OPERATIONS OM&A. Filed: May 28, 2012 EB Exhibit C1 Tab 3 Schedule 4 Page 1 of INTRODUCTION

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1 Page of OPERATIONS OM&A 0.0 INTRODUCTION The Operations OM&A program funds the operations function, which manages the transmission assets in real time on a continuous basis. This includes monitoring and controlling the transmission assets, coordinating and scheduling planned maintenance outages, and monitoring and reporting on the performance of the transmission system. These expenditures fund the operation of Hydro One s transmission system consistent with good utility practice and within the requirements established by the reliability authorities, operating agreements and the market rules. Operations OM&A also includes initiatives to support environmental, health and safety activities that are required to meet legal obligations, due diligence and aligns with Hydro One s strategic objectives. Lastly, this funding supports Hydro One programs for managing its relationship with its large customers and generators. 0.0 DISCUSSION Operational activities associated with the transmission system are carried out centrally at the Ontario Grid Control Centre ( OGCC ). The OGCC is a shared facility which allows central operations of the transmission and distribution systems and is backed up by facilities located at a separate site. Back-up operating facilities are provided at a separate facility as required to meet North American Electricity Reliability Corporation ( NERC ) standards and is consistent with good utility practice. The 0 and 0 test year costs for transmission operations at the OGCC is based on the cost allocation methodology proposed by Black and Veatch, updated in 0 and

2 Page of accepted by the Board during the previous three transmission applications under Proceedings EB-00-00, EB-00-0 and EB and as discussed further in, Tab, Schedule. 0 The OGCC is the operating authority for Hydro One s transmission system including interconnections to other neighbouring transmission systems in Canada and the United States. Using the Network Management System, the OGCC monitors and controls Hydro One s transmission system and transformer supply stations in real time to maintain acceptable voltage levels and equipment loadings, and manages forced and planned equipment outages The OGCC performs the transmission Outage Planning ( OP ) function to facilitate the maintenance and capital work programs. In addition, the OGCC develops Utility Work Protection Code documentation including switching orders for transmission planned and forced outages to ensure a safe working environment for employees. The Operations OM&A program is divided into four categories: 0 Operations, which funds the work required to conduct the safe and reliable operation of the transmission system, including the planning and scheduling of transmission outages; Operations Support, which provides for the maintenance of the computer tools and systems for the operations function; Environment, Health and Safety, which funds programs to support environmental, health and safety activities that are required to meet legal obligations, due diligence requirements and to assist in achieving corporate health and safety objectives; and Contracts and Customer Business Relations, which funds Hydro One s efforts to manage its relationships with transmission-connected industrial customers, LDC s, and transmission-connected generators.

3 Page of The required funding for the test years, along with the spending levels for the bridge and historic years, are provided in Table for each category. Table Operations OM&A Allocated to Transmission ($ Millions) Description Historic Bridge Test Operations* Operations Support Environment, Health and Safety Large Customer & Generator Relations* Total *Due to an organizational change, in the previous application (EB ), the costs associated with Large Customer & Generator Relations have been reduced as the Customer Operations Support (COS) group has moved under Operations in The increase in Operations expenditures from 00 to 0 is attributed to an organizational realignment. Customer Operation Support ( COS ), formerly part of the Large Customer & Generator Relations group, has moved under Operations. The decrease in Operations expenditures from 0 to the 0 bridge year is related to a corporate initiative to reduce controllable Operations costs (i.e. Overtime, Sundry s etc.). These areas have been reduced and form the baseline for the test years. The increase in expenditures from 0 Operations spending levels to the test years is related to collective agreement obligations. The Operations Support spending shows an increase in the bridge year and similar increases in the test years is due to standard cost escalation. The health, safety and environment increase from historic spending is a result of the introduction of some new training initiatives, most notably Motor Vehicle Operator training and Ice & Water Rescue which is being delivered across Networks and the

4 Page of development of new training packages for Protection and Control and Central Maintenance Services. Work preparation for OHSAS 00 registration and Journey to Zero initiatives has also increased. All programs are targeted to help Hydro One achieve its strategic objective of creating an injury-free workplace and maintaining public safety. Large Customer & Generator Relations decreases from historic spending as a result of the realignment of the Customer Operations Support ( COS ) group to Network Operating. 0 The description and details for individual Operations OM&A programs and year-to-year changes are provided below..0 OPERATIONS This program funds the work required to conduct the safe and reliable operation of the transmission system, including the planning and scheduling of transmission outages. It also includes maintenance and support for the Network Management System ( NMS ) and Network Outage Management System ( NOMS"). 0 The NMS is a mission critical application for monitoring and control of the Hydro One transmission system and NOMS is an essential tool for execution of the Outage Planning ( OP ) function at the OGCC. In addition, Hydro One is registered with NERC as a Transmission Owner and Operator. This registration requires that the control room operators be NERC certified as transmission operators. Aside from the initial cost of the NERC certification training for new hires, there is an on-going mandated requirement to provide continuing education hours annually, to maintain NERC certification.

5 Page of Staffing levels in the test years are planned to be maintained despite meeting an increasingly demanding work load as a result of larger Sustaining and Development capital work programs and Green Energy related work. This increase in work program has required added outage planning and scheduling, and increased efforts to adequately manage the power system. This trend is expected to continue into the test years. This is discussed in more detail in Exhibit A, Tab, Schedule. 0 The spending requirements for test years 0 and 0 are $. million and $. million. These increases in planned Operations expenditures over 0 levels are largely due to collective agreement obligations. Operations staff has skill sets and experience that make them attractive for promotion into other lines of business. This, as well as the large percentage of employees becoming eligible to retire, may result in a higher than average attrition rate. This risk is mitigated through Hydro One s Controller Trainee ( CT ) program which hires new controller trainee s on an annual basis. The program requires the candidates to complete a three year training course, including successful completion of NERC certification and therefore requires hiring candidates three years prior to anticipated position needs. 0 The risk of not proceeding with this plan would result in a critical shortage of skilled resources and the failure of the operating centre to function efficiently..0 OPERATIONS SUPPORT This program provides funding for the maintenance of, and minor enhancements to, the operating facilities at the OGCC and back-up centres, as well as services essential to the planning and execution of outages.

6 Page of The primary operating facilities are the Network Management System ( NMS ), the Network Outage Management System ( NOMS"), the Utility Work Protection Code System, the Electronic Log ( EL ), the OGCC Integrated Voice System and the OGCC Emergency Services Information System ( ESIS ). Details concerning each of these systems are provided as part of the discussion on Capital investments in Exhibit D, Tab,. The essential services to support the day to day operation of the transmission system are described in the sections below. 0. Operating Facilities Operating Facilities maintains all of the facilities required to support the day-to-day operation of the transmission system. These facilities include the various computer systems required for real-time monitoring and control, communications, training, and outage scheduling. Funding for the software licenses, vendor maintenance contracts, consumables and staff labour to support the operating facilities for the OGCC, the backup centres and the remote operating data collection sites are included in this service. 0 The costs for Operating Facilities in 0 and 0 are $.M and $.0M respectively.. Field Switching Many elements of the transmission system cannot be remotely controlled. In order to fully carry out its accountabilities related to the provision of safe working conditions and reliable operations, the Operations function directs staff in the field to carry out required manual switching. Field switching primarily supports the maintenance program but may also respond to forced outages and third party requests.

7 Page of The costs for Field Switching activities in 0 and 0 are $.M and $.M respectively. 0. Load Transfer Studies Load transfer studies are required to assess the feasibility of electrical configuration changes when forced and planned outages are required on the Hydro One Transmission system due to maintenance, new connections, device installations and abnormal system conditions. The benefit of carrying out these studies is continued system reliability, reduced impact to customers and safer working environments for Hydro One Transmission employees. The costs for Load Transfer Studies in 0 and 0 are $.M and $.M respectively.. Maintain Operating Diagrams Operating diagrams show the interconnectivity of transmission elements and the devices that isolate them from the system. 0 The operating diagrams are maintained on the following systems: The Computer Aided Design (CAD) system, which contains the transmission diagrams for auxiliary facilities within transmission transformer stations such as dc/ac station service diagrams, air systems, protection and control systems, etc.; and. The NMS, which contains all transmission system related drawings used for real time control. One of the primary uses of operating diagrams is the specification and execution of the Work Protection Code procedures required to provide safe working conditions for maintenance and construction crews. The Development and Sustainment programs result

8 Page of in several thousand changes to the transmission system each year. It is critical to worker safety that these changes be reflected on the operating diagrams correctly and in a timely fashion. The costs for Maintenance of Operating Diagrams in 0 and 0 are $0.M for each year. 0. Miscellaneous The remaining miscellaneous expenditures include; Voice Communications System Support, Control System Technical Support, Customer Event Investigation, Emergency Preparedness, Field Verification and Level II Inspections. The costs associated with these investments in 0 and 0 are $.M and $.M respectively.. Summary of Expenditures 0 The spending requirement for test year 0 is $. million and for 0 it is $. million. The Operations Support funding levels in the test years are higher than the 0 bridge year due to standard cost escalation. The risks of not proceeding with these levels of work would result in the failure of the Operating Centres to function as required, including: Failure to maintain software licenses and vendor maintenance contracts and appropriate support staff would result in prolonged unavailability of critical facilities (i.e. NOMS & NMS) required to support the operation of the transmission system. Failure to adequately support the Field Switching program would have a severe negative financial impact due to long delays in performing planned work.

9 Page of Failure to perform load transfer studies would result in diminished system reliability, increased negative impact on customers and would adversely affect worker safety. Failure to maintain the accuracy of operating diagrams in a timely fashion would seriously affect worker safety, e.g. potential for incorrect switching or re-energizing a system element while others are working on the equipment..0 ENVIRONMENT, HEALTH AND SAFETY 0 This program supports environment, health and safety programs that are required to meet legal obligations and ensure a level of due diligence commensurate with the size and scale of Hydro One Transmission. In addition, the program funds activities to assist in meeting the corporation s Environmental and Safety performance targets as described in Exhibit A, Tab, Schedule. 0 Activities funded by this program include: Occupational and non-occupational injury/illness support which includes medical assessments of workplace injuries; the Care Management Program which provides the right care at the right time for Hydro One employees who suffer a major medical absence of five days or more; and Pandemic planning; Hazardous Materials Management which identifies hazardous materials and establishes a protocol for on-going management of these materials in the workplace as per the Occupational Health and Safety Act and the Workplace Hazardous Material Information System (e.g., asbestos, lead, mercury); Public safety which includes school presentations, media campaigns and the development and production of educational material to inform and educate members of the public about the hazards associated with Hydro One s assets; Proactive forums to assist the health and safety of employees by raising awareness and providing education about health, wellness and lifestyle issues;

10 Page 0 of 0 Hydro One s Learning Management System (HOLMS) supports learning management, performance management, content authoring and analytics. This funding helps to support the implementation of new reports. E-learning modules continue to be developed and or refreshed to enable employees to be trained remotely and to allow for timely and immediate delivery of required training. E-learning contributes to employee competence and reduces delivery costs. Development of new training media is being evaluated and implemented to improve the effectiveness of trades training. Web casting, video streaming, mobile learning, simulation and knowledge transfer technologies are being considered. The Journey to Zero initiative which supports the objective to eliminate workplace injuries and illnesses through the use of cross-functional teams carrying out review of specific functional areas impacting on safety performance. OHSAS 00 registration process which includes a complete review of Hydro One s Health & Safety Management System. Registration requires an analysis of Hydro One s current management system compared to the standards, field audit of execution and closing any identified gaps; and Ice and Water rescue training for staff who work on and around water and ice so that they are prepared to meet the hazards in these environments. 0 Also included are trades and technical training programs. Training requirements are increasing due to the addition of new staff required to complete the planned work program and replace those who will retire in future years. The expenditure requirement for this program is $. million in test years 0 and $. million in 0. This funding level is being maintained over the test years to build and improve on the existing safety culture and maintain high standards for public safety, as well as the increased workloads due to the addition of new staff.

11 Page of Reductions in this program would present significant risks of noncompliance with safety regulations, especially considering that Hydro One Transmission is undertaking increased work programs with a number of new staff that need support and direction. Hydro One s Strategic Plan identifies that nothing is more important than the health and safety of our employees and those who work on our property, as well as maintaining a safe environment for the public..0 CONTRACTS AND CUSTOMER BUSINESS RELATIONS 0 Improving the level of service that the Company provides to customers is a key objective of Hydro One. While it is the role of each employee to ensure they work towards improving customer satisfaction, Customer Business Relations focuses its efforts on managing the relationship with the Large Customer segment. This includes Hydro One Transmission-connected industrial customers, LDC's and transmission-connected generators. 0 The transmission industrial and LDC long term satisfaction target of 0% was met in 00 at %, with a sharp decline in 0 to % with increased concerns of power quality and reliability of service. The transmission generators score remained static in comparison with 00 at % and 0 results at %. The objective of Customer Business Relations is to maintain satisfaction levels and improve in areas where necessary, while working within regulatory boundaries to ensure compliance. The core work programs include contract management, program implementation, customer communications, operational and business support and customer connection project coordination. Planned long term initiatives involve improved customer communications through enhanced Web self service, skills training

12 Page of and a new Customer Relationship Management system to increase customer knowledge and improve commitment tracking and reporting.. Contracts and Customer Business Relations Activities Contracts and Customer Business Relations activities include: 0 Coordinating new and modified connection requests. Managing transmission connection agreements. Implementing and administering a new tracking process for customer contracts. Enhancing customer account management and commitment tracking systems to improve customer service and sharing of customer information within Hydro One. Meeting with customers to identify any issues and follow up on satisfactions surveys. Managing Hydro One s large customer web services, including annual enhancements to improve customer experience with web access. Continuing to manage transmission customer programs and communications. Managing the Wholesale Meter Exit program and the Transitional Meter Service Provider (MSP) fee program. 0 Bridge year spending has decreased relative to historical years as a result of a corporate realignment, as the Customer Operations Support (COS) group has moved from Customer and Business Relations (CBR) to Network Operations.. The spending requirement for this program for test year 0 is $. million which is the same as bridge year 0. The spending requirement for 0 is $. million largely due to cost escalation.

13 Page of The improvement in customer satisfaction over the past five years and continued performance above 0% for large customers has shown that satisfied customers are less work. The risks of not proceeding with this work would result in lower customer satisfaction and a subsequent increase in work load, as well as reduced efficiencies in meeting customer needs in terms of longer term planning to coordinate customer connections and modifications and Hydro One Transmission s work.