OPG Regulated Facilities
Payment Amounts
Tom Staines
Director, FinanceStakeholder Meeting #2
April 1, 2010
Corporate Support Functions and
Cost Allocation
Corporate Support Functions
Corporate Support Functions - OM&A Costs
Corporate Support Functions - Benchmarking
Corporate Support Functions - Capital Costs
Corporate Support Functions - Asset Service Fees
Corporate Cost Allocation Methodology
Corporate Cost Allocation Review
3 Prong-Test
Corporate Support Functions
Support Functions
Business Services & Information Technology (BS & IT) Finance Human Resources Corporate Affairs Corporate Centre
Services Provided
Business/Enterprise Systems and Applications, Telecommunications, Licenses, Hardware, Real Estate Services, Procurement Services
Business Unit Controllership, Accounting, Treasury, Internal Audit, Business Planning Business Unit Human Resources, Labour
Relations, Compensation & Benefits, Employee Safety
Regulatory Affairs, Public Affairs,
Communications, Sustainable Development, Energy Markets
Corporate Support Functions OM&A
2007 2008 2009 2010 2011 2012
OM&A ($M) Actual Actual Actual Budget Plan Plan
Corporate Functions
Business Services & IT 155.1 147.9 147.7 150.9 153.8 153.7
Finance 36.6 37.0 39.6 39.1 39.5 39.7 Human Resources 38.5 38.8 38.6 38.5 39.4 39.9 Corporate Affairs 19.5 25.5 21.7 29.3 26.8 29.3 Corporate Centre 12.9 14.7 11.8 14.3 14.5 16.0 Total Allocated to Regulated Facilities 262.6 263.9 259.4 272.1 274.0 278.6 Regulated Hydroelectric 21.9 26.3 24.8 25.1 24.8 26.3 Nuclear 240.7 237.6 234.5 247.0 249.2 252.3 Total Allocated to Regulated Facilities 262.6 263.9 259.4 272.1 274.0 278.6 Percentage Allocated to Regulated Facilities 68.0% 67.7% 66.9% 67.8% 68.2% 68.5%
Corporate Support Functions
Benchmarking
In 2009 OPG conducted benchmarking analyses for corporate groups:
– Information Technology
– Human Resources
– Finance
Information Technology used Electric Utility Cost Group (EUCG) data to
benchmark against peer North American utilities. Results indicate that OPG’s IT costs in 2008 were within the second quartile for IT spending per employee and at the median for IT spending per GWh.
Human Resources participates in Electric Utility Metrics Group (EU-HRMG) and benchmarked against 40 large member utilities. Results show that HR is better than median on spending per FTE to deliver a comparable set of HR services, and at median on investment per employee in HR programs.
Undertaken in late 2009, Finance benchmarking results are not yet available.
1. For IT & HR peer utilities, the North American peer utilities are mostly integrated (generation, transmission, distribution, retail) utilities where costs are allocated among integrated businesses.
2. In the April 1,2010 presentation, HR benchmarking text read,“better than below median” , the text should have read “better than median”.
Corporate Support Functions Capital Expenditure
Table includes total expenditures for all projects impacting the prescribed facility rate base or asset service fee.
Projects Greater than $10 million
Real Estate: 700 University Ave. Chiller Replacement Project (2010-2011) Projects Between $5 million and $10 million
Information Technology: Passport (work management system) Application Upgrade (2011-2012)
SAP (financial information system) Upgrade (2011-2012)
Energy Trading and Risk Management (ETRM) and Settlement Project (2010-2011)
2007 2008 2009 2010 2011 2012
CAPITAL ($M) Actual Actual Actual Budget Plan Plan
Corporate Functions
Information Technology 15.7 11.9 19.9 18.6 17.4 24.4
Real Estate 12.7 2.3 3.5 10.6 8.8 3.3
Corporate Support Functions Asset Service Fee
Assets include: 700 University Ave. 800 Kipling Ave. Wesleyville Building IT Assets Components: Operating Costs Depreciation Expense Property Taxes Return on Assets 2007 2008 2009 2010 2011 2012Asset Service Fee ($M) Actual Actual Actual Budget Plan Plan
Regulated Hydroelectric 2.3 2.5 2.6 2.0 2.1 2.0
Nuclear 33.2 28.8 27.2 24.6 24.1 23.7
Corporate Cost Allocation Methodology
Corporate Functions Primary Allocators
Information Technology LAN ID's, PC's, Applications
Real Estate Square Footage, Time and Costs Estimates, OM&A/Capital Spend Supply Chain OM&A/Capital Spend
Finance Time Estimates, OM&A/Capital Spend, Transactions Human Resources Full Time Equivalents (FTE's)
Corporate Affairs Time and Costs Estimates, OM&A/Capital Spend
Corporate Cost Allocation Review
OPG has used essentially the same cost allocation methodology approved by
the OEB in 2007-0905
– Costs are directly assigned or allocated
– Approximately 53% are directly assigned
Black & Veatch (B&V) evaluated OPG’s corporate cost allocation methodology
and its implementation
Major conclusions:
− The overall approach is appropriate for the business organization of OPG.
− Direct assignment of costs by specific identification and by estimation is based on sufficient information reasonably applied.
− Direct assignments are used wherever possible.
− The costs drivers selected by OPG for those instances where not all costs are directly assigned are appropriate.
− The methodology used by OPG to distribute the corporate costs separates the costs between regulated and unregulated business units in a manner that meets current best practices and is consistent with cost allocation precedents established by the OEB.
3-Prong Test
1. Cost Incurrence - costs prudently incurred
2. Cost Allocation - corporate charges allocated appropriately
3. Cost/Benefit - benefits equal or exceed the costs Services Providers • Information Technology • Real Estate • Finance • Human Resources • Public Affairs Service Recipients • Regulated Hydroelectric • Nuclear
