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Density/Cost Allocation Study

This study analyzes density and cost allocation relationship, proposing optimal customer class demarcations for fair cost sharing. Evaluation of alternative density weightings to enhance cost causation accuracy is conducted.

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Density/Cost Allocation Study

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  1. Density/Cost Allocation Study April 15, 2009 Michael Roger Manager, Distribution Pricing

  2. 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

  3. 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)

  4. 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)

  5. 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

  6. Example Connectivity 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 4402051035 A: Total Customers 50 40 60 150 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 4022.95.711.4 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. Question # 1 • Should “customer density” be a consideration in defining customer classes?

  12. Question # 2 • What criteria are relevant for defining customer classes?

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

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