September 26, Via Original via Mail. British Columbia Utilities Commission Sixth Floor 900 Howe Street Vancouver, B.C.

Transcription

1 B-8 Diane Roy Director, Regulatory Affairs FortisBC Energy Fraser Highway Surrey, B.C. V4N 0E8 Tel: (604) Cell: (604) Fax: (604) Regulatory Affairs Correspondence September 26, 2013 Via Original via Mail British Columbia Utilities Commission Sixth Floor 900 Howe Street Vancouver, B.C. V6Z 2N3 Attention: Ms. Erica M. Hamilton, Commission Secretary Dear Ms. Hamilton: Re: Section 71 of Utilities Commission Act (UCA) Filing of Biomethane Purchase Agreement Between FEI and Greater Vancouver Sewerage and Drainage District (GVS&DD) (the Application) Response to Undertakings from the Streamlined Review Process (SRP) On August 16, 2013, FEI filed the Application as referenced above. In accordance with Commission Order G setting out the Regulatory Timetable for the review of the Application, an SRP was held on September 25, In order to ensure the proceeding record is factually correct, FEI would like to note a correction to the transcript. In the transcript, Volume 1, Page 50, Lines 14 to 17 are recorded as follows: Anything less than say gigajoules a day are at volumes that we can contract for with a counterparty. So it would have to reach at least that level. FEI makes the following correction: Anything less than say gigajoules a day are at volumes that we can t contract for with a counterparty. So it would have to reach at least that level. FEI also respectfully submits the attached responses to the four Undertakings arising from the SRP.

2 September 26, 2013 British Columbia Utilities Commission FEI Sec 71 UCA Filing of Biomethane Purchase Agreement Between FEI and GVS&DD Response to Undertakings from the SRP Page 2 If further information is required, please contact the undersigned. Sincerely, FORTISBC ENERGY INC. Original signed: Diane Roy Attachments cc ( only): Registered Parties

3 UNDERTAKING NO. 1 SRP DATE: September 25, 2013 TRANSCRIPT REFERENCE: Volume 1, Page 53, Line 17 to Page 59 Line 13 and Page 71 line 18 to Page 72, Line 3 REQUESTOR: Chairperson QUESTION: Were capital expenditure amounts for the GVS&DD interconnect facilities already included in the RRA rates? If so, what amount was forecast and put into rates in that test period, and does including them in future rates cause double-counting? RESPONSE: In this proceeding, FEI is seeking acceptance pursuant to section 44.2 of the Utilities Commission Act that it is in the public interest to make the capital expenditures for the interconnection facilities required to safely and reliably interconnect the GVS&DD project. As discussed at the Streamlined Review Process, FEI is seeking this approval to confirm that these capital expenditures are in the public interest and to ensure transparency with respect to the spending of these particular expenditures. To clarify, FEI is not seeking an approval to increase rates to recover the interconnection costs for the GVS&DD project, which would require an approval under sections 59 to 61 of the Utilities Commission Act. FEI s rates are being reviewed by the Commission separately in FEI s PBR Application. To respond to this undertaking, FEI provides the following information below regarding its RRA. Upon review of the FEU s RRA, FEI clarifies that while the included an annual estimate of costs for biogas projects, the GVS&DD interconnection costs were not specifically included in the RRA forecast or specifically approved by the Commission in the RRA Decision. The FEU s RRA filed in May 2011 included an estimate for spending capital on upgraders and interconnection facilities for two future biogas projects. While FEI estimated it was likely that two projects would proceed in the test period, the two future projects were not determined with certainty at the time of the forecast. As discussed in Appendix J of the Application, the two most likely projects at the time of the forecast were the City of Kelowna and Annacis Island projects: Page 1

4 UNDERTAKING NO. 1 The future projects that FEI is evaluating are still in the contract negotiation stages with earliest possible injection dates in Currently, the two most likely prospects are the City of Kelowna and Annacis Island projects. The Kelowna landfill project would be structured very similar to the CSRD project with the expected volumes starting approximately at 50,000 GJ/year. The Annacis Island project would be an organic waste digester that would look similar to the Catalyst Project. In this case, however, the project developer is interested in FEI investing in the upgrading plant. The volumes are expected to start at 100,000 GJ/year. The RRA Decision provided approval for FEI to spend capital on biogas projects, both upgraders and interconnection facilities. 1 The GVS&DD project was not specifically identified in the RRA or in the Commission s Decision. In summary, FEI forecast and the Commission approved capital spending for bio-gas interconnection in the test period of $2.03 million. With respect to what has actually been spent in 2012 and 2013, FEI has incurred the bulk of the expenditures for the Kelowna and Salmon Arm projects, and will be incurring a portion of the costs for Earth Renu, Dicklands, and Seabreeze, and this project (GVS&DD). In total, FEI is anticipating incurring the $2.03 million that was approved in FEI s RRA. For these reasons, the public interest approval being sought at this time raises no prospect of double counting of costs FEU RRA Decision and Order G dated April 12, 2013, page 99 and Appendix A, Directive 39 Page 2

5 UNDERTAKING NO. 2 SRP DATE: September 25, 2013 TRANSCRIPT REFERENCE: Volume 1, Page 64, Line 14 to Page 65, Line 5 REQUESTOR: Suzanne Sue QUESTION: Provide the Depreciation Rate for Mains. RESPONSE: The currently approved depreciation rate for mains (and for bio-gas mains) for FEI is 1.48% (approximately a 67 year life). In addition, the mains asset class attracts negative salvage at a rate of 0.29%. In the transcript Volume 1, Page 66 at Line 22, Mr. Gramm stated that the depreciation rate for the mains in the GVS&DD Project did not include negative salvage. This is correct in that the depreciation rate is separated from the negative salvage rate/provision. The negative salvage provision is recorded as amortization expense and credited to the Negative Salvage Provision/Cost deferral account, but both rates are applied to the bio-gas mains asset class. There will be a negative salvage rate applied to the mains, as part of the overall asset class. The total negative salvage provision that is collected for that asset class is available to offset actual removal costs incurred for any asset within that class, including the GVS&DD Project main. When reviewing the depreciation calculations in the GVS&DD cost of service model it was discovered the depreciation rate applied (1.89%) was from what the Commission had approved for distribution mains from the Company s revenue requirements. The Commission had approved for the Company from the FEU revenue requirements for bio-gas mains a depreciation rate of 1.48%. Applying the latest approved depreciation rate results in a decrease of $6 thousand to the GVS&DD cost of service model depreciation expense. Page 1

6 UNDERTAKING NO. 3 SRP DATE: September 25, 2013 TRANSCRIPT REFERENCE: Volume 1, Page 66, Line 23 to Page 67, Line 1 REQUESTOR: Suzanne Sue QUESTION: Provide the approximate cost of removing or abandoning the interconnection piping. RESPONSE: As noted in response to Undertaking No. 2, the total negative salvage provision that is collected for the bio-gas mains asset class is available to offset actual removal costs incurred for any asset within that class, including the GVS&DD Project main. FEI reiterates that the likelihood of incurring these costs in the foreseeable future is remote. The GVS&DD agreement is highly unlikely to be terminated due to the loss of revenue for GVS&DD and the GVS&DD s Waste Water Treatment plant is a long-term facility. The terms of section 10.1 of the GSV&DD Agreement state that FEI is only obligated to remove facilities above surface level and may leave any unremoved portions of its facilities in a safe manner to the satisfaction of Metro Vancouver acting reasonably. For this reason, the main would likely be abandoned in place as is FEI s standard practice. The cost of abandoning is estimated to be a maximum of approximately $10,000 (2013$). If for some unforeseen reason FEI were required to remove the main, FEI has estimated the current (2013) cost of removing 300 m of 114 mm DP/PE main at $43,000 (excluding taxes). The accuracy of the estimate is approximately +/- $7,000. This estimate is considered a worst case estimate based upon creating a trench the full length of the pipeline, removing the pipe and making good any existing pavement. FEI believes that the costs could be significantly lower by using a bell hole method of removal. The bell hole method would involve digging several small holes along the length of the pipe and removing sections of pipe by pulling those sections out through the access holes. Page 1

7 UNDERTAKING NO. 4 SRP DATE: September 25, 2013 TRANSCRIPT REFERENCE: Volume 1, Page 72, Line 4 to Page 73, Line 17 REQUESTOR: Chairperson QUESTION: Should the estimate, budget, be based on this very conservative estimate of 739,000 or should it be more reflecting correctly the actual experience and total the number 611,000? Show for 20 years how the actual is reflected in rates. Because the rates are set on a forecast basis, so I m having difficulty seeing how this actual will then be impacting the rate. RESPONSE: FEI submits that its estimate should be used rather than the number of $611,000. FEI s estimate is a reasonable estimate based on a reasonable range of probabilities (- 20%/+5%). FEI s estimate was created using a bottom-up approach taking into account each component of the interconnect facilities, for the cost of materials, engineering and construction labour. In contrast, the $611,000 estimate was based on an arithmetic average of two stations that have been built. While conservative, FEI s estimate is more robust and should be preferred. While FEI is not seeking rate approval in this proceeding, FEI has responded in two ways to the question of how the forecast costs are included in rates. The first assumes a PBR Plan such as FEI has currently proposed is approved. The second assumes a traditional cost of service approach. Under FEI s proposed PBR Plan which is currently before the Commission, there is no difference to rates between a $739,000 estimate versus a $611,000 estimate. This is because under FEI s PBR Plan the amount of this category of capital that is included in rates would be set by formula. At the end of the five-year PBR term, the rate base would be trued up for actuals (rebased), so that the actual capital costs would be included in rates thereafter. Under a traditional cost of service approach, including a $739,000 estimate versus a $611,000 estimate in the cost of service calculation would only have an impact over the test period. For capital costs over the test period, only the annual depreciation, earned return and income tax applicable to the test period based on the forecast costs would be included in rates (i.e. the entire capital cost would not be recovered). The average Page 1

8 UNDERTAKING NO. 4 annual impact during the test period of using the $739,000 versus the $611,000 estimate would be $ /GJ. The average annual cost of service from a capital cost of $739,000 is $95,000 while the average cost of service from a capital cost of $611,000 is $77,000; i.e. a variance of $18,000 ($18,000 / 170,567.3 TJ = $ / GJ impact on rates). At the end of the test period the utility s rate base is trued up for actuals. The result is that in following years the utility only recovers costs related to actual capital expenditures that were made during the previous test period. For this reason, after the test period, the utility would recover its cost of service related to its actual capital costs and the $739,000 versus the $611,000 estimate would no longer have any impact on rates. Page 2