IN THE OF the Utilities Commission Act, S.B.C. 1980, c. 60, as
IN THE OF an Application by ICG Utilities ( British Columbia ) Ltd.
J.D.V. New lands, and Chairman of the Division
No. APPEARANCES (i) LIST OF EXHIBITS (ii) I. THE APPLICATION n. BACKGROUND 2 III. TEST PERIOD 3 IV. RATE BASE 3 v. COST OF SERVICE N 6 (a) Shared Costs and Intercompany Charges 6 (b) Line Loss 10 (c) Wages and Salaries 11 (d) Provincial Budget 11 Amortization of Deferred Tax Balance ll VI. CAPITAL STRUCTURE AND COST OF CAPITAL 12 Application for Approval of Additional Long-Term Financing 17 18 (a) Westcoast Transmission "Straddle Plant" 18 (b) Amalgamation of Port and Fort St. John 19 (c) Rate Restructuring 19 VIII. HEARING COSTS 20 IX. DECISION 21 ORDER APPENDICES A Corporate Organization Chart B Analysis of Shared Costs ( Applicant C Analysis of Shared Costs ( Commission D Intercompany Charges - Other Utilities SCHEDULES I Utility Income and Earned Return II Utility Rate III Calculation of Income Taxes on Utility Income IV Common Equity V Return on Capital
MR. R.B. WALLACE MAYOR B. MR. K.C. B. McKINLAY MR. S. WONG MR. R. BROWNELL
MR. D. LEACH Coordinator Court
for the Applicant for the City of Fort St. John for the Staff
LIST Exhibit No.
B.C. Utilities Commission No. Affidavit of Donald 25, 1985. Publication of Notice of Public Utilities (British Columbia) Ltd. a General Rate 23, 1984 Utilities (British Columbia) Ltd. February 13, 1985 Revisions to General Rate Application 1984 ICG Utilities (British Columbia) Ltd. Information Requests dated February ICG Utilities (British Columbia) Ltd. March Revisions to General Rate of ICG Utilities (British Columbia) Ltd. Fort St. 70% Port Alice with 70% Efficiency Fort St. John with 65% Efficiency Port Alice with % ICG Utilities (British Columbia) Ltd. Analysis of Shared Costs Brief Council of the City of Fort St. John -Proposed Rate Increase - ICG March 7, 1985 ICG Utilities (British Columbia) Ltd. - Service Line Cost 1985 Forecast ICG Utilities (British Columbia) Ltd. 70% Efficiency Comparative Fuel Cost % ICG Utilities (British Columbia) Ltd. Garry M. ICG Utilities (British Columbia) Ltd. Standard Practice Manual St. John and Port Alice
1984 2 in Support of 3 4 to BCUC 5 6 Fuel 7A 7B 70 8 9 St. John 10 Fuel Cost ll A 11 B 12 13
The ICG November 1984- was heard in St. John, British on The was J.D.V. D.B. Commissioner and N. Commissioner.
I. THE APPLICATION ICG Utilities ( British ) Ltd. applied by letter dated November 23, 1984 for interim and permanent rate relief to be effective January 1, 1985.
The Commission, pursuant to Order No. G-86-84 granted interim rate relief, effective January 14, 198 .. 5, in the amount requested subject to refund after hearing, 30 days after the provided copies to the municipalities and industrial customers in accordance with the Commission's letter of June 21, 1984.
By letter dated February 13, 1985, the Applicant filed revised and as a consequence sought additional rate relief approximately $68,000. At the commencement of the hearing in Fort St. John, the Applicant filed further revisions to its Application which eliminated the need for the additional revenue sought in their letter of February 13, 1985 and reduced the rate relief sought in their initial Application of November 23, 1984.
The Applicant has proposed that cost of service of Fort St. John and Port Alice be combined which, if implemented, would result in a proposed increase of 5.4% for customers in the Fort St. John area and a 25% reduction for Port Alice customers.
The Applicant was represented by Mr. Jean B. de Grasse, Vice President and General B.C. Mr. A. W. Emmerzael, District Supervisor; Mr. Lloyd Guenther, Co-ordinator of Rate Administration and Property Ltd.; and with regard to the cost of capital, by Mr. G. President and Mr. Hoffman has previously
Mr. D. G. Olsen, Division for ICG Utilities ( Plains-Western ) Hoffman, Vice Utilities ( Manitoba ) Ltd. this Commission and
2 Ontario Energy Board with regard to the cost of capital. Mr. Jean B. de Grasse was appointed Vice President and Manager effective January 1985 and prior to this appointment the B.C. Region reported to the Alberta Regional Vice
II. ICG Utilities ( British Columbia ) ( " ICG (B.C.) " ) is a wholly-owned subsidiary of ICG Utility Investments Ltd. which is itself a wholly-owned subsidiary of Inter-City Gas Corporation of Winnipeg, Manitoba ( Ref. Appendix A attached ). ICG ( B.C.), which was providing piped propane service to Port Alice, British Columbia, pursuant to Commission Order No. dated January 12, 1984, acquired the British Columbia utility assets of ICG Utilties ( Plains-Western ) Ltd. which provided natural gas service to Fort John and Taylor regions of British Columbia.
Port Alice is a community of approximately 1 ,700 people located on Neroutsos Inlet near Quatsino Sound on the northwest coast of Vancouver Island. to the acquisition of the Fort St. John assets, the Company had approximately 276 customers. The community is primarily dependent on the Western Forest Products pulp and paper mill located adjacent to the community itself.
The City of Fort St. John ( population approximately 15,000 ) and the Village of Taylor ( population approximately 1,000 ) are located in northeastern British Columbia with the local economy dependent primarily upon oil and activity, agriculture and, to a lesser given to the construction of a pulp if constructed, this would provide community and a large industrial load for the utility. Additional opportunities may develop for the utility if new the conversion of vehicles to run on
lumber. Consideration is being paper mill the Fort John area and employment opportunities in the facilities are constructed, and from natural Mr. Olsen
3 testified at transcript in his opinion natural vehicle fuel in comparison to than gasoline.
On November 5, 1984, ICG ( B.C. ) approval to a series of an actual adopted the Decision dated Commission approved No. November 30, issues involved effective cost will as III. PERIOD The rate sought is for test year 12 month forecast. purposes n<:H~T<:l•rl 1984 results on 7 months actual IV. The Applicant's rate base has grown approximately $4.4 million in mid-1985. While the growth in the service to rural areas, the current proposed expansion of transmission approximately $450,000 and a $300,000 for which the land In view of capacity to provide
was and both were more
application to the mission for in order to in structure The to Order a of previous older interest rate is 31, on a comparison Applicant provided 5 for 1984. in the last few years from to an estimated $7.2 million in ily related to extension of is primarily attributable to the at a capital expenditure cost of new office building at approximately purchased. in Applicant's existing to both existing and new as
4 as the which commencement of service of the Westcoast Transmission plant at Taylor in late 1985, the Commission has concluded public convenience and necessity require the installation transmission capacity at this The Commission would encourage the Applicant to to minimize the installation cost detailed records of all intercorporate costs approval by the upon is explained in the Cost of Service With to the new office building, the site for Commission viewed with the Applicant the benefits to to be gained by Applicant, are not commensurate is to be by the has adjusted rate base this proposed capital addition exclusive of the property already the furniture and fixtures associated therewith have been Commission is however, to if the Applicant can find sufficient absorb any additional costs at this Applicant can elect early construction but the resulting new assets must kept out of the rate base until such time as the Commission deems it appropriate to include them.
matter of the costs information system was Decision dated 5, 1983.
will be due to the additional all prudent measures will require that the Applicant keep to this construction, for of the project. This this the intervenors, the of the purported at this Accordingly, the to the of and The early construction of this project costs, or to If this proves impossible, the
customer service by the in
5 The Commission stated at 3 as follows 11 Included in the rate base is an amount of $102,250 for the development of computer systems. While accepting this expen-diture, the Commission expects to be advised of significant expenditures planned by related companies, the cost of which will be allocated to the Applicant. "
The $102,250 mentioned is a mid-year balance based on a beginning balance of $53,600 and a forecast expenditure of $97,300, resulting in a year-end forecast amount of $150,900. The actual accumulated expenditures at December 31, 1983 were approximately $184,000. In the 1984 Application the Applicant a negligible increase in expenditures and the forecast amount at 31, 1984, inclusive of Port Alice was approximately $188,000. The actual amount expended was expected to be approximately $221,000.
In the current ( 1985 ) Application Applicant is forecasting a further expenditure of approximately $40,000 with accumulated expenditures at 31, 1985 expected to be approximately $261,000. The Applicant plans that any unamortized balance will be to the cost of service over its useful life, anticipated to seven years. The Commission is concerned with the magnitude of the expenditure as well as the apparent cost overruns which occurred to December 31, 1984, approximating $70,000. If overrur1 is compared to the accumulated balance at 31, 1984 of approximately $221,000, the overrun is in excess of 46%. The Commission that these are allocated costs outside control of the local but nevertheless concludes that some restraint must placed upon such intercorporate charges. Accordingly, Commission has reduced the forecast 1985 expenditure of approximately $40,000 by 50% and has disallowed the apparent $33,000 by which now anticipated actual expenditure for 1984 overrun estimated or forecast level.
6 If, in the next proceeding, the Applicant can justify both the prudency entire expenditure and need for this utility of this size, the Com will the alternative, the Commission will expect an operating for which the cost to the Applicant's customers will not Commission has the The Commission has considered balance of the proposed as the planned $45,000 expenditure on new vehicles and stresses importance and indeed necessity for Applicant.
V. COST OF The Commission has considered the estimated cost of service put forward by the Applicant and concludes that are required. (a) Shared Costs and Intercompany Charges In its Decision dated January 22, 1982 with respect to the Applicant's test year ending 31, 1981' Commission's concerns the nature increasing magnitude of the charges levied against Applicant by the parent company were clearly signalled on 5 of that as follows :
" ... ,however, the Applicant is put on notice that in future rate cases these charges will be subject closer scrutiny and it will expected of the Applicant to provide necessary details and reasons for their incurrence. Combining operations of the Columbia companies into a division rnay well act to reduce overall administrative costs. "
It is apparent from the evidence heard at the 1985 hearing that very substantially 1981.
the information to a the appropriate adjustment. In to be in $200,000. The in Schedules. such careful ongoing review by the
7 Those costs, expected by the Applicant to approximately 6,400 customers in 1984 ( ref. Appendices B and D attached to Decision ), not differences particular corporate intercompany charges $58,516 paid by the Fort St. John Division and borne by its 2,730 customers under its previous ownership and Plains-Western Gas & Electric Co. Ltd. ( ref. Exhibit 12, Plains-Western Hearing ). In light Applicant's utility operations, such a serious concern to the Commission.
In response to a request by Counsel during the hearing, the Applicant filed as Exhibit 8 an analysis of shared costs comparing costs for December 1985 test year to the outlook or expected actual costs for 1984, to the forecast costs for the 1984 test year. This analysis clearly that total shared costs in 1985 are forecast to exceed those forecast for the test year 1984 by 17.3 %. Of equal significance is the indication actual total shared costs for 1984 ( 1984 Outlook ) forecast test year 1984 costs by 20.4% ( ref. Appendix B attached to this decision ).
The Commission's analysis of the Applicant's shared costs or intercompany charges is attached as Appendix C to this Decision, and is based entirely on evidence derived from the present that total actual shared costs allocated to $190,500 in 1979 to $596,300 in 1984; an increase of $405,800 or 213% over a five-year period. Increases of 55.6% and 34.9% have occurred in the years 1983 and 1984 alone. Such rate of increase in revenue conceivably attainable by the Applicant, Commission's view are excessive and Commission concludes that these contributed substantially to the to achieve its allowed rate of return.
$596,300, by reason substantial involved, compare to 1974 by 1975 the relatively small size of the been and remains of
applications. It indicates St. John have from substantially exceeding as they do any the in the circumstances. The if not entirely responsible, have recent history of losses failure
8 In cross-examination by consider the question of whether or not the Fort St. John utility is cost benefit from part of a large organization, as distinct a stand-alone basis with to administrative costs. overnight to respond and savings to the customer attributable to the Transcript Vol. 1, ). In response the Applicant chose to explain at length the reasons for the 19&4-85 andfor in shared costs Transcript Vol. 2, pp. 147-151 but question of customer benefits. While recognizing the difficulty such benefits, the Commission concludes that the Applicant's failure to specify in qualitative if not quantitive appear to be unreasonable cost allocations parent company, cannot be overlooked While the Applicant's witness was not panel Chairman with to the comparability of corporate similar small utilities like Fort Nelson Gas Ltd., this did raise the possibility that such comparisons might provide at indication as to ( ref. Transcript Vol. 1, ). Accordingly the Commission, to matter, has derived public sources a comparison borne by the customers of ICG ( B.C. ), as compared to those of Fort Nelson Gas Ltd., and Pacific Northern Gas Commission recognizes and are necessarily difficult the difference between ICG (
Counsel, the Applicant was asked to any being on Applicant was the order of magnitude of any cost services and costs thereof in Exhibit 8, ( no to respond to the quantify the benefits attributable to what the the to respond to a question by the a helpful order-of-magnitude costs being allocated to ( B.C. ) in a conclusion in total intercompany Limited, Northland Utilities (B.C.) as Appendix D ). the such between inconclusive, the order of of the others is so that, in the
9 Commission's view, it supports a conclusion that the ) costs are excessive for a small utility and therefore not properly the public interest. In the matter of costs and intercompany charges, in light of facts and recent trends in these costs, and in the of meaningful evidence to their reasonableness and the benefit to the utility customers therefrom, the Commission is not prepared to accept the unsupported assurances of Applicant's witnesses.
Commission's concerns, as noted heretofore, were clearly expressed in the 1981 Decision, and the apparent " volatility " in shared costs cannot be entirely attributed, in the Applicant's terms, to " •• streamlining of the operations and application of better management principles and better controls. 11 ( ref. Transcript Vol. 1, page 87 ) or to reorganization caused by acquisition of Northern and Central Gas Corporation ( ref. Transcript Vol. 1, 89 ). The concept of 11 control " by a division or subsidiary, of cost allocations by the parent company is weak at best. In this case, for example, the decision by the parent company to undertake major expenditures ( $261 ,000 cumulative to year-end 198 5 ) on the development of sophisticated computerized information and billing systems, was initiated by the parent company. There is no evidence, as distinct from management assurances, that the Applicant will significant benefits or that such shared costs would have been considered essential and undertaken by ICG ( B.C. ) on a stand-alone basis.
Moreover, in cross-examination the Applicant was content to merely testify, that where corporate ( parent company ) costs such as financing, banking and shareholder relations, and assistance in rate applications, accounting and planning involve more than one company or division, the costs are " allocated on some fair basis .•• 11 ( ref. Transcript Vol. 1, page 89 ). In the Commission's view, such broad assurances are no substitute for specific evidence, the end result is heavy allocations of cost from parent to subsidiary.
lO In light of the foregoing the Commission has reduced the Applicant's provision for shared costs of $581,100 in the application, to the level of $495,400 approved by the Commission for test year 1984 and will so order. In addition to the reduction in shared cost allocations the Commission, for the next rate application, will require specific as distinct from unsupported testimony, that the projected intercompany are and justified, without which further adjustments may required. (b) Line Loss The line loss for Fort St. John was initially forecast to be approximately 3.02% and this was subsequently revised to a forecast of 3.33?6 for 1
Mr. de at transcript page states as follows " We think it's definitely that 3 percent is too high. We're going by steps. Not having found any identifiables so far, identifiable sources of leaks, first of aU. The for 1985, of course, was a reduction of some 1 percent, I believe, from the information reported, a little better than 1 percent, 1.2 percent for '85. We'll gradually try to eliminate it to industry standards.
I must add, Mr. Chairman, that not because I came aboard in January, but part of the work I will be doing is going over all of the steps that we've performed so far in the latter part of '84, and earlier than '84, and go through methodically and systematically find out whether we've overlooked something. "
On the basis of that testimony, the Commission concludes that line losses should be shared equally between customers and shareholders and accordingly has reduced the allowance to 1.7%, or half the revised forecast loss of 3.33%.
11 (c) Wages and Salaries The Applicant has forecast an increase in wages and salaries of approximately 5% which is significantly in excess the current rate of inflation. It would appear that this is primarily a result of Alberta contract settlements. The Commission finds such to excessive at this time and though no adjustment has been will efforts to be to contain these increases in future.
(d) Provincial Hudget It appears from the 1985 Provincial Budget that some tax relief may be available to the Applicant in 1985 and escalate in the following years. the magnitude of the tax relief, if any for utilities, will not be definitely known until such time as the " regulations " are available. Accordingly, no adjustment has at this time. (e) Amortization Balance This Applicant in the past has used the method for calculating income taxes and has recorded on its books a deferred tax balance of approximately $196,400. An issue in this proceeding was whether or not the aforementioned balance should be amortized to the cost of service at approximately 2% per annum. The Commission has considered this matter and although believing the concept may have merit in the future, concludes that it is premature at this time.
2 VI. CAPITAL STRUCTURE AND COST OF CAPITAL Mr. Garry M. Hoffman, Vice-President ( Manitoba ) Ltd. ( previously Senior Vice-President, Administration Utilities Ltd. ) gave with and the cost of debt and equity proposed a capital structure based on a short-term bank advances of 2.41 %, equity of 35.79%. This proposal 5.7 3% and an overall return on rate base of 14.41% and, as later 14.38%.
With to the cost debt, this has been by the Applicant on the basis of a series of promissory notes issued ICG (B.C.) to ICG Utilities ( Canada Ltd. and ICG Utility Investments Ltd. Additional funds were assumed to required in 1984 at a rate of 14.62%, this rate on most recent note, 1996. The terms and of the above-mentioned note between the Applicant its related companies are the same as those in the between these companies and the lenders, including interest costs, fund requirements and cost of issuance. The additional required were assumed to be from short-term bank advances, on which the rate was originally assumed to be 13.50% and subsequently amended to 12.0%.
In determining the appropriate cost Discounted Cash Flow Method ( In describing his use of the " As part of my evidence with had analyzed a group of Toronto basis of coefficient of variation on their common equity
General Manager of Utilities ICG to the proposed capital structure, the Application. In so he debt component of 14%, shares of 1.66% and common in a weighted common cost of o.f
equity, Mr. the Equity Risk as follows No. G-9-84, I companies on the
13 share. This group was analysed this year on the basis of a longitudinal study. The companies were analyzed on the basis of three periods of data : sixty, forty-eight and thirty-six months. The companies were analyzed and grouped on the basis of coefficient of variation on their common equity earnings per returns. The following table indicates the result those studies. UTILITIES ( BRITISH COLUMBIA ) LTD. DIRECT TESTIMONY OF GARRY M. HOFFMAN - Page 9
C of V* Period Group D.P.S.* Growth 36 10% 10 20% 20% Total Low 10% Me d. 10% 20% High % Total Low Me d. 20% High Total I have concluded that a fair return on common equity of 16.5% is indicated. 11 With respect to his application of the equity risk premium method the witness stated as follows :
" equity risk prernium method is on the theory that the equity return holder requires, and does receive, a premium above what he could receive for investment. The methodology uses, as a point of departure, the yield on government bondsO) as representing the riskless return is available to the investor. (l) Assumed to be approximately %. * Coefficient of Dividends per Earnings per
Return E.P .S. * Growth 10.89% 11.16% 13.11% 1.5.78% 18.12% 25.85% 13.50% 16.52% 13.21% 8.86% 12.99% 13.80% 17.92% 24.06% 14.70% 16.66% 13.13% 9.73% 12.20% 10.16% 16.48% 20.67% llf.60% 15.45%
14 Added to this is a to allow for the variation of the forecast of actual inflation versus inflation and a further premium to allow for the equity investment, being one that has to bear all of the variations in the operating returns and results of company. Based on today's current level of interest a return on common equity would be in of 15.5% to 16.5%. This would represent the bare equity return. "
Finally, to reflect financing costs market pressures, Mr. Hoffman concluded that the rate should be to between 16.9% and 18%. However, after giving recognition to the economic conditions prevailing in Fort St. John, the witness recommended a 16% rate of return on equity or an increase of 3.2% over the previous return of 15.5%. In cross-examination Mr. was requested to reconcile his proposed rate of return on equity with that allowed by regulators in 1984 ( 15.25% to 15.8% ) and at transcript 320 he stated as follows : 11 I would say that the reason that my return is higher than of those companies is that I perceived the recent earnings of ICG Utilities ( British Columbia ) to be considerably more volatile and therefore a higher risk which in turn requires a higher return "
With regard to the of judgement in reaching his conclusion, Mr. Hoffman stated at transcript 319 as follows : " As, if you're familiar with any of] return evidence, which I'm sure you are, a great deal of it applied to analysis. And that is I did. " With regard to the basic rate or risk free rate employed by Mr. Hoffman in his equity risk premium method, following discussion took commencing at transcript page 320, line
15 II Q And the elements are first of all, the rate ? A correct. Q And that's the rate on ? A Yes. Q What particular rate have you taken for in your calculations ? A I've responded to that used as a starting point
Q That's a little than the return on government bonds, is it not ? A That's correct. At quarter results for to maturity on at percent. The year turned out to be 11 •. 56 And then fourth quarter, 11.13 A Yes, that is correct. Q Should your basic rate not be in light of fourth ?
A I don't believe so. considerably, and I would think that my 12.5,
II
In light of the with witness as to the the annual historic rates of 1983 12.88% in 1984 as well as the The that, in economic recovery, investors' are and may be in the 3 •. 5 to 4 ission that a
rates fluctuated for 1985, as of what may come to pass
to conclusion of the the Commission has in 1981, 14.76% in 1982, 11.77% in prospective period slow as to prospective rates of level. Accordingly, the 10.7 .5 to 11.25% is a more
16 estimate of the prospective yield on long-term government bonds than the one to three year rate of 12.5% adopted by Mr. Hoffman. To assume a yield lower 11.0% at this would the Applicant's shareholders to undue and unnecessary risk. In the event that yields fall significantly below ll %, this can be reflected in the next rate decision with any current difference accruing to the benefit of shareholders who in past may have suffered as a result of rising rates.
With regard to return on common equity, in testimony on behalf the City of Fort St. John represented by His Mayor and assisted by Mr. R.H. Blackwood, Municipal Manager, it was stated that the " City obligated, as it did in 1984, to protest this increase in rates for the purpose of enhancing profits during period of economic depression ". At transcript 245, Mayor Palmer further as follows : " we recognize that a company has to be viable, and the operation has to be viable, and has to be a fair return on investment. What we are saying is that given this point in time, we think 16% is excessive. We believe that the projected 9.57% return is given the times and conditions that we have been with, and given the monopoly that the company does hold in area "
With respect to risk factors, the Commission concludes that the business risk attributable to the Applicant is low, due both to the economic stabilization which has taken place in Fort St. John and the composition of the Applicant's market, dependent as it is on residential, commercial and agricultural loads than more vulnerable major industrial loads. The Commission further concludes that financial risk is recent earnings of the Applicant. As of the Commission that this volatility is directly related to the impact of intercorporate charges. circumstances, discounted this risk in return on equity.
to high due to the volatility of the previously however, it is the view the Commission has, in the the just and reasonable
17 Reflecting the foregoing factors, and after consideration of the DCF and risk premium methods presented by the Applicant, the Commission concludes that the Applicant should have the opportunity to earn a rate of return of 14-.75% and 15.25% on the book common equity and the purpose of determining the appropriate rates has adopted a return of 15.25% on common equity.
(a) Application for Approval of Additional Long-Term Financing During the hearing in Fort St. John and in the interest of minimizing costs, the Applicant applied for approval of $720,000 of additional long-term financing on the same terms conditions the $3,07 5,000 provided ultimately by the Insurance of under a The Commission agrees generally with the Applicant's financial witness who testified that long-term assets must be financed with long-term funds and that short-term bank debt should be used until sufficient funds are required to make a long-term issue economic. The Commission's concern with the Applicant's current proposal is that the proposed which results from prefunding, is substantially in excess both current prospective short and long-term rates.
On the basis of the evidence provided, the Commission will not, at approve the requested additional financing at the rate proposed by Applicant which is currently 14-.62%, to 14-.87% in 1986 and held at that level until maturity in 1996.
The Commission will require and will be requesting additional information from Applicant before making a final determination with regard to additional long-term financing. The purpose of determining just and rate for both the short-term $556,000
concludes that, for the rates, the appropriate combined the proposed long-term funds bank prime rate 11%.
18 To ensure that both the customers and shareholders are fairly treated, the Commission directs that a fund be established to " insulate " both parties from short-term fluctuations in interest rates. If the actual prime rate paid is less than 11%, a credit will develop in fund whereas conversely, if the actual rate paid exceeds 11%, a debit will result. This fund, as well as the actual rates paid by the customers, will be reviewed and adjusted if required at such time as a determination is with regard to the appropriate long-term financing.
VII. OTHER MATTERS In addition to the matters previously discussed, comments and in certain cases adjustments, are required with regard to increased gas requirement due to the Westcoast Transmission Company Limited " straddle plant ", amalgamation of Fort St. John with Port Alice and the rate restructuring proposed by the Applicant.
(a) Westcoast Transmission " Plant " Westcoast Transmission Company Limited is constructing a facility at Taylor, British Columbia which will remove propane, butanes, etc. from the gas stream with the net result that to achieve the same amount of energy additional volumes will to be purchased. This " deep cut 11 facility is scheduled for completion in the fall of 1985 and will require that the customers of the Applicant purchase approximately % more natural gas to achieve the equivalent benefit.
the Applicant's operating perspective, the completion of should eliminate both the hydrates the station, as experienced to the Applicant to negotiate appropriate quality specifications with Westcoast, to ensure that hydrate and dust problems do not recur. adjustments have been made to which have been incurred due to the hydrates problem, an adjustment is
facility and the " black dust 11 deposits at The Commission would encourage Although no the elimination of the increased costs
19 required to prevent the overrecovery of fixed costs by the Applicant. This adjustment has been on Schedule I (b) Amalgamation of Port Alice and Fort St. John The Commission has considered the evidence put forward by the Applicant as well as the concerns expressed by the City of Fort St. John, with regard to the amalgamation of the cost of service exclusive of the cost of gas.
The Commission concludes that although periodic system investment from time to time may benefit one community more than the other, over time both will benefit from the respective capital investments, operating efficiencies and cost reductions which result from the Accordingly, the concurs with the Applicant's proposal.
(c) The Applicant in 3, Tab 18 has reviewed its rate structure and has proposed increases in fixed charges of $3 per month for General Service customers, $22 per month for Large General Service 1 customers and $97 per month for Large General 2 customers. In addition, the Applicant proposes that the existing residential and commercial rates in Port Alice be combined into a Small General Service rate structure as currently in Fort St. John.
Applicant that the proposed restructuring was of a technical nature, would have a minimal impact on the customers' bills and that the proposed charges compared favourably to those charged by other utilities in the Province. The City of Fort St. John opposed the residential rate restructuring on the basis of the it may have on the residential customers.
20 The concludes that the Applicant's of the Port Alice of Industrial Rates are appropriate and should be time. With to the proposed rate restructuring of the Small Service and in view of the concerns St. John and the Applicant's statement no significant impact, the must at $3.00. With to fixed of $10 per month billed to commercial customers in Port Alice, a Commission that the Applicant it is the Applicant the Commission as soon as possible as to of revenue outside the provisions of its filed tariff. VIII. The Applicant has proposed related costs, that the costs costs from previous In the Decision dated 6 " With to the costs of hearings and especially the cost thereof, the extraordinary circumstances amortization period. "
The concludes treatment should be in light of the foregoing of the costs incurred in this The Commission notes that the costs of this
with to the and the at this the City of Fort it is a technical adjustment concludes the fixed charge no such the tariff without delay if By this Decision it is fur to the applications in this as well as all should be written-off over one 10, 1984, the at that of the costs has a
but that, to a is appropriate. declined by 30%
21 from those of the previous The Commission will continue to pursue ways to minimize the costs of public rate hearings. As has been in other Decisions, however, responsibility for the control of hearing costs does not rest entirely with the Commission, since such costs are dependent on the quality of Application and responsible conduct by both the Applicant and intervenors.
In this proceeding the Commission was in the control of costs by the Applicant, the City of Fort St. John, Mrs. Shoal and other participants. in some the use of independent expert financial witnesses be both justified. In this instance, however, a major cost saving was achieved by the Applicant in to present its rate of return evidence through a highly qualified from the parent company, rather than retaining outside consultants at costs which can range from $20,000 to $50,000, as has been the experience of some utilities in
Commission is that the Applicant's use of an expert witness drawn from the an affiliated company did not prejudice the rate of return in this and in these circumstances was cost effective.
IX. DECISION By this Decision the Applicant is 15.25% on common equity within the Consistent with Commission Order No. G-86-84 Applicant is required to refund the Fort St. John and surrounding area of calculated at the prime rate of ) Ltd. conducts its
the opportunity to earn a return of of 14.75% to 15.5%. January 4, 1985, the applicable to the 5.4%, inclusive of interest with which ICG Utilities ( Br
June 1, l985 or such earlier date as permitted by timely filing, revised rates are to be effective for the City of Fort St. John and surrounding area, and Port Alice. This will permit Applicant the opportunity to achieve the utility revenue on an as set forth the schedules.
The new rates in Fort St. John will be marginally lower than the rates in effect on January 13, 1985 and shall be in accordance Applicant's proposal as modified by this
at the City of Vancouver, in Columbia, this g' 1 ,(day of 1985.
BRITISH COLUMBIA UT!L!T!ES COMM!SS!Drl
PROVINCE OF.BRITISH COLUMBIA BRITISH COLUHBIA UTILITIES COMMISSION
IN THE MATTER OF the Utilit~s Co~~ission Act, S.B.C. 1980, c.~--60, as amended and IN THE MATTER OF an ~plic~tion by ICG Utilities (British Columbia) Ltd. BEFORE: J.D.v. Newlands, Deputy Chairman and Chairman of the Division D.B. Kilpatrick, May 8, 1985 Commissioner; and N. Hartin, Commissioner 0 R D E R WHEREAS a public hearing was held Harch 26, through 28, 1985 at Fort St. John, B.C. to hear, inter alia, a November 23, 1984 Application by ICG Utilities (British Columbia) Ltd. ("ICG (B.C.)"), as amended February 13, and March 25, 1985 pertaining to increases in its filed Tariff Rate Schedules effective January 1, 1985; and WHEREAS Commission Order No. G-86-84 authorized effective January 14, 1985 a rate increase applicable to Fort St. John Residential, Commercial and Industrial customers with the interim increase subject to refund and a rate decrease applicable to Port Alice customers; and v1HEREAS the commission has considered the Application and the evidence adduced thereon, all as set forth in a Decision issued concurrently with this Order.
. .. ;2
ORDER NUMBER G-42-85
~Rl1lSH COLUMBIA UTILITIES COMMISSION
2
NOW THEREFORE the Commission hereby orders ICG Utilities (British Columbia)· Ltd. as follows:
1. The Commission will accept for filing, effective with consumption on and after June l, 1985, or such earlier date as permitted by timely filing, amended Tariff Rate Schedules which will permit ICG (B.C.) the opportunity to generate the annual g~oss revenue requirement of approximately $7.6 million on an annualized basis, as set out in Schedule I of the Commission Decision dated May 8, 1985 .. 2. Refunds resulting from the amendments to the Tariff Rate Schedules as applicable to the City of Fort St. John and surrounding area are subject to interest calculated at the prime rate of the bank with which ICG (B.C.} conducts its business. 3. The Rate Base for the Test Year ending December 31, 1985 is approximately $7,100,000. 4. The total Revenue Requirement for the Test Year ending December 31, 1985 will allow ICG (B.C.) an opportunity to earn a rate of return on common share equity of 15.25%. 5. ICG (B.C.)will comply with the directions incorporated in the Commision's Decision. DATED at the City of Vancouver, in the Province of British Columbia, this Bth day of May, 1985. BY ORDER J) tJ.kf~t;;;Z Commissioner
ORDER
NUMBER G-42-85
n UTILITIES DIVISION ORGANIZATION CHART AS OF JANUARY I, 198!5
INTER -CITY GAS CORPORATION MINNESOTA OPERATIONS (DIV) ONTARIO OPERATIONS (DIV)
ICG UTILITIES (CANADA) LTD I I ICG UTILITY INVESTMENTS LTD ICG UTILITIES VANCOUVER ISLAND MIN ELL INTER-CITY (FORMERLY ICG UTILITIES LTD) (MANITOBA) GAS COMPANY PIPELINE PIPELINES LTD LTD LTD LTD I ICG UTILITIES (PLAINS-WESTERN) LTD I ICG INTER-CITY ICG ISLAND TRANSMISSION MINNESOTA TRANSMISSION ICG UTILITIES LTD PIPELINES LIMITED (BRITISH COLUMBIA) LTD LTD I ICG ICG NORTHERN UTILITIES LTD TRANSMISSION ~LDINGS LTD
EXHIBIT 8 APPENDIX B ICB UTILITIES !BRITISH COLUMBIA) LTD ANALYSIS OF SHARED COSTS
1985 1984 1984 Line Forecast Outlook Applic. Divis1onal Shared Costs Engineering 32900 41800 21900 ~.aneting 7600 5200 3650 Custo~er Accounting lBBOO 25200 12500 Administration
15100 9940 4 l"tanagement 12200 5 Accounting k Finance 25100 33200 20300· 6 Planning 6100 6000 4970 7 Rate Administration 11000 15600 32900 a 54400 69900 68110 Total 113700 142100 106160 Corporate Snared Costs Administration 10 Treasury 34000 37400 22870 11 Taxation 900 1100 490 12 Internal Audit 6800 3500 2310 13 Fleet Administration 800 800 630 14 Risk Management 1100 2300 1820 15 Research 1100 900 910 lc Legal 4700 3900 3430 17 Human Resources 10600 12400 7280 18 60000 62300 39740 -----1---Reg1onal Shared Co:ts
19 Operating &M aintenance 70800 85200 Marketing 14600 9100 3700 l.l Customer Accounting 97200 92800 80700 Alimnistra:1on 219200 179900 407400 391900 349500 2~ 1otal Snared Costs 581100 596300 495400 , Su~mary of Snared Costs 25 uperating ~ Malntenance i 05'300 112600 107100 26 Man etl ng 23300 15200 8260 ~7 Customer A:counting 116000 118000 93200 Ad n ni s t rat 1 on 336500 350500 286540 ict?.! Shared Scsts 52! 1( l(i 596300 4~5400
Increase 1984-1985 Increase 1984-1985 increase 1984-1984 Outlook to Forecast Applic. to Forecast Applic. to Outiook z -8900 -21.3! 11000 50.2l 19900 90. 97. 2400 46. 2l 3950 108.21 1550 42.5/. -6400 -25. 4l 6300 50.4l i2700 101.67.
-2900 -19.2Z 2260 "'t"'· .., ,., 5160 r f ,._., i.L,/1. ,Jl, ~i. -8100 -24.44 4800 23.6% 12900 63.5% 100 1. 7l 1130 ">'l ~'I 1030 20.71 -4600 -29.5! -21900 -6 "" 6 " .6 ''" ! -17300 -52.67. -15500 -22.21. -1371(1 -20.1l 1790 2.6l -28400 -20.0! 7540 7. ll 35940 33.94 -3400 -9.1! 11130 48. 7I 14530 63.51. -200 -18.2! 410 83. 77. 610 124.5% 3300 94.34 4490 194.41 1!90 51. 5l 0 O.Ol 170 27. 0! 170 27.0! -1200 -52.2! -720 -39.6! 480 26.4k 200 22.21 190 20. 9l -j (l -1.11. BOO 20.5! 1270 37.0~ 470 13./i:. -1800 -14.54 3320 45.6! 5120 70.3l -2300 -3. n 202oo 51 .Ol 22560 5b.87.
1600 2.3% -12800 -15.0l -14400 -16.9i: 5500 60.4i: 10900 29tbi: 5400 145. ~i. 4400 4. 7l 16500 20.41. 1210(1 15.07. 4000 1. Bl 43300 24.11 3~30(1 21.8% 15500 4. Ol 57900 16.6l 4240(; 12.11. -15200 -2.54 85700 17.3! 100~0(1 20.44 -7300 -~.51 -1800 -1.7! 5500 5.ll 8100 53.34 !5t)40 1S2.1l ~940 84.0~ -2000 -1. n 22soo 24.5l 24800 2c.b7. -140\iO -4.0! 41660 !7.3~ 6366(1 -1520(1 -2.51 85700 20.~:
ICG UTILITIES (BRITISH COLUMBIA) LTD SHARED COSTS ANALYSIS
=======~~============= (EXPENSES ONLY)
ACTUAL 1979 1980 1981 =============== ---- [ 1 ] [ 1 ] [2] REGIONAL $162,300 $221,400 $174,000 DIVISION 28,200 37,800 49,300 VI GAS 23, 100 31,800 ---------------------------------------------------------------------------------------------------------TOTAL ACTUAL $190,500 $282,300 $255,100 ======================================================================================================~== % INCREASE OVER
PREVIOUS YEAR 48. 19% -9.64% TEST YEAR $278,200 ================ [ 1 ) BCUC ADJUST. (45,000) BCUC APPROVED $233,200 =============== VARIANCE ($21,900) PERCENTAGE 9.39% NOTE: No charges to Port Alice included in years 1979 to 1982, and 1983 test year. - Charges to Port Alice included in 1983 actt1al, 1984 and 1985.
(1} Undertaking Arising From Hearing dated Nov. 9, 1981, tab 7. [2} Exh. 3C, 1982-1983 Rate Application, tab 8.06 [3] Exh. 6, tab 13.3, 1983-1984 Rate Application. (4) Exh. 8, 1984-1985 Rate Application.
1982 1983 1984 1985 ---- ==== ==== [2] [3] [ 4] $185,500 $259,157 66,700 116,855 31,800 66,004 $284,000 $442,016 $596,300 ??
11.33% 55.64% 34.90% $337,900 $495,400 $581,100 [2] [4] [4] 0 0 (85,700) $337,900 $495,400 $495,400 =======~===================================== ($104,116) ($100,900) 30.81% 20.37%
ICG UTILITIES (BRITISH COLUMBIA) LTD INTER-CO CHARGE ANALYSIS
ICG (B.C.) COLUMBIA NORTHLAND PNG FORT NELSON [ 1] [ 2] [ 3] [ 4] [5) Inter-co charge $581,100 $279,000 $180,000 $374,304 $8,100 Sales revenue $7,583,669 $36,277,000 $4,118,000 $89,299,432 $1,917,000 Charge/sales $ $0.0766 $0.0077 $0.0437 $0.0042 $0.0042 # of customers 6,474 13,514 4,535 10,338 1, 352 Charge/ customer $89.76 $20.65 $39.69 $36.21 $5.99 Note: Charge per unit sold is not shown because ICG(B.C.) sales is mix of natural gas and propane.
[1) per Application (Exh. 8) and revised sales. [2) per 1984-85 Exhibit 1 and Decision. [3] per 1984 test year and Decision. [4] per 1985 Application. [5) per 1984-1985 Application, Exh. 5 Appendix D, item 5. and Decision. (Gross administrative cost of $391,441 excluded by BCUC)
Schedule l ICG UTILITIES !BRITISH COLUMBIA! LTD ============ UTJlll INCOME AND EARHED RETURN for the year ending December 31, 1985
=================================~=== Per Application Applicant's 1Ei:.3,p.10.1.ll Adjustments -------------- ------------ SALES VOLUME Natural gas-MCF 2,146,652 21.~93 Propane-CCF 70,068 UTILITY REVENUE Gas sales -present rates H,277,13S' $72,412 Propane -present rates 234,118 --------------- 7 ,511. 257 --------------- Gas sales -interi~ rates 392,250 Propane -interim rates (58,6101 --------------- 333,640 --------------- Additional Deficiency (14,360) --------------- REVENUE REQUIREMENT 7,844,897 58,052 --------------- DPEHSES Cost of Natural Gas 4,603.990 59,974 Cost of Propane 155,496 Operating 260,400 Maintenance 125,200 Sales Promotion 24,080 Customer Accounting 406,351 Administration 611,016 \25,896) Amortization (ClAC) (37 ,037) Depreciation 287~752 Municipal Taxes 196,629 Other Utility Revenue (56, /(i(i) --------------- 6,577,177 34,078 --------------- Utility Income before Taxes 1. 2671720 23.974 Income Ta~ 244,428 7,975 --------------- EARNED RETURN !i ,023,292 15,999 =============== =============== UTILITY RATE BASE $7,101,264 $126,076 ------------------------------ =============== RETURN ON RATE BASE % 14. 41 =============== ===============
Amended Commission Adju~.ted \Exhibit b) Adjustments Balances ---------- --------------- ---------------2,1&!5,145 12,721 ( 1] 2,180,866 70,068 70,068 t:7,349,551 $41, BOO (!] $7,391,351 234,118 234,118 ---------------7,583,669 7,625,469 ---------------392,250 6,883 (' . " . ! J ' 399' 133 (58,610) \58,610) ---------------333,640 340,523 ---------------(14,360) (400,827) -------------- ... 7,902,949 7,565,165 ----------------28,100 [1] 4,663,%4 {73,50(i) [3J 4,6!9,564 155,496 155,496 260, 4(i(i 260.400 125,200 !25,200 24. 1}80 24,080 406,351 406,351 (85, 700)[4] 585.120 (52,453)[5] 446,967 (37 ,037) m .om 287,752 (4,769)(6] 282,983 i%,629 196,629 \56,700) (56,700) ---------------6, 611,255 644224933 ---------------1,291.694 1,142,232 252~4(l3 166,378 ---------------f! ,039,291 $!175,854 =============== $7,227,340 $7,066,286· ------------------------------14.38 13.81 ===============
Schedule I [1] Fort St. John sales increased 2.5% in Nov. and Dec., 1985 due to in service of Westcoast Stripping Plant. Nov. and Dec. Sales (Exh. 6, page 11.1.1R1 and 12.1.1R1): 508,853 Mcf * 2.5% = 12,721 Mcf Gross sales $(7,349,551- 225,369) I 2,168,145 * 12,721 $41,800 Cost of gas $4,663,964 I 2,108,716 * 12,721 = $28,100 [2] Interim revenue increased due to increased sales per Applicant's amendment and [1]. [3] Line loss at Fort St. John adjusted to 1.7% from 3.33%. ( Exh. 6, page 12 . 1 • 1 R 1 ) (2,108,716- 2,040,758)13.33 * (3.33- 1.7) * 4,663,96412,108,716 73 500 [4] O&M and Administrative costs adjusted to reflect shared costs at 1984 Test Year levels. 1985 forecast (Exh. 8) $581,100 1984 Application 495,400 $ 85,700 [5] Hearing costs amortization per approved periods. 1981 per Application (Exh. 3, p.8.4.2) $13,866 Amort. Adjustment Approved amortization - 10 years $2,311 $11,555 1984 per Application $47,031 Approved amortization - 3 years 23,516 23,515 1985 per Application $41,766. Actual: $48,766 Approved amortization - 2 years 24,383 17,383 $50,210 $52,453 [6] Amortization of computer systems costs reduced (see Sch. II [1] (b)).
Schedule II [1] Portion of computer systems expenditure disallowed. (a) difference between 1984 forecast and 1984 Outlook disallowed in beginning plant balance: $331380 (b) 1/7 a:mortization related to (a): $4 1769 (c) half of forecast 1985 expenditure disallowed: $39 1737 X 1/2 = $19 1869 [2] ReMoval of expenditure for ne>v office building. Structure and Improvements $2771000 Furniture and Equipment 251000 Total $302,000 [3] Prepaid expenses excluded from working capital (per Vigas hearing). $41786 [4] Balance of hearing costs increased per [5] in Schedule I. Exh. 31 page 8.4.1 Adjustment Revised Balance - beg. of year $751 198 $(10 1754)[a] $641444 costs incurred 541520 71000 611520 Costs expensed 1021663 (521453) [b] 501210 Balance - end of year 271055 751754 Mid-year balance 51 1 127 181972 701099 [a] Beginning balances of Special studies for Plant records disallmved because they were not forecast in the 1983 and 1984 Applications. [b] AM.ortization of hearing costs per Schedule I [5] •
Schedule I I I ICG UTLITIES (BRITISH COLUMB!Ai LTD --------------------------CALCULATION OF INCDHE TAXES ON UTILITY INCDHE FOR THE YEAR ENDING DECEMBER 31, 1985 ============================================
Utility Income before Taxes $i.l42,232 Deduct: interest on debt (583,675) [1) 558,557 Add: Depredation 282,983 Aaortization m,om Write-off Rate Hearing costs 50,210 [2J 296,156 Deduct: Capital Cost Allowance 347,901 [3] Rate Hedring Costs t studies 61,520 [2] Overhead capitalized 122,000 Cumulative Eligible Capital 2,616 Inventory Allowance 718 534,755 TAXABLE INCOME !LOSSl $319,958 =============== lilCOliE TA ~ $16~. • 5/8 =============== [1) Interest on debt equals debt cost components multiplied by rate base. [2J Hearing cost write-off per Schedule II [4J. [3] CCA redwced by computer systems costs disallowance per Schedule II [1].
I CG Uf l Ll fl ES \ BR !TI SH COLUF.B I A! COHHOH EQUITY AS AT DECEHBER 31, 1985 ======================================
Common share capital December 31, 1984 $2' 801 '800 Retained Earnings Balance beginning of vear (242, 196) Forcast net income for the year .392,179 [i] DEDUCT:
Dividends incl. preferred 105,883 TOTAL Dece;ber 31, 1985 $2,845,900 ----------------------------------Coamon equity as at December 31, 1984 $2,559,604 ----------------------------------MIO - YEAR COriMON EQUITY $2,702,752 =================
(1] Forecast net income equals equity cost components aultiplied by rate base.
Schedule IV LTD =============
ICS UTLITIES !BRITISH COLUMBIA! LTD RETUF:il ON CAPITAL FOR THE YEAF: ENDING DECEMBER 31, 1985 =======================================================
Capitalization per Application Commission Capitalization 7. Average Cost !Exhibit 4) Adjustments Amount Percentage 7:" Embedded Cost Component 7. Bank Advances $182,506 $555,871 $738.377 9.75 11. (H}i) 1. 07 [1) [2] Long-Tera Oebt 4,560,651 (555,871i 4,004,780 52.89 13.590 7.19 Prefer~nce Shares 126,059 126,059 1.67 6.480 0.11 (3] COIUlDn Equity 2,713,884 2,702,752 35.69 15.250 5.44 ------·~-------- ----$ --7 -,5 -7 -1 --,9 -6 -8 - ----------1 -0 -0. -(1 ---H ,583,100 (1 ----------1 -3 -.8 -1 - ------------------------------- ============================== ------------------------------
Schedule V =============
Schedule V [1) Proposed additional L/T debt transferred to short term at 11%. Per Application (Exh. 12, Schedule 5) Approved Order No. G-70-84 Difference (2] Average L/T debt cost reduced due to (1). (Exh. 12, Schedule 6) per Application Adjustment Average debt $4,560,651 }\verage interest exp. 621,052 Foreign exchange loss 4,516 Total cost 625,569 Average cost 13.72% [3) Return on common equity reduced to 15.25%.
$3,630,871 3,075,000 55 871 Balance $(555,871) $4,004,780 (81,268) 539,784 4,516 544,300 13.59%