SUMMARY OF SHARED SERVICES OM&A

Transcription

1 Filed: May, 0 EB Exhibit C Schedule Page of 0 SUMMARY OF SHARED SERVICES OM&A Hydro One Shared Services are comprised of Common Corporate Functions and Services ( CCFS ), Asset Management Services, Information Technology ( IT ), Cornerstone, Cost of Sales to external parties and Other OM&A. Other OM&A includes the capitalized overhead credit, the environmental provision credit, indirect depreciation and other costs. CCFS includes Corporate Management, Finance, Human Resources, Corporate Communications and Services, Legal, Regulatory Affairs, Corporate Security, Internal Audit, and Real Estate. Common Asset Management services include Strategy and Business Development, System Investment, Work Program Optimization, Business Integration, Asset Management Processes and Policies and Business Transformation. IT and Cornerstone activities include providing and managing computer systems (for example, hardware and software) and IT infrastructure. Hydro One utilizes a centralized shared services model to deliver its common services. The common services are delivered to the Transmission and Distribution businesses within Hydro One Networks Inc., and to the legal entities Hydro One Inc., Hydro One Telecom Inc., Hydro One Networks Brampton Inc., and Hydro One Remote Communities Inc. The centralized shared services model has allowed Hydro One Inc. to efficiently deliver key common services across the whole company in a cost-effective manner. Many organizations have adopted a shared service model as an effective method of delivering common services to multiple subsidiaries and/or multiple business units. Hydro One adopted this model when it was established in. The additional cost to establish the common functions in each of its subsidiaries would be cost prohibitive. In

2 Filed: May, 0 EB Exhibit C Schedule Page of addition, the shared service model allows for the delivery of specialty services (i.e. Tax, IT systems and processes) without the need for having multiple experts in many areas. This shared services model is a recognized business concept which has many benefits including: 0 Minimization of the work force through commonly available specialist expertise and resources; Ensuring consistent policy and governance framework processes; Rationalizing and providing consistent levels of service across the organizations (for example, consolidation of office space, centralization of human resources, pay and financial services, infrastructure support); Using common technology systems and platforms and providing better access to information (for example, implementation of common financial and work material management systems); Synergies from economies of scale (for example, accounts payable processing, common procurement process and management of supplier relationships); and Increased flexibility to pursue outsourcing of services where appropriate. Shared services cost levels are fully reviewed as part of the annual business planning process (see Exhibit A, Tab, Schedule ). Table summarizes the Transmission portion of the Shared Services and Other OM&A Costs over the Historic, Bridge and Test years.

3 Filed: May, 0 EB Exhibit C Schedule Page of Table Allocated Transmission Shared Services and Other OM&A Costs ($ Millions) Description Historic Bridge Test Common Corporate Functions and Services Asset Management Information Technology Cornerstone...0 (.) (.) (.) Cost of Sales Other OM&A (.) (.) (.) (0.) (.) (.) Total For the 00-0 period, Hydro One has applied a cost allocation methodology developed by Black and Veatch Corporation (B&V) which utilizes a breakdown of activities and drivers. In 00, the Company commissioned B&V to update the methodology to allocate common costs among the business entities using the common services (as discussed in Exhibit C, Tab, Schedule ). The approach utilizes a further breakdown of activities and drivers and is used in this application. The following Table provides an overview of the various shared services cost categories for 0 and 0 showing the total costs as well as the allocated Transmission costs.

4 Filed: May, 0 EB Exhibit C Schedule Page of Function / Service Table Shared Services and Other OM&A Costs ($ Millions) 0 Total 0 Total 0 Tx Allocation 0 Tx Allocation Common Corporate Functions and Services.... Asset Management....0 Information Technology Cornerstone (.) (.) (.) (.) Cost of Sales.... Other Shared Services (.) (.) (.) (.) Total.... The change in 0 as compared to 00 is primarily related to: 0 Higher CCFS costs due mainly to higher Real Estate costs for additional work space as a result of the growth in the Company s work program; increased Human Resource support as a result of the larger work program and succession planning; increased costs related to long term relationship building and negotiations with First Nations and Métis groups (see Section. of Exhibit C,, Schedule ) and higher General Counsel & Secretariat costs related to the records management project and increased workload due to the GEA. These increases are partially offset by decreased Finance costs as the IFRS project nears completion. While overall Asset Management costs increased due to growth in the Distribution and Transmission SD&O work programs (see Exhibit C,, Schedule for details), Transmission OM&A costs decreased over this period due a shift in the allocation of these costs; Higher IT costs due to increased sustainment work effort for the completed Cornerstone Phase and Phase projects (see Exhibit C,, Schedule for details);

5 Filed: May, 0 EB Exhibit C Schedule Page of Lower Cornerstone costs due to a reduction in overall development costs, compounded by greater savings as process improvements from Cornerstone are leveraged in the business. Increased Cost of Sales as a result of activities related to revenue metering projects per the IESO requirements, and traditional work performed for OPGI; Lower Other Shared Services resulting from the growth in the capital work, thus generating higher overhead credits. In the exhibits following, information is provided on the following areas: Common Corporate Functions and Services; Asset Management Services; Information Technology; Cornerstone; Cost of Sales; Other OM&A.