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D Barry Knkhan\, QC'-
kffr('y B L 1ghtfooc ChnsfophH P \Y eaf,--.r" \1Jd<at'l P V aughdn
lleatlwr E MaronachJe \1!d1dt'l F Robson~
l:',;charv J Ans!vv· Ccory,c l Roper
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Robm \1adarlarw' Duncan ! \l.-u1son r Damt>l W Burnett OC ~ Ronald C Palon"
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l'ercnt.T Yu" Jan~es 1-l \kB,~ath · Edlth A Ryanv Damt~ll-l Colt'S
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C.::rl I P11ws, Asso~·!dlt' Counsc:'
Ruse~\lary ! BashaJ~1, QC ,\ssonatt' C(Jtnsd' Hon \\-dlterSOwcn,OC, LLDlt981) john ! Bm_i, (2~105)
November 1 2015
VIA ELECTRONIC MAIL
Douglas R Johnson'
Alan Frydenlund, QC · fi<Jrvcy D~·larh'Y'
Karen S Thompson'
Hdrley J ll,lrns' f)dul ;\ Brack.stOJw' • Jan1es \\' /a1tsoW
Jon'lyn \11 (' Dressav
British Columbia Utilities Commission 6111 Floor, 900 Howe Street Vancouver, B.C. V6Z 2N3
joscphm~~ \1 :'-Jddt"l+
r\il!son R Kuchta•
James LCarpJCk+ Patrick J Habcrlv
Cary \i Yaffe"
Jonath.m L Wd!Jdms· Scott H Stf'pbcns~
f\mwla E Sheppard Kathann..-1 R Spotzl
Corporator;
ef the 'rukon Ht1r
Attention: Ms. Erica Hamilton, Commission Secretary
Dear Sirs/Mesdames:
PO Box 49130 Three Bentall Centre 2900-595 Burrard Street Vancouver, BC Canada Y7X 1]5
Telephone 604 688-0401 Fax 604 688-2827 Website www.owenbird.com
Direct Line: 604 691-7557
Direct Fax: 604 632-4482
E-mail: cwcafcr'((owenbird.com
Our File: 23841/0129
Rc: FortisBC Inc. (FBC) Annual Review of2016 Rates, Project No. 3698847
We are counsel to the Commercial Energy Consumers Association of British Columbia (CEC). Enclosed please find the CEC's Submissions with respect to the above-noted matter.
A copy of this letter and attached Submissions have also been forwarded to FBC and registered interveners by e-mail.
If you have any questions regarding the foregoing, please do not hesitate to contact the undersigned.
Yours truly.
OWEN BIRD LAW CORPORATION
C1h CPW/jlb cc: CEC cc: FBC
a fer
cc: Registered Interveners
( 00396343:1 ) lNTERLAW
COMMERCIAL ENERGY CONSUMERS ASSOCIATION OF BRITISH COLUMBIA (CEC)
FINAL SUBMISSIONS
FORTISBC INC. Multi-Year Performance Based Ratcmaking Plan for 2014 through 2019 Annual Review for 2016 Rates
CEC Final Submissions
Introduction
1. The CEC represents the interests of those customers receiving service under commercial
tarim; in applications before the BC Utilities Commission (BCUC or Commission). The
CEC participated in the Performance Based Ratemaking proceeding and offers the
following comments on the 2016 Annual Review.
2. FBC is requesting approval of the following pursuant to sections 59 to 61 of the Utilities
Commission Act:
a. Interim rates for all customers effective January 1, 2016, resulting in a general
increase of 3.12 1 percent compared to 2015 rates for all customer classes.
Rates will remain interim pending the outcome ofFortisBC Energy Inc.'s (Ff~I's)
current cost of capital proceeding.
b. The creation of three deferral accounts for the following regulatory proceedings
o Application for approval of the Capacity and Energy Purchase and Sales
Agreement (CEPSA) with Powerex Corp financed at FBC's short term
Interest rate: and
o 2017 Rate Design Application, financed at FBC's weighted average cost of
debt. o A new Cclgar Interim Period Billing Adjustment deferral account to capture
the interim billing adjustment to Celgar2.
c. Amortization of the 2015 closing balance of the 2014 Interim Rate Variance
deferral account, with the remainder to be amortized in 2017.
d. Depreciation rates in the amounts set out in the Application and in the Evidentiary
Update.
1 Exhibit B-1-2 Schedule 1 2 Exhibit B-1-2, Evidentiary Update page 2
{00403030;1} 1
c. Net salvage rates in the amounts set out in the Application and in the Evidentiary Update
Summarv of Recommendations
3. The CEC submits that the Commission should seek, if FBC does not provide it in its
reply further clarification of the Depreciation and Amortization expense and tax expense
as they are outlined in the Summary of Revenue Deficiency and Schedule 1 (Section 11)
ofthe Evidentiary Update, and ofthe calculation of Capital Expenditures Tracked
Outside ofFomyula in the Calculation of Earnings Sharing. The CEC has been uncertain
about rationalizing certain information contained in the tv.;o documents or \Vith other
information contained in the Application and workshop materials. In particular, the CI::C
notes that the Depreciation and Amortization Expense identified in Schedule 1 docs not
match with that indicated in the Summary ofRcvenuc Deficiency. Although the 2016
Deficiency of $10.6 million in the Summary of Revenue Deficiency matches the Revenue
Deficiency outlined in Schedule 1 ($10.611 million), Schedule 1 does not appear to
include the $0.4 million reduction from 2015 Earnings Sharing.
4. Additionally, Schedule I depicts two negative values related to the depreciation study:
($3.7 million) and ($0.8 million) which would amount to ($4.5 million). However, the
workshop materials depict the $0.8 million as being a positive value, reducing the $3.7
million to ($3.0 million), which is consistent with the $3.0 million shown as the impact of
the Depreciation study in the Summary of Revenue Deficiency.
5. There is a minor discrepancy with the Tax impact outlined in Schedule 1 of$1.715
million with the $1.8 million indicated in the Summary ofRevenue Dc1icicncy.
6. Revised Table 1 0-2 identifies Capital Expenditures Tracked Outside of Formula of
$10.649 million which the CEC could not rationalize with other figures in the application
if they arc not sufficiently clarified in the FBC reply.
7. The CEC recommends that the Commission request clarification ofthe issues (as
discussed below) prior to approving the Application.
8. To the extent that there is a satisfactory explanation provided by FBC in its reply
submission or otherwise. the CEC recommends that the Commission request that FBC
provide improved clarity and matching of key information in future applications to
facilitate efficient review by interveners and others. In particular, the CEC recommends
that the Commission request that FBC provide improved documentation for its Schedule
1 Summary of Rate Change with appropriate references to each line item.
{00403030;1} 2
9. The CEC recommends that the Commission approve the following as presented in the Application and Evidentiary Update.
• Load Forecast
• Power Supply
• Other Revenue
• Operations and Management Expense
• Rate Base and Capital Expenditures
• Financing and Return on Equity
• Exogenous factor treatment for the expenses related to the 2015 wildfires and the impact of the MRS as proposed in the Application.
• Deferral accounts
• Service Quality Indicators
10. The CEC recommends that when the Commission determines the appropriate ROE for
FEI, that it not necessarily update the ROE for FBC, but instead apply its judgment with
regard to how any risk adjustments should be rel1eeted in FBC's overall risk. The CEC
submits that this is necessary as it expects the FEI ROE application will emphasize
changes in its business risk for the natural gas distribution business.
Revenue Requirements
11. FBC has an anticipated revenue deficiency or $10.611 million3 for 2016. There is a
delivery rate impact of 3 .12%. 4
12. A Summary of the 2016 Revenue Deficiency is contained in the Workshop Presentation
at page 7, and is also contained in Section 11, Schedule I of the Evidentiary Update.
3 Exhibit B-1-2, Section 11 Schedule 1
4 Exhibit B-1-2, Section 11 Schedule 1
{00403030;1} 3
2016
13. Total Revenue at existing rates for 2016 is $340,511,000 at existing rates, and will be
$351,123,000 under revised rates. There will be an Earned Return of $86,013,000 and
the Rate of Return on Utility Rate Base will be 6.68%5.
Load Forecast
14. FBCs load forecast is based upon a methodology that is consistent with that used in prior
years. 6 The gross variance is typically slightly negative and ranges from 0.2% in 2009 to
-4.2% in 20 I 07 FBC incorporates the usc of a seed year for 2015 in its forecasting for
2016, although it docs not include any actual2015 data8. On aggregate the 2015 Seed is
0.5% higher than the 2015 Approved forecast. 9
15. The residential forecast is based upon net customer count and UPC rates 10. Normalized
residential UPC has generally been declining since 2010 11 and experienced an
5 Exhibit Section 11, Schedule 16 6 Exhibit 8-1-1, page 12 7
Exhibit B-2, BCUC 1.1.1 8
Exhibit B-2, BCUC 1.1.6 9 Exhibit B-2, BCUC 1.1.7 10
Exhibit B-1-1 page 13 Exhibit B-2, BCUC 1.1.3
{00403030;1} 4
unexplained dip in 2014 12. The forecast UPC is 11.89 MWh for 2016, which is slightly
lower than the 2015s figure of 11.98 MWh. 13 The total residential after-savings energy load is quite stable with an expected increase 4 GWh, from 1363 GWh in 2015 to 1367 GWh in 2016. 14
16. The Commercial class is forecast to account for about 25% of the normalized after
savings gross load 15. The Commercial forecast is based on a regression of load on the
provincial GDP supplied by the CBOC. Use per customer is relatively stable and is forecast to decline slightly from 59.43 MWh to 58.67 MWh 16
. The after savings energy
load is expected to increase 9 GWh from 862 GWh in 2015 to 871 GWh in 2016. 17
17. FBC has six wholesale customers. 18The wholesale f()recast is drawn from survey
information from each of the customers. All ofthe -vvholesale customers responded with their forecast growth projections. Wholesale Use Per customer has been declining from
128,424 MWh in 2012 to 87,250 MWh in 2014. However. 2015s uses 95,409 MWh and
the 2016 forecast is at 96,531 MWh 19. After-savings wholesale energy is forecast to
increase by 7 GWh from 572 GWh in 2015 to 579 GWh in 201620.
18. The industrial forecast is determined through a combination of customer load surveys and
escalation of the most recent annual loads by the corresponding provincial GDP growth
rates for individual industries21. FBC assumes no new industrial customers unless there is
con1irmed commitment from the customer.22 The historical variance in the accuracy of
the forecast for this load is quite signi1icant ranging from -24.5% in 201 0 to 14.1% in
2012.23
19. On September 22, 2015, the Commission issued Order G-149-15, the Stage IV Decision in FBC's Application f()r Approval of Stepped and Stand-by Rates f()r Transmission
Customers (the Stage IV Decision). setting a Stand-By Rate Billing Demand for Celgar.
The Stage IV Decision results in lower demand volumes billed under the Stand-by Rate,
Exhibit 8-2, 8CUC 1.2.1.1 :
3 Exhibit 8-2, 8CUC 1.2.1 14
Exhibit 8-1-1 page 16 15
Exhibit 8-5, CEC 1.6.1 16
Exhibit 8-2, BCUC 1.1.3 :? Exhibit 8-1-1 page 18 18 Exhibit CEC 1.4.1 19
Exhibit 8-2, BCUC 1.1.3 20
Exhibit 8-1-1 page 18 and 19 21 Exhibit 8-1-1 page 19 22 Exhibit 8-2, BCUC 1.2.2 23 Exhibit 8-5, CEC 1.10.2
{00403030;1} 5
reducing FBC's 2015 projected and 2016 forecast industrial revenue?4 It appears to increase the projected revenue deficiency by $3.96 million, with a rate impact of 1.16%.25
The CEC understands that there may be additional Commission process related to this Decision and will be participating in this process.
20. FBC uses trend data to forecast the lighting load. Lighting is expected to decline from 14 GWh in 2015 to 13 GWh in 2016.
21. After savings irrigation energy is forecast to remain at 39GWh for 2016, which was the same as 2015.
22. System losses include losses in transmission and distribution systems, company use. losses due to wheeling, and unaccounted for energy. FBC assumed 8 percent gross loss
rate before the AMI impact for the 2015s and the 2016 !~)recast, which is slightly higher
than that which was experienced in 2012 (7.92%), 2013 (7.95%). and 2014 (7.86%). 26
8% was accepted in the PBR proceeding27.
23. AMI loss reduction is expected to further reduce the losses in the future. After savings
energy losses are forecast to decrease by 1 GWh in 2016.28 FBC's implementation of
AMI (approved in 2013 by Order C-7-13 and started in 2014) will be completed in 2016
and is expected to positively impact losses (unaccounted-i~w energy) by deterring theft of power, mainly for indoor marijuana grow sites29
.
24. FBC provides a rough estimate of the energy savings that accrue as a result of the
reduction in theft sites in CEC 1.14.1
25. FBC only considered the CIP load impacts residential customers for 2016 because the
AMI impact on load is related to electricity theft detection which is tound in residential . I . L h . ld . . I 1 110 services. t 1s not Knmvn .. ow 1t cotL Impact commercia oac · .
26. FBC outlines how it arrived at its DSM and other customer savings in BCUC 1.5.2.1. The
CEC views the DSM as appropriate.
24 Exhibit B-1 2, Evidentiary Update page 2 Exhibit B-1-2, Evidentiary Update page 3
26 Exhibit B-2, BCUC 1.4.3 27
Exhibit B-2, BCUC 1.4.3 28
Exhibit B-1-1, page 21 29
Exhibit B-1-1 page 22 30
Exhibit B-5, CEC 1.3.1
{00403030;1} 6
27. The CEC has reviewed the evidence with respect to the load forecast and finds it to be
reasonably accurate. Although the Wholesale use per customer figure seems somewhat
high relative to its history, the Use Per Customer figure is not used in the forccasting31
which is based on customer surveys and there arc only 6 customers. Additionally, the Wholesale forecast is typically lower than actual.32
28. The effect on FBC's rates in 2017 based on a 3 percent over- or under-forecast of
gross load and peak loads in 2016 is estimated to be approximately 1.2 percent33. The
CEC tinds this to be within the likely margin and to be acceptable.
29. The CEC recommends that the Commission approve the 2016 Load Forecast.
Power Supply
30. The increase in power supply represents by far the most significant component of the
revenue deficiency at $16.595 million34 which represents an increase of approximately
12.5% over the 2015 Approved amount. There is a total net increase of $22.631 million
above 2015 Projeeted.35
31. The increase in the 2016 Forecast PPE is due to higher gross load, increases to the
Brilliant and BC Hydro rates, and the impact of the first full year of the 40-year capacity
purchase agreement with the Waneta Expansion Limited Partnership (WELPi6. Details
of the increases between Approved and Projected, and Projected and Forecast arc
included in Updated Tables 4-2 and 4.3. 37 The Waneta Expansion represents the most
significant increase at $14.465 million above Projected, and $11.750 million above
Approved, and is largely due to the availability of WAX in the first three months of the
year.38 Although the 2015 Projected BC Hydro PPA ($36.250 million) was significantly
lower than 2015 Approved ($45. 460 million), the 2016 Forecast remains at $47.545
million. Increased rates account for approximately $1.982 million of the increase in PPA
costs while increased volumes and capacity account for $9.813 million in increased PPA '') costs_) .
31 Exhibit B-2, BCUC 1.1.4 32
Exhibit B-5, CEC 1.9.1 33 Exhibit B-2, BCUC 1.1.5 34 Exhibit B-1-2, Section 11, Schedule 17 35 Exhibit B-2, BCUC 1.9.1 36 Exhibit B-1-1 page 27 37 Exhibit B-2, BCUC 1.9.1 38 Exhibit B-2, BCUC 1.9.1.2 39 Exhibit B-2, BCUC 1.8.2
{00403030;1} 7
32. FBC has well-established plans to optimize its portfolio40. Any variances in the costs of
power supply, including any power purchase expense decrease due to further portfolio
optimization, arc recorded in the Flo\v-through deferral account and returned to or
recovered from customers in the following year.
33. The CEC has reviewed the evidence with respect to power supply and portfolio
optimization and submits that the supply expense is largely outside the control of FBC.
but is being managed appropriately where it is within its control. The prior decisions of
the Commission with regard to the Waneta Expansion are largely determinative of these
costs. The CI~C recommends approval of this line item.
Other Revenue
34. Other Revenue includes Apparatus and Facilities rental, Contract Revenue, Transmission
Revenue, Interest Income, Connection Charges and Other Recoveries. Other Revenue is
forecast to decrease by approximately $100 thousand in 2016 relative to 2015
Approved41, and about $200 thousand relative to 2015 Projccted42
.
35. The CEC recommends that the Commission approve Other Revenue as filed in the
Application.
O&M
36. FBCs O&M expense is primarily determined by f()rmula, with the addition of a number
of items that are forecast outside the formula on an annual basis43. Formulaic O&M
amounts to $53.596 million44. The CEC is satisfied with the accuracy of the calculation
ofthc formulaic O&M expense.
37. 0&!\1 tracked outside the formula includes the O&M portion of Pension and OPEB. Insurance Premiums, Advanced Metering and Infrastructure (AMI), AMi Radio OfT, and
Mandatory Reliability Standards.
38. AMI project costs and savings are lagging the original CPCN due to a four or five month
delay in commenccment45, resulting in a reduction in net savings46
. The project is
40 Exhibit B-1-1 page 28 41
Exhibit B-1-2 Evidentiary Update Section 11, Schedule 20 42
Exhibit B-1-1 page 35 43
Exhibit B-1-1 page 36 44
Exhibit B-1-2, Evidentiary Update Section 11, Schedule 21 45 Exhibit B-5, CEC 1.19.1 46
Exhibit B-1-1, page 39
{00403030;1} 8
expected to be complete by 2017 and the costs and savings \Vill be approximately as
forecast in the CPCN application.'+?
39. The estimated total AMI project cost (excluding radio-off) is $50.898 million48. FBC
provides a breakdown of its O&M and radio-off costs at BCUC 1.12.5 and 1.12.6.
40. There is a revenue requirements increase of approximately $0.560 million as a result of
the radio-otT option which amounts to a bill impact of approximately $0.21 per month for "d . 1 49 an average res1 entia customer.
41. The Mandatory Reliability Standards expenditures are being tracked as an exogenous
factor.
42. The CEC finds the Operations and Management expense to be reasonable and
recommends that the Commission approve this expenditure as proposed in the
Application.
Rate Base
43. FBC calculates the majority of its capital expenditures by formula. Formula capital
expenditures are forecast at $42.874 million50. The CEC accepts the formulaic capital
expenditure calculation as accurate.
44. Capital expenditures outside the formula include pension and OPEB and AMI capital
expenditures for 2016 51• The CE~C has reviewed the evidence related to OPEB and the
AMI capital expenditures for 2016 and find them to be appropriately documented.
45. Adjustments include capitalized overhead, direct overhead, AFUDC, cost of removal and
change in work in progress. FBC provides a reconciliation of its Plant Additions in
Section 11 Schedule 5 of the Evidentiary Update. Grand Total Additions to Plant arc
forecast at $59.598 million.
46. The CEC has reviewed the evidence with respect to the calculation of rate base and
recommends that the Commission approve the forecast capital expenditures for 2016 as
presented in the Application.
47 Exhibit B-5, CEC 1.19.3 48
Exhibit B-5, CEC 1.19.5 49 Exhibit B-5, CEC 1.20.1 50 Exhibit B-1-2, Evidentiary Update Section 11, Schedule 4 51 Exhibit B-1-1 page 45
{00403030;1} 9
~Financing and Return on Equity
47. FBC used its 2015 capital structure of60 percent debt and 40 percent equity and a Return
on Equity (ROE) of9.15 percent in its application. The ROE vvill be updated once a decision has been reached on the FEl ROE. 52 FBC included the issuance of $100 million
in long term debt which is embedded into the long term average weighted cost of debt.
Interest expense is forecast based on forecast interest rates, using reliable indicators. 53
48. The CEC submits that the gas utility and electric utility risks as they relate to the ROE
should be segregated to reflect differing risks which apply to each. The CEC
recommends that when the Commission determines the appropriate ROE for FEL that it
not necessarily update the ROE for FBC, but instead apply its judgment as to hmv any
risk adjustments arc reflected in FBC's overall risk.
49. The CEC is satisfied with the calculations relating to financing and return on equity. The
CEC recommends that the Commission approve Financing and Return on Equity as
presented in the Application and Evidentiary Update.
Taxes
50. Taxes include Property Tax and Income Tax which are forecast on a consistent basis with
prior years. The Revenue Deficiency Summary Table as presented in the Workshop
materials indicates a tax impact of $1.8 million. Schedule 1 (Section 11) in the
Evidentiary indicates a change in tax expense of $1.715 million, which is consistent with Schedules 16, 23 and 24 in the Evidentiary Update. The CEC did not find other tax
impacts adding to the full $1.8 million. The CEC believes this may be a rounding
difference in the presentation material but is uncertain.
51. Forecast property tax was originally estimated at $17.320 million, but was reduced to
$15.407 million in response to BCUC 1.16.3. Any variances from the forecast of property
taxes included in rates will be recorded in the flow- through deferral account and returned
to or collected from customers in the following year. 54 The CEC is satisfied vvith the
updates to the Property tax line item.
52. Total Income tax is estimated at $8.15 million and the change in Income Tax is estimated
at $1.639 million. 55 Any variances from the forecast of income taxes included in rates
will be recorded in the Flow- 2 through deferral account and returned to or collected from
52 Exhibit B-1-1 page 51 53 Exhibit B-1-1 page 53 54
Exhibit B-1-1, page 56 55
Exhibit B-1-2, Evidentiary Update Section 11, Schedule 24
{00403030;1} 10
customers in the following year. The CEC submits that the Income Tax is appropriately
calculated.
53. The CEC recommends that the Commission approve the forecast Taxes as presented in the application and evidentiary update.
Earnings Sharing
54. FBC proposes to distribute $0.393 million in earnings sharing to customers as a reduction in 2016 revenue requirements. This amount is adjusted for the earned return variance for
2014 on capital expenditures of$0.001 million for a total earnings sharing distribution in
2016 of$0.392 million.
55. FBC incorporates 2013 deferred capital and capital costs related to wildfires as an exogenous factor in its 2015 capital expenditures along with other items tracked outside
formula5('. FBC identifies $10.649 million57 in Capital Expenditures tracked outside of
formula and Cumulative Pension and OPEB in Restated Table 10-2. 2015. Projected
capital expenditures outlined in Table 7-3 of the application are $42.012 million
(including wildfire damage and 2013 deferred capital) which is approximately $3.2
million above 2015 Approved of$38.882 million.
56. The CEC sought to identify the cost components of the S 10.649 million in Capital
Expenditures tracked Outside of Formula and was not able to reconcile the figure with
other figures in the application. The cr.:c recommends that if FBC provides a
reconciliation ofthis figure in its Reply Submissions that the Commission request that
key figures included in the calculation of Earnings Sharing be clearly identified with
sources in future Annual Reviews to facilitate an eflicient review by interveners and
others.
Accounting Matters
J,_,xogenous Factors
57. FBC has identified one exogenous factor for 2015 and one exogenous factor for 2016 and
beyond. FBC is requesting approval for only the 2016 expenditures at this time. 58
58. In 2015 FBC experienced damage from a wildfire with the expected impact of$3.043
million, which is approximately 10 times the threshold of $0.301 million. The events
56 Exhibit B-1-1 page 45
57 Exhibit B-2, BCUC 1.18.2 Table 10-2 Restated
58 Exhibit B-2, BCUC 1.13.5
{00403030;1} 11
were clearly outside the control of FBC, and could not have been foreseen or mitigated.
FBC does not have a capital budget under its PBR plan to deal with wildfires. 59 Although
it does have a budget for Urgent Repairs, these are not typically associated with the major
expenses of wildfires. This budget vvas not provided. 60Thc costs will be prudently incurred61
•
59. The CEC recommends that the Commission approve exogenous factor treatment for the
expenses related to the 2015 \Vildfires.
60. FEI identifies the requirement for implementing Mandatory Reliability Standards as an
exogenous factor commencing in 2016. fncremental O&M is expected to be in the order
of$0.445 million in 2016,$0.5 million in 2017, and $0.425 million in 2018 and b d 67 eyon . -
61. Ofthe 29 standards that apply to FBC, 13 have no associated incremental costs to the
Company. 63
62. FBC clarifies that the O&M costs requested for exogenous treatment arc incremental costs required to achieve and maintain compliance with the new standards adopted in
Order R-38-15, and were not known or able to be foreseen at the time the 2013 PBR base was determined. 6
+
63. The CEC submits that FBC has provided sufficient justification for exogenous treatment
for costs related to the MRS.
64. The CEC recommends that the Commission approve exogenous factor treatment for the
expenses related to the MRS.
Accounting A4atters
65. FBC outlines certain changes in GAAP for revenue recognition and leases which do not
afTect 2016 delivery rates. 65 These will be monitored and updated in the 2016 Review for
2017.
59 Exhibit B-5, CEC 1.22.2
6c Exhibit B-5, CEC 1.22.2 and 1.22.2.1
Exhibit B-1-1 page 95 62
Exhibit B-1-1, page 96 63
Exhibit B-2, BCUC 1.13.3 64
Exhibit B-2, BCUC 1.13.7 65
Exhibit B-1-1, page 97
{00403030;1} 12
66. FBC contracted Gannet Fleming Valuation and Rate Consultants Inc. (Gannett Fleming)
to perform a review ofFBC's depreciation rates. Table 12-1 reviews the impact of
implementing the depreciation study, which results in a net reduction in the 2016 revenue
requirement of $3 million, or an approximate 1% decrease in rates66.
67. Additionally, Schedule 1 depicts t\vo negative values related to the depreciation study:
($3.7 million) and ($0.8 million) which would amount to ($4.5 million).
68. The Depreciation and Amortization Expense identified in Section 11, Schedule 1 of the
Evidentiary Update appears to attribute $4.5 million in reductions to the Revenue
Deficiency composed of Depreciation Rate of ($3.7 million) CIAC Rate Change of
($0.8 million).
69. However, the workshop materials depict the $0.8 million as a positive value, reducing the
$3.7 million to ($3.0 million). This is consistent with the $3.0 million shown as the
impact of the Depreciation study in the Summary oC Revenue Deficiency. To the extent
that the CIAC Rate Change (Depreciation Study) Line 19 of Schedule I of ($0.8 million)
represents the CIAC Line 4 in Table 12-1 in the Workshop Presentation materials, it
appears that the sign has been changed.
66 Exhibit B-12, Workshop Presentation page 11
{00403030; 1} 13
Table 12-1: Recommendations ($
70. The CEC notes that in the FE! application, the comparative Table 12.1 figures provided
in the workshop materials appear to match the labelled Schedule 1 figures, without any switching of signs.
71. Additionally, although the 2016 Deficiency of$10.6 million in the Summary of Revenue
Deficiency matches the Revenue Deficiency outlined in Schedule 1 ($1 0.611 million),
Schedule 1 does not appear to include the $0.4 million reduction from 2015 Earnings Sharing.
72. The CEC recommends that the Commission undertake to ensure that the figures and
issues cited above arc appropriately rationalized prior to approving the Application. If FBC is not able to provide such rationalization in its Reply comments, then the
Commission should request clarification before finalizing the orders. The CEC
recommends that the Commission request that FBC provide improved documentation for
its Schedule 1 Summary of Rate Change with appropriate references to each line item.
Delerral Accounts
73. FBC seeks three deferral accounts related to:
• Capacity and Energy Purchase and Sale Agreement with Powerex
• 2017 Rate Design Application
• Celgar Interim Billing Period Adjustment
74. The CEC has reviewed the evidence with respect to the deferral accounts. The CEC finds
them to be acceptable The CEC recommends the Commission approve the creation of the
deferral accounts.
75. The Company proposes to amortize $6.201 million ofthe 2014 Interim Rate Variance
Deferral Account opening balance in 2016 and the remaining $11.346 million in 2017.
{00403030;1} 14
The CEC is satisfied with the proposal and recommends that the Commission approve the amortization as proposed by FBC.
Service Quality Indicators
76. FBC presented an overview of the Service Quality Indicators (SQI) in its workshop
presentation. Of the 8 SQis, only half(Billing Index, Telephone Service Factor non
emergency, SAlDI and SAIFI), are better than Benchmark. Three SQis are betvveen
benchmark and threshold, (Emergency Response Time, First Contact Resolution and
Meter Reading Accuracy) and the All Injury Frequency Rate is inferior. The CEC vvill only address those SQis which are inferior to threshold, or between threshold and
benchmark.
All Injury Frequency Rute (AIFRJ
77. The benchmark for AIFR is 1.64 and the threshold is 2.39. FBC was considerably inferior to the threshold with an AIFR of2.68, however the annual AIFR for 2015 was
2.02 which is between the benchmark and the threshold67• This FBC has introduced a
nevv Target Zero safety awareness program('8 which is reasonably expected to improve
safety.
78. Achieving improved AIFR measures is hampered by its calculation as a three year rolling
average. It is not possible for FBC to bring the three year rolling AIFR below the
benchmark of 1.64 in 2016 as there would have to be a negative number of injuries to do
so. Assuming the 2015 AIFR of2.6 as of August 31,2015 is maintained through the rest
ofthe year, even 'zero· injuries in 2016 would result in a three year rolling average
AIFR of 1.94 in 201669. The 2016 AIFR would have to be 1.35 to bring the three year
rolling average AIFR below the threshold of2.3970.
79. The CEC submits that it is reasonable for FBC to be at benchmark over the course of the
PBR term, but recognizes that there may be difficulty in achieving this immediately. The
CEC accepts that FBC is undertaking appropriate measures to improve the AIFR and
recommends that the Commission approve this SQI as being acceptable to avoid any
penalty.
67 Exhibit B-12, Workshop Presentation page 31 68
Exhibit B-12, Workshop Presentation page 34 69
Exhibit B-5, CEC 1.26.1 70
Exhibit 8-5, CEC 1.26.2
{00403030;1} 15
First Contact Resolution
80. The threshold for FCR is 72% and the benchmark is 77%. FBC achieved 76% in 201571,
which is only marginally below benchmark. FBC anticipates a further increase in FCR in
2016, which may or may not reach the level ofthe benchmark. FBC docs not believe
'additional expenditures' would have any impact on FCR Jevcls.72 Although FCR
performance has been between the benchmark and threshold for two consecutive vcars, the June 2015 year-to-date FCR levels have improved. (75 percent versus 73 percent in the two previous years). FBC states the recent improvement ret1eets an increased focus
on FCR in the Company's coaching and training programs. This focus will continue in an attempt to further raise the level of FCR to the benchmark level during the term of the PBR73
.
81. The CEC submits that FBC should be expected to achieve benchmark in 2016. The CEC
recommends that the Commission find the First Contact Resolution to be acceptable for
2015, but retain the expectation that it will average to 77% over the course ofthe PBR
term, rather than having the efTeetively benchmark diminished by the acceptance of a lower 'threshold'.
E'mergency Response Time (I:RT)
82. The benchmark for the ERT is set at 93% and the threshold is set at 90.6. FBC achieved
an ERT of 91% in 2015. FBC indicates that the 2015 results ·were caused by a high number of trouble calls in June, July and August, and windstorms and wildfires 74
. The
CEC notes that the benchmark is higher than FBC has achieved in most years since 2010 75
. FBC is targeting for benchmark in 2016 and provides reasons why it is expecting
this indicator to improve. 76
83. The CEC submits that it is acceptable for the ERT to be below benchmark this year given
the wildfires, but also submits that each benchmark should be generally achieved over the
course ofPBR.
:'vfeter Reading Accuracy
84. The benchmark for Meter Reading Accuracy is 97°/o and the threshold is 94%. FBC
expects to have meter reading accuracy at year end of 96 percent, 77 which was below the
71 Exhibit B-12, page 27
72 Exhibit B-5, CEC 1.27. 1.2
73 Exhibit B-5, CEC 1.27.1
74 Exhibit B-12 Workshop Presentation, page 29
75 Exhibit B-1-1 page 111 76
Exhibit B-5, CEC 1.25.1 77 Exhibit B-5, CEC 1.28.1
{00403030;1} 16
June figure of 97%. 78 FBC is targeting to meet the benchmark of 97 percent in 2016.79
FBC considers it likely that meter reading accuracy will improve following AMI
implementation, but notes that the result will be affected by the number of radio-off and non-connected meters. 80
85. The CEC submits that the meter reading accuracy will likely improve with the
implementation of AMI and that FBC is likely to achieve benchmark in 2016. The CEC is satisfied with this expectation.
Evaluation of PBR
Operations and ,V[anagement
86. FBC is projecting O&M expenses in 2015 excluding items forecast outside of the PBR
formula to be approximately $0.983 million lower than formula amounts. FBC states that
the expected savings are a result of the Company applying a broad based focus on productivity. FBC acknowledges that some of the savings are one-time in nature, such as delays in filling vacancies. The CEC submits that a delay in filling vacancies is not
appropriately rewarded under PBR as the stall are either necessary or not necessary and
prudent management should address this issue independently of PBR. Further, one time
savings are equally rewarded under Cost of Service. Additionally they go on to indicate
that some of the savings arc the result of efficiencies which arc expected to continue into
the future, but that 'cost pressures in the future may offset such savings'. Finally, FBC
has not introduced any major initiatives to date. 81
87. The CEC submits that one time savings. possible future savings that are likely to be
eroded and the creation of no major initiatives is not indicative of a successful PBR plan
that is appropriately rewarding the ratepayer and the shareholder.
Capital Expenditures
88. The CEC submits that the evidence also shows that PBR incentives arc ineffective from a
capital perspective. FBC is not projecting any savings in capital relative to the formula in 2015 amount and indicates it will continue to be challenged to meets its capital formula
for the remainder ofthe term of the PBR Plan. 82
78 Exhibit B-1-1, page 115 79
Exhibit B-5, CEC 1.28.2 80
Exhibit B-5, CEC 1.28.3 s: Exhibit B-1-1 page 4 82 Exhibit B-1-1 page 4
{00403030;1} 17
89. The CEC submits that such a situation can create a situation in which FBC may
undertake to manage its capital plan to the detriment of ratepayers.
90. The CEC submits that the exclusion of Exogenous factors is a difficulty under PBR in
that once an item reaches the materiality threshold. the entire cost is removed, without
deducting the materiality threshold from the total cost83. This could result in some costs
being removed that would otherwise be incurred under formula. For instance, if the
utility typically manages windstorm damage under its base O&M, and a windstorm
becomes an Exogenous factor, then the budget normally devoted to \vindstorms is paid
for both in the formula O&M and in the Exogenous factor. Additionally, responses to
exogenous events paid for by the ratepayer, can result in reduced rchabil itation costs and
future O&M84. While the CEC docs not suggest that the wildfires will result in benefits
to the FBC shareholder at this time, the CEC submits that the difficulty with Exogenous
factor treatment should be considered by the Commission in its assessment of PBR.
91. The CEC submits that it would be preferable for generation unit inspections to be a flow
through item and removed from Base, as they arc not controllable by FBC and can result
in shareholder earnings that have no relation to PBR. The inspection of the Corra Linn
unit was found to be in 'better condition' than originally anticipated which resulted in a
reduction of $85,000 relative to the 'average' estimated unit cost, and it is likely that the
unit inspected in 2016 will have a similar status. 85 The CEC submits that there is a
misalignment with customer interests to the extent that the utility is able to manage its
inspections. The utility would have the incentive to inspect those clements with the
lowest anticipated costs early under PBR. and defer those with likely damage, while the
ratepayer \vould prefer to have the units with the highest likely requirements inspected
immediately in order to conduct repairs as quickly as possible.
92. In general, the CEC submits that the Service Quality Indicators arc not an especially
valuable tool in ensuring that the utility docs not achieve savings at the expense of
service quality. The CEC submits that while the SQls arc somewhat indicative of
performance in certain areas, it docs not reJ1cct the reality of the utility circumstances that
may arise due to certain events such as wildfires or others. The CEC also notes that in
response to CEC IR 1.30.2, FBC does not confirm that the intention of SQis is to ensure
that service quality docs not diminish under PBR from that being originally provided.
FBC's interpretation ofthc intention of the service quality indicators is that they ensure
that FBC maintains 'adequate service levels' during PBR. The CEC agrees that this not
the same as ensuring that the service levels that were originally being provided to
83 Exhibit B-5, CEC 1.22.5
84 Exhibit B-5, CEC 1.22.6
85 Exhibit B-5, CEC 1.21.4
{00403030; 1} 18
customers under Cost of Service. While an argument could be made that the intention of PBR is to incent the utility to find 'efticiencies' which could potentially arise from reducing unnecessary service levels, the CEC submits that reducing service levels from
that being provided under Cost of Service is not appropriately rewarded under PBR, but rather illustrative of excess expense under the Cost of Service and embedded within the
base formula.
ALL OF WHICH IS RESPECTFULLY SUBMITTED
CJJavitf Craig
David Craig, Consultant for the Commercial Energy Consumers Association of British Columbia
{00403030;1} 19
