the economic evaluation?
As approved unbundled rates
are not available until the Board considers LDC rate applications,
distributors should use the unbundled rates for which they are
seeking approval in their November 30 rate applications.
Could you clarify the General
Service Class over/under 50kW issue in light of the RP-2000-0069
Decision?
Section 3.5.7 of the RP-2000-0069
Decision will have no impact for the RUD Model and the rate unbundling
and the establishment of initial rates for the general service
class. In 1999, any customer with a measured demand of 50 kW is
in the >50 kW sub-class for the purpose of determining the unbundled
rate.
The RP-2000-0069 Decision provides the utilities
with a method of mitigating potential rate shock (subsequent
to the introduction of initial rates) in applying the <50 kW
rates to general service customers. For customers who have demands
of greater than 50 kW, but less than 100 kW the utility may
continue to maintain these customers in the <50 kW sub-class.
The LDC should include an explanation of its rate mitigation
policy regarding the <50 kW and >50 kW sub-classes in its rate
application.
How are LV transmission rates
going to be set for embedded LDCs. Will this be a regulated rate?
The Board is still considering
the issue of how to deal with LV rates for embedded LDCs within
the territory of a host LDC. These will be regulated rates. Hydro
One has applied for LV rates in their distribution rate application
but consideration of these rates have been delayed by the Directive
and Generic Hearing. The Board is aware that a number of other
utilities also have the host distributor function and will also
have to apply for LV transmission rates.
At this stage, it would be prudent for those
LDCs who are hosts to other LDCs and those LDCs that are embedded
and directly affected by Hydro One’s LV rates to review the
methodology in the Hydro One application.
How should an LDC treat flat rate
connection situations such as phone booths, traffic lights and
cable company amplifiers? Are these type of services to be metered?
These are installations
where the load is constant and known and has in the past been
billed using a flat rate. Such small scattered load is classified
under the general service class in the Standard Application of
Rates. Therefore, in terms of unbundled rates, the GS distribution
rates and GS pre-market Cost of Power rates should apply to the
estimated load and consumption.
If the cost of power cannot otherwise
be determined, LDCs can use the cost of power kWh rate and distribution
kWh rate already derived for the general service <50 kW group
in the RUD Model. To get the cost of power component, multiply
the cost of power rate by the kWh and subtract this from the
1999 revenue requirement for small scattered load. The difference
will be the distribution revenue which can be allocated to variable
revenue (ie, distribution kWh rate x the kWh) and service charge
revenue according to the RUD Model methodology.
Many utilities already have a method
of dealing with scattered load, i.e. the determination of load
and consumption in the absence of metering. Since the load and
consumption associated with these installations is fairly constant,
utilities should continue to use the load and consumption assumptions
if the customer remains on SSS.
However, if the customer purchases
from a retailer after the market opens, the energy will be provided
at the retailer’s price while the distribution utility will
continue to apply the unbundled GS distribution rates. If the
retailer insists on a meter, in a situation where the utility
would not require it, the utility may seek to have the cost
of the meter born by the customer, if that is a condition of
supply of the customer's chosen supplier.
Top
of page
|
