DOCUMENT SUMMARY Document Id: 0323A Document Name: DECISION - VIGAS Operator: C. SmithfS. Werner Author: DBK/JDVN/NM/RJF Comments: July 29, 1983 STATISTICS OPERATION DATE TIME WORKTIME KEYSTROKES Created 06/23/83 08:25 :16 2554 Last Revised 08/03/83 10:28 :02 153 Last Printed 08/03/83 10:56 Last Archived 08/02/83 11 : 22 onto Diskette 002'f'A Total Pages: 24 Total Worktime: 6:31 2' Total Lines: 424 Total Keystrokes: 30958 Pages to be printed: 24
IN THE R the Utilities Commission A S.B.C. 1980, c. 60, as and IN THE MATTER OF an Application Island DECISION July 29, 1983 J.D.V. New lands, Deputy and of the Division D.B. Kilpatrick, N. Martin,
The Application of Island Gas interim and anent rate was heard on Columbia. The of the D.B. Kilpatrick, Commissioner; and N. 1983 21' N J. N Deputy , Com
TABLE N N LIST OF 11 INTRODUCTION YEAR 3 3 REVENUES D N CAPITAL STRUCTURE AND OF 5 DISPOSITION IN TAX BEN 6 TARIFF MA TIERS 7 NG POLICY 8 11 ORDER NO. G-55-83 Schedule I Rate Base Schedule II Utillty Income and Return III Income Schedule IV Return on APPEN and
APPEARANCES K.E. GUSTAFSON R.B. WALLACE PAUL ALVANO R.J. FLETCHER J.A. GREINER J.A. HODSON D.D. MaciNNIS W.R. HARPER W .B. AUDIOTRON Commission Counsel Counsel for Vancouver Island Company Ltd. Pacific Linen Supply Ltd. Staff Heari Officer Court (i)
LIST OF EXHI Exhibit No. Com ssion Orders and 2 from D.G. Olsen, Vancouver Island Gas L to B.C. Utilities Commission 3 Vancouver Island March 24, 1983 Vancouver Island Company Ltd.-1983 Revised June 1983 (3.3.1) .5 Vancouver Island Gas 1983 Revised June 6 7 Letter-I.C.G. Utilities with Schedules 8 Vancouver Island Gas Company Ltd.- Terms and Conditions for Gas Service for Greater N anaimo 9 Excerpt of Testimony of D. Bolster in J.C.G. Hearing and Common Equity Ratios-Canadian and U.S. Utilities 10 Vancouver Island Gas Company Ltd.- Fuel Proposed Rates Letter from Heath Ltd. Re: Bar Test Survey to Detect Leaks in Vancouver Island Gas 12 No.9- Terms and for 13 M Young, Weir- W Bond 14
INTRODUCTION Ltd. (hereinafter to as "VIGAS 1983 for both interim and permanent rate increases of 16.85% for Residential and 16.37% for Commercial leaving Interruptible cuc;tomer rates rate base and 16.9% on common equity, enable it to attain the revenue level necessary to protect its integrity the Applicant requested full By Order No. G-32-83 April 26, !983, the British Columbia Commission ("the Commission") effective May l, 1983 and to refund with interest at the rate of the Applicant's bank. By Order No. G-36-83 dated May 12, 1983, the Commission set down the Application for public hearing commencing at 10:00 a.m. on June 21, 1983 in N anaimo, Br.itish Columbia. The Applicant was incorporated in 1955 as a a franchise agreement was negotiated with the City of N Company to operate a butane-air agreement was renewed for a further 20 years in 1974. In 1980, a propane-air mix was substituted for the butane-air mix, as approved by the Commission. VIGAS is owned as to 92.7% by Fort St. John Petroleums Ltd., with control vested in Inter-City Corporation Ltd. of Winnipeg. financing is by way of loans and advances from affiliated companies, and a bank line of credit secured by a"'""'""'"'"' of book debts and a first floating charge against the assets of the company. Company 11 or "the Applicant") dated March 24, The Applicant rate to enable it to earn 14.8% on to 42% rate To the full interim requested, prime distribution company. In 1956, enabling the within the city boundaries. This Major Applicant's and
The Applicant ln presenting case was Manager and R.A. , Office M G.M. Hoffman, Vice Winnipeg, Manit with to In addition, the AppLicant was Administration and Alberta, who information and customer Ltd., and inter-company charges. The Commission acknowledges the very useful contribution to the proceedings made by the sole intervenor, Mr. commends Mr. Alvano his time and effort at the hearing. At the outset, Commission stresses that, while this Decision has necessarily been determined in the context operations and circumstances, In the event that proposed natural gas supply to Vancouver Island is implemented the overall circumstances of VIGAS can be expected to change very markedly. As an indication of the order of magnitude of the impact on attributable to the availability of natural at the hearing suggests that VIGAS rate franchise area alone could by a factor level of $30 to $40 million, while the num as many as 15,000 from the present 1,300 to 1,400. 2 by D.G. and and supported by Administration ICG Utilities Ltd., structure and rate of return. by L.M. nen, M Utilities (Plains-· Western) Ltd., in to new ment ms provided to VIGAS by Utilities Alvano of Linen Supply, and Applicant's financial, marketing and App testimony by ICG management serving the existing Nanalmo as much as fifteen to a of customers served might rise to
3 The implications for the A from such a in such matters as future al structure and sources of necessary funds, are very significant. The Commission however, that these are matters currently unde study by the and are clearly and not for The Commission's conclusions with to the present follow. THE YEAR The Commission test year being year ending ber 31, RATE Rutherford Plant While there was some on on the Rutherford plant, the Com ssion cone ludes that full in the rate in The Commission in rate base, and amortization over seven years, of the $35,000 of ment costs to M Information and In future, Commission will to be by the or related subsid costs of will whole or in part to VIGAS.
4 Past Rate In the present Application Applicant hearing costs excluded from rate February 19, 1982. The excJusion costs in the on 8 of that concludes excluded from rate recover Rate Administration Department costs over a than the ten years in that Decision. recovered year-end 1985. AND EXPEN The Commission the sales volume forecast related forecast of revenues. The Commission recognizes and commends the restraint and control of costs period coupled with recession. Appendix A. Commission the projected operating costs of Management Information Customer Service ICG Utilities Ltd., wh systems and in for reconsideration rate in the Commission's Decision of reasons for and the tests applied to them those costs should will, however, allow to year period costs then fully the Applicant and of VIGAS for its a very difficult inflationary are allocated to VIGAS by as to the less
CAPITA STRUCTURE AND COST OF CAPITAL Structure The Commission the notional Applicant, comprising % debt and 42% common equity. This was the structure accepted by the Commission in its Februrary 19, the Commission that business or financial risks to the Applicant that structure. The Commission, however, is concerned about notional structure for Applicant's financial At the Mr. Hoffman fied of the capital structure of VIGAS capital with an equity. further Applicant would borrowing capacity this would additional cost, to the cost of issue. Commission the poten support from the parent company with r capital structure but would stress the even injection of additional equity if the future to achieve reasonable in real terms. opportunity to achieve this promptly would be the conversion of an appropriate portion of existing inter-company loans or Commission therefore looks forward to objectives and if possible before the Applicant's next application for general rate relief. In any event, on that occasion the Commission will regulate on the basis of the Applicant's actual capital structure. 5 structure proposed by the Decision and no justify a from implications of such a in the was in process a view to common is injected, of m to VIGAS without value to Applicant of to the in any new importance an early structure of the Applicant is Commission notes an into equity. The early of these
6 Embedded Cost of Debt The Commi concludes a 20 year term purposes of computing the Applicant's Commi the 12.84% cos for financing costs, concludes this is 13.09%. The Commission has Mr. D.R. Bolster, the financial approved al structure and reasonable rate of return on the Applicant's deemed common equity l of 15.0% to 16.0%. Accordingly, for purposes of Applicant's revenue ment a rate N OF INCOME TAX BEN The Applicant has proposed that the tariff rates should inc deemed tax expense of $80,187. This amount represents tax expense to be payable in the test year deemed cost allowance. acknowledged that, while included as a would in fact not paid by reason of The company's audited financial statement (Exhibit 4, ended December 31, 1982 records prior years' losses of $269,000 (Note 6) available to carry forward to reduce taxable income in future years. Applicant's position on matter of whether the customers or its shareholders should realize the resulting tax saving is clear; namely, that for cost debt. Accordingly, 95 and, after adjusting embedded cost of in of Mr. G.M. Hoffman and of Applicant, and concludes a and in the the return on common equity of 15.5% recovery of a applying the m Applicant 1983 expense, the $80,187 application of prior years' losses. 14) for the year The
7 customers who benefitted from lower rates should have been higher to provide now benefit again from the lower rates which will subsequent in income tax to reducing The Commission has considered this matter respect to the Applicant's structure (ref. page 5) and concl.udes that it is inappropriate to apply actual prior years' losses to income tax expense in the forecast test year. Accordingly, in the present circumstances the Commission will allow an adjusted income tax $74,259 in the cost of service. TARIFF MATTERS Terms and Conditions for Gas Service The Commission has examined the VIGAS tariff marked Gas Tariff BCUC No.1 which was filed at the hearing as Exhibit 13. With respect to item (f) on page 6 of the tariff dealing with billing, the Commission will require that the provision rendered accounts within fourteen days from the date of Company, be changed to read twenty-one days from the date of mailing. The Commission accepts as reasonable the Applicant's request for the provisions of item (g) on page 6 of deposit from the prevailing two months' billings to a maximum months' billings, which for existing customers will be based on monthly billings in the preceeding year and for new customers on estimated annual consumption. loss years, when rates return to shareholders, should not by applying revenue terms of position with deemed of consumer pay of bills by the in tariff, to guarantee three % of
8 The Commission concludes and the Applicant agreed that the 5 year period cited in paragraph (b) of 11 of the policy, be Incorporated in (a) of contributions to construction costs. Mod as above, the Commission will tariff filed at the as Exhibit 13. M ation to N otlce of Future Concern was expressed at the hearing with increases rates currently provided to its customers by the Applicant. It was and the Commission concurs, that in future when practicable, prevailing change. PRICING POLICY The Applicant is to an unusual from both and electricity in the N currently significant electricity Exhibit 11), in the achieve an increase in the number of customers despite the impact of conservation, customer of some 8. 5 achievement since this growth has minimized relief required. To the use of its product more attractive to potential commercial customers whose higher volumes would pertaining to the mains extension H with respect to customer for filing the Applicant's to the of notice of the proposed new rate and of inter-fuel competition franchise area. Desp a son to both oil and two years VIGAS managed to of some 5% and, in sales per is to be commended for magnitude of the rate aH customers on the system,
and to avoid the loss of these customers to introduction by the Applicant of service. This has given rise to a significant differential in the rates payable by the Applicant's firm commercial customers and those commercial customers able to take advantage of interruptible service. attractive to those customers equipped to fuels when the price of those fuels is advantageous. interruptible rates for gas must be maintained at or market price of the competing fuels. The resulting two system rise to at the hearing, Mr. Paul Alvano discrimination by VIGAS. ic Linen Supply is a firm rates while Nelson Laundry is a commercial customer on both firm and interruptible both bei in the N anaimo market area. The recognizes under both Pacific and Nelson laundries Nelson. On the other hand it is clear that N burn oil whenever oil is than case. Were higher volume interruptible customers such as N the use of gas entirely, Applicant's borne by the firm customers. The end result would Alvano with no change for N when burning oil, so to Nelson would simply The Commission concludes that although at present rates interruptible are making a negligible contribution to the Applicant's operating maintenance of such is in the public prospect of higher rates in the future. The Commission further concludes that 9 I, the Commission approved the contract rates for interruptible Interruptible is periodic use of alternative It follows that the to the fluctuating complaint by the sole intervenor of Pacific Linen Supply, of customer on in the commercial laundry prevailing and with to by reason of its ability to would a m any to cost of service would have to even rates to Mr. the cost advantage me, the and is justified by the
10 the maintenance of interruptible rates in the constitute undue equipped to them by reason of To its flexibility and particularly with the fluctuating approval by of customers. The Applicant customers should be to per Ccf to a high of the prevailing commercial rate to firm customers. Applicant fied that a 5 cent of its costs and some prof it or while permitting .it to Com cone App is will approve rates on that basis. concludes, however, that upper limit of the range should be no 90% of the firm commercial rate. Deferral In con junction with its approval to a account to accrue sales In granting rates competitive capabilities the Applicant shareholders. To f reduce that risk does not customers not to both oil to ve ble the rates to its from a low of cost of 5 cents would recovery operating the I. The the in The Commission than rates Commission the permitting proposed
11 accounting, in the opinion of the Commission is unjustified, and would remove the incentive and obligation of Applicant to forecast interruptible sales as accurately as possible. This could have an adverse effect on the rates required to be the m customers. Accordingly, the request for accounting on rate is RATES The Commission ms interim rates authorized by Commission Order and will for filing with consumption on and after August l, 1983 on Schedu II of is Decision adjusted May l, 1 cost will accept filing uptlb1e rate the approved Rates. at City Vancouver, e of British Columbia, 29th July, 1983.
BRITISH COLUMBIA UTIUTIES COMMISSION ORDER NUMBER G-55-83 PROVINCE OF BRITISH COLUMBIA BRITISH COLUMBIA UTILITIES COMMISSION IN THE MATTER OF the Utilities Commission Act, S.B.C. 1980, c. 60, as amended and IN THE MATTER OF Applications by Vancouver Island Gas Company Ltd. BEFORE: J.D.V. Newlands, Deputy Chairman; D.B. Kilpatrick, July 29, 1983 Commissioner; and N. Martin, Commissioner 0 R D E R WHEREAS a public hearing pertaining to Vancouver Island Gas Company Ltd. ( "Vigas") was held before this Commission· at Nanaimo, B.C. on Tuesday, June 21, 1983 to hear Vigas' Application dated March 24, 1983 for interim and permanent rate relief; and WHEREAS the Commission by Order No. G-32-83 dated April 26, 1983 authorized an interim rate increase effective May 1, 1983, subject to refund with interest at the nverage prime rate of the bank with which Vigas conducts its business; and WHEREAS the Commission by Order No. G-36-83 established Tuesday, June 21, 1983 as the date of commencement of a public hearing of the Application; and WHEREAS the Commission has considered the App1i-cations and the evidence adduced thereon, all as set forth in a Decision issued concurrently with this Order. • .. /2 TWENTY FIRST FlOOR 1177 WEST HASTINGS STREET. VANCOUVER B C V6E ~L1. CANADA TELEPHONE iSO.J U!).183l. TELEX C>4·5<536
BRITISH COLUMBIA UTILITIES COMMISSION ORDER NUMBER -83 2 NOW THEREFORE the Commission hereby orders Vancouver Island Gas Company Ltd. as follows: 1. The interim rates currently in effect as authorized by Commission Order No. G-32-83 effective May 1, 1983 are hereby confirmed as permanent increases. 2. The Rate Base for the Test Year ending December 31, 1983 is approximately $2,970,000. 3. The Total Revenue Requirement for the Test Year ending December 31, 1983 is approximately $2,870,000 base9 upon the cost of gas as presented in the Application. 4. The Commission will accept for filing effective with consumption on and after August 1, 1983 amended Tariff Rate Schedules as outlined on page 11 of the Decision issued concurrently with this Order. 5. The amended Tariff Rate Schedules will allow Vigas an opportunity to earn a rate of return of 15.5% on the deemed common share equity . . 6. The Commission will accept for filing, subject to the timely action concerning the required modifications contained on pages 7 and 8 of the Decision issued concurrently with this Order, the Gas Tariff B.C.U.C. No. 1 filed at the hearing as Exhibit 13. DATED at the City of Vancouver, in the Province of British Columbia, this 29th day of July, 1983. BY ORDER D~g
I VANCOUVER ISLAND GAS COMPANY LTD. Per Application Final Exhibits 3, Commission Gross Plant in Service, January 1, 1983 $3,455,550 $ $3,455,550 Accumulated ia tion, January 1, 1983 750,404) Net Plant in Service, January 1, 1983 Gross Plant in Service, December 31, 1983 $3,547,695 $3,547,695 Accumulated Depreciation, December 31, 1983 Net Plant in Service, December 31, 1983 Net Plant in Service (mid-yr.) $2,715,932 Deduct: Customer Contributions Total 2,637,514 Working Capital Cash Expenses 137,681 45,489{a) 183,170 Inventory, Materials 61,017 61,017 Inventory, Gas 96,286 96,286 Unamortized Rate Hearing Costs, Mid-year 49,587 (31,191) (b) 18,396 Deferred System Development Costs, Mid-year 17,500 17,500 Customer Deposits, Mid-year 110, 064) 110,064) Organization Costs, Mid-year 32,761 32,761 Leak Investigation & Costs, Mid-year 5,600 5,600 Prepaid Expenses Total Working Capital Total Rate Base
VANCOUVER ISLAND GAS COMPANY LTD. (a) tment to working to reflect the change in customer payment term per Dec is ion. (b) ustment to exclude rate hearing costs prev disallowed. Balance at December 31, 1982 $17,061 Balance at December 31, 1983 Allowed 1983 mid-year balance
VANCOUVER ISLAND GAS COMPANY LTD. Per ica tion Exhibits 3 SCHEDULE II Final Commission Adjusted
VANCOUVER ISLAND GAS COMPANY LTD. (a) Net ustment as a result of Decision. us tmen t to reflect the recovery of Rate Administration costs over 3 years, per Decision page 4.
SCHEDULE II VANOJUVER ISLAND GAS COMPANY LTD. Per Application Final Exhibits 3, Commission Adjusted Utility Income (Sch. $ 506,124 $(13,076) $493,048 Less: Interest (a) __l!l, 205) Add: - Depreciation 88 573 88,573 - Amortization of Organization Costs 420 420 - Amor t.iza tion of Rate Hearing Costs ----Deduct: Cost Allowance 21.3,131 213,131 - Inventory Allowance - 3% 3,100 - Rate Hear Costs Income Tax (52. 9%) (a) Interest $2,970,138 ate base) x 7.59% t of debt cornponen
VANCOUVER ISLAND GAS COMPANY LTD. Debt 58 Comm.::m Equi Total Debt 58 Common Total 13.25% 7.69 16.0% 13.09% 7.59 15.5%
APPENDIX A VANCOU~~ ISLAND GAS COMPANY LTD. QEerating Maintenance and Administrative Expenses
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.