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Density/Cost Allocation Study

April 15, 2009

Michael Roger

Manager, Distribution Pricing

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OEB DirectionOEB Decision page 31

• Detailed analysis on the relationship between density and cost allocation

• Whether the customer class demarcations offer the best reflection of cost causation

• Consideration of alternative density weightings

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Current Density Definition• Urban Density Zone is defined as areas containing

3,000 or more customers with a line density of at least 60 customers per kilometre. (156,000 Residential customers)

• Medium Density Zone is defined as areas containing 100 or more customers with a line density of at least 15 customers per kilometre. (365,000 Residential customers)

• Low Density Zone is defined as areas other than Urban or Medium Density Zone. (358,000 Residential customers)

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Density Weighting Factors

• Used to allocate Overhead Lines and Transformer related costs

• Two Components:– Customer Density weighting factors (allocation of

fixed costs)– Demand Density weighting factors (allocation of

variable costs)

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Overhead Line Costs

• Customer density weights based on number of customer by class for each feeder

• Demand density weights based on energy by customer class by feeder

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ExampleConnectivity Data

Feeder Km Class 1 Class 2 Class 3 Total Class

1 10 5 20 10 35

2 20 10 10 20 40

3 30 15 5 20 40

4 40 20 5 10 35

A: Total CustomersA: Total Customers 5050 4040 6060 150150

Allocated km

Feeder Km Class 1 km Class 2 km Class 3 km

1 10 1.4 5.7 2.9

2 20 5.0 5.0 10.0

3 30 11.3 3.8 15.0

4 40 22.9 5.7 11.4

B: Total km 100 41 20 39

C=B/A km/customer 0.81 0.50 0.65

D* Wts 1.22* 0.76 0.98

E=DxA (Check)

Wted Cust 150 60.8 30.3 58.9

D*= Wts 0.81x150/[ 0.81 x 50 + 0.5 x 40 + 0.65 x 60]=1.22

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Density Weights Overhead Lines

Customer Demand

For Fixed costs For Variable costs

UR 0.19 0.18 R1 0.66 0.64 R2 1.61 1.42 Seasonal 1.20 1.60 GSe 1.11 1.15 GSd 1.14 1.18 UGe 0.24 0.18 UGd 0.31 0.30 Dgen 1.00 1.00 ST 1.00 1.00 St Lgt 1.00 1.00 Sen Lgt 1.00 1.00

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Transformer Costs

• Customer density weights based on NBV of transformation assets by class for each feeder

• Demand density weights based on energy by customer class by feeder

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Density Weights Transformers Customer Demand

For Fixed costs For Variable costs

UR 0.77 0.75 R1 0.93 0.88 R2 1.23 1.12 Seasonal 0.87 1.28 GSe 1.00 1.04 GSd 1.05 1.01 UGe 1.03 0.79 UGd 0.76 0.94 Dgen 1.00 1.00 ST 1.00 1.00 St Lgt 1.00 1.00 Sen Lgt 1.00 1.00

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Current Rate Issues

• In 2010 will still be in the middle of the 4 year Harmonization plan

• Continued Rate Pressure due to Smart Network and DG connections

• OEB Staff Paper on proposed Rate Design

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Question # 1

1. Should “customer density” be a consideration in defining customer classes?

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Question # 2

2. What criteria are relevant for defining customer classes?

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Question # 3

3. How should “density” be considered in allocating costs to the various classes?