3700 2 nd Avenue Burnaby, BC V5C 6S4 January 23, 2014 Via Email Original via Mail 6 th Floor, 900 Howe Street Vancouver, BC V6Z 2N3 Attention: Ms. Erica M. Hamilton, Commission Secretary Dear Ms. Hamilton: Re: Thermal Energy System (TES) Utilities Regulatory Framework British Columbia Utilities Commission (BCUC or Commission) TES Regulatory Guide Submissions from FortisBC Alternative Energy Services Inc. (FAES) On January 6, 2014, the Commission issued Order G-231-13A and Reasons for Decision. The Commission found that exemptions from certain provisions of the Utilities Commission Act (Act) properly conserves the public interest, and determined that it will seek approval for such exemptions from the Lieutenant Governor in Council (LGIC) pursuant to section 88(3) of the Act. FAES is supportive of these determinations. The Commission requested further submissions from the Interveners on two specific topics in order for the Commission to issue a final TES Framework and Guide. The specific issues that the Commission has asked Interveners to address in Order G-231-13A are as follows: (a) What is the appropriate TES minimum threshold amount (project dollar value below which an Exemption from regulatory oversight exists)? When commenting on the appropriate threshold amount, parties are asked to provide any evidence necessary to support their proposal considerations and amount; (b) The Panel invites submissions from the parties on the appropriateness of an extension test, in lieu of a CPCN application, for Stream B plant or system extensions and the circumstances under which such a test would be appropriate.
Page 2 These submissions address the above topics from Order G-231-13A, followed by additional comments. I. What is the appropriate TES minimum threshold amount (project dollar value below which an Exemption from regulatory oversight exists)? On pages 5-6 of the Decision accompanying Order G-231-13A, the Commission makes the following determinations on the proposed framework: 1. The Panel approves the Stream A exemption proposed by staff subject to the following changes: All systems below a minimum threshold should be exempt from Part 3, except for sections 42 and 43 of the Utilities Commission Act (UCA). This is referred to as the Micro TES exemption. The Stream A regulatory model should apply to all on-site TES Systems with a capital cost in excess of the minimum threshold and below a maximum threshold. The maximum threshold should be set initially at $15,000,000.00. Parties are invited to provide submissions regarding the quantum of the minimum threshold. The maximum and minimum thresholds should be subject to change as determined by the Commission following a hearing. The Stream A regulatory model should include exemption from sections 45 and 61 of the UCA, in addition to the proposed exemption from sections 44(1), 59 and 60. All other TES Systems are subject to the Stream B regulatory model, including CPCN requirements and rate approval. This determination is in contrast with the Final Staff Proposal, which proposed that On-Site TES with a Single Customer (Customer is not a Strata Corporation) be exempted from regulation under the Act, except for section 42 and 43 of the Act, which deal with the public utility s duty to obey orders and provide information that the Commission requests. (Exhibit A-2, Appendix A, pp. 10-12). The Commission determination, in effect changes the criteria for full regulatory exemption from, On-Site TES with a Single Customer to Micro TES System below a Minimum Threshold. FAES supports the Panel s determination that the Stream A regulatory approach should apply regardless of the number of customers. In its Decision, the Commission states that, the Micro TES System exemption is intended to capture the case of a homeowner or a small business entering into an agreement with a TES provider. The TES provider may potentially supply the customer with any of a range of thermal services involving a furnace, air conditioner, air source heat pump, ground source heat pump (GSHP) or similar apparatus, the Micro TES System exemption should be large enough to accommodate a project undertaken by or for a small group of homeowners or
Page 3 small businesses, such as a GSHP that may be shared by that group. (Order G-231-13A, Appendix A, p. 31) FAES expects that over time, as projects are brought forward under the TES Framework, all parties will get further clarity on how it will work in practice. To this end, FAES recognizes the Panel s determination that, the maximum and minimum thresholds should be subject to change as determined by the Commission following a hearing. FAES submits that this review process is a key aspect of the TES Framework as it will provide the Commission with opportunities to update the TES Framework to reflect lessons learned and also, potentially, to review the principle behind the Micro TES System exemption. Nevertheless, to be responsive to the Commission s request for comments on the TES minimum threshold, FAES submits that a Micro TES System of the type described on page 31 of the Commission Decision could be approximately $100,000. II. Appropriateness of an extension test, in lieu of a CPCN application, for Stream B plant or system extensions and the circumstances under which such a test would be appropriate. FAES submits that either a CPCN application or an extension test for Stream B plant or system extensions could be appropriate, depending upon the size of the plant or system extension relative to the size of the initial Stream B plant or system. On page 32 of the Decision accompanying Order G-231-13A, the Panel agrees with Commission staff that it is not appropriate at this time to exempt Stream B Systems from any aspect of the UCA. However, the Panel also agrees with the findings of the AES Inquiry that alternatives to cost of service based rates may be more appropriate rate setting mechanisms. In this regard, the Panel notes the streamlined CPCN application process and the rate setting guidelines for Stream B Systems in the proposed TES Framework. The Panel agrees with this approach. Appendix F of the TES Utility Regulatory Guide, as currently proposed, reaffirms that approval of a TES CPCN is governed by sections 45-46 of the UCA and provides the following review criteria for Stream B TES CPCN applications: the project scope and description is defined; the project is in the public interest; there is a need for the project; the TES will provide safe, reliable and operationally sustainable service; the technical components of the project are designed by qualified persons; peak design day and back-up energy/systems are provided for; British Columbia s energy objectives are considered in the chosen system;
Page 4 the risk of stranded assets is low or reasonably mitigated; capital and operating costs are appropriately estimated and reasonable; project risks are identified, described and mitigated to a reasonable extent; and the Applicant has the financial and project execution capacity for the ongoing project. It follows that, in receiving its CPCN approval, a Stream B TES System would have already demonstrated that the project is in the public interest, there is a need for the project, the risk of stranded assets is low or reasonably mitigated, and capital and operating costs are appropriately estimated and reasonable, among other things. Therefore, FAES submits that, as the initial Stream B TES System expands, whether through an extension to the distribution or generation portion of that system, the need for a new CPCN application for a Stream B plant of system extension is either greatly diminished or entirely eliminated. FAES submits that the fundamental question in the case of a plant or system extension is: Are the capital costs necessary to provide the service extension to new customers recoverable from those customers through the thermal energy rate? The rationale for using an extension test is to ensure that existing customers of the TES System are not worse off as a result of adding new customers on the system. Therefore, FAES submits that an extension test in lieu of a CPCN application would be appropriate for Stream B plant or system extensions in most instances. In FAES view, the circumstances where a CPCN application could still be warranted for a Stream B plant or system extension exist where the capital investment for the plant or system extension is larger than that of the initial Stream B plant or system. Therefore, FAES proposes that if the ratio of the plant or system extension capital costs to the initial costs is higher than 1, then a CPCN application may be warranted. Additional Comments Reference to section 44(1) versus 44.1 of the Act The Panel refers to section 44(1) of the Act in the following instances: The Stream A regulatory model should include exemption from sections 45 and 61 of the UCA, in addition to the proposed exemption from sections 44(1), 59 and 60. (page 6) The Panel refers to the BCPSO being unclear why the Draft Order exempts Stream A TES Utilities from section 44(1) of the UCA (i.e. the requirement to have an office in BC in which the Utility must keep all accounts and records required by the Commission). (page 19) The Panel considers that Stream A should also include an exemption from section 61 of the UCA. Accordingly, above the [**the word minimum is missing**]
Page 5 threshold amount, and up to $15,000,000.00, for on-site TES Systems, the TES Framework should provide exemptions from section 44(1), 45, and 59-61 of the UCA. (page 29) The Panel refers to section 44.1 of the Act in the following instance: The Stream A regulatory model should include exemption from sections 45 and 61 of the UCA, in addition to the proposed exemption from sections 44.1, 59 and 60. (page 22) On page 4 of the May 9, 2013 Strawman document from Commission Staff, Staff notes: Appendix J Draft Order exempting Stream A utilities from rate setting under section 59-60 and from filing long-term resource plans under section 44(1) of the UCA This phrase, filing long-term resource plans under section 44(1) is clearly a reference to section 44.1, and not section 44(1), which is the duty to keep records section. FAES is only pointing this out in order to avoid any further confusion regarding this matter. FAES assumes that the intent throughout is to refer to an exemption from section 44.1, and not from section 44(1), which deals with an entirely different subject matter. If you require further information or have any questions regarding this submission, please contact Grant Bierlmeier at (250) 380-5794. Sincerely, FORTISBC ALTERNATIVE ENERGY SERVICES INC. Original signed by: Grant Bierlmeier For: Gareth Jones cc (email only): Registered Parties