BRITISH COLUMBIA UTILITIES COMMISSION · 7/14/2014 · MR. MILLER: B.C. Sierra -- or Sierra Club...
Transcript of BRITISH COLUMBIA UTILITIES COMMISSION · 7/14/2014 · MR. MILLER: B.C. Sierra -- or Sierra Club...
Allwest Reporting Ltd. #1200 - 1125 Howe Street Vancouver, B.C. V6Z 2K8
BRITISH COLUMBIA UTILITIES COMMISSION
IN THE MATTER OF THE UTILITIES COMMISSION ACT R.S.B.C. 1996, CHAPTER 473
And
FortisBC Energy Inc. Application for Approval of a Multi-‐Year Performance Based Ratemaking Plan for the years 2014
through 2018
BEFORE: D.M. Morton, Panel Chair/Commissioner D.A. Cote, Commissioner N.E. MacMurchy, Commissioner
VOLUME 8
ORAL ARGUMENT
Vancouver, B.C. July14th, 2014
APPEARANCES P. MILLER Commission Counsel M. GHIKAS L. HERBST C. BYSTROM
FortisBC Energy Inc. and FortisBC Inc.
C. WEAFER Commercial Energy Consumers Association
British Columbia Municipal Electric Utilities R. HOBBS Industrial Consumers Group F.J. WEISBERG Irrigation Ratepayers Group T. BRAITHWAITE B.C. Pensioners' and Seniors' Organization
Active Support against Poverty, Tenants’ Resource and Advisory Centre, Council of Senior Citizens’ Organizations, and the B.C. Coalition of People with Disabilities
J. QUAIL L. WORTH
COPE Local 378
W. ANDREWS B.C. Sustainable Energy Association
Sierra Club of British Columbia
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1345
CAARS
VANCOUVER, B.C.
July 14, 2014
(PROCEEDINGS RESUMED AT 8:56 A.M.)
THE CHAIRPERSON: Please be seated. Good morning, ladies
and gentlemen. Also please, if you find it warm in
here, please feel free to take your jackets or your
sweaters off. We’ll try and be informal at least to
that extent.
My name is Dave Morton. With me are
Commissioners Norm MacMurchy and Denis Cote. Welcome
to this morning’s proceeding to hear further oral
arguments related to two applications currently before
the Commission. These applications both seek approval
of multi-year performance-based ratemaking plans for
2014 through 2018. One was submitted on June 17th,
2013 by Fortis Energy, the second on July the 10th,
2013 by FortisBC. For convenience I'll refer to
Fortis Energy as Fortis Gas and FortisBC as Fortis
Electric and, when speaking of them both together,
simply Fortis.
As you are all aware, elements of the two
applications were combined into a single proceeding,
specifically those items related to the PBR formula.
Fortis’s reply arguments, consisting of a
joint reply on PBR methodology and separate reply
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1346
arguments on each of Fortis Electric and Fortis Gas’s
non-PBR elements, were received on July the 12th, 2014.
Subsequent to the receipt of Fortis’s reply arguments,
the Panel issued further Information Requests to
Fortis and to intervener CEC. Responses to these IRs
have been received, and parties are now invited to
provide further submissions on these responses.
Further, the Panel invites parties to
address the following topics. First is that, in the
event the performance-based ratemaking process
continues following the proposed period, what
processes do the parties recommend for transition to
the next phase of PBR? For example, a rebasing
process. What should be the timing of the rebasing
filing? What items should be reviewed in the
proceeding to consider the rebasing application? And
any other process suggestions or issues parties want
to raise with regard to an ongoing PBR regime.
The second issue, or the second question on
which we are inviting submissions, is what process is
recommended for setting rates for the 2014 and 2015 if
Fortis’s performance-based ratemaking application is
turned down?
And thirdly, in this application Fortis
Electric is requesting approval for deferral accounts
for a number of its flow-through items. These same
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1347
deferral accounts were approved for Fortis Gas in the
previous PBR but were not requested by Fortis Electric
in its previous PBR. So the Panel asks whether these
deferral accounts are necessary and/or what other
options are available.
Parties are requested to restrict their
comments to argument only. It’s not the Panel’s
intent that any new evidence be introduced at this
point in the proceeding.
At this stage it’s my pleasure to
acknowledge and introduce a number of individuals.
Suzanne Soo is lead staff for the Fortis Gas
application. Yolanda Domingo is lead staff for the
Electric application. With them are Sarah Walsh and
Philip Nakoneshny and they are seated at the front.
Commission counsel for the proceeding, Paul
Miller from Boughton, is also seated at the front, and
Mr. Hal Bemister is our Hearing Officer, seated at the
side.
Before Mr. Miller takes over, I’d like to
ask you please to make sure your submissions are
directed to the issues that I’ve just outlined,
together with any other issues that you or any other
participants identify, and that the Panel accepts as
appropriate for addition to the agenda.
I’m going to ask for Mr. Miller to call for
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1348
appearances, and as you enter your appearance please
state your name for the record, the party you
represent, and identify any other matter you’d like
the Panel to consider. Please also advise whether you
prefer that the issues be dealt with all together or
if you require or recommend a separate round, and by
that I mean a separate round for Fortis Electric and
Fortis Gas and the joint PBR component.
After appearances, the order of submissions
will begin with Fortis Gas jointly with Fortis
Electric, and then it will follow the order of
appearances. Once each party has had an opportunity
to put forward its submission, Fortis will have the
right to reply if it so chooses.
In the view of the Panel, all of the issues
I previously outlined are most efficiently canvassed
collectively as opposed to issue by issue. However,
as I said, if you feel otherwise, please address that
during your appearance.
Mr. Miller, please go ahead.
Proceeding Time 9:10 a.m. T2
MR. MILLER: The first appearance is by FortisBC Inc. and
FortisBC Energy Inc.
MR. GHIKAS: Good morning, Mr. Chairman, Commissioners.
My name is Matt Ghikas, and I am appearing on behalf
of the FortisBC companies. With me this morning is
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1349
Ludmila Herbst, H-E-R-B-S-T, and Christopher Bystrom,
B-Y-S-T-R-O-M.
In terms of the approach this morning,
Fortis is content to proceed with all of the issues
first together.
THE CHAIRPERSON: Together.
MR. GHIKAS: And there was one additional issue that
Fortis considered that it be useful to address, and
that is that the demand-side measures regulation has
just been passed, and put into effect, and Fortis
would consider it useful to address briefly the
implications of that, if any, on the applications.
THE CHAIRPERSON: Yes, thank you, Mr. Ghikas. The panel
would actually appreciate that if you could address
that at this time. That would give any other parties
an opportunity to address that during their
appearance.
MR. GHIKAS: Thank you. And what -- in terms of the
substance, Ms. Herbst is going to speak to that
directly. We can address that in our initial pass
through. Ms. Herbst has to make a few submissions on
one of the issues that the panel outlined, and she
would do it in conjunction with that, if that was most
efficient.
THE CHAIRPERSON: That is fine.
MR. GHIKAS: Okay, thank you.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1350
MR. MILLER: Commercial Energy Consumers and B.C.
Municipal Electrical Utilities?
MR. WEAFER: Good morning, Mr. Chairman, members of the
panel, my name is Chris Weafer, W-E-A-F-E-R, appearing
for the Commercial Energy Consumers’ Association of
British Columbia, and the British Columbia Municipal
Electric Utilities. We have no issues to add to the
agenda and we are comfortable dealing with the issues
all in one appearance.
I am going to raise one issue that in terms
of our submissions, I have a written text for
submissions on the key issues in your -- the panel’s
list of questions. There was a general comment in
that list around any comments on the Information
Requests. I don’t have those in writing and they --
as the panel will know from exchange of correspondence
last week, there was some exchange about whether Dr.
Lowry would be available to the panel to answer any
detailed questions. He has provided -- and that was
determined the panel would not deal with Dr. Lowry
directly -- he has provided me some comments on the
Information Requests that I intend to make submissions
on, and I am happy to separate those out from the
other questions, because they may be a point of
contention with Fortis based on the correspondence
last week. So, I am in your hands. I am happy to
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1351
deal with all issues together, or I am happy to carve
off and deal with the comments on the Information
Requests as a separate item.
THE CHAIRPERSON: We’d like to deal with them all
together.
MR. WEAFER: That is fine, thank you.
MR. MILLER: B.C. Sierra -- or Sierra Club of British
Columbia and B.C. Sustainable Environmental
Association.
MR. ANDREWS: William Andrews, representing the B.C.
Sustainable Energy Association and the Sierra Club of
B.C. I have no objection to proceeding in a batch as
Mr. Ghikas suggested, and I have nothing to add to the
agenda.
THE CHAIRPERSON: Thank you, Mr. Andrews.
Proceeding Time 9:11 a.m. T3
MR. MILLER: British Columbia Pensioners’ and Seniors’
Organization.
MS. BRAITHWAITE: My name is Tannis Braithwaite, I am
representing the B.C. Old Age Pensioners’
Organization, formerly known as the B.C. Pensioners’
and Seniors’ Organization, the Tenants’ Resource and
Advisory Centre, Council of Senior Citizens’
Organization, Active Support Against Poverty, Together
Against Poverty Society, and the B.C. Coalition of
People With Disabilities. We have no issues to add to
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1352
the agenda and are content to address all of the
issues raised at once.
THE CHAIRPERSON: Thank you, Ms. Braithwaite.
MR. MILLER: Irrigation Ratepayers’ Group.
MR. WEISBERG: Good morning Mr. Chairman, Commissioners.
My name is Fred Weisberg, W-E-I-S-B-E-R-G. I am
appearing on behalf of the Irrigation Ratepayers’
Group, a distinct class of the electrical utility FBC.
We have no other matters to raise, and we are content
to deal with issues collectively as you suggest.
Thank you.
MR. MILLER: Industrial Customers’ Group?
MR. HOBBS: Good morning, Mr. Chair, Commissioners.
Robert Hobbs, H-O-B-B-S. I appear on behalf of the
Industrial Customers’ Group of Fortis Electric. I
have no additions to the agenda to suggest, and I
believe that we can quite efficiently proceed with the
matters together.
THE CHAIRPERSON: Thank you.
MR. MILLER: COPE, Local 378?
MS. WORTH: Good morning, Mr. Chair, members of the
panel. My name is Leigha Worth, W-O-R-T-H, here with
my co-counsel Mr. James Quail, Q-U-A-I-L, representing
COPE 378, the Canadian Office and Professional
Employees’ Union, Local 378, the large part of the
workforce for the two applicant utilities. We have no
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1353
issues that we’d like to add to the agenda today, and
we see no need to deal with the issues for the two
applicant utilities separately. Thank you.
THE CHAIRPERSON: Thank you, Ms. Worth.
MR. MILLER: That concludes the order of appearances, Mr.
Chair.
THE CHAIRPERSON: Thanks, Mr. Miller. Mr. Ghikas or Ms.
Herbst? Are you --
MR. GHIKAS: Thank you, yes. So, this morning what
Fortis proposes to do is to make submissions on three
broad categories, the first one being the items that
the Commission identified in its letter, some brief
comments on the responses that Fortis has provided,
and then some more detailed comments on the responses
that CEC has filed. I will be delivering the bulk of
the submissions, but as I alluded to previously, Ms.
Herbst is going to deal with the issue of the deferral
accounts that was highlighted on the Commission’s
correspondence, and there may be instances where
questions or arguments stray into the area of the base
year costs and we may, in those circumstances -- Ms.
Herbst or Mr. Bystrom may end up speaking to those.
I will move directly then to the first item
on the Commission’s June 27th letter, and that is
dealing with what happens moving into another phase of
PBR beyond the term. And the first initial point that
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1354
I would make is that in fact, while the focus of the
question that the Commission has put forward is on a
rebasing-type process, in fact the PBR could end up
moving beyond the initial term in one of two ways.
One of them would be an extension, and the other would
be one, a new PBR that encompasses rebasing and a more
holistic look at the plan.
Dealing briefly with the extension first,
an extension -- Fortis’ submission is that an
extension would be an option to be considered in the
context where everything is working well, and where
the additional work required to undertake a complete
review of the plan isn't warranted at the time. Now,
the length of any extension, of course, has to
recognize that at some point, after being under PBR,
one does need to rebase. And so any extension that
would occur would be limited in duration. And if we
assume for the moment that we are proceeding under a
five-year PBR plan, Fortis’ position is that rebasing
would have to occur at the outside after a two-year
extension beyond with that, in order to maintain the
credibility of the plan moving forward.
Proceeding Time 9:16 a.m. T4
COMMISSIONER COTE: Could I ask a question of you? If
you were to rebase, say, after five years and carry
on, would that be acceptable?
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1355
MR. GHIKAS: It would as well. I’ll move to that as the
second option because I believe that, depending on how
things unfold, either one of those options may end up
being appropriate.
There is, if an extension is to be
considered in terms of the timing of looking at that,
the idea time to look at that would be at the midterm
review, because you’ve had some experience with how
things are unfolding, and it’s not right at the end of
the plan so there’s still time to -- if rebasing -- a
more fulsome application is necessary, there’s still
time to put that together and file it in time for the
beginning of the next period at the end of the PBR
term.
And of course there is precedent for an
extension. It occurred in the FEI’s 1998 to 2000 plan
when a year was added on at the end in order to permit
the company to actually recover its -- to get a
payback on its investments, but more recently the
extension was a two-year extension under FEI’s
previous plan, and that was done on the basis that it
was continuing to deliver benefits.
So with those brief comments on the
potential for an extension --
THE CHAIRPERSON: Mr. Ghikas, excuse me, I just have a
further question also.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1356
MR. GHIKAS: Certainly.
THE CHAIRPERSON: I’d be interested in your comments on
when a decision about a further period would be made,
and you’ve alluded to that somewhat talking about the
midterm review, and who should make it. Who should -
- who drives the decision? Is that a decision that
Fortis makes about what the post-PBR period is going
to look like, or is it a Commission-driven decision,
or is it something that all the parties agree to, say
during the midterm review?
MR. GHIKAS: Well, my general submission is that there is
a value in maintaining some flexibility to see how
things unfold. But in terms of the Order of what the
Commission makes in the context of this proceeding
with respect to a potential for an extension, in the
spirit of maintaining the flexibility, my submission
would be that the Order that the Commission makes now
should simply say that the Commission will consider
any applications to extend the PBR term at the midterm
review. And the most likely source of such an
application, just in practical terms, is probably
going to be the utility.
But certainly if parties -- the Commission
has the power to initiate processes on its own, and so
if it was to do so based on letters from other
participants of the midterm review, or the feedback of
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1357
the other participants, there is no reason why a
midterm review examination of an extension could not
occur by that route as well.
THE CHAIRPERSON: Thank you.
MR. GHIKAS: And certainly the last extension that
occurred was done by agreement, and there’s certainly
no reason why the Commission, in my submission, would
want to restrict itself in terms of the process that
would be used for considering an extension at this
time.
THE CHAIRPERSON: Okay, thank you.
MR. GHIKAS: So I’ll move then to the rebasing, which was
the real focus of what the Commission was getting to.
And the history of the PBR for these companies has
been that there has actually been a cost of service
test period or two in between moving from PBR. But as
discussed in the evidence, and it’s been alluded to
and I’ll just make the reference in Volume 3 of the
transcript starting at page 544, there is discussion
about -- that has been the practice, but certainly
there is no pre-condition that that must occur and the
fundamental point is that, at some point, rebasing has
to occur.
Proceeding Time 9:21 a.m. T5
MR. GHIKAS: And the rebasing in the past has occurred
through a traditional revenue requirements process.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1358
But the reality is that the requirement on the
Commission is simply that the rates on an ongoing
basis must be just and reasonable going forward. The
requirement is not on the Commission to do so through
a traditional cost of service hearing.
And so, with that said, it is in Fortis’s
position a very reasonable process to consider that,
if we are to move into a PBR, a new PBR beyond the
term, that it simply occur directly following the
conclusion of this term or any extension of it. And
how that would occur in terms of the timing would be
that the companies would file applications in the last
year of either the term or the extension of the term,
and, as proposed, based on the timing, that would be a
filing in 2018 for a term beginning in 2019.
In terms of the nature of the application,
the Commission has highlighted in its itemized list,
and I have alluded to already, the importance of
rebasing. And certainly then, the nature of that
application must address the base costs and rebasing.
And the application to do that would have to set out
the projected results for, in the example I gave,
2018, the projected results at the time the
application is filed for the remainder of that year,
and then translate those into a base for the next
period. And as was done in this case, that requires
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1359
adjusting some items, just as was done here -- would
have to occur again in that application as part of
that process.
But, it isn't -- and this is a key point,
it isn't possible to simply just rebase and move on
without looking at the other elements of the plan.
And the reason I say that is because what rebasing
entails is taking a hundred percent of the benefits
moving forward of the efficiencies, and flowing them
through to customers. And once you have done that,
those efficiencies aren’t there anymore, for the
companies to capture again. And that affects the
company’s ability to generate ongoing sustained
efficiencies under the next period.
And so, all of that leads to having to
examine the other terms of the plan, and in
particular, examining the X factor and whether it
remains appropriate. The Commission has before it
evidence from both Dr. Lowry and Dr. Overcast that
over-progressive PBR terms as efficiencies -- or low-
hanging fruit as it were, keeps getting eaten away --
that one has to reflect that in a lower X factor. And
indeed, that type of analysis would have to occur.
So, it isn't simply a rebasing application.
It is, in effect, a holistic view of the application
of the PBR that would look in many ways like what has
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1360
been put forward in the present context.
Proceeding Time 9:25 a.m. T6
MR. GHIKAS: So as I said, I will wrap that point up
simply by saying that there’s value in retaining
flexibility. And in terms of what the Commission
determines in its Order in this proceeding, as I
mentioned previously, the Commission’s Order should
simply say, in Fortis’s view, that the application for
an -- any application for an extension of the existing
term will be heard at the midterm review, and that the
companies will file an application in the final year
of the PBR, accounting for any extensions, for either
a traditional cost of service term, or sorry, a
traditional cost of service base rate structure, or
rebasing and a new PBR going forward.
The Commission can retain that flexibility
and do as it did in this process, which was to provide
direction down the road. You’ll recall the letter
from the Commission early on prior to the filing
indicating some expectations about what would be in
the filing and there’s no reason why the Commission
couldn’t, down the road, towards the end of the term,
provide similar direction.
So at this time, retaining the flexibility
for the future Commission panel sitting and for all
the stakeholders is desirable.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1361
So I’ll move onto the next point unless
there is any questions on that.
THE CHAIRPERSON: Go ahead, please.
MR. GHIKAS: Okay. So the second item on the
Commission’s letter is what process is recommended if
the application -- if PBR isn’t pursued at this time.
And obviously it goes without saying that the
companies have articulated why they consider that PBR
should be approved at the given time. And so I will
deal with that scenario based on, as I think it was
intended, which was to deal with it in a hypothetical
sense at this time.
For 2014 I would break my submissions into
two parts. First of all is to deal with the fact that
the evidentiary record in this proceeding is
sufficient for the Commission to make a determination
as to 2014 rates, irrespective of whether PBR is
approved. And the second element is, in terms of what
those rates should be set at in that circumstance,
that the Commission should approve the applied-for
rates. And I’ll explain what I mean by that, because
as you know, there are interim rates in effect right
now and I’ll explain there’s a bit of a nuance to
that. But effectively the applied-for rates should be
the level used in 2014.
So turning to the sufficiency of the
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1362
evidence on the record, I’ll start off by saying it’s
stating the obvious that it would be costly and time-
intensive to redo this process if it wasn’t necessary
to do that. And it is also stating the obvious that,
given the timing of where we find ourselves today,
that there is no prospect of completing a traditional
forward test year cost of service application before
the year is actually done. We’re not dealing with a
forward test year by that point.
And so really, in light of those practical
considerations, the question that the Commission
should be asking itself is is there any reason why the
Commission has to defer setting rates for 2014,
permanent rates for 2014, to another process? And my
submission and Fortis’s submission is that the
Commission has the tools and the evidentiary record,
and the ability to make that determination as part of
this proceeding. And I’ll highlight a few points as
to why I say that is the case.
THE CHAIRPERSON: Mr. Ghikas, excuse me. I just would
like to clarify. Your comments here are regarding
2014 rates only?
MR. GHIKAS: Yes.
THE CHAIRPERSON: Not 2015 rates?
MR. GHIKAS: Yes, that’s correct, and I’ll turn to 2015
in a moment.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1363
THE CHAIRPERSON: And also for clarification, you are
speaking for both companies?
MR. GHIKAS: Both companies, correct.
THE CHAIRPERSON: Thank you.
MR. GHIKAS: So what we have in terms of the evidence on
the record is -- first of all we’ve got a very
extensive record on the 2013 base costs which already
reflect adjustments for sustained savings.
Proceeding Time 9:30 a.m. T7
MR. GHIKAS: And the company in the application has
forecasted 2014 flow-through costs in the same way
that it normally does, and this reflects a significant
portion of the 2014 revenue requirement. And with
respect to the 2014 O&M capital, which would otherwise
be included in a formula under PBR, we note several
things about that for 2014. We know that there will
be inflation on the 2013 base costs, and there is
significant evidence on the record as to expected
inflation. We know that there is growth in the
business and there’s evidence on that. We have high-
level forecasts as a point of comparison, and the
revenue requirement at the existing rate base, the
capital in the ground today, is known.
And so in terms of the impact of capital,
it’s really -- the only thing that’s not known is the
impact of the capital, the revenue requirement impact
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1364
of the capital that is put in the ground in 2014.
That’s the only thing that’s not known when it comes
to capital because the depreciation and return on
everything else is known because it’s already in the
ground. And in fact, that unknown portion is actually
only the return component on the capital going in the
ground in 2014 because the depreciation on that
capital only commences in 2015.
And so really, the only thing in my
submission that we don’t have is a traditional revenue
requirements approach, an application-type approach,
where it’s delving in on a cost centre basis or on a
departmental basis that you’d have in the traditional
sense. And in my submission that is not the
requirement. As I alluded to previously, the
requirement is that rates be set on a just and
reasonable basis. And there is no requirement in the
Act, and there is nothing to suggest that the
Commission could not make that determination based on
the very significant record that is already before you
today.
So in terms of what the rates should be
fixed at for 2014 for both companies, as I indicated,
the Commission should, in Fortis’s submission, approve
the applied-for rates for 2014. Now, I’m using that
terminology because there’s a slight nuance. For the
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1365
electric company, what that means is approving on a
permanent basis the existing interim rates for 2014.
For FEI what it means is approving the interim rates,
but they have to -- sorry. Approving the rates,
interim rates, as adjusted by the evidentiary update
of February 21st, 2014. So those adjustments -- you
can’t just simply approve the interim rates as they
are set today. They should be adjusted based on the
updated information that came in after that time. But
otherwise the applied-for rates are appropriate. And
that -- I won’t repeat why that is the case because I
think the submissions that have been filed today amply
deal with why that rate level was appropriate, and so
I won’t dwell on that.
2015 for both companies. Fortis would
envision that for 2015 there would be a revenue
requirements application put forward for a two-year
test period, as has been the practice, simply because
of the time and effort involved in preparing such an
application. It makes sense to have an application
for 2015 and 2016.
Proceeding Time 9:35 a.m. T8
MR. GHIKAS: And due to the timing of preparing that
application, filing it and processing it, it is likely
that 2015 would be on interim rates for some time
before the final decision had been rendered in 2015.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1366
Those are my submissions on that point.
And before I move to item 3, I’d just field -- if
there are any questions on that come to mind?
THE CHAIRPERSON: No, please go ahead, Mr. Ghikas.
MR. GHIKAS: Okay, so what I will turn to now is actually
hand the microphone to my colleague Ms. Herbst, and
she will speak to the third item on the Commission’s
agenda, and then I will be back for more.
THE CHAIRPERSON: Okay, thank you.
SUBMISSIONS BY MS. HERBST:
MS. HERBST: Thank you, and good morning. I will be
dealing with, as Mr. Ghikas said, the third item on
the list and the Commission’s June 27th correspondence,
and will also take the opportunity while I am standing
to deal with the impact on FortisBC’s application of
the very recent changes that have been made to the DSM
regulation late last week.
So, turning first of all to item 3 on the
Commission’s list, and that had to do with deferral
accounts. And in particular, and just to recap, as
the Chair enunciated earlier, item 3 says that:
“In this application, FortisBC Inc is
seeking -- requesting approval for deferral
accounts for a number of its flow-through
items. These same deferral accounts were
approved for FEI in the previous PBR but
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1367
were not requested by FBC in its previous
PBR. Are these deferral accounts necessary?
What other options are available?”
So, turning to that, firstly, what I would like to do
is just isolate the accounts that we think are the
subject of Item 3.
And what we have done, in order to do so,
is compare the PBR plans that were initiated for
FortisBC Inc. by a decision in 2006 for the 2007
period onward. And that was in Order G-58-06. And
compare those to the FEI PBR plan which was initiated
by a decision in 2003 for the period 2004 onward, and
that was Order G-51-03.
And by our assessment in comparing those,
there are only four, at most, deferral accounts that
fall within the category of permission having been
requested and received by FEI and not FBC. And those
are the -- that FortisBC now seeks. And those are the
proposed tax variance account, the proposed property
tax variance account, the proposed insurance expense
variance account, and possibly -- and I will return to
why I say possibly in a moment -- the proposed
interest expense variance account.
And so, again stepping back to those four,
and our comparison. Each of those four was certainly
in the FEI-side PBR plan, under G-51-03, and that is
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1368
Appendix D9 to the FEI application. And in addition,
all four of those were also approved in the non-PBR
revenue requirements application that FEI made for
2012 and 2013. And just to make a note, that is at
pages 114 to 116 of the FEI decision for that period.
So, that is the FEI side.
For the FBC side, while for the most part,
FortisBC didn’t specifically request deferral
treatment for these items in its 2007 PBR plan, for
the most part also, the treatment that these items
received under that plan is quite close to what is
being sought now. And that is to the point that we
say that one of the accounts that is at issue in item
4, the interest expense deferral account, is actually
a reinstatement of something that in effect was in
place during the 2007 PBR plan.
So, breaking that down just a bit further,
and turning first to the interest expense variance
account, we say -- and I will give a couple of
references to the evidentiary record on this. We say
that this is essentially a restatement of what
happened during the PBR regime. And at Exhibit B-7,
which is FortisBC’s response to a Commission IR, IR
1.189.6, that said. And also in FortisBC’s response
in the same exhibit to BCUC IR 1.189.2, FortisBC said
this as well, that it had a similar interest expense
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1369
deferral account approved during its 2007-2011 PBR
agreement, which saw in excess of six million dollars
flowed back to customers.
Proceeding Time 9:40 a.m. T9
MS. HERBST: We deal with this in item three just because
it's not entirely clear, when you're reading through
the actual Order that grounded the 2007 PBR plan. but
what that Order said or what the negotiated settlement
terms that were attached to the Order said is that
there was a term agreed to that positive or negative
variances in the gross annual interest expense and the
interest component of AFUDC will be treated as flow-
through expenses to customers in the same manner as in
2006.
And then the same Order dealt with a
negotiated settlement on the 2006 revenue requirements
and part of that -- part of the terms on that were
that, as to financing costs, FortisBC agreed and it
was generally agreed that there would be an interest
deferral account to capture the difference between the
actual 2006 interest costs and the forecast and to
amortize the difference fully in 2006 and that that
continued.
So certainly in practice we say that while
there may not have been a particularly specific
crystallized request for the 2007 plan, in practice
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1370
the treatment was very much as being sought now by
FortisBC.
Similarly, but not quite as close, was the
situation to do with the tax variance and property tax
variance in the 2007 plan. So in the 2007 plan that
FBC had there was a provision in the negotiated terms
for a Z factor treatment of those items. And the Z
factor treatment permitted recovery or refund of
extraordinary costs outside the steady-state
operations as determined in the PBR formula.
The Z factor circumstances included
directives of the BCUC or other competent regulatory
agencies or Acts of legislation or regulation of
government, and this wording was treated during the
2007 PBR term as encompassing tax and property tax
changes. So for example, in 2010, which by virtue of
an extension fell within the 2007 PBR plan, certain
corporate tax savings and income tax deductions were
treated as a flow-through adjustment to 2011 rates.
So again we say that while there wasn't a specific
crystallized request in the Order that underpinned the
2007 PBR plan, the treatment was quite similar in
terms of being a flow-through.
Now I note as well that the actual Z factor
provision in the negotiated settlement underneath the
2007 plan talked about the inclusion of these costs in
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1371
revenue requirements where possible or to the
capturing of material variances in a deferral account.
So there was at least an overt reference in that
respect to a deferral account for consideration and
disposition outside of the PBR formula as part of the
annual review. And I'll just give a couple of
references to the evidentiary record in this
proceeding on that.
THE CHAIRPERSON: Ms. Herbst?
MS. HERBST: Yes.
THE CHAIRPERSON: Sorry to interrupt. I just wonder if
we could just back up a little bit please, because
it's not too clear in my mind.
MS. HERBST: Yes, absolutely.
THE CHAIRPERSON: You're saying that there was agreement
that these items, insurance expense and so on, would
be given flow-through treatment, correct? When you
use that term, does that in your mind mean it involves
-- it necessarily involves a deferral account?
MS. HERBST: I don't think it would necessarily but I
think that in practice it did. There was a reference
within the terms of the negotiated settlement to the
possibility of a deferral account where needed and I
gather that as a practical matter that's how it was
approached.
And I should say insurance expense is the
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1372
one item that was not --
THE CHAIRPERSON: Sorry, interest expense, yes.
MS. HERBST: Exactly.
THE CHAIRPERSON: So when you say you gather -- are you
saying that FortisBC's interpretation of being
approved or having those expenses approved as flow-
through expenses, does FortisBC then interpret that as
an approval to establish a deferral account to flow
those expenses through? Is that what you're saying?
MS. HERBST: I'll check. I'm not sure that that would be
the case in all circumstances. I believe that was the
practice within the context of the 2007 plan.
THE CHAIRPERSON: Yes, please.
MS. HERBST: But if I may have a moment I can check that.
THE CHAIRPERSON: Sure, please do. Thank you.
Proceeding Time 9:44 a.m. T10
MS. HERBST: Yes, Mr. Chair, and thank you for the
opportunity to consult. That was the mechanism that
was used where there was a variance that needed to be
flowed through a deferral account -- was used. And
I’m not sure that there would be another mechanism
that would be envisioned going forward if that
approval was given.
THE CHAIRPERSON: Thank you. And to your knowledge that
was the case for all five -- or all four of these
flow-through items?
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1373
MS. HERBST: The insurance expense variance account, I
think, is different. So I think in that case there
wasn’t similar treatment in the 2007 PBR plan. The
ones that I think are close was the interest expense.
THE CHAIRPERSON: Yes.
MS. HERBST: That was probably the closest of the
approvals in the 2007 plan, and relatively close but
not quite close -- not quite as close were the tax
variance account and the property tax variance
account. And the insurance expense is a bit of a
different situation.
THE CHAIRPERSON: Yes. Sorry if I’ve distracted you
here, but please continue.
MS. HERBST: No, not at all, and thank you, that was a
helpful question.
And I’ll just -- in terms of a couple of
references in the evidentiary record in this
proceeding to the past treatment of these items, in
Exhibit B-7 which is FortisBC’s response to the
Commission’s IR 1.183.1 and also in the same exhibit,
its response to the Commission’s IR 1.191.3, some of
this background is dealt with as well.
So I say -- so up to this point I’ve been
talking about the context or the premise of the
question. I say that the situation as between FEI and
FBC during their last PBR plans wasn’t that
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1374
dramatically different, and that there’s not really
that a dramatic departure in what FBC is seeking now
as compared to its last PBR plan.
But setting that aside and dealing
specifically with the first of the questions that’s in
item 3 and that’s whether these deferral accounts,
these four deferral accounts that we’ve identified,
are necessary. I say that they are. I say that they
are necessary in the sense of it being the internally
consistent and efficient way of ensuring that
ratepayers pay only for the costs that are actually
incurred, and that the potential for windfall gains or
losses on the part of either the utility or ratepayers
is avoided. And I’ll talk about each of these
elements a bit more in a moment. So that’s internal
consistency, efficiency and avoiding windfall gains or
losses.
But I say as well, and perhaps more
fundamentally, that necessity is too high a test in
terms of whether or not these deferral accounts should
be approved. I say that they are necessary but I say
that we don’t need to go that far in terms of what we
establish. And the reason that I say this is that the
deferral accounts are sought under Sections 59 to 61
of the Utilities Commission Act and the general
parameters for that are what is just and reasonable.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1375
And if the Commission’s past decision on FBC is non-
PBR revenue requirements, in 2012 and 2013 is one
guide, I think what was said there is useful in terms
of encapsulating the approach to be taken. And there
the Commission said it was considering whether the
creation of certain deferral accounts represents a
reasonable attempt to manage the uncertainty and
unpredictability associated with accounts that are
largely uncontrollable in nature.
So I say that, really, as opposed to
necessity, the test is reasonableness and whether the
accounts that are brought forward are characterized by
that uncertainty and unpredictability that the
Commission mentioned. And just as a reference to
that, the 2012-2013 decision that involved FBC is
attachment 80.3 in Exhibit B-24 and it’s on page 115
that that principle is set out.
So I talked about -- going back to the
necessity threshold and necessity considerations --
that these deferral accounts are necessary because
they are the internally consistent and efficient way
to ensure that payments are made only for what’s
actually incurred and that there aren’t windfall gains
or losses. So in terms of internal consistency --
and when I speak of internal consistency I now mean as
between the gas and electric sides as part of the
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1376
greater Fortis entity.
Proceeding Time 9:49 a.m. T11
MS. HERBST: So, notably in this regard, all four of the
deferral accounts -- so insurance expense, interest
expense, property tax, and tax -- were approved for
FEI as part of its 2012-2013 revenue requirements, and
bringing FortisBC into line with what was done on the
FEI side I say is something that has tangible
benefits. It's something that facilitates the
training of accounting staff on both sides of the
organization, or perhaps a single person to deal with
both sides of the organization, who knows, yes, this
is the treatment that these items receive.
And not only is there an internal
efficiency created but also a regulatory efficiency in
the sense that, going forward, the regulatory
treatment could be the same, and the same approach
could be taken in terms of both applications. But I
say even if Fortis on the gas side hadn't already
adopted this deferral approach, it would be a useful,
reasonable and necessary thing for FortisBC on the
electric side to do.
And here there’s another efficiency point
that I want to make as well as the windfall gain and
loss point. Now, in terms of the efficiency point, if
the matters that are at issue here -- so insurance
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1377
expense, interest, property tax, and tax -- are dealt
with simply as Z factors but without a deferral
account attached or potentially attached to them, what
would happen is that FortisBC would have to re-
approach the Commission going forward on specific
occasions where it felt that some sort of relief or
flow-through was required. And I say that as long as
the terms as they are in the application are defined
carefully in terms of what goes into the deferral
account, that’s an unnecessary effort. And that’s not
to say that there wouldn’t be transparency in what
happens to these deferral accounts, because the
balances could be considered each year as part of the
annual review process.
Now, I had talked about as well, of course,
the windfall gain and loss point, and I say that the
types of expenditures that are sought to be captured
within these deferral accounts are predominantly items
that are substantially or completely uncontrollable.
And so that’s very much within the parameters of how
deferral accounts are to be run, and what deferral
accounts are to be established for. They’re to be
established for items that are -- substantially are
completely uncontrollable in the circumstance, and
avoid the potential for windfall gains and losses that
might otherwise happen but where matters can’t be
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1378
properly forecast or accurately forecast necessarily
in advance. And the gain or the loss shouldn’t accrue
to either the utility or to customers. What should
happen is that the proper amounts, the actually
incurred amounts should be paid and the deferral
accounts would ensure that that happened.
So turning to each of the four deferral
accounts and how that fits in, the first one is the
insurance expense variance account, and so about that
I say this. Insurance expense can vary significantly
due to changes in economic factors that are outside
FortisBC's control, and FortisBC's submission at page
78 encapsulates this, the application does at page
263. The sort of factors that make the insurance
expense volatile include global market conditions for
insurance companies, both through investment returns
and loss history, the impact of large losses in the
marketplace, which can have a significant impact of up
to 10 to 100 percent and potentially more on rates,
increased insurer concern over and sensitivity to
catastrophic risk such as earthquake and forest fire
losses, and, as FortisBC says in its materials,
companies that are exposed to these risks, as FortisBC
certainly is, have continued uncertainty as to
premiums.
So when the Commission dealt with insurance
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1379
expense in 2012 and 2013, or for 2012 and 2013, when
it did so for FEI, it approved the insurance expense
variance account that FEI sought, noting the current
economic circumstances where there is considerable
uncertainty on a global scale. And as FortisBC's
materials say, that global market uncertainty remains.
When the Commission dealt with FortisBC's
request, also for 2012 and 2013 for an insurance
expense variance account, it denied the request. And
I say that the circumstances have both changed and
been clarified in respect of FortisBC since then.
Proceeding Time 9:54 a.m. T12
MS. HERBST: So when dealing with FortisBC’s request for
2012-2013, the Commission noted that FortisBC had
designated certain insurance expenses being somewhat
controllable. And this earlier description that
FortisBC had put forward was based on the prospect of
achieving some economies of scale within the Fortis
group as a whole.
Now, those prospective economies of scale
have already been embedded into the forecast, and so
the variance over and above, or under that, would not
any longer be within that parameter. It would be
uncontrollable.
The other point that distinguishes
FortisBC’s current situation from 2012 and 2013, when
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1380
its request was denied, was that it is seeking a
narrower band for what the insurance expense variance
account would have folded into it.
Previously, in 2012 and 2013, it had sought
deferral treatment for first- and third-party claims
and asset valuations or appraisal fees, in addition to
insurance premiums. Now it is seeking that the
variance account only extend to insurance premiums.
So, it is along the lines of what FEI and FEI’s
account is comprised of.
So, the second deferral account is the tax
expense variance account, and again, we say that this
falls within the category of uncontrollable items.
FortisBC faces uncontrollable changes in the tax laws
and assessing practices, both federally and
provincially in terms of income tax, sales tax, and
other taxes that may be imposed.
Again, in 2012 and 2013 the treatment was
different here. The Commission approved FEI’s request
for a tax variance account, denied FortisBC’s, and I
say again that the circumstances have either changed
or have been clarified with respect to FortisBC since
then. And what FortisBC had done in terms of its
2012-2013 application was designate tax variance as
being primarily, not entirely, non-controllable. And
it did so based on the fact that if the completely
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1381
uncontrollable changes occurred in tax laws, the
company could potentially have some control over the
costs of compliance. But I think what didn’t come
through when it made its application last time is that
is a potentially only very minor element of the
potential overall costs, and otherwise the variance is
uncontrollable.
The third deferral account within item 3 is
the property tax variance account. And again, we say
this falls within the uncontrollable category. The
property taxes are driven primarily by legislation,
market values of properties, political programs, where
a municipal boundary happens to fall, and tax rates
that are imposed within a particular municipality, all
of which are outside FortisBC’s control.
This is again a situation where the
Commission approved FEI’s property tax variance
account for 2012 and 2013, and there is a bit of a
precedent though, also, for FortisBC having approval.
What FortisBC requested in 2012-2013 was a limited
deferral account related to a valuation review being
undertaken by B.C. Assessment at the time. It is now
simply expanding it to be commensurate with FEI’s.
And the fourth and last deferral account is
the interest expense variance account. And this is a
type of account that we say again falls within the
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1382
parameters of not being controllable. Interest
expense can vary due to global economic factors that
are -- and market conditions beyond the company’s
control.
And again, disparate treatment in 2012-
2013; FEI’s request for an interest expense variance
account was granted, FBC’s was denied. And I say
again that the parameters of the request for FBC has
changed, such as to make approval appropriate in 2012
and 2013 and applying for the deferral account.
FortisBC had designated interest expenses being
somewhat controllable, and why it did so at the time
was that it had some potential to influence the terms
of banking arrangements at the time of renewal. But,
unlike in the 2012-2013 application, FortisBC is no
longer requesting that variances on most financing
fees be included, and it is not requesting that short-
term debt volume variances be included. So, now it is
going to be parallel, or its request is parallel with
what FEI actually has.
Proceeding Time 9:59 a.m. T13
MS. HERBST: And a recent example -- at least there’s one
recent example in the materials of FortisBC being
unable to influence interest rates generally, or
unable to have the ability to forecast in full what
happens with interest rates.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1383
In 2013 a coupon rate increased as a result
in part of foreign investors not investing in Canadian
bonds. Again, very much outside the scope of what FBC
can control. The Commission in its decision in 2012-
2013 referred to the possibility of FortisBC making
best efforts to manage interest expense, but it’s not
been able to make best efforts to, and it can’t, to
control, you know, what foreign investors do, the
spread between bond yield and credit and so on.
Now, the third -- or sorry, the second
question in item 3 relates to whether there are
options to establishing the deferral accounts. I
talked a little bit before about one such option,
which would be simply treating them as Z factors
without an associated deferral account. And part of
FortisBC's materials, and I referred to Exhibit B-24,
its response to Commission IR 2.61.2, talks as well
about the fact that the deferral account treatment
lends itself to greater precision, clarity and
certainty.
And the second possible option, or a second
possible option that was raised in some of the
Commission IRs and I’ll just touch on, would be to
use, instead of a deferral account, an average for the
past five years to determine the costs that should be
recoverable during the PBR period. And FortisBC
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1384
addressed this in Exhibit B-24 in its response to IR
2, BCUC IR 2.54.3. The suggestion that there could be
a five-year average assumes that there is a simple
trend that can be used to forecast costs, and
disregards that many elements in these costs aren’t
predictable.
And so, for example, the capital markets
and economic conditions during 2014 to 2018 are likely
to be very different from 2009 after the global
economic circumstances that occurred in 2008 and so
on. If there’s an average use, the objective that
deferral accounts are intended to further wishes that
there be no windfall gains or losses and that only the
actual costs be paid for just wouldn’t be met. And
so, given all that, FortisBC says that the deferral
accounts it seeks should be approved.
And subject to questions on that, I’ll just
touch briefly on the DSM regulation if I could as
well, before sitting.
Sorry, Mr. Chair. And Mr. Bystrom -- I’ll
deal with the DSM regulation if I may from the
FortisBC Inc. perspective, and Mr. Bystrom has a few
points to make on the gas side perspective on this as
well.
So very recently -- sorry.
THE CHAIRPERSON: Sure. We have no questions. Please go
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1385
ahead, yes.
MS. HERBST: Thank you. So very recently, late last
week, the government released amendments to the DSM
regulation, and of course a chunk of both applications
on the electric side and the gas side relates to DSM.
So I just wanted to briefly address what might flow
from that or what we say flows from that, at least on
the electric side.
So there are two categories of amendments,
very broadly speaking, to the regulation. Some take
effect immediately and from our perspective those are
relatively limited, and so those include a more
detailed definition for low-income households and so
on. There’s a second category of amendments that
takes effect, starting on January 1st of 2015, which
are more significant from our perspective on the
electric side.
So in the application that FortisBC Inc.
filed, it sought approval for DSM expenditures for
2014 to 2018 in specified amounts for each of those
years. And much as the time categories that I alluded
to earlier are important, that’s how the impact
divides itself in terms of our application. So for
the amendments that take effect in 2014, so take
effect immediately, there is no effect, we say, on
FortisBC Inc.’s application. So for 2014 and the
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1386
request for 2014 for approval for 2014 DSM expenditure
schedules, that request from FortisBC Inc.’s
perspective stands and is unaltered. The submissions
that were made with respect to 2014 are still
pertinent. And from FortisBC Inc.’s perspective we
remain compliant with the new terms that take effect
now.
Proceeding Time 10:04 a.m. T14
MS. HERBST: There is also -- because there is no change
to the proposed DSM schedule for 2014, there is also
no change for revenue requirements for 2014 and so in
that respect the application is intact.
The changes taking effect starting on
January 1st, 2015 are potentially more significant from
the electric side's perspective. They include a
change to the impact or the extent to which avoided
electricity cost is calculated with reference to the
long-run marginal cost of acquiring electricity
generated from clean or renewable resources in B.C.
And so while I believe the Ministry's interpretation
guide, which is pending on the regulation, still
hasn't been finalized, there is something for FortisBC
to explore and look at for the 2015 period going
forward.
And so while FortisBC continues to request
approval for the 2014 expenditure schedule, it is
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1387
going to be withdrawing its requests for approval for
the 2015, 2016, 2017 and 2018 DSM expenditure
schedules and it plans on filing correspondence to
that effect -- just to formalize that withdrawal in
the next couple of days. So the only effect on the
decision to be made here would be that, in effect, no
decision would be need to be made on the 2015-2018
expenditure schedule request.
In terms of how FortisBC is going to deal
with this going forward, it's working on quantifying
the impact of the regulatory changes on its DSM
portfolio and it thinks it will be able to accomplish
this fairly quickly. It intends to file a revised DSM
plan for 2015 and possibly for one or more future
years and likely that will be by the end of August of
2014. This is a bit of breaking news. When I spoke
with Mr. Miller earlier today we were thinking perhaps
by the end of July of this year, but FortisBC has
decided to leave a bit of a longer period for
consultation with interveners with the Ministry in
terms of how its new approach will take shape. And of
course the goal of all this is to ensure that the
revised plan will be compliant with the changes to the
regulation going forward from January 1st, 2015 onward.
The DSM expenditures don't affect the
structure of the PBR plan because the expenditures
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1388
aren't determined under the PBR formula and so again,
from that perspective the application is intact. But
there will be a withdrawal of the request for approval
on the electricity side of the 2015 to 2018
expenditure schedules and Mr. Bystrom will address the
gas side's perspective on the regulation.
THE CHAIRPERSON: Thank you.
MS. HERBST: Thank you.
SUBMISSIONS BY MR. BYSTROM:
MR. BYSTROM: Good morning, Mr. Chair, Commissioners.
Yeah, I just thought it would be helpful if I took the
time to explain, very briefly, the changes that are
relevant on the gas side, the changes to the DSM
regulation that are relevant to the gas side and why
there's no change to the EEC plan put forward by FEI.
And so there are two amendments to the DSM
regulation that are relevant to FEI's or the FEU's EEC
plan. The first is a change to the definition of low-
income programs. And that broadens the market for
FEI's proposed low-income programs. and the second
change is the removal of the 50 percent factor for the
zero emission energy alternative. That's a component
of the MTRC, modified total resource cost test. And
so that means for those programs that require the MTRC
to be cost-effective, they're now more cost-effective.
So both these changes are positive -- I can
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1389
put it that way -- for the EEC program. However there
is no changes proposed because there's a 33 percent
cap on programs that require the MTRC to be cost-
effective. And FEI's -- or the FEU's EEC plan is
already bumping up against that 33 percent cap. And
to see that I would just refer you to Exhibit B-43.
And in that exhibit there's an amendment to the FEU's
EEC plan and Exhibit 3 of the plan has that MTRC
percentage and it shows that we are right up against
the 33 percent cap. So there's no room to expand
those programs.
Proceeding Time 10:09 a.m. T15
THE CHAIRPERSON: Okay.
MR. BYSTROM: And those are my submissions.
THE CHAIRPERSON: Thank you very much. Mr. Ghikas, I
assume you are going to -- you are now going to make
submissions on the panel IRs, is that correct?
MR. GHIKAS: I am, yes.
THE CHAIRPERSON: Do you have a rough estimate of how
long you will be?
MR. GHIKAS: I think I will be probably 10 minutes on
Fortis’s IRs.
THE CHAIRPERSON: Yes.
MR. GHIKAS: A little bit longer -- I think I will be a
half-hour speaking to Dr. Lowry’s.
THE CHAIRPERSON: I’d like to take a short break then,
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1390
please.
MR. GHIKAS: Thank you.
THE CHAIRPERSON: We’ll return at 10:20.
MR. GHIKAS: Thank you.
(PROCEEDINGS ADJOURNED AT 10:11 A.M.)
(PROCEEDINGS RESUMED AT 10:22 A.M.)
THE CHAIRPERSON: Please be seated. Please go ahead, Mr.
Ghikas, thank you.
SUBMISSIONS BY MR. GHIKAS:
MR. GHIKAS: Thank you. In terms of the submissions,
further submissions on FortisBC’s responses to IRs, I
will be brief, because I think the responses are
largely self-explanatory, but I did want to make
further comment on the second series of IRs.
And that is, the questions that were asking
about what happens if you apply the old formula and
the new formula, and so on. And what I would draw to
the Commission’s attention -- and again, Fortis is not
entirely sure where the question was coming from, but
what I would say is that what you see in those
responses is entirely expected, and what it does
highlight, first of all, is the importance of rebasing
after a PBR. And how significant, when you look at
the difference between the trajectory of the old
formula, extending beyond that -- how significant the
difference is between that trajectory and the rebased
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1391
amount does emphasize that, at some point, you do have
to rebase.
The second point is that is underscored by
that response is that you have to start with an
appropriate base. And if you were to look at the
formula extended out for the 2009, 2011 for O&M for
example for both companies, that would be too high.
And it would be too high to use as a base going
forward for a future PBR. The actuals were lower,
obviously, due to the savings, and the savings have
been explained. For capital, which applies to FEI
only, because FBC didn’t have a capital formula last
time, the formula amounts would be too low to use as a
base, simply based on the fact that -- the capital
requirements that occurred afterwards. And the base
that Fortis has put forward really takes into account
all of the changes that have occurred since the past
-- the conclusion of the past PBR, and that is really
the appropriate base to start with.
The third point is that when you compare
the spending envelope, if I can put it that way,
between what the old formula would give, and what the
new formula would give, the envelope that is created
by the new one is larger. And that in fact makes
perfect sense, because what you’ve done is rebased or
flowed entirely the benefits to customers from both
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1392
the prior PBR term, and those that have accrued since
the PBR term, to customers. They are no longer
available to the utility to seek out, and hence, there
has to be more dollars available than would otherwise
be the case under the older formula in order to
adequately provide service.
Proceeding Time 10:26 a.m. T16
MR. GHIKAS: And to that point really it would be
illogical in my submission to extend the X factors
from the prior plan and apply them holus-bolus to the
current plan after, when you have re-based the savings
that came out of the prior plan and since that.
I will move now -- and anything further on
Fortis’s IRs I’ll address in reply, but I will move
now to Dr. Lowry’s responses to IRs. And I will spend
a little more time on this because I think some points
in his responses have made a few points clear and they
need to be addressed. And the first -- I’ll focus on
five points. The first one arises out of his response
in IR 1.3, and that’s the IR that asks him effectively
to explain why he moved from X factor ranges to
pinpoint values. And my point there is that the
explanation that he provides is avoiding stating the
obvious, which is simply that he made an error and
that he corrected the error after it was pointed out.
The second point that I’ll touch on is that
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1393
in his responses he has mischaracterized, in my
submission, Fortis’s proposal as a double-arm PBR when
it is in fact a building block plan and those two
things are different in the way that Dr. Lowry is
using that term “double-arm”.
The third point is that, although Dr.
Lowry’s evidence includes recommendations on separate
X factors, his response to an IR in the Panel IRs is
making it clear that the approach lacks the empirical
basis to be used and to be useful to the Commission in
practice, and I’ll point to that.
The fourth point is that the responses that
he has provided in terms of how the capital trackers
affect his recommendations are still premised, his
discussion is still premised on a proposal or on the
Alberta-type model and not -- and a tracker, and the
tracker that he’s addressing is based on what had been
the original Alberta tracker and doesn’t account for
the fact that Alberta has actually moved away from
that factor. And finally there is an inconsistency, I
submit, in the capital X factors that he has put
forward, and I want to highlight that.
So dealing with the first point, this is
the discussion in IR 1 -- about 1.3 in particular --
about why he moved from ranges to pinpoint references.
And if you look at his response to IR 1.3, he says
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1394
that in the second sentence, he removed the upper
bound of the recommended X factor ranges for single
arms, which were intended to address the presence of
broad capital cost trackers in the plans proposed by
Fortis due to the speculative nature -- character of
these adjustments. There is no established way to
make these adjustments. Fortis has made the
calculations more difficult by being vague about his
CAP-X intentions. Additionally, in response to
Commission data requests, Dr. Lowry provided X factors
for CAP-X instead of X factors for capital cost.
These are clearly more pertinent to the PBR plans
proposed by Fortis.
So what I want to zero in on, what really
is prompting the response in these oral submissions is
the fact that Dr. Lowry is seeking to deflect the
change that he made and attributing it to something
that Fortis has done.
Proceeding Time 10:31 a.m. T17
MR. GHIKAS: And in my submission what is left unsaid in
that response is if -- is that the reason he made the
change is simply that he recognized after Dr. Overcast
had pointed out that simply taking 10 percent out
isn't a valid approach, that he needed to change his
approach. And that happens. Things need to change.
But the response in saying that Fortis has somehow
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1395
been making it difficult for him is, in my respectful
submission, not the real issue.
Dr. Lowry's initial recommendation said
nothing about his ranges being speculative. They said
nothing about there being no established formulaic
means of extracting -- quantifying a capital
exclusion, and they certainly said nothing about his
calculations being illustrative because Fortis has
somehow made it difficult to do this. His
recommendations only changed after Dr. Overcast had
pointed out in his rebuttal evidence, at page 31, that
you couldn't do that.
And there is a significant amount of
evidence on the record about the capital plans of both
companies. So, at the end of the day, what the
Commission has is simply evidence from Dr. Overcast
with respect to a judgment-based adjustment and it's
comprised as part of the difference between his TFP
values and the X factor recommendation of zero that he
put forward. That's the evidence that the Commission
has. And in my submission it would simply be easier
to just accept the change for what it is and move on.
But this -- it doesn't -- the change is not
attributable to something that Fortis has done.
THE CHAIRPERSON: Excuse me, Mr. Ghikas, but when you say
"accept the change for what it is" you're saying that
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1396
you agree with Dr. Lowry's change and we should accept
that? Is that --
MR. GHIKAS: Thank you for asking that. I just -- what I
was really saying was, it's an error and that we
should just call it what it was. He put it in, it was
a mistake and he corrected it. And so the range, we
should just set aside. And pinpoint.
THE CHAIRPERSON: And consider only the number that he --
MR. GHIKAS: Yes.
THE CHAIRPERSON: Okay, thank you.
MR. GHIKAS: Yes, that's really it and that there is in
fact no evidence about any adjustment from Dr. Lowry
about how to quantify any adjustment from Dr. Lowry,
and that's simply the point.
THE CHAIRPERSON: Okay, thank you.
MR. GHIKAS: Now the second point that I wanted to make
is that it appears that Dr. Overcast has
mischaracterized Fortis' plan -- sorry, Dr. Lowry has
mischaracterized Fortis' plan. And if you look at the
response to 2.2, you'll the question at 2.2 asks about
Fortis' proposed building-block approach and in
response he says, "The single arm would be applied to
all revenue that is not Y factored." Or as treated a
flow-through, in other words. "This would presumable
include all the downward trending costs of older plant
that is subject to separate rate-making treatment
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1397
under the Fortis double-arm proposals."
Now as Fortis understands it, the double-
arm that he's referring to is actually -- what he's
referring to is an approach that has one X factor for
capital and one X factor for O&M, and that is not what
is being proposed. What is being proposed is a
building block model which, although the costs are
looked at separately to allow more appropriate cost
drivers to be assessed from each side, to have a
single X factor applied to them. And that is indeed
having a single X factor or what Dr. Lowry refers to
as a single-arm approach is what has been done here
and what is done in all of the other plans that the
Commission has evidence before it on. And so this is
not a double-arm and so the Commission should just be
aware of the fact that he has misstated what the plan
is.
Proceeding Time 10:36 a.m. T18
MR. GHIKAS: The third point is that, although Dr.
Lowry’s evidence includes recommendations for separate
X factors for capital and O&M, that his responses,
which I will take you to, really underscore that in
his view, that type of approach lacks the empirical
foundation to be useful in practice. And if you see
in the -- you’ll see in the preamble to IR 1, there is
a reference to Dr. Lowry’s view that the single-arm
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1398
approach has a more solid empirical foundation
provided that the capital cost tracker is redesigned
along more conventional lines. And the Commission’s
IRs go into that. Let me just find the -- 1.4, thank
you.
And so, in 1.4, the Commission is asking
about that. Now, I will leave aside the proviso, for
the moment, about provided the capital cost tracker is
redesigned along more conventional lines, and I will
deal with that in my next point, my next broad point.
But, leaving that aside, and the merits of that
proviso, what the statement is saying, and what he is
expanding upon in 1.4, is really that there is a more
solid empirical foundation to looking at an X factor
based on total factor productivity.
And the only -- what flows from that is
that the only issue that the Commission needs to
determine is to focus on the design of the capital
tracker. It doesn’t need to look at separate, less
empirically sound X factors for O&M and capital. What
it needs to do, as is done in every plan that is on
the record in this proceeding, have a single X factor,
and have some sort of mechanism to address capital
outside the formula. And provided the Commission
turns its analysis to that, there is no reason to even
entertain a separate X factor for O&M and capital, and
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1399
it renders the discussion effectively academic in the
current context.
And in fact, there are other reasons why we
should set that aside. The building-block approach is
what has been done previously here. And CEC --
although Dr. Lowry is explaining this, CEC has said in
paragraph 180 and paragraph 234 of its argument that
the single X factor approach should be used. So, when
you have that context, it really makes no sense to
consider -- to keep going down the road of exploring
this idea of having two X factors.
The fourth point, as I alluded to, would
deal with the questions related to how the capital
trackers affect his recommendations. And, in my point
is that, if in his discussion in IR 1.5, that asked
him about how the capital trackers or his proviso on
capital trackers affected his recommendation, what you
see is that the discussion he is providing is premised
on a plan such as that that exists in Alberta. And
even then, on the type of capital tracker that the AUC
has moved away from, recognizing that it is unworkable
in practice.
Proceeding Time 10:40 a.m. T19
MR. GHIKAS: So let’s look at his response here and I’ll
explain what I mean as I go through. If you look at
his first bullet in the response, it says:
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1400
“A PBR with a single arm provides
considerable funding for CAP-X. In addition
to the funding provided by the escalation of
the revenue requirement …”
The escalation of the revenue requirement on capital,
okay?
“… the initial revenue requirement includes
an allowance for the cost of older plant
that is fixed even though this cost declines
due to depreciation. The recent surge in
CAP-X of Fortis during its PBR holiday will
place extra downward pressure on its capital
cost growth going forward in addition to
possibly reducing the need for further CAP-
X.”
Now, he defines -- he’s distinguishing
between the revenue requirement of CAP-X and of
capital and capital expenditures in his responses.
He’s defined them differently in 1.1. But what he’s
saying here is that, under the Alberta model, when
growth -- when plant, existing plant is depreciating,
that depreciation isn’t flowing to customers, it’s
creating an additional envelope of spending that’s
subject to the escalation under the formula. And so
if you have that type of model, if you spend a lot of
money before the PBR and have a lot of rate base
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1401
that’s going to be depreciating, the more you spend,
the bigger the envelope is going to be as that
declines. And what he’s referring to here in Fortis,
I assume it’s Fortis Electric in this case because
they’re the only ones that have had a surge of
expenditure prior to PBR. But that circumstance only
arises under an Alberta-type plan.
And if you look at the second bullet, the
same is true. It’s talking about in the last -- if
you look, the last sentence there:
“Full compensation for the occasional surge
without corresponding adjustments to the arm
when capital growth cost is slow will then
result in overcompensation.”
And that’s that same general point, and if you go on
the next paragraph talks about why capital trackers
are designed the way they are typically. But the last
paragraph is very interesting because he effectively
acknowledges that the Fortis plan is different. He
says: “In single-arm PBR plans the problem of inter-
temporal compensation,” that depreciation that’s
occurring,
“can also be solved by continuing to address
tracked CAP-X costs via a tracker in
subsequent PBR plans, rather than adding
them to the revenue requirement that is
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1402
subject to indexing. Should the Commission
be interested in a single-arm plan, this is
a good opportunity to implement this
sensible measure. This concept is similar
in spirit to what Fortis has proposed, since
under its plans the cost of all plant is
essentially accorded tracker treatment.”
And what he’s essentially saying here, Mr. Chairman,
is that he’s acknowledging the benefit of flowing
through the envelope associated with declining rate
base to customers. And that is what Fortis is
proposing. And so it’s important to understand the
context that this discussion isn’t directly related to
the plan that’s before you.
And finally, if you go up one paragraph, he
talks about the conventional cost trackers and is
suggesting that they are limited to the things that
they can apply, and that growth-related CAP-X is
rarely accorded tracker treatment because they are
partially self-financing and coincide with the
realization of outsized scale economies.
Now, if one looks at the AUC decision 2014-
235, which is the capital tracker decision, if you
look at that -- and he’s holding up the Alberta as
sort of conventional -- if you look at that, there is
no question that the AUC has moved away from what he’s
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1403
talking about.
Proceeding Time 10:45 a.m. T20
MR. GHIKAS: And in particular, this topic was discussed
at transcript 4, page 636 and 637. And the -- I would
refer you to a list of growth-related approved
projects from that decision at paragraph 942, and that
discussion where the Commission agrees that Atcor’s
proposed capital tracker projects and programs are
either for asset replacement or refurbishment, and are
driven by external parties or are growth-related.
Accordingly, the Commission finds that these projects
satisfy the requirements of criterion 2.
So, if I would direct your attention, Mr.
Chairman, to 942, 943, and also in the context of
Fortis similar comments in paragraph 1002. And those
make it abundantly clear, that the Commission is, in
Alberta, approving growth-related projects, and is not
pursuing the type of model that he is addressing here.
Now, the final point that I wish to address
is that there is, in my submission, an internal
inconsistency in what you would intuitively expect in
the capital X factor numbers. So, if you see -- if
you look at IR 1.1, and look at his response carefully
here. So, what we have is in his explanation about
the change in his recommendations in 1.1 here, the
full paragraph at the very bottom of the page. So, he
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1404
is explaining here, that part of the change is due to
a change in how he is interpreting what the formula is
being applied to. What the base is that he is
applying it to. And he says,
“Please note that Dr. Lowry’s X factor
recommendations for capital in our direct
testimony …”
So that is the top line in the box in the table above.
“… pertain to a revenue requirement for
capital cost, e.g., depreciation and return
on rate base, not the revenue requirement
for capital spending.”
Now, what he is saying there is that he applied it
based on it being an Alberta model, not the model that
is being proposed. Because he is applying it to the
revenue requirement associated with all capital,
depreciation and return on rate base, not the revenue
requirement for spending that is actually occurring
now, which he is calling CAP-X. And then, he says
there is a change.
“Our X factor recommendations for capital in
the subsequent data request response pertain
to a revenue requirement for CAP-X, not
capital cost. Should the Commission still
have an interest in an X factor for capital
cost, Dr. Lowry recommends the lower bound
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1405
of the range presented in his direct
testimony.”
So, what he is saying is, if you are going
to use an Alberta approach, use the lower bounds of
the ranges presented in his direct testimony. These
were 1.18 for gas, and 0.81 for electric. And then he
expands on this slightly. It is just in the last
sentence of 1.3, when he is explaining the changes.
He says,
“Additionally, in response to Commission
data requests, Dr. Lowry provided X factors
for CAP-X, instead of X factors for capital
cost. These are clearly more pertinent to
the PBR plans proposed by Fortis.”
Now, here is the rub here. And this is why I say it
is counterintuitive. If you go back to 1.1, and you
say, should the Commission -- where he says, should
the Commission still have an interest in an x-factor
for capital cost, that I attribute to the Alberta
approach which he initially used, Dr. Lowry recommends
the lower bound of the ranges presented in his direct
testimony. 1.18 for gas, and 0.81 for electric. Now,
both of those values -- 1.18 if you look at the table
above, 1.18, and 0.81 -- those are lower than his
revised capital numbers.
Proceeding Time 10:50 a.m. T21
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1406
MR. GHIKAS: And that he prepared on the premise that
this is -- on the premise that Fortis is actually
proposing. And intuitively one would expect, in my
submission, that if you're going to do an X factor
based on the spending envelope where all of the money
is flowing to customers and not creating a large
envelope of spending for the utility, which is what
we're proposing here, that the X factor would be
higher.
So let me say that again, is under an
Alberta approach where the utility is getting the
benefit of depreciating plant, one would expect the
challenge imposed by the X factor to be higher than
the challenge imposed by one where the utility is not
getting the benefit of the declining rate base.
And so if we accept Dr. Lowry's statement
that under an Alberta model 1.18 and 0.81 would be
appropriate, but that would suggest that under this
model the capital X factor has to be lower, in my
submission.
THE CHAIRPERSON: Mr. Ghikas?
MR. GHIKAS: Yes.
THE CHAIRPERSON: I have a question, please.
MR. GHIKAS: Yes.
THE CHAIRPERSON: This discussion concerning the last
paragraph of 1.1, is it your understanding that for
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1407
example when the first -- when it opens up by saying
"Please note that Dr. Lowry's X factor recommendation
for capital …" Is it your understanding that that
refers to a double-arm model?
MR. GHIKAS: I was interpreting that as referring to the
column capital. So that would be a double-arm model,
yes.
THE CHAIRPERSON: And it was your earlier submission that
you don't feel that that applies in any event, is that
correct?
MR. GHIKAS: That is absolutely correct, yes.
THE CHAIRPERSON: Okay.
MR. GHIKAS: Absolutely correct. So -- but if the
Commission is going to be looking at those, it's
important that the context here is understood.
THE CHAIRPERSON: Okay. Understood. I guess my question
would be does any of your -- the argument that you
just presented concerning this issue, does any of that
apply to the single-arm number or is it -- or are you
focused at this point only on the double-arm number?
MR. GHIKAS: I am focused only on the capital double-arm
number at the current point because I can't say, based
on what is here --
THE CHAIRPERSON: Right, okay.
MR. GHIKAS: -- anything about the single-arm approach.
THE CHAIRPERSON: Sure, fair enough.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1408
MR. GHIKAS: Just that my comments on the inconsistency
are only pointed out based on what is explicitly on
the page, and so that confines to capital.
THE CHAIRPERSON: I appreciate that, thank you.
MR. GHIKAS: Thank you. So ultimately those are my
submissions and -- on this point but effectively the
evidence that he has put forward, Dr. Lowry's put
forward in these responses, asks as many questions as
it does answer them, in my respectful submission. And
the companies would urge the Commission to consider
the points that I've just made in applying its overall
weight to the evidence given to Dr. Lowry.
That concludes my submissions on that
point. I will say one thing before my friend Mr.
Weafer gets up, and it relates to the procedural
matter that he alluded to about his feedback from Dr.
Lowry and how that comes before the Commission.
Just as a general statement, in my
submission there would be no difference between Dr.
Lowry speaking to the Commission directly and words
attributed to Dr. Lowry being transmitted to you via a
third party as argument. There is simply -- the
problem -- and I appreciate my friend's -- and I've
told him this, but I appreciate his consideration in
suggesting that what Dr. Lowry was going to say he's
segregated so we can deal with it but in fact, in my
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1409
submission it's the segregation that's the problem.
It's -- because this is argument and not evidence,
stuff that Dr. Lowry says, whether it's in an e-mail
to Mr. Weafer and attributed to Dr. Lowry or Dr. Lowry
speaking directly to you, the problem is that it's
being fed to the Commission as being something that
Dr. Lowry is saying rather than something that Mr.
Weafer is saying as counsel.
And so in my submission it would certainly
be expected that Mr. Weafer's submissions would be
informed by consultation with experts and to the
extent that Mr. Weafer -- and so Dr. Lowry's evidence
is in the record and it's in his responses.
Proceeding Time 10:55 a.m. T22
MR. GHIKAS: And to the extent that Mr. Weafer speaks to
those responses, he should be speaking to them, in my
submission, as if they are his own words about those
submissions, and not attributing it to an expert.
Because the concern is that as soon as it is
identified as an expert, the only reason you would be
doing that, segregating it out and saying, “And this
is now from Dr. Lowry and not from Mr. Weafer,” is
because you would be urging the Commission to give
weight to it. That’s the underlying -- whether it’s
for the convenience or however you want to
characterize it, the difficulty is that there is some
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1410
suggestion that this is coming from an expert now, and
you should give more weight to it. And in my
submission the time for doing that is done.
And so when the submissions come before you
today they should be spoken as words from counsel
based on what is on the record. And those are my
submissions on that point.
THE CHAIRPERSON: Thank you, Mr. Ghikas. Mr. Weafer, do
you need any further time to prepare? You’re fine?
Okay. And Mr. Weafer, are you comfortable with what
Mr. Ghikas has just --
SUBMISSIONS BY MR. WEAFER:
MR. WEAFER: I would address that, Mr. Chairman. I will
address Mr. Ghikas’s comments. Maybe let’s just start
with that at a high level.
THE CHAIRPERSON: Okay, thank you.
MR. WEAFER: The objective of these proceedings is to
ensure that the Panel has the best information that it
can have about the evidence on the record. The Panel
has asked some Information Requests of Dr. Lowry that
he’s responded to, and I can reply to questions you
have as best I can in terms of that expert testimony.
But if it’s beyond my level of expertise, I would
reserve the right to consult with Dr. Lowry and be
able to make sure that the Panel is satisfied and
understands the evidence correctly. And I think
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1411
that’s fair and I don’t think Mr. Ghikas would have
issue with that.
MR. GHIKAS: I do. So if you’re concluded I’ll stand up
and --
MR. WEAFER: The Commission controls its own procedure.
The Commission needs to be satisfied that it is
comfortable that it understands the evidence that is
before it. The Commission asked a series of written
Information Requests ten days ago. If it needs
further information that Dr. Lowry can assist with,
that can be done by another set of Information
Requests or it can be done efficiently in this
process.
The company has taken issue with extensions
to the term of this process because it wants to get a
decision. We’re empathetic to that. All we’re trying
to do here is make sure the Commission can move to
making a decision in a timely manner. So when you’re
looking at your process to ensure we can get through
this proceeding quickly, we’d say that that is a fair
and reasonable thing to do.
Mr. Ghikas, if he has a concern with
anything that’s stated as not being evidence that’s on
the record, can object to that if it’s a reaffirmation
of what Dr. Lowry has said. We’re not talking about
putting in additional new evidence from Dr. Lowry but
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1412
rather confirming that the Commission has a correct
and accurate portrayal of his evidence, and/or Dr.
Overcast’s evidence which Mr. Ghikas has relied on in
terms of his response to Dr. Lowry’s Information
Requests.
So I’ll sit down if Mr. Ghikas has further
comment.
THE CHAIRPERSON: Please go ahead.
SUBMISSIONS BY MR. GHIKAS:
MR. GHIKAS: Thank you, Mr. Chairman. There is no issue
with the concept that the Commission should have a
solid evidentiary record before it when it makes a
decision. But that record has to be taken by the
Commission with regard to the rules of procedural
fairness. And fundamentally, if the Commission has
closed the hearing and it -- at that point, the only
references that should be made are to evidence that’s
on the record. Now, to the extent that my friend is
pointing out existing evidence from Dr. Lowry, he can
do that by saying: “I, counsel for CEC, are directing
you, Commission, to evidence that Dr. Lowry has said
in response to your question or in response to
anything that needs to be clarified.” To the extent
that that cannot be done, there should be no further
explanation that is attributed to an expert.
Proceeding Time 0:00 a.m. T5
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1413
MR. GHIKAS: We are here today, and without Dr. Overcast,
because this is oral argument, and there is a point in
which the Commission is entitled, and should, close
the hearing. And so it is really a matter of -- if my
friend is going to be referring to evidence, he should
be taking ownership of it, and not attributing it to
Dr. Lowry pointing it out to him. And that is really
the fundamental point.
THE CHAIRPERSON: Mr. Weafer?
MR. WEAFER: I think we should proceed. If Mr. Ghikas
has any -- unless other counsel have comments, Mr.
Ghikas can object to anything I say.
THE CHAIRPERSON: It looks like Mr. Miller has a comment.
MR. MILLER: So, Mr. Chair, I think we are at the point
where both sides have laid out their position, so as
Mr. Weafer suggests, we let it play and see where we
go. And if Mr. Weafer crosses a line, I believe Mr.
Ghikas will probably beat me to my feet. So.
THE CHAIRPERSON: Very well. Please begin, Mr. Weafer.
SUBMISSIONS BY MR. WEAFER:
MR. WEAFER: Mr. Chairman, I will start with the -- I
will deal with the IRs at the end of my submissions,
comments on the IRs, and deal firstly with the
response to your Exhibit A-44, and A-38, and the
questions put to participants in the proceeding. And
I’d like to preface the direct responses with a moment
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1414
of context.
So, the CEC is a ratepayer group which
seeks to promote fair rates and reliable safe and
secure energy supply, for those paying the cost of
service and the rewards to the utility. The CEC filed
written submissions which convey the strongly-held
view that the PBR proposal filed by the company is not
aligned with ratepayer interests. The CEC takes
exception to the utility’s extremely aggressive
response in its reply submissions, and in particular
its characterization of the CEC as being unprincipled
in its opposition to the proposal. The CEC has been
intervening in BCUC processes for over 10 years and,
on many occasions, has supported the applications of
FortisBC and FEI. The deep concerns with the PBR are
shared by all ratepayer groups, and many endorse the
submissions of the CEC.
The CEC submits that the Commission should
give significant rate to the position of the
ratepayers who are funding this proposal and funding
the utility. In the CEC’s submissions, they
identified 178 examples of where they saw a
misalignment between ratepayer and company interests.
The company dismissed those as hyperbole, and then
chose to respond to about 103 of those items, clearly
identifying that there was something to respond to.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1415
The response was to ratepayers’ submissions was
extremely aggressive, and shows no intent to
acknowledge, much less resolve, the customer concerns
with this PBR proposal.
With that said, we’ll deal directly with
the Commission’s submissions -- the Commission’s
questions. Question 1(a), what process do the parties
recommend for transition to the next phase of PBR, a
rebasing process? As noted, the CEC is deeply
concerned with the potential impact of the PBR
proposal, and equally concerned with how the next
phase of PBR will be implemented. It is the
anticipation of the CEC that if this PBR is approved,
the concerns which have been highlighted by the CEC
will be borne out.
The CEC does not agree with the premise
that it is necessary for a transition to the next
phase of PBR, that by this the Commission means either
rebasing into a period of cost of service regulation,
or rebasing into an extension of the sort of PBR
process contained in the utilities’ application. In
terms of a transition to PBR, the CEC submits that an
improved and ongoing PBR could serve to mitigate
customer concerns. And therefore, the CEC recommends
that the Commission immediately initiate a BCUC-
supervised process to capitalize on the existing
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1416
evidentiary base, and develop a PBR process that is
more aligned with customer interests.
The CEC recommends that such a process
would include the following: a Commission supervision
of the process, a joint customer Fortis design of an
ongoing PBR. Submissions permitted from all parties
for key design principles, and a Commission-defined
context to create convergence, including utility
reward for demonstrated improved performance,
accountability performance and cost-effectiveness,
alignment of customer and shareholder interest, as
defined by customers and the utilities.
Proceeding Time 11:05 a.m. T24
MR. WEAFER: The CEC would take this process -- see this
process taking approximately one year, with --
resulting in an implementation plan that could result
in a longer-term PBR or a PBR term the length the
company is proposing.
The CEC submits that that process can
inform and form the basis of an ongoing PBR that
rewards the utility for achieving genuine efficiencies
and cost-effectiveness for the customer's benefit.
That's my submission on question 1(a) of your
questions.
Turning to 1(b), what should be the timing
of the rebasing filing? The CEC is concerned with
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1417
issues arising as a result of alternative PBR with
cost of service regulation. The CEC submits that
significant potential for embedding error as well as
many opportunities for manipulation are engendered by
this format as well as added expense. As a result of
alternating between cost of service regulation and
PBR, the utility's long-term rewards are maximized by
over-forecasting and overspending in the cost of
service period and then under-spending the formula
generated allowances in the PBR period rather than
through consistent development of ongoing and
sustained efficiencies.
Spending under cost of service prior to the
PBR period affords the double value of an inflated
base for formulaic increases plus the equivalent of
advancing expenditures to enable reduced spending
during PBR. Spending post-PBR under cost of service
enables the utility to make up deferrals with
substantial benefit to the utility shareholder.
The CEC submits that improved ongoing
performance-based regulation that provides for
continuous accountability while offering financial
opportunity to the shareholder could alleviate the
overriding problem of rewarding variation and spending
and focus the reward on achieving genuine
efficiencies.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1418
Again, the CEC recommends the Commission go
directly to requesting the parties to develop a
revised and ongoing PBR and then implementing it as
soon as practicable.
In the event that rebasing is undertaken,
assuming the utility's proposed PBR is implemented,
the CEC submits that the revenue requirement
application and rebasing filing should be undertaken
January 1st of the final year of the approved PBR.
This would occur in January, 2016, if a three-year
term is approved or January, 2018 if a five-year term
is approved. The CEC remains concerned with a
proposed efficiency carry-over mechanism which it
considers to be fundamentally flawed, and this concern
would be eliminated at an ongoing PBR.
That's the end of my comments on question
1(b). On question 1(c), what items should be reviewed
in the proceeding to consider the rebasing
application? The CEC submits that all regulatory
accounts of the company should be maintained so that
they can be reviewed and tracked against the prior PBR
as well as the period leading into the PBR. Absent
historical financial evidence, it becomes impossible
to measure the failures and/or benefits, if any, of a
PBR proposal.
The CEC submits that the current
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1419
determination of success does not evaluate
efficiencies achieved but is instead defined by
rewards achieved by the utility. This is not an
appropriate measure.
The CEC submits that a full analysis of
efficiencies gained during the PBR must be undertaken
to assess the effectiveness of the PBR to assess the
state of the utility and to determine if there have
been inappropriate levels of spending and to establish
its spending needs for the future.
That's the response to question 1(c).
Question 1(d) -- any other process, suggestions or
issues parties want to raise with regard to an ongoing
PBR regime? As we've highlighted throughout this
process, the CEC believes that the company has not
satisfactorily aligned ratepayer interest with that of
the shareholder. The aggressive position taken by the
utility and its unwillingness to have further
discussion on the PBR model is of significant concern
to the CEC.
The unwillingness to seek to improve upon
this flawed application is problematic and the CEC
requests that the Commission direct the company to
meet with stakeholder groups to develop a mutually
acceptable model for an ongoing PBR that is better
aligned with customer interests.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1420
Proceeding Time 11:10 a.m. T25
MR. WEAFER: With respect to your question 2, what
process is recommended for setting rates for 2014 and
2015 if performance-based ratemaking is turned down?
The CEC recommends that the Commission approve interim
rates until a revised PBR is developed to the mutual
satisfaction of ratepayers and the utility for ongoing
implementation. The CEC submits that this should not
require more than a one-year duration. The CEC
recommends that the revised PBR resolve the wide
difference in customer and utility interests and
provide for measurement of efficiencies, and
justification of rewards as discussed in response to
the questions above.
Now, we recognize that utilizing interims
rates for 2014 -- we recognize that there hasn’t been
a full review of the filing, but we agree with the
company that there is a sufficient record in this
proceeding to set rates for 2014 with some confidence.
What we’re saying is that we’re prepared to take a
certain amount of risk and not necessarily having as
full a review on the 2014 rates, with a view to truly
establishing a mutually acceptable between ratepayers
and the company PBR model that could sustain for the
long term.
Those are my responses to question 2. In
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1421
terms of question 3 we have some good news for the
company. This is the deferral account request by FBC.
These deferral accounts were approved for FEI in the
previous PBR but were not requested by FBC in its
previous PBR. Are these deferral accounts necessary?
What other options were available?
The CEC submits that the deferral accounts
requested by FBC represent a shift in risk from the
utility to the ratepayer which was denied by the
utilities in their reply submission. FBC was able to
work successfully in the prior PBR period without use
of deferral accounts and still generally managed to
achieve in excess of its approved rate of return in
equity through the PBR model while still bearing the
risks related to the accounts.
Nevertheless the CEC does not believe that
there was a significant benefit to be made by refusing
deferral account treatment for these items,
particularly because these accounts are available to
FEI. The CEC believes there is some value in
consistency. The CEC recommends the deferral account
treatment be approved but be accompanied by tighter
review of the actions undertaken by the company to
mitigate customer risk. The CEC submits that ensuring
the company undertakes to manage these accounts as
well as possible to the benefit of the customer will
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1422
improve the alignment between customer and the utility
interests. Thank you.
Those are my submissions on the questions.
I’m going to move to the discussion on the Information
Requests.
THE CHAIRPERSON: Thank you.
MR. WEAFER: Dealing firstly with Mr. Ghikas’s comments
on Dr. Lowry’s IR responses, the CEC submits that
there was no error in any calculation on the concern
of the capital tracker adjustments made by Dr. Lowry
in his Information Request responses or his evidence
in this proceeding. He first removed -- contrary to
the statement of Mr. Ghikas, Dr. Lowry first removed
the X factor adjustments for capital trackers in
January 30th responding to BCUC Information Request
1.22, long before Dr. Overcast -- excuse me. Dr.
Lowry identified the issue and dealt with it prior to
any rebuttal evidence being filed by the company. He
wasn’t blaming Fortis for the entirety of the problem.
CEC does acknowledge the capital tracker
issue is premised on the Alberta total revenue
approach and simply in this proceeding will seek to
work to give information and value to this Commission
on the use of that approach as an expert.
Proceeding Time 11:14 a.m. T26
MR. WEAFER: The CEC submits, consistent with Dr. Lowry’s
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1423
evidence, that there is a multiple-arm approach being
put forward by Fortis. There are two approaches to
capital, and an approach to RNM, O&M, which Dr. Lowry
identifies as a multi-arm approach, and we think
correctly so.
Dealing specifically with the Fortis IR
responses to the Commission’s Information Requests,
the CEC takes issue with the calculations put forward
by the company, and submits that Fortis has
exaggerated any under-compensation for CAP-X by
somewhere between 85 and 90 percent, and that it
computes by comparing its CAP-X forecast to the
revenue generated by the index.
The issue in each year of the PBR plan is
the accumulating annual cost of the CAP-X, and not the
total CAP-X. Further, any underfunding will last for
only a few years before the remaining un-depreciated
value of assets resulting from the CAP-X is built into
rates. Any underfunding would be especially small in
the later years of the PBR plan.
There are other areas that the CEC takes
issues with the Fortis calculations, and find they are
flawed or controversial in a number of respects. For
both FBC and FEI, the hypothetical revenues generated
by the “I minus X” are calculated using the x-factors
Dr. Lowry designed for a total revenue cap, rather
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1424
that the recommendations for two-part revenue caps.
Further, Fortis, in their calculations,
uses X factors that were chosen, calculated assuming
that 10 percent of CAP-X is recovered via trackers.
These X factors were not part of Dr. Lowry’s evidence,
and they were on the high point of the range proposed
by the CEC in its final submission.
The final X factors recommended by Dr.
Lowry for total revenue caps were 1.16 percent for
FEI, and 1.13 percent for FBC. as discussed in CEC’s
response to BCUC IR 2.4.2.
In response to question 2 of the company --
or, sorry, page 2 of the response to the Panel,
Fortis, in its calculation, uses the 2008 to 2012
average annual growth grate, AAGR in the B.C. GDP-IPI
FDD, even though a forecast of same was available as
of May, 2014. The board forecast in the AAGR over the
five years of the PBR plan of 1.54 percent, not the
1.47 percent used by Fortis. The use of the
historical growth rate in the B.C. GDP-IPI FDD is
especially ill-considered in the fact of FEI’s high
construction cost scenario. It is hard to imagine
that the B.C. GDP-IPI FDD would not rise faster in an
environment of higher construction costs.
Another point to make here, I think, Mr.
Chair, members of the panel, is the selection of --
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1425
the CEC took a great deal of criticism in its
submission for looking at what occurred in prior
periods, in terms of coming up with what we thought
were reasonable numbers, in looking into what we
should expect from the company. And we were
criticized for going outside of the test year of 2013,
and not using forecasts. Here is an example where it
suits the company where they use a four-year look-
back, as opposed to an available forecast, to the
detriment of ratepayers.
Proceeding Time 11:19 a.m. T27
MR. WEAFER: Another concern with the calculations of
Fortis is that Fortis reports cumulative unfunded
expenditures rather than unfunded expenditures as a
percentage of cost, which were a better gauge of
reasonableness. Furthermore, the Fortis PBR plan
affords dollar-for-dollar recovery of the cost of
older plant and many O&M expenses. If percentages
unrecovered were to factor into these full recoveries,
they would be materially diminished.
Those are my submissions on the IR
responses, Mr. Chairman. That completes my
submissions.
THE CHAIRPERSON: Thank you, Mr. Weafer. Mr. Andrews?
SUBMISSIONS BY MR. ANDREWS:
MR. ANDREWS: Thank you, Mr. Chairman, members of the
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1426
Commission Panel.
Regarding the first topic and the PBR
process and what process may follow an improved PBR
period, my first and main comment really here is to
confirm that the DSM expenditure schedules are not
connected in this discussion with the follow-up to an
approved PBR process; that is, that we should be clear
that there are -- although the filings came together,
there are two DSM expenditure schedules, one for each
of the utilities, and their length of time is defined
on their own terms and so the issues about extending
the PBR period or rebasing going to cost of service,
whatever, do not apply, in my submission, to the DSM
expenditure periods.
In terms of the substance of the request,
my submission is that after the mid-period review or
during the mid-period review is the time to consider
whether the PBR process is working in a way that can
-- that is satisfactory or can be made satisfactory
with changes as compared to a conclusion that there
are serious fundamental problems. And that at that
point the decision should be made by the various
parties about their approaches to what should happen
to follow up the PBR period.
And as Mr. Ghikas has pointed out, it would
be at the option of the company to make an application
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1427
at that point, or there may be some agreement, but in
overall my submission is that that is the time, rather
than now, to address the transition between the end of
an approved initial PBR period and the continuation of
another PBR period whether by rebasing cost of service
or extension. And so I’ll leave that as my
submissions on the first point.
On point number 2, the process in the event
that the PBR is turned down, my clients would be
content with the proposal, as I understood it from the
utilities, that if the PBR application is turned down
they would do a cost of service application for a 2015
to 2016 period and they’ve made proposals regarding
the rates, finalization of rates for 2014 that I won’t
make any submissions on specifically.
Proceeding Time 11:23 a.m. T28
MR. ANDREWS: Regarding the FortisBC Electric deferral
accounts, my clients don't oppose FortisBC’s request
for those deferral accounts for the reasons that Ms.
Herbst set out.
I won't make submissions regarding the
responses by Dr. Overcast and Dr. Lowry to the panel's
Information Request. I'll turn to the submissions
made concerning the effect of the amendment to the DSM
regulation. In terms of Fortis Electric, my first
comment is that the BCSEA and the Sierra Club BC
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1428
commend the amendment of the regulation and commend
FortisBC for re-examining its DSM expenditure schedule
for 2015 to 2018 on a going-forward basis. My clients
expect to see substantial restoration of DSM spending
by FortisBC Electric and substantial energy savings as
a result of re-examining based on the amendment to the
regulation.
And my clients would also commend FortisBC
Electric for indicating that they would consult with
stakeholders and staff prior to finalizing a revised
application for an expenditure schedule for 2015 to
2018 by the end of August. So the extra time -- extra
few weeks that it takes to have stakeholders involved
may be very useful and there are a lot of details and
important aspects that would help for all parties to
at least understand each other's perspectives on
before that filing is made.
Regarding the Fortis Gas DSM response to
the DSM regulation amendment, the main impact, in my
submission, is through the broadening of the
definition of low-income programs. It's my client's
understanding that Fortis Gas has had difficulty
getting robust participation in the low-income
programs. The effect of these amendments should be to
make it easier for the utility to get participation in
these programs and that would allow higher spending
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1429
and higher savings as well. But particularly it would
allow higher spending within the expenditure schedule
that's been requested and so for that reason my
clients are not at this point clamouring for Fortis
Gas to revise its DSM expenditure schedule.
They take comfort in Fortis' conformation
that, in the event that it sees opportunities for
expanded energy savings that require spending above
what has been approved in their requested expenditure
schedule, they would make a stand-alone application to
the Utilities Commission for that purpose.
Subject to any questions, those are my
submissions.
THE CHAIRPERSON: Thank you, Mr. Andrews. No questions,
thanks. Ms. Braithwaite?
SUBMISSIONS BY MS. BRAITHWAITE:
MS. BRAITHWAITE: Thank you, Commissioners. With respect
to the first question, what process the parties
recommend for transition to the next phase of PBR, we
say that there is four options for moving forward
then. One option is to undertake a cost of service
analysis and set rates for a test period based on
that; to undertake a cost of service analysis and use
the rates determined to set the going-in rates for a
new PBR; to simply roll over the existing PBR with
whatever the existing PBR is at that time with
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1430
whatever tweaks are found to be necessary to the X
factor, the I-factor or the other formula factors as
needed.
Proceeding Time 11:28 a.m. T29
MS. BRAITHWAITE: And the fourth option is the one
proposed this morning by the CEC of going straight
into a jointly-managed process now, and with the
possibility that that will carry on -- whatever is
decided upon during that process would carry on past
the end of 2018. We agree with the submissions made
by Mr. Andrews that the first -- issues with respect
to the first three of those proposals are probably
premature. We don’t know yet what the PBR that is
approved, if any is approved, will look like, or what
issues will arise with that and so it becomes
difficult for us to take a position on what we would
like to see happen at the end of that PBR period. We
do submit that tweaking a PBR formula, if a formula is
approved, at the end of 2018, without a cost of
service type rebasing process would deny the customers
some of the benefits of the PBR, assuming there are
benefits.
With respect to the second question, “What
should be the timing of the rebasing?”, we submit that
sometime between after the midterm review, and a
significant period of time before the end of the
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1431
process would be an appropriate time to look at that.
With respect to question 1(c), “What items
should be reviewed in the proceeding to consider the
rebasing application?”, in our view, this question is
also premature. Any list of issues developed at the
start of the PBR can be only suggestive and not
conclusive of the issues to be addressed. It is
impossible to say at this point what issues will arise
during the PBR.
With respect to question 1(d), “Other
process suggestions”, we note simply that rates become
increasingly disconnected from costs over time, so
there does need to be some kind of process, or
periodic process for realigning costs and rates. We
are particularly concerned, however, that costs are
not deferred during the PBR process, and then added at
the end of the PBR process when we go back into a cost
of service application, if the cost of service is
reinstated. And also that sustainable savings
achieved under any PBR are actually incorporated into
rates.
With respect to question 2, “What process
is recommended for setting rates for 2014 and 2015 if
PBR is turned down?”, the BCOAPO expert witness, Russ
Bell, was asked this question in BCUC IR 1.1. In
response -- his response to that question was -- Mr.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1432
Bell suggested that the BCUC could approve a shorter
term building block approach, such as for a one- or
possibly two-year period, which would allow the
utilities to file a new revenue requirements
application. Mr. Bell did oppose approving the PBR as
filed, even for a single year, but recommended a one-
year PBR as proposed, modified by the following
recommendations.
He objected to the inclusion of the growth
factor in the O&M formula. He said -- his evidence
was that that was not supported by the history of
costs for either FBC or FEI. He said the history of
FBC capital also did not support the inclusion of a
growth factor for the FBC capital, and consequently he
recommended that that be removed from the formula. He
indicated that, in his view, the ECM component was
inconsistent with a plan where customers were already
paying for the costs of investment in the rates that
they were paying, and so he recommended that the ECM
be removed from the formula, and BCOAPO supports the
use of the X factor as recommended by Dr. Lowry. So,
a potential one-year PBR as proposed, but with those
modifications.
Mr. Bell also indicated that a two-year PBR
process to allow the utilities time to file a new
revenue requirement application may be appropriate.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1433
However, BCOAPO submits that a one-year approval is
more appropriate, because it should allow the utility
sufficient time to re-file, while not unduly extending
the PBR. Alternatively a two-year timeframe could be
implemented to allow the utilities and interveners
time to workshop a new PBR regime, or a new PBR
mechanism.
With respect to question 3, we submit that
deferral accounts generally have the effect of
transferring risk from shareholders to ratepayers.
And if the shareholder continues to bear risks, they
are better incented to find ways to mitigate those
risks or to offset their uncontrollable costs with
efficiencies in other areas.
Proceeding Time 11:33 a.m. T30
MS. BRAITHWAITE: In our view it's not appropriate to
implement changes to deferral account regimes right at
the start of a PBR process because that's shifting the
risk from historical right at a time when we're trying
to tie improvements and efficiency to profits for the
company.
We heard this morning that that doesn't
really apply to three of the proposed four deferral
accounts that were addressed because they actually
have already been subject to deferral account
treatment but it sounds like it still applies to the
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1434
insurance deferral account.
And those are all of my submissions.
THE CHAIRPERSON: Thanks, Ms. Braithwaite.
MS. BRAITHWAITE: Thank you.
THE CHAIRPERSON: No questions. Okay. Mr. Weisberg?
SUBMISSIONS BY MR. WEISBERG:
MR. WEISBERG: Mr. Chairman, Commissioners. I'll begin
with some very brief comments regarding some passages
within the -- specifically the Fortis responses to the
panel's IR number 1, having to do only with the
additional, and I think useful, context regarding the
efficiencies that should underpin a PBR plan.
The reference, and I'll just give it once
because it will cover it, but it's Exhibit B-53. The
few quotes that I'll make are found beginning on page
5 and then onto page 7.
There is the statement made there, and I'm
quoting,
"That Drs. Overcast and Lowry agree that the
efficiencies that can be expected to be
achieved under PBR decline over successive
PBR terms."
The proposed PRB -- FBC PBR that's noted also comes
close on the heels of FBC's five-year PBR plan and
that ran from 2007 through 2011 and it's included in
the IR response. FBC has acknowledged that,
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1435
"FBC has already realized significant
efficiencies under its previous PBR."
And if FBC's characterization of "the past success of
PBR" is accurate, then we would submit that there must
necessarily be fewer and/or smaller efficiencies
remaining available to be achieved. As the
expectation of achievable efficiencies for FBC has
already been significantly diminished, we submit, that
rational for implementing a further five-year term of
PBR has similarly been diminished.
A reasonable expectation of achievable
efficiencies is not an incidental consideration. The
companies have noted that expanding the potential pool
of incremental savings from efficiencies is one of the
two most commonly cited benefits of PBR relative to
the traditional cost of service. So as I said, I
believe that puts the entire application in some
additional context.
I move on, then, to the specific list of
questions that the panel provided beginning with those
that deal with the rebasing process or other process
considerations.
I want to begin by reiterating that the
Irrigation Ratepayers’ group does support Mr. Weafer's
comments on behalf of CEC earlier this morning
regarding his suggestion for initiating a Commission-
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1436
supervised -- it's called a revised PBR process.
In terms of question 1(A), “What process do
the parties recommend for transition to the next phase
of PBR?” We would suggest that if we find ourselves
in that situation that PBR has been approved and
there's a need to move in to a rebasing phase, that a
workshop to examine that issue be held no later than
September, 2018. We suggest it be in the context of a
workshop because I think it will be a dynamic process,
as Ms. Braithwaite has noted. Many of the questions
now seem premature. There's a lot of water yet to go
under the bridge between now and 2018.
Proceeding Time 11:38 a.m. T31
MR. WEISBERG: Such a workshop could outline the expected
rebasing, both from the perspective of the utilities,
but also that seen by the ratepayers. And it would of
course be eventually have to be subject to the 2018
actuals.
We think it would be appropriate for a
decision to be made at that point, at the completion
of such a workshop, whether to proceed with a sort of
a stand-alone rebasing application, or to include that
in a cost of service application or an extension of a
PBR plan, and an application in that regard.
COMMISSIONER MACMURCHY: Excuse me, Mr. Weisberg, did I
hear you correctly, you are talking September, 2018?
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1437
MR. WEISBERG: Yes.
COMMISSIONER MACMURCHY: Why would you wait so late? I
mean, by the time whatever decision is made, and
applications put forward, aren’t you well into the
next period and whether it is cost of service or a PBR
plan?
MR. WEISBERG: I guess I am -- a good question I guess.
I was trying to balance the need to have the data
available, to see what has actually taken place under
PBR, and where we are, and still move forward and not
delay that process. So, I don’t think there is magic
in the September 2018, I think it needs to be a
balancing of how much information do we have available
to take that measure, and does it move the process.
COMMISSIONER MACMURCHY: And I was looking for magic.
MR. WEISBERG: August 23rd, I just pulled that out of a
hat, but perhaps that sounds more magical. Does that
respond though?
COMMISSIONER MACMURCHY: That is good, thank you.
MR. WEISBERG: Thank you. So, for 1(b), what should be
the timing of the rebasing filing, I think I have just
addressed that and the need to balance the two
considerations. Data on one hand, moving forward.
For 1(c), I’d just endorse Mr. Weafer’s
comments regarding the need for regulatory accounts to
be maintained to ensure that there is a proper and
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1438
complete historical comparison, the ability to make
that.
For 1(d), again, I’d just circle back and
say that the preferred process from the Irrigation
Ratepayers Group point of view, is that described by
Mr. Weafer in pursuing a revised and hopefully
improved PBR plan.
Moving then to the process for setting 2014
and 2015 rates, if a PBR is denied, some grounds for
agreement here. Mr. Weafer supported or agreed with
counsel for the utilities’ submission that there is a
sufficient record now available for the Commission to
determine rates for 2014. We would agree with that.
We don’t think it is necessary to enter into some
other process for that.
In respect to 2015 rates, we are optimistic
that the process to pursue a revised and improved PBR
would be successful if it is permitted to go ahead,
and then that would provide the basis for setting 2015
rates. And other than that, we are not prepared to
advise today of what might be better.
That brings me to the last topic, the FBC
deferral account. A couple of observations in terms
of context for those. The Industrial Customers group
final submissions included the helpful, I think,
observation that the growing number of deferral
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1439
accounts leaves approximately 18 percent of the total
FBC revenue requirement to be determined by PBR. ICG
also noted that approval of the PBR plan would
effectively lock in deferral accounts and remove some
regulatory flexibility that might otherwise exist.
The IRG is not persuaded that the four
deferral accounts that have been identified by Ms.
Herbst earlier, are necessary or appropriate in the
circumstances.
Proceeding Time 11:44 a.m. T32
MR. WEISBERG: We note that the previous FBC PBR plan was
successfully completed without those in place. Didn't
seem to cause a problem. The attempt to introduce
them now appears to have more to do with the mutual
interests of the utilities and how easy it for their
operations to mesh with each other, rather than the
more important consideration of does it appropriately
balance the interests of FBC and its ratepayers.
Ms. Herbst identified two options -- two
deferral accounts. The first of those would be to
treat those topics as Z factors and the second, which
was to establish a five-year average. We don't think
that a five-year average is a good idea, I think
largely for the reasons that she identified. Of the
three, whether it's deferral accounts, treating it as
Z factor or a five-year average, our preference, I
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1440
think, would be to go with treating those topics as a
Z factor.
I'll qualify though, that, with my
anticipation that Mr. Hobbs after me may be proposing
a different treatment of those and as I understand
that, it may be to take the 2013 actuals for each of
those four accounts to adjust them for inflation and
add them into the revenue requirement. That, if I've
understood it correctly, seems to me to be the best
approach, but I would leave it to Mr. Hobbs to
elaborate any further or to correct me if I've
misunderstood what I understand him to intend.
Subject to any questions, those are my
submissions. Thank you.
THE CHAIRPERSON: Thank you, Mr. Weisberg. Thank you.
SUBMISSIONS BY MR. HOBBS:
MR. HOBBS: Mr. Chair, Commissioners.
THE CHAIRPERSON: Mr. Hobbs.
MR. HOBBS: I will, as well, follow your letter of June
27th, 2014 with the three items identified. Let me --
before I do that, let me simply make the point that
Mr. Weafer made, and I think it flags the very unusual
circumstances of this application, and that is that
all the customer groups are opposed to this
application and I think you need to give that
considerable weight.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1441
There's been significant argument with
respect to that and why that is true. I won't do
anything more at this point than commend the
importance of that to you.
Let me turn now to item number 1, with
respect to rebasing. Once again I agree with CEC's
position with respect to this but I do want to put
some emphasis and it's in response to Mr. Ghikas'
comment with respect to low-hanging fruit and the X
factor.
I was surprised to hear Mr. Ghikas talk
about low-hanging fruit because I thought that had
been an issue that had been completely discredited but
here we have it again.
There needs to be support for PRB that's
related to the utilities operating efficiently and
efficiency measures. In answer to your question, how
best to go about rebasing? Well when we get there,
and I'm sympathetic to Ms. Braithwaite's comments with
respect to being a bit premature, but when we get
there there should be evidence with respect to whether
or not the utility is operating efficiently and there
should be some connection between the PBR mechanism
and efficiency measures that the evidence just isn't
there for right now.
So when we get to rebasing, let's at least
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1442
have that evidence so that you -- so that the panel
when they're considering rebasing can consider base
costs in the context of whether or not the utility is
operating efficiently.
Proceeding Time 11:49 a.m. T33
THE CHAIRPERSON: Mr. Hobbs, do you have any specific
suggestions of what kind of evidence would be required
to determine whether the utilities are operating
efficiently, or how efficiently they are operating?
MR. HOBBS: I do, and I think it begins with
benchmarking. There needs to be some benchmarking
evidence that has the involvement of customers to
develop it and in the execution of it. But there
needs to be some benchmarking evidence, and in the
case of Fortis Electric there needs to be benchmarking
evidence that’s specific to this jurisdiction. So it
needs to be broader than just B.C. Hydro but it needs
to at least include B.C. Hydro. We should not be in a
situation very much longer when we have two electric
utilities in the province and we have no idea how they
perform one against the other.
THE CHAIRPERSON: When you say “broader than B.C. Hydro”
can you explain what you mean by that, please?
MR. HOBBS: Well, you would have a sample size of 10-15
utilities -- benchmarking is a challenge.
THE CHAIRPERSON: So it would be outside -- benchmarked
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1443
outside the province.
MR. HOBBS: Outside the province, yeah. Other utilities
that were -- I think you’d have to -- you would pick a
different sample size for FEI than you would for FBC,
but you would pick a utility or group of utilities
that had similar characteristics as best you could in
terms of their operating requirements.
THE CHAIRPERSON: And when would you propose a
benchmarking study arrive before the Commission and
before the parties? When in the next five years do
you think that would -- it would be appropriate to
have that prepared?
MR. HOBBS: I heard Mr. Ghikas speak to the midterm
review. That strikes me, at least at this point, as
having some merit. There would need to be some time
to develop the benchmarking study and the parameters
for the benchmarking study that, as I say, would
involve customers. And if you did it at the midterm
then it ought to be made available, easily made
available with the filing of the application.
THE CHAIRPERSON: Thank you. Sorry to interrupt.
MR. HOBBS: And I guess if I may add to that, through the
-- if you approve, and this is the assumption of
question number 1, but if you approve a PBR plan, I
think it should also not only just include a direction
with respect to benchmarking, but it should include,
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1444
which is a different matter, direction with respect to
identifying efficiency gains that can be attributed to
the PBR mechanism that would not have been made
available under traditional cost of service
regulation. We haven’t seen those.
And there needs to be, and this hearkens
back for me to Commissioner MacMurchy’s comments, that
if you were to invest a million dollars on a forecast
of savings of $500,000, then let’s at the outset
identify those two numbers -- the initial investment
and the expected savings -- and then compare, after
you’ve made that investment, compare how you’ve
performed against those two numbers. And there needs
to be consequences, I think, and I’ve mentioned this
in my submissions to you, there need to be
consequences that flow both positive or negative,
which the utility refuses to do, but there need to be
both negative outcomes and positive outcomes for the
utility against those measures.
I’ll turn, unless there are further
questions, I’ll turn to the second question now.
THE CHAIRPERSON: Please do.
Proceeding Time 11:53 a.m. T34
MR. HOBBS: On this one, I’m inclined to agree with Mr.
Ghikas, that for 2014 that there be no further change
with respect to the rates for Fortis Electric, and
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1445
that the next application for a two-year test period,
2015 and 2016, has considerable merit as well. So, I
am inclined to support Mr. Ghikas on those two points.
I would probably do so for different reasons, and I
will mention them, because I think they are important.
For 2014, the rate increase for Fortis
Electric, in the absence of the rate smoothing
mechanism, was approximately minus 6 percent. There
needs to be some recognition of that when you approve
the interim rate, because the interim rate is based on
the rate smoothing mechanism. So, we ought not to
lose the advantage of that by just firming up, if you
will, the interim rates for 2014, and there is, I
think, ways to do that.
When we get to 2015, and this distinguishes
in my mind FEI from FBC. The rate increase and the
absence of the rate smoothing mechanism for FBC
Electric, or for Fortis Electric, is about 16.3
percent. And it is 16.3 percent, whether you look at
it form a cost of service perspective, whether you
look at it from the PBR perspective. The variances
are very small, and I will give you references to
that, for that in a moment.
The huge advantage to what Mr. Ghikas is
proposing, is that we will have a review of that
number. That is a huge number. And as I say, I think
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1446
that distinguishes FEI from FBC. FBC is just not a
utility that should now have PBR rolled into it,
because the rates are moving so dramatically from year
to year that it is critically important that we have a
traditional cost of service review of what is
happening in 2015 particularly, but also 2016. So, I
do commend to you, although for different reasons, Mr.
Ghikas’ proposal with respect to item number 2.
With respect to the deferral accounts, you
know, it feels a little bit like, “Well, it is just a
few more deferral accounts, why does it matter?” And
I think at some point we have to stand up and say,
“enough” and whether it is on this application,
although we are just about -- I can't imagine there
being any more after this application. But whether it
is this application or a restructuring of how we
conduct regulation in British Columbia, there is going
to have to come a time when we say “Enough”. Even
though these four deferral accounts are only just four
on top of 57. But there has to become a time when we
say, “No, this is enough.” And I think and encourage
you to do this, make that time now.
The point Ms. Herbst makes to you with
respect to what should the threshold test be for
deferral accounts, is an important point of
discussion, and again, I would encourage you to
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1447
comment on this in your decision. Ms. Herbst says
that your question is worded inappropriately, that the
test should not be whether or not the deferral account
is necessary. In my view, that is absolutely the
correct test. You should not approve deferral
accounts unless they are necessary.
Now, Ms. Herbst turns to Section 59 and
Section 60 of the Utilities Commission Act for support
for her argument that the test isn't necessary.
Proceeding Time 11:58 a.m. T35
MR. HOBBS: That’s a red herring if I’ve ever heard one.
You have the discretion under Section 59 and Section
60 to establish regulatory parameters that in your
opinion meet the reasonableness test. But that does
not in any way prevent you from deciding what those
regulatory parameters are going to be, and
establishing regulatory parameters that need to meet
that necessary test. And I think deferral accounts
are in that category.
Before you approve deferral accounts, they
need to be necessary, there needs to be overwhelming
evidence that they are necessary, and then you turn to
the second test within the context of that decision,
are their rates reasonable. That is how Section 59
and Section 60 operates. It does not operate like Ms.
Herbst would have you think. And you know, with all
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1448
due respect to my learned colleague, she is just wrong
on that point.
Let me -- this is an important issue. Let
me talk to the issue of internal consistency. Ms.
Herbst would have you believe that this should be an
issue for your consideration with respects to
establishing deferral accounts. She would have you
believe that when you determine whether or not there
should be deferral accounts, you should consider the
ownership of the utilities. Well, that can't be.
That is trivializing the significance of deferral
accounts. Deferral accounts need to be established on
their merits, not because it might be a little easier,
from an administrative point of view, for the
utilities to administer them if they were the same.
That really is trivializing the significance of
deferral accounts. So, I’d encourage you to give
absolutely no weight to that consideration.
Now, Ms. Herbst goes on to say that we will
avoid windfall gains and losses if we established
deferral accounts. Let me parse that, if you will,
for the moment, from the notion of being avoided, from
the notion of windfall gains and losses. For
circumstances that may or may not be in control of the
utility, and I will get to that for the moment, there
may be windfall gains and losses with respect to
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1449
certain costs. Our forecasts are not perfect,
sometimes things change. When they change, there may
be a windfall gain or loss. Whether you establish a
deferral account or not, does not change -- it doesn’t
in any way connected to whether or not there is going
to be windfall gain or loss. You forecast a number,
things change, there may be a windfall gain or loss.
Yeah. The important point is, who is going to bear
the risk of that? And Ms. Herbst says, you should
avoid the windfall gain or loss by establishing the
deferral account. Well, you see, that is just
nonsensical if you will. There will be windfall gains
and losses against forecasts. We have variances off
of forecasts, it goes without saying. It is a
question of, is the utility going to avoid those
windfall gains or losses by transferring that risk to
the customer, or is it going to be borne by the
utility?
A certain situation that we find ourselves
in now, where almost all of the revenue requirement
risk has been transferred to customers, I say it is
time for that trend to change.
Now, Ms. Herbst was correct with respect to
how you framed question number 3. And that is,
comparing FEI and FBC to see which deferral accounts
FEI had and FBC had. The question could equally --
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1450
and you would have got to exactly the same answer.
What is FBC seeking from you in this proceeding? They
are seeking approval from you for those very same
deferral accounts that Ms. Herbst discussed.
Proceeding Time 12:03 a.m. T36
MR. HOBBS: And I can bring you to -- I won't bring you
to it, I'll just refer to it for the record. In
Exhibit B-24, BCUC IR number 2, 54.0. There's a list
provided from the 2012-2013 RRA application which
identities those deferral accounts and then at 54.1
the deferral accounts are subject to further comment
from Fortis. And I flagged that for you and Ms.
Herbst did this morning as well.
Their view of whether or not each of those
deferral accounts has changed, at least with respect
to the interest expensed variance deferral account and
the insurance expense variance deferral account which
in 2012-2013 they said were somewhat controllable and
now Ms. Herbst says they're substantially or
completely uncontrollable.
There's a huge judgment call that's made
here with respect to whether something in controllable
or non-controllable. In my view that ought not to be
the test in any case, whether it's controllable or
non-controllable but it's really difficult to
distinguish the two.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1451
The more important test for you, an easier
one for you to apply is who should bear the risk and
what kind of regulatory paradigm do we want to have in
British Columbia. Do we want to have one where we
have a heading as lengthy as this about 17 or 18
percent of the revenue requirement or do we want to
really establish costs in a way that we're comfortable
with forecasts and the utility in order to avoid, if
you will, the deferral accounts, the utility bears the
risk. That's a much better regulatory paradigm for us
in British Columbia than the one we have now with
deferral accounts that in some cases are overwhelming.
I will make a few comments now -- oh, no.
I will make a few comments and then I'll close. With
respect to DSM and the new DSM regulation, like Mr.
Andrews this is an important issue to the ICG. We
made, I thought, significant submissions with respect
to the DSM plan and encouraged you to deny the DSM
plan. I'm delighted that Fortis Electric has decided
that they are not going to seek approval of the DSM
plan. It was riddled with all kinds of problems. It
needed to be revisited. We said it needed to be
revisited. Sounds like we're going to have it
revisited.
The point that I would strongly encourage
you to -- what I would strongly encourage you to do is
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1452
to give further direction to Fortis with respect to
their DSM programs and I think the record in this
proceeding is adequate for you to do that. So I
wouldn't simply approve their numbers for 2014 and
leave the many important issues about DSM to them for
them to address for the first time in their
application.
I would encourage you to take this
opportunity to establish directions for Fortis so that
when they do re-file their DSM plan they will do that
with the benefit of your directions.
Proceeding Time 12:08 a.m. T37
MR. HOBBS: And I have one to bring to your attention. I
think I only need to do this for the purposes of the
record and it’s in paragraph 78 of our submissions.
But there are other ones and so I think I’ll close
simply by saying that I’d encourage you, as I say, to
take this opportunity to provide directions to them.
THE CHAIRPERSON: Thank you, Mr. Hobbs. I have one
question.
MR. HOBBS: Yes.
THE CHAIRPERSON: It wasn’t clear to me, and maybe I just
didn’t hear clearly enough, but I understand that you
made a fairly lengthy submission on the issue that we
should consider when we approve a deferral account.
But what’s your position on these particular deferral
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1453
accounts?
MR. HOBBS: Oh. Thank you. No. And thank you very
much, Mr. Chair. And Mr. Weisberg in fact captured my
view clearly. You should say no. If I didn’t say it
clearly enough I will now.
Fortis is seeking -- Fortis Electric is
seeking approval from you for four deferral accounts.
Whether or not there were similar arrangements for
regulatory parameters in place with respect to those
costs before is -- I mean, in my view you shouldn’t
give any weight to that. What’s important is that
they are seeking approval from you now for yet four
more deferral accounts. And no. And instead of,
instead of establishing deferral accounts I would in
fact establish -- look at the two thousand -- you have
the benefit of the 2013 actuals for those costs, I
would roll in inflation and leave it at that for 2014.
THE CHAIRPERSON: Okay, thank you, Mr. Hobbs.
Before we continue, just looking at the
clock, maybe we could just do a bit of planning here.
Mr. Quail, how long -- or Ms. Worth, how long do you
think you will be?
MS. WORTH: I don’t plan on being overly long, but I do
have more to say than just sort of a few words on
these issues. So I would expect I would be about 15
minutes.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1454
THE CHAIRPERSON: Thank you. And Mr. Ghikas, do you have
a reply? I assume you do.
MR. GHIKAS: We do have some points in reply, so I
suspect that as between myself and my colleagues they
will probably -- safe to say, you know, ten minutes or
something like that. It’s relatively brief but --
THE CHAIRPERSON: Under the circumstances I’m thinking we
should take a short break and go through as opposed to
taking a lunch break. Is there anyone that would be
opposed to that approach? No? Okay. So 10 minutes,
yes, come back at 20 after 12 and hopefully we’ll wrap
up in half an hour.
MS. WORTH: Yes, Mr. Chair, if I could ask your
indulgence for a few more minutes to allow me to eat
something before we proceed.
THE CHAIRPERSON: Okay.
MS. WORTH: Thank you.
THE CHAIRPERSON: All right, so 15 minutes, 20 minutes?
MS. WORTH: Please. Thank you.
THE CHAIRPERSON: Fifteen?
MS. WORTH: Thank you.
THE CHAIRPERSON: Okay, we’ll come back at 25 after then.
Thank you.
(PROCEEDINGS ADJOURNED AT 12:12 P.M.)
Proceeding Time 12:28 p.m. T38
(PROCEEDINGS RESUMED AT 12:28 P.M.)
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1455
THE CHAIRPERSON: Be seated, thank you. All set, Ms.
Worth?
MS. WORTH: Thank you.
THE CHAIRPERSON: Please go ahead.
SUBMISSIONS BY MS. WORTH:
MS. WORTH: You have for your consideration a record
created not only by the two applicant utilities, and
your Commission counsel and staff, but through the
participation of the diverse interests who have
intervened in this amalgamated PBR process: the
customer groups, the environmental groups, the
competitor coalition, and COPE 378, one of the unions
representing both applicant utilities’ workforces.
But, even within that group referred to as the
customer groups, there is a wide range of interests
brought to bear on these applications.
Why do the most revenue requirements in
recent memory, because we have the residential
ratepayer perspective, the commercial energy consumer
views and concerns, the electrical utilities
industrial customer groups’ perspective, and last but
not least the irrigation ratepayer class as bringing
their interests here as well.
Each party has brought forward concerns,
sometimes as a chorus, with their fellow interveners,
sometimes in a manner that was best characterized as
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1456
designed not only to bring forward those particular
issues, but to do so in a way that is complementary to
the issues brought forward by others and at times
also, in a limited and strategic manner, taking the
lead on certain focused issues allowing others to rely
on their efforts on that issue, while freeing them to
focus on the issues specific to their own clients, or
to capitalize on their particular expertise.
What COPE sees as particularly striking is
that, despite the obvious differences between the
interveners in this process, there were some
significant commonalities in their evaluation of the
PBR, not the least of which was the universal
opposition to this particular set of applications
despite the regulatory and cost efficiencies that can
be achieved through PBR. We are, like everyone else
here, keenly aware of the fact that we are united in
our opposition, but we are also aware that we are not
here today to argue those concerns again. Instead, we
are here to address the three questions that you have
put to us in your June 27th letter.
So, the four parts of the first question
deal with a number of issues that arise should a PBR
be approved. Now, note I did not specify there this
PBR. I believe that we have made our client’s
position about this PBR very clear already, and I will
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1457
not go there again.
In his submissions on question 1, my friend
Mr. Ghikas flagged an alternative to rebasing that
exists, a brief extension. I believe he specified
probably two years. I am both surprised, and then
again not, by Mr. Ghikas’ submissions on that point.
It is no surprise that the Fortis utilities consider
the applications acceptable, so it follows that they
want to put this forward on the record as early as
possible to flag the potential attractive to them for
an extension.
However, given the strength of the
opposition to this PBR voiced by the number of parties
participating here, that seems to preclude the
possibility of such an extension taking place if the
Fortis PBRs are approved as applied for. If, however
the Commission applies another PBR based on the
evidence generated in this process, or orders an
expedited process such as the one suggested by CEC to
take place to design a new one, there may be an
appetite at the time to entertain that idea, and we
agree with Mr. Ghikas the midterm review does seem to
present the appropriate opportunity to canvas that
with the interested parties.
The answers to question 1 were, for COPE,
difficult to formulate, because we were being asked to
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1458
provide input at a very early juncture, before, as Mr.
Weisberg said, there is enough water under the bridge.
This is before we have even had a chance to see
whether a PBR in operation is workable, to evaluate
its performance over time, and there is, as Mr. Ghikas
said, in his submissions, value in maintaining
flexibility. Particularly given the regulatory
landscape we find ourselves in today. Interveners
universally opposed to the PBR as applied for, and the
two utilities firmly entrenched in their positions,
and their unwillingness to consider any modifications
to their applications.
However, in an effort to be responsive,
COPE has formulated answers to the questions as posed
wherever possible, and has engaged in discussions with
other groups in order to find commonalities and
efficiencies in this.
Proceeding Time 12:33 p.m. T39
MS. WORTH: We have come to the -- our client has come to
the position that the suggestion forwarded by CEC,
that of an interactive and responsive working group
like that which we actually found useful in the Fortis
Gas supply mitigation incentive program, is the best
option we can see at this time to promote not only a
fair process but to ensure that we do not end up with
a rate structure that would result in the two
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1459
utilities receiving an unjust, unreasonable or unduly
preferential rate.
In COPE's view, utilities would be highly
motivated to preserve their ability to operate under a
PBR program. It is, after all, a regime that works to
their advantage by reducing the regulatory cost and
processes that they are subjected to.
This motivation will, we think, likely
translate into a far greater level of motivation and
cooperation than we've seen in this process certainly,
resulting in a greater change to the input and
suggestions put forward by participants and the
activity of the Commission staff will be considered
and, where appropriate, incorporated to secure
sufficient consensus to have an endorsed application
put to the Commission for its consideration at the
end.
That is a very different situation than we
have found ourselves in here where the companies have
excluded -- sorry, the companies have exceeded their
usual vigorous defense to engage in a campaign of
unwarranted and excessive aggression against the
views, the work and even the professional integrity of
those experts whose testimony contradicts their own.
This process, the utilities’ incentive to
participate rather than to dictate and the timing of
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1460
the review taking place after a PBR has developed over
its term will, we submit, provide the best opportunity
to improve the rate regime by recognizing its actual
strengths as developed while shoring up its apparent
weaknesses again over the time as they've been proven
with the proper information and context that that time
will provide.
Now 1(b) asks for suggestions on the proper
timing of a rebasing process and we've heard some
submissions from interveners about the perception that
cycling between PBR and a cost of service rate
regulation does concern them about there being an
incentive to game the system unfairly to maximize the
benefit to the shareholders on the backs of the
utility's ratepayers.
Those concerns, whether valid or not,
should not, in COPE's submission, preclude a
consideration of how a rebasing should take place and
that this consideration should take place at the
proper time. It may be appropriate to continue with a
new and rebased PBR or to return however long or
however briefly to a cost of service regime. But we
submit at this time it is difficult to know whether
that would be appropriate. And it is our submission
that the appropriate timing for this evaluation is at
or just before the midterm review with an early filing
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1461
to allow for the regulatory review to be complete or
substantially complete before the new term of the
regime begins.
1(c) asks for what other items should be
reviewed in the proceeding to consider a rebasing
application. But COPE submits that in the absence of
an Order specifying what form PBR might take, this --
sorry -- the theoretical -- knowing how the
theoretical PBR might develop over its term and what
issues might actually come to the fore during that PBR
term external to but affecting the terms within that,
it cannot offer any concrete suggestions at this time.
That is again a situation where there is value in
maintaining flexibility.
Now aside from the comments and suggestions
that we've already put on the record in our
submissions now, COPE has nothing to offer in response
to the invitation to provide any other process
suggestions or issues relevant to an ongoing PBR
regime as per 1(d). But we do think that this is an
appropriate time to note that there is, in this
particular circumstance, no alignment as between the
customer and utility interests and that that is
something that should be taken into consideration when
the time does come to formulate the suggestion and
issues relevant to the ongoing PBR, should that be
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1462
determined to be appropriate.
Proceeding Time 12:38 p.m. T40
MS. WORTH: Question 2 canvasses the issue of rates for
2014 and 2015 should this PBR not be approved. We,
like CEC and others, see that while there is some risk
in basing a final Order for 2014 rates on the existing
record, it is minimal and manageable. Given the value
to be gained in creating a regime that more closely
allies the interests of Fortis shareholders with those
currently left out in the cold, that being their own
ratepayers, this is yet another situation where COPE
suggests the EC’s suggested process, a GSMIP-like
process that would in our submission and in these
circumstances allow for a relatively compressed and
efficient process capitalizing on the existing record,
to set the stage for the development of a new and
better PBR better supported, we submit, by an
evidentiary update.
And finally in regards to question 3, while
acknowledging the issues that others have flagged,
including CEC, COPE sees no reason to differentiate
the treatment that one Fortis receives on deferral
accounts than the other. So the union does not oppose
the Fortis Electricity Utility’s application in this
regard.
Subject to any questions, those are our
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1463
submissions.
COMMISSIONER COTE: I have a question.
MS. WORTH: Certainly.
COMMISSIONER COTE: You spoke about turning it over to
the group of interveners to work with the utility to
develop a new plan, and you talked -- I think the term
you just used a minute ago was “a new and better PBR”.
Can you tell me a little bit in your view what that
might look like?
MS. WORTH: Well, I mean, the various groups here have
flagged issues like, in our case, the SQIs, and in our
participation should that type of process be convened,
COPE would propose to actually work with the utility
and in concert with Commission staff and other
interveners to find the appropriate balance of the
SQIs and any cost or benefit kind of impacts on the
utility in order to have a PBR that better balances
the shareholder and the ratepayer interests. That’s
just one example. There’s any number of ways that
there can be that kind of back and forth on the
various issues that have been brought to the fore.
COMMISSIONER COTE: So you’re really not looking at
changing the elements of the PBR, just the numbers
that are associated with them and creating more
balance. You used the example of SQIs and I guess
that could apply to any of these. Is that really
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1464
where the issue lies?
MS. WORTH: It can also be a situation where a structural
element could be examined -- identified and examined
and worked on to improve the PBR. Our focus in this
was really strategic in order to allow others to focus
on what their expertise and what their resources
allowed them to do. We took the forefront on the SQI
issue and we were happy to do that. We didn’t forward
anything other than that, so for me to comment on
whether there’d be any interest in addressing the
structural issues is something that I really can’t
kind of say at this time. But it is an option.
At GSMIP there were any number of issues
that we dealt with, the Gas Supply Mitigation
Incentive Program -- not just numbers but also sort of
how it was structured, and we played with things in
order to make sure that it was a solution that was
acceptable to the company as well as to the
participants, and there were endorsement letters that
were provided to the Commission Panel to consider
along with the actual application.
COMMISSIONER COTE: Okay, I think you’ve answered my
question, thank you.
MS. WORTH: Thank you.
THE CHAIRPERSON: Thank you, Ms. Worth. Mr. Ghikas? Ms.
Herbst?
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1465
Proceeding Time 12:42 p.m. T41
REPLY BY MS. HERBST:
MS. HERBST: Thank you, Mr. Chair and Commissioners. I'm
here to deal with two points that have arisen in the
course of intervener submissions: one relating to
deferral accounts and one just briefly on the DSM
regulation.
To deal first with deferral accounts, I
address chiefly the submissions of Mr. Hobbs, Mr.
Weisberg and Ms. Braithwaite. And Ms. Braithwaite and
Mr. Hobbs both characterize deferral accounts as – and
of course this is in relation to item 3 on the
Commission's list – they characterize deferral
accounts as shifting risk to customers, and I have a
couple of points about that.
The first is that this characterization
assumes that the outcome will be unfavourable in any
given case in the sense that the outcome will be worse
that what was forecast and that there will be some
sort of loss to be covered off.
The variance may well work the other way
and the risk in that case is not having a deferral
account and not having customers be able to share the
benefit in the same way that a deferral account would
allow. And so for example when I was speaking earlier
I referred to $6 million flowing back to customers as
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1466
a result of the interest expense deferral account that
was in place during the 2007 PBR term. The risk here
is not having such an account and not having customers
bear or getting the benefit of the full rate reduction
that flows from that $6 million flowing back. I think
what would have happened without a deferral account is
a 50/50 split between shareholder and ratepayers.
Now second, to the extent that there is a
risk, and again turning to the characterization or
speaking of the characterization of the risk being
somehow shifted to ratepayers and if there is in a
given case a lesser cost forecast than actually turns
out to be incurred, there are some circumstances where
in fact the utility should not be left bearing the
risk and Mr. Hobbs characterized his approach as
consistent with Sections 59 and 60 of the Utilities
Commission Act.
I say it's diametrically opposed to it and
if you look at, for example, Section 59(5) of the
Utilities Commission Act, it talks about the utility
having a fair and reasonable compensation for the
service provided by it.
Mr. Hobbs’s approach and more generally not
allowing deferral treatment in certain circumstances
would have the utility bear the loss, would have
prudently incurred costs that are not covered, and
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1467
would not only allow it not -- would not only result
in a situation where it doesn't earn the return that's
contemplated by the section, but wouldn't have those
basic costs covered and that's not consistent at all
with the legislative scheme.
Now there's a bigger -- clearly there
bigger arguments that are being advanced in relation
to deferral accounts by Celgar and ICG, in part in the
context of the core review that's going of the BCUC.
I think that's symptomatic of the fact that there's
some recognition that the present legislative regime
and the present set of jurisprudence and authority
surrounding deferral accounts is not in line with what
Mr. Hobbs would suggest. There has to be some other
mechanism that they're seeking out to get to that
result.
I say that FBC is entitled to be treated in
accordance with the statutory regime that's in place
now and with the authorities that are in place now,
and those do favour the deferral account treatment
that's being sought.
In any event, this set of -- this part of
the submissions that Mr. Hobbs advanced related to
whether or not the test, “Is a deferral account
necessary” as opposed to “Is it simply reasonable to
adopt that approach” and my original submissions
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1468
address the necessity as well.
Now the next point I want to address, still
in relation to deferral accounts, is in relation to
the linkage that Mr. Weisberg drew between deferral
accounts and PBR, I think in part in reliance on a
written submission that had been advanced in that
context as well by ICG.
And I say firstly the deferral accounts
would be applied for whether or not this is a PBR
period. That's illustrated by the fact that both FEI
and FBC applied for the deferral accounts in the
context of the 2012 and 2013 revenue requirements
applications and indeed by the fact that FEI was
granted that treatment in the non-PBR context.
Now there was also a reference to the fact
that only 18 percent of the revenue requirements is
subject to PBR and some connection being drawn with
deferral accounts in that context. It's certainly not
the case that 82 percent are subject to deferral
accounts and I say that it's entirely consistent with
the notion of PBR that the deferral account treatment
be accorded to the items that are being singled out in
this context.
Proceeding Time 12:42 p.m. T42
MS. HERBST: And PBR is intended to provide an incentive
for the company to capture efficiencies from
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1469
controllable costs, so prudent management decisions
are made in relation to costs that can be controlled.
The very premise of the accounts that are being
applied for here, is that they are substantially not
controllable items, and so the two are entirely
consistent. But one is not driving the other; they
exist in parallel.
Now, Mr. Weisberg, I think, said in
reliance on an ICG written submission, that the PBR
plan locks in deferral accounts. Now, this assumes
that during the PBR period the utilities are
unsupervised. That’s of course not the case. And so,
for example, there will be annual reviews where
deferral account balances can be reviewed. There is
no -- this is the end of the discussion at this point.
Now, Mr. Weisberg referred as well to the
growing number of deferral accounts and I just flag
that it is apparent from the application and I think
one of the IR responses that FBC is actually
discontinuing a fair number of them. More are being
discontinued than the four being added. There was
also a reference in the interveners’ submissions, I
think Mr. Weisberg alluded to this as being an option
that was being put forth by Mr. Hobbs, of taking 2013
actuals for these items and adjusting for inflation.
Now, I say first of all, this is a new way to
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1470
forecast, it is not really an option to deferral
accounts. It is a new approach that FBC is supposed
to be taking to arrive at the numbers that it
forecasts, and I say that that is not really the issue
in item 3, but in any event, it is not a good method
for doing a forecast. It is likely to result in
forecasts that simply give rise to greater variances.
Certain of these items simply don’t really lend
themselves to the notion of adjusting for inflation.
For example, like interest expense and tax. But, in
any event, these items are, by their nature
substantially or entirely uncontrollable. So, there
is no reason to think that 2013 actuals are a good
predictor of what 2014 will be. The same problem
exists here, although perhaps even in more
concentrated form, as in relation to the five-year
average that was proposed as an option in one of the
BCUC IRs, and that I addressed earlier.
And the last point that I have is in
relation to not deferral accounts, but the DSM -- to
the DSM regulation. And Mr. Hobbs’s suggestion that
the Commission take this opportunity to provide some
directions to FBC in terms of going forward, and I
think he alluded specifically to paragraph 78 of his
submission, and I gather that that is a paragraph that
relates to having similar DSM for FBC and B.C. Hydro.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1471
And I say certainly that is not a direction that
should be made. The Commission has addressed in the
past, including in the 2012-2013 revenue requirements
application which was also a review of the integrated
system plan, that FortisBC, FBC, and B.C. Hydro are
different utilities with different considerations and
can have different DSM programs. And more generally I
say the interveners will be consulted with going
forward, as FortisBC’s application for 2015-2018 or
2015 certainly, and possibly a further year or two
scheduled is being put in place, as will be the
Ministry, and that no directions should be made in
that respect.
Subject to questions, I will turn it over
to Mr. Ghikas.
THE CHAIRPERSON: I do have a question, please.
MS. HERBST: Yes?
THE CHAIRPERSON: And this may not be that important in
the general scheme, I am not sure, but it was my
understanding when you made your earlier submission
that these deferral accounts exist. Or at least they
are in place during the last PBR period. Is that
correct?
MS. HERBST: That’s the -- there was an interest variance
deferral account which was, I gather, in place, and is
now being reinstated. It wouldn’t be in place now,
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1472
because it was -- approval was sought and rejected in
the 2012-2013 revenue requirements application.
THE CHAIRPERSON: What about the other three?
MS. HERBST: The insurance expense variance account, no.
It was not in place during the 2007 PBR plan. And
similarly, an application was rejected for it during
the non-PBR 2012-2013 application, so it is not in
place. And the tax and the property tax, so they had
the Z factor treatment, but I gather in practice a
deferral account was associated in terms of
implementing that treatment during the 2007 PBR plan,
but generally speaking they’re not in place now.
Proceeding Time 12:28 p.m. T43
MS. HERBST: Approval was sought for them in the non-PBR
context for 2012-2013 but not granted. I say
“generally” because there is a property -- there’s a
limited property tax deferral account which had to do
with a specific review that was going on by B.C.
Assessment of certain valuation approaches, and so
there’s a narrow deferral account that’s in relation
to that.
THE CHAIRPERSON: Okay, so during the 2012-2013 period
there were no deferral accounts? Is that --
MS. HERBST: Of these four, other than the narrow one for
property, the narrower for property taxes.
THE CHAIRPERSON: So were these then still flow-through
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1473
expenses or were they considered controllable expenses
or not controllable in the 2012 and 2013?
MS. HERBST: In FBC’s application they were considered --
they were given labels that were slightly different or
somewhat different than are being attributed to them
now. But deferral account treatment was sought on the
basis that at least they had in part a non-
controllable element even in that categorization. I’m
not sure about what has happened in terms of if there
have been variances, what’s happened in the 2012-2013
period. I can ask.
THE CHAIRPERSON: But -- okay, sure, if you don’t mind.
MS. HERBST: Absolutely.
No variances have been flowed through on
those four items for the 2012-2013 period.
THE CHAIRPERSON: On any of those items.
MS. HERBST: Yeah.
THE CHAIRPERSON: Okay.
MS. HERBST: That’s right.
THE CHAIRPERSON: Thank you.
MS. HERBST: Thank you.
REPLY BY MR. GHIKAS:
MR. GHIKAS: Mr. Chairman, I will be brief. I have four
points I’d like to address. The first one is the
theme that came up through several of the submissions
from my friends, and it is the suggestion that we move
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1474
to a new process to look at a different type of PBR
that, in their words, better meets the needs of both
stake -- of all stakeholders.
Now, Fortis’s submission is that we do not
need another process at this time. What we need is to
bring this process to an end and move forward. And
the parties have disparate views on how to separate in
this proceeding. There’s no question about that.
They differ in fundamental ways, in fact. And what is
evident is that the interveners as a collective,
they’re really questioning fundamental elements of
what it means to be under PBR. And when you have that
type of fundamental disagreement where the utility is
proposing PBR and the interveners are supporting what
in my submission is PBR in name only, when you have
that type of fundamental difference among the parties,
that that is precisely the time when the Commission
needs to come in and make a decision. And the idea
that we should defer the issue because there’s a
fundamental disagreement, in my submission, is
backwards.
At this point in time what we need is
guidance from the Commission and a decision one way or
the other, or else we’re going to be on the never-
never plan. And those workshops or negotiations or
whatever you want to call them are going to get tied
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1475
up in the same type of issues that have been canvassed
at length in the submissions in this proceeding.
When my friend Ms. Worth cited the GSMIP,
the incentive plan, Gas Mitigation Incentive Plan, the
difference in that circumstance is that parties in
that context all agree that GSMIP is a good idea, and
then they negotiate and work on the elements of the
plan.
Proceeding Time 12:57 p.m. T44
MR. GHIKAS: At the outset of the proceeding Fortis
proposed an NSP, and that was on the presumption that
parties would want to negotiate within the parameters
of what is a PBR. But when you’ve moved to the point
where the parties are clearly so fundamentally apart
that is the time that I say, in my submission, we need
a decision.
Now a lot of the submissions that were
being made by my friends sounded a lot like moving to
a process that sounds a lot -- whatever its name may
be, sounds an awful lot like an NSP. And my
submission is that the Commission has already said no
to an NSP. And parties may like that and they may not
like that but the fact is the Commission considered it
appropriate to hear evidence on the proceeding and
determine that application by that process. And in my
submission it is entirely appropriate now that that
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1476
decision had been made that the Commission follow
through with the approach that it’s taken.
The second point was one raised by my
friend Mr. Weafer, and it was in respect of the IR
response 1.1 that Fortis had provided which was the
assumptions that went into the calculation of the
revenue sufficiency analysis applied to Dr. Lowry’s
analysis. And my friend spoke to that issue by first
of all saying that a GDP-IPI FDD it was -- my friend
was pointing out that Fortis used actual numbers that
were an average of GDP-IPI FDD of 1.47 percent, and he
was pointing that out and he was suggesting that
Fortis ought to have used a forecast. And he said
that a forecast was available in May 2014. May 2014
is after the hearing was done. That’s when the
forecast came available. And you will see in the
response here that while there may be a forecast it’s
not in the record first of all, and second of all you
will note that Fortis couldn’t find it. So there may
be, as Dr. Lowry seems to be indicating a forecast now
as of May 2014, but if it’s out there Fortis couldn’t
find it and there is evidence of that.
So in my submission Fortis, first of all,
shouldn’t be faulted with using the only numbers that
were available at the time. And second of all if --
it’s really questionable whether the Commission should
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1477
be seeking out and using an inflation measure when
it’s so difficult to find. That was the first point
on that.
The second point is that the implication of
that submission was that these would have material --
using the actual number, the 1.54 instead of 1.47
using this forecast rather than what Fortis did, would
have a material impact on the results of the analysis.
And that’s simply not the case. In the response
Fortis provided the spreadsheet and we’ve plugged in
the numbers in the spreadsheet as the Commission could
do on its own, and it’s clear -- I will give you the
numbers. Instead of $112 million shortfall for FEI,
it’s 108; instead of $129 million FEI cumulative
shortfall in O&M it’s 125; and instead of 34 shortfall
for O&M it’s 33.
Now you can play with these assumptions.
There is no magic to the precise number but the thrust
of the sufficiency analysis is simply an order of
magnitude impression that you come away with at the
size of those numbers. So whether or not you plug in
new numbers and you look at the fact of the matter and
the fact that it’s inescapable is that that is a huge
number and the Commission should have regard to that.
Proceeding Time 1:02 p.m. T45
MR. GHIKAS: The third point and the fourth point come
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1478
out of my friend Mr. Hobbs’s submissions about what
the content for the future application should be, the
next application. And the first point that he
indicated that I wish to respond to, was that he
suggested that there be a benchmarking analysis in the
future application and that it be prepared and
submitted for that.
Now my first point in response is that this
all related to my friend’s desire to compare FortisBC
to BC Hydro. And I would simply remind the Commission
that you have made a determination on the relevance or
lack thereof of a comparison in the analysis, a
comparison of those two utilities for the purposes of
assessing productivity.
The second point that I would make in this
regard is that there is evidence in this proceeding on
the utility of benchmarking. And I will just read
into the record so that it’s there FEI’s application
Exhibit B-1, page 21, and also Exhibit B2-8, BCUC
3.42.1.1. And there is discussion there that the
utility of benchmarking is limited by virtue of the
operational differences and the way in which
categorization is done by each utility. And Dr.
Overcast comes away with the -- his evidence on this
is that benchmarking to determine overall productivity
in inordinately imprecise as a measure for evaluating
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1479
service performance.
And so, in my submission, in Fortis’s
submission, the benchmarking analysis should not be
included as a requirement in any future application.
And there is no need for it and it’s of limited
utility.
The second point that my friend Mr. Hobbs
discussed in terms of the content of future
applications was in essences as I understood it a
description of cataloguing of past efficiencies that
had been achieved during the PBR plan and that the
company should be bringing forward and itemizing and
demonstrating which of these savings that occurred
were actually efficiencies and so on. There have been
extensive submissions in the written submissions about
why that type of requirement in a PBR is fundamentally
at odds with the whole point of PBR. And really
requiring that type of analysis in the next rebasing
application is simply fundamentally inconsistent. It
goes to this fundamental disagreement about what it
means to be under PBR and I would submit that it is
not appropriate if this is to be a PBR to require that
type of analysis the next time we go into a hearing
for rebasing.
Those are my four points subject to any
questions; I think we’re free.
Fortis Energy Inc./Fortis BC Inc. Multi-year Performance Based Rate-Making Plan July 14, 2014, Volume 8 Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Allwest Reporting Ltd., Vancouver, B.C.
1480
THE CHAIRPERSON: All right. Okay, thank you, Mr.
Ghikas.
MR. GHIKAS: Thank you.
THE CHAIRPERSON: All right, Mr. Weafer.
MR. WEAFER: Can I just make one comment on Mr. Ghikas’s
point in terms of availability information?
THE CHAIRPERSON: Go ahead.
MR. WEAFER: The point was raised on the record that this
wasn’t on the record but the Information Request and
here relating to BCGDTP -- GDP-IPI FTD -- that
forecast that we provided was available in May for $85
from the Conference Board of Canada. It’s a material
forecast and surely the company knows it’s -- should
know it’s available if they are relying on it as a
response to the Commission Panel of an IR. Thank you.
THE CHAIRPERSON: Thanks for pointing that out, Mr.
Ghikas. Is that -- okay. All right, well, thank you
very much everyone, and we’re dismissed.
(PROCEEDINGS ADJOURNED at 1:07 P.M.)