PNG WEST 2013 REVENUE REQUIREMENTS EXHIBIT A-9

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1 ERICA HAMILTON COMMISSION SECRETARY web site: SIXTH FLOOR, 900 HOWE STREET, BOX 250 VANCOUVER, BC CANADA V6Z 2N3 TELEPHONE: (604) BC TOLL FREE: FACSIMILE: (604) Log No VIA March 15, 2013 Ms. Janet P. Kennedy Vice President, Regulatory Affairs & Gas Supply Pacific Northern Gas Ltd. Suite West Georgia Street Vancouver, BC V6E 4E6 Dear Ms. Kennedy: PNG WEST 2013 REVENUE REQUIREMENTS EXHIBIT A-9 Re: Pacific Northern Gas Ltd. Project No /Order G Revenue Requirements Application Further to your November 30, 2012 filing of the 2013 Revenue Requirements Application, enclosed please find Commission Information Request No. 2. In accordance with the Amended Regulatory Timetable and Commission Document Filing Protocols, please file your responses electronically with the Commission by Monday, April 8, LR/kb Enclosure cc: PNGWEST-2013RR-RI Yours truly, Original signed by: Erica Hamilton PF/PNG-2013 RRA/A-9_BCUC IR 2 to PNG West

2 BRITISH COLUMBIA UTILITIES COMMISSION Commission Information Request No. 2 Pacific Northern Gas Ltd. (PNG West Division) 2013 Revenue Requirements Application 1.0 Reference: Cost of Service Exhibit B-1-1, Tab Rates, p. 9 Derivation of Test Year Forecast Gross Margin The Test Year 2013 Cost of Service, excluding company use gas costs, is $32,913 thousand. (Exhibit B-1-1, p. 3) The Test Year 2013 Revenue Deficiency is $454 thousand. (Exhibit B-1-1, p. 3) 1.1 Please confirm that the schedule provided in Exhibit B-1-1, Tab Rates, page 9 calculates the Test Year 2012 revenue that would be collected using the Test Year 2013 deliveries (GJs) and the November 1, 2012 delivery and company use gas rates. If not confirmed, please explain otherwise Please provide a revised Derivation of Test Year Forecast Gross Margin schedule, using only the delivery charge effective November 1, 2012 (i.e. excluding the company use gas rate) and the fixed charge margin. The delivery charge for each rate class should agree to the delivery charge effective November 1, 2012 in Exhibit B-1-1, Tab Rates, pages 1-4. Please provide the schedule in a working excel document in the same format as Exhibit B-1-1, Tab Rates, page Please confirm that the difference between the Test Year 2013 Cost of Service, excluding company use gas costs, of $32,913 thousand and the Derivation of Test Year Forecast Gross Margin, excluding company use gas rate revenue, equates to the 2013 revenue deficiency of $454 thousand. If not confirmed, please explain why not. 2.0 Reference: Cost of Service Exhibit B-1-1, Application, p to 2013 Margin (Increase)/Decrease 2.1 Please provide a detailed calculation to support the $164 thousand margin increase in a working excel document. 3.0 Reference: Income Taxes Exhibit B-1-1, Tab 3, p. 1 Tax Rate 3.1 Please provide the source for the increased Test Year 2013 Tax Rate of percent. PNG West 2013 Revenue Requirements 1 BCUC IR-2

3 4.0 Reference: Rate Base Exhibit B-1-1, Appendix A, p. 13; Exhibit B-3, Tab 2, p. 16; PNG West 2012 RRA, Exhibit B-9, p. 47 Cash Working Capital/Budget Billing Plan 4.1 Please confirm that the following schedule prepared by Commission staff is correct. If not confirmed, please provide an updated schedule and provide an explanation for each change made. 4.2 Commission staff notes that the actual Budget Billing Plan balance is between $1,667 thousand and $1,561 thousand in each year between 2009 and Please discuss why PNG considers a forecast Budget Billing Plan balance of $900 thousand to be appropriate even though the balance has historically been significantly greater than this. 4.3 Please provide the detailed calculation to support the Test Year 2013 Budget Billing Plan balance of $900 thousand in a working excel document. 5.0 Reference: Short-Term Debt Exhibit B-1-1, Tab 5, p. 2 Operating Line Other Expenses 5.1 Please confirm the expiration date of the existing Operating Line. 5.2 Does PNG expect to renew the Operating Line in Test Year 2013? If yes, please discuss if the renewal is required due to the expiration of the existing Operating Line If a renewal of the Operating Line is forecast in 2013 and is not required due to the expiration of the existing Operating Line, please discuss why PNG expects to renew the Operating Line in Test Year PNG West 2013 Revenue Requirements 2 BCUC IR-2

4 6.0 Reference: Short-Term Debt and Long-Term Debt Exhibit B-1-1, Application Update, p. 9 Interest Rates The lower interest rate forecasts reflect the January 2103 Econolink consensus forecasts which reduced the interest costs on both long-term and short-term floating rate debt. (Exhibit B-1-1, Application Update, p. 9) 6.1 Please provide a copy of the January 2013 Econolink Report used in the determination of the Test Year 2013 forecast long-term and short-term floating rate debt interest rates. 6.2 Please confirm the Test Year 2013 forecast average prime rate used in the determination of the forecast long-term and short-term floating rate debt interest rates. 7.0 Reference: Long-Term Debt Exhibit B-1-1, Tab 5, p. 4 Revolving Term Facility Exhibit B-1-1, Tab 5, page 4 includes the following information: Actual 2012 Annual Interest Expense - $878 thousand Actual 2012 PNG West Average Capitalization - $10,785 thousand Commission staff notes that this equates to an average interest rate of 8.1 percent ($878 thousand divided by $10,785 thousand). Please confirm if this is accurate. If not confirmed, please provide accurate data. If confirmed, please explain how this translates to an actual effective cost rate of 4.69 percent. 8.0 Reference: Long-Term Debt Exhibit B-3, BCUC IR 1.5.1, p. 11; Exhibit B-3, BCUC IR 1.6.6, p. 15; Exhibit B-3, BCUC IR , p. 117; PNG 2005 RRA Proceeding, Exhibit B-1, p. 31; Capital Structure The Revolving Term Facility is the only long term debt instrument without a fixed amortization schedule and its opening balance is determined to provide an appropriate level of short-term debt (i.e. short-term debt no less than the short-term assets in rate base. (Exhibit B-3, BCUC IR 1.5.1, p. 11) PNG s Secured Debentures Series 2017 and its Revolving Term Facility are its two floating rate long term debt instruments. (Exhibit B-3, BCUC IR , p. 117) The short-term debt component of PNG s capital structure for rate making purposes is the factor that balances the capital structure to the rate base. (PNG 2005 RRA Proceeding, Exhibit B-1, p. 31) As a result, under its deemed capital structure, the resulting deemed level of long term debt is larger than the actual amount of the long term debt. Thus as of January 1, 2013, while the deemed level of debt under the long term revolving facility (which due to its revolving nature, acts as the balancing factor in the capital structure) was $40,750 thousand, the actual level of debt drawn under the long term revolving facility was $30 million. However, as outlined in the Response to Question 6.5 above, the actual amount of long term debt, even after accounting for the higher level of common equity, is budgeted to climb above the existing facility size of $35 million and is expected to continue to climb further in the ensuing years as PNG invests capital to upgrade and maintain its pipeline and facilities. (Exhibit B-3, BCUC IR 1.6.6, p. 15) PNG West 2013 Revenue Requirements 3 BCUC IR-2

5 8.1 PNG notes in Exhibit B-3, BCUC IR 1.5.1, page 11 that The Revolving Term Facility is the only long term debt instrument without a fixed amortization schedule ; however, PNG also notes in Exhibit B-3 BCUC IR , page 117 that PNG s Secured Debentures Series 2017 and its Revolving Term Facility are its two floating rate long term debt instruments. Please confirm if the Secured Debentures Series 2017 is on a fixed amortization schedule. If not, please explain why not. 8.2 As noted in the preamble to this IR, PNG has historically used short-term debt as the factor that balances the capital structure to the rate base. Please discuss why, in PNG s opinion, it is now more appropriate to use a deemed level of long-term debt in the capital structure. 8.3 Please provide a revised Exhibit B-1-1, Tab 5, page 4 using the forecast Test Year 2013 actual long-term debt, as opposed to the deemed amounts. Please provide the schedule in a working excel document. 9.0 Reference: Long-Term Debt Exhibit B-3, p. 11 Long-Term Debt Interest Given the nature of the calculation, amortization of debt issue costs is implicitly included in the effective cost rate. (Exhibit B-3, BCUC IR 3.5.3, p. 11) 9.1 Please confirm if the amortization of the issue costs is implicitly included in the effective cost rate of 4.48 percent for the Revolving Term Facility 2010 (Exhibit B-1-1, Tab 5, p. 4, Line No. 69) or explain otherwise If the preceding IR is confirmed, please discuss if PNG considers it appropriate to include the amortization of issue costs in the effective cost rate for the Revolving Term Facility 2010 when the unamortized issue costs of $45 thousand have been added to the Old Revolving Debt Issue Costs deferral account for (Exhibit B-1-1, Tab 2, p. 15) 10.0 Reference: Long-Term Debt Exhibit B-3, Application, pp ; Exhibit B-3, BCUC IR 1.6.4, p. 13; BCUC IR 1.6.3, p. 13 Extension/Replacement of Revolving Debt Facility PNG has held preliminary conversations with its parent shareholder and it would appear that there is the potential to achieve similar or better terms than those indicated by the Draft Term Sheet. Discussions remain ongoing however no indicative terms have been formalized. PNG would look to provide the relevant term sheet as well as outlining and documenting any comparable market terms in a separate debt issuance application upon reaching terms and choosing the facility package that best meets the needs of PNG and its customers. (Exhibit B-3, BCUC IR 1.6.4, p. 13) PNG has not had any further discussions with current or potential providers (other than preliminary discussions with its parent shareholder, see below Response 6.4) since filing the 2013 RRA on November 30, (Exhibit B-3, BCUC IR 1.6.3, p. 13) 10.1 Please provide an update as to any discussions that have taken place with current or potential facility providers regarding renegotiating, extending or replacing the existing 5-year revolving debt facility since PNG filed Exhibit B-3? If yes, please provide an update on the discussions and any indicative terms. PNG West 2013 Revenue Requirements 4 BCUC IR-2

6 10.2 Has PNG held further conversations with its parent shareholder since filing Exhibit B-3 regarding the extension/replacement of the revolving debt facility? If yes, please provide an update on the discussions and any indicative terms In PNG s opinion, would it be appropriate to include the variance in the 2013 Revolving Term Facility effective cost rate resulting from any difference between the forecast and actual issue costs in the Long-Term Debt deferral account? Please discuss why or why not Reference: Capital Structure and ROE Exhibit B-1, Application, p. 43; Order G ; Exhibit B-1-1, Application Update, p Please provide revised calculations for the items listed below, using the Decision 2012 common equity thickness of 45 percent. Please provide all calculations in a working excel document. Return on common equity; (Exhibit B-1-1, Application Update, p. 3) Short-term debt; (Exhibit B-1-1, Application Update, p. 3) Long-term debt; (Exhibit B-1-1, Application Update, p. 3) Schedule 5, Return on Capital; (Exhibit B-1-1, Tab 5, p. 1) Test Year 2013 vs. Decision 2012 Cost of Service Comparison; (Exhibit B-1-1, Application Update, p. 3) and Summary of Proposed/Indicative Rates Effective January 1, 2013 (Exhibit B-1-1, Tab Rates, pp. 1-4) Based on the calculations provided in the preceding IR, please confirm the Revenue Requirement impact of using a 45 percent common equity thickness versus 46.5 percent Reference: Capital Structure and ROE Exhibit B-1-1, Tab 5, p. 1, Line No. 18 Rate of Return on Common Equity 12.1 Please confirm the benchmark utility rate of return that is used in the determination of the percent rate of return on common equity in Exhibit B-1-1, Tab 5, p. 1, Line No Please confirm the PNG risk premium that is used in the determination of the percent rate of return on common equity in Exhibit B-1-1, Tab 5, p. 1, Line No. 18. Please also provide a reference to the relevant Commission Order approving the risk premium Reference: Decision 2012 Exhibit B-1, Application, p. 65; Exhibit B-3, BCUC IR Time Spent by Executives on Parent s Regulatory and Reporting Requirements PNG has defined this term to pertain to time spent on reporting matters to its Board of Directors, time spent by the PNG President when reporting directly to his superior (an executive of the Parent Company) and any time spent on matters that are initiated by the Parent Company, such as Strategic Planning and Risk Management. (Exhibit B-3, BCUC IR 1.9.0, p. 23) The estimated actual costs of time spent calculated below is based on the hours spent on parent company reporting multiplied by the fully loaded hourly labour rate for each executive (same rate used for transfer pricing and transfers to capital which includes salaries and benefits). President $10,600 PNG West 2013 Revenue Requirements 5 BCUC IR-2

7 VP Finance and Corporate Development $16,300 VP Regulatory Affairs and Gas Supply $2,800 VP Human Resources and Government Relations $900 (Exhibit B-3, BCUC IR 1.9.0, p. 24) 13.1 Please confirm that the total estimated actual costs of $30,600 provided in response to BCUC IR are costs that were incurred between October 1, 2012 and December 21, 2012 on time spent by executives on the parent s reporting requirements. If not confirmed, please explain otherwise Based on the costs provided in response to BCUC IR 1.9.0, is it fair to estimate the annual costs that will be incurred related to time spent by executives on the parent s reporting requirements at approximately $122,400 (i.e. $30,600 multiplied by four quarters)? If not confirmed, please explain otherwise and provide an estimate of the Test Year 2013 costs related to time spent by executives on the parent s reporting requirements Reference: Administration and General Expenses Exhibit B-1, Application, pp ; Exhibit B-1-1, Tab 1, p. 5; Exhibit B-3, BCUC IR , p. 80 Account 725 Employee Benefits Pension Expense 14.1 Please provide the total Test Year 2013 Pension Expense, by Line No. of Account 725, using the updated figures presented Exhibit B-1-1 and in the same format as the response to BCUC IR Reference: Administration and General Expenses Exhibit B-3, BCUC IR , p. 83; Exhibit B-3, BCUC IR , p. 84 Account 725 Employee Benefits Company Pension Plans 15.1 Please provide the total Test Year 2013 Company Pension Plans Expense using the updated figures presented Exhibit B-1-1 and in the same format as the response to BCUC IR As these [supplemental plan] pension benefits are not funded (paid from PNG general revenues), the letter of credit provides the beneficiaries with protection of benefits. The actuary determines the required amount and the Bank of Montreal charges a letter of credit fee equal to 1.75 percent of the required amount. Canadian Western Trust charges an administration fee for the required Retirement Compensation Agreement (RCA) portion. (Exhibit B-3, BCUC IR , p. 84) 15.2 Please confirm that the total Company Pension Plans Expense includes the expense for both the Registered Defined Benefit Pension plan and the Supplemental Plan. If not confirmed, please explain otherwise Please confirm that the total estimated 2013 Supplemental Plan pension expense of $259 thousand on page 17 of the Actuary Report (Exhibit B-3, BCUC IR ) is included in the PNG West Company Pension Plan Expense, or explain otherwise For Test Year 2013, Actual 2012, Decision 2012, Actual 2011, NSP 2011, Actual 2010 and NSP 2010, please provide a breakdown of the Supplemental LC Fees and Admin expense between the Bank of Montreal letter of credit fee and the Canadian Western Trust administration fee. The total for each year should agree to the Supplemental LC Fees and Admin expense in the schedule provided in response to BCUC IR PNG West 2013 Revenue Requirements 6 BCUC IR-2

8 15.4 Please discuss what is meant by the required amount that is determined by the actuary and subject to the letter of credit fee Is the required amount included in the Actuary Report provided in response to BCUC IR ? If yes, please provide the page reference. If no, please discuss the process that is undertaken to determine this amount Please provide required amount for Test Year 2013, Decision 2012, NSP 2011 and NSP Please discuss what is meant by the required Retirement Compensation Agreement (RCA) portion Reference: Administration and General Expense Exhibit B-3, BCUC IR , p. 84 Account 725 Employee Benefits Company Pension Plans PNG has comingled its pension assets with its parent company (AltaGas) to realize lower investment management and custody fees. (Exhibit B-3, BCUC IR , p. 84) 16.1 Please provide the amount of forecast cost savings in Test Year 2013 related to lower management and custody fees and indicate which expense account these costs savings are included in Reference: Administration and General Expenses Exhibit B-3, BCUC IR , p. 80 Account 725 Employee Benefits Other Programs The following table was provided in response to BCUC IR : 17.1 Please discuss why the coffee and water expense service is forecast to increase by 9 percent from $24,272 in Actual 2012 to $26,531 in Test Year Please discuss why the educational expense service is forecast to increase by 64 percent from $9,050 in Actual 2012 to $14,855 in Test Year The following table was provided in response to BCUC IR : PNG West 2013 Revenue Requirements 7 BCUC IR-2

9 17.3 For each of Actual 2012, Actual 2011, Actual 2010 and Actual 2009, please provide the number of employees that received an employee service award for each milestone (i.e. number of employees at 5 years, 10 years, 15 years, 20 years, 25 years and 30 years) For Test Year 2013, please provide the number of employees that are expected to receive an employee service award for each milestone Is there a formal policy related to employee service awards? If yes, please provide a copy of the policy Is there are formal policy with respect to the expenditure per employee at each milestone? If confirmed, please provide the expenditure per employee at each milestone (i.e. expenditure per employee at 5 years, 10 years, 15 years, 20 years, 25 years and 30 years) Reference: Administration and General Expenses Exhibit B-3, BCUC IR , p. 87 Account 725 Employee Benefits Non-Pension Post Retirement Benefits Expense 18.1 Please provide the total Test Year 2013 Non-Pension Post Retirement Benefits Expense using the updated figures presented Exhibit B-1-1 and in the same format as the response to BCUC IR Reference: Administration and General Expenses Exhibit B-3, BCUC IR & BCUC IR , p. 80; Exhibit B-1-1, Tab 1, p. 5 Account 725 Employee Benefits Pension Expense on Bonuses and Incentives The Actuary Report provided in response to BCUC IR indicates that the forecast Test Year 2013 pension expense for PNG West is $1,991 thousand including bonuses and $1,868 thousand excluding bonuses With reference to the Test Year 2013 pension expense including and excluding bonuses provided in the Actuary Report, please discuss how PNG arrived at 2/3 of executive pension expense on bonuses and incentives of $69 thousand for Test Year (Exhibit B-1-1, Tab 1, p. 5) 20.0 Reference: Transfers to Capital Exhibit B-3, BCUC IR 41.5, p. 108 mainly due to higher than anticipated unspecified mainline repairs and unbudgeted testing of the new Itron System. (Exhibit B-3, BCUC IR 41.5, p. 108) 20.1 Please describe the new Itron system and how it provides a benefit to rate-payers Please confirm the amount of unbudgeted testing of the new Itron system. PNG West 2013 Revenue Requirements 8 BCUC IR-2

10 21.0 Reference: Labour Exhibit B-3, BCUC IR , p. 29 PNG provided the following response to BCUC IR : 21.1 Please confirm, or explain otherwise, that Test Year 2013 should actually be shown as follows: # of bargaining unit = 53 # of HO M&E = Please confirm or explain otherwise that the only two new FTEs to be hired for Test Year 2013 are the two head office positions of Senior Financial Analyst and Director Financial Modelling Reference: Labour Exhibit B-3, BCUC IR , p. 31 The Average Executive Salary for Test Year 2013 has increased by 7 percent from 2012 and has increased by 10 percent from the average of the past five years. (Exhibit B-3, BCUC IR , p. 31) 22.1 Please provide further details to support the 2013 forecast increase in Average Executive Salary as described above Please discuss how the above increase to Average Executive Salary improves operational productivity and efficiency Reference: Labour Exhibit B-3, BCUC IR , p Please provide the breakdown of compensation data for Executives for Actual Years and for Test Year 2013 and please include the following as separate items: Salaries; Incremental Annual Inflation; Short-Term Incentive; Mid-Term Incentive; Any other bonuses; NPPRB; Other Benefits; and Pension. PNG West 2013 Revenue Requirements 9 BCUC IR-2

11 24.0 Reference: Labour Exhibit B-3, BCUC IR , p Please provide the breakdown of compensation data for Head Office Non-Executives for Actual Years and for Test Year Please include the following as separate items: Salaries; Incremental Annual Inflation; Short-Term Incentive; Mid-Term Incentive; Any other bonuses; NPPRB; Other Benefits; and Pension Reference: Labour Consultants and Contractors Exhibit B-1-1, Updated Application 25.1 For each of the years (Actual) and for the Test Year 2013, please provide the number of consultants and contractors used by PNG and the total cost of these consultants/contractors each year. Please separate the consultants/contractors by the department/function they were supporting. Please also provide brief descriptions of the nature of the work performed by these consultants/contractors in each year Reference: Operating Expenses Exhibit B-3, BCUC IR , pp ; Exhibit B-1-1, Updated Application, Tab 1, p. 3 Account 688 Other General Operations 26.1 Actual 2012 operating expenses in Account 688 were $91,000 less than Decision 2012 ($1,313,000 for Actual 2012 versus $1,404,000 for Decision 2012). Please explain what caused the expenses to be lower than forecasted. PNG states: Although the project was awarded to a specialized consultant, the Avalanche Safety Plan was not completed due to the consultant s commitment to projects for other organizations. Some preliminary documentation was completed but no field work was performed in (BCUC , p. 36) 26.2 Given that the majority of the work on the Avalanche Safety Plan will occur in 2013, please confirm, or explain otherwise, that part of the reduction in Actual 2012 expenses versus Decision 2012 expenses is due to the $30,000 related to the Avalanche Safety Plan work being removed from Actual 2012 and instead included as part of Test Year Please explain and provide details as to why Account 688 Other General Operations expenses have decreased by $113,000 from the Original Application ($1,443,000 per Old Application versus $1,330,000 per Updated Application) Reference: Operating Expenses Exhibit B-1-1, Updated Application, p. 5; Tab 1, p. 3 Meter Reading Costs PNG states: Reduction of $12,000 in meter reading costs due to a budgeting error found while responding to BCUC IR No. 1, Question (Exhibit B-1-1, Updated Application, p. 5; Tab 1, p. 3) PNG West 2013 Revenue Requirements 10 BCUC IR-2

12 Per Tab 1, page 3 of the Updated Application, Account 712 Meter Reading costs are now $294,000. This is a decrease of $57,000 from the Original Application Please explain the cause of the additional $45,000 decrease in Meter Reading costs from the Original Application Reference: Operating Expenses Exhibit B-3, BCUC IR , p. 40 Oracle Licenses & Audit PNG states: The audit report was finalized in November 2012 and the results indicated the PNG required 173 Oracle licenses yet only owned 182 licenses. (Exhibit B-3, BCUC IR , p. 40) 28.1 Please explain the circumstances that resulted in PNG owning only 182 of the required 713 Oracle licenses What steps does PNG plan to take to avoid a similar situation from occurring in the future? 28.2 Is PNG required to pay any penalty fees to Oracle? If so, how much are the penalties? 28.3 Please confirm the amount of any penalty fees included in the Test Year 2013 Cost of Service and indicate the expense account that the fees are included in Reference: Operating Expenses Exhibit B-3, BCUC IR , p. 41 Evaluation of CIS Alternatives PNG states in its response to BCUC that the $36,000 forecast costs for a consultant to evaluate CIS alternatives are the same costs that were forecast in 2012 and that consulting work was not performed in Please indicate whether Actual 2012 costs have been reduced by $36,000 from Decision 2012 to reflect that these costs were not spent. Please also indicate which account these costs were removed from in the Actual 2012 results If Actual 2012 costs were not reduced, please explain why not Reference: Administrative & General Expenses Exhibit B-1-1, Updated Application, Tab 1, p. 5; 2012 RRA, BCUC IR Account 721 Administration 30.1 Please re-create the table below (the table was provided in PNG s response to BCUC IR 2, Question of the 2012 RRA) to provide a breakdown of the 2013 Test Year and 2012 Actual Administration costs of $3.7 million and $3.2 million, respectively, by type of expense. Please add any additional expense items from the table below as necessary. PNG West 2013 Revenue Requirements 11 BCUC IR-2

13 31.0 Reference: Administrative & General Expenses Exhibit B-1-1, Updated Application, Tab 1, p. 5 Account Please explain why Actual 2012 Legal Fees were $54,000 higher than Decision 2012 ($144,000 for Actual 2012 versus $90,000 for Decision 2012) Given that legal fees were under-forecast for 2012 and the forecast 2013 amount of $93,000 is very close to the under-forecasted Decision 2012 amount, what is the likelihood that legal fees will be under-forecast again in 2013? Please discuss Please explain why Actual 2012 Consulting Fees were $109,000 higher than Decision 2012 ($379,000 for Actual 2012 versus $270,000 for Decision 2012). Please describe what these additional consulting fees were related to Reference: Administrative & General Expenses Exhibit B-3, BCUC IR , 19.3 & 19.6, pp Salary Adjustments for Net New Hires ($180,000) PNG provided the job description for Manager Commercial Development & Financial Planning in the response to BCUC IR Please explain what caused PNG to change the position title from the ones provided in the Application (i.e. Senior Financial Analyst and Director Financial Modelling ) Please confirm or explain otherwise if the above job description of Manager Commercial Development & Financial Planning relates to the position described in the Original Application as PNG West 2013 Revenue Requirements 12 BCUC IR-2

14 Director Financial Modelling Given that the new job description refers to the term Manager whereas the previous job description used the term Director, does this indicate that the forecasted salary for this position is now expected to be less than what was forecasted in the Original Application? If yes, what is the expected reduction? If not, please explain. PNG also stated: For the other position, the job description is pending. The core duties of the job are driven by BCUC information requests around: capital project reporting, deferred charges and employee benefits. It also includes workload around preparing revenue requirement applications. (BCUC , p. 44) 32.3 Please confirm, or explain otherwise if the above description relates to the position described in the Original Application as Senior Financial Analyst. PNG states that it incurred over $750K in contractor expenses over the past three years for work that would have been performed by employees. (Exhibit B-3, BCUC , p. 45) PNG further states: Based on PNG s experience with contractor rates, utilizing consultants would be expected to cost $500 thousand or more annually. (Exhibit B-3 BCUC , p. 46) 32.4 Based on PNG s forecast that the two new hires will increase costs by $180,000 and that, per the above statements, PNG was incurring $250,000 to $500,000 per year in contractor expenses to perform similar functions, please explain where the $70,000 to $320,000 in cost savings in consultants are reflected in the Updated Application for Test Year 2013? 33.0 Reference: Administrative & General Expenses Exhibit B-3, BCUC IR , p. 47 Incentive Compensation ($146,000) PNG provided the job descriptions for the three manager-level hires in 2012, including the Manager Financial Planning & Business Development Please explain why the job description for the Manager Financial Planning & Business Development is almost identical to the job description for the proposed new 2013 position of Manager Commercial Development & Financial Planning Please explain why both these positions are necessary when the job descriptions are almost identical Please clearly describe the similarities and differences between the two positions Please provide a rationale for why the new position should also be a manager-level position and not a junior position given that PNG just hired a Manager in 2012 to perform a very similar function Reference: Administrative & General Expenses Exhibit B-3, BCUC IR , p. 47 Manager, Financial Reporting & Taxation In the job description for Manager, Financial Reporting & Taxation, there is a section under responsibilities related to Renewable Power Entities. PNG West 2013 Revenue Requirements 13 BCUC IR-2

15 34.1 Are the Renewable Power Entities related to PNG s NRB activities? If so, how much time has the Manager spent on these activities in 2012 and projected to spend in 2013, given that NRB activities have been largely reduced since the AltaGas purchase? 35.0 Reference: Administrative & General Expenses Exhibit B-3, BCUC IR , p. 48 Incentive Compensation ($146,000) In BCUC IR 20.3, PNG provides a table of budgeted and actual payouts for the years 2008 through Please explain how these figures relate to the table provided by PNG in response to BCUC IR Please clearly show how amounts in BCUC IR tie to the amounts in BCUC IR Please discuss why, on average, the actual payouts for Incentive/Performance Pay programs have been $61,000 higher than budgeted Please confirm, or explain otherwise, that based on the table provided in BCUC IR , the MTIP grants of $98,000 budgeted for 2013 make up 16 percent of the budgeted Incentive/Performance Pay for Reference: Administrative & General Expenses Exhibit B-3, BCUC IR , pp Incentive Compensation MTIP PNG states: AltaGas has experienced first-hand the benefits of introducing a MTIP program at its other operations, including associated boosts in morale and reductions in turnover. Taking the proactive approach of introducing the program at PNG is intended to address the looming labour challenges in BC. There have been many studies/articles published on the matter. (Exhibit B-3, BCUC , p. 50) PNG further states that it has nominal turnover for non-union employees (BCUC , p. 50) 36.1 Please further explain why PNG deems it necessary to introduce the MTIP program as a means to enhance employee retention, given that it has nominal turnover Please provide comparative figures of AltaGas turnover rate, including AltaGas turnover rate for the five years prior to the introduction of MTIP and for the five years (or fewer depending on when AltaGas introduced the program) after the introduction of MTIP Please elaborate on the looming labour challenges in BC and how specifically PNG anticipates that it will be impacted by these challenges. Please also specifically explain how the introduction of MTIP helps to address these labour challenges. PNG states: No changes have been made to the MTIP in order to be adopted by PNG. (Exhibit B-3, BCUC , p. 51) 36.4 Please explain the rationale for PNG not tailoring the MTIP program prior to adopting it, particularly given that PNG operates in a different province than AltaGas Please discuss the similarities and differences in business environments for gas utilities operating PNG West 2013 Revenue Requirements 14 BCUC IR-2

16 in BC versus Alberta. PNG states: The vested phantom shares provide for a cash payment, by PNG to the employee, equivalent to the number of phantom shares vested on that date (Exhibit B-3, BCUC , p. 51) [emphasis added] PNG further states: The $98 thousand is a cash expense which will be paid by PNG to AltaGas. (Exhibit B-3, BCUC , p. 52) [emphasis added] 36.6 Please clarify what portion of the phantom shares the $98,000 represents. Is it the 1/3 of shares that vest in 2013? If not, please explain otherwise Please also clarify who PNG is making the $98,000 cash payment to: AltaGas or the employees? 36.8 Please provide a step-by-step explanation, including the journal entries, of how PNG accounts for MTIP and to whom and at what stage PNG makes the cash payments Reference: Administrative & General Expenses Exhibit B-3, BCUC IR , p. 60; Exhibit B-1, Original Application, p. 13 Inter-Affiliate Charges ($346,000) PNG states: In the future, as the economic circumstances of PNG s business improve, as PNG fully expects they will, PNG expects to seek recovery of all costs allocated by its parent company associated with maintaining its capital structure, providing access to capital and delivering the various other corporate services noted above. (Exhibit B-1, Original Application, p. 13) 37.1 Based on the updated allocation from AltaGas to PNG provided in BCUC IR of $1,620,000, PNG is requesting to recover in 2013 only 46 percent of the total allocation from rate-payers. Please discuss more fully the implications of the fact that PNG only believes it is reasonable at this time to recover less than half of the allocated charge from AltaGas When in the future does PNG forecast it will be able to recover the full inter-affiliate charge from rate-payers? Please more fully discuss the extent to which PNG s business would need to improve in order to recover an inter-affiliate charge of more than $1.5 million annually Reference: Administrative & General Expenses Exhibit B-3, BCUC IR , pp Inter-Affiliate Charges ($346,000) 38.1 Please indicate how much of the AltaGas 2013 forecast costs relate to non-third-party investor relations costs Please explain how PNG and its rate-payers benefit from AltaGas internal investor relations expenditures. Please also provide examples of instances where AltaGas has performed investor relations activities in support or in promotion of PNG Please further elaborate on what costs are contained within AltaGas corporate resources pool of costs. PNG West 2013 Revenue Requirements 15 BCUC IR-2

17 39.0 Reference: Administrative & General Expenses Exhibit B-3, BCUC IR , p. 63 Inter-Affiliate Charges ($346,000) PNG has not undertaken an in-depth analysis of the MMF method of cost allocation applied to AltaGas corporate costs relative to PNG s previous costs of being a stand-alone publicly traded company PNG also believes that it is inappropriate to consider solely those costs for the purpose of measuring the benefits of economies of scale from being an AltaGas subsidiary. (Exhibit B-3, BCUC , p. 63) 39.1 Please discuss what sort of reasonability assessment PNG has performed on the MMF method of cost allocation to gain comfort that the $1,620,000 cost allocation is appropriate and reasonable Please comment on the risk that PNG may be paying AltaGas for costs that do not benefit PNG or the rate-payers. The two largest pools of costs being allocated from AltaGas to PNG are Financial reporting, tax, treasury & planning at an allocation of $500,000 and Corporate resources and IT at an allocation of $515,000. (Exhibit B-3, BCUC , p. 60) In comparison, PNG s average costs from for Account 728 (excluding Director s fees) and Account 722 together equals $473,000. (Exhibit B-1, Original Application, p. 14) 39.3 Please explain why it is appropriate that PNG is being charged more than double for these activities as an affiliate of AltaGas then when it was a stand-alone company Please also explain how operational efficiencies and economies of scale gained from PNG s affiliation with AltaGas adequately compensate PNG for the large increase in costs. PNG is finding that there are normal course expenses for which PNG has been able to benefit from the economies of scale and additional opportunities for economies which are still being pursued. (Exhibit B- 3, BCUC , p. 63) 39.4 Please provide a numerical breakdown of the approximate cost savings that PNG has benefitted from or anticipates benefitting from in 2013 as a result of its affiliation with AltaGas. Please compare/contrast these savings/benefits to the additional costs PNG will incur due to the large inter-affiliate charge from AltaGas and the forecast direct charge from AUGI Are any of the 2013 forecast AltaGas costs allocated to PNG related to AltaGas government relations activities? If so, how much are these costs, and please explain why the inclusion of these costs would be appropriate given that AltaGas operates in a different province than PNG? 40.0 Reference: Administrative & General Expenses Exhibit B-3, BCUC IR , p. 63; Exhibit B-3, BCUC IR , p. 69 Inter-Affiliate Charges ($346,000) PNG states: The proposed inter-affiliate charge to be recovered in PNG s 2013 cost of service is a large increase relative to the charge approved for recovery in its 2012 cost of service. In these circumstances, PNG proposed a recovery of inter-affiliate charges in an amount less than the 3-year average of the costs of being a stand-alone publicly traded company. (Exhibit B-3, BCUC , p. 63) In PNG s response to BCUC , PNG re-created the table from page 14 of the Original Application by removing the mark-to-market adjustments and notional dividends component of the DSU expense, which PNG West 2013 Revenue Requirements 16 BCUC IR-2

18 reduced the 3-year average cost from $815,293 to $621, Please discuss the pros and cons of reducing the proposed inter-affiliate charge from $750,000 to an amount closer to the adjusted 3-year average cost of $621, Reference: Administrative & General Expenses Exhibit B-3, BCUC IR , p. 59 Inter-Affiliate Charges ($346,000) PNG states: Using the revised AltaGas 2013 forecast cost and the MMF allocator of 6.26%, the service charge from AltaGas Ltd. to PNG should be $1,620 thousand Notwithstanding the revision in the MMF allocator and the 2013 forecast cost to be allocated from AltaGas to PNG, PNG is only seeking approval to include $750,000 in its cost of service for Test Year (Exhibit B-3, BCUC IR , p. 59) 41.1 Please explain how the difference between the $1,620 thousand service charge from AltaGas Ltd. and the proposed amount of $750,000 to be included in cost of service will be treated for accounting and for regulatory purposes Please also provide the supporting journal entries to aid with understanding Reference: Administration & General Expenses PNG 2011/AltaGas Share Transfer and Utility Acquisition Proceeding, Exhibit B2-1, p. 12; Exhibit B2-2 Inter-affiliate Charges As with all the utilities that AltaGas Ltd. owns, AltaGas Ltd. intends to operate PNG and PNG(N.E.) on a stand-alone basis. (Exhibit B2-1 of PNG 2011/AltaGas Share Transfer and Utility Acquisition Proceeding, p. 12) Following completion of the Transaction, PNG will undertake a review in early 2012 to identify potential areas where its cost of service may be reduced for the benefit of customers, with particular emphasis on cost savings that may arise with respect to the level of corporate reporting requirements of a private company compared to that of a public company. (Exhibit B2-1 of PNG 2011/AltaGas Share Transfer and Utility Acquisition Proceeding, p. 15) The following are excerpts from Exhibit B2-2 of the PNG 2011/AltaGas Share Transfer and Utility Acquisition Proceeding: PNG West 2013 Revenue Requirements 17 BCUC IR-2

19 42.1 AltaGas submits in Exhibit B2-2, quoted above, that It is expected that, should AltaGas provide services to PNG, PNG s TPP and COC would apply to the provision of such services. Please confirm if the inter-affiliate charges from AltaGas to PNG are prepared in accordance with PNG s TPP and COC. If not, please explain why not Please confirm if there is a Service Agreement between PNG and AltaGas for the services performed by AltaGas on behalf of PNG. If confirmed, please file a copy of the Service Agreement. If not confirmed, please discuss why there is no such agreement despite the submission in Exhibit B2-2 quoted above that AltaGas expects the services to be provided based on service agreements. AltaGas expects that PNG would file these service agreements in the applicable revenue requirements application. PNG West 2013 Revenue Requirements 18 BCUC IR-2

20 43.0 Reference: Administrative & General Expenses Exhibit B-1, Application, p. 14; Exhibit B-3, BCUC IR & 24.3, pp Inter-Affiliate Charges PNG would also like to note that the DSUs were redeemable for cash or shares of the company only following the termination of service on the Board of Directors. As a result, the full fair market value of the DSUs were paid out to the Directors upon their resignation from the Board on December 19, (Exhibit B-3, BCUC IR , p. 70) 43.1 Please re-create the table provided in response to BCUC IR excluding the total DSU compensation expense Please confirm the total value of the DSUs that were paid out to the Directors upon their resignation from the Board on December 19, Please confirm the total value of the DSUs that were paid out in cash on December 19, Please confirm the total value of the DSUs that were paid out in shares on December 19, Please provide the journal entry to support the transaction to pay out the full fair market value of the DSUs to the Directors on December 19, Please confirm if there was any further mark to market adjustment on the DSUs to reflect the change in share price between September 30, 2011 and December 19, If confirmed, please provide the details of the mark to market adjustment Reference: Administrative & General Expenses Exhibit B-3, BCUC IR 24.4, p. 60 Inter-Affiliate Charges The following table was provided in response to BCUC IR 24.4, page 60: 44.1 Please detail the Corporate Resources and IT services that AltaGas is providing for PNG and discuss how these services provide a direct benefit to PNG s rate-payers Please confirm if PNG s Corporate Resources and IT costs have been reduced to reflect the services that AltaGas is providing to PNG. If not, please explain why not. If confirmed, PNG West 2013 Revenue Requirements 19 BCUC IR-2

21 please provide the following: The amount of the cost reduction; The expense account that the cost reduction is included in, with reference to Exhibit B-1-1, Tab 1, pp. 2-5; and The year that the cost reduction is included, with reference to Exhibit B-1-1, Tab 1, pp Please detail the Financial reporting, tax, treasury and planning services that AltaGas is providing for PNG and discuss how these services provide a direct benefit to PNG s rate-payers Please confirm if PNG s Financial reporting, tax, treasury and planning costs have been reduced to reflect the services that AltaGas is providing to PNG. If not, please explain why not. If confirmed, please provide the following: The amount of the cost reduction; The expense account that the cost reduction is included in, with reference to Exhibit B-1-1, Tab 1, pp. 2-5; and The year that the cost reduction is included, with reference to Exhibit B-1-1, Tab 1, pp Please detail the Legal, communication and investor relations services that AltaGas is providing for PNG and discuss how these services provide a direct benefit to PNG s ratepayers Please confirm if PNG s Legal, communication and investor relations costs have been reduced to reflect the services that AltaGas is providing to PNG. If not, please explain why not. If confirmed, please provide the following: The amount of the cost reduction; The expense account that the cost reduction is included in, with reference to Exhibit B-1-1, Tab 1, pp. 2-5; and The year that the cost reduction is included, with reference to Exhibit B-1-1, Tab 1, pp Please detail the Executive and strategy services that AltaGas is providing for PNG and discuss how these services provide a direct benefit to PNG s rate-payers Please confirm if PNG s Executive and strategy and investor relations costs have been reduced to reflect the services that AltaGas is providing to PNG. If not, please explain why not. If confirmed, please provide the following: The amount of the cost reduction; The expense account that the cost reduction is included in, with reference to Exhibit B-1-1, Tab 1, pp. 2-5; and The year that the cost reduction is included, with reference to Exhibit B-1-1, Tab 1, pp PNG West 2013 Revenue Requirements 20 BCUC IR-2

22 45.0 Reference: Administrative & General Expenses Exhibit B-1-1, Updated Application, p. 6; Exhibit B-3, BCUC IR 1.27, pp Labour: Executive Time VP Human Resources & Government Relations PNG states in the Updated Application that there is a decrease of $20,000 in Account 728 for community and public relations programs due to a budgeting error in the Original Application as noted in response to BCUC IR No. 1, Question (Exhibit B-1-1, Updated Application, p. 6) PNG states in its response to BCUC IR : For 2013, PNG has budgeted $20,000 for government relations consultant fees. (Exhibit B-3, BCUC IR 1.27, p. 74) 45.1 Please confirm, or explain otherwise, that the $20,000 for government relations consultant fees is coded to Account 722 (Special Services) If confirmed, please confirm, or explain otherwise, that of the $65,000 budgeted for government relations, $45,000 is coded to Account 728 (Other). PNG states in its response to BCUC IR that it has budgeted $41,000 for sponsorship of community events across our service area. PNG receives requests from groups conducting conferences and other special events related to activity taking place in the approximately eighteen communities we serve. (Exhibit B-3, BCUC IR 1.27, p. 74) 45.2 Please explain how PNG s corporate sponsorship activity benefits rate-payers Please provide additional details about the planned conferences and special events that PNG plans to sponsor in 2013 and how PNG s sponsorship of these conference and events positively impacts the company and rate-payers Did PNG sponsor any events in 2012? If so, how much did these sponsorships cost and in what account are these costs reflected in PNG s Actual 2012 results? 45.5 Please explain why PNG considers it necessary to increase its sponsorship activities by approximately 600 percent from Please describe the additional benefits that will flow to rate-payers as a result of PNG s increased corporate sponsorship activity Reference: Transfers to Capital Exhibit B-3, BCUC IR , p Please re-create the table provided in PNG s response to BCUC IR 41.6 but please include two additional columns: Updated Test Year 2013 and Actual Reference: Depreciation Exhibit B-1-1, Updated Application, Tab 1, p. 1, Line Please explain why Actual 2012 Depreciation was $29,000 less than Decision 2012 Depreciation. PNG West 2013 Revenue Requirements 21 BCUC IR-2

23 48.0 Reference: Deferral Accounts Exhibit B-3, BCUC IR Rate Base Deferral Accounts 48.1 Please elaborate on what is meant by the following statement: Given that PNG would be unable to obtain 100 percent debt financing for this long-term regulatory asset (i.e. no lender would be prepared to finance 100 of the value of the regulatory asset)... (Exhibit B-3, BCUC IR ) 48.2 Is it PNG s understanding that the ability to secure debt for the specific purpose of financing a specific regulatory asset determines whether or not a regulatory asset is entitled to a weighted average Cost of Capital return? Please discuss Reference: Deferral Accounts Exhibit B-3, BCUC IR , p. 120 Non-Pension Benefit Obligations 49.1 Please provide an updated continuity schedule to that provided in response to BCUC IR using the updated figures presented in Exhibit B Reference: Deferral Accounts Exhibit B-1, Application, p. 23; Exhibit B-1-1, Tab 2, p. 15, Line No. 4 Short-Term Interest Deferral Account The assumed short term debt rate of 6 percent is considered reasonable having regard to the interest rate, stand-by fees and other costs applicable to PNG s operating line of credit facility. PNG will continue to record in its short-term interest deferral account the differences in interest expense or income, arising as a result of actual rates and expenses varying from the provision assuming the 6 percent rate. (PNG 2005 RRA Proceeding, Exhibit B-1, pp ) [emphasis added] Specifically, does the Short-Term Debt Interest Deferral Account capture the difference between the forecast and actual average annual balance and average annual draw for the customer security deposits and operating line, respectively? Please discuss. Response: No, the short-term interest deferral account captures only expense impacts arising due to differences in interest rates which PNG believes is its intended purpose. (Exhibit B-3, BCUC IR ) 50.1 Does the Short-Term Debt Interest Deferral Account capture the difference between Forecast and Actual Other Expenses (Exhibit B-1-1, Tab 5, p. 2, Line No. 10) on the Operating Line, as these expenses factor into the calculation of the Average Short Term Interest Rate? (Exhibit B-1-1, Tab 5, p. 2, Line No. 12) Please discuss If the answer to the preceding IR is no, please discuss when PNG changed the methodology from that described in the PNG 2005 RRA Proceeding (as quoted in the preamble to this IR) and discuss the reasons for the change in methodology Commission staff has calculated the following schedule of the expected 2012 additions to the Short-Term Debt Interest Deferral Account, based on the information provided in Exhibit B-1-1, Tab 5, page 2. Please confirm if the schedule is correct. If not confirmed, please provide an PNG West 2013 Revenue Requirements 22 BCUC IR-2

24 updated schedule in a working excel document and provide an explanation for each change made Please provide an explanation for the difference in the interest rate differential calculated in the preceding IR and the addition to the Short-Term Debt Interest Deferral Account of $8 thousand in Exhibit B-1-1, Tab 2, page 15, Line No Reference: Deferral Accounts Exhibit B-1-1, Tab 2, p. 15, Line No. 5 Long-Term Debt Interest Deferral Account 51.1 Does the Long-Term Debt Interest Deferral Account capture the impact of any difference between Forecast and Actual expenses, other than interest rates, on the effective cost rate (i.e. variances in the amortization of issue costs or standby fees)? If not, please discuss why not Reference: Deferral Accounts Exhibit B-1-1, Tab Rates, p. 14; Exhibit B-3, BCUC IR 1.8.1, p. 20 RSAM Given that a one year amortization is required under US GAAP and that the applied for one year RSAM amortization period will be a larger credit to rate-payers in 2012 than under a three year amortization period the Commission Panel approves a one year amortization period for the 2011 year-end RSAM balance in order to allow PNG to fully amortize the balance in (Order G , p. 10) 52.1 Please complete the following schedule (including all grey-highlighted cells) to show the projected year-end 2012 RSAM balance and the derivation of the RSAM rider, including the following: 2012 (Refund) / Recovery (Actual); 2012 RSAM Deferral. PNG West 2013 Revenue Requirements 23 BCUC IR-2

25 Please confirm that the RSAM balance at year-end 2011 after-tax was fully amortized in 2012, or explain otherwise If the RSAM balance at year-end 2011 after-tax was not fully amortized in 2012, please discuss if the remaining balance is in compliance with US GAAP Please confirm that the 2012 RSAM Deferral balance relates to the difference between the Forecast and Actual use per account during 2012, multiplied by the Decision 2012 customer count. If not confirmed, please explain otherwise Please provide a detailed calculation in a working excel document to support the 2012 RSAM Deferral balance for each of Residential and Small Commercial customers, including the following: Number of customers; Actual use per account; and Forecast use per account Reference: Deferral Accounts Exhibit B-1-1, Tab 2, p. 13, Line No. 4; Exhibit B-3, BCUC IR , p. 113 Investigative Digs 53.1 Are investigative digs planned activities at the outset of the year or are they unplanned activities that are undertaken in order to address unforeseen circumstances. Please discuss Please explain why the number of Investigative Digs has increased from 242 in 2012 to 260 in 2012, as noted in response to BCUC IR , p PNG West 2013 Revenue Requirements 24 BCUC IR-2

26 54.0 Reference: Deferral Accounts Order G , p. 47 IFRS / US GAAP Deferral Account PNG is requesting approval to amortize the 2011 year-end balance in the joint IFRS/US GAAP Conversion Cost deferral account over three-years ended (Order G , p. 47) Consistent with PNG s US GAAP application, approved by Commission Order G , total conversion costs expected to be incurred by PNG Consolidated in 2011 are $250,000 and 2012 are $150,000. (Order G , p. 47) 54.1 Please confirm that no further conversion costs will be added to the IFRS/US GAAP Deferral Account in the future, or explain otherwise Reference: Deferral Accounts Exhibit B-1-1, Updated Application, pp. 8 & 18 Plants Gains & Losses 55.1 Did PNG incur any extraordinary gains/losses on plant disposals? If so, what was the amount? 55.2 Please explain why PNG s forecast of 2012 additions provided in the Original Application was $109,000 lower than actual 2012 additions Please discuss the challenges for PNG of providing a more accurate forecast and what, if any, steps can be taken to improve forecasting accuracy Reference: Deferral Accounts Exhibit B-1-1, Updated Application, Tab 2, pp ; Exhibit B-3, BCUC 45.1, p. 113 Investigative Digs 56.1 The Actual 2012 gross addition to Investigative Digs, as provided in the Updated Application, is $318,000, whereas the Forecast 2013 gross addition is $510,000. Please explain why the Forecast 2013 addition is anticipated to be almost $200,000 more than Please provide the same information that was provided in the response to BCUC with a comparison between Forecast 2013 per the Original Application and Forecast 2013 per the Updated Application Reference: Deferral Accounts Exhibit B-1-1, Updated Application, Tab 2, pp Pipeline Inspections PNG stated in the Original Application that As of the date of this Application, it is expected that the difference between budgeted and actual 2012 inspection costs will be minimal. (Exhibit B-1, p. 23) 57.1 The 2012 Actual addition to the Pipeline Inspections deferral account is $26,000 more than what was provided in the Original Application. Please explain what caused the change in additions to this deferral account. PNG West 2013 Revenue Requirements 25 BCUC IR-2

27 58.0 Reference: Deferral Accounts Exhibit B-1-1, Updated Application, Tab 2, p. 15 BCUC Proceedings 58.1 Please explain the cause of the 2012 credit addition of $37,000 to the BCUC Proceedings Deferral Account in the Updated Application Reference: Deferral Accounts Exhibit B-1-1, Updated Application, Tab 2, p. 15 LNG Partners Option Fee Payment 59.1 Please explain why the 2012 LNG Partners Option Fee Payment addition has changed from $(1,157,000) per the Original Application to $(1,104,000) per the Updated Application (change of $53,000). PNG stated in its Original Application that it is proposing to amortize in 2013 one half of the year-end 2012 credit balance in the LNG Partners Option Fee Payment deferral account plus imputed interest earned on the account in (Exhibit B-1, p. 24) 59.2 Please confirm if PNG is still proposing to use this amortization methodology in the Updated Application Please explain how PNG s proposed amortization methodology agrees to the updated 2013 amortization amount of $(1,751,000), given that the gross ending 2013 balance per the Updated Application is $(1,379,000) Reference: Deferral Accounts Exhibit B-1-1, Updated Application, p. 8; Tab 1, p. 7; Exhibit B-3, BCUC IR , p. 104 Non-Reg. Transfer Pricing Tab 1, page 7 of the Updated Application shows an Actual 2012 balance of zero for Utility Charges to NRB, in comparison to the Decision 2012 amount of $252,000. Tab 2, page 15 of the Updated Application shows a 2012 Addition to the Non-Reg Transfer Pricing Deferral Account of $154, Please confirm, or explain otherwise, if this means that $98,000 was actually spent on NRB activities for 2012 ($252,000 Decision 2012 minus $154,000 Addition to deferral account) Please explain why the 2012 Actual amount for Utility Charges to NRB, per the Updated Application, shows an amount of zero Please provide a description of the actual NRB-related activities that PNG was engaged in during Please confirm, or explain otherwise, that the impact of the reduction in Utilities Charges to NRB in Test Year 2013 means that PNG West expects to use less utility resources on NRB-related activities If the above is confirmed, please indicate which expense accounts reflect the reduction in 2013 expenditures on NRB related activities (i.e. which expenses have been reduced in 2013 to reflect the reduction in resources being expended on NRB activities). PNG West 2013 Revenue Requirements 26 BCUC IR-2

28 60.5 Please re-create the table provided in response to BCUC IR with an additional column for Actual Please indicate for each of the line items in the table which BCUC accounts these expenses are recorded in. Please also confirm, or explain otherwise, that for Test Year 2013 there have been reductions in the expenses in these accounts to reflect the reduced use of utility resources from Decision Reference: Other Revenues and Credits 2012 PNG RRA, Exhibit B-9, BCUC , p. 82 Utility Charges to NRB 61.1 Please re-create the table below, which has been taken from PNG s response to BCUC IR in the 2012 PNG RRA, but please instead provide data for Test Year 2013, Actual 2012 and Decision Reference: Deferred Income Taxes Exhibit B-3, BCUC IR , pp Please discuss the pros and cons of applying a set amortization period to for drawing down the deferred income taxes as opposed to the current method of selecting a different draw-down amount each year What would PNG consider to be an appropriate amortization period for the deferred income taxes and why? 63.0 Reference: Operating Expenses Exhibit B-3, BCUC IR Energy Management Services (EMS) Agreement While the EMS Agreement that PNG currently has in place with Fortis encompasses energy management for all of PNG divisions, it is not included in the shared services allocation study. The cost of EMS Agreement is included in as part of the cost of the gas commodity and allocated through a separate process. Commodity costs are allocated to the divisions as part of the GCVA cost allocation procedures based on the proportionate number of GJs of gas purchased. This process has been in place for a number of years. (Exhibit B-3, BCUC IR ) PNG has issued an RFP seeking proposals for the provision of EMS to the Company and in early March 2013 will enter into a new EMS contract for services effective April 1, (Exhibit B-3, BCUC IR ) 63.1 Please elaborate on how the cost of the EMS Agreement is included in as part of the cost of the gas commodity and allocated through a separate process. PNG West 2013 Revenue Requirements 27 BCUC IR-2

29 63.2 For the administrative costs associated with negotiating the EMS Agreement, please specify which expense item it would fall under in Test Year 2013, and how much? 63.3 Please explain whether PNG has considered operating EMS in-house as an alternative option Please compare cost effectiveness and efficiency between operating EMS in-house and having EMS contract with an external provider Suppose EMS is operated in-house, would this activity then be then considered as shared services? If so, would the allocation process be any different from contracting with an external provider? If not any different, please explain Reference: Gas Cost Exhibit B-3, BCUC IR ; Exhibit B-1-1, Updated Application, p. 10 & Tab Rates PNG states in IR that it will be filing an Application Update at which time the forward price forecasts ending December 11, 2012 will be used and the relevant schedules will be produced in the ordinary course. The Company use gas cost forecast for 2013 has decreased from the Original Application to reflect changes to the forecast deliveries and to the underlying forecast of gas supply costs using a more recent forward gas price strip. The Company use gas cost delivery rate is reviewed and approved by the Commission under the quarterly gas supply cost report process. PNG is not applying under the revenue requirements application for a change to the Company use delivery rate approved by the Commission effective January 1, The Company use gas costs are indicative only and are reflected in the revenue requirements model as an in and an out. Therefore, the applied for 2013 revenue deficiency is not affected by changes in the forecast cost of Company use gas. (Exhibit B-1-1, Updated Application, p. 10) [emphasis added] The Updated Application in the Rates Tab provides schedules showing updated rate schedules, including: the gas commodity rate for different rate classes; Gas Cost Variance Account (GCVA) commodity rate rider; GCVA Company Use rate rider; Company Use gas cost delivery rate; and Company Use gas commodity price Please clarify whether the more recent forward gas price strip noted on p. 10 of the Updated Application refers to the forward price forecasts ending December 11, 2012 or explain otherwise If the more recent forward gas price strip is different than the forward price forecasts ending December 11, 2012, please specify the date and provide those forward price forecasts. Please explain why PNG is using another forward gas price strip outside the quarterly gas cost review process Please confirm, in the Updated Application under the Rates Tab for the PNG-West Division, that the gas commodity rates for all rate classes; GCVA commodity rate rider; GCVA Company Use rate rider; Company Use gas cost delivery rate; and Company Use gas commodity price correspond to the information filed in PNG s Fourth Quarter 2012 Report on Gas Supply Costs dated December 12, If not confirmed, please explain and update otherwise Please clarify the meaning of Proposed Rates in the Updated Application under the Rates Tab. Are they equivalent to the rates effective January 1, 2013 approved by Order G ? 65.0 Reference: Gas Cost PNG West 2013 Revenue Requirements 28 BCUC IR-2

30 Exhibit B-1-1, Tab Rates, p. 5 Granisle Propane Bill Comparison The bill comparison for the period November 2012 to January 2013 includes a section for Granisle Propane, under Proposed Rates Jan. 1, The propane gas supply charge for Granisle Propane is $16.596/GJ and the GCVA credit rate rider is $1.519/GJ. For the Granisle Division, Commission Order G approved decreasing the propane commodity rate from $16.596/GJ to $15.868/GJ, and increasing the GCVA commodity credit rate rider from $1.519/GJ to $1.532/GJ, effective January 1, Please confirm the propane commodity rate of $15.868/GJ and the GCVA commodity credit rate rider $1.532/GJ, effective January 1, 2013, should be updated in the Updated Application Where applicable, please confirm that the Updated Application reflects the Granisle Propane rates that were proposed by PNG and approved effective January 1, If not confirmed, please update otherwise Reference: Capital Expenditures Exhibit B-3, BCUC IR , pp Main Extension Policy PNG-West has a main extension policy that includes a main extension test which acts as a primary financial feasibility test for industrial or transportation customers requesting incremental supply. (Exhibit B-3, BCUC IR ) The objective of PNG-West s main extension policy is to determine the maximum permissible capital investment in an individual request for a main extension using a multi-year discounted cost analysis that ensures the interests of existing customers will not be compromised If the NPV of the costs to serve a main extension customer is equal to or less than the NPV determined for existing customers in the applicable rate class, the extension may be installed without addition contributions from the extension customer. (Exhibit B-3, BCUC IR ) [Emphasis added] 66.1 Please confirm, or otherwise explain, that PNG s main extension policy applies to all service areas (West, Fort St. John/Dawson Creek, and Tumbler Ridge) Please confirm PNG s main extension policy is also applicable to attaching residential and commercial customers Please clarify if the NPV refers to the Net Present Value from the costs perspective, and not net benefits. In other words, if the new main extension customer s NPV (costs) are equal or less than existing customers NPV (costs), then extensions may be installed without additional contributions Please explain whether the main extension policy considers revenue (or benefits). Would the measure of net benefits be more useful in main extension tests? Why or why not? 66.5 Does PNG monitor variances in the planned vs. actual costs and planned vs. actual revenue of main extension installations? Please provide the most recent main extension report, if available How often does PNG review its main extension performance? PNG West 2013 Revenue Requirements 29 BCUC IR-2

31 66.7 The Main Extension Policy attached to IR response is dated effective May 29, Please confirm this is the most recent version of PNG s main extension policy How often does PNG review the appropriateness of its Main Extension Policy? 66.9 The Main Extension Policy indicates that if PNG chooses to waive or modify customer contribution amounts or collections that would otherwise be required, construction will require approval of the Vice President, Engineering and Operations. According to Exhibit B-3 response to IR , it shows that the Vice President, Engineering and Operations position is vacant since PNG is also not expecting to have this position filled in Test Year How does this affect PNG s Main Extension Policy and its ability to handle main extension processes? 67.0 Reference: Maintenance Expenses Exhibit B-1-1, Tab 1, p. 4, Line No. 2 Stress Corrosion Cracking Assessment In its 2012 RRA, PNG (West) forecast an increase in Account 865 Pipelines to $85,000, more than double the 2011 Actual of $41,000. In its response to 2012 RRA BCUC , PNG attributed a majority of the increase to third-party costs related to on-going stress corrosion cracking and assessment program ($28,000). (2012 RRA, Exhibit B-9) 67.1 Given that Actual 2012 expenses for Account 865 were $47,000 please provide actual costs attributed to the stress corrosion cracking and assessment program from 2012 including specifically third-party costs Please provide details of the estimates included for this activity in the 2013 Forecast Reference: Maintenance Expenses Exhibit B-1-1, Tab 1, p. 4, Line No. 9 Meters In its 2012 RRA, PNG (West) forecast an increase in Account 878 Meters to $230,000, a significant increase over the 2011 Actual of $135,000. In its response to 2012 RRA BCUC , PNG attributed this cost increase to an increase in meter re-verifications needed to ensure compliance with a more stringent Measurement Canada regulation S-S-06 (enforceable on January 1, 2014). In addition, in response to BCUC of the 2012 RRA, PNG provided data on the number and cost of 2011 Actual and 2012 planned meter re-verifications, reproduced in the table below. (2012 RRA, Exhibit B-9) 68.1 Please complete the following table with corrected or updated numbers for Actual 2012 and Forecast 2013 values for meter re-verifications. No. Residential $/per No. Commercial $/per No. Industrial $/per Actual $ $ $1,700/$250 1 Forecast ,075 $ $ $1,700/$250 1 Actual 2012 PNG West 2013 Revenue Requirements 30 BCUC IR-2

32 Forecast $1700 estimate for Turbine, $250 for Rotary EVC 68.2 Please provide an explanation of why Actual 2012 expense ($162,000) in this account was significantly below the Decision 2012 expense ($230,000) that was forecast in Considering the above, please further justify the Forecast 2013 expense growing to $269,000, a 66 percent increase over Actual 2012 levels Reference: Capital Expenditures Exhibit B-1-1, Updated Application, p. 11 Rio Tinto Alcan Project In its Update to the 2013 RRA, PNG states that it has also included $650,000 of additional capital expenditures for a modernization project with Rio Tinto Alcan (RTA) planned for late Please provide a more detailed description of the project, its need and justification along with a more detailed estimate and the source and level of accuracy of this estimate Is a mains extension test applicable? If no, please explain If so, please provide Will there be a Contribution in Aid of Construction (CIAC)? If no, please explain If yes, please provide the estimated amount and calculation Have any agreements been executed with RTA for the project? 69.5 Has PNG made any commitments to RTA for the project? 70.0 Reference: Capital Additions Exhibit B-1-1, Updated Application, pp. 20, 21; Exhibit B-3, BCUC IR In its response to BCUC IR , PNG provides an explanation for the $222,000 over-budget variance on the Craigs Tunnel project Please confirm this is the same project referred to in the 2012 RRA as Tunnel Rehabilitation at MP In its 2012 RRA (Exhibit B1, p.32) PNG stated the $364,000 estimate was based on a quote from an experienced tunnel contractor. Was this the same contractor selected to perform the work? Did PNG use a competitive bid process for this project? If no, please explain why a competitive bid process was not used If yes, please describe the process including number of requests for proposal and number of respondents On what basis was the contractor selected? PNG West 2013 Revenue Requirements 31 BCUC IR-2

33 What were the contract terms (ie. Fixed price, Cost plus, other) used for the contract? What amount of the $586,000 Actual project cost were the contractors? What amount was for PNG expenses? In its response to BCUC 62.1, PNG includes an Actual 2012 cost of $218,000 as MP 37 Replace Valve Please describe the nature of the failure of this valve, including its age, size and purchase cost Reference: Capital Additions Exhibit B-1-1, Updated Application, p. 23; Exhibit B-3, BCUC IR In its response to BCUC , PNG provides an explanation for the $57,000 over-budget variance on Distribution Main Extensions the 4,452 meters of new distribution main was installed in Smithers while only 100 meters was budgeted Would this be categorized as New Business or System Betterment according to PNG definitions provided in Exhibit B-1, page 48? 71.2 How many new connections/customers resulted? 71.3 Was a mains extension test performed? Please provide or if not done, please explain. In its response to BCUC , PNG provides an explanation for the $75,000 under-budget variance on the Transportation Vehicles (Nine Units) budget of $397,000 as considerable cost savings achieved with aggressive purchasing and greater purchasing power of the AltaGas Group Does the 2013 Budget of $507,000 for eleven new units take these considerable cost savings into account? Please explain the significantly higher per unit cost forecast than the Actual 2012 results. In its response to BCUC , PNG provides an explanation for the $41,000 under-budget variance on the Computer Equipment budget of $93,000 as considerable cost savings on most hardware purchases, transition to virtual server, and reduced hardware failures Does the 2013 Budget of $310,000 take these cost savings into account? Please explain Reference: Capital Additions Exhibit B-1, Application, p. 48 PNG provided the following table on p. 48 of Exhibit B-1: PNG West 2013 Revenue Requirements 32 BCUC IR-2

34 72.1 Please confirm that Decision 2012 should be $4.570 million according to Order G or otherwise explain why $4.496 million was shown Please complete or correct the table below including the Application Update, Exhibit B-1-1 information. $ 000 s Test Year 2013 Actual 2012 Decision 2012 Actual 2011 Decision 2011 Additions (including OH) 4,535 4,764 4,570 4,864 4,001 Less: OH 840 Net 3, Reference: Capital Additions Exhibit B-1-1, Updated Application, pp Please complete all fields and/or correct the table below such that the Total at the bottom should equate to the total for Test Year 2013 Capital Additions. Add line items where necessary. Cat Expense Type/Project Name 2013 Test Year (excluding OH) 2013 Test Year (Including OH) Forecast Completion (Yr) Account Recurring Additions (Regular and routine replacements, upgrades or additions) SB Mobile Equipment $507,000 $507, GP Computer Equip/Licenses $310,000 $310, SB Cut-outs from ILI digs $53,000 $55, SB ROW Access, Signage, ETC $186, SB Meter Replacements $161,000 $161, NB New/replacement services $148,000 $218, GP New/replacement tools and equipment $74,000 $74, PNG West 2013 Revenue Requirements 33 BCUC IR-2

35 Other (less than $50,000 scope projects, total should be less than 10% of Total Additions) Subtotal Recurring Additions 2013 Planned (non-recurring) Additions (known, new and/or significant specific planned projects) NB Rio Tinto Modernization $650, NB New Distribution Mains $208,000 $306, SB Replace Obsolete Actuators $108,000 $159, SB Replace Line Heater, NGS $81,000 $119, SB Replace Line Heater, Endako $70,000 $103, GP Replace obsolete R2 charger $70,000 $102, GP Replace obsolete R4 charger $70,000 $102, GP Replace high pressure tubing $68,000 $100, Other (less than $50,000 scope projects, total should be less than 10% of Total Additions) Subtotal Planned Additions Un-Planned Additions SB Unspecified mainline repairs $248,000 $301, ROW Access, Signage, ETC Subtotal Un-planned Additions Carry Forward Projects (from previous year(s)) Paint Gitnadoix bridge $245,000 $297, Subtotal Carry Forward Projects TOTAL Note: Cat refers to Categories (SB System Betterment, NB New Business, GP- General Plant) as defined in Exhibit B-1, page Reference: 2013 Forecast Gas Deliveries Exhibit B-1-1, Derivation of Test Year Forecast Gas Deliveries, Tab Rates, p. 8 Net Customer Additions The Pacific Northwest appears to be in the early stages of an economic boom stemming from an increased activity in natural gas exploration and associated infrastructure projects, including the construction of pipelines, LNG processing plants, and shipping terminals. This in turn is having an upward impact on the region s population and housing requirements. Intuitively, this should lead to an increase in the number of Residential and Small Commercial accounts in the PNG-West region. However, this appears not to be the case. For 2013, PNG is forecasting a net loss of 73 Residential and a loss of 15 Small Commercial customers (Exhibit B-1-1, Tab Rates, p. 8) compared to PNG West 2013 Revenue Requirements 34 BCUC IR-2

36 74.1 Using historical data as a basis for forecasting the future number of customers relies on the assumption that past trends are indicative of the future. In times of unusual changes, such as the present time, this assumption may not be valid. Has PNG made any changes to their forecasting methodology to accommodate the rapid economic changes that are currently taking place in the PNG-West region? Please provide details To what extent does PNG use housing starts as a proxy to forecast customer additions? Please provide a copy of PNG s forecast calculations that incorporate housing start data for the current test period Please provide a copy of Canada Mortgage and Housing Corporation (CMHC), BC Stats, or other third-party time-series data that contains a 2013 forecast of the number of new single-detached homes, multi-unit dwelling, population and other relevant data for the PNG-West region. Please provide the data in an electronic format Reference: 2013 Forecast Gas Deliveries Exhibit B-3, BCUC IR , p. 140 Deferral Accounts PNG believes the RSAM and ICDDA have different intended purposes. The ICDDA deferral mechanism is in place to mitigate forecast risk. The volume forecast for industrial customers has a direct impact on rates for all customers The RSAM, on the other hand, is intended as a transfer of weather related variance risk from the shareholder to the customer classes that are exposed to weather variances. (Exhibit B-3, BCUC IR , p. 140) 75.1 Through the implementation of RSAM, Large Industrial customers have been isolated from the financial risks associated with forecast errors and weather related variances that primarily impact Residential and Small Commercial customers. Large Industrial customers have also been isolated from the financial risks that result from their own forecasts through the ICDDA deferral mechanism. In other words, Large Industrial customers spread their risks to all other rate groups, but are not subject to forecast risks from other user groups. This arrangement is based on historical BCUC Commission decisions. Please provide examples of other natural gas utilities operating in Canada that has similar arrangements for risk sharing between Large Industrial and other rate classes For the period 2003 to 2012, please provide a tabular summary segmented by year and rate class of the costs and benefits that have accrued to all rate classes as a result of the ICDDA deferral mechanism. Please provide a copy of the tabular data and calculations in the form of a spreadsheet Reference: 2013 Forecast Gas Deliveries Exhibit B-3, BCUC IR , p. 146 Conifex Customer Class Designation Based on the average absolute error for the Conifex margin averaging less than $100,000 for the most recent four years, PNG would not be opposed to Conifex being removed from the ICDDA. (Exhibit B-3, BCUC IR , p. 146) 76.1 Is it PNG s understanding that the inclusion of Conifex in the ICDDA deferral mechanism in 2008 (G39-09) was a temporary measure, and in absence of PNG s submission otherwise, Conifex would revert to being excluded from ICDDA. PNG West 2013 Revenue Requirements 35 BCUC IR-2

37 77.0 Reference: 2013 Forecast Gas Deliveries Exhibit B-3, BCUC IR , p. 148 Company Use Gas The amount of compressor fuel does not vary proportionately to the amount of gas deliveries. The usage can vary depending on amount of deliveries as well as the number of compressors running and the frequency at which the compressor(s) are run. (Exhibit B-3, BCUC IR , p. 148) 77.1 Please confirm PNG s updated forecast (GJ) for the amount of Compressor Fuel Gas for The following graph suggests that based on five years of historical data there is a strong correlation (0.944) between the amount of compressor fuel gas used and the total deliveries. Please confirm whether this is correct, or in the alternative provide data to the contrary PNG has forecasted a decline in total deliveries (GJ) between 2012 and According to the data shown above, one would expect that the compressor fuel gas consumption for 2013 would also decline. What changes in 2013 could account for increasing compressor fuel gas consumption in light of a decrease in total deliveries? Please provide supporting data and calculations Reference: Rate Base Exhibit B-1-1, Updated Application, Tab 2, p. 1 Plant in Service, beginning of year (Actual 2011) The following is an excerpt from Exhibit B-1-1, Tab 2, page 1: PNG West 2013 Revenue Requirements 36 BCUC IR-2

38 The following is an excerpt from Order G-92-11: The following is an excerpt from Order G-92-11: 78.1 Please provide a detailed explanation of the variance of $2,807 thousand between the Actual 2010 Plant in Service end of year of $260,393 thousand and the Actual 2011 Plant in Service beginning of year of $263,200 thousand and include a supporting schedule that summarizes the different components of the variance Please confirm the amount of the variance attributable to the deactivated facilities related to the permanent closure of the Methanex methanol/ammonia complex that were transferred from a deferral account to rate base effective January 1, 2011, referenced in Order G (as quoted in the preamble to this IR) Please discuss if the deactivated facilities are at present considered used and useful assets Please confirm if the deactivated facilities are currently subject to amortization. If PNG West 2013 Revenue Requirements 37 BCUC IR-2