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PEG’sCalcuthe Enthat cU351 Linearadjust WhileEntegfor TFCalcuthe prcapitaEntegEnteg“simpaboveand cBM” wthe ec Accor“Capitconse If you All of [Origi DavidDirectPhoneEmail cc:

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d Ferguson tor of Regulate: (519) 352‐6: regulatory@

Lisa BrickenDave HovdeJim Hogan, Dan CharroChris CoweRyan Diotte

preadsheet mWP”, under t‐2002 capitalximate the figf the same spon was used inappreciates th

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y]

tory & Admin6300 Ext. [email protected]

nden, Ontario Ee, Pacific EconoCEO – Entegru

on, President – ll, Chief Finance, Senior Regul

models. In ththe tab marke asset additiogures recommpreadsheet tan place of Mehe assistance

for BM” woret additions hy, in the samethe tab markes still being apor 1998‐2002ence (see Attas were $3,740applied in thecome $3,626,us adjustmenhe understanal versus pred

ully requests tn cells V354 thel results.

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to update thl additions of

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Entegrus Powerlines Inc. 320 Queen St. (P.O. Box 70)

Chatham, ON N7M 5K2 Phone: (519) 352-6300

Toll Free: 1-866-804-7325 entegrus.com

May 31, 2013 Ms. Kirsten Walli Ontario Energy Board PO Box 2319 27th Floor, 2300 Yonge Street Toronto, Ontario M4P 1E4 Re: May 27 & 28, 2013 Stakeholder Consultation re: Measuring Performance of Electricity

Distributors (EB-2010-0379) Dear Ms. Walli, Entegrus Powerlines Inc. (“Entegrus”) is appreciative of having had the opportunity to attend the above-noted stakeholder consultations earlier this week. These latest stakeholder sessions reiterated to Entegrus the importance of accurate historical capital data. These data are critical to the proposed distributor total cost benchmarking methodology developed by the Board consultant, the Pacific Economic Groups (“PEG”). The PEG Report details how this historical capital data was utilized to derive a capital benchmark (1989) and subsequent year data was utilized to develop a TFP growth trend against the benchmark1. The PEG Report further notes that the dataset for 1989 thru 2011 capital additions was incomplete. The incomplete dataset required that PEG create an estimation process to fill in data for missing years, as explained in the PEG Report:

“MUDBANK data are available for all municipal distributors through 1997 and for some municipal distributors through 1998. RRR data are available from 2002 to the present for all distributors. Because there was a data “gap” between these data sources between 1997 and 2002, PEG had to interpolate capital additions data between 1997 and 2002.”2

The available capital data from PEG’s TFP & BM Database for three selected distributors (Entegrus, Distributor 9 and Distributor 13) is shown as Attachment A to this letter. The attachment clearly demonstrates the period for which the dataset is incomplete. The PEG Report indicates that in most cases, capital additions for the incomplete period could be inferred based on the difference between gross asset values between 1997 and 2002. For the purposes of this letter, this PEG inference method will be referred to as “Methodology 1”. However, the PEG Report further explains that in certain exception cases another inference method was employed: 1 Report of the Pacific Economics Group Research, LLC, pages 31-34

2 ibid, page 32

“In some cases, however, PEG noticed precipitous drops in gross assets between 1997 and 2002. These drops did not appear to be plausible. Discussions with PBR Working Group revealed that, in some mergers over the 1997-2002 period, the gross capital stocks reported in 2002 for the merged company were in fact equal to net asset values in those years. The actual gross stocks were accordingly higher than what was reported by these distributors in 2002.”3

The PEG Report proceeds to provide a detailed algorithm developed to infer capital additions in cases where “precipitous drops in gross assets between 1997 and 2002”4 were observed. For the purposes of this letter, this inference methodology will be referred to as “Methodology 2”. Attachment B to this letter shows the capital data for the three selected distributors, inclusive of the PEG inferences for 1998-2002 capital additions. Based on review of PEG’s TFP and BM database calculations, in all three cases the inference methodology employed was Methodology 2. However, Entegrus notes that none of the three selected distributors appear to meet the Methodology 2 criteria of having shown “precipitous drops in gross assets between 1997 and 2002”. Further, in the opinion of Entegrus, the 1998-2002 capital additions produced by Methodology 2 do not appear reasonable. Specifically, in the case of Entegrus as shown in Attachment B:

a) the inferred 1998-2002 capital additions are 305% higher than the average actual 1990-1997 Entegrus capital additions, and;

b) the inferred 2003-2011 capital additions are 165% higher than the average actual 2003-2011 Entegrus capital additions.

Entegrus made similar observations with respect to Distributor 9 and Distributor 13. Based on this analysis, it is the conclusion of Entegrus that the 1998-2002 capital additions are overstated for the three selected distributors. Entegrus believes that this overstatement has a material impact on the statistical models and TFP calculations and negative consequence to the affected distributors. Entegrus puts forth for the Board’s consideration that in these three cases, Methodology 1 or an alternative methodology should be employed. In the event that an alternative methodology is developed, Entegrus seeks the opportunity to review the detailed calculations and provide commentary. Please note that Entegrus may have additional comments in advance of the June 27, 2013 stakeholder commentary deadline established in the Board’s letter of May 30, 2013.

3 ibid, page 33

4 ibid, page 33

In the meantime, if you have any questions, please do not hesitate to contact me. All of which is respectfully submitted, [Original Signed By] Chris Cowell Chief Financial and Regulatory Officer Phone: (519) 352-6300 Ext. 283 Email: [email protected] cc: Lisa Brickenden, Ontario Energy Board

Dan Charron, President David Ferguson, Director of Regulatory & Administration Ryan Diotte, Senior Regulatory Analyst

mailto:[email protected]

Att

tachment

t B

1

Andrya Eagen

From: RRF <[email protected]>Sent: June-19-13 1:49 PMTo: David FergusonCc: RRFSubject: FW: Method 1 vs. Method 2 for Entegrus

Good Afternoon, Dave

Below, please see a response from PEG’s to your May 31st e-mail and letter.

Cheers,

Lisa

From: Dave Hovde [mailto:[email protected]] Sent: June-18-13 2:15 PM To: RRF; Larry Kaufmann Subject: Method 1 vs. Method 2 for Entegrus

We looked into the issues Entegrus raised regarding our choice of method for estimating missing plant additionsdata. Entegrus was one company for which neither method generated highly plausible estimates of additions. As notedin the working papers on the Capital Calculations for BM spreadsheet, we noted the drop in accumulated amortizationas evidence that method 2 was superior despite a small increase in gross plant from 97 02. In addition, the use ofmethod 1 would result in a 90% drop vs. typical levels of additions which we see as more implausible than the increasegenerated by method 2.

Here are the results using method 1 which can be obtained by entering a 1 in the place of 2 in cell L337:

2011 Company Name Year Gross Additions

Entegrus Powerlines 1989

Entegrus Powerlines 1990 4,419,426








Entegrus Powerlines 1998 405,455




2











Dave HovdeVice PresidentPacific Economics Group Research22 E. Mifflin StreetSuite 302Madison, WI [email protected]

From: David Ferguson [mailto:[email protected]]Sent: May-31-13 1:43 PM To: BoardSec Cc: Lisa Brickenden; Dan Charron; Chris Cowell; Ryan Diotte Subject: May 27 & 28 Stakeholder Consultation EB-2010-0379: Letter of Comment

Good afternoon,

Please see the attached letter of comment from Entegrus Powerlines, as relating to the Stakeholder Consultation held atthe Ontario Energy Board earlier this week.

Should you have any questions, please do not hesitate to contact us.

Best regards,Dave

David Ferguson, CPA, CA, MBADirector of Regulatory & AdministrationEntegrus320 Queen Street, P.O. Box 70Chatham, Ontario N7M 5K2Phone: (519) 352 6300 x558

3

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Att

tachment

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Ms. KOntarPO Bo27th FToron Re: Dear On MBoardthe rePacifias Att On Juexplabasis availagenerAttac In thebetweWorkreporThis r(“MetdeemundercapitaMethgenerbeen applie

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June 24,

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