FortisBC Inc. s Preliminary 2011 Revenue Requirements Application for Approval Pursuant to Sections 60 and 61 of the Utilities Commission Act

Transcription

1 Dennis Swanson Director, Regulatory Affairs FortisBC Inc. Suite 00 - Springfield Road Kelowna, BC VY V Ph: (0) -00 Fax: --- regulatory@fortisbc.com October, 00 B- Via Original via mail Ms. Erica M. Hamilton Commission Secretary BC Utilities Commission Sixth Floor, 00 Howe Street, Box 0 Vancouver, BC VZ N Dear Ms. Hamilton: Re: FortisBC Inc. s Preliminary 0 Revenue Requirements Application for Approval Pursuant to Sections 0 and of the Utilities Commission Act Please find enclosed for filing copies of the materials entitled Preliminary 0 Revenue Requirements (the Application ). The Company will hold its 00 Annual Review on November, 00 commencing at :00 am, at the Holiday Inn Express, Highway North, Kelowna, BC. The Annual Review is required to review the Company s operations and performance for the year. Following the Annual Review a Workshop will be held to review the Preliminary 0 Revenue Requirements materials. The forecast financial information contained in this Application is based on actual results as of July, 00, except for Capital Expenditures which is based on the 0 Capital Expenditure Plan ( 0 CEP ) currently before the Commission in a separate process. On or before November, 00, FortisBC will file updates to the 00 and 0 forecast incorporating actual results to September 0, 00. A Negotiated Settlement Process will take place on November, 00 at :00 am ( 0 NSP ) to set rates for the upcoming year. This process will take place at the same venue as the 00 Annual Review.

2 Page FortisBC is seeking a general rate increase effective January, 0 of. percent to cover increased revenue requirements, as stated in the Preliminary 0 Revenue Requirements materials. The rate increase is driven primarily by the costs of financing the Company s capital expenditures as per its 0 CEP, and by increased Power Purchase expenses as described in Tab of this Application. The determination of final 0 Revenue Requirements will be the aggregate result of a Settlement Agreement arising out of the 0 NSP and the setting of FortisBC s allowed Return on Equity ( ROE ) pursuant to the BCUC Automatic Adjustment Mechanism. At the date of this Application, although interim rates have been granted for BC Hydro, no final decision has been rendered by the Commission on the BC Hydro F0 Revenue Requirements Application ( BCH Application ). With respect to FortisBC s 00 rates, the Company requests that the Commission approve its existing, interim rates effective September, 00 so that rates may be firm. The Company further requests approval to implement any changes to 00 or 0 Power Purchase Expense arising from a final decision in the BCH Application by way of a flow-through adjustment at the time of a Commission decision on that Application. This flow-through treatment of BC Hydro rate increases would be consistent with prior years. Accordingly, the Company requests, pursuant to Sections 0 and of the Utilities Commission Act, and subject to the results of the November, 00 update to the 0 Revenue Requirements Application and an agreement between the Parties to the 0 NSP, that the following be approved as firm:. A general rate increase of. percent applicable to the Company s existing tariff effective January, 0; and. With respect to 00 rates, confirm FortisBC s existing, interim rates effective September, 00 and to implement any changes to 00 or 0 Power Purchase Expense arising from a decision in the BCH Application by way of a flow-through adjustment at the time of a Commission decision on that Application If you have any questions related to this Application please contact the undersigned. Sincerely, Dennis Swanson Director, Regulatory Affairs cc: Participants in the 00 NSP

3 Preliminary 0 Revenue Requirements Tab Executive Summary

4 Preliminary 0 Revenue Requirements Executive Summary - Tab Introduction In 00, FortisBC Inc. ( FortisBC or the Company ) negotiated a settlement agreement (the 00 NSA ) that included a form of Performance Based Regulation ( PBR ) for setting rates in 00 and 00 with an option to extend the agreement for 00 upon agreement by the Parties. The 00 NSA was approved by the British Columbia Utilities Commission ( the Commission or BCUC ) by Order No. G--0. In 00, the Company and its stakeholders negotiated an extension of the PBR Plan for a term ending December, 0. The Negotiated Settlement Agreement concerning FortisBC s 00 Revenue Requirements was approved by Commission Order G-- 0. The Company strongly believes that the PBR Plan has been beneficial to FortisBC customers. Performance metrics have generally been maintained or improved, while encouraging the Company to operate as effectively and efficiently as possible. Examples of PBR benefits to customers are incremental Other Income such as revenue from third party pole contacts, incremental transmission wheeling, and incremental tax saving. The 0 Revenue Requirements Application will be the final such application to be submitted under the current PBR Plan. The Company will file its 0 Revenue Requirements Application in 0, which will be based on a fully developed cost-of-service revenue requirement. FortisBC, as a regulated public utility operating in the Province of British Columbia, has a mandate to provide safe, reliable service to its customers. It must fulfill this requirement against a backdrop of provincial policy and legislation such as the 00 Provincial Energy Plan (the Energy Plan ), Utilities Commission Act, R.S.B.C., c. ( UCA ) and the Clean Energy Act, S.B.C. 00.C. ( CEA ), that was enacted in 00. In addition, as costs related to the provision of such service are ultimately borne by its customers, the Company strives to ensure that rates are reflective of prudently incurred costs that result from sound decision making and good utility practice. October, 00 FortisBC Inc. Page

5 Preliminary 0 Revenue Requirements Executive Summary - Tab 0 0 The Company must also give regard to the non-financial measures incorporated into the performance standards that are further discussed in Tab of the Application. All of these factors are reflected in the Application. The PBR mechanism under which the Company operates sets the gross Operating and Maintenance ( O&M ) costs by formula as discussed in Section. of Tab. Factors for inflation and productivity for 0 were agreed upon as part of the 00 Negotiated Settlement Agreement ( NSA ). The values included in the determination of Gross O&M are a forecast BC CPI value of. percent and a 0 Productivity Improvement Factor ( PIF ) of. percent. Based on financial and operating results achieved to July, 00 the Company forecasts that the revenue required to provide service to its customers in 0 is $. million, which will necessitate a general increase in rates of. percent. The Company will file, on or before November, 00, an update to the Revenue Requirements Application that will include operating and financial results to September 0, 00. The Company believes that the required rate increase stemming from the increased revenue requirement in 0 results from prudent and necessary expenditures including those factors that result from the formulaic components of the PBR regime under which it operates and that will close out with the end of this PBR term. There are, however a number of variables within the calculation of the 0 Revenue Requirement that present some uncertainty at the time of the filing of the Application. The timing and scope of the move to International Financial Reporting Standards ( IFRS ), the treatment and potential withdrawal of the Harmonized Sales Tax ( HST ), and the disposition of the Company s 0 Capital Expenditure Plan ( 0 CEP ), are all without resolution at the time of filing. All of these factors are discussed in detail in the following sections of the Application. At the date of this Application, although interim rates have been granted for BC Hydro, no final decision has been rendered by the Commission on the BC Hydro Fiscal 0 Revenue Requirements Application ( BCH Application ). With respect to FortisBC s October, 00 FortisBC Inc. Page

6 Preliminary 0 Revenue Requirements Executive Summary - Tab rates, the Company requests that the Commission approve its existing, interim rates pursuant to Commission Order G--0, issued August, 00, so that rates may be firm. The Company further requests approval to implement any changes arising from a final decision in the BCH Application which affect the 0 Power Purchase Expense or water fee charges by way of a flow through adjustment at the time of a Commission decision on that Application. This flow through treatment of BC Hydro rate increases would be consistent with prior years. The Company has taken steps as noted in the Application to mitigate the impacts of this uncertainty but reserves the right to revisit any associated costs and unforeseen impacts resulting from any of the above issues.. Structure of the Application As 0 is the final year of operating under a historical PBR framework, this Revenue Requirements Application generally follows the same structure as in previous years. This executive summary is followed by tabs dealing with each major input to the Revenue Requirements as follows: Tab 0 Revenue Requirements summary incorporating the information found in the sections that follow; Tab Financial Schedules providing detailed calculations of the information presented in Tab ; Tab Load and Customer Forecast providing detail of load and customer count by rate class; Tab Power Supply describing the Company s resource acquisition strategy and expectations for 0; Tab Capital Expenditures providing a brief summary of projects included in the Company s Capital Expenditure Plan for 0; and Tab Performance Standards summarizing the Company s results on non-financial measures against the targets established under PBR. October, 00 FortisBC Inc. Page

7 Preliminary 0 Revenue Requirements Executive Summary - Tab 0 0 In addition, a number of appendices are attached to the Application that serve to further explain issues of relevance to the Revenue Requirement. These are: Appendix A - Prior Years Directives; Appendix B - Accounting Changes; Appendix C - Affiliate Transactions Report; Appendix D - O&M Savings Report; Appendix E - Capitalized Power Purchases; and Appendix F - Distribution Substation Automation Report.. Rate Drivers The Company is requesting a rate increase of. percent effective January, 0. The primary components of the requested rate increase are as follows: i. Power Supply: Increases in Power Supply Costs are primarily due to increases in the price of power purchases and provincial water fees resulting in a 0. percent rate increase or $. million of increased Revenue Requirements; ii. Operating: O&M Expense net of capitalized overhead plus wheeling expense and other income are forecast to require a 0. percent rate increase or $0. million of increased Revenue Requirements; iii. Taxes: Increases in property taxes and income tax results in a $. million increase in Revenue Requirements or a 0. percent rate increase; iv. Financing: Financing the Company s ongoing investment in new and upgraded infrastructure continues to be a primary rate driver, resulting in a. percent rate increase or $. million in Revenue Requirements; v. Incentive and Other Adjustments: Prior year incentive true-up and flow through adjustments reduce Revenue Requirements by $. million, a 0. percent decrease in rates, which is offset by a decrease in ROE Sharing October, 00 FortisBC Inc. Page

8 Preliminary 0 Revenue Requirements Executive Summary - Tab Incentives by $. million (or 0. percent increase in rates), resulting in an overall 0. percent rate increase or $0. million in Revenue Requirements. Each component of the required increase is discussed in more detail in Tab. A full set of financial schedules supporting the Revenue Requirements calculations can be found in Tab. The forecasts in this Preliminary Revenue Requirements are based on financial results to July, 00. On or before November, 00, FortisBC will file updates to the 00 and 0 forecasts incorporating actual results to September 0, 00.. Capital Expenditures On June, 00, FortisBC filed with the Commission its 0 Capital Expenditure Plan ( 0 CEP ). The 0 CEP outlines expenditures for capital spending including Generation, Transmission and Stations, Distribution, Demand Side Management ( DSM ) and General Plant. The 0 CEP consists of projects with expenditures of $0. million in 0 and $. million in 0 and is described in Tab. These expenditures are necessary to continue to provide reliable service, ensure public and employee safety, and to deliver Demand Side Management programs to the Company s growing customer base. Of those amounts, $. million in 0 and $. million in 0 have been previously approved by the Commission. FortisBC s capital expenditure program since 00 has been guided by its long-term 00-0 System Development Plan (the 00 SDP ), which identified the need for significant reinforcements in the bulk transmission system, regional transmission and distribution systems, and associated communications and protection systems. 0 marks the completion of the major medium-term projects identified in the 00 SDP. In 0, the Company plans to complete and file a long-term Integrated System Plan, which will outline a 0-year horizon of planned investment spending on generation, transmission and distribution assets, general plant, and Demand Side Management in addition to the Company s plans to meet its electricity resource requirements. For informational purposes as required under the terms of the PBR, the Company has tabulated operational savings claimed as a result of its Capital Plan and Certificate of October, 00 FortisBC Inc. Page

9 Preliminary 0 Revenue Requirements Executive Summary - Tab 0 0 Public Convenience and Necessity ( CPCN ) applications and has included this information in Appendix D of this application. The regulatory process pertaining to the 0 CEP is running concurrently with the 0 Revenue Requirements Application. The Preliminary 0 Revenue Requirements include the 0 CEP as filed (with minor differences due to the timing of expenditures).. Load and Customer Forecast Gross system load is forecast to be,00 GWh in 0, a. percent increase over the current 00 normalized forecast of, GWh. The load increase forecast for 0 is related mainly to increases in the industrial and wholesale sectors. The 0 winter peak forecast is 0 megawatts ( MW ); MW higher than in the 00 Revenue Requirements filing. The 0 forecast summer peak of MW is MW higher than in the 00 Revenue Requirements. Forecast load for 0 for each customer class is summarized below: Residential load for 0 is forecast at, GWh with the number of residential customers forecast to reach,; The total projected load for the General Service class is forecast to grow by 0. percent in 0 to reach GWh; The total projected industrial load for 0 is GWh, an almost. percent increase from the current 00 industrial load forecasts; Total forecast 0 wholesale load is projected at GWh which corresponds to. percent growth in energy consumption over the current 00 forecast; The load of the Irrigation class has been estimated at GWh; and The 0 lighting forecast assumes lighting load at the 00 forecast level of GWh. October, 00 FortisBC Inc. Page

10 Preliminary 0 Revenue Requirements Executive Summary - Tab 0 0 The determination of these load forecasts is discussed in more detail in Tab. The forecasts are based on results to July, 00. On or before November, 00, FortisBC will file updates to the 00 and 0 forecasts.. Power Supply The 0 Power Purchase Expense is forecast at $. million compared to $. million currently estimated for 00. The increase is primarily due to an increase in forecast load, greater use of the BC Hydro Power Purchase Agreement, and the BC Hydro interim rate increase, which is partially offset by reduced market requirements and a reduction in the Brilliant Base rate. Further details can be found in Tab. As noted above Power Purchase expense outlined in Tab is based on interim BC Hydro rates as approved by Order G--0. The Company has not included any forecast of future BC Hydro rate increases in its Power Purchase Expense forecasts and, as in previous years, proposes to flow through any changes in BC Hydro rates during 0.. Gross Operating and Maintenance Costs and Capitalized Overhead FortisBC establishes its O&M costs and capitalized overheads by formula during the PBR term. For 0, the formula incorporates a Productivity Improvement Factor of. percent. The Base O&M Cost per Customer for the purposes of calculating Revenue Requirements under PBR is $. in 0. The Base O&M was derived by formula as approved by Commission Order G--0, adjusted by the HST savings of $. per customer in 0. The calculation of O&M costs are shown in Section.. of Tab. The details of the 0 HST savings are discussed in Section.. of Tab.. Other Costs and Income All other cost accounts including wheeling, interest, property taxes, income taxes, depreciation and amortization have been forecast for 0 as discussed in Tab.. Financing FortisBC expects to issue approximately $0 million of senior unsecured Medium Term Note ( MTN ) debentures, pursuant to an approved application, in the last quarter of October, 00 FortisBC Inc. Page

11 Preliminary 0 Revenue Requirements Executive Summary - Tab to pay down the operating credit facility that it has been using to finance the Company s capital expenditure program and expects to finance 0 capital expenditures through draws on its operating credit facility of $0.0 million. FortisBC also expects to issue, subject to Commission approval, an additional $0 million of Common Share Equity in 0 in order to maintain its approved capital structure of 0 percent debt and 0 percent equity. The 0 Allowed ROE for FortisBC is.0% which is based on applying FortisBC s risk premium of 0 basis points over the benchmark low-risk utility, Terasen Gas Inc ( TGI ). On December, 00, the Commission issued a determination the Terasen Utilities Return on Equity and Capital Structure Application and set the TGI ROE at.0%. Further detail on the Company s financing can be found in Tab.. Flow Through Adjustments There are a number of 00 flow-through adjustments that are forecast to decrease Revenue Requirements by $. million in 0. The flow-through adjustments are detailed in Tab, section...0 ROE Sharing Mechanism The Incentive Mechanism applicable to the current PBR term provides for equal sharing, after the flow through adjustments noted above, of any variance above or below the approved return. The 00 forecast of net income for incentive calculation purposes, shown on Table.. in Tab, is $. million which is $. million lower than the approved net income for 00. This falls within the percent band subject to sharing and results in a customer share of the shortfall of $0. million. Expected Net Income was reduced primarily due to lower electricity sales volume than approved in accordance with the 00 NSA which included increases to the Company s residential and industrial load forecasts. This was partially offset by lower power purchase, costs and operating expenses. October, 00 FortisBC Inc. Page

12 Preliminary 0 Revenue Requirements Executive Summary - Tab 0 0. Deferred Costs Deferred costs are described in Tab under section.. and include Demand Side Management, Preliminary and Investigative Charges, Deferred Regulatory Expense including Incentive Adjustments, and Other Deferred Charges and Credits. Pursuant to Order G--0, deferred charges are recorded net of income tax. Incentive Adjustments do not impact Income Tax Expense and are therefore not recorded net of tax. Similarly, Preliminary and Investigative Charges are either charged to capital or expensed and do not impact Income Tax, therefore they are not recorded net of tax. Pursuant to Order G--0, the Company has included a report on the activities associated with its deferred Revenue Protection costs in Tab as well.. Performance Standards Performance Standards for the PBR term were agreed to as part of the 00 and 00 Negotiated Settlement Agreements approved by Commission Orders G--0 and G- -0. These Performance Standards are meant to enable an overall assessment of the Company s performance for the purpose of determining its eligibility for any incentive earned under the PBR sharing mechanism. The substance of the test for inadequate performance and, hence, consideration for disqualifying the Company from receiving a financial incentive is this: If the Company earned a financial incentive, did it do so as a direct result of allowing or causing its performance to deteriorate in a material way. Each year at an Annual Review the performance metrics are reviewed in detail with regard to actual results achieved and the reasons for variances from the target. FortisBC provides information relating to the year s performance measured from October to September 0 in each metric and expects that a determination will be made as to whether the Company had performed adequately in the past year, considering not only the overall aggregate results but also the circumstances under which the results were achieved. Under this framework, failure to meet one (or more) performance standard(s) does not necessarily constitute unacceptable performance. October, 00 FortisBC Inc. Page 0

13 Preliminary 0 Revenue Requirements Executive Summary - Tab 0 0 The 00 Performance Standards are expected to meet targets, on a forecast basis, for 0 of the metrics. The forecast targets for All Injury Frequency Rate ( AIFR ), Vehicle Incident Rate ( VIR ), and System Average Interruption Duration Index ( SAIDI ) are not expected to be met. These results indicate that FortisBC has continued to focus on these measures and has made no compromises in operational performance, however, for 00 there are no incentive funds to be earned.. Prior Years Directives FortisBC has provided in Appendix A a list of Commission prior years directives applicable to this Application along with the Company s response to these directives.. International Financial Reporting Standards Throughout 00, the Company continued with its IFRS implementation project as outlined in Appendix B. There is still uncertainty around the accounting for regulated assets and liabilities. The Canadian Accounting Standards Board issued a Decision Summary in September 00 allowing Canadian entities with rate regulated activities to defer implementing IFRS for an additional one year to January, 0. FortisBC believes it is critical that IFRS be adopted for regulatory as well as external financial reporting purposes. During the IFRS transition year of 0 the Company has requested regulatory approval of certain non-rate base deferrals arising as a result of IFRS accounting differences. These requests have been summarized in Schedule A of Tab and Appendix B of this application.. Capitalization of Power Purchase Costs During the negotiated settlement process for its 00 Revenue Requirements Application, FortisBC agreed to the following commitment as documented by Order G- -0, Appendix A, page : FortisBC to provide Commission staff with its accounting opinion that capitalization is consistent with the CICA Handbook s section 0. The Company has provided this information in Appendix E. October, 00 FortisBC Inc. Page

14 Preliminary 0 Revenue Requirements Executive Summary - Tab 0. Process for the Application The PBR Plan provides for a review of 00 financial and non-financial performance ( Annual Review ) and a Workshop to detail the 0 Revenue Requirements to be followed by a Negotiated Settlement Process to determine rates for the upcoming year. FortisBC proposes the following regulatory timetable for review of this application: Registration of Intervenors and Interested Parties Friday, October Information Requests Issued to FortisBC Friday, October Responses to Information Requests by FortisBC Friday, October FortisBC files advance materials for Annual Review Monday, November Annual Review, Revenue Requirements Workshop Tuesday, November Negotiated Settlement Process Wednesday, November October, 00 FortisBC Inc. Page

15 Preliminary 0 Revenue Requirements List of Abbreviations Used The following abbreviations have been used throughout this Application. List of Abbreviations 00-0 System Development Plan SDP 00 Provincial Energy Plan Energy Plan 00 Operating and Maintenance Gross O&M 00 Conservation and Demand Potential Review CDPR 0 Annual Review Annual Review 0 Capital Expenditure Plan 0 CEP Line L Line L Line L Advanced Metering Infrastructure AMI All Injury Frequency Rate AIFR Allowance for Funds Used During Construction AFUDC Asset Retirement Obligations ARO BC Consumer Price Index CPI BC Hydro Fiscal 0 Revenue Requirements Application BCH Application Brilliant Power Purchase Agreement BPPA Brilliant Terminal Station BTS British Columbia Transmission Corporation BCTC British Columbia Utilities Commission BCUC or Commission Capital Cost Allowance CCA Canadian Accounting Standards Board AcSB Canadian Electrical Association CEA Canadian Pope & Talbot Inc. creditors Canadian Defendants Canal Plant Agreement CPA Certificate of Public Convenience and Necessity CPCN Clean Energy Act CEA Commission Order G NSA Commission Order G NSA Commission Order G NSA Construction Work in Progress CWIP Consumer Price Index CPI Contribution in aid of construction CIAC Cooling Degree Days CDD Cost of Service Analysis COSA Customer Average Interruption Duration Index CAIDI Customer Satisfaction Index CSI Demand Side Management DSM October, 00 FortisBC Inc. Page

16 Preliminary 0 Revenue Requirements List of Abbreviations Used List of Abbreviations Distribution Substation Automation Federal Goods and Services Tax Forced Outage Rate General Wheeling Agreement Generally Accepted Accounting Principles Gigawatt hours Great Lakes Power Distribution Inc. Guarantee of Non Reclose Harmonized Sales Tax Heating Degree Days Independent Power Producer Injury Severity Rate Input Tax Credit Innovative Clean Energy Fund Integrated System Plan International Accounting Standards Board International Accounting Standards Board Exposure Draft International Financial Reporting Interpretations Committee International Financial Reporting Standards Lost Time Injuries Mandatory Reliability Standards Medical Aid Medium Term Note Megawatt Megawatt hours Negotiated Settlement Process North American Electric Reliability Corporation Okanagan Transmission Reinforcement Open Access Transmission Tariff Operating and Maintenance Performance Based Regulation Polychlorinated Biphenyls Pope & Talbot Inc. Power Purchase Agreement Powerex Corp. Productivity Improvement Factor Property, Plant and Equipment Provincial Sales Tax DSA GST FOR GWA GAAP GWh GLPD GNR HST HDD IPP ISR ITC ICE ISP IASB IASB ED IFRIC IFRS LTI MRS MA MTN MW MWh NSP NERC OTR OATT O&M PBR PCBs Pope & Talbot PPA Powerex PIF PP&E PST October, 00 FortisBC Inc. Page

17 Preliminary 0 Revenue Requirements List of Abbreviations Used List of Abbreviations Rate Design Application Return on Equity Right-of-way Shaw Cablesystems Ltd. Shaw Business Solutions Inc. System Average Interruption Duration Index System Average Interruption Frequency Index Teck Metals Ltd. Telephone Service Factor Terasen Gas Inc. Transmission and Distribution Trustee for Pope & Talbot Inc. Undepreciated Capital Cost Allowance University of British Columbia, Okanagan campus Upgrade and Life Extension Use per customer Vehicle Incident Rate Western Electricity Coordinating Council RDA ROE RoW Shaw Shaw SAIDI SAIFI Teck TSF TGI T&D US Trustee UCC UBC ULE UPC VIR WECC October, 00 FortisBC Inc. Page

18 Preliminary 0 Revenue Requirements Tab Revenue Requirements

19 Preliminary 0 Revenue Requirements Revenue Requirements - Tab Table of Contents.0 OVERVIEW BUDGETS & FORECASTING.... POWER SUPPLY..... POWER PURCHASE EXPENSE..... WATER FEES.... OPERATING OPERATING AND MAINTENANCE ( GROSS O&M ) EXPENSE..... MANDATORY RELIABILITY STANDARDS..... CAPITALIZED OVERHEADS WHEELING OTHER INCOME.... TAXES..... PROPERTY TAX..... INCOME TAX..... HARMONIZED SALES TAX.... FINANCING COSTS..... COST OF DEBT..... COST OF EQUITY DEPRECIATION AND AMORTIZATION..... ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION ( AFUDC ).... FLOW-THROUGH ADJUSTMENTS.... ROE SHARING MECHANISM ADJUSTMENT.... RATE BASE..... CAPITAL EXPENDITURES..... DEFERRED CHARGES.... NON RATE BASE DEFERRED ACCOUNTS.... CONTINGENT LIABILITIES... October, 00 FortisBC Inc. Page

20 Preliminary 0 Revenue Requirements Revenue Requirements - Tab Overview Budgets & Forecasting As presented in Table.0 on page of this Tab, FortisBC is forecasting 0 Revenue Requirements deficiency at 00 rates of approximately $. million, requiring a forecast rate increase of. percent effective January, 0. A summary of the 0 Revenue Requirements drivers when compared to 00 approved values are as follows: i. Power Supply: Increases in Power Supply Costs are primarily due to increases in the price of power purchases and provincial water fees resulting in a 0. percent rate increase or $. million of increased Revenue Requirements; ii. Operating: O&M Expense net of capitalized overhead plus wheeling expense and other income are forecast to require a 0. percent rate increase or $0. million of increased Revenue Requirements; iii. Taxes: Increases in property taxes and income tax results in a $. million increase in Revenue Requirements or a 0. percent rate increase; iv. Financing: Financing the Company s ongoing investment in new and upgraded infrastructure continues to be a primary rate driver, resulting in a. percent rate increase or $. million in Revenue Requirements; v. Incentive and Other Adjustments: Prior year incentive true-up and flow through adjustments reduce Revenue Requirements by $. million, a 0. percent decrease in rates, which is offset by a decrease in ROE Sharing Incentives of $. million (or 0. percent increase in rates), resulting in an overall 0. percent rate increase or $0. million in Revenue Requirements. Each of these components is discussed in detail in this Tab. All 00 forecast operating and capital amounts including the Incentive Adjustment are based on July, 00 financial results with a forecast for the August to December results. A full set of financial schedules supporting the Revenue Requirements calculations can be found in Tab of this Application. On or before November, 00, FortisBC will file updates to the 00 and 0 forecasts incorporating actual results to September 0, October, 00 FortisBC Inc. Page

21 Preliminary 0 Revenue Requirements Revenue Requirements - Tab Table.0: Overview of Revenue Requirements Actual Approved Increase or Forecast (Decrease) 0 ($000s) Sales Volume (GWh),,, Rate Base,,,0,0 Return on Rate Base.%.%.% REVENUE DEFICIENCY POWER SUPPLY Power Purchases 0, 0,0, Water Fees,,0,00 0,,, 0, OPERATING O&M Expense,0,,, Capitalized Overhead (,) (,) () (,) Wheeling,00,0 (), Other Income (,) (,0) () (,),,0 0, TAXES Property Taxes,,,0, Income Taxes,,0, 0,,,00, FINANCING Cost of Debt,,,,0 Cost of Equity,,,0, Depreciation and Amortization,,0,, 0,,0, 0,00 Prior Year Incentive True Up (,) () () (,0) Flow Through Adjustments,0 (,0) (0) (,0) ROE Sharing Incentives, (,00), 0,0 (,0) (,0) TOTAL REVENUE REQUIREMENT,,,, Carrying Cost on Rate Base Deferral Account () - ADJUSTED REVENUE REQUIREMENT,,, LESS: REVENUE AT APPROVED RATES,0 0, REVENUE DEFICIENCY for Rate Setting,, RATE INCREASE.0%.0% Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

22 0 Preliminary 0 Revenue Requirements Revenue Requirements - Tab. Power Supply.. Power Purchase Expense The 0 Power Purchase Expense is forecast at $. million compared to $. million currently estimated for 00, an increase of.0 percent over the 00 forecast amount as summarized in Table.. below. The increase is primarily due to an increase in forecast load, greater use of the BC Hydro Power Purchase Agreement, and the BC Hydro rate increase, which is partially offset by reduced market requirements and a reduction in the Brilliant Base rate. The details of the 0 Power Purchase forecast are discussed in Tab of this Application. Table..: Power Purchase Expense Actual Forecast Forecast GWh FortisBC,,, DSM - 0 Power Purchases (net of surplus sales),,, Total System Load (before DSM savings),,0,0 Less DSM - () (0) Total System Load (including DSM savings),,,00 ($000s) Expense - Energy,,,0 Expense - Capacity,,, Capital Projects, Accounting & other Adjustments () (,) (,) 0 Total Power Purchase Expense 0,,, Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

23 Preliminary 0 Revenue Requirements Revenue Requirements - Tab.. Water Fees Water fees are assessed by the Province based on FortisBC s generation in the previous year and the rate is indexed to BC Hydro rate increases in the previous year. An increase in the provincial rate is primarily responsible for the $0. million increase in water fees in 0, as shown in Table.. below. Table..: Water Fees Actual Forecast Forecast Plant Entitlement Use (GWh),0,, in previous year Water Fees ($000s),,0,00 October, 00 FortisBC Inc. Page

24 Preliminary 0 Revenue Requirements Revenue Requirements - Tab. Operating.. 00 Operating and Maintenance ( Gross O&M ) Expense Gross O&M Expense is primarily determined by formula under the PBR mechanism, with the addition of a small number of cost items that are forecast on an annual basis. The formula-driven portion of Base O&M is calculated as follows, and the components are defined below: Base O&M = Base O&M per Customer x x [ + (BC CPI PIF)] Average Number of Customers 0 0 i. Base O&M Cost per Customer is defined as the 00 Gross O&M Expense excluding Pension, Post Retirement Benefits, and the Trail Office lease costs divided by the Average Number of Customers in 00, as adjusted annually for inflation and productivity. The Base O&M Cost per Customer for the purposes of calculating Revenue Requirements under PBR is $. in 0. The Base O&M was derived by applying the above formula as approved by Commission Orders G--0 and G--0, adjusted by the HST savings per customer in 0 (amounting to $. per customer). The details of the 0 HST savings are discussed in Section.. of this Tab. ii. The BC Consumer Price Index ( CPI ) for 00 has been forecast at. percent based on the following sources: BC Ministry of Finance March 00.% Conference Board of Canada July 00.% Toronto Dominion Bank July 00.% Bank of Montreal July 00.0% Average:.% (FortisBC previously included a forecast by the Royal Bank in its CPI forecast for Revenue Requirements. The Royal Bank has been replaced by the Bank of Montreal for the term of the PBR pursuant to Order G--0.) October, 00 FortisBC Inc. Page

25 Preliminary 0 Revenue Requirements Revenue Requirements - Tab iii. The 0 Productivity Improvement Factor is. percent when CPI is less than percent, pursuant to the 00 NSA. The calculation of the 0 O&M Expense is presented in Table.. below. 0 Table..: 0 O&M Expense Approved Forecast 00 0 O&M, Formula-Driven Base O&M Cost per Customer (Note-) $.0 $.0 Consumer Price Index (British Columbia).0%.% Productivity Improvement Factor -.% -.% O&M per Customer, Escalated $ 0. $. Average Number of Customers (Line ),0, ($000s) Base O&M (Line times Line ),, Pension and Post-Retirement Benefits (Note ),, Mandatory Reliability Compliance (Note ) - 0 Trail Office Lease (Note ),, Total Operating and Maintenance Expense for Base O&M,, Capitalized Overhead (,) (,) Net Operating & Maintenance Expense,, Number of Customers Opening Count,0, Ending Count,, Average Number of Customers,0, Note : Under the terms of the 00 NSA and Commission Order G--0, Pension and Post-Retirement Benefits and the Trail Office Lease costs are excluded from the formula in calculating Base O&M. The O&M costs for Mandatory Reliability Compliance has also been treated similarly starting 0. Note : The Base O&M Cost per Customer for the purposes of calculating Revenue Requirements under PBR has been adjusted downward by $./ Customer effective January, 0 to $.0 to rebase for the HST savings of approximately $,000. Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

26 Preliminary 0 Revenue Requirements Revenue Requirements - Tab Mandatory Reliability Standards On June, 00 the Commission, by Order G--0, adopted for British Columbia the Mandatory Reliability Standards ( MRS ) developed by the North American Electric Reliability Corporation ( NERC ) and the Western Electricity Coordinating Council ( WECC ). Utilities were ordered to file by December, 00 a Mitigation Plan outlining plans to come into compliance with applicable reliability standards. The requirements of MRS compliance meet the definition of a Z Factor under the terms of the PBR mechanism as defined in the 00 NSA: A Z factor provision is proposed to permit recovery or refund of extraordinary costs outside of the steady state operations as determined by the formula described for Base O&M expenses. Z factor circumstances limited to the following: Directives of the BCUC or other competent regulatory agencies; Acts of legislation or regulation of government; Changes due to Generally Accepted Accounting Principles; Changes to actuarial evaluations; Force Majeure events; Other extraordinary events as agreed to by the parties in the Negotiated Settlement Process. Order G--0 set out an expected date of compliance of November, 00. FortisBC has forecast its O&M requirements for MRS compliance for 0 and has treated the related set-up costs as deferred charges as discussed in Section.. (xiii) of this tab. The treatment is similar to that of the Trail Office Lease & Pension & Post Retirement Benefit costs in accordance with the terms of the 00 NSA and Commission Order G--0, excluding them from the formula in calculating the Base O&M. October, 00 FortisBC Inc. Page

27 0 Preliminary 0 Revenue Requirements Revenue Requirements - Tab.. Capitalized Overheads As presented in Table.. above, Capitalized Overhead has been set at 0 percent of Gross O&M for the term of the PBR Plan (Orders G--0 and G-- 0)... Wheeling Wheeling expense is forecast to decrease in 0 by $0. million primarily due Duck Lake Wheeling Revenue of $0. million in 0 pursuant to the Duck Lake Wheeling Agreement between BC Hydro (formerly BCTC) and FortisBC approved by the Commission per Order No. G--0. This increase in revenue is offset by increased wheeling nominations at the Okanagan Interconnection Point of $0. million. The wheeling expense includes wheeling service provided by BC Hydro (formerly BCTC) under the General Wheeling Agreement ( GWA ) and the Open Access Transmission Tariff ( OATT ), as well as payments to Teck Metals Ltd. ( Teck ) for the use of its Line. Wheeling expense is summarized in Table.. below and further discussed in Tab. Table..: Wheeling Expense Actual Forecast Forecast Wheeling Nomination (MW) Okanagan,,0,0 Creston Expense ($000s) Vernon/Okanagan,00,, Creston Other 0 Duck Lake Wheeling Revenue (00) Total Wheeling Expense,00,0, Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page 0

28 Preliminary 0 Revenue Requirements Revenue Requirements - Tab 0.. Other Income Other income is revenue, other than income from the sale of electricity, and is derived from apparatus and facilities rentals (primarily pole contact rentals), contract work performed for third parties and miscellaneous revenue. Other Income is forecast to decrease by $. million in 0 as shown in Table.. below. The higher 00 revenue is primarily due to the considerable effort expended during 00 to address questionable pole contacts and pole maintenance costs with Licensees. Waneta and Brilliant Management Fees associated with non-routine O&M and capital work varies from year to year, as can be seen in Table.. below. Table..: Other Income Actual Forecast Forecast Apparatus and Facilities Rental Electric Apparatus Rental,,, Lease Revenue 0 0,,, Contract Revenue Waneta Management Fee 0 Waneta Management Fee Capital Waneta Carrying Costs 0 Brilliant Management Fee 0 Brilliant Management Fee Capital 0 Fortis Pacific Holdings Inc. 0 0,00,, Miscellaneous Revenue Connection Charges 0 0 NSF Cheque Charges Sundry Revenue 0 0 Investment Income 0 Total,,, Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

29 Preliminary 0 Revenue Requirements Revenue Requirements - Tab. Taxes.. Property Tax Property tax for 0 is based on the Company s forecasts of the assessed value of taxable assets, municipal mill rates, and taxes from revenues earned from electricity consumed within the Municipalities. The growth in assessed values is due to annual plant additions and is forecast to increase over the next several years. Table.. below summarizes Property Tax by plant type for the years 00 through 0. 0 Table..: Property Tax Actual Forecast Forecast ($000s) Generating Plant,,, Transmission and Distribution,0,0, Substation Equipment,000,, Land and Buildings 0 Total Property Tax,,, 0 Note: Minor differences due to rounding... Income Tax 0 Income Tax is forecast to increase by $. million from the 00 forecast. The increase is primarily attributable to an increase in accounting income, partially offset by increasing Capital Cost Allowance ( CCA ) deductions as a result of the Company s added capital expenditures, as well as a.0 percent reduction in the statutory income tax rate from 00 to 0. FortisBC is continuously reviewing opportunities to mitigate customer rates. During 00, the Company conducted an analysis which determined that certain costs of removal relating to capital expenditures qualified as a deduction in the year incurred thereby decreasing income tax expense. In the 00 Revenue October, 00 FortisBC Inc. Page

30 0 0 Preliminary 0 Revenue Requirements Revenue Requirements - Tab Requirements NSA Order G--0, 00 and 00 forecast income tax expense treated all costs of removal as an addition to Undepreciated Capital Cost ( UCC ) tax balances that are deducted over time through CCA at an approximate annual rate of percent. During 00 and 00, certain capital expenditure accounting processes were implemented to better track costs of removal. This improved recordkeeping permitted the Company to evaluate and substantiate the position to deduct certain qualifying costs of removal. As these processes and support did not exist to the same extent in the taxation years prior to 00, the Company has not undertaken a retroactive treatment relating to costs of removal for prior years. The Company filed its 00 Corporate Tax Return in June 00 taking the position that certain costs of removal qualify as a 00 percent deduction in the year incurred, rather than deducting the annual composite percent CCA as per prior years. This position resulted in a tax savings of approximately $0. million of which the Company proposes to flow 00 percent of these savings through to customers as a Flow-Through Adjustment to 0 rates, as shown in Section. of Tab. In addition, the Company has forecast its 00 Income Tax expense using a similar tax deduction for certain forecast costs of removal that qualify. This will result in a forecast tax savings of approximately $0. million in 00, of which 00 percent of these forecast savings are also included as part of the Flow- Through Adjustment to 0 rates, as shown in Section. of Tab. Forecast 0 Income Tax expense also includes a similar tax deduction based on forecast costs of removal that qualify which results in reduced income tax expense of approximately $0. million in 0. Table.. below summarizes the impact of the tax timing differences and tax rate. October, 00 FortisBC Inc. Page

31 Preliminary 0 Revenue Requirements Revenue Requirements - Tab Table..: Income Tax Expense Actual Forecast Forecast ($000s) UTILITY INCOME BEFORE TAX,,0 0, Deduct: Interest Expense,,,0 ACCOUNTING INCOME,,, Deductions Capital Cost Allowance 0,,, Capitalized Overhead,,, 0 Incentive & Revenue Deferrals (,0),,0 Financing Fees 0 All Other (net effect),0,0, 0,0,0,0 Additions Amortization of Deferred Charges,,0,0 Depreciation,,0,,,, 0 TAXABLE INCOME,0,, Tax Rate 0.0%.%.% Taxes Payable,0,, Prior Years' Overprovisions/(Underprovisions) () () - Deferred Charges Tax Effect REGULATORY TAX PROVISION,,, Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

32 Preliminary 0 Revenue Requirements Revenue Requirements - Tab Harmonized Sales Tax On July, 00, the Government of Canada and the Province of British Columbia announced a proposal to harmonize the provincial sales tax ( PST ) of percent with the federal goods and services tax ( GST ) of percent to create an HST with a combined rate of percent effective July, 00. During the 00 Revenue Requirements process, the Company had not recognized the impacts of transition to HST because the large business restrictions and transitional rules had not yet been finalized. In addition, the changes required to accounting and information systems could not be reasonably determined for FortisBC at that time. All legislation related to the implementation of HST has been enacted as of April th, 00. The implementation of the HST meets the definition of a Z factor under the PBR mechanism. Under the new HST legislation, certain goods and services, which were previously subject to PST of percent and not recoverable for tax filing purposes, will instead be subject to HST and therefore permit the Company to claim a full Input Tax Credit ( ITC ) for HST on these costs. Over time this may result in a percent savings on costs such as materials, legal fees, office supplies, software licenses, expenses relating to vehicles over,000 kg and maintenance contracts for office, computer equipment and software. However, the HST rules also restrict or recapture ITCs for the percent provincial portion of HST on certain expenses which are already subject to PST. Therefore, no savings are expected to be achieved on certain telecommunication expenses, passenger vehicle costs and certain energy use. Meals and entertainment expenses which were not subject to PST are now subject HST and a recapture of ITC on the percent portion of HST, resulting in an increase in these expenses. October, 00 FortisBC Inc. Page

33 0 0 0 Preliminary 0 Revenue Requirements Revenue Requirements - Tab The Company assessed the impact of the new HST rules on O&M expected to be incurred for the last six months of 00 and for the full 0 year. The analysis considered actual 00 and 00 PST paid as well as the impact on meals and entertainment, self assessment of PST on own-use electricity and removal of the Innovative Clean Energy Fund ( ICE ) levy. The result of the analysis is an estimate of approximately $0. million in 00 O&M savings, effective July, 00, which has been included as a Flow-through Adjustment to 0 rates, as shown in Section. of Tab. In addition, the Company has estimated approximately $0. million savings related to HST impacts in 0 O&M, or $. per Base O&M Cost per customer, as shown in Section.. of Tab. The Company also assessed the impact of the new HST rules on the remaining 00 capital expenditures expected to be incurred between July, 00 and December, 00. The analysis considered the removal of labour, material to be procured internally versus external vendors, inventory turnover, the timing of plants in service, the estimated number of months in rate base and the weighted value of PST savings in rate base. The 00 rate base included in the approved 00 Negotiated Settlement Agreement was compared to the 00 rate base adjusted for potential PST savings which resulted in a variance that was considered to be immaterial; therefore, there are no adjustments to the 0 Revenue Requirements relating specifically to capital expenditures. In addition, the Company incurred costs to implement HST, including information system changes and obtaining tax consulting advice, of approximately $0. million ($0. million before tax) included as a deferred charge as described in Section.. of Tab. On September th, 00 it was announced that a referendum on the continuation of the HST will be held in British Columbia on September, 0. Although the referendum is non-binding, the BC government has pledged that if a simple majority of 0 percent vote against the HST they will remove the tax. Should the HST be removed, the impact, including the implementation costs, will be assessed and reflected in a subsequent application. The summary of the savings and costs relating to the implementation of HST is as follows: October, 00 FortisBC Inc. Page

34 Preliminary 0 Revenue Requirements Revenue Requirements - Tab Table..: Summary of HST Savings and Deferral ESTIMATED HST IMPACTS ($000s) Treatment 00 O&M Reduction () Flowthrough Adjustment (see section.) 0 O&M Reduction () Recognized in 0 O&M Expense (see section.) 00 Capital Expenditures - Immaterial - no impact HST Implementation Costs (net of tax) Deferred Charges (see section..) October, 00 FortisBC Inc. Page

35 Preliminary 0 Revenue Requirements Revenue Requirements - Tab. Financing Costs FortisBC s financing costs for the purpose of Revenue Requirements are based on a deemed capital structure of 0 percent debt and 0 percent equity, as confirmed by Commission Order G--0. The Company s capital structure and Return on Capital is summarized in Table. below: Table.: Return on Capital Actual Forecast Forecast CAPITALIZATION Debt 0,,, Common Equity,,,,0,0,0,0 Equity as a % of Total % 0% 0% EARNED RETURN Interest Expense,,,0 Net Earnings,,,,0,, 0 RETURN ON CAPITAL Weighted Average Cost of Debt.%.0%.% Return on Equity.%.%.0% Weighted Average Cost of Capital.%.%.% 0 Note: Minor differences due to rounding... Cost of Debt Approximately percent of FortisBC s 0 interest expense is associated with embedded long-term debt. The Company expects to issue approximately $0 million of senior unsecured Medium Term Note debentures in the last quarter of 00 to pay down the operating credit facility that it has been using to finance the Company s capital expenditure program. The MTN debentures will be issued pursuant to Commission Order G--0, approving FortisBC s application to issue up to $00 million from time to time, according to the terms of a Shelf Prospectus, until June, 0. October, 00 FortisBC Inc. Page

36 0 Preliminary 0 Revenue Requirements Revenue Requirements - Tab On April 0, 00, the Company amended its operating credit facility pursuant to Order G--0. The amended operating credit facility is comprised of a $00.0 million, three-year revolving facility maturing on May, 0 and a $0.0 million, -day revolving facility maturing on May, 0. The average balance of revolving debt outstanding for 0 is forecast to be $. million. The estimated average cost of revolving debt for 0 is based on a combination of prime rate borrowings, Bankers Acceptance rate borrowings and bank charges and fees. Table.. summarizes FortisBC s annual weighted debt balances and cost of debt for 00 and 0. Table..: Weighted Average Cost of Debt 00 Forecast 0 Forecast Weighted Weighted Weighted Weighted Average Interest Average Average Interest Average Balance Expense Cost of Debt Balance Expense Cost of Debt ($000s) ($000s) Long Term Debt Series F.%,000,,000, Series G.0%,000,00,000,00 Series H.%,000,,000, Series I.%,000,,000, Series - 0.% 0,000, 0,000, Series - 0.0% 00,000,00 00,000,00 Series - 0.0% 0,000, 0,000, MTN-0.0% 0,000,0 0,000,0 0 MTN-0.0%, 0,000,00,,.% 0,000,.% Short Term Debt,,.%,,.% Total Debt,,.0%,,0.% Note: Minor differences due to rounding. Interest expense of $. million in 00 is forecast to be approximately $0. million lower than the amount approved in rates and, under the terms of the PBR mechanism, is included as a flow-through reduction to 00 rates as described in Section. of this Tab. October, 00 FortisBC Inc. Page

37 0 Preliminary 0 Revenue Requirements Revenue Requirements - Tab.. Cost of Equity The Company expects to issue, subject to Commission approval, an additional $0 million of common share equity in 0 in order to maintain its deemed capital structure of 0 percent debt and 0 percent equity. In previous revenue requirement applications, the FortisBC s Allowed Return on Equity has been forecast using the most recent Consensus Economics forecast, in accordance with the BCUC s Automatic Adjustment Mechanism. Terasen Gas Inc. is the benchmark utility for purposes of applying FortisBC s risk premium of 0 basis points which was confirmed by Commission Order G--0. On May, 00, Terasen Utilities submitted a Return on Equity and Capital Structure Application, which proposed eliminating the use of an ROE Automatic Adjustment Mechanism in the determination of the ROE for the Terasen Utilities. On December, 00, the BCUC issued its decision on the Terasen Utilities Return on Equity and Capital Structure Application which determined an ROE for Terasen Gas Inc of.0 percent that would continue to serve as the Benchmark ROE for FortisBC. The impact of this decision on FortisBC is an Allowed ROE for 00 and 0 of.0 percent. Table..: Return on Equity Approved Forecast 00 0 Benchmark ROE FortisBC Risk Premium FortisBC Allowed ROE Rate Base ($000s),0,0 Equity Ratio 0% ROE.0% Net Earnings ($000s), 0 The ROE as determined in the decision will apply until changed by the BCUC. FortisBC s equity component of capital structure remains unchanged at 0 percent. October, 00 FortisBC Inc. Page 0

38 0 Preliminary 0 Revenue Requirements Revenue Requirements - Tab.. Depreciation and Amortization Depreciation and Amortization expense consists of Depreciation on Plant and Equipment, and the Amortization of Deferred Charges. Depreciation Expense for 0 has been calculated according to the rates agreed to in the 00 NSA. The detailed calculations can be found in Tab of this Application. Details on the Amortization of Deferred Charges can be found in Section.. of this Tab and in Tab. Table.. summarizes Depreciation and Amortization Expense for the years 00 to 0. Table..: Depreciation and Amortization Expense Actual Forecast Forecast Depreciation of Plant & Equipment,,0, Amortization of Deferred Charges,0,0,0 Depreciation & Amortization Expense,,, October, 00 FortisBC Inc. Page

39 0 Preliminary 0 Revenue Requirements Revenue Requirements - Tab.. Allowance for Funds Used During Construction ( AFUDC ) On March, 00 Commission Order G-0-0 directed the Company to exclude Construction Work in Progress ( CWIP ) subject to AFUDC from Rate Base for the purpose of determining Revenue Requirements. During construction, the Company applies AFUDC to projects that are greater than $00,000 and more than three months in duration. The AFUDC rate is equal to the weighted Return on Equity plus the after tax cost of debt. The estimated AFUDC rate for 0 is. percent (rounded), as calculated in Table.. below. Table..: Calculation of AFUDC Rate for 0 Approved Approved Forecast Proportion of Debt 0.00% 0.00% 0.00% Weighted Average Cost of Debt.%.%.% Income Tax Rate 0.00%.0%.0% Tax-Effected Debt Component.%.0%.% Proportion of Equity 0.00% 0.00% 0.00% Return on Equity.%.0%.0% Equity Component.%.%.% AFUDC Rate (rounded).0%.0%.0% Approved 00 reflects the December, 00 Terasen ROE Decision Order G--0 which created an allowed ROE of.0 percent in 00 and 0. October, 00 FortisBC Inc. Page

40 Preliminary 0 Revenue Requirements Revenue Requirements - Tab Table.. below shows actual and forecast capital expenditures and AFUDC for 00 through 0. Table..: AFUDC Actual Forecast Forecast Gross Capital Expenditure,, 0,0 AFUDC Rate.0%.0%.0% AFUDC,,00,0 October, 00 FortisBC Inc. Page

41 0 Preliminary 0 Revenue Requirements Revenue Requirements - Tab. Flow-through Adjustments Flow-through adjustments (including a 00 incentive true-up) are forecast to decrease 0 Revenue Requirements. The flow-through adjustments are shown in Table.. below: a. A flow-through decrease to 0 of approximately $. million to recognize a true-up from the forecast to actual 00 incentive; b. A flow-through decrease to 0 of approximately $0. million to reflect lower Interest Expense than approved in 00 rates; c. A flow-through decrease to 0 of approximately $0.0 million as a result of a partial recovery of Pope & Talbot loss incurred in 00; d. A flow-through decrease to 0 of approximately $0. million for 00 Cost of Removal tax savings as discussed in Section..; e. A flow-through decrease to 0 of approximately $0. million for 00 Cost of Removal tax savings as discussed in Section..; and f. A flow-through decrease to 0 of approximately $0.0 million representing Harmonized Sales Tax (HST) savings, as described in section... Table..: True Up and Flow-through Adjustments Approved Forecast Variance Income Tax Shield ($000s) Customer Share Flow Through Adjustment 00 Incentive True Up,, (,0) - 00% (,0) Interest Expense,, () 00% () Pope & Talbot (Payment from Customer) - - () 00% () 00 Cost of Removal Tax Savings - - (0) - 00% (0) 00 Cost of Removal Tax Savings - - () - 00% () 00 HST Savings - - () 00% () Flow Through Adjustment (,0) Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

42 Preliminary 0 Revenue Requirements Revenue Requirements - Tab. ROE Sharing Mechanism Adjustment The ROE Sharing Mechanism Adjustment provides for equal sharing, after the flowthrough adjustments listed above, of any variance within a percent band above or below the approved return on equity. The 00 Approved figures are pursuant to Commission Order G--0. The forecast ROE Sharing Mechanism Adjustment increases the 0 Revenue Requirements by approximately $0. million. The calculation of the incentive is shown in Table.. below. Table..: ROE Sharing Mechanism Adjustments 00 Approved 00 Forecast Variance ($000s) Customer Share ROE Incentive Adjustment Net Income for ROE Incentive,, (,) 0% Common Equity 0,0, Allowed ROE.0%.0% -0.0% 0% -0.0% October, 00 FortisBC Inc. Page

43 Preliminary 0 Revenue Requirements Revenue Requirements - Tab. Rate Base Mid-Year Utility Rate Base is forecast to be approximately $,0 million in 0, a $0 million or. percent increase over the 00 forecast. The increase in Rate Base is necessary to ensure the continued safe, reliable delivery of power to the Company s growing customer base. The most significant areas of expenditure are those required to expand and upgrade the bulk transmission and distribution ( T&D ) system to keep pace with load growth, and to continue the Upgrade and Life Extension ( ULE ) program at FortisBC s generating plants. Table.: Rate Base Actual Forecast Forecast ($000s) Net Additions 0,0,, Mid-Year Utility Rate Base,,0,0, Capital Expenditures FortisBC filed an Application for approval of its 0 CEP on June, 00, which is currently before the BC Utilities Commission. The 0 Revenue Requirements Application includes the 0 CEP as filed (with minor differences due to timing of expenditures). The Company expects to receive approval of the 0 CEP by the end of the current year (00). The 0 Capital Plan is focused on safety, customer service, reliability, productivity, and the environment. Capital Expenditures for 00 and 0 are forecast to be $. and $0. million respectively net of customer contributions, and are described in Tab of this Application. October, 00 FortisBC Inc. Page

44 Preliminary 0 Revenue Requirements Revenue Requirements - Tab Table..: Summary of Capital Expenditures Actual Forecast Forecast ($000s) GENERATION Growth Sustaining,,,,,, TRANSMISSION & STATIONS Growth,0,0,0 Sustaining,00,0,0,,,0 DISTRIBUTION Growth, 0,,0 Sustaining,,0,0 0,,0, TELECOM, SCADA, PROTECTION & CONTROL Growth,,, Sustaining,,,,0 GENERAL PLANT,0 0,, TOTAL (as in Tab ),, 0,0 RECONCILIATION TO CAPITAL ADDITIONS Demand Side Management Additions,,, Less: Contribution in Aid of Construction (,) (,) (0,) Cost of Removal,0,, TOTAL (as in Tab ),,0 0, Note: Minor differences due to rounding... Deferred Charges Pursuant to Commission Order G--0 deferred charges are recorded net of income tax. Incentive adjustments do not impact Income Tax Expense and are therefore not recorded net of tax. Similarly, Preliminary and Investigative Charges are either charged to capital or expensed and are not tax-effected. Deferred charges are summarized below: October, 00 FortisBC Inc. Page

45 Preliminary 0 Revenue Requirements Revenue Requirements - Tab Table..: Deferred Charges Additions & 0 Amortization/ Balance at Balance at Transfers Transfers to Amortization Balance at Dec., 00 Dec., 00 0 Other Accounts 0 Dec., 0 Demand Side Management,,, - (,), Preliminary and Investigative Charges,0,0, (0) -, Deferred Regulatory Expense (,) (),0 (), Other Deferred Charges and Credits,0, () () (),00 Deferred Debt Issue Costs,00,0 () - (), TOTAL DEFERRED CHARGES (RATE BASE),0,,,0 (,0),00 Note: Minor differences due to rounding. In the following description of the deferred charges, with the exceptions noted above, costs are after the effect of income tax. The tax rate applicable to 00 and 0 deferred charge additions are. percent and. percent respectively. Please refer to Tables -B (00) and -B (0) in Tab for detailed deferred charges schedules. 0 Demand Side Management The 0 CEP Application filing includes DSM expenditures of $. million ($. million before tax) forecast in 0, subject to BCUC approval. The escalated 0 spending level is requested for the continuation and expansion of the Company s DSM programs to provide a broader scope of programming, and to increase cost-effective DSM resource acquisition. These changes were mandated under the 00 amendments to the Utilities Commission Act and/or to meet provincial energy-efficiency policy goals. Details can be found in the 0 CEP filing. 0 Preliminary and Investigative Charges Expenses incurred in this category are due to investigation into potential capital projects. Upon conclusion of these studies and subsequent approval of these projects by the Commission, the costs incurred will be transferred to the approved Capital Projects. October, 00 FortisBC Inc. Page

46 Preliminary 0 Revenue Requirements Revenue Requirements - Tab Deferred Regulatory Expense i. Flow-through and ROE Sharing Mechanism Adjustments Flow-through and ROE Sharing Mechanism Adjustments serve to reduce 0 Revenue Requirements by $. million. The 00 true-up contributes $. million while a further $.0 million is from 00 adjustments ($. million for 00 flow-through offset by $0. million 00 ROE Sharing) 0 0 ii. Shaw Application for use of FortisBC Inc. Electricity Transmission Facilities On October, 00, Shaw Cablesystems Ltd. and Shaw Business Solutions Inc. (collectively, Shaw ) applied to the BCUC for an order granting them use of FortisBC s transmission facilities. The application followed FortisBC s filing of a Writ and Statement of Claim in the British Columbia Supreme Court in regard to disputes concerning the license contract which sets out the terms and conditions upon which Shaw may attach its own facilities to FortisBC's transmission poles. The Commission set down a regulatory process to address, among other issues, its jurisdiction under section 0 of the Utilities Commission Act to hear the application. By way of Order G--0 the Commission determined that it has jurisdiction to and would hear the application, and on March, 00, the Commission dismissed an application by FortisBC for a reconsideration of G--0. FortisBC also served a Leave to Appeal application from Orders G--0 and G--0 to the BC Court of Appeal, which was granted on June 0, 00. FortisBC then applied to the BCUC for an order suspending all processes related to the Shaw Application pending the outcome of the appeal, which will determine the issue of the BCUC s jurisdiction. By Order G--0 dated June 0, 00, the BCUC suspended the Shaw Application proceeding and denied Shaw s request for interim relief allowing use of FortisBC s transmission facilities, pending the BC Court of Appeal decision. October, 00 FortisBC Inc. Page

47 Preliminary 0 Revenue Requirements Revenue Requirements - Tab 0 iii. iv. The Company requests approval to defer the costs of the Commission process, which are $0.0 million ($0.0 million before tax) to date. Future costs will be dependent on the outcome of the appeal. Following the resolution of the regulatory process, FortisBC will apply for disposition of the deferred amounts. 00 Revenue Requirements 00 Revenue Requirements Application costs of $0.0 million ($0.0 million before tax), were deferred pursuant to Order G--0. The Company requests approval to amortize these costs in 0. 0 Revenue Requirements The Company requests approval to defer the costs for the 0 Revenue Requirements Application, forecast to be $0.0 million ($0.0 million before tax) in 00 with no additional costs in 0. Upon completion of the regulatory process the Company will apply for disposition of the deferred amounts. 0 v. 0 Revenue Requirements FortisBC will file a cost of service Revenue Requirements Application for 0 and expects that pursuant to the 00 Revenue Requirements Negotiated Settlement Agreement approved by Order G--0, the 0 Revenue Requirements will be reviewed by way of an oral public hearing. The Company expects that the regulatory process to review the 0 Revenue Requirements will be held concurrently with the review of the Integrated System Plan ( ISP ) and Resource Plan, both identified below. Regulatory costs of the Revenue Requirements process have been included with the ISP (See Other Deferred Charges and Credits, paragraph iv). October, 00 FortisBC Inc. Page 0

48 Preliminary 0 Revenue Requirements Revenue Requirements - Tab vi. vii. Cost of Service Analysis ( COSA ) and Rate Design Application ( RDA ) On October 0, 00, FortisBC submitted its Cost of Service Analysis and Rate Design Application. A revised COSA was submitted on May, 00. The regulatory process has included responses to two rounds of information requests by the Company, and the filing of intervener evidence with subsequent associated information requests. An oral public hearing was conducted from May to May, 00. After the filing of written argument by Company and some interveners, the Commission held an additional oral argument phase on September, 00. The deferred amount is forecast to be approximately $. million ($. million before tax) and FortisBC is requesting the approval to amortize the costs over a period of five years, beginning 0. Renewal of BC Hydro Power Purchase Agreement FortisBC s Power Purchase Agreement (PPA) with BC Hydro expires in 0. FortisBC has been attempting to negotiate a renewal of the PPA since October 00 and after concerted efforts determined that a negotiated solution was not achievable. Recognizing the need to gain certainty on the future availability of this key resource, on June, 00 FortisBC filed an Application for a renewal of the 0 Power Purchase Agreement with BC Hydro. On October, 00 the Commission issued a letter declining to review the Application, and directed FortisBC and BC Hydro to file a status report on the renewal of the PPA. On January, 00 FortisBC and BC Hydro jointly filed a report on the status of negotiations of issues related to the renewal of the PPA, which included a reiteration of intent to continue to work towards filing an agreement for approval with the BCUC by March 0. The Company requests approval to defer the costs associated with the renewal of approximately $0.0 million ($0. million before tax) in 00, and approximately $0. million ($0. million before tax) in 0. Following the renewal, FortisBC will apply for disposition of the deferred amounts. October, 00 FortisBC Inc. Page

49 Preliminary 0 Revenue Requirements Revenue Requirements - Tab 0 viii. Section Provincial Transmission Inquiry On May, 00, the Utilities Commission Amendment Act (Bill, 00) received Royal Assent resulting in certain amendments to the UCA. Included among these amendments to the UCA was the establishment of a requirement for a Commission inquiry into the Province s electricity transmission infrastructure and capacity needs for a 0-year period. In 00, the Company received approval to defer costs associated with its participation in the Inquiry pending completion of the regulatory process, at which time disposition of the deferred amounts would be sought. On June, 00, the Clean Energy Act received Royal Assent resulting in the repeal of sections () to () of the UCA, and eliminating the legislated requirement for the Commission to conduct an inquiry into the Province s electricity transmission infrastructure and capacity needs for a 0-year period. On June, 00, the Commission issued Order G--0 cancelling the Section Inquiry. Costs incurred by FortisBC for its participation in the Inquiry total $0.0 million ($0.0 million before tax). FortisBC requests approval to amortize the costs in ix. BC Hydro Waneta Transaction Application BC Hydro s application to acquire a one-third interest from Teck Metals Ltd. in the Waneta Dam was approved by Order G--0. The interests of FortisBC and its customers have in this transaction included the potential rate impact of the acquisition and access to previous winter capacity purchases from Teck. In addition, the transaction had the potential to affect a number of agreements governing various aspects of existing interrelationships among FortisBC, BC Hydro, and Teck, including the Waneta Management Agreement under which FortisBC operates the Waneta Dam. During the Waneta Transaction regulatory process, FortisBC and Powerex Corp. ( Powerex ) reached agreements for the purchase of winter capacity blocks from Powerex through February 0 and the sale of FortisBC October, 00 FortisBC Inc. Page

50 Preliminary 0 Revenue Requirements Revenue Requirements - Tab 0 0 surplus energy to Powerex through July 0. FortisBC filed the capacity purchase agreement with the Commission on May, 00. The Company deferred $0. million ($0. million before tax) related to this proceeding and pursuant to Order G--0 requests approval of these costs over a three-year period beginning in 0. x. Terasen Utilities Return on Equity and Capital Structure Application The Terasen Utilities filed an application for review of their respective ROEs and capital structures on May, 00. On December, 00, the Commission issued Order G--0, setting a ROE for Terasen Gas Inc. and eliminating the existing ROE automatic adjustment mechanism. The Commission further ordered that TGI remain the benchmark utility for setting ROE for BC utilities, including FortisBC. Deferral of FortisBC s participation costs for this proceeding was approved by Order G--0. The Company requests approval to amortize the costs of $0.0 million ($0.0 million before tax) in 0. Other Deferred Charges and Credits i. Prepaid Pension Costs Generally Accepted Accounting Principles ( GAAP ) requires that companies recognize and accrue future liabilities associated with pension benefits provided to retirees. The Company is forecasting a $0. million ($0. million before tax) decrease to this account in 0. These costs will be updated following an accounting valuation as of September 0, 00. ii. Post-Retirement Benefits GAAP requires that companies recognize and accrue future liabilities associated with providing certain benefits to retirees. The Company includes the full accrued expense and the portion of accounting expense that is not paid out in cash is recorded in Deferred Charges and credited to Rate Base. The treatment is consistent with the accounting for Pension Benefits. The Company is forecasting a $.0 million ($. million before October, 00 FortisBC Inc. Page

51 Preliminary 0 Revenue Requirements Revenue Requirements - Tab iii. iv. tax) increase to this account in 0. These costs will be updated following an accounting valuation as of September 0, 00. Resource Plan Update The 00 and 00 Resource Plan is FortisBC s strategic plan for identifying existing power generation capability, forecasting long term customer load requirements net of Demand Side Management, and developing solutions for meeting the supply gap over the ensuing twenty year planning period. The recommended solution seeks to balance the complex issues of environment, public policy, economics and stakeholder concerns. The 00 Resource Plan was filed with the BCUC on May, 00. An updated Resource Plan will be filed and reviewed in 0 as part of the Integrated System Plan described below. The Company expects to incur approximately $0. million after tax ($.0 million before tax) by year end 00 for development of the Resource Plan. 0 costs will be included in the Integrated System Plan in 0. The Company will apply disposition of the costs in a subsequent regulatory process Integrated System Plan In 0 FortisBC intends to file a 0-year Plan incorporating the Company s Resource Plan, DSM Plan, Transmission & Distribution, Generation, and General Plant Expenditures. It will be filed concurrently with the 0 Revenue Requirements Application, as noted above, and is expected to be reviewed by way of an oral public hearing. FortisBC is requesting approval to defer the incremental costs of the Integrated System Plan and Revenue Requirements applications in the amount of approximately $0. million ($0. million before tax) in 00 and additional $. million ($.0 million before tax) in 0. This will also include the expenditure for the 0 Revenue Requirements process. The Company will apply for disposition of the costs following the completion of the regulatory process. October, 00 FortisBC Inc. Page

52 Preliminary 0 Revenue Requirements Revenue Requirements - Tab v. Revenue Protection In accordance with Commission Order G--0 the Company is directed to report annually on the costs and tangible benefits of the Revenue Protection program. Forecast expenditures for 00 are $0. million after tax ($0. million before tax) which will yield approximately $0. million in present value benefits as shown below. Consistent with past treatment, the Company has deferred the expenditures and is proposing to amortize the costs in Activity Approved Cost Forecast Cost Forecast Annual Savings NPV Savings * 0 0 Power Diversion Inspections $00,000 $00,000 $, $0,0 Third Party Contracts $0,000 $0,000 $, $, Total $0,000 $0,000 $0, $, * Discounted Savings at % over five years The primary activities undertaken in 00 are: Power Diversion Inspections This is the core activity of the Revenue Protection program. The identification and correction of electrical power diversions is important for several reasons: Public and employee safety - Power diversions require physical changes to the electric service infrastructure that are not properly inspected. This creates a potential safety hazard for both the public and employees; Power purchase costs - When power is diverted, power purchase costs for all ratepayers increase. The quantifiable benefits of power diversion inspections are based solely upon power purchase savings; and General deterrence - Power theft investigations and the criminal charges that often accompany detection send a clear message in the service area that FortisBC is committed in its mandate to deliver electricity safely at the lowest reasonable cost to customers. October, 00 FortisBC Inc. Page

53 Preliminary 0 Revenue Requirements Revenue Requirements - Tab vi. Third Party Contracts Continued focus on the correct application of the various pole rental agreements was the core activity during 00. Continuous improvement is sought in the timely and correct reporting of pole attachments versus variances and penalty billing discovered as a result of year pole audits. Revenue Protection expenditures in 0 are forecast to be $0. million after tax ($0. million before tax). International Financial Reporting Standards In 00 the Canadian Accounting Standards Board ( AcSB ) adopted a resolution to replace Canadian Generally Accepted Accounting Principles with International Financial Reporting Standards as of January, 0. The costs of conversion to IFRS are forecast to be approximately $0. million ($0. million before tax) in 00, which is consistent with the approved amount in the 00 NSA. Throughout 00, the Company has experienced challenging IFRS implementation issues that are outlined further in Appendix B, which are primarily a result of continued uncertainty in how to account for rateregulated entities under IFRS. As a result of the uncertainty experienced, the AcSB issued a Decision Summary in September 00 allowing Canadian entities with rate regulated activities to defer implementing IFRS for an additional one year to January, 0. While this deferral postpones the adoption of IFRS it has not eliminated the costs of transitioning to IFRS. In fact, certain costs already incurred by the Company would be encountered again which would include but not be limited to actuarial fees, incremental external audit and advisory services, training and changes to existing processes. As such, the Company is requesting approval to defer additional costs of approximately $0. million ($0. million before tax) in 0. The Company is proposing to amortize the costs in the year subsequent to the costs being incurred until fully amortized. October, 00 FortisBC Inc. Page

54 Preliminary 0 Revenue Requirements Revenue Requirements - Tab vii. Right-of-Way ( RoW ) Encroachment Litigation The Company is expecting to defer approximately $0.0 million ($0. million before tax) of legal costs incurred by the end of 00 associated with an ongoing litigation matter with a land developer in relation to certain encroachments made by the developer on one of the Company s statutory right of ways in Kelowna, British Columbia. Upon resolution of the dispute, any recovered cost will be recorded to the deferral account and the residual will be amortized into the Company s rates as agreed to in the 00 NSA. 0 0 viii. Harmonized Sales Tax (HST) Project On July, 00, the Government of Canada and the Province of British Columbia announced a proposal to harmonize the PST of percent with the GST of percent to create an HST with a combined rate of percent effective July, 00. All legislation related to the implementation of HST has been enacted as of April th, 00. Further details on the Company s implementation of HST are included in Section.. of Tab. The implementation of the HST meets the definition of a Z factor under the PBR mechanism. The Company is requesting approval to defer the costs of approximately $0. million ($0. million before tax) in 00 associated with the implementation of HST including information system changes, training and tax service consulting costs. The Company is proposing to fully amortize these costs in 0. ix. 0 Capital Expenditure Plan (0 CEP) FortisBC has filed its 0 Capital Plan on June, 00 has incurred costs of $0. million in the process. These costs were investigative in nature and have been transferred out to be treated as Investigative Spending in 00. These costs will be fully amortized to Capital Expenditure in 0. 0 x. Demand Side Management Study In December 00 the Company filed the Strategic DSM Report which outlined the objectives to be addressed in the next DSM business plan. October, 00 FortisBC Inc. Page

55 Preliminary 0 Revenue Requirements Revenue Requirements - Tab xi. xii. Those objectives were fulfilled for the most part in the 0 DSM Plan in the 0 CEP filing. In its 00 Revenue Requirements Application, the Company applied for and received approval for expenditures of approximately $0.0 million ($0. million before tax), which were used primarily to complete the Residential and Commercial End-Use Surveys (R/CEUS). The balance was allocated to initiate a Conservation and Demand Potential Review (CDPR), and the Company applied for and received approval for an additional $0. million ($0. million before tax) in 00 to complete that work. Both works (R/CEUS and CDPR) were utilized as the foundation reports on which the 0 DSM Plan, as incorporated in the 0 CEP Application filing, and the 0 DSM Plan, as will be incorporated into the 0 Integrated System Plan (0 ISP) are built. FortisBC is hereby requesting approval for the disposition of the total DSM Study deferred costs, which totaled $0. million ($0. million before tax) over a period of five years beginning in 0. Section Filing (Waneta) FortisBC filed an application pursuant to Section of the Utilities Commission Act for approval of a Capacity Purchase Agreement with Waneta Expansion Power Corporation in connection with the Waneta Expansion project. The Company expects to incur approximately $0. million after tax ($0. million before tax) in legal, consulting, regulatory and other costs, and is requesting approval to amortize the costs over a five year period, beginning in 0. Pope & Talbot Litigation The trustee (the US Trustee ) for the bankrupt estate of Pope & Talbot Inc. and various of its subsidiaries (collectively, Pope & Talbot ), is seeking recovery of money paid to FortisBC by Pope & Talbot in the 0 days before Pope & Talbot filed for bankruptcy in Delaware. The claim is for wrongful preference. The total amount of the claim is approximately $00,000. The October, 00 FortisBC Inc. Page

56 Preliminary 0 Revenue Requirements Revenue Requirements - Tab 0 0 complaint is one of approximately filed against Pope & Talbot Canadian creditors in the US Bankruptcy Court, Delaware. The US Trustee and many of the defendant Canadian Pope & Talbot creditors (the "Canadian Defendants"), including FortisBC, have now reached a settlement whereby the US Trustee releases the Canadian Defendants from any claims made against the Canadian Defendants in the US proceedings and terminates such US proceedings, the Canadian Defendants release any claims the Canadian Defendants have against the US Trustee or the US estate of Pope & Talbot in the US insolvency proceedings and each release the other from any claims for costs in the British Columbia Pope & Talbot insolvency proceedings. The Delaware court has approved the settlement and termination of the US proceedings. The British Columbia court is not required to approve the settlement but has adjourned all matters generally. All that remains is for counsel for the US Trustee to obtain the signatures of all of the Canadian Defendants who have agreed to settle on the mutual release and the settlement can be finalized. Even if an issue arose with respect to some of the Canadian Defendants, it is probable that the settlement vis-à-vis FortisBC would go ahead. FortisBC anticipates that the settlement will go ahead and that the US Trustee will withdraw its complaint against FortisBC and release FortisBC from such claims as well as for any claims for costs in the British Columbia Pope & Talbot insolvency proceedings in exchange for FortisBC releasing any claims it has against the US Trustee or the US estate of Pope & Talbot in the US insolvency proceedings as well as any claims for costs in relation to the B.C. proceedings. Therefore FortisBC does not anticipate expenditures for 0 but the Company does anticipate possible further expenditures in 00 for legal fees incurred in finalizing settlement and release to be provided by the October, 00 FortisBC Inc. Page

57 Preliminary 0 Revenue Requirements Revenue Requirements - Tab 0 0 Trustee in favour of FortisBC of approximately $0.0 million ($0.0 million before tax). FortisBC is hereby requesting approval for the disposition of the total deferred costs in 0. xiii. Mandatory Reliability Standards Project FortisBC is incurring setup costs in addition to capital and ongoing operating costs to become and remain compliant with the newly adopted Mandatory Reliability Standards. These set up costs are being expensed as deferred costs and are presently estimated at approximately $0. million ($0. million before tax) by the end of 00 and approximately an additional $0. million ($0. million before tax) in 0. The Company is requesting approval to defer these expenditures and will apply for disposition of the costs in a subsequent regulatory process. xiv. Advanced Metering Infrastructure ( AMI ) As directed by the Commission in Order G--0, the costs of the AMI program development have been held in a non rate base deferral account in 00. The Tax component however, has been eliminated since the project is of Investigative Spending and such deferred expenses are not tax effected (please refer to Section.. above). Pursuant to the terms of the NSA 00, FortisBC agreed to record the AMI development costs in a non rate base deferral account in 00 only. Hence, the AMI development costs, forecast to be $. million by the end of 0, have been transferred to Deferred Investigative Spending in rate base in 0. October, 00 FortisBC Inc. Page 0

58 Preliminary 0 Revenue Requirements Revenue Requirements - Tab 0 Deferred Debt Issue Costs i. Medium Term Note Debenture On May, 00, the Commission issued Order G--0 allowing FortisBC to issue, from time to time over a period to June, 0, up to $00 million of Medium Term Note (MTN) Debentures, according to the provisions of a Shelf Prospectus. Pursuant to the same, the Company expects to issue $0 million in senior unsecured MTN debentures in the last quarter of 00 in order to finance the Company s capital expenditure program. The 00 NSA G--0 approved the deferral of the debt issue costs that are now estimated at $0. million after tax ($0. million before tax). FortisBC requests approval to amortize the costs over the term of the debt issue. October, 00 FortisBC Inc. Page

59 Preliminary 0 Revenue Requirements Revenue Requirements - Tab 0. Non Rate Base Deferred Accounts As outlined in Schedule A in Tab and Appendix B to this application, the Company requests continued acknowledgement and approval by the Commission of certain non rate base deferral accounts in order to permit comparative external financial reporting for IFRS, as explained further in Appendix B. As these deferral accounts are excluded from rate base, they do not have an impact on customer rates for 00 or 0. In addition to deferrals requested under Canadian GAAP, deferrals arising as a result of IFRS differences have been requested for 0. FortisBC believes it is critical that IFRS be adopted for regulatory as well as external financial reporting purposes. However, in 0 the Company is operating under the final year of its PBR term which prescribed the accounting for a number of items. FortisBC is proposing a number of regulatory deferral accounts to capture the differences between GAAP and IFRS for 0, the year of transition. In the absence of a PBR agreement, the Company would propose adoption of IFRS for regulatory purposes in 0 to the extent possible. Further details have been included in Appendix B to this application. October, 00 FortisBC Inc. Page

60 Preliminary 0 Revenue Requirements Revenue Requirements - Tab 0. Contingent Liabilities The Province has alleged breaches of the Forest Practices Code and negligence relating to a forest fire near Vaseux Lake and has filed and served a Writ and Statement of Claim against FortisBC. In addition, private land owners have filed a separate Writ and Statement of Claim in relation to the same matter. FortisBC is communicating with its insurers and has filed a Statement of Defence in relation to both of the actions. The Province has suggested mediation of this dispute. Mediation is likely to be scheduled in late Fall 00. The outcome cannot be reasonably determined and estimated at this time. Accordingly no amount has been accrued in the financial statements. Costs to date have been covered under insurance provisions for the Company. The Company received approval in its 00 Revenue Requirements to defer future costs not covered under the Company s insurance coverage. Disposal of those amounts would be the subject of a subsequent regulatory application. October, 00 FortisBC Inc. Page

61 Preliminary 0 Revenue Requirements Tab Financial Schedules

62 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table of Contents REVENUE REQUIREMENTS OVERVIEW... SCHEDULE UTILITY RATE BASE... SCHEDULE A NON RATE BASE ASSETS... TABLE A UTILITY PLANT IN SERVICE (00)... TABLE A UTILITY PLANT IN SERVICE (0)... TABLE A ADDITIONS TO PLANT IN SERVICE (00)... TABLE A ADDITIONS TO PLANT IN SERVICE (0)... TABLE B DEFERRED CHARGES AND CREDITS (00)... 0 TABLE B DEFERRED CHARGES AND CREDITS (0)... TABLE C ACCUMULATED PROVISION FOR DEPRECIATION AND AMORTIZATION (00) TABLE C ACCUMULATED PROVISION FOR DEPRECIATION AND AMORTIZATION (0) TABLE D CONTRIBUTIONS IN AID OF CONSTRUCTION (CIAC)... TABLE E ALLOWANCE FOR WORKING CAPITAL (0)... TABLE F ADJUSTMENT FOR CAPITAL EXPENDITURES (0)... SCHEDULE EARNED RETURN... TABLE A SALES BY CUSTOMER CLASS... TABLE A SALES REVENUE BY CUSTOMER CLASS... TABLE A CUSTOMER COUNT AT YEAR-END... TABLE B POWER PURCHASE EXPENSE... TABLE C WATER FEES... 0 TABLE D WHEELING... TABLE E OPERATING AND MAINTENANCE EXPENSE... TABLE F PROPERTY TAX... TABLE G OTHER INCOME... TABLE H 00 FLOW THROUGH ADJUSTMENTS... TABLE H 00 ROE INCENTIVE ADJUSTMENT... SCHEDULE INCOME TAX EXPENSE... TABLE A CALCULATION OF CAPITAL COST ALLOWANCE... SCHEDULE COMMON SHARE EQUITY... TABLE A CALCULATION OF ADJUSTMENT FOR SHARES ISSUED... SCHEDULE RETURN ON CAPITAL... October, 00 FortisBC Inc. Page

63 Preliminary 0 Revenue Requirements Financial Schedules - Tab REVENUE REQUIREMENTS OVERVIEW Actual Approved Increase or Forecast Source (Decrease) 0 Tab Page Line ($000s) Sales Volume (GWh),,, Rate Base,,,0,0 Return on Rate Base.%.%.% REVENUE DEFICIENCY POWER SUPPLY Power Purchases 0, 0,0, 0 Water Fees,,0,00 0 0,,, 0, OPERATING O&M Expense,0,,, Capitalized Overhead (,) (,) () (,) Wheeling,00,0 (), Other Income (,) (,0) () (,),,0 0, TAXES Property Taxes,,,0, Income Taxes,,0, 0,,,00, FINANCING Cost of Debt,,,,0 + Cost of Equity,,,0, Depreciation and Amortization,,0,, 0,,0, 0,00 Prior Year Incentive True Up (,) () () (,0) Flow Through Adjustments,0 (,0) (0) (,0) ROE Sharing Incentives, (,00), 0,0 (,0) (,0) TOTAL REVENUE REQUIREMENT,,,, Carrying Cost on Rate Base Deferral Account () - ADJUSTED REVENUE REQUIREMENT,,, LESS: REVENUE AT APPROVED RATES,0 0, REVENUE DEFICIENCY for Rate Setting,, RATE INCREASE.0%.0% Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

64 Preliminary 0 Revenue Requirements Financial Schedules - Tab SCHEDULE UTILITY RATE BASE Actual Forecast Forecast Source Tab Page Line ($000s) Plant in Service, January,,,,,0, Net Additions 0,0,,, 0 Plant in Service, December,,,0,,, Add: CWIP not subject to AFUDC,,0,, Plant Acquisition Adjustment,,,, Deferred and Preliminary Charges,0,,00 0,, 0,0,0,,,, Less: Accumulated Depreciation and Amortization 0,,,, Contributions in Aid of Construction 0,, 00,,,, Depreciated Rate Base,,0,,,0 Prior Year Depreciated Utility Rate Base,,,0, 0 Mean Depreciated Utility Rate Base,0,0,0, Add: Allowance for Working Capital,,, Adjustment for Capital Additions (,) (,), Mid-Year Utility Rate Base,,0,0,0 Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

65 Preliminary 0 Revenue Requirements Financial Schedules - Tab Schedule A Non Rate Base Assets GAAP Related Regulatory Asset / (Liability) BCUC Order No. Forecast 0 ($000s) Deferred Income Taxes G--, G--0, G--0 0,0 Brilliant Terminal Station Capital Lease G--0, G--0, G--0, Other Post-Retirement Benefits G--0, G--0, G--0, Trail Office Building Lease Costs G--, G--0, G--0,0 Asset Retirement Obligation,0 Financing Costs Under Effective Interest Method (00) IFRS Related Capitalization of Depreciation on Assets Used in Construction Pension and Employee Future Benefit Costs - Cumulative Unamortized Actuarial Gains and Losses Upon Transition G--0 (,000) G--0,00 Brilliant Power Purchase Agreement Lease Costs,00, The inclusion of Non Rate Base assets in the 0 Revenue Requirements is discussed further in Appendix B. Note : Deferral recognition has been approved through the Orders listed above. Note : As a result of further investigation into accounting differences and pending decisions made by international standard setters, there may be further deferrals associated with the transition to IFRS. Any further IFRS deferrals to be recognized in 0 or 0 will be requested for approval in the 0 Revenue Requirements Application. See Appendix B for further details. Note: Minor differences due to rounding October, 00 FortisBC Inc. Page

66 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table A Utility Plant in Service (00) December December Line Account 00 Additions Retirements 00 Hydraulic Production Plant ($000s) 0 Land Rights -,0 Structures and Improvements,0, Reservoirs, Dams & Waterways,,,, Water Wheels, Turbines and Gen.,, (,), Accessory Equipment,,00 (0), Other Power Plant Equipment 0,,0 Roads, Railroads and Bridges, -,,, (0), Transmission Plant 0 0 Land Rights-R/W,0 0,0 0. Land Rights-Clearing,, Station Equipment,, (,00), Poles, Towers & Fixtures,, (,0), Conductors and Devices 0,, (,), Roads and Trails, -,,, (,0), Distribution Plant 0 Land Rights-R/W,, (), 0. Land Rights-Clearing,, (),0 0 Station Equipment,,,0 Poles Towers & Fixtures,,,,0 Conductors and Devices 0, 0,,, Line Transformers,,, 0, Services,, -, 0 Meters,,0 (),0 Installation on Customers' Premises - - Street Lighting and Signal System 0, -,,,,0,, General Plant 0 Land, - 0,0 0 Structures-Frame & Iron Structures-Masonry,0 (), Office Furniture & Equipment, (),. Computer Equipment,,, Transportation Equipment,,000 (,), Tools and Work Equipment 0, (),0 Communication Structures and Equipment,, (,),,,0 (,) 0, 0 0 Plant in Service,, 0, (,),0, 0. Plant under construction not subject to AFUDC,,0 0. Plant under construction subject to AFUDC,,00 Utility Plant Acquisition Adjustment,, 0 Utility Plant per Balance Sheet,,,, Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

67 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table A Utility Plant in Service (0) December December Line Account 00 Additions Retirements 0 Hydraulic Production Plants ($000s) 0 Land Rights,0 -, Structures and Improvements,, Reservoirs, Dams & Waterways,,,0 Water Wheels, Turbines and Gen.,, (,), Accessory Equipment,, (0) 0, Other Power Plant Equipment,0,,0 Roads, Railroads and Bridges, -,,, (0), Transmission Plant 0 0 Land Rights-R/W,0 0,0 0. Land Rights-Clearing,, Station Equipment,, (,00), Poles Towers & Fixtures,,0 (,0), Conductors and Devices, (,), Roads and Trails, - -,,, (,0), Distribution Plant 0 Land Rights-R/W,, (), 0. Land Rights-Clearing,0, () 0, 0 Station Equipment,0,, Poles Towers & Fixtures,0 0,,, Conductors and Devices,,,,0 Line Transformers 0,,0, 0, Services,, -, 0 Meters,0, (), Installation on Customers' Premises - - Street Lighting and Signal System, -,,,,,, General Plant 0 Land,0-0, 0 Structures-Frame & Iron Structures-Masonry,, () 0, Office Furniture & Equipment, (),. Computer Equipment,,,00 Transportation Equipment,,000 (,), Tools and Work Equipment,0, (),0 Communication Structures and Equipment,, (,),0 0, 0, (,), 0 0 Plant in Service,0,, (,),, 0. Plant under construction not subject to AFUDC,0, 0. Plant under construction subject to AFUDC,00, Utility Plant Acquisition Adjustment,, 0 Utility Plant per Balance Sheet,,,,0 Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

68 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table A Additions to Plant in Service (00) CWIP Expenditures CWIP Additions to Dec., Dec, 00 Plant in Service ($000s) Hydraulic Production All Plants Spare Unit Transformer - - LBO & UBO Comm. Network Comp. - All Plants Fire Safety Upgrade Ph. 0 - SLC U Life Extension (replace turbine),,0 -, SLC U Head Gate Rebuild - All Plants Public Safety & Security Ph. 0 - P Poleyard Contaminated Site - () - () P P Capital Planning 00 Project () - - UBO Old Unit Repowering (Ph.) All Plants Upgrade Station Service Supply, 0,0 SLC H/G Hoist, Control, Wire Rope Upgrade -,0 SLC Plant Completion, -,0 COR U Life Extension (replace Turbine), 0,, - COR U Life Extension (replace Turbine),, - SLC Dam Rehabilitation Study 0 - UBO Extension Trash Rack Gantry Replacement - - All Plants Spare Exciter Transformer 0 - LBO Intake Area Upgrade Ph. - - SLC Domestic Water Supply Ph. 0-0 All Plants 00 Pump Upgrades 0-0 All Plants Lighting Upgrade - - SLC Tailrace Gate Corrosion Control - - Queen's Bay Level Gauge Building Ph. -,0,,0, Transmission Plant Ellison Distribution Source - - Okanagan Transmission Reinforcement,,,, Benvoulin Distribution Source,0, -, Naramata Rehab - () - () 0 Huth Split Bus Capitalized Inventory & Transformers, (), - Recreation Capacity Increase Stage,,, -,00 Tarry's Capacity Increase - Kelowna Distribution Capacity Requirements - 0L Conversion Slocan / Coffee Creek S/Stns, -,0 Transmission Sustaining (),0 -, Station Sustaining, -,,0,,, Distribution Plant 0 Small Capacity Improvements Unplanned - - New Connects System Wide -,0 -,0 New Glenmore Feeder - 0 Airport Way Upgrade (Ellison Feeder - ) -, -, Hollywood- & Sexsmith- Tie - - Oliver Feeder- New Regulator - - Beaver Park Feeder- to Fruitvale Feeder- Distribu 0 - DistrIbution Sustaining -,0 -,0 0,0 -,0 General Plant 0 Distribution Station Automation,, Protection & Communications Upgrades - - Mandatory Reliability Compliance (MRC) -, 0 Vehicles -,000 -,000 Metering - - Information Systems -, -, Telecommunications Buildings -,0 -,0 Furniture & Fixtures - - Tools & Equipment - - 0,0,,0 TOTAL,0,, 0, Less Closing CWIP subject to AFUDC,00 Total CWIP not subject to AFUDC,0 Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

69 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table A Additions to Plant in Service (0) CWIP Dec., 00 Expenditures 0 CWIP Dec, 0 Additions to Plant in Service ($000s) Hydraulic Production SLC Plant Automation - - SLC Fire Panel - - UBO Spillgate Rebuild / Upgrade LBO Power House Windows - - All Plants Minor Sustaining Projects - - SLC U Life Extension (replace turbine) - - All Plants Upgrade Station Service Supply 0,0 0 COR U Life Extension (replace Turbine),, -,0 COR U Life Extension (replace Turbine),, -,0 0 SLC Domestic Water Supply Ph. - - LBO & UBO Plant Totalizer Upgrade - -,0,,, Transmission Plant Ellison Sexsmith Transmission Tie - - Okanagan Transmission Reinforcement,, -, Huth Split Bus 0, -, Capitalized Inventory & Transformers, -, - Transmission Sustaining -,0 -,0 Station Sustaining -, -,,,0,, Distribution Plant 0 Gross New Connects System Wide -, -, Distribution Unplanned Growth Projects - - DistrIbution Sustaining -,0 -,0 -, -, General Plant Distribution Station Automation,0 -, GFT to Warfield Fibre Installation - - Kelowna kv Loop Fibre Installation -, -, Protection, Harmonic Remediation, Communications & Rehabilitation -, -, Mandatory Reliability Compliance (MRC) -, 0 Vehicles -,000 -,000 Metering - - Information Systems -,0 -,0 Telecommunications - - Buildings -, -, Kootenay Operations Centre - - Okanagan Long Term Solution - - PCB Environmental Compliance -, -, Furniture & Fixtures - - Tools & Equipment , 0,0, 0, TOTAL, 0,0,00, Less Closing CWIP subject to AFUDC, Total CWIP not subject to AFUDC, Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

70 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table B Deferred Charges and Credits (00) Balance at Additions and Amortized / Transferred Balance at Dec., 00 Transfers to Other Accounts Amortization Dec., 00 ($000s) Demand Side Management Demand Side Management Additions 0,, - (,), Tax Impac t (,0 (,0) - (,,, - (,), Preliminary and Investigative Charges,0, () -,0 Deferred Regulatory Expense 00 Incentive () Incentive (,) -, - (,00) 00 Incentive - () - - () Shaw Application for Transmission Facility Access Tax Impact - ( - - ( 00 Revenue Requirements - - ( - Tax Impact ( Revenue Requirements - - Tax Impact ( ( - - ( 0 Revenue Requirements Tax Impact - ( - - ( COSA & RDA - -,00 Tax Impact () (0) - - () BC Hydro Amendment to 0 (PPA Proceedings) - - ( Tax Impact ( - - ( Section- Provincial Transmission Enquiry - - Tax Impact ( ( - - ( Renew BCH Power Purchase Agreement Tax Impact ( ( - - ( BC Hydro Waneta Transaction Application - - Tax Impact ( ( - - ( Terasen Gas ROE Application Tax Impact ( ( (,) (),0 ( () Other Deferred Charges and Credits Trail Office Lease Costs - - ( Trail Office Rental to SD#0 () - (0) - () Prepaid Pension Costs, (,) - -, Tax Impact (,) - - ( ) Post Retirement Benefits (,0) (,) - - (0,0 Tax Impact, - -,0 00 System Development Plan Update - - () - Tax Impact (0) Resource Plan Update Tax Impact () () 00 Resource Plan Update - - Tax Impact ( () - - () ISP Tax Impact - () - - () Revenue Protection - () Tax Impact ( () - ( PLP Settlement Costs - - ( - PLP Computer Software - - ( PLP Deferred Pension Credit ( - - ( ROW Reclamation (Pine Beetle Kill), - (),00 Tax Impact (00) - - () International Financial Reporting Standards (0) 0 Tax Impact ( () - ( Right of Way Encroachment Litigation - - Tax Impact ( ( - - ( HST Project Tax Impact - ( - - ( Capital Expenditure Plan (CEP) 0 () Tax Impact ( DSM Study - - Tax Impact ( ( - - ( Joint Pole Use Audit () Tax Impact ( - - ( Section Filing (Waneta) Tax Impact - () - - () Pope & Talbot Litigation Tax Impact - () - - ( NERC / MRC Set up Cost Tax Impact ( (0) - - (),0 (0) (0) (), Deferred Debt Issue Costs Series F ( Series G ( Series H - - ( Series I - - ( Series 0-,0 - - () Tax Impact ( - - ( Series 0-,0 - - (,0 Tax Impact () - - () Series 0-, - - (, Tax Impact () () - () MTN-00,0 - - ( Tax Impact ( () - (0) MTN Tax Impact - ( ) - - (,00 - (),0 TOTAL DEFERRED CHARGES RATE BASE,0,00, (,0), Automated Meter Reading Feasibility Study - - Tax Impact () TOTAL DEFERRED CHARGES,,, (,0), Note:In the terms of the NSA of November 00 the AMI development costs are being recorded in a non-rate base deferral account that wil attract AFUDC for the 00 Revenue Requirements on a without prejudice basis. (Refer to Lines and ) Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page 0

71 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table B Deferred Charges and Credits (0) Balance at Additions and Amortized / Transferred Balance at Dec., 00 Transfers to Other Accounts Amortization Dec., 0 ($000s) Demand Side Management Demand Side Management Additions,, - (,),0 Tax Impact (,) (,0) - (,),, - (,), Preliminary and Investigative Charges,0, (0) -, Deferred Regulatory Expense 00 Incentive (,00) -, Incentive () Shaw Application for Transmission Facility Access Tax Impact () () 00 Revenue Requirements - - () - Tax Impact () Revenue Requirements Tax Impact () () COSA & RDA, (00),00 Tax Impact () - - () BC Hydro Amendment to 0 (PPA Proceedings) - - () 0 Tax Impact () - - () Section- Provincial Transmission Enquiry - - () - Tax Impact () Renew BCH Power Purchase Agreement Tax Impact () () - - (0) BC Hydro Waneta Transaction Application - - () 0 Tax Impact () - - () Terasen Gas ROE Application - - () - Tax Impact () (),0 (), 0 Other Deferred Charges and Credits Trail Office Lease Costs - - () Trail Office Rental to SD#0 () - () - () Prepaid Pension Costs, () - -, Tax Impact () - - () Post Retirement Benefits (0,0) (,0) - - (,00) Tax Impact,0 - -, 00 Resource Plan Update Tax Impact () () 0 00 Resource Plan Update Tax Impact () () ISP 0-,0 - -,00 Tax Impact () () - - () Revenue Protection 0 - (0) Tax Impact () () - () PLP Computer Software () PLP Deferred Pension Credit () - - () ROW Reclamation (Pine Beetle Kill),00 - (), Tax Impact () - - () 0 International Financial Reporting Standards 0 - (0) Tax Impact () () - () Right of Way Encroachment Litigation Tax Impact () () HST Project (0) - Tax Impact () DSM Study - - () Tax Impact () - - () Joint Pole Use Audit () Tax Impact () - - () 0 Section Filing (Waneta Exp. Proj. Power Pch. Agr.) (0) 0 Tax Impact () - - () Pope & Talbot Litigation (0) - Tax Impact () NERC / MRC Set up Cost ,000 Tax Impact () () - - (), () () (),00 Deferred Debt Issue Costs Series F () 0 Series G - - () Series H - - () Series I - - () Series () Tax Impact () - - () Series 0-,0 - - () Tax Impact () - - () Series 0-, - - (), Tax Impact () () - (0) MTN () 0 Tax Impact (0) () - () MTN () Tax Impact () () - (),0 () - (), TOTAL DEFERRED CHARGES RATE BASE,,,0 (,0),00 Automated Meter Reading Feasibility Study 0 (,) - TOTAL DEFERRED CHARGES,, () (,0),00 Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

72 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table C Accumulated Provision for Depreciation and Amortization (00) Acc. Prov. For Depreciation Charges Acc. Prov. For Depreciation Deprec. Asset Balance Expense less Depreciation Line Account Dec., 00 Rate Dec., 00 Dec., 00 Recoveries Dec., 00 ($000s) Hydraulic Production Plant 0.00 Land Rights ().% ().00 Structures and Improvements,.%,0 0,.00 Reservoirs, Dams and Waterways,.%,,,.00 Water Wheels, Turbines & Generators,0.%,, (,) (,).00 Accessory Electrical Equipment,.%, (),.00 Other Power Plant Equipment,.% 0,,0.00 Roads, Railroads, and Bridges.%,,0.%,, (,), Transmission Plant Land Rights - R/W () 0.0%,0-0 () 0.0 Land Rights - Clearing,.%,,0.00 Station Equipment (,).0%,, (,) (,0).00 Poles Towers & Fixtures,.0%,, (,),.00 Conductors and Devices,.0% 0,, (,0),.00 Roads and Trails.%, (),.%,, (,0) (,) Distribution Plant 0.00 Land Rights - R/W () 0.0%, - () (,) 0.0 Land Rights - Clearing (0).%, () () 0.00 Station Equipment,.0%,,0, 0,.00 Poles Towers & Fixtures,.0%,,,,.00 Conductors and Devices,.0% 0,,,0,.00 Line Transformers,.%,,,0,.00 Services, 0.0%, - (), 0.00 Meters,0.%, (),0.00 Installation on Customers' Premises (,) 0.0% - - (,).00 Street Lighting and Signal Systems,.% 0,,,,.%,,0,0, General Plant 0.00 Land 0.0%, - 0, Structures - Frame & Iron 0.% Structures - Masonry,.0%, (),0.00 Office Furniture & Equipment,.%, (),.0 Computer Equipment,0 0.%,,0,0.00 Transportation Equipment,0 0.%, 0 (,).00 Tools and Work Equipment,.% 0,,0 (),.00 Communication Structures and Equipment,.0%,, (,),0,.%,,0 (,), Total Accumulated Depreciation,.%,,,0 (,), Deduct - Portion of CIAC Depreciated (,000) 0.00 Depreciation Expense,0 Other.00 Utility Plant Acquisition Adjustment,,, Leasehold Improvements,0, 0, Rate Stabilization Adjustment (,) (,) 0 Total Accumulated Amortization,0,0,0 Accumulated Amortization per Balance Sheet 0,,0, Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

73 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table C Accumulated Provision for Depreciation and Amortization (0) Acc. Prov. For Depreciation Charges Acc. Prov. For Depreciation Deprec. Asset Balance Expense less Depreciation Line Account Dec., 00 Rate Dec., 00 Dec., 0 Recoveries Dec., 0 (000s) ($000s) Hydraulic Production Plant,, & Plant 0 Land Rights ().%,0 () Structures and Improvements,.%, 0, Reservoirs, Dams and Waterways,.%,,, Water Wheels, Turbines & Generators (,).%,, (,) (,) Accessory Electrical Equipment,.%, (), Other Power Plant Equipment,0.%,0 0,0 Roads, Railroads, and Bridges.%,,.%,,0 (,0),0 Transmission Plant Land Rights - R/W () 0.0%,0-0 () 0. Land Rights - Clearing,0.%, 0, Station Equipment (,0).0%,,0 (,) (,) Poles Towers & Fixtures,.0%,, (,0),0 Conductors and Devices,.0%,, (,) (,) Roads and Trails.%, - (,).%,, (,00) (,) Distribution Plant 0 Land Rights - R/W (,) 0.0%, - () (,0) 0. Land Rights - Clearing ().%,0 () (,) 0 Station Equipment 0,.0%,0,,0 0, Poles Towers & Fixtures,.0%,0,, 0, Conductors and Devices,.0%,,,0, Line Transformers,.% 0,,,, Services, 0.0%, - (), 0 Meters,0.%,0 (), Installation on Customers' Premises (,) 0.0% - - (,) Street Lighting and Signal Systems,.%,,,,.%,, 0,0, General Plant 0 Land,0 0.0%,0-0, 0 Structures - Frame & Iron 0.% - 0. Structures - Masonry,0.0%,00 (), Office Furniture & Equipment,.%, 0 (),. Computer Equipment,0 0.%,, (0),0 Transportation Equipment 0.%, (,0) () Tools and Work Equipment,.%,0,0 (),0 Communication Structures and Equipme,0.0%,, (,),,0.%,00 0, (,), Total Accumulated Depreciation,.%,,0, (,),0 Deduct - Portion of CIAC Depreciated (,) 0 Depreciation Expense,0 Other Utility Plant Acquisition Adjustment,0.%,,0 0 Leasehold Improvements,.0%,,0 Rate Stabilization Adjustment (,) 0.0% (,) 0 Total Accumulated Amortization,0,0, Accumulated Amortization per Balance Sheet,,, Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

74 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table D Contributions in Aid of Construction (CIAC) Actual Forecast Forecast Dec. 00 Dec. 0 Dec. 00 Additions 00 Additions 0 ($000s) Gross Book Value,0,, 0,, Accumulated Depreciation (,) (,000) (,) (,) (,) Net Book Value 0,, 00, Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

75 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table E Allowance for Working Capital (0) Lag Days Calculation 0 0 Weighted Lag (Lead) Forecast Extended Average Days ($000) ($M) Lag Days Revenue Tariff Revenue 0.,, Other Revenue: Apparatus and Facilities Rental., Contract Revenue., Miscellaneous Revenue. 0 Investment Income.0,, 0. 0 Expenses Power Purchases.,, Wheeling 0., Water Fees (.0),00 (0) Operating Labour: 0 Salaries & Wages., Employee Benefits. 0, Contracted Manpower 0.,00 Property Tax., Rental of T&D Facilities.,0 0 Office Lease - Kelowna (.) () Office Lease - Trail., Materials., Insurance (.), () Income Tax., Interest.,0,,,. Net Lag/(Lead) Days 0. 0 Forecast Working Capital Allowance Lead-Lag Study Allowance Net Lag Days/ times Expenses, Add Funds Unavailable: Customer Loans (related to energy management), Employee Loans Uncollectable Accounts,0 0 Inventory (forecast monthly average investment),00 Less Funds Available: Average Customer Deposits,000 Average Provincial Services Tax 00 Average Goods and Services Tax 00,00 0 FORECAST ALLOWANCE FOR WORKING CAPITAL, Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

76 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table F Adjustment for Capital Expenditures (0) Plant in Service Months in Weighted Rate Base Value ($000s) ($000s) January,, February,0,0 March, 0, April,, May,0 0,0 June,000, July,, August,,0 September,, 0 October 0,0,0 November,, December, Total, 0, Less Simple Average, Adjustment to Rate Base, Note: Plants in Service are reduced by Contributions in Aid of Construction Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

77 Preliminary 0 Revenue Requirements Financial Schedules - Tab SCHEDULE EARNED RETURN Actual Forecast Forecast Source Tab Page Line SALES VOLUME (GWh),,0, ELECTRICITY SALES REVENUE, ($000s) 0,, EXPENSES Power Purchases 0,,, 0 Water Fees,,0,00 0 Wheeling,00,0, 0 Net O&M Expense,0,, Property Tax,,, Depreciation and Amortization,,, Other Income (,) (,) (,) Incentive Adjustments,0 (,) (,0),, UTILITY INCOME BEFORE TAX,,0 0, Less: INCOME TAXES,,, EARNED RETURN,0,, 0 RETURN ON RATE BASE Utility Rate Base,,0,0,0 Return on Rate Base.%.%.% Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

78 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table A Sales by Customer Class Actual Forecast Forecast (GWh) Residential,,, General Service Industrial 0 Wholesale 0 Lighting Irrigation Total Sales,,0, Losses and Company Use Gross Load,,,00 Table A Sales Revenue by Customer Class Actual Forecast Forecast ($000s) 0 Residential,0,0, General Service, 0,, Industrial,0,,0 Wholesale,,0, Lighting and Irrigation,,, Total, 0, 0, Note: Forecast 0 Sales Revenue is in prior year s (00) rates. Table A Customer Count at Year-End Actual Forecast Forecast Residential,,0, General Service,0,, Wholesale Industrial 0 Lighting & Irrigation,0,, Total 0,,, Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

79 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table B Power Purchase Expense Actual Forecast Forecast GWh FortisBC,,, DSM - 0 Power Purchases (net of surplus sales),,, Total System Load (before DSM savings),,0,0 Less DSM - () (0) Total System Load (including DSM savings),,,00 ($000s) Expense - Energy,,,0 Expense - Capacity,,, Capital Projects, Accounting & other Adjustments () (,) (,) 0 Total Power Purchase Expense 0,,, Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

80 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table C Water Fees Actual Forecast Forecast Plant Entitlement Use (GWh),0,, in previous year Water Fees ($000s),,0,00 October, 00 FortisBC Inc. Page 0

81 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table D Wheeling Actual Forecast Forecast Wheeling Nomination (MW) Okanagan,,0,0 Creston Expense ($000s) Vernon/Okanagan,00,, Creston Other 0 Duck Lake Wheeling Revenue (00) Total Wheeling Expense,00,0, Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

82 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table E Operating and Maintenance Expense Approved Forecast 00 0 O&M, Formula-Driven Base O&M Cost per Customer (Note-) $.0 $.0 Consumer Price Index (British Columbia).0%.% Productivity Improvement Factor -.% -.% O&M per Customer, Escalated $ 0. $. Average Number of Customers (Line ),0, ($000s) Base O&M (Line times Line ),, Pension and Post-Retirement Benefits (Note ),, Mandatory Reliability Compliance (Note ) Trail Office Lease (Note ),, Total Operating and Maintenance Expense for Base O&M,, Capitalized Overhead (,) (,) Net Operating & Maintenance Expense,, Number of Customers Opening Count,0, Ending Count,, Average Number of Customers,0, Note : Under the terms of the 00 NSA and Commission Order G--0, Pension and Post-Retirement Benefits and the Trail Office Lease costs are excluded from the formula in calculating Base O&M. The O&M costs for Mandatory Reliability Compliance has also been treated similarly starting 0. Note : The Base O&M Cost per Customer for the purposes of calculating Revenue Requirements under PBR has been adjusted downward by $./ Customer effective January, 0 to $.0 to rebase for the HST savings of approximately $,000 Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

83 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table F Property Tax Actual Forecast Forecast ($000s) Generating Plant,,, Transmission and Distribution,0,0, Substation Equipment,000,, Land and Buildings 0 Total Property Tax,,, Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

84 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table G Other Income Actual Forecast Forecast ($000s) Apparatus and Facilities Rental Electric Apparatus Rental,,, Lease Revenue 0 0,,, Contract Revenue Waneta Management Fee 0 Waneta Management Fee Capital Waneta Carrying Costs 0 Brilliant Management Fee 0 Brilliant Management Fee Capital 0 Fortis Pacific Holdings Inc. 0 0,00,, Miscellaneous Revenue Connection Charges 0 0 NSF Cheque Charges Sundry Revenue 0 0 Investment Income 0 Total,,, Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

85 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table H 00 Flow Through Adjustments Approved Forecast Variance Income Tax Shield ($000s) Customer Share Flow Through Adjustment 00 Incentive True Up,, (,0) - 00% (,0) Interest Expense,, () 00% () Pope & Talbot (Payment from Customer) - - () 00% () 00 Cost of Removal Tax Savings - - (0) - 00% (0) 00 Cost of Removal Tax Savings - - () - 00% () 00 HST Savings - - () 00% () Flow Through Adjustment (,0) Note: Minor differences due to rounding. Table H 00 ROE Incentive Adjustment Approved Forecast Variance ($000s) Customer Share ROE Incentive Adjustment Net Income for ROE Incentive,, (,) 0% Common Equity 0,0, 0 Allowed ROE.0%.0% -0.0% 0% -0.0% Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

86 Preliminary 0 Revenue Requirements Financial Schedules - Tab SCHEDULE INCOME TAX EXPENSE Actual Forecast Forecast ($000s) UTILITY INCOME BEFORE TAX,,0 0, Deduct: Interest Expense,,,0 ACCOUNTING INCOME,,, Deductions Capital Cost Allowance 0,,, Capitalized Overhead,,, 0 Incentive & Revenue Deferrals (,0),,0 Financing Fees 0 All Other (net effect),0,0, 0,0,0,0 Additions Amortization of Deferred Charges,,0,0 Depreciation,,0,,,, 0 TAXABLE INCOME,0,, Tax Rate 0.0%.%.% Taxes Payable,0,, Prior Years' Overprovisions/(Underprovisions) () () - Deferred Charges Tax Effect REGULATORY TAX PROVISION,,, Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

87 Preliminary 0 Revenue Requirements Financial Schedules - Tab Table A Calculation of Capital Cost Allowance 00 0 Closing 0 Half-Year CCA 0 Closing Line Class UCC Additions Rule Rate CCA UCC ($000s) A,,, % 0,00, B,, % 0, 00,,, %,,, - - %,,,0 - - % 0, %,,0 0%,, 0,,000,000 0%,,0,0,0 00%,0,0 0, - - est 0,,0,00,00 %, %,,, 0%,0,,,, %,,0 0,0 0 %, % - -,,,,, 0 Land,0 Net Salvage (,) AFUDC,0 Capitalized overhead, CIAC 0, Plant in service, AFUDC CAP OH,0,,0, AFUDC Cap OH CAP PLAN,, COR Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

88 Preliminary 0 Revenue Requirements Financial Schedules - Tab SCHEDULE COMMON SHARE EQUITY Actual Forecast Forecast Source Tab Page Line Share Capital,000,000,000 + Retained Earnings,,,0 - COMMON EQUITY - OPENING BALANCE,,,0 Less: Common Dividends (,00) (,000) (,000) Add: Net Income,,, Shares Issued 0,000,000 0,000 0 COMMON EQUITY - CLOSING BALANCE,,0 0, SIMPLE AVERAGE 0, 0,, Adjustment for Shares Issued (,) (,) (,) Deemed Equity Adjustment - (0,) (,) COMMON EQUITY - AVERAGE,,, Table A Calculation of Adjustment for Shares Issued Actual Forecast Forecast ($000s) Opening Balance,000,000,000 0 Adjustment to Opening Balance Shares Issued #,000,000,000 Issue Date Sep Sep Sep Shares Issued #,000 0,000,000 Issue Date Dec Dec 0 Dec Opening Balance x Days in Effect /,000,000,000 Share Adjustment Issue # times Days in Effect /,,, 0 Issue # times Days in Effect / -,,, less: Simple Average (,000) (00,00) (,000) Adjustment for Shares Issued (,) (,) (,) Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

89 Preliminary 0 Revenue Requirements Financial Schedules - Tab SCHEDULE RETURN ON CAPITAL Actual Forecast Forecast Source Tab Page Line ($000s) Secured and Senior Unsecured Debt,00, 0,000 Proportion 0.%.%.% Embedded Cost.%.%.% Cost Component.%.%.% Return,,, Short Term Debt (,),, Proportion -.%.% 0.% Embedded Cost -0.%.%.% 0 Cost Component 0.0% 0.% 0.% Return (including fees),, Common Equity,,, Proportion.% 0.00% 0.00% Embedded Cost.%.%.0% Cost Component.%.%.% Return,,, 0 TOTAL CAPITALIZATION,0,0,0,0 RATE BASE,,0,0,0 Earned Return,0,,,, RETURN ON CAPITAL.%.%.% RETURN ON RATE BASE.%.%.% Note: Minor differences due to rounding. October, 00 FortisBC Inc. Page

90 Preliminary 0 Revenue Requirements Tab 0 Load and Customer Forecast

91 Preliminary 0 Revenue Requirements 0 Load and Customer Forecast - Tab Table of Contents.0 OVERVIEW... 0 FORECAST.... ECONOMIC AND DEMOGRAPHIC OUTLOOK... FORESTRY, LUMBER & PULP INDUSTRY:... EDUCATIONAL:.... FORECAST.... SYSTEM LOSSES TEMPERATURE NORMALIZATION PEAK DEMAND.... FORECAST AND ACTUAL ELECTRIC SALES REVENUE... TABLE A... TABLE A CONT D... October, 00 FortisBC Inc. Page

92 Preliminary 00 Revenue Requirements 00 Load and Customer Forecast - Tab 0.0 Overview 0 Forecast Gross system energy load is a mix of residential, general service, wholesale, industrial, street lighting and irrigation loads that include system losses and company use. The residential, general service and wholesale loads represent the largest portion of the 0 forecast gross system load at percent. The industrial load percentage of gross load for 0 is about percent and remains weak compared to the historical 0 percent, mainly due to continued (though strengthening) weakness in the forestry industry. For 0 gross system losses are forecast at. percent, using a two year average actual system loss calculation as agreed in the 00 NSA approved by Commission Order G--0. Gross system load is forecast to be,00 GWh in 0, a. percent increase over the current 00 full year normalized forecast of, GWh. The load increase forecast for 0 is related mainly to increases in the industrial and wholesale sectors. FortisBC s allocation of gross energy load for the years from 00 to 0 is shown in the chart below. Figure.0: Gross System Energy The 0 load forecasts for the wholesale and industrial sectors are based largely on customer supplied forecasts. Weather normalized historic loads are used for the Residential and Wholesale classes while historic actual loads are used for the October, 00 FortisBC Inc. Page