D B<1rry Klr!.JtJ.m, QC lames D Burns h>ff!-,~y B L:ghtfoot' Cbnstopher P \\'e<lfn' \lldl<wl P Vaughan r!e>athpr E \1a;:,md~. hj~.~ J Mh,ln J :\PSk'}' P Jm,'la E Sheppard K<ithdfll'!d i\ SpPtJ:l ( -d r~ i PHk'S, t\s<;o\'ldtf Cc>ur1S<'I' Roh:n C \1Jddr!ane' Duncan l \L:mson~ Dan1d \\' Burrwtt, QC' [\ona!d C Paton Cregory I Tud...( r' rcrorkp \Y Yu' ]dmes I! \kbeath' Sus,m C Cdd1nst Rose-\1My l!)asham, ex, i\~sondte Counsel' lloc \\'d!terschyer:,oc,(x'.lj D(J9R!) John! B1nl QC (,:?.005) Douglas R John.;;on' ~\Jan A Frytknlund+ llarv,~y S Ddan<'\'~ Paul j Brown' Karen S fhomp5on 1-!ark y J 1-!c~rns~ Paul A Brarkston('' Ecllth :\ Rydn DMltelll Col, s!osephn-w ~v1 :'\ddc>l' r\!hson R Kuchta"' _!a:nc"s L CMpKK' L1tnck J! ldlx~r! Cary \l Y afft~~ jonathc~n L Wdlhlms Sl'ott 11 Stepht ns' J<>rT;~. sw?alt'ioft J.. xelyn \1 Le Drt~"'>d} ldh Cl)fjXWiltl~m Also llf tlw Yd,on [)dj PO Box 49130 Three Bentall Centre 2900-595 Burrard Street Vancouver, BC Canada V7X 1)5 August 29, 2014 VIA ELECTRONIC MAIL British Columbia Utilities Commission Sixth Floor, 900 Howe Street Vancouver, BC V6Z 2N3 Telephone 604 688-0401 Fax 604 688-2827 Website www,owenbird,com Direct Line: 604 691-7557 Direct Fax: 604 632-4482 E-mail: cwcafcrjtowcnbird.com Our File: 23841/0106 Attention: Ms. Erica M. Hamilton, Commission Secretary Dear Sirs/Mesdames: Re: FortisBC Energy Utilities ("FEU") Common Delivery Rates Methodology Application, Project No. 3698793 We arc counsel to the Commercial Energy Consumers Association of British Columbia (CEC). Attached please find the CEC' s Final Submission with respect to the above-noted matter. A copy of this letter and attached Final Submission have also been forwarded to FEU and registered interveners by e-mail. Should you have any questions regarding the foregoing, please do not hesitate to contact the writer. Yours truly. 0\VEN BIRD LAW CORPORATION Christopher P. Weafcr CPW/jlb cc: CEC cc: FEU cc: Registered Interveners! oo 184970:1 I INTER LAW
Commercial Energy Consumers Association of British Columbia ("CEC") Final Submissions FortisBC Energy Utilities Common Rates Methodology Application Project No. 3698793 The CEC represents the interests of customers consuming energy under the Commercial tariffs of FortisBC Energy Utilities ("FEU"). Pursuant to the British Columbia Utilities Commission Decision ("BCUC") dated February 26, 2014 and Order G-21-14, the FEU will be amalgamating on December 31, 2014 and request approval of the methodology for implementing common delivery rates for the Amalgamated Entity (excluding Fort Nelson). Specifically the FEU request approval for: 1. Amalgamation Flow-Through Account to be included in rate base in 2015; 2. Calculation of 2014 common delivery rates that will be utilized in the Annual Review process to compute the 2015 deficiency or surplus at existing 2014 rates to determine the 2015 common rates; 3. Approval of the RSDA Rate Riders for 2015 resulting from the balances in the FEVI RSDA and Gas Cost Variance Account ("GCVA"); 4. Approval of the Phase-in Rate Riders for 2015; 5. Approval of the non-rate base Phase-in Rider Balancing Account to capture the differences between the Phase-in Rate Rider amounts collected from Vancouver Island and Whistler customers and the amounts distributed to former FEI (or Mainland) customers each year from 2015 through 2017. The CEC has reviewed the application and responses to intervener information requests and provides the following Submissions. Amalgamation Flow-Through Account to be included in rate base in 2015. The FEU indicate that the forecast costs of amalgamation will be in the order of $2.2 million, with forecast annualized savings of $430,000 recovering costs in 5 years. 1 The FEU requests the approval of a temporary amalgamation flow through deferral account to match costs with savings. The account will be discontinued once the costs of amalgamation are fully recovered. 2 A similar request was denied previously by the BCUC as the phase-in plus interest expense savings were expected to recover costs without the need for a deferral account. 3 The FEU requests the 1 Exhibit B-1, page 16 2 Exhibit B-1, page 11 3 BCUC Order G-21-14 1 {00187526;1}
use of a deferral account as they indicate that there is no alternative, practical way to use the phase in of FEW and FEVI rates given that it is revenue-neutral, along with the interest expense or any other related savings to offset the costs of amalgamation 4 The CEC submits that the use of a deferral account is an established and appropriate methodology for matching costs to benefits over time. The CEC accepts that the revenue-neutral aspects of the phase-in makes the use of deferral account necessary and that the temporal impacts of other amalgamation related savings would be inappropriate with a PBR process 5 which may be approved in the future. The FEU's original request for deferral treatment included an amortization of the account and it has revised this to zero out over time. 6 The CEC submits it may have been a more attractive option in terms of intergenerational equity to have amortized the account, but submits that this may be of insufficient consequence to justify an alteration. The CEC therefore recommends approval of the temporary deferral account as proposed by the FEU although the CEC would support an amortized approach. The FEU have forecast costs of $2.2 million for Amalgamation 7 These include $150,000 in customer service and billing. The FEU requires approximately 6 additional customer service personnel for about 6 months 8, which the CEC expects will be reasonable. The FEU include $500,000 in Communications and Media 9 which may also be reasonable. The FEU have already undertaken significant customer communications including news releases, and bill inserts however this has focused primarily on the amalgamation process. The content ofthe communication materials will include more detailed information on the impacts of common rates specific to the region. 10 The CEC remains concerned with the difficulty of cleanly attributing costs and savings to amalgamation, especially during PBR, in which the company is rewarded for cost reductions that are not attributed to amalgamation. The CEC submits that should the proposed Performance Based Ratemaking (PBR) be approved, an incentive will exist for the company to over-estimate and then underspend amalgamation costs, to include activities that contribute to general O&M savings in amalgamation costs and to underestimate the predicted savings. The CEC notes that although the forecast costs of amalgamation have risen by less than 10% from the original estimate, that there have been significant changes in several of the individual cost items, with considerable decreases in legal and treasury being offset by increases in customer service and billing, information systems and accounting finance 11 Similarly the expected savings remain as approximations and include fairly generic descriptions of 'regulatory efficiencies', legal efficiencies' and 'other financial efficiencies'. 12 The CEC submits that the forecasts do not provide a sufficient basis for assessing the costs and savings attributable to amalgamation under 4 Exhibit B-1. page 11 5 Exhibit B-2, BCUC 1.1.2 6 Exhibit B-2, BCUC 1.1.1 7 Exhibit B-1, page 13 8 Exhibit B-3, CEC 1.2.1 9 Exhibit B-1, page 13 10 Exhibit B-3, CEC 1.3.2.1 11 Exhibit B-1, page 13 12 Exhibit B-1, page 16 2 {00187526;1}
PBR regulation and further submits that it is imperative that the costs and savings allocated to the deferral account are regularly reviewed at a detail level. The CEC recommends that the Commission ensure that there is a detailed annual review of the costs and savings that are attributed to amalgamation. Calculation of 2014 common delivery rates that will be utilized in the Annual Review process to compute the 2015 deficiency or surplus at existing 2014 rates to determine the 2015 common rates; The CEC notes that the amalgamation cost of service costs incorporate estimates in a number of case and would be different if update with actuals 13 The CEC submits that the Commission as part of finalizing the common rates implementation may want to ensure that there is adequate process to review the final cost of service used to determine rates. The CEC has reviewed the proposed methodology as described in Section 4 of the Application. The result is a lower cost of service than was originally projected in the 2012 application 14. The CEC accepts the FEU's methodology for calculating the combined cost of service by combining the standalone costs of the three utilities and adjusting for intercompany costs and amalgamation adjustments 15 The CEC accepts the intercompany eliminations as appropriate. FEU proposes to reclassify $1.306 million in cost of gas to O&M and eliminate $229 thousand in gas control management fees 16 The gas reclassification is predominantly company use compressor fuel 17. The CEC agrees that these costs are appropriately considered an O&M cost that should be recovered from non-bypass Sales and Transportation customers 18 FEU will continue to treat Unaccounted For Gas (UAF) as a component of the cost of gas 19 which the CEC accepts as appropriate. The CEC submits that amalgamation adjustments including elimination of FEW contribution to FEVI, decrease in earned return and decrease in income tax are acceptable. 20 The CEC has reviewed the methodologies for the calculations and the earned return and finds them acceptable. FEU will utilize the short-term interest rates that are forecast for the amalgamated entity when calculating delivery rates which captures any potential savings 21 which the CEC accepts. The FEU will adopt FEI rate schedules for the Amalgamated Entity (Amalea) as proposed in the application. The FEU has mapped FEVI and FEW rate schedules. The CEC accepts the mapping as appropriate. When mapping FEVI the company identified 80 customers who qualified for alternative 13 Exhibit B-2, BCUC 1.4.1 to 1.4.5 14 Exhibit B-1, page 24 15 Exhibit B-1, page 17-18 16 Exhibit B-1, page 20 17 Exhibit B-3, CEC 1.4.1 18 Exhibit B-3, CEC 1.4.2 and 1.4.3 19 Exhibit B-3, CEC 1.4.4 20 Exhibit B-1, page 21 21 Exhibit B-1, page 24 3 {00187526;1}
rate schedules than was filed in the original application. These customers were appropriately allocated to the least cost alternative. 22 The FEU calculated the revenue deficiency by rate schedule. The deficiency was divided by forecast volumes to calculate the required increase in variable rates. The CEC submits this is an appropriate process for allocating the deficiencies. The FEU calculated the balance in the Rate Stabilization Deferral Account (RSDA) and allocated the RSDA rider to a three year period. The FEU conducted 4 scenarios and recommended Scenario D which results is a 40%; 42% and 18% allocation in years 2015, 2016 and 2017 respectively. 23 FEU states that this scenario represents the 'smoothest' delivery rate impact to FEI customers with the largest allocation of the RSDA in 2015 with annual bill impacts in the order of 1% in 2015, 1% in 2016 and 2% in each of 2017 and 2018. 24 The CEC requested and was provided with the Live Spreadsheet to model various scenarios 25 The CEC has conducted a review of additional alternatives and agrees that the FEU proposal is suitable and represents a reasonable transition for customers. The FEU considered several options for the phase-in of the delivery rate and basic charges and opted to phase in the variable rate change only for FEVI and FEW customers with the offsetting amount allocated to FEI customers? 6 The CEC has reviewed the proposed phase-in of the delivery rates and finds them to be suitable. The CEC submits that the combined delivery rate impacts of the common rates, Phase in rider for FE I, FEVI and FEW customer and the RSDA rider for FEI customers is appropriate. The CEC notes that reductions are highest in year 2015 for FEVI and FEW customers and this corresponds with decreases for FEI customers in 2015. In the years 2016 and 2017 when FEI customers are receiving rate increases, FEVI and FEW customer will be receiving more moderate rate reductions in their bills 27 FEU does not propose to phase in changes to the Basic charge. The FEU states that the impact of the basic charge have been considered in the proposed phase-in of delivery rates, and that the communications relating to a phase-in of both the delivery rate and basic charge to be overly difficult. 28 The CEC notes there is an overall increase in the revenues to be derived from the basic charge which will reduce the calculated revenue deficiency upon amalgamation and accordingly the increase in the common variable delivery rate 29 The CEC submits this is a considerable advantage. CEC notes that there is substantial variation in the basic charge changes for each rate class especially within FEVI including expected reductions of over $2400 per month and increases of up to $107 per month? 0 While the CEC does not consider the phase in of the Basic charge to be overly complicated in terms of communications, the CEC notes that the most significant changes will be in reductions and submits that it is not inappropriate to provide the basic charge reductions at the outset as proposed by the FEU. 22 Exhibit B-1, page 25 23 Exhibit B-1, page 30 24 Exhibit B-3, CEC 1.7.4 25 Exhibit B-3, CEC 1.7.2 26 Exhibit B-1, page 35 27 Exhibit B-1, page 38 28 Exhibit B-1, page 34 and Exhibit B-3, CEC 1.91.1 29 Exhibit B-3, CEC 1.9.2 and 1.9.4 30 Exhibit B-3, CEC 1.9.2 4 {00187526;1}
The CEC recommends that the Commission approve the application as filed including: 1. Approval of the Amalgamation Flow-Through Account to be included in rate base starting in 2015. 2. Approval of the calculation of 2014 common delivery rates that will be utilized in the Annual Review process to compute the 2015 deficiency or surplus at existing 2014 rates to determine the 2015 common rates, subject to the compliance filings following the PBR Decision of updated 2014 financial schedules for FEI, FEVI, FEW and the Amalgamated Entity. 3. Approval of the RSDA Rate Riders for 2015. 4. Approval ofthe Phase in Rate Riders for 2015 as set out in Table 4-15 and 4-16 subject to updates. 5. Approval of the non-rate base Phase-in rider balancing account. 5 {00187526;1}