ERICA HAMILTON COMMISSION SECRETARY Commission.Secretary@bcuc.com web site: http://www.bcuc.com SIXTH FLOOR, 900 HOWE STREET, BOX 250 VANCOUVER, BC CANADA V6Z 2N3 TELEPHONE: (604) 660-4700 BC TOLL FREE: 1-800-663-1385 FACSIMILE: (604) 660-1102 Log Nos. 44224, 44029 VIA EMAIL June 19, 2014 FORTISBC INC PERFORMANCE BASED RATEMAKING REVENUE REQUIREMENTS 2014-2018 EXHIBIT A-43 FORTISBC ENERGY PERFORMANCE BASED RATEMAKING REVENUE REQUIREMENTS 2014-2018 EXHIBIT A-37 To: FortisBC Energy Inc. and FortisBC Energy Inc. Registered Interveners Re: FortisBC Energy Inc. and FortisBC Inc. Project No. 3698715/Order 99-13 Project No. 3698719/Order G-109-13 Applications for Approval of a Multi-Year Performance Based Ratemaking Plan for 2014 through 2018 The Panel has examined the evidentiary record and the submissions of FortisBC Inc./FortisBC Energy Inc. (FBC/FEI) and Interveners and the Panel has determined that it requires further clarification on certain issues. Accordingly, FBC/FEI and the Commercial Energy Consumers Association of British Columbia are requested to respond to the attached Commission Panel Information Requests (IR). In addition, the Commission Panel will issue a short list of additional topics to all parties to be addressed in the manner described below. All parties are invited to participate in an Oral Argument Phase to be held on the 12 th Floor, 1125 Howe Street, Vancouver, on Monday, July 14, 2014, commencing at 9:00 am. Parties are invited to make submissions on IR responses and the additional topics to be issued by the Panel. Accordingly, the following regulatory timetable is established: ACTION DATE (2014) FBC/FEI Responds to Panel IRs Friday, June 27 Panel s Issues additional topics to be addressed in Oral Argument Friday, June 27 Oral Argument on the Panel IRs, related responses, and the Panel s additional topics Monday, July 14 Parties are requested to confine their submissions during the Oral Argument Phase to those items identified in the Panel IR responses and the additional topics to be issued by the Panel on June 27, 2014. Yours truly, YD/dg Enclosures Erica Hamilton PF/FEI/PBR 2014-2018/A-37-FEI, A-43-FBC-Panel IRs and Oral Argument
BRITISH COLUMBIA UTILITIES COMMISSION COMMISSION PANEL INFORMATION REQUEST NO. 1 TO FEI AND FBC FortisBC Energy Inc. (FEI) and FortisBC Inc. (FBC) Applications for Approval of a Multi-Year Performance Based Ratemaking Plan for 2014 through 2018 (2014-2018 PBR RRA) 1.0 Reference: MULTI-YEAR PERFORMANCE BASED RATE-MAKING MECHANISM FEI-FBC Final Submission on PBR Issues, p. 21 Dr. Lowry s I-X-Formula Imposes Unrealistic Expectations: Dr. Overcast assessed the practical implications of Dr. Lowry s I-X formula (an exercise that, significantly, Dr. Lowry never sought to perform), 45 correctly noting that I X is not just an academic debate.if the results of the application of a formula provide no opportunity for the utility to earn its allowed return there is no reasonable basis for adoption of the formula. 46 Dr. Overcast summarized the practical outcome of Dr. Lowry s formula as follows: The PEG formula produces a cumulative shortfall in O&M revenues and capital expenditures relative to forecasts of between $112 million and $129 million for FEI depending on the low or high construction cost case and $34 million for FBC. These values are up to four and a half times as large as the required savings under the Companies PBR Plan. In other words, the PEG formula would require that the Companies achieve over four times the efficiency savings than those already proposed by the Company. 47 1.1 For the cumulative shortfall in O&M revenues and capital expenditures relative to forecasts shown below, please provide a copy of the calculations in the form of a fully functional spreadsheet: (i) $112 million FEI cumulative shortfall in O&M revenues and capital expenditures. (ii) $129 million FEI cumulative shortfall in O&M revenues and capital expenditures. (iii) $34 million FEI cumulative shortfall in O&M revenues and capital expenditures. The spreadsheet should provide a breakdown of the shortfall by O&M revenues and capital expenditures by year. 1.2 Please provide the X-factor assumptions and show the calculation of I-factors used in the calculation of the cumulative shortfall in O&M revenues and capital expenditures in the preceding question. 1.3 For the FEI shortfalls of $112 million and $129 million and the FBC shortfall of $34 million, please provide by year the capital and non-capital (O&M, depreciation and amortization, and taxes) expenditures subject to the X-I mechanisms proposed FBC/FEI and Dr. Lowry. FEI-FBC-2014-2018 PBR RRA 1 Commission Panel IR No. 1 to FEI and FBC
2.0 Reference: MULTI-YEAR PERFORMANCE BASED RATE-MAKING MECHANISM FEI, Exhibit B-1, Section B4.2, p. 34; FBC, Exhibit B-1, Section B4.2, p. 31 2.1 For FEI, please calculate the O&M and Capital spending envelope for each of the following years: 2010, 2011, 2012 and 2013 give the following assumptions: 1. Using the formula from the 2004 PBR Plan for the year 2009. 2. Using the formula proposed in this proceeding. Base the 2010 calculation on the 2009 formula driven spending envelope. Include the requested information in the form of a fully functioning electronic spreadsheet. 2.1.1 In each of the above cases, please compare the formula driven spending envelope to actual spending. 2.2 For FBC, please calculate the O&M spending envelope for each of the following years: 2012 and 2013 give the following assumptions: 1. Using the formula from the 2007 PBR Plan for the year 2009. 2. Using the formula proposed in this proceeding. Base the 2012 calculation on the 2011 formula driven spending envelope. Include the requested information in the form of a fully functioning electronic spreadsheet. 2.2.1 In each of the above cases, please compare the formula driven spending envelope to actual spending. 3.0 Reference: OPERATATIONS AND MAINTENANCE EXPENSES FEI Exhibit B-1-5, Covering Letter, p. 2; FBC Exhibit B-1, p. 112 3.1 For FBC, please provide the Actual 2013 O&M and capital expense by Department as compared to the 2013 Approved and the 2013 Projection. 3.2 For FBC and FEI 2013 Actuals, please provide an outline of the sustained versus temporary savings with an explanation of why each has been classified as such. FEI-FBC-2014-2018 PBR RRA 2 Commission Panel IR No. 1 to FEI and FBC
BRITISH COLUMBIA UTILITIES COMMISSION COMMISSION PANEL INFORMATION REQUEST NO. 1 ON INTERVENER EVIDENCE TO COMMERCIAL ENERGY CONSUMERS ASSOCIATION (CEC) FortisBC Energy Inc. (FEI) and FortisBC Inc. (FBC) Applications for Approval of a Multi-Year Performance Based Ratemaking Plan for 2014 through 2018 (2014-2018 PBR RRA) 1.0 Reference: MULTI-YEAR PERFORMANCE BASED RATE-MAKING MECHANISM FEI Exhibit C1-9, pp. 71-72; FEI Exhibit C1-22, BCUC IR. 2.4.1 In the response to BCUC Information Request (IR) 2.4.1 in FEI, Exhibit C1-22, CEC states: Here are Dr. Lowry s final recommendations for the attrition relief mechanisms. Results are provided for both the 2 ARM [attrition relief mechanism] and single-arm approaches. In Dr. Lowry's view, the single-arm approach has a more solid empirical foundation provided that the capital cost tracker is redesigned along more conventional lines. The second round of BCUC data requests has given Dr. Lowry the opportunity to discuss the outlines of more appropriate capital cost trackers. Dr. Lowry has provided the following recommendations: Gas Electric Reference: O&M Capital Single ARM O&M Capital Single ARM FEI, Exhibit C1-9, CEC Evidence, pp. 71-72 FBC, Exhibit C6-9, CEC Evidence, pp. 71-72 1.18% 1.18%-1.54% 1.16%-1.33% 1.71% 0.81%- 1.25% 1.15%-1.38% FEI Exhibit CEC 1-22, BCUC 2.4.1 FBC, Exhibit CEC 6-21, BCUC 2.4.1 1.18% 2.45% 1.16% a 1.71% 1.06% 1.13% a a Assuming a reformed capital tracker 1.1. Please confirm the values in the table above. If not confirmed, please provide the correct values. 1.2. Please confirm that the X Factors provided in Dr. Lowry s initial study are calculated from the sum of the multifactor productivity (MFP) values obtained from Dr. Lowry s study (FBC, Exhibit C6-9, CEC Evidence, pp. 71-72) and a Stretch Factor of 0.2. If not confirmed, please explain how these values are derived. 1.3. Please explain fully all of the changes that were made to the single attrition relief mechanism (ARM) and double ARM X factors in the CEC Evidence (FEI, Exhibit C1-9-1) to arrive at the single ARM and double ARM X factors in FBC, Exhibit CEC 6-21, BCUC IR 2.4.1. Also, please fully explain the reasons for any changes that were made. 1.4. Please confirm the reason that the single ARM approach has a more solid empirical foundation than the double ARM approach is because total factor productivity (TFP) and MFP studies do not breakout productivity into capital and O&M productivity. If yes, please explain on what basis the Double ARM X factor recommendations are made. 1.5. Please explain fully what is meant by provided that the capital cost tracker is redesigned along more conventional lines. How has Dr. Lowry assumed that the capital cost trackers are redesigned in his X factor calculations in FEI, Exhibit C1-22, BCUC IR 2.4.1? Please explain in detail. FEI-FBC-2014-2018 PBR RRA 1 Commission Panel IR No. 1 to CEC
1.6. Are Dr. Lowry s single ARM X factor and his X factor for capital in the double ARM approach meant to be applied to all of the company s total revenues (in the single ARM case) or capital expenditures (in the double ARM case) with no capital expenditures excluded due to capital cost trackers or Certificate of Public Convenience and Necessity (CPCN) capital projects? If this not the case, please explain in detail to which revenues the double ARM X factor should be applied. 1.7. Using the X factors in FEI, Exhibit C1-22, BCUC IR 2.4.1, is it Dr. Lowry s intention that the company would still receive additional revenue from a capital cost tracker? Please explain and justify the response. 1.8. Are any allowances made in either of the single ARM X factors in the above chart or the O&M X factors in the double ARM approach for uncontrollable O&M expenses? 1.9. How were uncontrollable O&M expenses handled in the TFP growth studies, both the ones in the Dr. Lowry s evidence (FEI, Exhibit C1-9-1) and the ones in in FEI, Exhibit C1-22, BCUC IR 2.4.1? Does Dr. Lowry intend for the O&M X factor in the double ARM approach to be applied to all of the company s O&M revenue? Please explain in detail and provide a justification for the response. 2.0 Reference: MULTI-YEAR PERFORMANCE BASED RATE-MAKING MECHANISM FBC Exhibit C6-9, p. 71 Suppose, for example, that the Commission prefers that Fortis operate under comprehensive revenue cap indexes similar to those that apply to gas utilities in Alberta. For FEI, our research supports X factors in the [1.16%, 1.33%] range. 2.1. Please confirm that Dr. Lowry s suggested single ARM X factor is applicable to a Revenue Cap formula. If not, please explain to what kind of formula the single ARM X factor applies. 2.2. Please explain which revenues Dr. Lowry s recommended single ARM factor should be applied to in Fortis proposed building block approach. Please fully discuss the relationship between the single ARM X-Factor and uncontrollable O&M and CPCN capital excluded from the formula(s) in your explanation. 3.0 Reference: MULTI-YEAR PERFORMANCE BASED RATE-MAKING MECHANISM FEI Exhibit C1-25, p. 11 The Commission staff elected in the second round of data requests to lodge extensive questions about capital trackers. Thoughtful answers were appropriate. Based on this discussion, the CEC s consultant, Dr. Mark Lowry, stated that there is no established methodology for adjusting X factors for capital cost trackers and therefore modestly REDUCED the X factor to reflect only the MFP trend of the industry. Dr. Lowry also stated that they also substantially REDUCED the X factor for electric capex, taking advantage of new econometric results occasioned by another Commission staff question. The Commission staff seemed to seek comments and Dr. Lowry provided an on-time response. 3.1. With respect to the table in Question 1 above, please explain which X factors were reduced. 3.2. Why did Dr. Lowry reduce the X factors to adjust for capital cost trackers? Which X factors were reduced? Please explain in detail. If there is no established methodology for adjusting X factors for capital cost trackers, how did Dr. Lowry determine the amount by which he reduced the X factors? Explain in detail. Please relate the reduction in X factors to the X factors in FEI, Exhibit C1-9 and those in FEI, Exhibit C1-22, BCUC IR 2.4.1 as reproduced above. FEI-FBC-2014-2018 PBR RRA 2 Commission Panel IR No. 1 to CEC
3.3. What new econometric results led Dr. Lowry to substantially reduce the X factor for electric capex? To which Commission staff questions is Dr. Lowry referring? What is the extent of this reduction in the electric capex X factor, and how was it determined? Explain in detail. Please relate the reduction in the X factor for electric capex to the X factors in Exhibit C1-9 and those in FEI, Exhibit C1-22, BCUC IR 2.4.1 as reproduced above. 3.4. When considering the X factor changes from FEI Exhibit C1-9 to FEI Exhibit, C1-22, BCUC IR 2.4.1, please explain clearly the changes that are due to the handling of capital cost trackers, new econometric results, the design of more appropriate capital cost trackers, and any other causes of an increase or decrease in the X factors. FEI-FBC-2014-2018 PBR RRA 3 Commission Panel IR No. 1 to CEC