FEVI 2012 Q1 Gas Cost Report - FortisBC Columbia Utilities ... residential construction activity in the Victoria Census Metropolitan Area (CMA) in 2011, ... through the end of 2011

March 1, 2012 British Columbia Utilities Commission 6th Floor, 900 Howe Street Vancouver, BC V6Z 2N3 Attention: Ms. Alanna Gillis, Acting Commission Secretary Dear Ms. Gillis: Re: FortisBC Energy (Vancouver Island) Inc. (“FEVI” or the “Company”)

2012 First Quarter Report on the Gas Cost Variance Account (“GCVA”) and the Rate Stabilization Deferral Account (“RSDA”) (the “First Quarter Report”)

The British Columbia Utilities Commission (the “Commission”) in its Order No. G-2-03 instructed the Company to provide quarterly reports to the Commission and Interveners. Within the attached First Quarter Report, FEVI outlines the forecast gas costs, the competitive market prices, and the year to date recorded and the year end forecast balances related to the GCVA and the Annual Revenue Surplus which is to be captured in the RSDA. The First Quarter Report is provided for information purposes only. The FEVI Core Market rates effective January 1, 2012 are being sought through the FortisBC Energy Utilities (comprising FortisBC Energy Inc., FortisBC Energy Inc. Fort Nelson Service Area, FortisBC Energy (Vancouver Island) Inc., and FortisBC Energy (Whistler) Inc.) 2012 and 2013 Revenue Requirements and Natural Gas Rates Application; FEVI is seeking to maintain Core Market rates for the two year period commencing January 1, 2012 at the same level as was established for the previous 2010-2011 two year period as part of the FEVI 2010-2011 Revenue Requirements and Rate Design Negotiated Settlement. Pursuant to Commission Order No. G-177-11, dated October 21, 2011, the Commission has approved on an interim basis that the FEVI Core Market rates effective January 1, 2012 remain at the same level as 2011 rates. The Company has reviewed the forward prices for natural gas, as well as the competitive energy prices. Based on the five-day average of the February 13, 14, 15, 16, and 17, 2012 forward prices for natural gas, the annual outlook indicates that the GCVA is forecast to be at a surplus balance of approximately $6.2 million before tax at year end December 31, 2012 while the revenue surplus is forecast to be approximately $5.5 million after tax.

Diane Roy Director, Regulatory Affairs - Gas FortisBC Energy Inc.

16705 Fraser Highway Surrey, B.C. V4N 0E8 Tel: (604) 576-7349 Cell: (604) 908-2790 Fax: (604) 576-7074 Email: [email protected] www.fortisbc.com Regulatory Affairs Correspondence Email: [email protected]

mailto:[email protected]

http://www.fortisbc.com/


March 1, 2012 British Columbia Utilities Commission FEVI – 2012 First Quarter Report on the GCVA and the RSDA Page 2

We trust the Commission will find the attached report to be in order. Should any further information be required, please contact Brian Noel at 604-592-7467. All of which is respectfully submitted. Yours very truly, FORTISBC ENERGY (VANCOUVER ISLAND) INC. Original signed by: Shawn Hill

For: Diane Roy Attachments

FortisBC Energy (Vancouver Island) Inc.

2012

First Quarter Report

on the

Gas Cost Variance Account (“GCVA”)

and the

Rate Stabilization Deferral Account (“RSDA”)

March 1, 2012

FORTISBC ENERGY (VANCOUVER ISLAND) INC. FIRST QUARTER REPORT 2012

PAGE 2

1 SUMMARY

The FortisBC Energy (Vancouver Island) Inc. (“FEVI” or the “Company”) 2012 First Quarter Report on the Gas Cost Variance Account (“GCVA”) and the Rate Stabilization Deferral Account (“RSDA”) (the “First Quarter Report”) has been prepared for, and filed with, the British Columbia Utilities Commission (the “Commission”) to provide an update on the year to date recorded and the year-end forecast balances related to the GCVA and the Annual Revenue Surplus to be captured in the RSDA. The FEVI Core Market rates effective January 1, 2012 are being sought through the FortisBC Energy Utilities (comprising FortisBC Energy Inc., FortisBC Energy Inc. Fort Nelson Service Area, FortisBC Energy (Vancouver Island) Inc., and FortisBC Energy (Whistler) Inc.) 2012 and 2013 Revenue Requirements and Natural Gas Rates Application (“2012-2013 RRA”); FEVI is seeking to maintain Core Market rates for the two year period commencing January 1, 2012 at the same level as was established for the previous 2010-2011 two year period as part of the FEVI 2010-2011 Revenue Requirements and Rate Design Negotiated Settlement (“2010-2011 RRA”). Pursuant to Commission Order No. G-177-11, dated October 21, 2011, the Commission has approved on an interim basis that the FEVI Core Market rates effective January 1, 2012 remain at the same level as 2011 rates. On a year to date basis as at January 31, 2012 the revenue surplus is approximately $1.2M favorable compared to budget, and the outlook is for an annual revenue surplus of approximately $5.5M after tax at December 31, 2012 which is approximately $0.7M more than the budgeted amount. FEVI has recorded a surplus of approximately $1.2M before tax into the GCVA on a year to date basis as at January 31, 2012. The year-end forecast GCVA is a surplus balance of approximately $6.2M before tax and results from the forecast cost of gas, after adjustment for the purchase volume variance, being lower than the approved amount.


PAGE 3

2 REVENUE SURPLUS

Commission Order No. G-177-11 approved on an interim basis that Core Market customer rates effective January 1, 2012 remain at the same level as 2011 rates. The following is a breakdown of the cost of service and the annual revenue surplus on a year to date and forecast basis.

At the end of January 2012, FEVI’s revenue surplus is approximately $1.2M higher than the budgeted amount and FEVI is forecasting a revenue surplus of approximately $5.5M by year end which is approximately $0.7M more than the annual budgeted amount.


PAGE 4

The following table provides a summary of the Rate Stabilization Deferral Account balances on a forecast and approved basis.

2.1 COST OF GAS

The largest single component of the cost of service for FEVI is the commodity cost of gas. The forecast unit cost of gas approved for 2012 is $6.33/GJ1. To the extent that the actual cost of gas is greater or less than the approved unit cost of gas, the difference is collected in a deferral account for future recovery or rebate. At the end of January 2012, the cost of gas, after adjustment for the purchase volume variance of approximately $0.1M, has been lower than the approved amount, resulting in a surplus adjustment of approximately $1.2M before tax to the Gas Cost Variance Account. The table below summarizes the cost of gas on a year to date and forecast basis for 2012. The year-end forecast cost of gas is expected to be approximately $6.3M below the budgeted total; this forecast gas cost variance is comprised of a purchase volume variance and a price variance. The GCVA adjustment is calculated by removing the purchase volume component, in this case approximately 23.5 TJ of less gas volumes, from cost of sales variance. The GCVA is forecast to be a surplus balance of approximately $6.2M before tax by year end.

1 Final approval of the 2012-2013 RRA is pending; interim approval for FEVI rates effective January 1, 2012 was

provided per Commission Order No. G-177-11, dated October 21, 2011. The approved cost of gas utilized in the First Quarter Report is based on the forecast of gas costs for 2012 included in the updated FEVI financial schedules and submitted on October 11, 2011 as 2012-2013 RRA Undertaking No. 24 (Exhibit B-52).


PAGE 5

2.2 REVENUES

Year to date January revenues have been higher than budgeted by approximately $1.0M. Revenues arise from sales to distribution customers, transportation revenues from the Vancouver Island Gas Joint Venture, British Columbia Hydro and Power Authority (“BC Hydro” or “BCH”), and FortisBC Energy Inc. in the form of firm and interruptible services, and from miscellaneous other revenues.


PAGE 6

3 FEVI CUSTOMER ADDITIONS

In November FEVI saw 366 net additions, above the target of 229, and in December FEVI saw 248 net additions, below the target of 350. As of the end of December, a total of 1,965 net customer additions had been achieved for 2011, below the target of 2,430 additions.

A resale market at levels lower than reported over the last ten years was reflected in slower residential construction activity in the Victoria Census Metropolitan Area (CMA) in 2011, according to Canada Mortgage and Housing Corporation’s (CMHC) Housing Now – Victoria CMA, published in January 2012. Construction started on 72 new homes in December, bringing the annual total to 1,642. This represents a decline from the 2,118 starts recorded in 2010, and is 15 per cent below the annual average recorded over the previous ten years (2001-2010 average: 1,941 starts). The reduced pace of residential construction activity recorded in 2011 was observed in both the single-detached and multiple unit segments of the market. The single-detached market experienced the most pronounced decline in activity relative to their long-term trend level, with starts 27 per cent below the ten-year annual average. Multiple unit starts were down seven per cent relative to the ten-year average level. Despite fewer new housing starts, the number of units under construction remained stable over the course of the year – decreasing marginally from 1,887 homes in December 2010 to 1,880 through the end of 2011. As a result of the conversion to the new Customer Information System effective January 2012, the actual customer additions for January are not currently available. FEVI’s target is for 2,557 net customer additions during 2012.


PAGE 7

4 COMPETITIVE MARKETS

One of the objectives of the rates in place at FEVI is to remain competitive with alternative energy sources, which are fuel oil and electricity. The specific energy source that FEVI competes with for each customer is dependent upon their rate class. As part of this quarterly report, FEVI’s natural gas rates per rate classes are compared with both electric and fuel oil rates. FEVI’s Core Market rates effective January 1, 2012 are being sought through the 2012-2013 RRA; FEVI is seeking to maintain Core Market rates for the two year period commencing January 1, 2012 at the same level as was established for the previous 2010-2011 two year period as part of the 2010-2011 RRA. Pursuant to Commission Order No. G-177-11, dated October 21, 2011, the Commission has approved on an interim basis that the FEVI Core Market rates effective January 1, 2012 remain at the same level as the 2011 rates.

4.1 OIL

Consistent with the methodology used within the 2010-2011 RRA, FEVI has used a forecast to determine the direction of oil prices, aiding in the calculation of effective fuel oil rates for the different customer classes for comparison purposes. These effective rates take into account different discounts that are applied to the various small and large commercial rate classes. The Company has also used a NYMEX US$ to CAD$ exchange rate forecast for converting US$/bbl to CAD$/bbl, using the 50th Percentile for the forecast March 2012 to February 2013, which equals 0.9987. The comparative table below shows the relative position of the FEVI approved interim rates effective January 1, 2012 to the forecast oil prices for the 12-month period March 2012 to February 2013, based on the forward prices for light sweet crude oil at February 17, 2012. All of the rate classes are currently below the comparative fuel oil price for each rate class.

Class $/GJ Rack/Retail $/Litre $/GJ %

RGS 16.617$ * 84% 1.0598$ 27.40$ -39%

AGS 12.753$ * 100% 0.8797$ 22.75$ -44%

SCS-1 18.371$ 95% 0.9347$ 24.17$ -24%

SCS-2 17.612$ 96% 0.9210$ 23.81$ -26%

LCS-1 14.099$ ** 99% 0.8935$ 23.10$ -39%

LCS-2 12.754$ ** 100% 0.8756$ 22.64$ -44%

LCS-3 12.138$ ** 100% 0.8756$ 22.64$ -46%

HLF 11.021$ ** 100% 0.8756$ 22.64$ -51%

ILF 10.296$ ** 100% 0.8399$ 21.72$ -53%

FEVI Rates

FEVI interim rates

effective

January 1, 2012

No. 2 Fuel Oil (Forward Prices) Based on NYMEX WTI Light Sweet Crude Oil Forward Prices

Dated February 17, 2012


PAGE 8

4.2 ELECTRICITY

Consistent with the methodology used within the 2010-2011 RRA, when comparing FEVI’s approved effective rates against electric rates for new customers, FEVI has used both a 90 per cent efficiency adjustment and a 75 per cent efficiency adjustment to BC Hydro’s rates. The 90 per cent efficiency adjustment reflects the average new customer’s natural gas space heating furnace efficiency relative to 100 per cent for electric space heating appliances. The 75 per cent efficiency adjustment represents an estimate of the average efficiency of appliances used by existing FEVI natural gas residential customers. A 90 and 75 per cent efficiency comparison is also presented for non-residential customers between comparable FEVI and BC Hydro rate classes to provide a comprehensive analysis. Also consistent with the presentation within the 2010-2011 RRA, FEVI is presenting two scenarios with respect to the comparison with BC Hydro’s residential rates. Scenario 1 The first scenario includes using BC Hydro’s approved April 1, 2010 residential two-step Conservation Rate as per the F2011 Revenue Requirements Application. BC Hydro’s rates were increased by approximately 9.5% effective April 1, 2009 (inclusive of applicable rate riders) as per Commission Order No. G-16-09. BC Hydro proposed a further 9.26% interim increase (including 4% proposed rate rider) on March 2010. This number was later reduced to 7.29% (including 2.5% rate rider) as a result of the Commission negotiated settlement with BC Hydro, as per Commission Order No. G-180-10. On March 1, 2011 BC Hydro filed its F2012 – F2014 Revenue Requirements Application and proposed a rate increase of 9.73%. On April 21, 2011, the Commission approved an interim rate increase of 8%, effective May 1, 2011. Following a Provincial Government review, the Province and BC Hydro have agreed to ask the Commission to lower the earlier proposed annual rate increase of 9.73% to the current interim 8% increase. As per Order No. G-17-12, the Commission approved an across the board F2013 rate increase of 3.91 percent on an interim basis effective April 1, 2012. In the same Order, the F2013 Deferral Account Rate Rider is set at 5% effective April 1, 2012. The First Quarter report reflects the approved interim April 1, 2012 rates. Scenario 2 In the second scenario for residential rates, FEVI has added approximately 35 per cent to the BC Hydro approved residential rate effective April 1, 2008 prior to the approval of the two-step Conservation Rate in October 2008. The 35 per cent markup consists of the cumulative annual increases to the revenue requirements since April 1, 2008. This equates to a rate of $21.38 per GJ at 90 per cent efficiency, and a rate of $17.81 per GJ at 75 per cent efficiency. BC Hydro’s fixed charge is excluded from both scenarios and all rate classes since it is assumed that customers require electricity for lighting and other home uses. In both rate scenarios, all FEVI rate classes using the rate in effect April 1, 2008 prior to the approval of the two-step Conservation Rate in October 2008 are either equal or below the proposed BC Hydro electric equivalent, adjusted for 90 per cent and 75 percent efficiency factors.


PAGE 9

The tables below summarize FEVI’s approved interim effective rates for 2012 with BC Hydro’s interim electricity prices effective April 1, 2012 (adjusted for 90 per cent and 75 per cent efficiency levels), and also with BC Hydro’s historical April 2008 rates adjusted for all rate changes to date.

Scenario 1: FEVI Rates vs. BC Hydro Two Step Conservation Rate

2010 Approved FEVI Effective Rates and BCH Approved Interim Electricity Markets and Prices (BC Hydro Step 2 residential rate and adjustments for 90% Efficiency)

2010 Approved FEVI Effective Rates and BCH Approved Interim Electricity Markets and Prices (BC Hydro Step 2 residential rate and adjustments for 75% Efficiency)

Class $/GJ $/kWh $/GJ (90% Eff.) % (90% Eff.)

RGS 16.617$ * 0.1025$ 25.63$ -35%

AGS 12.753$ * 0.1025$ 25.63$ -50%

SCS-1 18.371$ 0.0961$ 24.03$ -24%

SCS-2 17.612$ 0.0961$ 24.03$ -27%

LCS-1 14.099$ ** 0.0679$ 16.98$ -17%

LCS-2 12.754$ ** 0.0679$ 16.98$ -25%

LCS-3 12.138$ ** 0.0679$ 16.98$ -28%

HLF 11.021$ ** 0.0679$ 16.98$ -35%

ILF 10.296$ ** 0.0679$ 16.98$ -39%

**Average Commercial Electricity Rates from the Hydro-Québec 2011

Comparison of Electricity Prices in Major North American Cities Rates in effect

April 1.

FEVI Rates

FEVI interim rates

effective

January 1, 2012

Electricity Comparison

BC Hydro interim April 1, 2012 rates

(inclusive of the approved rate riders)

*BC Hydro interim April 1, 2012 Step 2 rate inclusive of the applicable 5%

proposed rate rider.


RGS 16.617$ * 0.1025$ 21.35$ -22%

AGS 12.753$ * 0.1025$ 21.35$ -40%

SCS-1 18.371$ 0.0961$ 20.02$ -8%

SCS-2 17.612$ 0.0961$ 20.02$ -12%

LCS-1 14.099$ ** 0.0679$ 14.15$ 0%

LCS-2 12.754$ ** 0.0679$ 14.15$ -10%

LCS-3 12.138$ ** 0.0679$ 14.15$ -14%

HLF 11.021$ ** 0.0679$ 14.15$ -22%

ILF 10.296$ ** 0.0679$ 14.15$ -27%


Comparison of Electricity Prices in Major North American Cities Rates in effect

April 1.

FEVI Rates

FEVI interim rates

effective

January 1, 2012


BC Hydro interim April 1, 2012 rates

(inclusive of the approved rate riders)

*BC Hydro interim April 1, 2012 Step 2 rate inclusive of the applicable 5%

proposed rate rider.


PAGE 10

Scenario 2: FEVI vs. BC Hydro April 1, 2008 Rates (Adjusted for 27% Rate Increase)

2010 Approved FEVI Effective Rates and BCH Approved Interim Electricity Markets and Prices (BC Hydro residential rate calculated and adjustments for 90% Efficiency)

2010 Approved FEVI Effective Rates and BCH Approved Interim Electricity Markets and Prices (BC Hydro residential rate calculated and adjustments for 75% Efficiency)


RGS 16.617$ * 0.0855$ 21.38$ -22%

AGS 12.753$ * 0.0855$ 21.38$ -40%

SCS-1 18.371$ 0.0961$ 24.03$ -24%

SCS-2 17.612$ 0.0961$ 24.03$ -27%

LCS-1 14.099$ ** 0.0679$ 16.98$ -17%

LCS-2 12.754$ ** 0.0679$ 16.98$ -25%

LCS-3 12.138$ ** 0.0679$ 16.98$ -28%

HLF 11.021$ ** 0.0679$ 16.98$ -35%

ILF 10.296$ ** 0.0679$ 16.98$ -39%


Comparison of Electricity Prices in Major North American Cities Rates in

effect April 1.

FEVI Rates

FEVI interim rates

effective

January 1, 2012


BC Hydro approved April 1, 2008 rates

with an approximate 35% increase (inclusive of the approved 5% interim rate rider for

April 2012 onwards)

*BC Hydro residential rate calculated with an approximate 35% cumulative

increase to approved April 1, 2008 rates (inclusive of the approved 5% F2013

rate rider)


RGS 16.617$ * 0.0855$ 17.81$ -7%

AGS 12.753$ * 0.0855$ 17.81$ -28%

SCS-1 18.371$ 0.0961$ 20.02$ -8%

SCS-2 17.612$ 0.0961$ 20.02$ -12%

LCS-1 14.099$ ** 0.0679$ 14.15$ 0%

LCS-2 12.754$ ** 0.0679$ 14.15$ -10%

LCS-3 12.138$ ** 0.0679$ 14.15$ -14%

HLF 11.021$ ** 0.0679$ 14.15$ -22%

ILF 10.296$ ** 0.0679$ 14.15$ -27%


Comparison of Electricity Prices in Major North American Cities Rates in

effect April 1.

FEVI Rates

FEVI interim rates

effective

January 1, 2012


BC Hydro approved April 1, 2008 rates

with an approximate 35% increase (inclusive of the approved 5% interim rate rider for

April 2012 onwards)

*BC Hydro residential rate calculated with an approximate 35% cumulative

increase to approved April 1, 2008 rates (inclusive of the approved 5% F2013

rate rider)


PAGE 11

5 CONCLUSION

The 2012 First Quarter Report is provided for information purposes only. The FEVI Core Market rates effective January 1, 2012 are being sought through the 2012-2013 RRA; FEVI is seeking to maintain Core Market rates for the two year period commencing January 1, 2012 at the same level as was established for the previous 2010-2011 two year period as part of the 2010-2011 RRA. Pursuant to Commission Order No. G-177-11, dated October 21, 2011, the Commission has approved on an interim basis that the FEVI Core Market rates effective January 1, 2012 remain at the same level as 2011 rates.

ALANNA GILLIS ACTING COMMISSION SECRETARY [email protected] web site: http://www.bcuc.com

LETTER NO. L-XX-12

SIXTH FLOOR, 900 HOWE STREET, BOX 250 VANCOUVER, B.C. CANADA V6Z 2N3

TELEPHONE: (604) 660-4700 BC TOLL FREE: 1-800-663-1385

FACSIMILE: (604) 660-1102

Log No. xxxx

DRAFT ORDER VIA E-MAIL March xx, 2012 [email protected] Ms. Diane Roy Director, Regulatory Affairs – Gas FortisBC Energy Inc. 16705 Fraser Highway Surrey, BC V4N 0E8 Dear Ms. Roy:

Re: FortisBC Energy (Vancouver Island) Inc. 2012 First Quarter Report on the Gas Cost Variance Account

and the Rate Stabilization Deferral Account

On March 1, 2012 FortisBC Energy (Vancouver Island) Inc. filed its 2012 First Quarter Report on the Gas Cost

Variance Account and the Rate Stabilization Deferral Account (the Report) for Information. By this letter, the

Commission acknowledges receipt of the Report, regarding the Vancouver Island and the Sunshine Coast service

areas.

Yours truly, Alanna Gillis Acting Commission Secretary


Documents

FEVI 2012 Q1 Gas Cost Report - FortisBC Columbia Utilities ... residential construction activity in the Victoria Census Metropolitan Area (CMA) in 2011, ... through the end of 2011