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

2. 2 OEB Direction OEB 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. 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. 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. 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. 6 Example Connectivity Data FeederKmClass 1Class 2Class 3Total Class 1105201035 22010102040 3301552040 4402051035 A: Total Customers504060150 Allocated km FeederKmClass 1 kmClass 2 kmClass 3 km 110 1.4 5.7 2.9 220 5.0 5.010.0 33011.3 3.815.0 44022.9 5.711.4 B: Total km 100 41 20 39 C=B/Akm/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. 7 Density Weights Overhead Lines Customer Demand For Fixed costsFor 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. 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. 9 Density Weights Transformers Customer Demand For Fixed costsFor 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. 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. 11 Question # 1 1. Should customer density be a consideration in defining customer classes?

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

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