IN THE MATTER OF the Energy Act and IN THE MATTER OF Applications by Hemlock Valley Electrical Services Ltd. DECISION June 20, 1980 Before R. John Ludgate, Commissioner and Donald B. Kilpatrick, Commissioner
TABLE OF CONTENTS APPEARANCES LIST OF EXHIBITS DECISION Introduction Background . Issues . . Test Year Rate Base Cost of Service and Return . . Schedule of Rates and Tariff Conditions Financial Matters Security of Service Interventions Findings . . . . SCHEDULE I SCHEDULE II SCHEDULE III Page 1 1 2 3 3 4 5 6 7 7 8
APPEARANCES C. B. Johnson for Hemlock Valley Electrical Joan McEwen R. A. Rockerbie C. Mitchell D. Chuley Services Ltd. Commission Counsel On His Own Behalf On His Own Behalf On His Own Behalf
LIST OF EXHIBITS Exhibit No. Application of Hemlock Valley Electrical Services Ltd., dated November 20, 1979. 1 Amended copy of Tariff, dated December 17, 1979. 2 Affidavit of Service of Alfred Heiman, dated May 13, 1980. 3 Addendum "A" of Tariff. Fuel cost adjustment, dated December 17, 1979. 4 Memorandum and Articles of Association of Hemlock Valley Electrical Services Ltd., dated February 28, 1979. 5 Deficiency letter from Energy Commission, dated February 26, 1980. 6 Response to the deficiency letter, dated April 16, 1980. 7 Amended copy of Application. 8 Correspondence between the Applicant and B. c. Hydro. 9 Meter readings for the months of January to April 1980. 10 Addendum to Exhibit 7. Audited balance sheet of Hemlock Valley Electrical Services Ltd. as at May 31, 1979. 11 List of items to support power plant additions, dated May 9, 1980. 12 Statement of adjustments to rate base. 13 Fuel supply contract proposed by Imperial Oil, dated August 1979. 14 Audited financial statements of Hemlock Valley Recreations Limited for the fiscal year 1979. 15
HEMLOCK VALLEY ELECTRICAL SERVICES LTD. DECISION DATED JUNE 20, 1980 INTRODUCTION The Commission held a public hearing in Vancouver on May 14, 1980 to hear applications by Hemlock Valley Electrical Services Ltd. for a Certificate of Public Convenience and Necessity under Section 30 of the Energy Act and for approval of a tariff and schedule of rates for service under Section 35 of the Energy Act. BACKGROUND Hemlock Valley Electrical Services Ltd. ("Hemlock") is a subsidiary of Hemlock Valley Recreations Limited which leases lands in the Hemlock Valley in the Lower Mainland of British Columbia, for the purpose of developing a year-round recreational resort. Hemlock provides electrical service to persons owning residences and to the ski-lift equipment, lodge, and sewer system owned by the parent company. The recreation facilities have been in operation since 1977 and the electrical system now serves approximately 127 residential accounts. The system is not connected with the B. C. Hydro and Power Authority and utilizes three diesel generators to provide the necessary electric power.
2 The applications for both a Certificate and the approval of a tariff including rate schedules and terms and conditions of service were filed under a letter of November 20, 1979. After consideration the Commission issued Order C-12-79 granting an interim Certificate under Section 108 of the Act and Order G-47-79 approving interim rates for service, both effective January l, 1980. Order G-47-79 also set both applications for hearing March 14, 1980. At the request of Hemlock, the hearing date was subsequently moved to May 14, 1980 by Order G-9-80 issued by the Commission February 28, 1980. Reference in the Decision to sections of the Energy Act refer to those sections of the revised Energy Act (Chapter 108, RSBC 1979) which came into force May 17, 1980. This change does not affect either application. ISSUES There are two matters to be dealt with: (1) the granting of a Certificate of Public Convenience and Necessity under Section 30 of the Act authorizing Hemlock to construct and operate an energy utility; and
3 (2) the approval of a tariff including rates, and terms and conditions for service. These authorizations, if granted, will replace Order C-12-79 granting an interim Certificate of Public Convenience and Necessity and make permanent the rates approved, on an interim basis, by Order G-47-79. TEST YEAR The Commission has adopted the year ending December 31, 1980 as an appropriate test year in the circumstances, representing a forecast period. Evidence as to rate base, revenue and expenses has all been presented on this basis. RATE BASE The Applicant introduced evidence on plant-in-service as at May 31, 1979. Based on the evidence, the Commission has made adjustments thereto, including certain additions for the period May 31, 1979 to December 31, 1980, and finds the depreciated rate base at December 31, 1980 to be $590,626 (Schedule I). The adjustments were made to provide a proper matching between investment, revenue and expense calculations.
4 COST OF SERVICE AND RETURN The Commission has accepted the cost of service evidence provided by the applicant with a minor adjustment in depreciation expense (Schedule II). The test year loss is correspondingly increased and the projected loss on the adjusted rate base is in the order of 7.69%. In accepting the Applicant's evidence, the Commission must express reservations and give direction in several areas. An area of concern relates to the need to measure the commercial consumption of power. While it may have been expedient to use estimates rather than the actual quantity consumed in the formative stages of the development, because of the relationship between the recreation company and the utility, estimates are no longer appropriate. The Commission expects that the applicant's undertaking to install commercial meters will be met before the 1980/81 winter heating season. Some of the intervenors were critical of the failure of the Applicant to charge for power utilized by builders during construction of residential units. The Commission understands the attraction of this practice to the parent company as a promotional device. We believe however, that in fairness to customers of the utility, the practice should be discontinued. The Applicant will be directed to
5 measure and charge the power utilized by builders either directly to them or to the parent company, such charges to be on the basis of the greater of the actual monthly power usage or the minimum monthly billing amount. SCHEDULE OF RATES AND TARIFF CONDITIONS The Applicant filed a proposed tariff containing rates, and terms and conditions of service in the Hemlock Valley lease area. This tariff is basically that which was approved on an interim basis to be effective from January 1, 1980. Several of the intervenors expressed concern over tariff items, particularly those related to the security deposit and the minimum monthly charge. The Commission concludes that the $150.00 security deposit by residential customers should earn interest at a 10% annual rate and will so order. The minimum bill is a more difficult issue. It is unquestionably a large monthly charge compared to other utilities, but is in some respects justified by the nature of the service and the utility's current seriously inadequate revenue. The Commission concludes, however, that the minimum monthly charge can be adjusted downward without significantly
6 affecting the total revenue received, while at the same time affording some relief to customers who consume less than $25.00 worth of power in a month. The new minimum monthly charge will therefore be $15.00. The Applicant proposed the introduction of a fuel cost adjustment clause in the tariff. (Exhibit 4, Addendum "A" in the Application). The adjustment would reflect, in rates for power, any upward or downward movement in the cost of diesel fuel. While the Commission finds this to be appropriate, we will require that an automatic delay of 30 days occur in any such adjustment, in order to allow for consumption from inventory. FINANCIAL MATTERS The energy utility is not in a healthy financial position and must depend, in large measure, on the support of its parent Hemlock Valley Recreations Limited. The capital structure of the utility is unusual, comprising of one issued share of common stock and a demand loan payable to the parent company. The support of Hemlock Valley Recreations Limited is set out in Exhibit 7 which provides that the parent will pay deficiencies in operating costs until revenues are sufficient to meet such costs.
7 The Commission believes it important that this support be continued. In order to provide additional support and some semblance of a proper capital structure, we will direct that the utility issue additional common shares to the extent necessary to convert one-half of the outstanding inter-company loan of $594,170 into common equity. SECURITY OF SERVICE Evidence adduced at the hearing indicated that, while B. C. Hydro had been approached to provide service, the costs of that service at the present level of development were prohibitive. The Commission expects that, when the development of the area has progressed to more economic levels, the energy utility will reconsider the possibility of power supply from B. c. Hydro, in order to provide more secure service and eliminate the present reliance on high cost diesel generators. INTERVENTIONS The Commission received filed submissions from a number of owners of property in the Hemlock Valley recreation area. These included William and Kathleen Stewart, and
8 James and Bernice Orr of Sardis, and V. J. Darts of Delta. In addition, R. A. Rockerbie, c. Mitchell and D. Chuley appeared at the hearing to speak to their specific concerns as owners of property in the area. The Commission appreciates the value of such participation and the decision, in part, reflects the concerns of these property owners. FINDINGS The Commission finds the approval of the application of Hemlock Valley Electrical Services Ltd. necessary in the public interest and to conserve the public interest, and will grant a Certificate of Public Convenience and Necessity which will replace Order C-12-79. The Commission further finds that the rates and terms and conditions of service authorized by Order G-47-79 on an interim basis should be confirmed subject to those modifications directed by this Decision, and will so order. DATED at the City of Vancouver, in the Province of British Columbia, this 20th day of June, 1980. R. Joh'n- :LU.d.5rat.e-;c6mmissioner 1J. /],
HEMLCX::K VALLEY ELECTRICAL SERVICES LID. Projected Test Year Rate Base as at December 31, 1980 Balance per Applicant (Exhibit 8) PLANT IN SERVICE Prcxluction Plant - account 217 0 - account 2180 Distribution Plant - account 2200 - account 2210 - account 2220 General Plant - account 2250 - account 2260 - account 2280 Intangible Plant - account 2900 Land Less: Accumulated Depreciation Net Book Value of Plant in Service Deduct: Customer Contributions Depreciated Rate Base *Note Details of Commission adjustments are as shown on Exhibit 13, prepared by Commission staff. These adjustments extend projected rate base additions from May 31, 1979 per the Application, to December 31, 1980. They also adjust interest during construction calculations and set up accumulated depreciation for the period during which the plant has been in service. SCHEDULE I *comnission Adjustments Final $ 22,913 $ ( 1,252) $ 21,661 12,153 ( 663) 11,490 363,353 159,219 522,572 91,995 ( 5, 025) 86,970 47,141 ( 2,575) 44,566 48,168 ( 2,631) 45,537 2,371 ( 129) 2,242 5,927 ( 324) 5,603 150 - 150 19,400 ( 4,015) 15,385 613,571 142,605 756,176 - 39,050 39,050 613,571 103,555 717,126 85,000 41,500 -126,500 $528,571 $ 62,055 $590,626
HEMLOCK VALLEY ELECTRICAL Balance per Applicant (Exhibit 8) (Tab 3) Residential $ 94,996 Commercial - lifts - lodge - pump station 198,081 EXPENSES (Tab 4) Depreciation expense Salaries and wages Diesel Generator lease payments Fuel costs 127,445 Maintenance and lubrication _242,142 NET LOSS $ 44.061 DEPRECIATED RATE BASE (Schedule I) LOSS ON DEPRECIATED RATE BASE 8.34% (a) Commission staff adjustment per Exhibit 13 SCHEDULE II Year Loss Commission Adjustments Final - $ 94,996 67,364 - 67,364 25,656 - 25,656 10,065 - 10,065 - 198,081 18,741 (a) $ 1,379 20,120 14,400 14,400 65,844 65,844 127,445 712 15,712 1,379 243,521 1 379 62 055 7.69%
HEMLOCK VALLEY ELECTRICAL SERVICES LTD. Projected Capital Structure May 31, 1979 Inter-company advance from parent company Share capital-common equity *Conversion of one-half of the outstanding parent company loan into common equity per page 6 of the Decision. SCHEDULE III per Commission Applicant Adjustments Final $594,170 *$(297,085) $297,085 1 297,085 297,086 $594,171 $594,171
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