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Appendix 5.6 January 23, 2015 MANITOBA HYDRO 1 2015/16 & 2016/17 GENERAL RATE APPLICATION 2 3 DEPRECIATION RATES & DEPRECIATION STUDY 4 5 1.0 Overview ............................................................................................................................. 2 6 2.0 Reduction in Depreciation Under Canadian GAAP (2014/15)........................................... 3 7 3.0 Reduction in Depreciation Under IFRS (2015/16 & 2016/17) ........................................... 4 8 3.1 Eliminate Provision for Asset Removal Costs .......................................................................... 5 9 3.2 Change to the ELG Method ...................................................................................................... 5 10 11

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Page 1: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Appendix 5.6 January 23, 2015

MANITOBA HYDRO 1 

2015/16 & 2016/17 GENERAL RATE APPLICATION 2 

DEPRECIATION RATES & DEPRECIATION STUDY 4 

1.0 Overview ............................................................................................................................. 2 6 

2.0 Reduction in Depreciation Under Canadian GAAP (2014/15) ........................................... 3 7 

3.0 Reduction in Depreciation Under IFRS (2015/16 & 2016/17) ........................................... 4 8 

3.1 Eliminate Provision for Asset Removal Costs .......................................................................... 5 9 

3.2 Change to the ELG Method ...................................................................................................... 5 10 

11 

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Manitoba Hydro Appendix 5.6 2015/16 & 2016/17 General Rate Application January 23, 2015  

 

1 1.0 OVERVIEW 2 

3 Depreciation expense is recognized on a straight-line basis over the estimated average 4 

remaining service life of assets, based upon depreciation studies conducted 5 

approximately every 5 years by the Corporation. Manitoba Hydro conducted a 6 

depreciation study in 2010 where new depreciation component groups were developed in 7 

anticipation of its transition to IFRS. Most recently, Manitoba Hydro completed a 8 

new study in October 2014 to develop Canadian GAAP (fiscal 2014/15) and IFRS 9 

compliant (fiscal 2015/16) depreciation rates. The following schedule provides a 10 

summary of the estimated changes to depreciation expense for the Electric Operations 11 

for fiscal 2014/15 (Canadian GAAP) and for the test years under IFRS, fiscal 2015/16 12 

and 2016/17: 13 

14 

Figure 5.7.1 Depreciation Expense 15 

Depreciation Expense ($ millions) 16  

2014/15

2015/16

2016/17

Change in service life - PP&E (net of contributions) (25)  (29) (30)

Overhead Ineligible for Capitalization   (2)

Elimination of Provision for Asset Removal _  (60) (63)

Change in Methodology (ELG) _  36 38

Net Impact on Depreciation Expense Increase (Decrease)

(25) (53) (57)

17 

As with previous depreciation studies, an external consultant, Gannett Fleming Canada 18 

ULC, was engaged to review Manitoba Hydro’s current depreciation practices, to 19 

provide advice on any changes necessary for compliance with IFRS, and to develop 20 

depreciation rates. Gannett Fleming performed an analysis of plant asset addition and 21 

retirement activity, as well as a peer review and discussions with operational and 22 

engineering staff to identify internal and external factors that impact the average 23 

useful service life and depreciation curve for each depreciable component. Please see the 24 

2014 Depreciation Study for information about the scope, basis and methods used in this 25 

study. 26 

27 

The 2014 depreciation study is based on depreciable assets in service as of March 28 

31, 2014. Manitoba Hydro has implement revised Canadian GAAP depreciation rates 29 

effective April 1, 2014 for fiscal 2014/15 and will implement IFRS compliant 30 

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Manitoba Hydro Appendix 5.6 2015/16 & 2016/17 General Rate Application January 23, 2015  

 

depreciation rates effective April 1, 2015 for fiscal 2015/16. The IFRS compliant 1 

depreciation rates will include the elimination of the provision for asset removal from 2 

depreciation rates as well as a change in the depreciation methodology to the Equal Life 3 

Group method. 4 

The schedules provided on pages 6 – 13 of this Appendix provide a comparison of 6 

Manitoba Hydro’s Canadian GAAP (CGAAP) depreciation rates (as determined in the 7 

2010 depreciation study) to updated CGAAP and IFRS compliant depreciation rates. 8 

These schedules are followed by a letter from Gannett Fleming containing the 9 

depreciation rates to be used under CGAAP for 2014/15 and a report containing the 10 

depreciation rates to be used under IFRS for 2015/16. The significant changes in the 2014 11 

depreciation study are discussed in the sections below. 12 

13 

2.0 REDUCTION IN DEPRECIATION UNDER CANADIAN GAAP (2014/15) 14 

15 

The $25 million annual reduction in depreciation expense under CGAAP for fiscal 16 

2014/15 is the result of extensions to the service lives of select components, further 17 

reallocations of historical costs between existing and new component groups and 18 

reductions in the 2010 depreciation deficit balances for various components. Similar to 19 

the 2010 depreciation study, the results of the 2014 depreciation study reflect the findings 20 

of subject matter experts from Manitoba Hydro’s operational areas who provided asset 21 

condition information based on recent year’s condition assessment activities. 22 

23 

In general, Manitoba Hydro’s continuous maintenance programs in combination with the 24 

Province’s advantageous climatic conditions (eg. fewer freeze-thaw occurrences) have 25 

extended the service lives of many of its infrastructure-type assets longer than initially 26 

estimated. This is reflected in several depreciation rate decreases in the study. 27 

28 

Approximately $11 million of the $25 million overall reduction in depreciation expense 29 

pertains to an increase in the service lives for various assets in the Distribution, 30 

Communication, Motor Vehicle and Computer Software & Development components 31 

including: Overhead Serialized Equipment (35 to 45 years), Carrier Equipment (15 to 20 32 

years), Heavy Trucks (15 to 19 years), and Operational System Major Software 33 

EMS/SCADA (6 to 7 years). 34 

35 

The remainder of the $25 million decrease in annual depreciation expense is primarily the 36 

net result of the following: 37 

Approximately $10 million of the reduction is the result of the re-allocation of 38 

historical costs within the HVDC asset components from assets with shorter 39 

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Manitoba Hydro Appendix 5.6 2015/16 & 2016/17 General Rate Application January 23, 2015  

 

service lives to assets with longer service lives. This re-allocation is the result of 1 

ongoing efforts by the Corporation to examine the records of certain assets so as to 2 

re-allocate costs amongst new and existing asset components; 3 

A further reduction of $5 million is the result of the drawdown of provisions built 4 

into 2010/11 depreciation rates for accumulated depreciation deficit balances that 5 

existed at the time of the 2010 depreciation study; 6 

These reductions are partially offset by a $6 million increase in the annual 7 

depreciation for the Hydraulic Generation component group as a result of 8 

shortening the amortization period on the asset retirement obligation for the 9 

decommissioning of the Point du Bois Spillway. The 2017 original retirement date 10 

of the spillway has been moved forward to 2015. 11 

12 

It should be noted that although Manitoba Hydro has been able to extend the service lives 13 

of many of its infrastructure type assets, many of these assets are nearing the end of their 14 

useful life. As such, the rate of installation of replacement assets will need to increase 15 

over the next 20 years so as to sustain existing levels of safety and reliability. 16 

Depreciation rate forecasts based on the 2014 study assume that Manitoba Hydro will 17 

continue to provide maintenance programs so as to achieve similar service lives from the 18 

replacement assets. 19 

20 

3.0 REDUCTION IN DEPRECIATION UNDER IFRS (2015/16 & 2016/17) 21 

22 

Upon its transition to IFRS effective April 1, 2015, Manitoba Hydro will eliminate 23 

negative salvage from depreciation rates in order to manage the overall impacts of IFRS to 24 

a net reduction to revenue requirement. Manitoba Hydro currently uses the ASL method 25 

under CGAAP, but will be changing to the ELG method upon transition to IFRS in order 26 

to be compliant with the financial reporting requirements. The net effect of Manitoba 27 

Hydro implementing these changes is a $24 million and $25 million reduction in annual 28 

depreciation expense in fiscal years 2015/16 and 2016/17, respectively. The break-down 29 

of the impact of these changes by asset category are presented in the following table: 30 

31 

  32 

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Manitoba Hydro Appendix 5.6 2015/16 & 2016/17 General Rate Application January 23, 2015  

 

Figure 5.7.2 Depreciation Expense 2 

3  4 

3.1 Eliminate Provision for Asset Removal Costs 5 

Manitoba Hydro currently includes a provision in depreciation rates for asset 6 

removal costs. This is a regulatory practice applied under CGAAP by numerous 7 

Canadian Utilities. IFRS does not permit the practice of including a provision for 8 

the future removal costs of assets in deprecation unless there is a legal or 9 

constructive obligation to remove such assets. With the issuance of IFRS 14 10 

Regulatory Deferral Accounts, Manitoba could continue to recognize this provision 11 

in depreciation rates as a regulatory deferral account. However, Manitoba Hydro 12 

has chosen to eliminate this practice upon its transition to IFRS in order to mitigate 13 

the impacts of other accounting changes to a net reduction in revenue requirement. 14 

15 

This is consistent with the findings of the PUB as outlined on page 18 of Order 16 

43/13 (April 26, 2013): 17 

“The Board accepts Manitoba Hydro’s position that net salvage should be 18 

removed from depreciation rates when International Financial reporting 19 

Standards are implemented rather than during the test years” 20 

21 

The estimated impact of this change for Manitoba Hydro’s electric operations, as 22 

presented in Figure 5.7.2 is a decrease to depreciation expense of $60 and $63 23 

million in fiscal 2015/16 and 2016/17, respectively. 24 

25 

3.2 Change to the ELG Method 26 

IFRS is more specific than CGGAP regarding depreciation. Under IFRS, it is 27 

mandatory that items of material cost whose service life is different than other items 28 

in the group, be amortized separately. Effectively, if the separate depreciation of an 29 

item would have a material impact on net income, that item should be depreciated 30 

separately. This requirement is not mandatory under CGAAP. 31 

32 

The ELG method calculates depreciation with consideration of the different 33 

Depreciation (in millions of dollars)

Electric Assets:

 Provision 

for Asset 

Removal 

  Change to 

ELG 

 2015‐16 

IFRS Net 

Impact  

 Provision 

for Asset 

Removal 

  Change to 

ELG 

 2016‐17 

IFRS Net 

Impact  

  Generation (13)$                8$                    (5)$                  (14)$                9$                    (5)$                 

  Transmission & Distribution (42)                  21                    (21)                  (45)                  23                    (22)                 

  Communication  (1)                    2                      1                      (1)                    1                      0                     

  General Equipment 0                      0                      0                      0                      0                      0                     

  Other (e.g. Buildings, Software) (1)                    2                      1                      0                      2                      2                     

  Wuskwatim Ltd. Partnership (3)                    3                      0                      (3)                    3                      0                     

Net increase (decrease) in revenue requirement (60)$                36$                 (24)$                (63)$                38$                 (25)$               

 2015‐16 (IFRS)  2016‐17 (IFRS)

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Manitoba Hydro Appendix 5.6 2015/16 & 2016/17 General Rate Application January 23, 2015  

 

expected service lives for each of the assets within a group. Every significant asset 1 

in the class is depreciated over its own expected service life and is therefore 2 

expected to be fully depreciated (not over or under depreciated) when removed from 3 

service. This will result in an increase in depreciation expense of $36 million in 4 

2015/16 and $38 million in 2016/17 as presented in figure 5.7.2. 5 

The following provides the schedule of depreciation rates for Electric operations, 7 

under ASL and ELG depreciation methods. 8 

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Manitoba Hydro Appendix 5.6 2015/16 & 2016/17 General Rate Application January 23, 2015  

 

 

Depreciation Rate Schedules (Electric operations)

2014‐15 2014‐15  2015‐16

Expected Previous  Approved Approved

Service Life ASL Rate % ASL Rate % ELG Rate %

HYDRAULIC GENERATION

GREAT FALLS

DAMS, DYKES AND WEIRS  125 1.28   

1.32      1.12

POWERHOUSE  125 1.27   

1.28      1.07

POWERHOUSE RENOVATIONS  40 4.40   

2.67      2.41

SPILLWAY  80 1.59   

1.50      1.35

WATER CONTROL SYSTEMS  65 2.07   

1.52      1.35

ROADS AND SITE IMPROVEMENTS  50 2.33   

2.42      2.42

TURBINES AND GENERATORS  60 1.82   

2.25      2.03

GOVERNORS AND EXCITATION SYSTEM 50 2.11   

2.25      2.06

LICENCE RENEWAL  50 2.00   

2.04      2.04

A/C ELECTRICAL POWER SYSTEMS 55 2.10   

1.84      1.67

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 4.43   

3.86      3.79

AUXILIARY STATION PROCESSES 50 2.59   

2.03      2.10

SUPPORT BUILDINGS  65 1.73   

1.69      1.36

SUPPORT BUILDING RENOVATIONS  20 5.50   

5.50      5.00

POINTE DU BOIS ‐ Original DAMS, DYKES AND WEIRS  125 3.63

   3.10 

     2.70

POWERHOUSE  125 4.39   

2.94      2.55

POWERHOUSE RENOVATIONS  40 5.24   

4.10      3.71

SPILLWAY  80 10.76   

84.53    

73.37

WATER CONTROL SYSTEMS  65 3.35   

2.11      1.73

ROADS AND SITE IMPROVEMENTS  50 3.36   

4.09      3.80

TURBINES AND GENERATORS  60 4.04   

2.84      2.44

GOVERNORS AND EXCITATION SYSTEM 50 5.24   

4.02      3.68

LICENCE RENEWAL  50 4.76   

3.85      3.85

A/C ELECTRICAL POWER SYSTEMS 55 4.58   

3.16      2.78

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 5.12   

4.30      4.26

AUXILIARY STATION PROCESSES 50 4.03   

3.71      3.59

SUPPORT BUILDINGS  65 2.93   

2.99      2.59

SUPPORT BUILDING RENOVATIONS  20 5.50   

4.47      3.84

POINTE DU BOIS ‐ New DAMS, DYKES AND WEIRS  125 ‐

   0.91 

     0.85

SPILLWAY  80 1.47   

1.37      1.49

WATER CONTROL SYSTEMS  65 ‐   

1.69      1.64

ROADS AND SITE IMPROVEMENTS  50 ‐   

2.20      2.36

A/C ELECTRICAL POWER SYSTEMS 55 ‐   

2.40      1.94

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 ‐   

4.40      4.54

AUXILIARY STATION PROCESSES 50 ‐   

2.20      3.01

SUPPORT BUILDINGS  65 ‐   

1.69      1.65

SUPPORT BUILDING RENOVATIONS  20 ‐   

5.50      5.00

SEVEN SISTERS DAMS, DYKES AND WEIRS  125 1.03

   1.06 

     0.90

POWERHOUSE  125 0.90   

0.91      0.74

POWERHOUSE RENOVATIONS  40 4.40   

2.67      2.41

SPILLWAY  80 1.17   

1.36      1.17

WATER CONTROL SYSTEMS  65 1.80   

1.25      1.02

ROADS AND SITE IMPROVEMENTS  50 1.84   

1.78      1.30

TURBINES AND GENERATORS  60 1.64   

1.84      1.69

GOVERNORS AND EXCITATION SYSTEM 50 2.00   

2.22      2.12

LICENCE RENEWAL  50 2.00   

2.00      2.00

A/C ELECTRICAL POWER SYSTEMS 55 1.91   

1.74      1.56

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 3.73   

3.80      3.44

AUXILIARY STATION PROCESSES 50 2.13   

1.91      2.03

SUPPORT BUILDINGS  65 1.74   

1.65      1.52

SUPPORT BUILDING RENOVATIONS  20 5.50   

5.50      5.00

DEPRECIABLE GROUP (Electric Operations)

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Manitoba Hydro Appendix 5.6 2015/16 & 2016/17 General Rate Application January 23, 2015  

 

   

 

2014‐15 2014‐15  2015‐16

Expected Previous Approved  Approved

Service Life ASL Rate % ASL Rate %  ELG Rate %

SLAVE FALLS DAMS, DYKES AND WEIRS  125 1.69    1.71     1.54

POWERHOUSE 125 1.58    1.59     1.43

POWERHOUSE RENOVATIONS  40 4.40    2.75     2.50

SPILLWAY  80 1.87    1.82     1.74

WATER CONTROL SYSTEMS 65 2.18    1.77     1.65

ROADS AND SITE IMPROVEMENTS  50 2.20    2.30     2.36

TURBINES AND GENERATORS  60 1.79    1.91     1.81

GOVERNORS AND EXCITATION SYSTEM 50 2.20    2.22     2.12

LICENCE RENEWAL  50 2.00    2.00     2.00

A/C ELECTRICAL POWER SYSTEMS  55 2.21    2.00     1.91

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 4.72    4.42     4.56

AUXILIARY STATION PROCESSES  50 2.73    2.34     2.70

SUPPORT BUILDINGS  65 1.81    2.01     1.89

SUPPORT BUILDING RENOVATIONS  20 5.50    5.50     5.00

PINE FALLS 

DAMS, DYKES AND WEIRS  125 1.17    1.23     1.12

POWERHOUSE 125 0.83    0.83     0.71

POWERHOUSE RENOVATIONS  40 4.40    2.67     2.41

SPILLWAY  80 1.60    1.50     1.49

WATER CONTROL SYSTEMS 65 1.95    1.28     1.06

ROADS AND SITE IMPROVEMENTS  50 1.81    1.68     1.61

TURBINES AND GENERATORS  60 1.47    1.62     1.37

GOVERNORS AND EXCITATION SYSTEM 50 2.20    2.20     2.13

LICENCE RENEWAL  50 2.00    2.00     2.00

A/C ELECTRICAL POWER SYSTEMS  55 2.06    1.83     1.58

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 4.25    4.17     4.04

AUXILIARY STATION PROCESSES  50 2.54    1.78     1.81

SUPPORT BUILDINGS  65 1.61    1.62     1.56

SUPPORT BUILDING RENOVATIONS  20 5.50    5.50     5.00

COMMUNITY DEVELOPMENT COSTS  78 1.17    1.28     1.28

MCARTHUR FALLS DAMS, DYKES AND WEIRS  125 0.91    1.12     1.00

POWERHOUSE 125 0.83    0.84     0.72

POWERHOUSE RENOVATIONS  40 4.40    2.67     2.41

SPILLWAY 80 1.19    1.19     0.97

WATER CONTROL SYSTEMS 65 2.06    1.37     1.25

ROADS AND SITE IMPROVEMENTS  50 1.99    1.94     1.71

TURBINES AND GENERATORS  60 1.06    1.35     0.94

GOVERNORS AND EXCITATION SYSTEM 50 2.10    2.08     1.94

LICENCE RENEWAL  50 2.00    2.00     2.00

A/C ELECTRICAL POWER SYSTEMS  55 1.90    1.72     1.32

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 4.29    3.62     2.74

AUXILIARY STATION PROCESSES  50 2.58    1.82     1.85

SUPPORT BUILDINGS  65 1.63    1.73     1.67

SUPPORT BUILDING RENOVATIONS  20 5.50    5.50     5.00

DEPRECIABLE GROUP (Electric Operations)

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Manitoba Hydro Appendix 5.6 2015/16 & 2016/17 General Rate Application January 23, 2015  

 

   

 

2014‐15 2014‐15 2015‐16

Expected Previous Approved ApprovedService Life ASL Rate % ASL Rate %  ELG Rate %

KELSEY DAMS, DYKES AND WEIRS  125 1.05    1.13      1.03

POWERHOUSE 125 0.89    1.18      1.08

POWERHOUSE RENOVATIONS  40 4.40    2.75      2.50

SPILLWAY  80 1.34    1.71      1.58

WATER CONTROL SYSTEMS 65 2.09    1.70      1.61

ROADS AND SITE IMPROVEMENTS  50 2.05    2.44      2.30

TURBINES AND GENERATORS  60 1.68    1.90      1.85

GOVERNORS AND EXCITATION SYSTEM 50 2.14    2.25      2.17

LICENCE RENEWAL  50 2.00    2.00      2.00

A/C ELECTRICAL POWER SYSTEMS  55 2.03    2.11      2.03

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 4.58    4.67      4.62

AUXILIARY STATION PROCESSES  50 2.63    2.19      2.31

SUPPORT BUILDINGS  65 1.67    1.79      1.73

SUPPORT BUILDING RENOVATIONS  20 4.98    4.98      4.44

GRAND RAPIDS DAMS, DYKES AND WEIRS  125 0.98    1.01      0.90

POWERHOUSE 125 0.91    0.92      0.81

POWERHOUSE RENOVATIONS  40 4.40    2.55      2.28

SPILLWAY  80 1.30    1.28      1.15

WATER CONTROL SYSTEMS 65 1.79    1.10      0.99

ROADS AND SITE IMPROVEMENTS  50 1.68    1.63      1.21

TURBINES AND GENERATORS  60 1.64    1.82      1.74

GOVERNORS AND EXCITATION SYSTEM 50 2.13    2.21      2.13

LICENCE RENEWAL  50 2.00    2.00      2.00

A/C ELECTRICAL POWER SYSTEMS  55 2.07    1.84      1.66

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 4.08    3.90      2.49

AUXILIARY STATION PROCESSES  50 2.62    2.02      2.29

SUPPORT BUILDINGS  65 1.66    1.69      1.60

SUPPORT BUILDING RENOVATIONS  20 5.50    5.67      5.00

COMMUNITY DEVELOPMENT COSTS ***  79 1.16    1.21      1.21

KETTLE DAMS, DYKES AND WEIRS  125 0.86    0.86      0.78

POWERHOUSE 125 0.87    0.86      0.79

POWERHOUSE RENOVATIONS  40 4.40    2.75      2.50

SPILLWAY  80 1.33    1.26      1.16

WATER CONTROL SYSTEMS 65 1.55    0.99      0.89

ROADS AND SITE IMPROVEMENTS  50 2.14    2.20      2.31

TURBINES AND GENERATORS  60 1.48    1.90      1.73

GOVERNORS AND EXCITATION SYSTEM 50 1.66    2.14      1.92

LICENCE RENEWAL  50 2.00    2.00      2.00

A/C ELECTRICAL POWER SYSTEMS  55 2.04    2.04      1.96

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 4.11    4.20      3.37

AUXILIARY STATION PROCESSES  50 2.44    1.82      1.86

SUPPORT BUILDINGS  65 1.46    1.75      1.70

SUPPORT BUILDING RENOVATIONS  20 5.50    5.50      5.00

DEPRECIABLE GROUP (Electric Operations)

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Manitoba Hydro Appendix 5.6 2015/16 & 2016/17 General Rate Application January 23, 2015  

 

   

 

2014‐15 2014‐15  2015‐16

Expected Previous Approved Approved

Service Life ASL Rate % ASL Rate %  ELG Rate %

LAURIE RIVER

DAMS, DYKES AND WEIRS  125 3.47    3.20     2.70

POWERHOUSE 125 4.25    3.89     3.40

POWERHOUSE RENOVATIONS  40 5.00    5.24     4.76

SPILLWAY 80 3.88    3.44     2.96

WATER CONTROL SYSTEMS 65 3.84    3.52     3.03

ROADS AND SITE IMPROVEMENTS  50 4.01    3.69     3.23

TURBINES AND GENERATORS  60 4.49    4.11     3.62

GOVERNORS AND EXCITATION SYSTEM 50 4.70    4.29     3.81

LICENCE RENEWAL  50 4.55    4.76     4.76

A/C ELECTRICAL POWER SYSTEMS  55 4.08    3.63     3.15

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 7.23    6.28     5.15

AUXILIARY STATION PROCESSES  50 4.30    3.73     3.31

SUPPORT BUILDINGS  65 3.75    3.36     2.87

SUPPORT BUILDING RENOVATIONS  20 5.50    5.50     5.00

JENPEG DAMS, DYKES AND WEIRS  125 0.92    0.91     0.84

POWERHOUSE 125 0.89    0.90     0.83

POWERHOUSE RENOVATIONS  40 4.40    2.75     2.48

SPILLWAY  80 1.42    1.35     1.28

WATER CONTROL SYSTEMS 65 2.02    1.24     1.07

ROADS AND SITE IMPROVEMENTS  50 2.12    2.07     1.87

TURBINES AND GENERATORS  60 1.63    1.89     1.74

GOVERNORS AND EXCITATION SYSTEM 50 2.20    2.20     2.13

LICENCE RENEWAL  50 2.00    2.00     2.00

A/C ELECTRICAL POWER SYSTEMS  55 2.05    1.81     1.53

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 4.53    4.15     3.39

AUXILIARY STATION PROCESSES  50 2.66    1.92     2.06

SUPPORT BUILDINGS  65 1.67    1.69     1.61

SUPPORT BUILDING RENOVATIONS  20 5.50    5.50     5.00

LAKE WINNIPEG REGULATION DAMS, DYKES AND WEIRS  125 0.82    0.82     0.77

LICENCE RENEWAL  50 2.00    2.02     2.02

COMMUNITY DEVELOPMENT COSTS  85 0.94    1.18     1.18

CHURCHILL RIVER DIVERSION

DAMS, DYKES AND WEIRS  125 0.88    0.88     0.83

SPILLWAY  80 1.47    1.39     1.32

WATER CONTROL SYSTEMS 65 2.21    1.17     1.00

ROADS AND SITE IMPROVEMENTS  50 2.21    2.11     1.78

LICENCE RENEWAL  50 2.00    2.00     2.00

A/C ELECTRICAL POWER SYSTEMS  55 2.21    1.88     1.57

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 4.82    4.78     2.36

AUXILIARY STATION PROCESSES  50 2.75    1.97     2.11

SUPPORT BUILDINGS  65 1.69    1.71     1.66

SUPPORT BUILDING RENOVATIONS  20 5.50    5.50     5.00

COMMUNITY DEVELOPMENT COSTS  90 0.93    1.07     1.07

DEPRECIABLE GROUP (Electric Operations)

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Page 11 of 14

Manitoba Hydro Appendix 5.6 2015/16 & 2016/17 General Rate Application January 23, 2015  

 

   

 

2014‐15 2014‐15 2015‐16

Expected Previous  Approved  Approved

Service Life ASL Rate % ASL Rate %  ELG Rate %

LONG SPRUCE DAMS, DYKES AND WEIRS  125 0.90    0.90       0.83

POWERHOUSE 125 0.90    0.90       0.83

POWERHOUSE RENOVATIONS  40 4.40    2.75       2.50

SPILLWAY  80 1.43    1.36       1.30

WATER CONTROL SYSTEMS 65 2.04    0.99       0.78

ROADS AND SITE IMPROVEMENTS  50 2.10    2.07       1.87

TURBINES AND GENERATORS  60 1.63    1.88       1.69

GOVERNORS AND EXCITATION SYSTEM 50 2.19    2.18       2.08

LICENCE RENEWAL  50 2.00    2.00       2.00

A/C ELECTRICAL POWER SYSTEMS  55 2.09    1.79       1.51

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 4.37    4.37       3.87

AUXILIARY STATION PROCESSES  50 2.63    1.60       1.53

SUPPORT BUILDINGS  65 1.69    1.69       1.64

SUPPORT BUILDING RENOVATIONS  20 5.50    5.50       4.90

LIMESTONE

DAMS, DYKES AND WEIRS  125 0.90    0.91       0.85

POWERHOUSE 125 0.91    0.91       0.85

POWERHOUSE RENOVATIONS  40 4.40    2.75       2.50

SPILLWAY  80 1.45    1.37       1.37

WATER CONTROL SYSTEMS 65 2.17    1.39       1.28

ROADS AND SITE IMPROVEMENTS  50 2.17    2.14       2.03

TURBINES AND GENERATORS  60 1.68    1.90       1.81

GOVERNORS AND EXCITATION SYSTEM 50 2.17    2.15       1.96

LICENCE RENEWAL  50 2.00    2.00       2.00

A/C ELECTRICAL POWER SYSTEMS  55 2.17    1.89       1.73

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 4.67    4.16       3.48

AUXILIARY STATION PROCESSES  50 2.71    1.78       1.80

SUPPORT BUILDINGS  65 1.68    1.71       1.63

SUPPORT BUILDING RENOVATIONS  20 5.50    5.50       4.89

WUSKWATIM DAMS, DYKES AND WEIRS  125 0.88    0.91       0.87

POWERHOUSE 125 0.88    0.91       0.87

POWERHOUSE RENOVATIONS  40 4.40    2.75       2.50

SPILLWAY  80 1.47    1.36       1.46

WATER CONTROL SYSTEMS 65 2.20    1.68       1.62

ROADS AND SITE IMPROVEMENTS  50 2.20    2.19       2.32

TURBINES AND GENERATORS  60 1.69    1.83       1.78

GOVERNORS AND EXCITATION SYSTEM 50 2.20    2.19       2.12

A/C ELECTRICAL POWER SYSTEMS  55 2.20    1.99       1.92

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 4.78    4.24       4.39

AUXILIARY STATION PROCESSES  50 2.75    2.13       2.93

SUPPORT BUILDINGS  65 1.69    1.69       1.64

SUPPORT BUILDING RENOVATIONS  20 5.50    5.50       5.00

INFRASTRUCTURE SUPPORTING GENERATION PROVINCIAL ROADS 50 2.30    2.49       2.21

TOWN SITE BUILDING  55 1.71    2.12       2.03

TOWN SITE BUILDINGS RENOVATIONS  20 5.94    5.30       5.00

TOWN SITE OTHER INFRASTRUCTURE  45 2.49    3.11       2.93

DEPRECIABLE GROUP (Electric Operations)

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Page 12 of 14

Manitoba Hydro Appendix 5.6 2015/16 & 2016/17 General Rate Application January 23, 2015  

 

   

 

2014‐15 2014‐15  2015‐16

Expected Previous  Approved Approved

Service Life ASL Rate % ASL Rate %  ELG Rate %

THERMAL GENERATION 

BRANDON UNIT 5 (COAL) POWERHOUSE 75 3.87    4.52     4.50

POWERHOUSE RENOVATIONS  40 10.00    15.88     15.88

ROADS AND SITE IMPROVEMENTS  50 4.56    5.37     5.36

THERMAL TURBINES AND GENERATORS  60 5.03    5.73     5.72

GOVERNORS AND EXCITATION SYSTEM 50 5.07    5.51     5.52

STEAM GENERATOR AND AUXILIARIES  60 3.93    4.06     4.05

LICENCE RENEWAL 50 10.00    14.81     14.81

A/C ELECTRICAL POWER SYSTEMS  55 4.06    4.65     4.64

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 5.41    4.44     4.41

AUXILIARY STATION PROCESSES  50 4.67    5.36     5.37

SUPPORT BUILDINGS  65 4.25    5.97     5.97

SUPPORT BUILDING RENOVATIONS 20 10.00    16.67     16.67

BRANDON UNITS 6 AND 7

POWERHOUSE 75 1.65    1.38     1.26

POWERHOUSE RENOVATIONS  40 4.40    2.72     2.46

THERMAL TURBINES AND GENERATORS  60 2.12    1.70     1.64

GOVERNORS AND EXCITATION SYSTEM 50 2.20    2.20     2.13

COMBUSTION TURBINE  25 4.05    3.87     3.66

LICENCE RENEWAL 50 2.00    2.00     2.00

COMBUSTION TURBINE OVERHAULS 15 11.00    7.33     6.67

A/C ELECTRICAL POWER SYSTEMS  55 2.12    1.88     1.78

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 4.58    4.52     4.63

AUXILIARY STATION PROCESSES  50 2.64    1.91     2.10

SELKIRK POWERHOUSE 75 0.93    0.76     0.79

POWERHOUSE RENOVATIONS  40 4.00    2.45     2.45

ROADS AND SITE IMPROVEMENTS  50 1.35    1.34     1.42

THERMAL TURBINES AND GENERATORS  60 1.46    1.09     1.18

GOVERNORS AND EXCITATION SYSTEM 50 2.00    1.13     1.30

STEAM GENERATOR AND AUXILIARIES  60 1.34    1.49     1.66

LICENCE RENEWAL 50 2.00    2.00     2.00

A/C ELECTRICAL POWER SYSTEMS  55 1.21    1.06     1.03

INSTRUMENTATION, CONTROL AND D/C SYSTEMS 25 2.41    2.11     2.40

AUXILIARY STATION PROCESSES  50 1.64    1.19     1.44

SUPPORT BUILDINGS  65 1.06    1.06     1.13

SUPPORT BUILDING RENOVATIONS 20 5.00    5.00     5.00

DEPRECIABLE GROUP (Electric Operations)

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Page 13 of 14

Manitoba Hydro Appendix 5.6 2015/16 & 2016/17 General Rate Application January 23, 2015  

 

   

 

2014‐15 2014‐15  2015‐16

Expected Previous  Approved Approved

Service Life ASL Rate % ASL Rate %  ELG Rate %

DIESEL GENERATION BUILDINGS 25 2.57    3.15      3.17

BUILDING RENOVATIONS  15 5.14    6.67      6.67

ENGINES AND GENERATORS ‐ OVERHAULS  4 20.00    25.00      25.00

ENGINES AND GENERATORS 22 1.88    2.24      2.73

ACCESSORY STATION EQUIPMENT  20 3.07    3.70      3.67

FUEL STORAGE AND HANDLING  25 2.28    2.37      2.60

TRANSMISSION ROADS, TRAILS AND BRIDGES  50 2.51    2.19      2.18

METAL TOWERS AND CONCRETE POLES  85 1.51    1.54      1.23

POLES AND FIXTURES  55 2.49    2.48      1.80

GROUND LINE TREATMENT  10 10.00    10.00      10.00

OVERHEAD CONDUCTOR AND DEVICES  80 1.62    1.27      1.10

UNDERGROUND CABLE AND DEVICES  45 2.23    1.96      1.81

COMMUNITY DEVELOPMENT COSTS ***  79 1.27    1.27      1.27

SUBSTATIONS BUILDINGS 65 1.49    1.47      1.46

BUILDING RENOVATIONS  20 5.00    5.00      5.00

ROADS, STEEL STRUCTURES AND CIVIL SITE WORK 50 2.10    1.95      1.76

POLES AND FIXTURES  45 3.25    3.01      2.39

POWER TRANSFORMERS 50 2.21    2.44      2.43

OTHER TRANSFORMERS 50 3.09    2.29      2.26

INTERRUPTING EQUIPMENT  50 2.41    2.52      2.31

OTHER STATION EQUIPMENT  45 2.54    2.47      2.20

ELECTRONIC EQUIPMENT AND BATTERIES  25 4.76    3.81      3.90

SYNCHRONOUS CONDENSERS AND UNIT TRANSFORMERS  65 1.68    1.80      1.52

SYNCHRONOUS CONDENSER OVERHAULS  15 7.43    7.15      5.58

HVDC CONVERTER EQUIPMENT  30 4.13    3.22      2.61

HVDC SERIALIZED EQUIPMENT  30 4.18    3.04      2.07

HVDC ACCESSORY STATION EQUIPMENT  36 2.85    2.98      2.67

HVDC ELECTRONIC EQUIPMENT AND  BATTERIES  25 4.66    3.10      2.27

DISTRIBUTION

CONCRETE DUCTLINE AND MANHOLES  75 2.29    2.23      2.25

CONCRETE DUCTLINE AND MANHOLE REFURBISHMENTS 30 2.08    3.66      3.70

METAL TOWERS  60 1.99    2.10      1.87

POLES AND FIXTURES  65 2.10    1.96      1.58

GROUND LINE TREATMENT  12 9.58    7.39      7.39

OVERHEAD CONDUCTOR AND DEVICES  60 1.98    2.24      1.80

UNDERGROUND CABLE AND DEVICES ‐ 66 KV  60 1.48    1.72      2.07

UNDERGROUND CABLE AND DEVICES ‐ PRIMARY 60 1.69    1.70      1.83

UNDERGROUND CABLE AND DEVICES ‐ SECONDARY 44 2.21    2.27      2.31

SERIALIZED EQUIPMENT ‐ OVERHEAD  45 2.86    2.28      2.10

DSC ‐ HIGH VOLTAGE TRANSFORMERS  50 2.19    2.34      2.34

SERIALIZED EQUIPMENT ‐ UNDERGROUND  42 2.62    2.60      2.40

ELECTRONIC EQUIPMENT  10 10.00    10.53      10.53

SERVICES  35 4.38    2.92      1.89

STREET LIGHTING 45 3.04    2.56      2.20

DEPRECIABLE GROUP (Electric Operations)

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Page 14 of 14

Manitoba Hydro Appendix 5.6 2015/16 & 2016/17 General Rate Application January 23, 2015  

 

    

 

2014‐15 2014‐15 2015‐16

Expected Previous Approved ApprovedService Life ASL Rate % ASL Rate %  ELG Rate %

METERS

METERS ‐ ELECTRONIC  15 6.10    9.61      10.52

METERS ‐ ANALOG  26 13.54    3.84      4.21

METERING EXCHANGES  15 6.67    6.67      6.67

METERING TRANSFORMERS  50 2.20    1.80      2.12

COMMUNICATION BUILDINGS 65 1.67    1.41      1.48

BUILDING RENOVATIONS  20 5.67    4.95      4.58

BUILDING ‐ SYSTEM CONTROL CENTRE  75 1.68    1.39      1.40

COMMUNICATION TOWERS 60 1.82    1.82      2.01

FIBRE OPTIC AND METALLIC CABLE  35 3.06    3.12      3.45

CARRIER EQUIPMENT  20 7.68    4.74      4.90

OPERATIONAL IT EQUIPMENT 5 22.97    21.00     20.00

MOBILE RADIO, TELEPHONE AND VIDEO CONFERENCING 8 10.24    18.56     16.64

OPERATIONAL DATA NETWORK  8 14.10    13.13     12.50

POWER SYSTEM CONTROL  15 11.16    5.63      5.50

MOTOR VEHICLES

PASSENGER VEHICLES  11 11.09    7.03      7.59

LIGHT TRUCKS  12 7.85    7.16      7.54

HEAVY TRUCKS 19 5.83    4.68      5.01

CONSTRUCTION EQUIPMENT  23 5.27    2.77      3.23

LARGE SOFT‐TRACK EQUIPMENT  27 4.28    2.96      3.79

TRAILERS  35 1.94    2.38      2.91

MISCELLANEOUS VEHICLES 13 5.93    4.90      6.60

BUILDINGS BUILDINGS ‐ GENERAL  65 1.59    1.65      1.73

BUILDING RENOVATIONS  20 7.14    5.59      5.00

BUILDING ‐ 360 PORTAGE ‐ CIVIL  100 1.00    1.00      1.06

BUILDING ‐ 360 PORTAGE ‐ ELECTRO/MECHANICAL 45 2.21    2.23      2.56

LEASEHOLD IMPROVEMENTS ‐ SONY PLACE  10 10.00    10.00     10.00

GENERAL EQUIPMENT

TOOLS, SHOP AND GARAGE EQUIPMENT  15 7.74    6.48      6.48

COMPUTER EQUIPMENT  5 28.48    20.00     20.00

OFFICE FURNITURE AND EQUIPMENT  20 4.81    5.00      5.00

HOT WATER TANKS  6 21.20    16.67     16.67

EASEMENTS EASEMENTS  75 1.28    1.33      1.33

COMPUTER SOFTWARE AND DEVELOPMENT COMPUTER DEVELOPMENT ‐ MAJOR SYSTEMS  11 9.47    8.75      8.82

COMPUTER DEVELOPMENT ‐ SMALL SYSTEMS  10 10.00    9.13      9.13

COMPUTER SOFTWARE ‐ GENERAL  5 19.76    20.00     20.00

COMPUTER SOFTWARE ‐ COMMUNICATION/OPERATIONAL 5 13.93    27.31     27.31

OPERATIONAL SYSTEM MAJOR SOFTWARE ‐ EMS/SCADA 7 23.35    8.06      9.33

DEPRECIABLE GROUP (Electric Operations)

Page 15: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Gannett Fleming Canada ULC

Suite 277 • 200 Rivercrest Drive S.E. • Calgary, AB T2C 2X5 • Canada t: 403.257.5946 • f: 403.257.5947

www.gannettfleming.com www.gfvrd.com

January 14, 2015 Manitoba Hydro 360 Portage Avenue Winnipeg, Manitoba T3C 0G8 Attention: Mr. Darren Rainkie Vice-President, Finance and Regulatory Ladies and Gentlemen: Pursuant to your request, we have calculated depreciation rates based on your original cost as of March 31, 2014 using the depreciation calculation procedures that were approved in your last depreciation study, namely the use of the Average Service Life (”ASL”) procedure and incorporation of estimated net salvage percentages. The attached schedules provide a summary of the depreciation rates related to the electric generation, transmission, substation, distribution and general plant assets of Manitoba Hydro and the Wuskwatim Power Limited Partnership as of March 31, 2014. The calculated annual depreciation accrual rates presented in the report are applicable to plant in service as of March 31, 2014. The depreciation rates are based on the average service life estimates and interim survivor curve determinations as recently completed in the full depreciation study report. The net salvage percentages used in the enclosed schedules of depreciation rates are consistent with the percentages used in the 2010 Depreciation Study. Gannett Fleming has calculated and is providing these requested schedules of depreciation rates in order to provide continuity from the last depreciation study, through the transition to the depreciation rates as provided in the recently completed Gannett Fleming Depreciation Study report.

Appendix 5.6 - Attachment 1

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Page 2 of 2

As the attached schedules are a work product of Gannett Fleming, we ask that this cover letter be provided any time that the attached schedules are distributed. Gannett Fleming does, however, authorize the distribution of the electronic version of the attached schedules.

Respectfully submitted,

GANNETT FLEMING CANADA ULC

LARRY E. KENNEDY Vice President LEK:hac Project: 058390:400

/Attachments - 4

Appendix 5.6 - Attachment 1

Page 17: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

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- 1 -

Appendix 5.6 - Attachment 1

Page 18: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

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1.3

4

- 2 -

Appendix 5.6 - Attachment 1

Page 19: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

LIF

ES

UR

VIV

ING

AN

NU

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EX

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%)

(1)

(2)

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(6)=

(5)/

(4)

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(5)+

(7)

(9)=

(8)/

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CA

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1.4

5

- 3 -

Appendix 5.6 - Attachment 1

Page 20: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

LIF

ES

UR

VIV

ING

AN

NU

AL

SP

AN

SU

RV

IVO

RN

ET

OR

IGIN

AL

CO

ST

PR

OV

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AC

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UN

TD

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KD

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LV

AG

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, 20

14

AM

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NT

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EX

PE

NS

ER

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E (

%)

(1)

(2)

(3)

(4)

(5)

(6)=

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(4)

(7)

(8)=

(5)+

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- 4 -

Appendix 5.6 - Attachment 1

Page 21: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

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- 5 -

Appendix 5.6 - Attachment 1

Page 22: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

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- 6 -

Appendix 5.6 - Attachment 1

Page 23: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

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- 7 -

Appendix 5.6 - Attachment 1

Page 24: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

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FT

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AN

D D

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ME

NT

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TA

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AN

ITO

BA

HY

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(14

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0,0

90

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2.4

1

*T

he

acc

ou

nt h

as

no

ba

lan

ce a

s o

f Ma

rch

31

, 20

14

an

d r

ate

will

be

use

d o

n a

go

-fo

rwa

rd b

asi

s fo

r fu

ture

ad

diti

on

s.**

On

am

ort

ize

d a

cco

un

ts a

ny

tru

e-u

p o

f le

ss th

an

10

% is

no

t co

nsi

de

red

sig

nifi

can

t.**

*C

om

mu

nity

De

velo

pm

en

t co

sts

are

am

ort

ize

d o

ver

the

we

igh

ted

ave

rag

e li

fe o

f th

e p

hys

ica

l ass

ets

de

rivin

g b

en

efit

fro

m s

uch

exp

en

ditu

res.

****

Tru

e-u

p e

xclu

de

d a

s e

xisi

ting

ass

ets

in a

cco

un

t are

fully

de

pre

cia

ted

.

- 8 -

Appendix 5.6 - Attachment 1

Page 25: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

LIF

ES

UR

VIV

ING

AN

NU

AL

SP

AN

SU

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31

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AM

OU

NT

RA

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(%

)F

OR

TR

UE

-UP

EX

PE

NS

ER

AT

E (

%)

(1)

(2)

(3)

(4)

(5)

(6)=

(5)/

(4)

(7)

(8)=

(5)+

(7)

(9)=

(8)/

(4)

WU

SK

WA

TIM

PO

WE

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- 9 -

Appendix 5.6 - Attachment 1

Page 26: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

LIF

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- 10 -

Appendix 5.6 - Attachment 1

Page 27: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

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- 11 -

Appendix 5.6 - Attachment 1

Page 28: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

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- 12 -

Appendix 5.6 - Attachment 1

Page 29: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

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- 13 -

Appendix 5.6 - Attachment 1

Page 30: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

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- 14 -

Appendix 5.6 - Attachment 1

Page 31: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

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- 15 -

Appendix 5.6 - Attachment 1

Page 32: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

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- 16 -

Appendix 5.6 - Attachment 1

Page 33: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

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- 17 -

Appendix 5.6 - Attachment 1

Page 34: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

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OF

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*T

he

acc

ou

nt h

as

no

ba

lan

ce a

s o

f Ma

rch

31

, 20

14

an

d r

ate

will

be

use

d o

n a

go

-fo

rwa

rd b

asi

s fo

r fu

ture

ad

diti

on

s.**

On

am

ort

ize

d a

cco

un

ts a

ny

tru

e-u

p o

f le

ss th

an

10

% is

no

t co

nsi

de

red

sig

nifi

can

t.**

*C

om

mu

nity

De

velo

pm

en

t co

sts

are

am

ort

ize

d o

ver

the

we

igh

ted

ave

rag

e li

fe o

f th

e p

hys

ica

l ass

ets

de

rivin

g b

en

efit

fro

m s

uch

exp

en

ditu

res.

****

Tru

e-u

p e

xclu

de

d a

s e

xisi

ting

ass

ets

in a

cco

un

t are

fully

de

pre

cia

ted

.

- 18 -

Appendix 5.6 - Attachment 1

Page 35: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

SU

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D M

AR

CH

31

, 20

14

- 19 -

Appendix 5.6 - Attachment 1

Page 36: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

SU

RV

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- 20 -

Appendix 5.6 - Attachment 1

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2014 DEPRECIATION STUDY

CALCULATED ANNUAL DEPRECIATION ACCRUAL RATES APPLICABLE TO

DEPRECIABLE ASSETS IN SERVICE AS OF MARCH 31, 2014

Prepared by:

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

MANITOBA HYDRO Winnipeg, Manitoba

2014 DEPRECIATION STUDY

CALCULATED ANNUAL DEPRECIATION ACCRUAL RATES APPLICABLE TO

DEPRECIABLE ASSETS IN SERVICE AS OF MARCH 31, 2014

GANNETT FLEMING CANADA ULC

Calgary, Alberta

Appendix 5.6 - Attachment 2

Page 39: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

January 13, 2015 Manitoba Hydro 360 Portage Avenue Winnipeg, Manitoba R3C 0G8 Attention: Mr. Darren Rainkie Vice-President, Finance and Regulatory Ladies and Gentlemen:

Pursuant to your request, we have conducted a depreciation study related to the electric generation, transmission, substation, distribution and general plant systems of Manitoba Hydro and the Wuskwatim Power Limited Partnership as of March 31, 2014. Our report presents a description of the methods used in the estimation of depreciation, the statistical analyses of service life and the summary and detailed tabulations of annual and accrued depreciation.

The calculated annual depreciation accrual rates presented in the report are applicable to plant in service as of March 31, 2014. The depreciation rates are based on the straight-line method, equal life group procedure applied on a whole life basis, with any accumulated depreciation variances amortized over the estimated remaining life of the assets.

Respectfully submitted, GANNETT FLEMING CANADA ULC

LARRY E. KENNEDY Vice President LEK/hac Project 058390.400

Gannett Fleming Canada ULC

Suite 277 • 200 Rivercrest Drive S.E. • Calgary, AB T2C 2X5 • Canada t: 403.257.5946 • f: 403.257.5947

www.gannettfleming.com www.gfvrd.com

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

TABLE OF CONTENTS

Executive Summary ............................................................................................... vi

PART I. INTRODUCTION ...................................................................................... I-1 Scope ...................................................................................................................... I-2 Plan of Report ......................................................................................................... I-2 Basis of the Study ................................................................................................... I-3 Depreciation ................................................................................................ I-3 Service Life Estimates .................................................................................. I-4

PART II. DEVELOPMENT OF DEPRECIATION PARAMETERS ......................... II-1 Depreciation ............................................................................................................ II-2 Estimation of Survivor Curves ................................................................................. II-2

Survivor Curves ............................................................................................ II-2 Survivor Curve Judgments ........................................................................... II-3 Generation Accounts .................................................................................... II-4 Hydraulic Accounts ............................................................................ II-4 Thermal Accounts .............................................................................. II-7 Diesel Accounts ................................................................................. II-8 Life Span Estimates ........................................................................... II-9 Transmission Accounts ................................................................................ II-10 Substation Accounts ..................................................................................... II-11 Distribution Accounts .................................................................................... II-14 PART III. CALCULATION OF ANNUAL AND ACCRUED DEPRECIATION ......... III-1 Calculation of Annual and Accrued Depreciation .................................................... III-2 Group Depreciation Procedures ................................................................... III-2 Calculation of Annual and Accrued Amortization .................................................... III-4 Monitoring of Book Accumulated Depreciation ........................................................ III-6

PART IV. RESULTS OF STUDY ............................................................................ IV-1 Qualification of Results ............................................................................................ IV-2 Description of Detailed Tabulations ......................................................................... IV-2

Table 1 Estimated Survivor Curves, Net Salvage Percents, Original Cost and Annual Accruals for the Twelve Months Ended March 31, 2014

- Manitoba Hydro .................................................................................... IV-4

iv

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Manitoba Hydro March 31, 2014

TABLE OF CONTENTS, Cont’d.

Table 1A Estimated Survivor Curves, Net Salvage Percents, Original Cost and Annual Accruals for the Twelve Months Ended March 31, 2014 – Wuskwatim Power Limited Partnership ................................................ IV-12 Table 2 Calculated Accrued Depreciation, Book Accumulated Depreciation and Determination of Annual Provision for True-Up For the Twelve Months Ended March 31, 2014 – Manitoba Hydro ................................................................................... IV-14 Table 2A Calculated Accrued Depreciation, Book Accumulated Depreciation and Determination of Annual Provision for True-Up For the Twelve Months Ended March 31, 2014 – Wuskwatim Power Limited Partnership ................................................ IV-22 APPENDIX A .......................................................................................................... A-1 Estimation of Survivor Curves ................................................................................. A-2 Average Service Life .................................................................................... A-2 Survivor Curves ....................................................................................................... A-2 Iowa Type Curves ......................................................................................... A-2 Retirement Rate Method of Analysis ............................................................ A-9 Schedules of Annual Transactions in Plant Records .................................... A-9 Schedule of Plant Exposed to Retirement .................................................... A-12 Original Life Table ........................................................................................ A-14 Smoothing the Original Survivor Curve ........................................................ A-16

v

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

MANITOBA HYDRO

2014 DEPRECIATION STUDY

EXECUTIVE SUMMARY

Pursuant to Manitoba Hydro’s (“Company”) request, Gannett Fleming Canada

ULC (“Gannett Fleming”) conducted a depreciation study related to the generation,

transmission, substation, distribution and general plant accounts as of March 31, 2014.

The purpose of this study was to determine the annual depreciation accrual rates and

amounts for book and ratemaking objectives.

The depreciation rates are based on the straight line method using the equal life

group (“ELG”) procedure and were applied on a whole life basis based on attained ages

and estimated average service lives. The depreciation calculations provided herein do

not include any provision for cost of removal. Variances between the calculated

accrued depreciation and the book accumulated depreciation as of March 31, 2014 are

amortized over the remaining life of assets.

As discussed in the last review of depreciation rates, the use of the ELG

procedure and the removal of net negative salvage from the depreciation rate

calculations are consistent with Manitoba Hydro’s planned implementation of

International Financial Reporting Standards (“IFRS”).

Gannett Fleming recommends the annual depreciation accrual rates for the

electric plant in service as of March 31, 2014 as presented in Tables 1, 1A, 2 and 2A of

the study. Supporting data and calculations are also provided under separate cover.

These rates are effective for Manitoba Hydro on April 1, 2015 upon its transition to

IFRS.

This study results in an annual depreciation expense accrual of $319.2 million

when applied to depreciable plant balances as of March 31, 2014. The report study

results are summarized at an aggregate functional group level as follows:

vi

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

ORIGINAL COSTMARCH 31, 2014

PLANT GROUP $'s %'s $'s(1) (2) (3) (4)

GENERATION HYDRO 5,445,593,386 1.54 83,954,010 THERMAL 439,575,329 3.44 15,106,757 DIESEL 48,030,666 4.03 1,937,288TRANSMISSION 980,402,254 1.28 12,587,905SUBSTATIONS 2,975,185,020 2.40 71,322,345DISTRIBUTION 2,875,373,143 1.98 57,047,472GENERAL 1,466,265,753 5.27 77,235,884

TOTAL PLANT IN SERVICE 14,230,425,551 2.24 319,191,661

SUMMARY OF ORIGINAL COST, ACCRUAL PERCENTAGES AND AMOUNTS

ELG ANNUAL ACCRUAL

vii

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

PART I. INTRODUCTION

I-1

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

MANITOBA HYDRO

DEPRECIATION STUDY

PART I. INTRODUCTION

SCOPE

This report sets forth the results of the depreciation study for Manitoba Hydro, to

determine the annual depreciation accrual rates and amounts for book purposes

applicable to the original cost of Manitoba Hydro’s and the Wuskwatim Power Limited

Partnership’s electric generation, transmission, substation, distribution and general plant

assets as of March 31, 2014. These rates will be effective on April 1, 2015 upon

Manitoba Hydro’s transition to IFRS. The rates and amounts are based on the straight-

line whole life method of depreciation incorporating the ELG procedure with a separate

amortization of the variance between the book depreciation reserve and the calculated

accrued depreciation. This report also describes the concepts, methods and judgments

which underlie the recommended annual depreciation accrual rates related to electric

plant in service.

The service life estimates resulting from the study were based on: informed

professional engineering judgment which incorporated analyses of historical plant

retirement data as recorded through March 31, 2014; a review of Company practice and

outlook as they relate to plant operation and retirement; and consideration of current

practice in the electric industry, including knowledge of service life estimates used for

other electric utilities.

PLAN OF REPORT

Part I. Introduction, contains statements with respect to the plan of the report,

and the basis of the study. Part II. Development of Depreciation Parameters, presents

descriptions of the methods used in the service life studies. Part III. Calculation of

Annual and Accrued Depreciation presents the methods and procedures used in the

calculation of depreciation. Part IV. Results of Study, presents summaries by

depreciable group of annual and accrued depreciation. The Supporting Documents to

this study include: Part V. Service Life Statistics, which presents the results of the

I-2

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

retirement rate analysis and Part VI. Detailed Depreciation Calculations, which present

the detailed tabulations of annual and accrued depreciation. An overview of Iowa

curves and the Retirement Rate Analysis are set forth in Appendix A of this report.

BASIS OF THE STUDY

Depreciation

For most accounts, the annual and accrued depreciation were calculated by the

straight-line method using the equal life group procedure. For certain General Plant

accounts, the annual and accrued depreciation are based on amortization accounting.

Both types of calculations were based on original cost, attained ages, and estimates of

service lives. Variances between the calculated accrued depreciation or amortization

and the book accumulated depreciation are amortized over the composite remaining life

of each account.

Continued monitoring and maintenance of the accumulated depreciation reserve

at the account level is recommended. Gannett Fleming has determined an amortization

amount to true-up the present variance with the calculated accrued depreciation,

(“theoretical reserve”), over the composite remaining life of each account. Tables 2 and

2A presented in Part IV of the report sets forth the amortization of the reserve variance

at the account level. This adjustment mechanism, whether determined separately as an

amortization amount or incorporated in the calculation of remaining life accruals, is

widely-accepted. An explanation of the monitoring of the accumulated depreciation

reserve and the calculation of the true-up provision is presented beginning on page III-5

of the report.

The straight-line method, equal life group procedure is a commonly used

depreciation calculation procedure that has been widely accepted in jurisdictions

throughout North America. Gannett Fleming recommends its use given the company’s

requirement to comply with IFRS. Amortization accounting is used for certain accounts

that contain a large volume of small dollar value assets where the effort required to

maintain detailed records is not warranted. Many electric utilities in North America have

received approval to adopt amortization accounting for these types of accounts.

I-3

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Manitoba Hydro March 31, 2014

Service Life Estimates

The service life estimates used in the depreciation and amortization calculations

are based on informed judgment which incorporated a review of management’s plans,

policies and outlook, a general knowledge of the electric utility industry and

comparisons of the service life estimates from our studies of other electric utilities. The

use of survivor curves to reflect the expected dispersion of retirement provides a

consistent method of estimating depreciation for hydroelectric plant. Iowa type survivor

curves were used to depict the estimated survivor curves for the plant accounts not

subject to amortization accounting.

The procedure for estimating service lives consisted of compiling historical data

for the plant accounts or depreciable groups, analyzing this history through the use of

widely accepted techniques, and forecasting the survivor characteristics for each

depreciable group on the basis of interpretations of the historical data analyses and the

probable future. The combination of the historical experience and the estimated future

yielded estimated survivor curves from which the average service lives were derived.

The depreciation rates should be reviewed periodically to reflect the changes that

result from plant and reserve account activity. A depreciation reserve deficiency or

surplus will develop if future capital activity varies significantly from the assumptions

included in this study.

I-4

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

PART II. DEVELOPMENT OF DEPRECIATION

PARAMETERS

II-1

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

PART II. DEVELOPMENT OF DEPRECIATION PARAMETERS

DEPRECIATION

Depreciation, in public utility regulation, is the loss in service value not restored

by current maintenance, incurred in connection with the consumption or prospective

retirement of utility plant in the course of service from causes which are known to be in

current operation and against which the utility is not protected by insurance. Among

causes to be given consideration are wear and tear, deterioration, action of the

elements, inadequacy, obsolescence, changes in the art, changes in demand, and the

requirements of public authorities.

Depreciation, as used in accounting, is a method of distributing fixed capital

costs, less net salvage, over a period of time by allocating annual amounts to expense.

Each annual amount of such depreciation expense is part of that year's total cost of

providing electric utility service. Normally, the period of time over which the fixed capital

cost is allocated to the cost of service is equal to the period of time over which an item

renders service, that is, the item's service life. The most prevalent method of allocation

is to distribute an equal amount of cost to each year of service life. This method is

known as the straight-line method of depreciation.

The calculation of annual and accrued depreciation based on the straight-line

method requires the estimation of survivor curves and is described in the following

sections of this report. The development of the proposed depreciation rates also

requires the selection of group depreciation procedures, as discussed in Part III of this

report.

ESTIMATION OF SURVIVOR CURVES

Survivor Curves

The use of an average service life for a property group implies that the various

units in the group have different lives. Thus, the average life may be obtained by

determining the separate lives of each of the units, or by constructing a survivor curve

by plotting the number of units which survive at successive ages using the retirement

rate method of analysis.

II-2

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

The range of survivor characteristics usually experienced by utility and industrial

properties is encompassed by a system of generalized survivor curves known as the

Iowa type curves. There are four families in the Iowa system, labeled in accordance with

the location of the modes of the retirements in relationship to the average life and

relative height of the modes. The left-moded curves are those in which the greatest

frequency of retirement occurs to the left of, or prior to, average service life. The

symmetrical-moded curves are those in which the greatest frequency of retirement

occurs at average service life. The right-moded curves are those in which the greatest

frequency occurs to the right of, or after, the average service life. The origin-moded

curves are those in which the greatest frequency of retirement occurs at the origin, or

immediately after age 0. The letter designation of each family of curves (L, S, R or O)

represents the mode of the associated frequency curve with respect to the average

service life. The numbers represent the relative heights of the modes of the frequency

curves within each family.

A discussion of the general concept of survivor curves and retirement rate

method is presented in Appendix A of this report.

Survivor Curve Judgments

The survivor curve estimates were based on judgment which considered a

number of factors. The primary factors were the statistical analysis of data; current

policies and outlook as determined during conversations with management personnel

and on the knowledge Gannett Fleming developed through the completion of numerous

electric utility studies.

The following discussion, dealing with a number of accounts which comprise the

majority of the investment analyzed, presents an overview of the factors considered by

Gannett Fleming in the determination of the average service life estimates. The survivor

curve estimates for the remainder of the accounts not discussed in the following

sections were based on similar considerations.

II-3

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

Generation Accounts

Gannett Fleming developed unique depreciation rate calculations for each of the

hydraulic generation plants in recognition of the estimated specific life spans for each

plant. However, the average service life estimates were developed through a retirement

rate analysis which was prepared on the basis of a grouping of the plant accounting

data at an account level related to the combined databases from all hydraulic

generation sites. Therefore, the analyses presented in Section IV of the Supporting

Documents and as discussed below, are based on the combined data from all locations

for each account.

Hydraulic Accounts

The investment in Manitoba Hydro’s hydraulic generation is captured in Account

Groups which are individually tracked by geographic site. The plant accounting

information for each of the groups is aggregated from the information related to each of

the geographic sites to facilitate review and to provide for a statistically relevant

population of retirement activity to study. As such, the depreciation rates use a

common average service life estimate for each of the account groupings.

Account Grouping 000A – Dams, Dykes and Weirs, represents 10.3% of the

hydraulic generation and 3.9% of the depreciable assets studied. The investment in this

account relates mainly to the geotechnical components, including both concrete and

earthen structures. Company management and operational staff have indicated that

these structures were engineered to a high standard in order to provide an increased

level of safety and longevity. Additionally, the operational staff view that the

environmental conditions to which the investment in this account is exposed, will result

in a slower erosion of the physical structures than may be witnessed by other similar

Canadian dams. As such, it is expected that the investment in this account would have

a longer average life expectation than many of the peer group of Canadian electric

generation utilities. Additionally, on a yearly basis, the company makes a significant

level of investment on dam safety programs throughout its system.

The retirement rate analysis as presented on pages V-3 through V-5 in the

Supporting Documents has reviewed the retirement history from 1923 through 2014.

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The currently approved Iowa curve related to these assets is the Iowa 125-R4. Based

on the retirement rate analysis and on the expectations of operational staff, Gannett

Fleming recommends to retain the current Iowa 125-R4 retirement dispersion curve.

With this recommendation, the average service life characteristics of the Dams, Dykes

and Weirs account will be matched to the estimated retirement dispersion related to the

Powerhouse account.

Account Grouping 000B – Powerhouse, represents 19.2% of the hydraulic

generation assets and 7.3% of the depreciable assets studied. The investment in this

account relates to the powerhouses and civil buildings, including the structural and

concrete components.

With the exception of the Grand Rapids generation site, the hydraulic generation

powerhouses are part of the physical concrete dam structure. The Grand Rapids

powerhouse is located physically behind the dam in a separate structure. Based on the

retirement rate analysis as presented on pages V-7 through V-9 in the Supporting

Documents and on the expectations of operational staff, Gannett Fleming recommends

the continued use of the Iowa 125-R4 for the civil assets related to the hydraulic assets.

Account Grouping 000D – Spillway, represents 7.1% of the hydraulic generation

assets and 2.7% of the depreciable assets studied. The typical average service lives for

spillways within the Canadian electric generation industry range from 60 to 100 years.

Since the last study this account has continued the trend of minimal retirement

experience as indicated in the retirement rate analysis presented on pages V-11

through V-13 of the Supporting Documents. Based on the continued trend of limited

retirement experience and the affirmation of operational staff, Gannett Fleming

recommends an extension of the average service life estimate for this account to an

Iowa 80-R3 curve.

Account Grouping 000E – Water Control Systems, represents 6.1% of the

hydraulic generation assets and 2.3% of the depreciated assets studied. The

investment in this account includes the investment related to gates, guides and hoists.

These types of assets are subjected to wear and tear and will require replacement over

the life of the generation plant.

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Interviews with company operational staff have indicated an expectation of a 65-

year life, which would represent a 15-year extension to the currently approved 50-year

life. Based on the retirement rate analysis as presented on pages V-15 through V-17 of

the Supporting Documents, Gannett Fleming agrees that a life extension is warranted.

While the retirement rate analysis may suggest that a life extension of more than 15

years is warranted, the comments of the operational staff indicated a life of 65 years. It

is also noted that a 15-year average service life extension represents a 30% increase.

Based on the results of the retirement rate analysis and on the expectations of

operational staff, Gannett Fleming recommends the use of a 65-year average service

life estimate and a change in the mode of the Iowa curve from S4 to R4, resulting in a

recommended Iowa 65-R4 curve.

Account Grouping 000G – Turbines and Generators, represents 21.2% of the

hydraulic generation assets and 8.1% of the depreciable assets studied. The

investment in this account relates to the turbines and generator equipment. The assets

in this account were previously depreciated using the Iowa 65-R3 curve. Over the

period since the last depreciation study $14.4 million of retirement activity has occurred.

The average service life estimates for a Canadian peer group reviewed as part of this

study indicated a range of approved average service life estimates ranging from 50

through 75 years. Based on the retirement rate analysis as presented on pages V-23

through V-25 of the Supporting Documents, Gannett Fleming recommends shortening

the average service life estimate from the Iowa 65-R3 to the Iowa 60-S3, which is

consistent with the historic retirement patterns and remains in the range of average

service life estimates of the Canadian peer group.

Account Grouping 000P – A/C Electrical Power Systems, represents 6.4% of the

hydraulic generation assets and 2.4% of the depreciable assets studied. The

investment in this account relates to the station electric transformer and station service.

The assets in this account were previously depreciated using the Iowa 50-R3 curve.

Over the period since the last depreciation study, this account has witnessed over $3.7

million of retirement activity. Based on the retirement rate analysis as presented on

pages V-30 through V-32 of the Supporting Documents, an extension to the average

service life is recommended. Additionally, the expectations of operational staff confirm

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that the Iowa 50-R3 is no longer appropriate. As such, Gannett Fleming recommends

the use of the Iowa 55-R4, as shown on page V-29 of the Supporting Documents.

Thermal Accounts

Investment in thermal generation is identified by Accounts 1205B through

1215W. These thermal generation units are located in the Brandon area (two natural

gas-fired units; one coal-fired unit) and on the east side of the Town of Selkirk (two

natural gas-fired units).

Account Grouping – 1200B – Powerhouse, represents 7.6% of the Thermal

assets and less than 0.2% of the depreciable assets studied. The thermal generation

powerhouses are more typical of industrial concrete or steel buildings. As such, it is

estimated that the average service life associated with powerhouse buildings related to

thermal plant locations would have a shorter average service life in contrast to those

estimates for the hydraulic generation sites.

The statistical analysis indicates a life of approximately 75 years. Manitoba

Hydro operational staff confirm the life expectation of 75 years. Based on the retirement

rate analysis as presented on pages V-53 and V-54 of the Supporting Documents and

on the expectations of operational staff, Gannett Fleming recommends an extension to

the Iowa curve estimates of this account from the 65-R4 to an Iowa 75-R5.

Account Grouping – 1200G – Turbines and Generators, represents 12.2% of the

Thermal assets and 0.4% of the depreciable assets studied. Based on the retirement

rate analysis as presented on pages V-59 through V-60 of the Supporting Documents

and on the expectations of operational staff, Gannett Fleming recommends the use of

the Iowa 60-S3, as shown on page V-58 of the Supporting Documents.

Account Grouping – 1200J – Steam Generators and Auxiliaries, represents

15.1% of the Thermal assets and less than 0.5% of the depreciable assets studied. The

statistical analysis indicates a life of approximately 60 years. Manitoba Hydro

operational staff confirm the life expectation of 60 years. Based on the retirement rate

analysis as presented on pages V-64 and V-65 of the Supporting Documents, and on

the expectations of operational staff, Gannett Fleming recommends a shortening of the

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average service life estimate for this account from 65-R2.5 and retirement dispersion

curve of this account to an Iowa 60-S2.5.

Account Grouping – 1200K – Combustion Turbine, represents 32.6% of the

Thermal assets and less than 1.0% of the depreciable assets studied. The operational

staff at Manitoba Hydro also confirm the life expectation of 25 years. Based on the

retirement rate analysis as presented on page V-67 of the Supporting Documents, and

on the expectations of operational staff, Gannett Fleming recommends no change to the

average service life estimate but a slight adjustment to the retirement dispersion pattern

to an Iowa 25-R3.

Account Grouping – 1200Q – Instrumentation, Control and D/C Systems,

represents 7.4% of the Thermal assets and less than 0.2% of the depreciable assets

studied. The statistical analysis indicates a life of approximately 25 years. Manitoba

Hydro operational staff confirm the life expectation of 25 years. Based on the retirement

rate analysis as presented on pages V-72 and V-73 of the Supporting Documents and

on the expectations of operational staff, Gannett Fleming recommends an extension to

the Iowa curve of this account from 23-L2 to an Iowa 25-S2.

Account Grouping – 1200R – Auxiliary Station Processes, represents 16.6% of

the Thermal assets and less than 0.5% of the depreciable assets studied. Based on the

retirement rate analysis as presented on pages V-75 and V-76 of the Supporting

Documents and on the expectations of operational staff, Gannett Fleming recommends

the extension of the average service life estimate for this account to the 50-R2 from the

40-R2.5 Iowa curve which was previously used.

Diesel Accounts

Account 1300B – Buildings, represents 17.2% of the Diesel assets and less than

0.1% of the depreciable assets studied. The statistical analysis indicates a life of

approximately 25 years. Manitoba Hydro operational staff confirm the life expectation of

25 years. Based on the retirement rate analysis as presented on page V-81 of the

Supporting Documents and on the expectations of operational staff, Gannett Fleming

recommends a shortening to the Iowa curve estimate of this account from 30-R3 to an

Iowa 25-R3.

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Account 1300N – Engines and Generators, represents 34.9% of the Diesel

assets and less than 0.1% of the depreciable assets studied. The statistical analysis

indicates a life of approximately 22 years. Manitoba Hydro operational staff confirm the

life expectation of 22 years. Based on the retirement rate analysis as presented on page

V-83 of the Supporting Documents, and on the expectations of operational staff,

Gannett Fleming recommends a shortening to the Iowa curve estimate of this account

from 25-R2 to an Iowa 22-R2.

Account 1300T – Fuel Storage and Handling, represents 10.6% of the Diesel

assets and less than 0.1% of the depreciable assets studied. The statistical analysis

indicates a life of approximately 25 years. Manitoba Hydro operational staff confirm the

life expectation of 25 years. Based on the retirement rate analysis as presented on page

V-87 of the Supporting Documents, and on the expectations of operational staff,

Gannett Fleming recommends a shortening to the Iowa curve estimate of this account

from 30-R2 to an Iowa 25-R2.

Life Span Estimates

Life expectancy of electric generation plant assets are impacted by not only

physical wear and tear of the assets, but also on economic factors including the

feasibility of the economic replacement of major operating components or the economic

viability of the plant as a whole. In circumstances where the replacement of major

operating components is not economically feasible, the life of the major component can

be the determining factor of the generation plant and all of the assets within the plant.

As such, the depreciable remaining life of electric generation plant assets is the lesser

of the physical life expectation of the asset or the period at the end of the life span of the

generation plant.

The use of life span dates for determining depreciable lives for regulated electric

generation plant is common throughout many North American Regulatory jurisdictions.

The basis for the determination of the life span date is usually based on one or all of the

following:

• The physical life estimation of the major and vital components of the

generating plant;

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• The duration of operating licenses;

• Precedent and policy of the regulatory jurisdiction;

• Expiration of the supply source for which the generation plant is

dependent; and

• Expiration of market demand upon which the generation plant is

dependent.

In prior depreciation reviews, Manitoba Hydro has determined a life span date for

most of the regulated hydraulic plants based on an overall life estimate of 140 years

beyond the date of initial construction. The management and operational staff of

Manitoba Hydro have reviewed this policy and determined that it remains reasonable to

determine the economic life of the generation plants on the basis of this policy. The

application of this policy was reviewed for its reasonableness at each of the generation

plants and was modified in three circumstances as follows:

• Pointe du Bois – March 31, 2040 (134 years);

• Laurie River – March 31, 2035 (78 years); and

• Grand Rapids – March 31, 2081 (125 years).

Due to regulation changes related to coal burning plants, a terminal date has

been established for Brandon Unit 5 (coal) assuming that the plant will remain available

for generation until December 31, 2019.

• Brandon Unit 5 (Coal) – December 31, 2019 (50 years).

Transmission Accounts

Account 2000G – Metal Towers and Concrete Poles, represents 49.2% of the

transmission assets and 3.4% of the depreciable assets studied. The company had a

previously approved life estimate of 85 years for this account. The original survivor

curve as shown on page V-92 of the Supporting Documents indicated a modest level of

retirement activity through age 59, with an indication of increased retirement activity

thereafter. The transmission towers have historically withstood environmental influences

such as ice storms, severe winter conditions and corrosion. Other than the

decommissioning of the towers from Pointe du Bois there are no other significant

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replacement plans over the next 25 to 30 years. The Canadian peer group reviewed as

part of this study indicated average service life ranges from 50 to 65 years.

Interviews with company operational staff have indicated an expectation of a

longer life than the industry peers. Based on the retirement rate analysis as presented

on pages V-93 through V-95 of the Supporting Documents, and on the expectations of

operational staff, Gannett Fleming recommends the continued approved Iowa 85-R4

curve.

Account 2000L – Overhead Conductor and Devices, represents 35.7% of the

transmission assets and 2.5% of the depreciable assets studied. The retirement pattern

shows only modest retirements up until age 20 and retirements increasing at a low rate

thereafter. Based on the retirement rate analysis as presented on pages V-100 through

V-102 of the Supporting Documents, and on the expectations of operational staff,

Gannett Fleming recommends the extension of the average service life estimate for this

account from a 65-R4 Iowa curve to the Iowa 80-R4.

Substation Accounts

Account 3000B – Buildings, represents 5.6% of the substation assets and 1.2%

of the depreciable assets studied. The retirement pattern as shown on pages V-106 and

V-107 of the Support Documents shows modest retirements at all ages throughout the

accounts life. Gannett Fleming recommends no change to the Iowa curve estimate and

curve fit to this account of an Iowa 65-R4.

Account 3000F – Roads, Steel Structures and Civil Site Works, represents

10.1% of the substation assets and 2.1% of the depreciable assets studied.

Comparable utilities within the electric industry have lives ranging from 50 to 57 years.

The retirement pattern as shown on pages V-109 through V-111 of the Supporting

Documents shows modest retirements early in this account’s life and increasing

thereafter. Based on the retirement rate analysis, and on the expectations of operational

staff, Gannett Fleming recommends the continued use of the Iowa 50-R4 curve.

Account 3100R – Power Transformers, represents 11.6% of the substation

assets and 2.4% of the depreciable assets studied. The retirement pattern shows

modest retirements starting at an early age and continuing at a high rate through age

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39. This account has undergone a significant amount of retirement activity since the last

depreciation study with approximately $5.7 million of retirements occurring. With this

large level of retirements, this account has now incurred over $48.7 million of

retirements (or over 12% of all plant installed), which provides a statistically relevant

base to use in the determination of the average service life estimates. As such,

retirement rate analysis as provided on pages V-116 and V-117 of the Supporting

Documents produced a fit of the Iowa 50-R1.5 which provides a good indication of the

average service life.

The operational staff have not identified any problems with Manitoba Hydro’s

transformers. Manitoba Hydro has standard maintenance practices that extend the lives

of the transformers for as long of a period as possible. Additionally, newer transformers

are expected to have shorter lives than the older units, as the new units are being

manufactured to tighter capacity tolerances. The typical industry lives range from 40 to

55 years. Based on the retirement rate analysis, and on the expectations of operational

staff, Gannett Fleming recommends an Iowa 50-R1.5 curve.

Account 3100T – Interrupting Equipment, represents 7.1% of the substation

assets and 1.5% of the depreciable assets studied. The retirement pattern as shown at

page V-122 through V-124 of the Supporting Documents shows retirements starting

early in the account’s life and continuing through to age 62. Based on the retirement

rate analysis Gannett Fleming recommends an extension to the Iowa curve estimate of

this account from the Iowa 45-R2 to an Iowa 50-R2.5.

Account 3100U – Other Station Equipment, represents 18.6% of the substation

assets and 3.9% of the depreciable assets studied. The retirement pattern is shown at

pages V-126 through V-128 of the Supporting Documents. Based on the retirement rate

analysis, and on the expectations of operational staff, Gannett Fleming recommends an

Iowa 45-R3 curve. This is a slight extension of the Iowa curve estimate for this account

from a 43-R2 to the Iowa 45-R3.

Account 3100V – Electronic Equipment and Batteries, represents 7.5% of the

substation assets and 1.6% of the depreciable assets studied. The retirement pattern as

shown on pages V-130 and V-131 of the Supporting Documents indicates that a life

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extension from the currently approved Iowa 20-R2 is required. Gannett Fleming

recommends the extension of the average service life estimate for this account from a

20-R2 Iowa curve to the Iowa 25-R2.

Account 3200P – HVDC Converter Equipment, represents 14.6% of the

substation assets and 3.1% of the depreciable assets studied. The retirement pattern

as shown on pages V-136 and V-137 of the Supporting Documents shows modest

retirements starting about year nine and slowly increasing with large retirements

thereafter through age 35. This account has undergone a significant amount of

retirement activity since the last depreciation study with over $22.4 million of retirements

occurring. With this large level of retirements, this account has now incurred over $87.4

million of retirements (or over 17% of all plant installed), which provides a statistically

relevant base to use in the determination of the average service life estimates. As such,

the average service life recommendation was based primarily on the best fit analysis

which indicated the Iowa 30-S4 curve. This life indication was confirmed as reasonable

by the operations staff, and is therefore recommended by Gannett Fleming in this study.

Account 3200S – HDVC Serialized Equipment, represents 7.2% of the substation

assets and 1.5% of the depreciable assets studied. The retirement pattern as shown at

pages V-139 and V-140 of the Supporting Documents shows significant retirement

activity starting at age 18 and continuing through age 38. Based on the retirement rate

analysis Gannett Fleming recommends an extension to the Iowa curve estimate of this

account from the Iowa 25-R2 to an Iowa 30-R5.

Account 3200U – HDVC Accessory Station Equipment, represents 5.7% of the

substation assets and 1.2% of the depreciable assets studied. This account has

undergone a significant amount of retirement activity since the last depreciation study

with approximately $3.1 million of retirements occurring. With this large level of

retirements, this account has now incurred approximately $20.3 million of retirements

(or over 11% of all plant installed), which provides a statistically relevant base to use in

the determination of the average service life estimates. As such, the retirement rate

analysis produced a fit of the Iowa 36-R3 which provides a good indication of the

average service life. As such Gannett Fleming recommends a small decrease to the

Iowa curve estimate of this account from the Iowa 37-R4 to this account to an Iowa 36-

R3.

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Distribution Accounts

Account 4000J – Poles and Fixtures, represents 23.5% of the distribution assets

and 4.7% of the depreciable assets studied. Typical industry lives for wood poles range

from 25 to 55 years. The retirement rate analysis as shown on pages V-155 through V-

157 of the Supporting Documents has indicated a preliminary average service life

estimate of the Iowa 55-R1.5. However, it was the view of the operations staff that the

life of poles within the Manitoba Hydro system should be at least 65 years based on a

recent internally developed study of the poles in service.

Based on all factors, Gannett Fleming recommends an Iowa 65-S0.5 curve,

which provides a reasonable fit to the actual retirement experience and conforms to the

view of the Manitoba Hydro operational staff.

Account 4000L – Overhead Conductor and Devices, represents 24.9% of the

distribution assets and 5.0% of the depreciable assets studied. The retirement rate

analysis as shown on pages V-159 and V-160 have indicated a high rate of early

retirements leading to a low-mode Iowa curve. The currently approved life estimate for

this account is the Iowa 60-R2 which is consistent with the operational staff indications

that they are seeing no major issues with conductors and they would expect lives of

conductor to be approximately 60 years. Based on all factors, Gannett Fleming

recommends a reduction of the mode of the curve to an Iowa 60-R1.5, which maintains

the average service life estimate for the previous depreciation study but adjusts to a

lower mode to recognize the increased level of early retirement experience.

Account 4000N – Underground Cable and Devices - Primary, represents 13.0%

of the distribution assets and 2.6% of the depreciable assets studied. Operational staff

indicated there are no major issues with newer underground cable installed within the

last 25 years. Cable previously installed, however, is experiencing retirements at about

45 years. Based on the retirement rate analysis as shown on pages V-165 and V-166 of

the Supporting Documents and on more recent expectations of operational staff,

Gannett Fleming recommends a small adjustment of the approved Iowa 60-R4 curve to

an Iowa 60-R3 curve.

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Account 4000P – Underground Cable and Devices - Secondary, represents 8.7%

of the distribution assets and 1.8% of the depreciable assets studied. The newer

underground cable is about 28 years old and is showing no major issues according to

Manitoba Hydro’s operational staff. Underground cable installed prior to this vintage is

starting to retire at about 45 years. Based on the retirement rate analysis as shown on

pages V-168 and V-169 of the Supporting Documents and the expectations of

operational staff along with industry comparables, Gannett Fleming recommends an

Iowa 44-S3 curve, which represents a small adjustment to the currently approved Iowa

45-R4.

Account 4000Q – Serialized Equipment - Overhead, represents 7.6% of the

distribution assets and 1.5% of the depreciable assets studied. The investment in this

account primarily relates to pole top transformers. Interviews with operational staff

indicated the company intends to continue to refurbish and reuse transformers. Based

on the retirement rate analysis as shown on pages V-171 through V-173 of the

Supporting Documents and the expectations of operational staff along with industry

comparables, Gannett Fleming recommends an extension from the currently approved

Iowa 35-R3 curve to the Iowa 45-R3 curve.

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PART III. CALCULATION OF ANNUAL AND

ACCRUED DEPRECIATION

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PART III. CALCULATION OF ANNUAL AND ACCRUED DEPRECIATION

CALCULATION OF ANNUAL AND ACCRUED DEPRECIATION

Group Depreciation Procedures

When more than a single item of property is under consideration, a group

procedure for depreciation is appropriate because normally all of the items within a

group do not have identical service lives, but have lives that are dispersed over a range

of time. There are two primary group procedures, namely, Average Service Life (ASL)

and Equal Life Group (ELG).

In the ELG procedure, the property group is subdivided according to service life.

That is, each equal life group includes that portion of the property which experiences the

life of that specific group. The relative size of each equal life group is determined from

the property's life dispersion curve. The calculated depreciation for the property group

is the summation of the calculated depreciation based on the service life of each equal

life group.

The table on the following page presents an illustration of the calculation of equal

life group depreciation in a mass property account using the Iowa 15-L3 survivor curve,

0 percent net salvage and a December 31, 2013 calculation date. In the table, each

equal life group is defined by the age interval shown in columns 1 and 2. These are the

ages at which the first and last retirement of each group occurs, and the group's equal

life, shown in column 3, is the midpoint of the interval. For purposes of the calculation,

each vintage is divided into equal life groups arranged so that the midpoint of each one-

year age interval coincides with the calculation date, e.g., December 31 in this case.

This enables the calculation of annual accruals for a twelve-month period centered on

the date of calculation.

The retirement during the age interval, shown in column 4, is the size of each

equal life group and is derived from the Iowa 15-L3 survivor curve and 0 percent net

salvage. It is the difference between the percents surviving at the beginning and end of

the age interval. Each equal life group's annual accrual, shown in column 5, equals the

group's size (column 4) divided by its life (column 3).

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Columns 7 through 10 show the derivation of the annual and accrued factors for

each vintage based on the information developed in the first five columns. The year

installed is shown in column 6. For all vintages other than 2013, the summation of

annual accruals for each year installed, shown in column 7, is calculated by adding one-

half of the group annual accrual (column 5) for that vintage's current age interval plus

the group annual accruals for all succeeding age intervals. For example, the figure

7.54580659712 for 2012 equals one-half of 0.00417333333 plus all of the succeeding

figures in column 5. Only one-half of the annual accrual for the vintage's current age

interval group is included in the summation because the equal life group for that interval

has reached the year during which it is expected to be retired. DETAILED COMPUTATION OF ANNUAL AND ACCRUED FACTORS USING THE EQUAL LIFE GROUP PROCEDURE INPUT PARAMETERS: CALCULATION DATE.. 12-31-2013 SURVIVOR CURVE.... 15-L3 RETIREMENTS GROUP SUMMATION AVERAGE AGE INTERVAL DURING ANNUAL YEAR OF ANNUAL PERCENT ANNUAL ACCRUED BEG END LIFE INTERVAL ACCRUAL INST ACCRUALS SURVIVING FACTOR FACTOR (1) (2) (3) (4) (5)=(4)/(3) (6) (7) (8) (9) (10) 0.000 1.000 0.500 0.00000 0.00000000000 2013 7.54789326379 100.000000 0.0755 0.0378 1.000 2.000 1.500 0.00626 0.00417333333 2012 7.54580659712 99.996871 0.0755 0.1133 2.000 3.000 2.500 0.07371 0.02948400000 2011 7.52897793046 99.956886 0.0753 0.1883 3.000 4.000 3.500 0.24938 0.07125142857 2010 7.47861021617 99.795341 0.0749 0.2622 4.000 5.000 4.500 0.53052 0.11789333333 2009 7.38403783522 99.405391 0.0743 0.3344 5.000 6.000 5.500 0.90946 0.16535636364 2008 7.24241298674 98.685400 0.0734 0.4037 6.000 7.000 6.500 1.42549 0.21930615385 2007 7.05008172799 97.517924 0.0723 0.4700 7.000 8.000 7.500 2.20064 0.29341866667 2006 6.79371931773 95.704861 0.0710 0.5325 8.000 9.000 8.500 3.39884 0.39986352941 2005 6.44707821969 92.905122 0.0694 0.5899 9.000 10.000 9.500 5.04554 0.53110947368 2004 5.98159171815 88.682933 0.0674 0.6403 10.000 11.000 10.500 6.85105 0.65248095238 2003 5.38979650512 82.734638 0.0651 0.6836 11.000 12.000 11.500 8.38308 0.72896347826 2002 4.69907428980 75.117571 0.0626 0.7199 12.000 13.000 12.500 9.24339 0.73947120000 2001 3.96485695067 66.304334 0.0598 0.7475 13.000 14.000 13.500 9.26729 0.68646592593 2000 3.25188838770 57.048992 0.0570 0.7695 14.000 15.000 14.500 8.60115 0.59318275862 1999 2.61206404543 48.114774 0.0543 0.7874 15.000 16.000 15.500 7.52494 0.48548000000 1998 2.07273266612 40.051733 0.0518 0.8029 16.000 17.000 16.500 6.36246 0.38560363636 1997 1.63719084794 33.108032 0.0494 0.8151 17.000 18.000 17.500 5.31546 0.30374057143 1996 1.29251874404 27.269070 0.0474 0.8295 18.000 19.000 18.500 4.45790 0.24096756757 1995 1.02016467454 22.382391 0.0456 0.8436 19.000 20.000 19.500 3.79278 0.19450153846 1994 0.80243012153 18.257053 0.0440 0.8580 20.000 21.000 20.500 3.26252 0.15914731707 1993 0.62560569376 14.729403 0.0425 0.8713 21.000 22.000 21.500 2.80655 0.13053720930 1992 0.48076343058 11.694867 0.0411 0.8837 22.000 23.000 22.500 2.39730 0.10654666667 1991 0.36222149259 9.092942 0.0398 0.8955 23.000 24.000 23.500 2.01248 0.08563744681 1990 0.26612943585 6.888050 0.0386 0.9071 24.000 25.000 24.500 1.64563 0.06716857143 1989 0.18972642673 5.058997 0.0375 0.9188 25.000 26.000 25.500 1.30683 0.05124823529 1988 0.13051802337 3.582767 0.0364 0.9282 26.000 27.000 26.500 1.00069 0.03776188679 1987 0.08601296233 2.429005 0.0354 0.9381 27.000 28.000 27.500 0.73137 0.02659527273 1986 0.05383438257 1.562976 0.0344 0.9460 28.000 29.000 28.500 0.50766 0.01781263158 1985 0.03163043042 0.943461 0.0335 0.9548 29.000 30.000 29.500 0.32937 0.01116508475 1984 0.01714157225 0.524945 0.0327 0.9647 30.000 31.000 30.500 0.19482 0.00638754098 1983 0.00836525939 0.262852 0.0318 0.9699 31.000 32.000 31.500 0.10249 0.00325365079 1982 0.00354466350 0.114197 0.0310 0.9765 32.000 33.000 32.500 0.04513 0.00138861538 1981 0.00122353042 0.040385 0.0303 0.9848 33.000 34.000 33.500 0.01480 0.00044179104 1980 0.00030832721 0.010422 0.0296 0.9916 34.000 35.000 34.500 0.00287 0.00008318841 1979 0.00004583748 0.001588 0.0289 0.9971 35.000 35.700 35.350 0.00015 0.00000424328 1978 0.00000148515 0.000053 0.0280 1.0000 TOTAL 100.00000

III-3

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

The summation of annual accruals (column 7) for installations during 2012 is

calculated on the basis of an in-service date at the midpoint of the year, i.e., June 30.

Inasmuch as the overall calculation is centered on December 31, 2013, the first figure in

column 7, for vintage 2014, equals all of the group annual accrual for the first equal life

group plus the accruals for all of the subsequent equal life groups.

The average percent surviving derived from the Iowa 15-L3 survivor curve and 0

percent net salvage, is shown in column 8 for each age interval. The annual factor,

shown in column 9, is the result of dividing the summation of annual accruals (column 7)

by the average percent surviving (column 8). The accrued factor, shown in column 10,

equals the annual factor multiplied by the age of the group at December 31, 2013.

CALCULATION OF ANNUAL AND ACCRUED AMORTIZATION

Amortization is the gradual extinguishment of an amount in an account by

distributing such amount over a fixed period, over the life of the asset or liability to which

it applies, or over the period during which it is anticipated the benefit will be realized.

Normally, the distribution of the amount is in equal amounts to each year of the

amortization period.

The calculation of annual and accrued amortization requires the selection of an

amortization period. The amortization periods used in this report were based on

judgment which incorporated a consideration of the period during which the assets will

render most of their service, the amortization period and service lives used by other

utilities, and the service life estimates previously used for the asset under depreciation

accounting.

For the purpose of calculating annual amortization amounts as of March 31,

2014, the book depreciation reserve for each plant account or subaccount is assigned

or allocated to vintages. The book reserve assigned to vintages with an age greater

than the amortization period is equal to the vintage’s original cost. The remaining book

reserve is allocated among vintages with an age less than the amortization period in

proportion to the calculated accrued amortization. The calculated accrued amortization

is equal to the original cost multiplied by the ratio of the vintage’s age to its amortization

period. The annual amortization amount is determined by dividing the future

III-4

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

amortizations (original cost less allocated book reserve) by the remaining period of

amortization for the vintage.

Amortization accounting is proposed for a number of accounts that represent

numerous units of property, but a very small portion of depreciable plant in service. The

accounts and their amortization periods are as follows:

AMORTIZATION

PERIOD,

ACCOUNT TITLE YEARS

Group 000C Hydraulic Generation - Powerhouse Renovations 40 Group 000L Hydraulic Generation – License Renewal 50 Group 000W Hydraulic Generation - Support Building Renovations 20 Group 000Z Hydraulic Generation – Community Development Costs 78-90 1200C Thermal Generation – Powerhouse Renovations 40 1200L Thermal Generation - License Renewal 50 1200W Thermal Generation – Support Building Renovations 20 1300C Diesel Generation – Building Renovations 15 1300M Diesel Generation – Engine and Generators – Overhauls 4 2000K Transmission – Ground Line Treatment 10 2000Z Transmission – Community Development Costs 79 3000C Substations – Building Renovations 20 3200N Substations – Synchronous Condenser Overhauls 15 4000K Distribution – Ground Line Treatment 12 4000V Distribution - Electronic Equipment 10 4900W Meters - Metering Exchanges 15 5000C Communication – Building Renovations 20 5000K Communication – Operational IT Equipment 5 5000M Communication – Mobile Radio, Telephone and Video Conferencing 8 5000N Communication – Operational Data Network 8 8000C General Plant – Building Renovations 20 8000F General Plant – Leasehold Improvements – Sony Place 10 9000H General Plant – Tools, Shop and Garage Equipment 15 9000K General Plant – Computer Equipment 5 9000L General Plant – Office Furniture and Equipment 20 9000M General Plant – Hot Water Tanks 6 A100A Easements 75 A200H Computer Development – Small Systems 10 A200J Computer Software – General 5 A200K Computer Software – Communication/Operational 5

III-5

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

MONITORING OF BOOK ACCUMULATED DEPRECIATION

The calculated accrued depreciation or amortization represents that portion of

the depreciable cost which will not be allocated to expense through future depreciation

accruals, if current forecasts of service life characteristics and net salvage materialize

and are used as a basis for depreciation accounting. Thus, the calculated accrued

depreciation provides a measure of the book accumulated depreciation. The use of this

measure is recommended in the amortization of book accumulated depreciation

variances to insure complete recovery of capital over the life of the property.

The recommended amortization of the variance between the book accumulated

depreciation and the calculated accrued depreciation is based on an amortization period

equal to the composite remaining life for each property group.

The composite remaining life for use in the calculation of accumulated

depreciation variances is derived by developing the composite sum of the individual

equal life group remaining lives in accordance with the following equation:

.

LifeCost Book

Life) Remaining x Life

Cost Book(

= Life Remaining Composite∑

The book costs and lives of the several equal life groups, which are summed in

the foregoing equation, are defined by the estimated future survivor curve. Inasmuch as

book cost divided by life equals the whole life annual accrual, the foregoing equation

reduces to the following form:

Accruals AnnualLife Whole

AccrualsFuture Life Whole = Life Remaining Composite∑∑

or

. Accrual AnnualLife Whole

Reserve Calc. - Cost Book = Life Remaining Composite∑∑

III-6

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

PART IV. RESULTS OF STUDY

IV-1

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

PART IV. RESULTS OF STUDY

QUALIFICATION OF RESULTS

The calculated annual and accrued depreciation are the principal results of the

study. Continued surveillance and periodic revisions are normally required to maintain

continued use of appropriate annual depreciation accrual rates. An assumption that

accrual rates can remain unchanged over a long period of time implies a disregard for

the inherent variability in service lives and for the change of the composition of property

in service. The annual accrual rates and the accrued depreciation were calculated in

accordance with the straight line method, using the equal life group procedure based on

estimates which reflect considerations of current historical evidence and expected future

conditions.

DESCRIPTION OF DETAILED TABULATIONS

The service life estimates were based on judgment that incorporated statistical

analysis of retirement data, discussions with management and consideration of

estimates used by other electric utilities. The results of the statistical analysis of service

life are presented in the section beginning on V-2 of the Supporting Documents.

For each depreciable group analyzed by the retirement rate method, a chart

depicting the original and estimated survivor curves is followed by a tabular presentation

of the original life table(s) plotted on the chart. The survivor curves estimated for the

depreciable groups are shown as dark smooth curves on the charts. Each smooth

survivor curve is denoted by a numeral followed by the curve type designation. The

numeral used is the average life derived from the entire curve from 100 percent to zero

percent surviving. The titles of the chart indicate the group, the symbol used to plot the

points of the original life table, and the experience and placement bands of the life

tables which where plotted. The experience band indicates the range of years for which

retirements were used to develop the stub survivor curve. The placements indicate, for

the related experience band, the range of years of installations which appear in the

experience.

IV-2

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

The tables of the calculated annual depreciation applicable to depreciable assets

of Manitoba Hydro as of March 31, 2014 are presented in account sequence starting on

page VI-2 of the Supporting Documents. The tables of the calculated annual

depreciation applicable to depreciable assets of Wuskwatim Power Limited Partnership

as of March 31, 2014 are presented in account sequence starting on page VI-323 of the

Supporting Documents. Additionally, the tables indicate the estimated average survivor

curves used in the calculations, and set forth, for each installation year, the original cost,

calculated accrued depreciation, and the calculated annual accrual.

IV-3

Appendix 5.6 - Attachment 2

Page 72: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

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IV-4

Appendix 5.6 - Attachment 2

Page 73: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

LIF

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IV-5

Appendix 5.6 - Attachment 2

Page 74: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

LIF

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11.

32

IV-6

Appendix 5.6 - Attachment 2

Page 75: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

LIF

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IV-7

Appendix 5.6 - Attachment 2

Page 76: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

LIF

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54

IV-8

Appendix 5.6 - Attachment 2

Page 77: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

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AL

DIE

SE

L G

EN

ER

AT

ION

48,0

30,6

662,

592,

167

5.40

(654

,879

)1,

937,

288

4.03

IV-9

Appendix 5.6 - Attachment 2

Page 78: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

LIF

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483

6.35

IV-10

Appendix 5.6 - Attachment 2

Page 79: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

LIF

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as n

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of M

arch

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4 an

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te w

ill b

e us

ed o

n a

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ard

basi

s fo

r fu

ture

add

ition

s.**

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amor

tized

acc

ount

s an

y tr

ue-u

p of

less

than

10%

is n

ot c

onsi

dere

d si

gnifi

cant

.**

*C

omm

unity

Dev

elop

men

t cos

ts a

re a

mor

tized

ove

r th

e w

eigh

ted

aver

age

life

of th

e ph

ysic

al a

sset

s de

rivin

g be

nefit

from

suc

h ex

pend

iture

s.**

**T

rue-

up e

xclu

ded

as e

xisi

ting

asse

ts in

acc

ount

are

fully

dep

reci

ated

.

IV-11

Appendix 5.6 - Attachment 2

Page 80: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

LIF

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IV-12

Appendix 5.6 - Attachment 2

Page 81: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

LIF

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13.

5750

80J

WP

LP -

CA

RR

IER

EQ

UIP

ME

NT

20-R

2.5

02,

508,

284

152,

013

6.06

(4,4

86)

147,

527

5.88

5080

MW

PLP

- M

OB

ILE

RA

DIO

, TE

LEP

HO

NE

AN

D C

ON

FE

RE

NC

ING

8-S

Q0

212,

713

26,5

8912

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740

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2912

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5080

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PLP

- O

PE

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NA

L D

AT

A N

ET

WO

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8-S

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440,

117

55,0

1512

.50

(2,6

78)

52,3

3711

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TA

L C

OM

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NIC

AT

ION

7,62

4,55

439

2,51

55.

15(5

,892

)38

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45.

07

EA

SE

ME

NT

SA

180A

WP

LP -

EA

SE

ME

NT

S75

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079

6,64

010

,595

1.33

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951.

33**

TO

TA

L E

AS

EM

EN

TS

796,

640

10,5

951.

3310

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TA

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P IN

TA

NG

IBL

E A

SS

ET

S30

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9,35

86,

440,

729

2.11

(24,

269)

6,41

6,46

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10

TO

TA

L W

US

KW

AT

IM P

OW

ER

LIM

ITE

D P

AR

TN

ER

SH

IP1,

641,

261,

025

25,5

73,3

95(7

5,39

3)25

,498

,002

1.55

*T

he a

ccou

nt h

as n

o ba

lanc

e as

of M

arch

31,

201

4 an

d ra

te w

ill b

e us

ed o

n a

go-f

orw

ard

basi

s fo

r fu

ture

add

ition

s.**

On

amor

tized

acc

ount

s an

y tr

ue-u

p of

less

than

10%

is n

ot c

onsi

dere

d si

gnifi

cant

.

IV-13

Appendix 5.6 - Attachment 2

Page 82: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

SU

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NT

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L S

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TE

MS

24,2

45,2

538,

311,

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E IM

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935,

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1, 2

014

IV-14

Appendix 5.6 - Attachment 2

Page 83: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

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58)

(3.9

3)(9

,764

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PIN

E F

AL

LS

11

25A

DA

MS

, DY

KE

S A

ND

WE

IRS

18,3

01,5

122,

840,

188

3,37

3,55

4(5

33,3

66)

(18.

78)

74.6

(7,1

50)

1125

BP

OW

ER

HO

US

E10

,060

,843

4,88

0,96

65,

899,

390

(1,0

18,4

24)

(20.

87)

62.7

(16,

243)

1125

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HO

US

E R

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OV

AT

ION

S12

1,80

94,

568

8,93

3(4

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5.55

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13)

1125

DS

PIL

LWA

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93,3

768,

399

9,22

1(8

22)

(9.7

9)66

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2)11

25E

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R C

ON

TR

OL

SY

ST

EM

S3,

660,

833

1,83

6,54

72,

674,

651

(838

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)(4

5.63

)49

.1(1

7,06

9)11

25F

RO

AD

S A

ND

SIT

E IM

PR

OV

EM

EN

TS

1,18

0,05

897

2,97

21,

213,

586

(240

,614

)(2

4.73

)10

.90

****

1125

GT

UR

BIN

ES

AN

D G

EN

ER

AT

OR

S9,

318,

154

5,54

3,09

06,

336,

912

(793

,822

)(1

4.32

)35

.5(2

2,36

1)11

25H

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OV

ER

NO

RS

AN

D E

XC

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N S

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M*

1125

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EN

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1125

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L P

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096,

978

2,06

3,74

82,

569,

620

(505

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EN

TA

TIO

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3,88

1,57

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331

1,48

6,41

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(10.

08)

18.4

(7,3

96)

1125

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UX

ILIA

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ST

AT

ION

PR

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ES

SE

S3,

976,

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1,55

8,85

82,

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171

(499

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.0(1

3,14

0)11

25X

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PP

OR

T B

UIL

DIN

GS

336,

412

108,

674

122,

122

(13,

448)

(12.

37)

45.4

(296

)11

25W

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UP

PO

RT

BU

ILD

ING

RE

NO

VA

TIO

NS

*11

25Z

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MM

UN

ITY

DE

VE

LOP

ME

NT

CO

ST

S *

**26

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,770

1,46

7,29

81,

457,

155

10,1

430.

6973

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TO

TA

L P

INE

FA

LL

S

82,5

60,0

9722

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,639

27,2

09,7

33(4

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)(2

0.21

)(9

5,12

3)

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AR

TH

UR

FA

LL

S11

30A

DA

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, DY

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S A

ND

WE

IRS

6,83

7,35

61,

603,

256

1,88

1,77

6(2

78,5

20)

(17.

37)

74.7

(3,7

29)

1130

BP

OW

ER

HO

US

E9,

358,

105

4,48

2,93

35,

321,

399

(838

,466

)(1

8.70

)64

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3,06

0)11

30C

PO

WE

RH

OU

SE

RE

NO

VA

TIO

NS

405,

461

15,2

0529

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(14,

529)

(95.

55)

38.5

(377

)11

30D

SP

ILLW

AY

2,41

7,50

41,

654,

460

1,81

5,24

2(1

60,7

82)

(9.7

2)30

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,359

)11

30E

WA

TE

R C

ON

TR

OL

SY

ST

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S11

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4,05

3,77

05,

994,

290

(1,9

40,5

20)

(47.

87)

46.7

(41,

553)

1130

FR

OA

DS

AN

D S

ITE

IMP

RO

VE

ME

NT

S23

5,26

212

7,18

314

6,06

0(1

8,87

7)(1

4.84

)30

.2(6

25)

1130

GT

UR

BIN

ES

AN

D G

EN

ER

AT

OR

S5,

379,

618

4,29

7,09

94,

887,

739

(590

,640

)(1

3.75

)21

.7(2

7,21

8)11

30H

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VE

RN

OR

S A

ND

EX

CIT

AT

ION

SY

ST

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119,

315

42,0

3748

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(6,3

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*11

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RIC

AL

PO

WE

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TE

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2,52

1,76

11,

634,

050

1,99

5,62

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46)

1130

QIN

ST

RU

ME

NT

AT

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NT

RO

L A

ND

D/C

SY

ST

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S1,

275,

876

825,

733

948,

698

(122

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)(1

4.89

)15

.8(7

,783

)11

30R

AU

XIL

IAR

Y S

TA

TIO

N P

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CE

SS

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3,61

6,03

11,

398,

438

1,80

7,22

7(4

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(29.

23)

38.6

(10,

590)

1130

XS

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PO

RT

BU

ILD

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S*

1130

WS

UP

PO

RT

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NO

VA

TIO

NS

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AL

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FA

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20,1

34,1

6424

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(4,7

42,0

47)

(23.

55)

(120

,231

)

IV-15

Appendix 5.6 - Attachment 2

Page 84: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

SU

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8,78

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4,13

5,04

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1135

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671)

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9,96

9,16

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173

3,37

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40E

WA

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R C

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TR

OL

SY

ST

EM

S15

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,492

9,49

7,42

713

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(4,4

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(46.

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51.7

(85,

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PR

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556,

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36,3

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1145

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42,8

79,9

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864,

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23,7

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0,64

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2,92

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AT

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7,82

9,21

410

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93)

42.2

(55,

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RT

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258

116,

120

41,8

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157,

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177,

671,

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(12.

46)

(366

,231

)

IV-16

Appendix 5.6 - Attachment 2

Page 85: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

SU

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355,

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441,

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326

591,

840

137,

486

18.8

518

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352

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AT

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603,

136

1,37

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21,

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SE

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2,40

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5,70

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17.5

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435

1150

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PO

RT

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S35

5,91

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5,93

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4,61

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4,74

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89.9

(9,6

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1155

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ER

HO

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4325

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(2,2

29,9

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366

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934)

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ON

TR

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SY

ST

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S17

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9,10

5,61

212

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(32.

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34.3

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1155

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563,

205

841,

418

899,

601

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55G

TU

RB

INE

S A

ND

GE

NE

RA

TO

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91,7

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44,0

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9633

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65,

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430

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40.5

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RT

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2,80

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29,8

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AY

59

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26,6

76,1

7026

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661,

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2.48

47.8

13,8

2911

65E

WA

TE

R C

ON

TR

OL

SY

ST

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S18

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10,1

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AD

S A

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SIT

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PR

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64,

679,

563

4,89

6,07

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65L

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CE

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E R

EN

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*11

65P

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AL

PO

WE

R S

YS

TE

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1,71

0,88

91,

055,

168

1,15

3,46

1(9

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23.4

(4,2

01)

1165

QIN

ST

RU

ME

NT

AT

ION

, CO

NT

RO

L A

ND

D/C

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ST

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541,

737

1,33

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377

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IAR

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TA

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N P

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SS

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4,25

756

4,80

466

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65X

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PP

OR

T B

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DIN

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628

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3357

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1165

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NO

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155,

283,

692

170,

946,

369

(15,

662,

677)

(10.

09)

(284

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)

IV-17

Appendix 5.6 - Attachment 2

Page 86: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

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IV-18

Appendix 5.6 - Attachment 2

Page 87: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

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IV-19

Appendix 5.6 - Attachment 2

Page 88: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

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4000

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UN

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TM

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3

IV-20

Appendix 5.6 - Attachment 2

Page 89: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

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EN

T18

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7,52

410

0,23

5,18

110

6,83

0,13

6(6

,594

,955

)(6

.58)

(985

,792

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TO

TA

L M

AN

ITO

BA

HY

DR

O14

,230

,425

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4,77

8,60

7,41

75,

381,

231,

843

(602

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)(1

6,39

8,10

9)

*T

he a

ccou

nt h

as n

o ba

lanc

e as

of M

arch

31,

201

4 an

d ra

te w

ill b

e us

ed o

n a

go-f

orw

ard

basi

s fo

r fu

ture

add

ition

s.**

On

amor

tized

acc

ount

s an

y tr

ue-u

p of

less

than

10%

is n

ot c

onsi

dere

d si

gnifi

cant

.**

*C

omm

unity

Dev

elop

men

t cos

ts a

re a

mor

tized

ove

r th

e w

eigh

ted

aver

age

life

of th

e ph

ysic

al a

sset

s de

rivin

g be

nefit

from

suc

h ex

pend

iture

s.**

**T

rue-

up e

xclu

ded

as e

xisi

ting

asse

ts in

acc

ount

are

fully

dep

reci

ated

.

IV-21

Appendix 5.6 - Attachment 2

Page 90: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

SU

RV

IVIN

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201

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31,

201

4

IV-22

Appendix 5.6 - Attachment 2

Page 91: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

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*T

he a

ccou

nt h

as n

o ba

lanc

e as

of

Mar

ch 3

1, 2

014

and

rate

will

be

used

on

a go

-for

war

d ba

sis

for

futu

re a

dditi

ons.

**O

n am

ortiz

ed a

ccou

nts

any

true

-up

of le

ss t

han

10%

is n

ot c

onsi

dere

d si

gnifi

cant

.

IV-23

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

APPENDIX A

ESTIMATION OF SURIVOR CURVES

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Manitoba Hydro March 31, 2014

ESTIMATION OF SURVIVOR CURVES

Average Service Life

The use of an average service life for a property group implies that the various

units in the group have different lives. Thus, the average life may be obtained by

determining the separate lives of each of the units, or by constructing a survivor curve

by plotting the number of units which survive at successive ages. A discussion of the

general concept of survivor curves is presented. Also, the Iowa type survivor curves are

reviewed.

SURVIVOR CURVES

The survivor curve graphically depicts the amount of property existing at each

age throughout the life of an original group. From the survivor curve, the average life of

the group, the remaining life expectancy, the probable life, and the frequency curve can

be calculated. In Figure 1, a typical smooth survivor curve and the derived curves are

illustrated. The average life is obtained by calculating the area under the survivor curve,

from age zero to the maximum age, and dividing this area by the ordinate at age zero.

The remaining life expectancy at any age can be calculated by obtaining the area under

the curve, from the observation age to the maximum age, and dividing this area by the

percent surviving at the observation age. For example, in Figure 1, the remaining life at

age 30 is equal to the crosshatched area under the survivor curve divided by 29.5

percent surviving at age 30. The probable life at any age is developed by adding the

age and remaining life. If the probable life of the property is calculated for each year of

age, the probable life curve shown in the chart can be developed. The frequency curve

presents the number of units retired in each age interval. It is derived by obtaining the

differences between the amount of property surviving at the beginning and at the end of

each interval.

Iowa Type Curves

The range of survivor characteristics usually experienced by utility and industrial

properties is encompassed by a system of generalized survivor curves known as the

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Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

Iowa type curves. There are four families in the Iowa system, labeled in accordance

with the location of the modes of the retirements in relationship to the average life and

the relative height of the modes. The left moded curves, presented in Figure 2, are

those in which the greatest frequency of retirement occurs to the left of, or prior to,

average service life. The symmetrical moded curves, presented in Figure 3, are those

in which the greatest frequency of retirement occurs at average service life. The right

moded curves, presented in Figure 4, are those in which the greatest frequency occurs

to the right of, or after, average service life. The origin moded curves, presented in

Figure 5, are those in which the greatest frequency of retirement occurs at the origin, or

immediately after age zero. The letter designation of each family of curves (L, S, R or

O) represents the location of the mode of the associated frequency curve with respect

to the average service life. The numbers represent the relative heights of the modes of

the frequency curves within each family.

The Iowa curves were developed at the Iowa State College Engineering

Experiment Station through an extensive process of observation and classification of

the ages at which industrial property had been retired. A report of the study which

resulted in the classification of property survivor characteristics into 18 type curves,

which constitute three of the four families, was published in 1935 in the form of the

Experiment Station’s Bulletin 125.1 These curve types have also been presented in

subsequent Experiment Station bulletins and in the text, "Engineering Valuation and

Depreciation."2 In 1957, Frank V. B. Couch, Jr., an Iowa State College graduate

student, submitted a thesis3 presenting his development of the fourth family consisting

of the four O type survivor curves.

1 Winfrey, Robley. Statistical Analyses of Industrial Property Retirements. Iowa State College, Engineering Experiment Station, Bulletin 125. 1935.

2Marston, Anson, Robley Winfrey and Jean C. Hempstead. Engineering Valuation and Depreciation, 2nd Edition. New York, McGraw-Hill Book Company. 1953.

3Couch, Frank V. B., Jr. "Classification of Type O Retirement Characteristics of Industrial Property." Unpublished M.S. thesis (Engineering Valuation). Library, Iowa State College, Ames, Iowa. 1957.

A-4

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Appendix 5.6 - Attachment 2

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Appendix 5.6 - Attachment 2

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Appendix 5.6 - Attachment 2

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Appendix 5.6 - Attachment 2

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Retirement Rate Method of Analysis

The retirement rate method is an actuarial method of deriving survivor curves

using the average rates at which property of each age group is retired. The method

relates to property groups for which aged accounting experience is available and is the

method used to develop the original stub survivor curves in this study. The method

(also known as the annual rate method) is illustrated through the use of an example in

the following text, and is also explained in several publications, including "Statistical

Analyses of Industrial Property Retirements,"4 "Engineering Valuation and

Depreciation,"5 and "Depreciation Systems."6

The average rate of retirement used in the calculation of the percent surviving for

the survivor curve (life table) requires two sets of data: first, the property retired during

a period of observation, identified by the property's age at retirement; and second, the

property exposed to retirement at the beginning of the age intervals during the same

period. The period of observation is referred to as the experience band, and the band

of years which represent the installation dates of the property exposed to retirement

during the experience band is referred to as the placement band. An example of the

calculations used in the development of a life table follows. The example includes

schedules of annual aged property transactions, a schedule of plant exposed to

retirement, a life table and illustrations of smoothing the stub survivor curve.

Schedules of Annual Transactions in Plant Records

The property group used to illustrate the retirement rate method is observed for

the experience band 2004-2013 during which there were placements during the years

1999-2013. In order to illustrate the summation of the aged data by age interval, the

data were compiled in the manner presented in Schedules 1 and 2 on the following

pages. In Schedule 1, the year of installation (year placed) and the year of retirement

are shown. The age interval during which a retirement occurred is determined from this

information. In the example which follows, $10,000 of the dollars invested in 1999 were

4Winfrey, Robley, Supra Note 1. 5Marston, Anson, Robley Winfrey, and Jean C. Hempstead, Supra Note 2.

6Wolf, Frank K. and W. Chester Fitch. Depreciation Systems. Iowa State University Press. 1994.

A-9

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

Yea

rT

otal

Dur

ing

Age

Pla

ced

Age

Int

erva

l

Int

erva

l

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

1999

1011

1213

1416

2324

2526

2613

½-1

2000

1112

1315

1618

2021

2219

4412

½-1

2001

1112

1314

1617

1921

2218

6411

½-1

2002

89

1011

1113

1415

1617

8310

½-1

2003

910

1112

1314

1617

1920

939½

-10½

20

044

910

1112

1314

1516

2010

58½

-9½

2005

511

1213

1415

1618

2011

37½

-8½

2006

612

1315

1617

1919

124

6½-7

½

20

076

1315

1617

1919

131

5½-6

½

20

087

1416

1719

2014

34½

-5½

2009

8

1820

2223

146

3½-4

½

20

109

2022

2515

02½

-3½

2011

1123

2515

11½

-2½

2012

1124

153

½-1

½

20

13

13

800-

½

Tot

al53

6886

106

128

157

196

231

273

308

1,60

6

Ret

irem

ents

, T

hous

ands

of

Dol

lars

Dur

ing

Yea

r

SC

HE

DU

LE 1

. R

ET

IRE

ME

NT

S F

OR

EA

CH

YE

AR

200

4-20

13S

UM

MA

RIZ

ED

BY

AG

E I

NT

ER

VA

L

E

xper

ienc

e B

and

2004

-201

3P

lace

men

t B

and

1999

-201

3

A-10

Appendix 5.6 - Attachment 2

Page 102: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

Exp

erie

nce

Ban

d 20

04-2

013

Pla

cem

ent

Ban

d 19

99-2

013

Yea

rT

otal

Dur

ing

Age

Pla

ced

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Age

Int

erva

lIn

terv

al

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

1999

--

--

--

60a

--

--

13½

-14½

2000

--

--

--

--

--

-12

½-1

3½20

01-

--

--

--

--

--

11½

-12½

2002

--

--

--

-(5

)b-

-60

10½

-11½

2003

--

--

--

-6a

--

- 9

½-1

0½20

04-

--

--

--

--

-(5

) 8

½-9

½20

05-

--

--

--

--

-7½

-8½

2006

--

--

--

--

- 6

½-7

½

2007

--

--

(12)

b-

--

-6½

2008

--

--

22a

--

-5½

2009

--

(19)

b-

-10

-4½

2010

--

--

- 2

½-3

½

2011

--

(102

)c(1

21)

-2½

2012

--

-

½-1

½20

13 0

Tot

al-

--

--

-60

(30)

22(1

02)

(50)

a T

rans

fer

Aff

ectin

g E

xpos

ures

at

Beg

inni

ng o

f Y

ear

b T

rans

fer

Aff

ectin

g E

xpos

ures

at

End

of

Yea

r

c S

ale

with

Con

tinue

d U

se

P

aren

thes

es D

enot

e C

redi

t A

mou

nt.

Acq

uisi

tions

, T

rans

fers

and

Sal

es,

Tho

usan

ds o

f D

olla

rsD

urin

g Y

ear

SC

HE

DU

LE 2

. O

TH

ER

TR

AN

SA

CT

ION

S F

OR

EA

CH

YE

AR

200

4-20

13S

UM

MA

RIZ

ED

BY

AG

E I

NT

ER

VA

L

A-11

Appendix 5.6 - Attachment 2

Page 103: 5 1.0 7 2.0 Reduction in Depreciation Under Canadian GAAP ... · 4 Depreciation expense is recognized on a straight-line basis over the estimated average 5 remaining service life

Manitoba Hydro March 31, 2014

retired in 2004. The $10,000 retirement occurred during the age interval between 4½

and 5½ years on the basis that approximately one-half of the amount of property was

installed prior to and subsequent to July 1 of each year. That is, on the average,

property installed during a year is placed in service at the midpoint of the year for the

purpose of the analysis. All retirements also are stated as occurring at the midpoint of a

one-year age interval of time, except the first age interval which encompasses only one-

half year.

The total retirements occurring in each age interval in a band are determined by

summing the amounts for each transaction year-installation year combination for that

age interval. For example, the total of $143,000 retired for age interval 4½-5½ is the

sum of the retirements entered on Schedule 1 immediately above the stair step line

drawn on the table beginning with the 2004 retirements of 1999 installations and

ending with the 2013 retirements of the 2008 installations. Thus, the total amount of

143 for age interval 4½-5½ equals the sum of:

10 + 12 + 13 + 11 + 13 + 13 + 15 + 17 + 19 + 20.

In Schedule 2, other transactions which affect the group are recorded in a similar

manner. The entries illustrated include transfers and sales. The entries which are

credits to the plant account are shown in parentheses. The items recorded on this

schedule are not totaled with the retirements, but are used in developing the exposures

at the beginning of each age interval.

Schedule of Plant Exposed to Retirement

The development of the amount of plant exposed to retirement at the beginning

of each age interval is illustrated in Schedule 3 on the following page. The surviving

plant at the beginning of each year from 2004 through 2013 is recorded by year in the

portion of the table headed "Annual Survivors at the Beginning of the Year." The last

amount entered in each column is the amount of new plant added to the group during

the year. The amounts entered in Schedule 3 for each successive year following the

beginning balance or addition, are obtained by adding or subtracting the net entries

A-12

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

E

xper

ienc

e B

and

2004

-201

3

P

lace

men

t B

and

1999

-201

3

Tot

al a

tB

egin

ning

Yea

rof

Age

Age

Pla

ced

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Inte

rval

Inte

rval

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

1999

255

245

234

222

209

195

239

216

192

167

167

13½

-14½

2000

279

268

256

243

228

212

194

174

153

131

323

12½

-13½

2001

307

296

284

271

257

241

224

205

184

162

531

11½

-12½

2002

338

330

321

311

300

289

276

262

242

226

823

10½

-11½

2003

376

367

257

346

334

321

307

267

280

261

1,09

7 9

½-1

2004

420a

416

407

397

386

374

361

347

332

316

1,50

3 8

½-9

½

2005

460a

455

444

432

419

405

390

374

356

1,95

27½

-8½

2006

510a

504

492

479

464

448

431

412

2,46

3 6

½-7

½

2007

580a

574

561

546

530

501

482

3,05

7 5

½-6

½

2008

660a

653

639

623

628

609

3,78

9 4

½-5

½

2009

750a

742

724

685

663

4,33

2 3

½-4

½

2010

850a

841

821

799

4,95

5 2

½-3

½

2011

960a

949

923

5,71

9 1

½-2

½

2012

1,0

80a

1,06

96,

579

½

-1½

2013

1,

220a

7,49

0 0

Tot

al1,

975

2,38

22,

824

3,31

83,

872

4,49

45,

247

6,01

76,

852

7,79

944

,780

a A

dditi

ons

duri

ng t

he y

ear.

Exp

osur

es,

Tho

usan

ds o

f D

olla

rs

Ann

ual S

urvi

vors

at

the

Beg

inni

ng o

f th

e Y

ear

SC

HE

DU

LE 3

. P

LAN

T E

XP

OS

ED

TO

RE

TIR

EM

EN

T J

AN

UA

RY

1O

F E

AC

H Y

EA

R 2

004-

2013

SU

MM

AR

IZE

D B

Y A

GE

IN

TE

RV

AL

A-13

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

shown on Schedules 1 and 2. For the purpose of determining the plant exposed to

retirement, transfers-in are considered as being exposed to retirement in this group at

the beginning of the year in which they occurred, and the sales and transfers-out are

considered to be removed from the plant exposed to retirement at the beginning of

the following year. Thus, the amounts of plant shown at the beginning of each year are

the amounts of plant from each placement year considered to be exposed to retirement

at the beginning of each successive transaction year. For example, the exposures for

the installation year 2006 are calculated in the following manner:

Exposures at age 0 = amount of addition = $750,000 Exposures at age ½ = $750,000 - $ 8,000 = $742,000 Exposures at age 1½ = $742,000 - $18,000 = $724,000 Exposures at age 2½ = $724,000 - $20,000 - $19,000 = $685,000 Exposures at age 3½ = $685,000 - $22,000 = $663,000

For the entire experience band 2001-2010, the total exposures at the beginning

of an age interval are obtained by summing diagonally in a manner similar to the

summing of the retirements during an age interval (Schedule 1). For example, the

figure of 3,789, shown as the total exposures at the beginning of age interval 4½-5½, is

obtained by summing:

255 + 268 + 284 + 311 + 334 + 374 + 405 + 448 + 501 + 609.

Original Life Table

The original life table, illustrated in Schedule 4 on the following page, is

developed from the totals shown on the schedules of retirements and exposures,

Schedules 1 and 3, respectively. The exposures at the beginning of the age interval are

obtained from the corresponding age interval of the exposure schedule, and the

retirements during the age interval are obtained from the corresponding age interval of

the retirement schedule. The retirement ratio is the result of dividing the retirements

during the age interval by the exposures at the beginning of the age interval. The

percent surviving at the beginning of each age interval is derived from survivor ratios,

each of which equals one minus the retirement ratio. The percent surviving is

developed by starting with 100% at age zero and successively multiplying the percent

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Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

SCHEDULE 4. ORIGINAL LIFE TABLE

CALCULATED BY THE RETIREMENT RATE METHOD

Experience Band 2004-2013 Placement Band 1999-2013

(Exposure and Retirement Amounts are in Thousands of Dollars)

Age at

Beginning of Interval

(1)

Exposures at Beginning of Age Interval

(2)

Retirements During Age

Interval (3)

Retirement Ratio

(4)

Survivor Ratio

(5)

Percent Surviving at Beginning of Age Interval

(6)

0.0 7,490 80 0.0107 0.9893 100.00 0.5 6,579 153 0.0233 0.9767 98.93 1.5 5,719 151 0.0264 0.9736 96.62 2.5 4,955 150 0.0303 0.9697 94.07 3.5 4,332 146 0.0337 0.9663 91.22 4.5 3,789 143 0.0377 0.9623 88.15 5.5 3,057 131 0.0429 0.9571 84.83 6.5 2,463 124 0.0503 0.9497 81.19 7.5 1,952 113 0.0579 0.9421 77.11 8.5 1,503 105 0.0699 0.9301 72.65 9.5 1,097 93 0.0848 0.9152 67.57 10.5 823 83 0.1009 0.8991 61.84 11.5 531 64 0.1205 0.8795 55.60 12.5 323 44 0.1362 0.8638 48.90 13.5 167 26 0.1557 0.8443 42.24

35.66

Total

44,780

1,606

Column 2 from Schedule 3, Column 12, Plant Exposed to Retirement. Column 3 from Schedule 1, Column 12, Retirements for Each Year. Column 4 = Column 3 divided by Column 2. Column 5 = 1.0000 minus Column 4. Column 6 = Column 5 multiplied by Column 6 as of the Preceding Age Interval.

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Appendix 5.6 - Attachment 2

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surviving at the beginning of each interval by the survivor ratio, i.e., one minus the

retirement ratio for that age interval. The calculations necessary to determine the

percent surviving at age 5½ are as follows:

Percent surviving at age 4½ = 88.15 Exposures at age 4½ = 3,789,000 Retirements from age 4½ to 5½ = 143,000 Retirement Ratio = 143,000 ÷ 3,789,000 = 0.0377 Survivor Ratio = 1.000 - 0.0377 = 0.9623 Percent surviving at age 5½ = (88.15) x (0.9623) = 84.83

The totals of the exposures and retirements (columns 2 and 3) are shown for the

purpose of checking with the respective totals in Schedules 1 and 3. The ratio of the

total retirements to the total exposures, other than for each age interval, is meaningless.

The original survivor curve is plotted from the original life table (column 6, Schedule 4).

When the curve terminates at a percent surviving greater than zero, it is called a stub

survivor curve. Survivor curves developed from retirement rate studies generally are

stub curves.

Smoothing the Original Survivor Curve

The smoothing of the original survivor curve eliminates any irregularities and

serves as the basis for the preliminary extrapolation to zero percent surviving of the

original stub curve. Even if the original survivor curve is complete from 100% to zero

percent, it is desirable to eliminate any irregularities, as there is still an extrapolation for

the vintages which have not yet lived to the age at which the curve reaches zero

percent. In this study, the smoothing of the original curve with established type curves

was used to eliminate irregularities in the original curve.

The Iowa type curves are used in this study to smooth those original stub curves

which are expressed as percents surviving at ages in years. Each original survivor

curve was compared to the Iowa curves using visual and mathematical matching in

order to determine the better fitting smooth curves. In Figures 6, 7, and 8, the original

curve developed in Schedule 4 is compared with the L, S, and R Iowa type curves

which most nearly fit the original survivor curve. In Figure 6, the L1 curve with an

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Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

between 12 and 13 years appears to be the best fit. In Figure 7, the S0 type curve with

a 12-year average life appears to be the best fit and appears to be better than the L1

fitting. In Figure 8, the R1 type curve with a 12-year average life appears to be the best

fit and appears to be better than either the L1 or the S0.

In Figure 9, the three fittings, 12-L1, 12-S0 and 12-R1 are drawn for comparison

purposes. It is probable that the 12-R1 Iowa curve would be selected as the most

representative of the plotted survivor characteristics of the group.

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Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

FIGURE 6. ILLUSTRATION OF THE MATCHING OF AN ORIGINAL SURVIVOR CURVE WITH AN L1 IOWA TYPE CURVE

ORIGINAL AND SMOOTH SURVIVOR CURVES

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Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

FIGURE 7. ILLUSTRATION OF THE MATCHING OF AN ORIGINAL SURVIVOR CURVE WITH AN S0 IOWA TYPE CURVE

ORIGINAL AND SMOOTH SURVIVOR CURVES

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Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

FIGURE 8. ILLUSTRATION OF THE MATCHING OF AN ORIGINAL SURVIVOR CURVE WITH AN R1 IOWA TYPE CURVE

ORIGINAL AND SMOOTH SURVIVOR CURVES

A-20

Appendix 5.6 - Attachment 2

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Manitoba Hydro March 31, 2014

FIGURE 9. ILLUSTRATION OF THE MATCHING OF AN ORIGINAL SURVIVOR CURVE WITH AN L1, S0 AND R1 IOWA TYPE CURVE

ORIGINAL AND SMOOTH SURVIVOR CURVES

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Appendix 5.6 - Attachment 2

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Gannett Fleming Canada ULC

Suite 277 • 200 Rivercrest Drive S.E. • Calgary, AB T2C 2X5 • Canada t: 403.257.5946 • f: 403.257.5947

www.gannettfleming.com www.gfvrd.com

Appendix 5.6 - Attachment 2