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FortisBC Inc.
Annual Review for 2020 and 2021 Rates |
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Decision and Order G-42-21 |
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February 12, 2021 |
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Before: T. A. Loski, Panel Chair C. Brewer, Commissioner E. B. Lockhart, Commissioner |
TABLE OF CONTENTS
Page no.
1.1 Background to FBC’s Multi-Year Rate Plan
1.3 Application Review Process
2.0 Determinations on Approvals Sought
2.1 Should the Proposed 2020 and 2021 Rate Increases be Approved?
2.2 Should the Playmor Substation Project Capital Expenditure Schedule be Accepted?
2.3 Should the Deferral Account Requests be Approved?.
2.3.1 Should the Proposed New Deferral Accounts be Rate Base Deferral Accounts?
2.4 Should the Proposed SAIDI and SAIFI Benchmarks and Thresholds be Approved?
3.1.1 Should FBC Use Updated Residential and Commercial Customer Counts?
3.1 Is FBC’s Demand Side Management Spending Adequate?
3.2 Does the Performance of FBC’s SQIs Warrant Additional Review?
3.3 Is it Time to Review the Return on Equity?
3.1 Should FBC Adjust its Working Capital Parameters During the Multi-Year Rate Plan Term?
COMMISSION ORDER G-42-21
APPENDIX A List of Acronyms
APPENDIX B Exhibit List
On June 22, 2020, the British Columbia Utilities Commission (BCUC) approved a multi-year rate plan (MRP) for FortisBC Inc. (FBC) covering a five-year period (2020 to 2024) (MRP Decision). The MRP uses a performance or incentive-based regulatory rate setting framework which links rates to utility performance, rather than to recovery of the operating and capital costs of service associated with a traditional cost of service approach to setting rates.
In accordance with the MRP Decision, an annual review process is required to set rates for each year of the MRP. In this application, FBC applied to the BCUC for permanent approval of 2020 and 2021 rates, among other things (Application).
Although FBC forecasts a general rate increase for 2020 of 0.81 percent over 2019 rates, it seeks to keep the existing interim rate increase of 1.0 percent as the permanent rate for 2020 and proposes to capture the revenue surplus from 2020 in the existing 2018-2019 Revenue Surplus deferral account to be applied against 2021 rates due to the timing of the expected decision on this Application. FBC also seeks a permanent general rate increase for 2021 of 4.36 percent after drawing down the revenue surplus from 2020 and the balance in the existing 2018-2019 Revenue Surplus deferral account.
After reviewing the Application, evidence and arguments filed in the proceeding, the Panel finds that the proposed increases in rates for 2020 and 2021 are just and reasonable. The Panel agrees that it is appropriate to make permanent the existing interim rates for 2020 due to the timing of this Decision and finds FBC’s proposals to apply previous years’ surpluses to mitigate rate increases in 2021 to be a reasonable approach and does not create an unduly negative impact on inter-generational equity. The rate increase in this case is largely due to depreciation on BCUC-approved major project capital additions and the elimination of the credit flow-through variance embedded in 2020 rates. Applying previous years’ surpluses mitigates the rate increase and results in rate smoothing, which is consistent with the purpose of the 2018-2019 Revenue Surplus deferral account. While rate increases are largely mitigated for the first two years of the MRP, the remainder of the MRP term may, to some extent, be more challenging than the first two years for FBC because revenue surpluses will be fully depleted by the end of 2021.
The Panel approves the deferral account requests. The Panel accepts the capital expenditures schedule for the Playmor Substation Upgrade Project in the amount of $10.922 million, as applied for in the Application. The Panel finds the Playmor Substation Upgrade Project is in the public interest, noting that FBC is currently unable to connect new customers at requested load levels and the existing substation infrastructure is aging and requires replacement and upgrading. FBC’s proposals for service quality indicator benchmarks of 3.22 for System Average Interruption Duration Index (SAIDI) and 1.57 for System Average Interruption Frequency Index (SAIFI), and thresholds of 4.52 for SAIDI and 2.19 for SAIFI, are also approved for the duration of the MRP.
1.0 Introduction
On June 22, 2020, the British Columbia Utilities Commission (BCUC) approved a multi-year rate plan (MRP) for FortisBC Inc. (FBC) covering a five-year period (2020 to 2024) (MRP Decision).[1] In accordance with that decision, this Annual Review process is required to set rates for 2020 and 2021.
Prior to the issuance of the MRP Decision, the BCUC had approved FBC’s 2020 rates on an interim and refundable basis,[2] pending a decision on the MRP and a 2020 Annual Review. Following the issuance of the MRP Decision, on August 19, 2020, FBC filed its Annual Review for 2020 and 2021 Rates Application (Application). With the filing of this Application, FBC seeks to complete the annual review process to set permanent rates for 2020 and 2021.
FBC’s Application, as amended[3], forecasts a general rate increase of 0.81 percent over 2019 rates. However, FBC applies to keep the existing interim rate increase of 1.0 percent as the permanent rate for 2020.[4] Due to the timing of the expected decision on this Application, FBC proposes to capture the revenue surplus from 2020 in the existing 2018-2019 Revenue Surplus deferral account to be applied against 2021 rates.[5]
FBC’s amended application also seeks a permanent general rate increase for 2021 of 4.36 percent after drawing down the revenue surplus from 2020 and the balance in the existing 2018-2019 Revenue Surplus deferral account.[6]
By letter dated November 9, 2020, FBC applied to the BCUC for approval to make existing 2020 interim rates permanent, effective January 1, 2020, and for a general rate increase of 4.36 percent, on an interim and refundable basis, effective January 1, 2021, pending a final decision on the Application. On November 24, 2020, the BCUC approved the proposed general rate increase for 2021 on an interim and refundable basis, effective January 1, 2021. However, the BCUC was not prepared to make a determination on 2020 permanent rates until this annual review proceeding was completed.[7]
In this Decision, the Panel reviews the relevant evidence, considers the positions of the parties, discusses the issues arising and outlines its determinations for permanent 2020 and 2021 rates.
1.1 Background to FBC’s Multi-Year Rate Plan
As mentioned, on June 22, 2020, the BCUC approved an MRP for FBC that establishes the framework for setting rates in the period from 2020 through 2024. The MRP uses a performance or incentive-based regulatory rate setting framework which links rates to utility performance, rather than to recovery of the operating and capital costs of service associated with a traditional cost of service approach to setting rates. The expected benefits of this performance-based approach are increased utility efficiency, better control of operating and maintenance (O&M) costs and capital expenditures, and reduced regulatory costs, resulting in more reasonable utility rates.
The MRP uses a rate setting mechanism designed to incent FBC to find efficiencies while ensuring that reasonable and measurable service levels are maintained.[8] The MRP includes elements that attempt to strike a balance between the interests of ratepayers and the utility, and appropriately manage and allocate risks and rewards.[9]
Certain cost components of the MRP are determined using a formula or index-based approach, considering inflation and other cost drivers adjusted to reflect FBC’s expected productivity improvements. Other revenue and cost components that are not conducive to an index-based approach are determined through a forecast approach like a traditional cost of service mechanism or flowed through to FBC’s annual revenue requirement. Revenue and cost components outside FBC’s control are handled through a deferral mechanism or are given flow-through or exogenous factor treatment.
FBC’s MRP includes the following:[10]
• Use of a formula or index-based approach to controllable O&M, incorporating:
o An inflation factor based on Statistics Canada Consumer Price Index for BC (BC-CPI) and the Average Weekly Earnings for BC (BC-AWE) indexes;
o A growth factor multiplier; and
o A productivity (X) Factor;
• Use of a forecast approach for capital;
• A 50 percent sharing with customers of FBC’s achieved return on equity (ROE) above or below the allowed ROE;
• Specific revenue requirement items approved for flow-through and deferral account treatment;
• Twelve service quality indicators (SQIs); and
• A plan off-ramp to be triggered if earnings in any one year vary from the allowed ROE by more than +/-150 basis points (post sharing).
A key element of FBC’s MRP is an annual review process to set rates (Annual Review). In the MRP Decision, the BCUC set out the following items to be addressed at each Annual Review in addition to setting rates:[11]
1. Review of the current year projections and the upcoming year’s forecast, including the following items:
• Customer growth, volumes and revenues;
• Year-end and average customers, and other cost information including inflation;
• Expenses, determined by the indexing formula plus items forecast annually;
• Capital expenditures, plus other items forecast annually;
• Plant balances, deferral account balances and other rate base information and depreciation and amortization to be included in rates; and
• Projected earnings sharing for the current year and true-up to actual earnings sharing for the prior year;
2. Identification of any efficiency initiatives that FBC has undertaken, or intend to undertake, that require a payback period extending beyond the MRP plan period with recommendations to the BCUC with respect to the treatment of such initiatives;
3. Review of any exogenous events that FBC or stakeholders have identified that should be put forward to the BCUC for review;
4. Review of FBC’s performance with respect to SQIs;
5. Assess and make recommendations with respect to any SQIs that should be reviewed in future Annual Reviews; and
6. Assess and make recommendations to BCUC on potential issues or topics for future Annual Reviews.
In addition to these specific topics, the BCUC may include any other topic for review as it considers necessary.[12]
1.2 Approvals Sought
As noted above, FBC filed its annual review materials to set permanent rates for 2020 and 2021 on August 19, 2020. FBC submitted evidentiary updates to the Application on October 9, 2020 and October 28, 2020. FBC’s first evidentiary update corrected an error which did not have an impact on proposed 2020 or 2021 rates.[13] In the second evidentiary update, FBC revised its 2020 and 2021 revenue requirements and the request for 2021 rates.[14]
FBC seeks the following approvals, as amended, pursuant to sections 59 to 61 and 44.2. (3) of the Utilities Commission Act (UCA):[15]
1. Existing 2020 interim rates to be made permanent, effective January 1, 2020;
2. A permanent rate increase of 4.36 percent, effective January 1, 2021;
3. With respect to deferral accounts, approvals as described in Sections 7.7 and 12.4 of the Application and later amended in the second evidentiary update, of:
• Creation of rate base deferral accounts for the following regulatory proceedings:
i. Annual Reviews for 2020 to 2024 rates, with balances to be amortized in the following year;
ii. 2021 Long-Term Electric Resource Plan (LTERP);
iii. 2020 Cost of Service Analysis (COSA); and
iv. BCUC-Initiated Inquires, with balances to be amortized in the following year;
• Creation of a rate base deferral account to capture costs related to the Indigenous Relations Agreement (Huth Substation);
• Creation of a rate base deferral account to capture the costs of the 2021 triennial Mandatory Reliability Standards (MRS) audit;
• Addition of the $0.683 million 2020 revenue surplus to the 2018-2019 Revenue Surplus deferral account and the drawing down of the full amount of this deferral account’s balance in the amount of $5.420 million in 2021, bringing the account balance to zero;
• Renaming of the previously approved 2020 Revenue Requirement Application deferral account to the 2020-2024 MRP Application deferral account, and amortize over a five-year period beginning January 1, 2020;
4. The recording of COVID-19 incremental costs and related savings from 2020 and 2021 into the previously approved COVID-19 Customer Recovery Fund Deferral Account, as discussed in Section 12.2.1 of the Application;
5. Approval of SQI benchmarks of 3.22 for System Average Interruption Duration Index (SAIDI) and 1.57 for System Average Interruption Frequency Index (SAIFI), and SQI thresholds of 4.52 for SAIDI and 2.19 for SAIFI; and
6. Acceptance of a capital expenditure schedule consisting of the capital expenditures for the Playmor Substation Upgrade Project (Project), as described in Appendix B of the Application.
In Section 2.0 of this Decision below, the Panel discusses and decides on FBC’s proposed rates for 2020 and 2021and other approvals sought. Other issues arising are discussed in Section 3.0 of this Decision.
1.3 Application Review Process
In accordance with the regulatory timetables established by the BCUC, the following review process was undertaken:[16]
• One round of BCUC and intervener information requests (IRs);
• A workshop open to all participants held in a virtual format on October 21, 2020 (Workshop);
• An opportunity for FBC to file responses to undertakings arising from the information requested at the Workshop;
• One round of BCUC and intervener IRs on the Workshop undertakings and FBC’s second evidentiary update;
• Written final arguments from interveners filed by November 30, 2020; and
• FBC’s written reply argument filed on December 7, 2020.
The following six interveners registered and actively participated in the proceeding:
• BC Sustainable Energy Association (BCSEA);
• The Commercial Energy Consumers Association of British Columbia (CEC);
• British Columbia Old Age Pensioners’ Organization et al. (BCOAPO);
• Industrial Customers Group (ICG);
• British Columbia Municipal Electrical Utilities (BCMEU); and
• Movement of United Professionals (MoveUP).
1.4 Decision Framework
Section 2.0 of this Decision addresses the Panel’s determinations on the approvals sought by FBC. First, we consider the proposed rate for 2020 and 2021, followed by our review of the capital expenditure schedule for the Project, the proposed deferral accounts and the benchmarks and thresholds for SAIDI and SAIFI SQIs.
Section 3.0 of this Decision, addresses other issues arising in the proceeding regarding the Annual Review as follows:
1. Should FBC use updated residential and commercial customer counts for the 2021 year-end forecast?
2. Has FBC double-counted demand side management (DSM) savings in its residential and commercial use per customers (UPCs)?
3. Is FBC’s DSM spending adequate?
4. Does the performance of FBC’s SQIs warrant additional review?
5. Is it time to review FBC’s ROE?
6. Should FBC adjust its working capital parameters during the remainder of the MRP term?
2.0 Determinations on Approvals Sought
FBC’s approvals sought in the Application are outlined above in Section 1.2 of this Decision. The Panel’s determinations on these requests and any concerns expressed by interveners related to these approvals are discussed in Subsections 2.1 to 2.4 below.
2.1 Should the Proposed 2020 and 2021 Rate Increases be Approved?
Proposed Measures to Smooth Rates
In 2018, the BCUC approved the 2018 Revenue Deficiency deferral account to capture a revenue deficiency of $0.896 million resulting from maintaining 2018 rates at existing 2017 levels. The following year, the BCUC approved FBC to continue to maintain rates and to capture a 2019 revenue surplus of $5.633 million in the same deferral account and to change the name of the account to the 2018-2019 Revenue Surplus deferral account. As a result of the 2019 addition, the net revenue surplus (credit) balance in 2018-2019 Revenue Surplus deferral account at the end of 2019 was $4.737 million.[17]
FBC explains that instead of increasing rates in 2018 and decreasing rates in 2019, the utility’s rates were held steady for two years and recorded the deficiency and surplus from 2018 and 2019, respectively, in a deferral account earning a financing return.
Considering the availability of the 2018-2019 Revenue Surplus deferral account, FBC presents its proposals for 2020 and 2021 rate increases as described below. FBC submits that this Application presents its first opportunity to return a net revenue surplus to customers to mitigate rate increases, resulting in rates from 2018 to 2021 being smoother than they otherwise would have been.[18]
2020 Rate Increase
As described in Section 1.0 of this Decision, FBC forecasts a general rate increase of 0.81 percent over 2019 rates for 2020. The 0.81 percent is FBC’s amended forecast, revised from a general rate increase forecast of 1.93 percent at the time of the Application.[19] FBC states that the amendment to the forecast is primarily due to a change in the projected 2020 average customer count and consequent load forecast change, as well as other changes identified in the course of responding to Workshop undertakings or that FBC had previously identified in responses to IR No. 1.[20]
However, rather than seeking a 0.81 percent increase, FBC proposes to set the permanent 2020 rate at the same level as the interim 2020 rate, which is a 1.0 percent rate increase. The impact of this change to the 2020 deficiency/surplus will be to add a $0.683 million surplus to the 2018-2019 Revenue Surplus deferral account,[21] instead of a drawdown of $3.326 million from the account, as FBC had proposed prior to the amended forecast.[22]
FBC submits that this is an appropriate and practical approach due to the expected timing of the decision on the Application, as amended. In its view, adjusting the permanent rate increase to the amended forecast of 0.81 percent would have no impact on the rates charged to customers during 2020. Instead, the difference between interim and permanent rates would be refunded to or recovered from customers through a bill credit or refund on the first customer bill after a BCUC decision is issued. FBC submits such an approach would increase the administrative burden for FBC through additional billing and tariff amendment efforts and would potentially create customer confusion.[23] FBC submits that their proposed approach allows the $0.683 million revenue surplus from 2020 rates to be applied to reduce the 2021 revenue deficiency and required rate increase.[24]
Figure 1 below summarizes the items that contribute to FBC’s 2020 forecast revenue deficiency, including the proposed drawdown of the 2018-2019 Revenue Surplus deferral account as originally contemplated. Table 1 below summarizes the impact of the items leading to FBC’s amended forecast, including now the proposed addition to the 2018-2019 Revenue Surplus deferral account.
Figure 1: 2020 Forecast Revenue Deficiency Prior to Amendment ($ millions)[25]
Table 1: 2020 Forecast Revenue Requirement After Amendment[26]
Customer Growth and Volume
FBC explains that during the Workshop, BCOAPO noted that:
…the actual aggregate customer count at June 2020 was greater than the aggregate projected customer count at December 2020. Following its investigation into the noted discrepancy, FBC has adjusted the 2020 projected customer count and, consequently, the 2021 forecast customer count, including follow-on impacts to revenue, formula O&M and power supply cost.[27]
Consequently, for 2020, FBC projects a sales load decrease, which contributes $7.514 million[28] to the amended forecast revenue deficiency.
O&M Costs
Under the MRP, FBC’s O&M expense is primarily determined by a formula, however, there are other items that are forecast outside the formula on an annual basis. Combining the information in Figure 1 and Table 1 above, in 2020, formula O&M contributes $3.221 million[29] to the amended forecast revenue deficiency and is offset by a $0.672 million decrease in forecast O&M. FBC explains that the increase in formula O&M is primarily the result of re-setting the Base O&M as part of the approved MRP and the formula drivers.[30] O&M forecast outside of the formula decreases primarily due to several items moving out of forecast O&M and into Base O&M in the MRP, and a decrease in Pension and Other Post Employment Benefits (OPEB) costs.[31]
In the MRP Decision, the BCUC approved a 2019 Base O&M of $57.630 million for FBC based on the adjusted actual 2018 O&M plus incremental O&M funding in certain areas. Divided by the 2019 Actual average customer count, the 2019 Base O&M per customer (UCOM) is $412.[32] In the MRP, formula O&M starts from the prior year’s UCOM, escalated by two formula drivers: i) the prior year’s inflation less a productivity improvement factor of 0.5 percent; and ii) 75 percent of the forecast growth in average customers.[33]
The inflation factor (I-Factor) approved by the BCUC is determined using the actual CPI-BC and BC-AWE indices from the previous year and a labour weighting based on the most recent completed year of actuals.[34] For 2020, FBC calculates the I-Factor to be 2.809 percent (or 2.309 percent inclusive of the productivity improvement factor of 0.5 percent).[35] Applying the actual 2019 labour weighting of 62 percent, the calculation of the 2.809 percent is (2.692 percent[36] x 38 percent) + (2.881 percent[37] x 62 percent).[38]
For the second formula driver, FBC calculates the average customer count forecast for determining O&M is 141,594 inclusive of the customer growth factor multiplier for 2020.[39]
Accordingly, Formula O&M in 2020 is $59.752 million ($412 x 2.309 percent x 141,594 customers).[40]
Depreciation and Amortization
The increase in depreciation and amortization expense of $5.426 million consists of:
1. An increase in depreciation expense by $0.401 million from adopting new depreciation rates approved in the MRP Decision offset by resetting plant to actual costs; and
2. An increase in amortization expense by $5.025 million from a decrease in the credit from FBC’s flow-through deferral account amortization in 2020 when compared to 2019.[41]
Under FBC’s 2014-2019 approved performance based ratemaking (PBR) plan[42], a flow-through deferral account was approved to capture annual variances between the approved and actual amounts for all costs and revenues which were included in rates on a forecast basis and which do not have a previously approved deferral account.[43] These variances are then amortized over a one-year period and returned to, or collected from, ratepayers through the rates in the subsequent year. FBC states that the final amount to be distributed to customers in 2020 as a result of the flow-through deferral account is a credit of $7.475 million.[44]
The $7.475 million credit consists of a net variance between approved and actuals of $6.352 million in flow-through items for 2019, and a true-up to actuals of $1.122 million of the projected 2018 flow-through account balance. The $1.122 million credit is the difference between the projected ending 2018 flow-through deferral account balance embedded in 2019 rates, and the actual ending 2018 deferral account balance. FBC states that the variances for both 2019 and 2018 are primarily the result of lower power purchase expense, lower income taxes and higher apparatus rental revenue, partially offset by lower sales revenue.[45] This is shown in the tables below:
Table 2: 2018 Flow-Through Deferral Account True-up ($ millions)[46]
Table 3: 2019 Flow-Through Deferral Account Additions ($ millions)[47]
FBC states the recognition of the flow-through deferral account credit of $7.475 million does not, however, result in a reduction in rates compared to 2019 since flow-through credits and other deferrals were also included in 2019 rates. The net increase in amortization expense when compared to 2019, is $5.025 million.[48]
2021 Rate Increase
Assuming the BCUC approves a permanent 2020 rate increase of 1.0 percent as proposed, FBC forecasts a revenue deficiency for 2021 of $16.196 million, which would result in a 2021 rate increase of 4.36 percent. This rate reflects FBC’s proposals in 2020 (as described above) to add a revenue surplus of $0.683 million to the 2018-2019 Revenue Surplus deferral account and to apply the surplus to reduce the 2021 revenue deficiency. It also reflects FBC’s proposal to further mitigate 2021 rate increases by drawing down the $4.737 million in the 2018-2019 Revenue Surplus deferral account at the end of 2019 to zero.[49]
A summary of FBC’s 2021 forecast revenue deficiency is shown in the figure below:
Figure 2: Forecast 2021 Revenue Deficiency[50]
As shown in the figure above, depreciation and amortization contribute $10.771 million to the forecast revenue deficiency. FBC explains that this is due to depreciation on BCUC-approved major project capital additions and the elimination of the credit flow-through variance embedded in 2020 rates which are detailed in the discussion relating to Depreciation and Amortization above.[51]
FBC notes for 2021, the increase in formula O&M is entirely due to formula drivers. The 2021 I-Factor is 4.168 percent,[52] calculated as the 2019 actual labour weighting of 62 percent multiplied by a 5.745 percentage change in BC-AWE plus a non-labour weighting of 38 percent multiplied by a 1.596 percentage change in BC-CPI.[53] FBC notes that the BC-AWE values for 2020 are comparatively high, and explains that Statistics Canada confirmed the March to May 2020 data was impacted by the COVID-19 pandemic. During the March to May timeframe, FBC states that there were significant layoffs in business sectors such as retail and accommodation and food services, typically comprising lower paying jobs. In addition, there was a higher proportion of hourly paying job layoffs (which are generally lower paying) versus salaried employees. These two changes increased the BC-AWE.[54] FBC states that using the 2020 BC-AWE in place of the 2021 BC-AWE would reduce the proposed 2021 rate increase by 0.25 per cent.[55]
While it is clear that the pandemic has impacted BC-AWE, FBC states that it is unable to quantify that impact. Further, while the increase to formula O&M is higher due to the higher I-Factor in 2021, FBC believes this trend will likely reverse in 2022 as the labour impacts from the pandemic diminish and BC-AWE returns to a more normal level. FBC views that the potential decrease in BC-AWE in 2021 will reduce, or potentially even create, a negative I-Factor, which would result in a smaller increase or a decrease to 2022 formula O&M compared to 2021. Therefore, the impact on 2021 revenue requirements may be offset in subsequent years.[56]
Positions of the Parties
Proposed Measures to Smooth Rates
Interveners either supported or provided no comment on FBCs proposal to maintain 2020 rates at 1.0 percent on a permanent basis and to apply the 2018-2019 Revenue Surplus deferral account to the projected 2021 revenue deficiency, to minimize the projected 2021 rate increase. BCSEA supports FBC’s request that the existing interim delivery rate increase for 2020 (1.0 percent over 2019) be made permanent, as well as FBC’s request for a permanent rate increase of 4.36 percent for 2021 over 2020 (assuming a permanent increase of 1.0 percent for 2020).[57] The CEC does not consider the difference in bill impacts between a 0.81 percent increase and a 1.0 percent increase to be overly significant and submits that a 4.36 percent increase in 2021 does not amount to rate shock.[58]
Notwithstanding its general support for the concept of rate smoothing, the CEC states that it is concerned with the significance of the $4.737 million 2018-2019 Revenue Surplus deferral account balance at the end of 2019, and the two years taken to return that balance to customers. It goes on to observe that deferral accounts carrying significant positive balances forward essentially become a financing fund for the utility, transferring costs from customers in one year to customers in other years.[59]
FBC disagrees with the CEC that it has used the 2018-2019 Revenue Surplus deferral account as a ‘financing fund’ and states that this “Application has presented the first opportunity for FBC to return the 2019 revenue surplus to mitigate rate increases. As a result, rates from 2018 to 2021 will be smoother than they otherwise would have been.”[60]
O&M Costs
Interveners raise issues regarding the calculation of FBC’s 2019 Base O&M and the I-Factor in formula O&M.
BCOAPO submits that the 2019 Base O&M should be revised to reflect actuals that were not available when FBC filed the MRP application. It points specifically to the Advanced Metering Infrastructure (AMI) program adjustment included in the base (2019) unit O&M cost. The following statement from the MRP Decision provides some background to the issue:
FortisBC explains because of the high variability of AMI costs and savings during the implementation period, net AMI costs, including the costs of AMI‐enabled billing options, were tracked outside of FBC’s Current PBR Plan formula during the PBR term. As the AMI project is now complete, the ongoing savings of $1.161 million have been incorporated into the Base O&M.[61]
BCOAPO submits that the BCUC should consider revising the value so that it reflects the actual AMI savings now known. To do otherwise at this point in time is to knowingly, and unjustifiably, go forward basing the O&M for 2020 (and the balance of the PBR period) on an incorrect starting point.[62]
In response to IRs, however, FBC points out that the difference between approved and actual net AMI savings is $135,000 and that using the actual net AMI savings amount would have resulted in a 2019 Base O&M of $57.495 million and UCOM of $411 (instead of $412).[63]
FBC notes that the MRP Decision approved the 2019 Base O&M, there was no request for reconsideration, and nor should the 2019 Base O&M be reconsidered or varied in this proceeding. Moreover, it notes that the 2019 Base O&M was based in part on 2019 approved amounts, which was the best information available at the time. FBC also submits that “the 2019 Base O&M remains reasonable and BCOAPO’s suggestion to update the 2019 Base O&M for one line item of costs is cherry picking the data and is not warranted,” and that “there is a much more complex set of forecasts and calculations that would have to be considered to truly update the 2019 Base O&M for 2019 actual amounts.”[64]
The second issue that interveners raise relates to the BC-AWE used in calculating the 2021 I-Factor. As outlined above, FBC acknowledges that the BC-AWE is comparatively higher than normal because of the impact of the COVID-19 pandemic on labour, and that the higher BC-AWE contributes to a higher I-Factor, which in turn leads to higher formula O&M. Consequently, BCOAPO recommends[65] adjusting (although it does not suggest by how much) the BC-AWE for 2021 for calculating the revenue requirement and rate increase for 2021. ICG recommends[66] using the 2020 BC-AWE in place of the 2021 BC-AWE.
FBC disagrees and lists several reasons why the BC-AWE should not be adjusted. In particular, FBC points out that the I-Factor formula was specifically approved in the MRP Decision. Further, the I-Factor is interconnected with the approved productivity factor, which may also be negatively impacted by the pandemic. FBC notes that any adjustment to the BC-AWE will be arbitrary; while there is no doubt that the pandemic has impacted BC-AWE, the extent of that impact remains unknown. Finally, FBC submits that the impact of the pandemic on BC-AWE is likely to be offset in future years and insignificant over time.[67]
Depreciation and Amortization
Except as noted in the proposed measures to smooth rates, interveners did not raise any issues with respect to Depreciation and Amortization.
Panel Determination
The Panel agrees with FBC that it is appropriate to set 2020 permanent rates at the 1.0 percent interim rate increase, in particular because of the timing of this Decision. The Panel also agrees with FBC that drawing down the 2020 surplus and existing 2018-2019 Revenue Surplus deferral account to zero to lower the 2021 rate increase to 4.36 percent is appropriate. The rate increase in this case is largely due to depreciation on BCUC-approved major project capital additions and the elimination of the credit flow-through variance embedded in 2020 rates. Applying previous years’ surpluses mitigates rate increases and results in rate smoothing, which is consistent with the purpose of the 2018-2019 Revenue Surplus deferral account.
Regarding the CEC’s concern with the balance that had accumulated in the 2018-2019 Revenue Surplus deferral account, FBC’s application for 2020 and 2021 permanent rates in this proceeding made 2021 the earliest opportunity to use the net surplus from 2018-2019 to offset rate increases considering the expected timing of this Decision and the BCUC’s prior approval concerning 2020 interim rates. By using the surplus balances from 2018-2019 and 2020 to mitigate the impacts of increased rates, FBC is returning surpluses (plus a financing return) in their entirety to ratepayers during 2021. The Panel finds this to be a reasonable approach and does not create an unduly negative impact on inter-generational equity.
The Panel is satisfied that the calculation of formula O&M is reasonable. We have examined two specific elements of formula O&M during this Annual Review and are not persuaded that either should be adjusted. First, the Panel agrees with FBC that the 2019 Base O&M is reasonable. Moreover, the Panel also agrees with FBC that updating the 2019 Base O&M for 2019 actual amounts would involve a complex set of forecasts and calculations, rather than updating individual items in isolation.
The Panel is satisfied that the I-Factor should remain as approved in the MRP Decision. In our view, adjusting the I-Factor, or the BC-AWE which is a component of the I-Factor calculation, in response to the COVID-19 pandemic would be a premature reaction to a global event which has not yet ended. There is little doubt that the pandemic will have a financial impact on FBC. The extent of the impact, however, remains to be seen and there is no evidentiary basis on which to attempt to adjust the 2021 BC-AWE at this time.
Fundamentally, however, and from a bigger picture, adjusting elements of the formula O&M is outside the scope of any Annual Review. The purpose of the Annual Review is not to unravel or revisit the MRP Decision, rather, as the BCUC stated in that decision, the “Annual Review process is designed to provide the BCUC, interveners and interested parties the opportunity to review the performance of [FBC] over the prior year.”[68]
The Panel recognizes that rates will be largely mitigated, for the first two years of the MRP term at least, by using deferred surpluses and the flow-through credits that arose in the previous PBR period and not through any identifiable efforts on the part of FBC under the current MRP. To some extent, because the revenue surplus will be fully depleted by the end of 2021, the remainder of the MRP term may be more challenging than the first two years for FBC.
Based on our review of the evidence, including the costs and cost drivers, the Panel finds FBC’s proposed rates for 2020 and 2021 to be just and reasonable. Therefore, the Panel approves the permanent 2020 rate increase of 1.0 percent, which was approved on an interim basis, effective January 1, 2020. Further, the Panel also approves the permanent 2021 rate increase of 4.36 percent, which was approved on an interim basis, effective January 1, 2021.
2.2 Should the Playmor Substation Project Capital Expenditure Schedule be Accepted?
FBC requests acceptance of a capital expenditure schedule for the Project in South Slocan, BC, pursuant to section 44.2(1)(b) of the UCA. The Project is to rebuild the Playmor substation to meet load growth from new as well as current customers and to replace aging infrastructure.[69] FBC plans to initiate construction in the first quarter of 2021.[70] Project completion is scheduled for January 1, 2022.[71]
The forecast cost of the Project is $10.922 million, inclusive of allowance for funds used during construction (AFUDC) and cost of removal.[72] FBC acknowledges that a Certificate of Public Convenience and Necessity (CPCN) is not required for the Project because the forecast cost is less than the BCUC-approved CPCN threshold for FBC of $20 million.[73] However, during the Workshop, it explained that the Project is “well in excess of any other larger projects we have in that envelope” and as a result, FBC is unable to include these expenditures as part of its Regular capital.[74] FBC’s capital budgets were built bottom-up for the MRP term.
The Playmor substation is a single 16MVA transformer (PLA T1) and it supplies customers in the area via three 13kV distribution feeders.[75] FBC explains the three main drivers for the Project:
1. Station capacity constraints are preventing growth in the area for new and existing customers;
2. FBC customers in the area are potentially exposed to lengthy outages, due to the limited ability of the neighbouring substations to support the substation load in the event of an outage to PLA T1; and
3. Station equipment is aging and obsolete, presenting safety and reliability risks in the event of a failure.[76]
FBC states: “Due to capacity constraints at the station, two potential new large load requests could not be connected at the requested load levels. To accommodate native load growth, load increases for existing commercial/industrial customers and the recent large capacity requests, it is necessary to increase the station capacity.”[77] The existing substation transformer was manufactured in 1966 and the Load Tap Changer (LTC) is similarly at end of life. Other substation components, including the direct current (DC) ground grid and metal-clad switchgear, also require replacement and many of the pieces of substation equipment have no spares available due to age.[78]
FBC explains that it received the new customer requests after it developed the MRP capital plan, which is why it did not include the Project in its Regular Growth capital budget in the MRP Application.[79] During the MRP term, under- or over-spending compared to the Regular Growth capital budget is subject to the Earning Sharing Mechanism (ESM), which splits the difference between actual and approved ROE between shareholder and ratepayer (until the true-up in 2023). Thus, if FBC over-spends the Regular Growth capital budget by proceeding with the Project, the shareholder and ratepayer would each pay approximately $485,000 via the ESM.[80] In the MRP Decision, the BCUC directed FBC to submit a revised capital forecast in 2023, which provides an opportunity for true-up to actuals in 2023. Until then, variances will be held outside of rate base. In contrast to Regular Growth capital spending over budget during the MRP, expenditures made pursuant to a capital expenditure schedule become part of FBC’s rate base as capital additions immediately after being placed in service.
FBC examined three alternatives for the Project: one consisting of a two-transformer substation configuration, the other a single transformer configuration, as well as a ‘do nothing’ alternative. FBC submits that installing two transformers is its preferred project option, to mitigate outages to customers and to accommodate increasing area load for the next 20 years. In particular, FBC points out that by installing two transformers at PLA, a single transformer could carry the entire forecast station load during a PLA transformer outage for the next 20 years. With the ability to offload the entire station load to either transformer, no customer outages would be required during a transformer outage under this option, and the rate impact is minimally higher than the single transformer option.[81]
The Project construction consists of expanding the station footprint onto adjacent land purchased in 2020. The scope of the Project includes the removal of the existing transformer and the installation of two new 20MVA transformers, as well as a new control building and the re-building of the balance of the substation.[82]
FBC does not expect the COVID-19 pandemic to impact the project schedule or costs, although the impact of the pandemic remains uncertain.[83] FBC states it has consulted with adjacent landowners and local Indigenous groups, and no concerns have been raised.[84]
FBC submits that the Project is in the public interest and that it is just and reasonable for the Project’s capital expenditures to be approved for recovery in rates as of the Project’s in-service date of January 1, 2022. Therefore, FBC submits its request for approval of a capital expenditure schedule in the amount of $10.922 million for the Project.
Positions of the Parties
The majority of interveners support FBC’s request for acceptance of a capital expenditure schedule for the Project, and none of the interveners raised issues regarding the choice of Project alternatives or the Project budget. For example, MoveUP submits that FBC has made a strong business case and supports approval.[85] BCOAPO agrees that the Project is required and with FBC’s preference for the two transformer option.[86] The CEC submits that the Project should be approved as a capital expenditure because of the customer demand expectations and the current reliability concerns, although it refers (without elaboration) to the request for funds as yet “another failing of the MRP regime.”[87]
ICG does not support FBC’s request for approval of a capital expenditure schedule for the Project. In its submission, FBC should be held to its Regular Growth capital forecast as approved in the MRP Decision and should not be granted an increase in spending. It notes that of the three main drivers for the Project, only one is because of new customer growth and therefore FBC should have forecast the need for the Project. Finally, ICG notes that the MRP Decision approved an increase of capital expenditures of approximately 30 percent over actual capital expenditures, and now FBC is asking for, effectively, “yet another increase to capital expenditures.”[88]
FBC concedes that if aging infrastructure and equipment condition were the only considerations, the PLA transformer would need to be replaced by 2026 (beyond the current MRP term).[89] FBC submits, however, that it is unreasonable to expect FBC to have forecast uncertain growth-driven projects, such as Playmor. Further, it is not in ratepayers’ best interests to include expenditures for potential undefined projects within its Regular capital forecast, because if the projects do not materialize, FBC will have over-stated its capital expenditures. FBC submits it is unreasonable to be held to its capital forecast when a growth project materializes after the forecast has been approved and due to the magnitude of the Project, FBC cannot accommodate it within its Regular Growth capital budget.[90] FBC states that if the BCUC does not approve the expenditure schedule, it will not be possible to undertake the project during the MRP term within the existing Regular Growth capital budget.[91]
Panel Determination
The Panel is persuaded that the Playmor substation requires upgrading. Although FBC concedes that the substation could last until 2026, there is no dispute that the aging infrastructure presents reliability concerns, and that recent new customer load exists or is increasing. Therefore, the Panel is also persuaded that the substation requires upgrading within the term of the current MRP. FBC’s selection of the preferred alternative and the proposed budget for the Project appear reasonable, and interveners did not raise any issues concerning the budget.
Whether FBC should have anticipated the Project and included it in the MRP has been canvassed in this proceeding. According to FBC, customer demand increased after it had prepared its MRP budget requests, and sooner than FBC had expected, which accelerated the timing for the substation upgrade. The Panel is not persuaded that FBC overlooked the Project when it was compiling the MRP Application. Indeed, the evidence suggests that it would have been premature for FBC to have included the Project in Regular Growth capital spending for the MRP.
The issue for determination, therefore, is whether FBC should be held to its existing capital budget for Regular Growth capital or be granted the additional $10.922 million, pursuant to an expenditure schedule, to complete the Project. FBC wishes to account for the Project outside of Regular Growth capital, pursuant to an expenditure schedule under section 44.2 of the UCA, which is “a statement of capital expenditures the public utility has made or anticipates making during the period addressed by the schedule”. The options available to the Panel under the UCA are to: 1) accept the proposed schedule, if we consider that making the expenditures referred to in the schedule would be in the public interest; 2) reject the proposed schedule; or 3) accept or reject part of the proposed schedule.
To accept the expenditure schedule, the Panel must evaluate whether the Project is in the public interest. FBC agrees that it would not consider the Project during the term of the MRP but for the new load, thus the poor condition would not, on its own, be sufficient to meet the public interest test during the MRP term. The issue for the Panel is whether the condition of the substation, combined with the new load growth and any other factors, tips the scale towards the Project being in the public interest.
The existing station infrastructure is aging and requires replacement and upgrading. Not replacing and upgrading the substation creates reliability concerns, including the potential for outages. Finally, the existing infrastructure is unable to fully accommodate new and current customer requests, which limits growth potential in the area.
The fact that FBC is already unable to connect new customers at requested load levels is an important consideration because this demonstrates that the growth potential for FBC is real, and not speculative. Another important consideration is whether FBC would undertake the Project if the Panel rejects the expenditure schedule. FBC states that it is unable to include these expenditures as part of Regular Growth capital. It would be unfair, in our view, to FBC as well as its ratepayers, to expect that FBC would find $10 million in Regular Growth capital for the Project – it is a safe assumption that $10 million from that budget for the Project would mean cutting $10 million for other items. Another alternative, if the Panel rejects the expenditure schedule, would be for FBC to postpone the Project until FBC makes its next application for Regular Growth capital. That would also be unfair, perhaps even more so, because FBCs current customers may experience outages and unreliable service and FBC would have to decline growth opportunities.
For the reasons above, the Panel finds that the capital expenditures for the Project are in the public interest.
Having found that the Project is in the public interest, it is not necessary for us to evaluate the different treatment that would arise if we rejected the expenditure schedule and FBC had to instead add the Project to Regular Growth capital spending.
The Panel accepts the expenditure schedule for the Project in the amount of $10.922 million pursuant to section 44.2(3)(a) of the UCA. In addition, the Panel directs FBC to do the following:
1. File a Final Report as a compliance filing. The Final Report must include a complete breakdown of the final costs of the Project compared to the cost estimates included in the Application and provide an explanation and justification of any material cost variances of 10 percent or more. The Final Report must be filed within six months of substantial completion or the in-service date of the Project, whichever is earlier.
2. Consult with BCUC staff on the form of the report.
2.3 Should the Deferral Account Requests be Approved?
As noted in Subsection 1.2 of this Decision, FBC seeks approvals related to deferral accounts. This includes approval to establish six new rate base deferral accounts, all implicitly financed using FBC’s weighted average cost of capital (WACC) and approval to make changes to certain existing deferral accounts. These requests are set out below:
1. The following deferral account approvals:
a. Creation of rate base deferral accounts for the following regulatory proceedings:
i. Annual Reviews for 2020 to 2024 Rates, with the costs of each annual review to be amortized in the following year;
ii. 2021 LTERP, with the amortization period to be determined in a future proceeding;
iii. 2020 COSA, with the amortization period to be determined in a future proceeding; and
iv. BCUC-Initiated Inquiries, with balances to be amortized in the following year;
b. Creation of a rate base deferral account to capture costs related to the Indigenous Relations Agreement (Huth Substation), with the amortization period to be determined in a future proceeding;
c. Creation of a rate base deferral account to capture the costs of the 2021 triennial Mandatory Reliability Standards (MRS) audit, with the amortization period to be determined in a future proceeding;
d. Addition of the $0.683 million revenue surplus in 2020 to the 2018-2019 Revenue Surplus deferral account and the drawing down of the full amount of the 2018-2019 Revenue Surplus deferral account balance in the amount of $5.420 million in 2021, bringing the account balance to zero;[92]
e. Renaming of the previously approved 2020 Revenue Requirement Application deferral account to the 2020-2024 MRP Application deferral account, and amortize over a five-year period beginning January 1, 2020.
2. To record COVID-19 incremental costs and related savings from 2020 and 2021 into the previously approved COVID-19 Customer Recovery Fund deferral account, as discussed in Section 12.2.1 of the Application.
Two issues arise regarding these deferral accounts. The first is straightforward – whether to approve the new accounts and the changes to existing accounts. Interveners either support establishing the new deferral accounts proposed or changes to existing accounts proposed, or do not comment. The second issue is more nuanced, however, concerning the carrying cost for the new deferral accounts.
In the following section, the Panel discusses the submissions from BCOAPO and ICG with respect to whether rate base treatment of the proposed new deferral accounts is appropriate considering its implied carrying cost, followed by the Panel’s determinations on these approvals sought.
2.3.1 Should the Proposed New Deferral Accounts be Rate Base Deferral Accounts?
FBC explains that it is seeking rate base treatment for the proposed deferral accounts, including the four deferral accounts for regulatory proceedings, because this treatment results in amounts expended on behalf of customers (or credits, if collected from customers) being financed for rate making purposes at the same rate that they are financed by the utility.[93]
FBC addresses the considerations identified in the Regulatory Account Filing Checklist as they pertain to the deferral accounts requested. In response to one of the considerations, “[p]ropose a carrying cost for the balance in the regulatory account and explain why it is appropriate,”[94] FBC states “[r]ate base deferral accounts are included in rate base and are therefore implicitly financed using the weighted average cost of capital (WACC).”[95]
In addition, FBC submits that rate base treatment is consistent with the approved regulatory treatment of capital expenditures and working capital, where there is a deferred recovery of FBC costs financed by the utility. FBC also notes its proposal is consistent with recent decisions, where the BCUC has approved FBC’s request for rate base or WACC treatment of deferral accounts as follows:
• In the MRP Decision, the BCUC approved a rate base deferral account for variances between forecast and actual BCUC levies and a non-rate base Earnings Sharing deferral account attracting WACC; and
• In the FBC Application for Approval of the COVID-19 Customer Recovery Fund deferral account, the BCUC approved the aforementioned deferral account to be treated as rate base.[96]
FBC states, in most circumstances, it plans to request rate base treatment or WACC for new deferral accounts.[97]
Positions of the Parties
BCSEA[98] and the CEC[99] support approval of the new deferral accounts as applied for.
BCOAPO does not comment on the two proposed accounts that are not related to regulatory proceedings. However, BCOAPO notes that deferral accounts associated with the 2016 LTERP, Annual Reviews for 2015-2019 and the 2017 Rate Design Application regulatory proceedings were all approved as non-rate base deferral accounts. BCOAPO questions why “similar accounts (e.g. Annual Review for 2020-2024, 2021 LTERP and 2020 COSA) are now being requested as rate base deferral accounts.[100]
In response to BCOAPOs query, FBC explains that it considers that rate base treatment of its deferral accounts is the correct regulatory treatment because it results in the amounts expended on behalf of customers (or, if credits, collected from customers) being financed for rate making purposes at the same rate they are financed by FBC. Deferrals attract a rate base rate of return (or an equivalent weighted average cost of capital return for non-rate base deferral accounts) to recognize the financing costs that are associated with the timing difference when there is an outlay of funds and when those costs are recovered from ratepayers (or when there are costs recovered from customers that will subsequently be returned).[101]
FBC points to two examples where its recovery of costs is deferred, and the approved regulatory treatment is rate base. First, capital expenditures are included in rate base and earn a rate base rate of return because there is an outlay of cash in one year and a recovery in subsequent years. FBC submits that this is equivalent to a deferred cost because FBC is financing the recovery. Second, to the extent there is a timing difference between when revenues and operating expenses are incurred and recovered within a year, the financing of this is recognized through the inclusion of a working capital component in rate base, often supported by a lead lag study such as that recently approved in FBC’s MRP Decision.[102]
ICG submits that FBCs request for rate base treatment for new deferral accounts is inconsistent with previously approved principles for financing deferral accounts as established by the BCUC in the 2012-2013 RRA Decision.[103] ICG notes, in that decision, the BCUC rejected FBC’s request for rate base treatment of deferral accounts, stating:
The Commission Panel agrees with the ICG that deferred expenditures or credits ought not to be included in rate base or attract a rate base rate of return. The Panel notes that deferral accounts are regulatory assets, not true capital assets. Capital assets which are recognized as such under standard accounting rules such as US GAAP do not require deferral account treatment. It is only amounts which would otherwise be required to be expensed under standard accounting principles for which deferral account treatment is needed. However, in the Panel’s view, amounts which represent operating costs or other costs which would commonly be expensed as current period charges but which are deferred for rate-smoothing purposes do not become capital investments, simply by the fact of the deferral. Normally, a utility, whether a Crown corporation or shareholder-owned, is not entitled to receive a return on operating costs or current period charges but simply recovery of those amounts from its ratepayers, assuming recovery is otherwise justified. Current period charges are not “investments” which attract a capital return, they are deferred operating costs/current period expenses which, as noted above, in the Panel’s view, should not attract rate base rate of return. The Panel finds that a more appropriate financing cost is an interest return. For expenditures which are amortized beyond one year, the Panel finds that the appropriate return is FortisBC’s WACD [weighted average cost of debt]. The Panel further finds that for true-up deferral accounts which are, by their very nature, a short term deferral, the appropriate interest return is FortisBC’s short term interest cost.[104]
[Emphasis in original]
Thus, ICG submits that the financing cost for the 2021 LTERP deferral account should be FBC’s WACD and the financing cost for the remaining five proposed deferral accounts should be FBC’s short-term interest cost.[105] ICG recommends that the BCUC confirm that the previously established principles for financing deferral accounts should apply to FBC just as this Panel confirmed, by Order G-293-20 dated November 13, 2020, that FBC should follow the most recently approved orders to set its cost of capital.[106]
FBC disagrees with ICGs interpretation of the effect of the 2012-2013 RRA Decision. FBC submits that the 2012-2013 RRA Decision is not like the decisions which set FBC’s cost of capital, stating:
B its terms, Order G-47-14 fixes FBC’s cost of capital for the purpose of this proceeding, and all proceedings setting FBC’s rates until the BCUC orders otherwise. Changing FBC’s cost of capital would require the BCUC to reconsider Order G-47-14. In contrast, [the 2012-2013 Decision] sets out principles that can provide guidance to, but cannot bind, other BCUC panels. By its terms, [the 2012-2013 RRA Decision] does not set the financing treatment of the deferral accounts that are the subject of this proceeding.[107]
Additionally, FBC submits that the reasoning in the 2012-2013 RRA Decision itself is flawed, noting that the BCUC has never applied the same principles to FortisBC Energy Inc. (FEI) nor to FBC prior to the 2012-2013 RRA Decision.[108] FBC submits that “rate base treatment is the correct treatment because it reflects FBC’s actual cost to finance the deferral of the recovery of its costs.”[109] In FBC’s view, the utility’s actual costs of financing its deferral accounts are necessarily prudently incurred, as they are required to comply with a BCUC order and that cost is FBC’s WACC.[110]
Panel Determination
In this section, the Panel provides its overall findings and determinations on FBC’s requests for deferral accounts. First, with regards to FBC’s requests for approval of six new deferral accounts and changes to three existing deferral accounts, the Panel finds these are appropriate, as set out below. Second, the Panel also find that the new deferral accounts are appropriate as rate base deferral accounts, and the Panel’s analysis of this issue follows the list of approvals.
The Panel approves the following deferral account requests:
a. Creation of rate base deferral accounts for the following regulatory proceedings:
i. The Annual Reviews during the MRP term, with balances to be amortized in the following year;
ii. FBC’s 2021 LTERP, with the amortization period to be determined in a future proceeding;
iii. FBC’s 2020 COSA, with the amortization period to be determined in a future proceeding; and
iv. Participation in BCUC-Initiated Inquiries, with balances to be amortized in the following year;
b. Creation of a rate base deferral account to capture costs related to the Indigenous Relations Agreement (Huth Substation);
c. Creation of a rate base deferral account to capture the costs of the 2021 triennial MRS audit;
d. Addition of the $0.683 million revenue surplus in 2020 to the 2018-2019 Revenue Surplus deferral account and the drawing down of the full amount of this deferral account’s balance in the amount of $5.420 million in 2021, bringing the account balance to zero and closing the deferral account;
e. The previously approved 2020 Revenue Requirement Application deferral account is renamed the 2020-2024 MRP Application deferral account, and amortized over a five-year period beginning January 1, 2020; and
f. Recording of the COVID-19 incremental costs and related savings from 2020 and 2021 into the previously approved COVID-19 Customer Recovery Fund deferral account, as discussed in Section 12.2.1 of the Application.
As noted above, while there is general agreement that capturing certain costs in the above-noted new deferral accounts is appropriate, there are contrasting views about the financing costs that these deferral accounts should attract. ICG submits that the financing cost for five of the new deferral accounts should be FBC’s short-term interest cost and the financing cost for the 2021 LTERP deferral account should be FBC’s WACD. ICG also submits that its position is supported by previous BCUC decisions, which we should treat as binding precedent. BCOAPO questions why the four new deferral accounts for regulatory proceedings should have different financing costs from similar types of recently approved deferral accounts.
FBC points to other BCUC decisions, which it submits support its position that the financing cost for all six deferral accounts should be its WACC. Unlike ICG, however, FBC submits that we are not bound by previous BCUC decisions.
In our view, the 2012-2013 RRA Decision is not binding on subsequent panels; section 75 of the UCA is clear that we are not bound to follow prior BCUC decisions. Therefore, the Panel is not bound to follow the 2012-2013 RRA Decision, despite ICG’s urging, or the decisions approving the COVID-19 Customer Recovery Fund deferral account and other accounts to which FBC refers, that approved rate base or WACC treatment of deferral accounts.
On the other hand, we recognize that the BCUC seeks to make decisions that are consistent with prior, relevant decisions.
Above all, though, we return to section 75 of the UCA which requires us to make our decision on the merits and justice of the case. FBC incurs costs to finance its deferral accounts. A deferral account creates a timing difference between when funds are spent and when those costs are returned to or recovered from ratepayers, and that timing difference leads to financing costs for the utility. Rate base treatment is comparable to other circumstances where FBC’s recovery of costs are deferred, such as capital expenditures included in rate base as well as a working capital component. The Panel accepts FBC’s justification for rate base treatment for these deferral accounts since it results in the amounts expended on behalf of customers being financed for rate making purposes at the same rate they are financed by the utility. Furthermore, rate base treatment is consistent with recent BCUC decisions, including the MRP Decision as well as the FEI 2020-2021 Annual Review Decision,[111] which is based on the same MRP Decision.
2.4 Should the Proposed SAIDI and SAIFI Benchmarks and Thresholds be Approved?
As directed in the MRP Decision,[112] FBC proposed new benchmarks and thresholds for the SAIDI and SAIFI SQI metrics in a compliance filing.[113] FBC requests BCUC approval of these new benchmarks and thresholds for the remainder of the MRP term. SAIDI and SAIFI are measures of system reliability. FBC explained during the MRP proceeding that the existing SAIDI and SAIFI benchmarks and thresholds were no longer appropriate due to the introduction in 2017 of an outage management system (OMS), which uses different data tracking.[114]
FBC proposes to set the SQI benchmark at 3.22 for SAIDI and 1.57 for SAIFI, and the threshold at 4.52 for SAIDI and 2.19 for SAIDI for the duration of the MRP.[115] FBC submits the benchmarks were set using the three-year rolling average for the year 2017, 2018, 2019, which incorporate the impact of the OMS, as shown in Table 4 below:
Table 4: FBC Proposed SAIDI and SAIFI SQIs[116]
Similar to the approach used to determine the thresholds for the prior PBR term, FBC submits the proposed thresholds are based on statistical analysis (i.e., standard deviation) of the SAIDI and SAIFI historical results from 2010 to 2019. FBC states:
Using the annual results from 2010 to 2019, the volatility as measured by two standard deviations are 1.30 for SAIDI and 0.62 for SAIFI. The proposed thresholds are then determined by adding the volatility calculated to the proposed benchmarks. For SAIDI, the proposed threshold of 4.52 is the sum of the proposed benchmark of 3.22 plus 1.30 (two standard deviations). For SAIFI, the proposed threshold of 2.19 is the sum of the proposed benchmark of 1.57 plus 0.62 (two standard deviations).[117]
Positions of the Parties
For the reliability indicators SAIDI and SAIFI, interveners generally support FBC’s proposed benchmark and threshold. For example, BCSEA accepts that the proposed SAIDI and SAIFI benchmarks and thresholds for the 2020-2024 MRP term are consistent with previous BCUC directions and were developed following an approach similar to that used in the prior PBR plan.[118]
ICG recommends that BCUC approve the SAIDI and SAIFI benchmarks and thresholds but only if the approval is limited to 2020 and 2021.
In reply, FBC observes that ICG offers no rationale for its request and submits the request lacks merit. FBC also states that “[c]onsistent with all the other benchmarks and thresholds approved for the MRP, FBC submits that the benchmarks and thresholds for the SAIDI and SAIFI SQIs should be approved for the entire MRP term.”[119]
Panel Determination
The Panel is satisfied that the SAIDI and SAIFI metrics proposed by FBC are appropriate. FBC supports its proposal with a transparent and sensible analysis. Indeed, interveners, including ICG, are unanimous in their support for these metrics. The Panel disagrees with ICG’s suggestion to limit approval to 2020 and 2021.
ICG raised a similar issue during the MRP proceeding, when it disagreed with FBC’s proposal to base the benchmark for SAIDI and SAIFI on 2017 to 2019 actual results for the entire MRP period, and argued that FBC should instead calculate the benchmark on a three‐year historical rolling average for both SAIDI and SAIFI.[120] The Panel in that proceeding rejected ICG’s proposal, finding that it would make it difficult to detect changes in service quality.[121]
In the Panel’s view, the certainty of establishing these benchmarks and thresholds for the entire term of the MRP is efficient and effective, and reflects the intention of the MRP.
The Panel finds that the metrics for SAIDI and SAIFI proposed by FBC are appropriate, and therefore approves the following, for the duration of the MRP:
• SAIDI - benchmark of 3.22 for SAIDI and threshold of 4.52, and
• SAIFI – benchmark of 1.57 and threshold of 2.19.
3.0 Other Issues Arising
Interveners raised other issues regarding the Application, which we address in the following sections. These issues are:
1. Should FBC use updated residential and commercial customer counts for the 2021 year-end forecast?
2. Has FBC double-counted DSM savings in its residential and commercial UPCs?
3. Is FBC’s DSM spending adequate?
4. Does the performance of FBC’s SQIs warrant additional review?
5. Is it time to review FBC’s return on equity?
6. Should FBC adjust its working capital parameters during the remainder of the MRP term?
3.1 Load Forecast
In the Application, FBC forecasts a decrease in consumption in the 2020 Projected (2020P) forecast compared to 2019 Approved and an increase in consumption in the 2021 Forecast (2021F) compared to the 2020P forecast.[122] FBC explains that the forecasting method it has followed in previous years relies on various components, one of which is the residential UPC forecast. Specifically, FBC estimates the average UPC and then multiplies that by the corresponding forecast of the number of customers to derive the residential load forecast. The commercial load forecast is based on a regression against the Conference Board of Canada (CBOC) Gross Domestic Product (GDP) forecast, while the lighting and irrigation forecasts use the prior year’s actual loads. Wholesale and industrial forecasts are primarily based on customer-specific survey results.[123]
One of the interveners, BCOAPO, challenges FBC’s method of forecasting the customer count as well as how it accounts for DSM savings in the UPC forecast. We address these issues in the next two sections.
3.1.1 Should FBC Use Updated Residential and Commercial Customer Counts?
FBC states that discussions during the Workshop led it to investigate its forecast customer count, as a result of which it determined that an update was warranted, and it filed the update as Undertaking No. 2. The updated customer count resulted in an updated load forecast as well as an updated rate change request.
FBC explains its forecasting methodology for commercial and residential customer counts:[124]
Commercial customer counts are forecast using a regression on BC GDP as forecast by the Conference Board of Canada (CBOC), which was negative 3.2 percent as of April 2020. Consistent with that forecast, FBC projected a loss of 317 commercial customers in 2020, with a loss of 161 commercial customers by June 2020.
Residential customer counts are forecast using a regression on service territory population as forecast by BC STATS. The result of that regression was a projected increase of 471 customers by June 2020.
In fact, however, actuals to June 2020 were quite different, as FBC also explains: [125]
Commercial customer actual – although FBC expected to lose 161 customers by June 2020, from January to June 2020 FBC gained an additional 176 commercial customers, and
Residential customer actual – although FBC expected to gain 471 customers by June 2020, FBC actually added 824 residential customers by June 2020.
Thus, FBC notes that by June 2020 the actual aggregate customer count (141,956) was greater than the aggregate projected customer count at December 2020 (141,616).[126] Consequently, FBC updated its 2020 and 2021 customer count projection and load forecast.[127]
FBC did not, however, update the 2021 year-end residential or commercial customer counts in the second evidentiary update, and explains why: “FBC maintained its 2021 year-end residential customer count because at this time there is insufficient information to conclude that the variation in monthly additions in 2020 is evidence of any sustained trend or step change in customer additions that would warrant varying from FBC’s forecast method for deriving the 2021 year-end customer count.”[128] It provided a similar rationale with respect to the commercial customer count forecast.[129] FBC also refers to the ongoing uncertainty created by the COVID-19 pandemic as an additional reason why it did not update the 2021 year-end residential and commercial customer counts.
Positions of the Parties
The CEC states that it has “reviewed FBC’s load forecast and customer count information and finds it to be acceptable.”[130] BCSEA agrees that FBC’s approach is appropriate, having “examined FBC’s explanation of why it maintained the 2021 year-end residential customer count (forecast), rather re-running the regression using the higher-than-expected January to June 2020 actual values.”[131]
BCOAPO, however, disagrees with maintaining the December 2021 customer count same at the same amount as before the second evidentiary update and proposes an alternative customer count. In BCOAPO’s view, the consistently higher customer counts experienced in the first nine months of 2020 and the growth in the variance over that period are due to more than simple variations in the monthly additions: they point to a consistent rate of growth that is higher than what has been forecast by FBC.” It submits that “there is no reason to suggest that all future customer counts through to the end of 2021 will not be higher than those forecast by FBC.”[132] BCOAPO further submits that the forecasts that FBC generated at BCOAPO’s request, which maintain the increases observed in September 2020 throughout the balance of the period, are “reasonable and appropriate in light of the actual customer counts experienced through to September 2020.”[133]
In reply, FBC submits that the customer count forecasts proposed by BCOAPO should not be used because they are not methodologically sound and have no reasonable foundation. The growth rates are only a by-product of the forecast year-end customer counts.[134]
While the COVID-19 pandemic has created greater uncertainty than usual, inventing new forecast methods on an ad hoc basis and without any testing, as BCOAPO proposes, can only increase that uncertainty. In the face of uncertainty and lack of any better data or methodology, FBC submits, it is preferable to stick to FBC’s proven forecast methodology and retain the 2021 year-end customer count based on the BC STATS and CBOC forecast data. FBC goes on to recommend that the BCUC approve the 2021 year-end residential and commercial customer counts that are supported by FBC’s forecasting method.[135]
Panel Discussion
This issue essentially comes down to whether FBC should continue to follow its established methodology for forecasting customer counts, or whether FBC should, as BCOAPO submits, take into account recent data.
While BCOAPO may be correct in predicting a trend towards higher growth than FBC has forecast, it offered insufficient evidence to substantiate this prediction. As FBC notes, the forecast growth rates and customer counts that BCOAPO proposes do not have a reasonable foundation.
FBC uses an established and transparent forecast methodology and should continue to do so. Further, variances in revenue associated with variances in customer count are a flow-through item. Variances will be captured in the flow-through deferral account and amortized into rates in future test periods. On the other hand, to require FBC to adopt BCOAPO’s recommended customer counts, essentially prescribes a new forecasting methodology.
The COVID-19 pandemic has created uncertainty and while there have been recent anomalies in customer growth, without long-term supporting data, it is difficult to assume that these trends will continue. The Panel, therefore, agrees with FBC that the existing forecast methodology remains reliable, whereas the methodology that BCOAPO proposes lacks a supporting foundation. Unless this trend can be substantiated over time, it is preferable to continue to apply the existing forecast methodology and retain the 2021 year-end customer count based on the BC STATS and CBOC forecast data.
3.1.1 Has FBC Double Counted Demand Side Management Savings in Residential and Commercial Use Per Customers?
FBC explains its calculations for the UPC used in the load forecast: “The before-savings UPC was based on a ten-year historic trend of annual UPC values from 2010 to 2019. FBC reviews the forecast methods on an annual basis. As FBC found that there was a strong statistically significant correlation, it [t]herefore applied a ten year trend.”[136]
The formula to forecast the expected before-savings residential load in year t is:
𝐵𝑒𝑓𝑜𝑟𝑒 𝑆𝑎𝑣𝑖𝑛𝑔𝑠 𝐿𝑜𝑎𝑑𝑡 = 𝑈𝑃𝐶𝑡 × 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟 𝐺𝑟𝑜𝑤𝑡ℎ𝑡
where UPC (use per customer in MWh per customer per year) is before-savings.[137]
FBC further explains how it uses a regression analysis of the results over the prior ten years to calculate the customer count and the resulting load.[138]
Table 5: Before and After DSM Savings Residential UPC (MWh)[139]
FBC explains that:
DSM savings per customer are first calculated on an annual basis then added to previous years’ values to show cumulative savings per customer. The cumulative savings per customer are embedded in the historical actuals used to forecast future UPC. As a result, the before-savings forecast UPC slope … includes the impact of the cumulative DSM. The slope assumes that DSM programs and adoption will continue at historical levels. New DSM programs are accounted for with incremental DSM, which is subtracted from the before-savings forecast to arrive at the after savings forecast.[140]
Table 6: Annual Cumulative Residential DSM Savings per customer[141]
Intervener Positions
BCOAPO submits that FBC has double-counted DSM savings in its residential and commercial UPC forecast.[142]
With reference to the table above, BCOAPO submits that the increasing effect of DSM on residential use over the 2010-2019 period is apparent (see the annual change in cumulative savings per customer). It calculates the average annual change in saving from 2010 to 2019 was 92 kWh/customer per year ((947-119)/9), which it notes would be embedded in the before-savings UPC trend analysis used to forecast 2020 and 2021.
BCOAPO submits that, “by subtracting all of the incremental (post-2019) DSM savings from the before savings forecast, FBC has effectively counted this amount twice and to correct this “double counting” error, the UPC forecasts for 2020 and 2021 should be increased.” It goes on to state that it is not clear by how much [the UPC forecast should be increased] since the forecast value is not entirely based on the trend analysis but, in its submission, for 2021 the adjustment would be 0.184 MWh/customer (i.e., 92 kWh x 2 years). This would increase that year’s after savings UPC from 10.10 MWh65 to 10.284 MWh.
As a result, BCOAPO submits that FBC should increase the UPC value used to forecast 2021 residential volumes to 10.284 MWh to remove the double counting and that provide the supporting calculations on the public record.[143] Finally, BCOAPO has similar concerns that FBC has double-counted UPC forecasts in its commercial forecasts for 2020 and 2021.[144]
FBC replies that, contrary to BCOAPO’s submission, FBC has accurately accounted for DSM savings from both past programs and new programs.[145] It states that the “error in BCOAPO’s argument is the failure to maintain the distinction between the continuing DSM savings from past programs and the incremental DSM savings from new programs.” Savings from past DSM programs are reflected in historical actual values, however, the incremental savings from new programs are not. Thus, FBC explained that the DSM savings from past programs are embedded in the historical actuals used in the forecast, while incremental DSM savings from new programs are deducted in a separate step.[146]
Panel Discussion
Having reviewed the submissions on this, the Panel is not persuaded that FBC has double-counted DSM savings in its residential or commercial UPC forecast. Therefore, there is no need to revise the UPC forecast.
3.1 Is FBC’s Demand Side Management Spending Adequate?
FBC states that its forecast of DSM savings is consistent with the Company’s approved 2019 DSM plan.[147] FBC is not requesting approval of its DSM expenditures or savings in the Application. FBC provides its forecast incremental 2020 and 2021 DSM Savings in Table 7 below:
Table 7 - Forecast Incremental 2020 and 2021 DSM Savings (GWh)[148]
FBC explains its performance relative to plan, stating that DSM spending and energy savings 2020 year to date are tracking at approximately 80 percent of planned. FBC expects that it will achieve 90 percent of planned DSM spending in 2020. FBC further states it will be undertaking best efforts to achieve its approved plan in 2021, but, at this time, it is unknown what impact the COVID-19 pandemic may have. FBC explains several DSM initiatives it is supporting and is modifying its programs in response to the effects of the pandemic on consumer behaviour.[149]
Positions of the Parties
BCSEA indicates that it is satisfied with FBC’s DSM performance.[150] The CEC, however, states that it is “less than satisfied” with FBCs DSM spending, and notes that “Systemic underspending of the DSM results in lesser benefits for the specific customers with DSM potential and the ratepayers. The CEC would support FBC exceeding its planned efforts, going into a DSM growth period in order to achieve up to 20% more benefits earlier than might otherwise be the case.”[151]
FBC responds that it has already increased its DSM programs in response to the pandemic. FBC submits that a number of factors impacting customer participation in DSM programs are outside of its control, including economic impacts from the pandemic.
Panel Discussion
Although interveners have commented on FBC’s DSM, DSM spending is not an issue before this Panel. The Panel nevertheless believes it would be helpful to address these comments.
Because DSM programs are customer-driven, it is reasonable to expect that customer uptake is different from forecast. Especially for a new program, uptake will rarely (if ever) be 100 percent. Further, DSM spending targets are unlikely to be exceeded when customers forgo spending on incentives, such as during a pandemic. Finally, FBC has no incentive to underspend because its actual DSM spending is put into rate base and subject to a WACC return. DSM budgets and targets were approved in separate proceeding for the 2019-2022 period.
In any event, FBC states that it has currently reached 80 percent of the target for 2020 and is on track to reach 90 percent by the end of 2020. Further, FBC expects to meet the target in 2021. Although the CEC states it would support FBC going into a growth period, it does not offer specific suggestions about what FBC should be doing.
3.2 Does the Performance of FBC’s SQIs Warrant Additional Review?
As stipulated in the MRP Decision, and FBC’s 2014-2019 approved PBR plan, this Annual Review includes a review of FBC’s performance with respect to SQIs. The Annual Review provides an opportunity for the Panel and interveners to review SQI results for the prior year, and year to date results for the current year. Benchmarks and thresholds for the 2014-2019 PBR plan term apply to the 2019 SQI results. 2020 year-to-date (YTD) results are compared to the revised benchmark and thresholds set for the current 2020-2024 MRP term, and with updated SAIDI and SAIFI benchmarks and thresholds set in this Decision.
2019 Results
For the 2014-2019 PBR plan, the BCUC approved a balanced set of SQIs covering safety, responsiveness to customer needs, and reliability. Eight of the SQIs have benchmarks and performance ranges set by a threshold level, as outlined in the Consensus Recommendation approved by the BCUC in Order G-14-15. Three of the SQIs are for information only, and as such do not have benchmarks or performance ranges.[152] FBC provided its 2019 SQI results:
Table 8: FBC Approved SQIs, Benchmarks and 2019 Performance[153]
FBC submits that for all SQIs except SAIDI, 2019 performance was better than threshold. FBC explains that SAIDI results have been impacted by the implementation of the OMS, which has increased the reported outage duration times, even though no change to FBC’s operating practices has taken place. FBC states that the BCUC accepted FBC’s higher SAIDI results in its Decision on 2018 Annual Review in Order G-246-18 dated December 19, 2018. FBC explains that 2020 SQI benchmarks and thresholds will be reset to incorporate the impact of the OMS.[154]
2019 results for Emergency Response time were between benchmark and threshold.
2020 YTD Results
FBC submits that its “2020 year-to-date SQI results indicate that the Company’s overall performance to date is representative of a high level of service quality. At the end of June 2020, for the eight SQIs with benchmarks, all performed at or better than the thresholds. For the four SQIs that are informational only, performance generally remains at a level consistent with prior years.”[155]
Table 9: FBC June 2020 YTD SQI Results[156]
Emergency response time, SAIDI and SAIFI June 2020 YTD results are between benchmark and threshold.
FBC explains that Emergency Response Time is the time elapsed from the initial identification of a loss of electrical power to the arrival of FBC personnel onsite at the trouble location. The Emergency Response time SQI measures the percentage of emergency calls responded to within two hours. FBC states there are many variables affecting the response time, including time of day, number and type of outages, available resources, location and weather conditions. FBC further states that volatility of results year to year is expected due to the variability in the nature of outages.[157]
The June 2020 YTD SAIDI and SAIFI results were slightly above the proposed benchmarks. FBC states this was largely due to worse than average performance in the second quarter which was 39 and 33 percent above the three-year averages for SAIDI and SAIFI for that period, respectively. FBC states the leading contributors to the adverse results were adverse weather, tree contacts and foreign interference. FBC further states system reliability performance has improved since the end of June with the August YTD results currently at 3.17 for SAIDI and 1.63 for SAIFI.[158]
Positions of the Parties
Interveners generally agree that FBC’s SQI results indicate satisfactory performance. For example, “BCSEA concurs with FBC that the results of the SQIs and informational indicators indicate that the Company’s overall performance meets service quality requirements.”[159] ICG submits the SQI results show FBC is meeting its service quality targets.[160] BCOAPO has no issue with the Safety, Customer Responsiveness, or Reliability SQIs.[161]
The CEC, however, recommends the Panel request FBC to provide a plan to improve those of its SQIs that are below benchmark[162] and that we “direct FBC to ensure that its Emergency Response time is improved to meet Benchmark over the coming year.”[163] The CEC submits that although FBC’s performance has largely been better than benchmark in SQIs with specified benchmarks, which is acceptable,[164] it is “not appropriate for SQI results to continue to remain below Benchmark for more than one year, and even decline to near Threshold while under the MRP.”[165]
In response to the CEC, FBC submits that its emergency response time performance in 2019 is acceptable and that, as FBC will be reporting on its 2020 performance in the next Annual Review, no direction is required at this time.[166] FBC references the Consensus Recommendation on SQIs (the result of stakeholder consultation during the PBR plan that preceded the 2014-2019 PBR plan), which set out the performance ranges for the PBR plan and was approved by the BCUC. The accepted Consensus Recommendations include:
1. Performance ranges for each SQI were set as the range between the benchmark set by the BCUC and a “threshold” agreed to in the Consensus Recommendation;
2. The objectives of the performance ranges and the review process of results are:
a. To identify instances of potential deterioration of service quality during the PBR period for which the utility may be accountable;
b. To give due recognition to normal volatility which may produce SQI scores inferior to the benchmarks that do not represent serious degradation of service; and
c. To provide a transparent and efficient Annual Review process in which all stakeholders have confidence;
3. Performance inferior to a threshold does not necessarily represent a “serious degradation of service,” or warrant adverse financial consequences for FBC. Rather, inferior performance is a factor the BCUC may consider when evaluating ‘serious degradation of service’ or whether adverse financial consequences for FBC are warranted; and
4. FBC will provide additional explanation on an SQI at an Annual Review if the SQI score in any year is below threshold or the SQI score in any two successive calendar years during the term of the PBR plan has been between the benchmark and the threshold.[167]
FBC states that it will continue to follow the practice of providing additional explanation on an SQI at an Annual Review if the SQI score is below benchmark for two consecutive years.[168]
Panel Discussion
The framework for the Annual Review process outlined in the MRP Decision lists two topics regarding SQIs:[169]
• Review of the utilities’ performance with respect to SQIs. Bring forward recommendations to the BCUC where there have been a “sustained serious degradation” of service; and
• Assess and make recommendations with respect to any SQIs that should be reviewed in future Annual Reviews.
Of FBC’s 11 indicators in 2019 (three of which were strictly informational), FBC’s performance exceeded benchmark in all but two, and of those two, FBC was between benchmark and threshold in one (emergency response time), and below threshold in one (SAIDI). The Panel accepts FBC’s explanation that the poor SAIDI result reflects the implementation of the OMS, and notes that 2020 year-to-date results appear to be improving.
Of FBC’s 12 indicators in 2020 (four of which are strictly informational), FBCs year-to-date performance exceeds benchmark in all but three, and of those three (emergency response time, SAIDI and SAIFI), FBC is between benchmark and threshold. There are no areas of ‘sustained serious degradation’, indeed, there are no areas that are below threshold.
In the MRP Decision, the Panel described the performance range for SQIs, as:
…a range of scores where performance would be found to be satisfactory …. In general, a threshold is the minimum performance required, and failure to meet a threshold could result in penalties being assessed during the Annual Review proceedings. A benchmark is considered a target, based on industry standard or best practice, and there is no penalty if it is not achieved.[170]
Although FBC targets achieving a benchmark, failure to do so does not mean that its performance in that particular SQI is unacceptable. If FBC performs between benchmark and threshold for a second consecutive year, it already knows that it must provide additional explanation during the next Annual Review. Therefore, the Panel considers it unnecessary to request FBC to provide a plan to improve its performance in those areas below benchmark.
Furthermore, in our view, FBCs performance with respect to SQIs, in both 2019 as well as 2020 year-to-date, is meeting expectations. The one area where its 2019 performance was below threshold seems to be on the mend, and although its 2020 results are not yet final, they are currently within acceptable ranges.
3.3 Is it Time to Review the Return on Equity?
BCOAPO submits that the BCUC should assess whether, in light of the ongoing COVID-19 pandemic, current and anticipated future financial market returns have changed sufficiently since the ROE values established in Order G-129-16 and G-47-14 were issued to warrant a comprehensive review of the appropriate ROE for all BC utilities.[171]
In response, FBC submits that an assessment of the ROE of BC utilities is outside the scope of this proceeding. It would not be procedurally fair for the BCUC to make a decision on this issue given that it would affect all utilities in BC and no party has had notice that such an issue would be addressed in this proceeding.[172]
BCOAPO is not proposing such an assessment in this proceeding Rather, it requests that the Panel recommend the BCUC undertake a generic ROE assessment, applicable to all utilities in BC. On January 18, 2021, the BCUC issued a letter to all regulated utilities advising that a general cost of capital proceeding will be initiated in the spring of 2021 for rate setting effective January 1, 2022.[173] The Panel will leave the review of the issue to that proceeding.
3.1 Should FBC Adjust its Working Capital Parameters During the Multi-Year Rate Plan Term?
BCOAPO raises an issue in this proceeding that was, to a large extent, addressed in the MRP. The MRP Decision approved a modification to the ‘lead‐lag days’, which FortisBC explained it uses to calculate its cash working capital requirements in its compliance filings.[174] BCOAPO submitted in the MRP Proceeding that “since the number of customers on monthly billing for FBC impacts the study results, FBC should be required to report on changes in the percentage of customers on monthly billing as part of FBC’s Annual Review and parties should be given the opportunity to make submissions on whether or not the revenue lag should be adjusted.” That request was rejected: “As pointed out by FortisBC, the impact of such changes is likely to be minimal. The Panel agrees with FortisBC that an update in 2025 is appropriate.”[175]
BCOAPO now submits, “FBC should be expected to address, if asked in future Annual Reviews, the extent to which customers continue to move to monthly billing and update the parameters used in its working capital calculations if the changes are material.” In reply, FBC submits that it would not be cost effective to update the lead-lag study again during the term of the MRP and there should be no need to adjust working capital calculations over the term of the MRP. Further, it points out that the average annual impact of the changes to working capital from 2016 to 2019 was only $40,000.[176]
The Panel does not see any value in revisiting the working capital calculations or the lead-lag study at this time. Given the average annual impact of the changes to working capital in recent years, the Panel is satisfied that the impact during the MRP term is unlikely to be material.
Dated at the City of Vancouver, in the Province of British Columbia, this 12th day of February 2021.
Original signed by:
____________________________________
T. A. Loski
Panel Chair / Commissioner
Original signed by:
____________________________________
C. Brewer
Commissioner
Original signed by:
____________________________________
E. B. Lockhart
Commissioner
Glossary and List of Acronyms
|
2020F |
2020 Forecast |
|
2020P |
2020 Projected Forecast |
|
AFUDC |
Allowance for Funds Used During Construction |
|
AMI |
Advanced Metering Infrastructure |
|
Annual Review |
Annual Review process to set rates |
|
Application |
Annual Review for 2020 and 2021 Rates |
|
BC STATS |
BC Statistics |
|
BC-AWE |
Average Weekly Earnings for BC |
|
BC-CPI |
Consumer Price Index for BC |
|
BCMEU |
British Columbia Municipal Electrical Utilities |
|
BCOAPO |
British Columbia Old Age Pensioners’ Organization et al. |
|
BCSEA |
BC Sustainable Energy Association and Sierra Club |
|
BCUC |
British Columbia Utilities Commission |
|
CBOC |
Conference Board of Canada |
|
CEC |
Commercial Energy Consumers Association of British Columbia |
|
COSA |
Cost of Service Analysis |
|
CPCN |
Certificate of Public Convenience and Necessity |
|
CPI |
Consumer Price Index |
|
DC |
Direct Current |
|
DSM |
Demand Side Management |
|
ESM |
Earnings Sharing Mechanism |
|
FBC |
FortisBC Inc. |
|
FEI |
FortisBC Energy Inc. |
|
GDP |
Gross Domestic Product |
|
ICG |
Industrial Customers Group |
|
I-Factor |
Inflation Factor |
|
IR |
Information Request |
|
LTC |
Load Tap Changer |
|
LTERP |
Long-Term Electric Resource Plan |
|
MoveUP |
Movement of United Professionals |
|
MRP |
Multi-Year Rate Plan |
|
MRP Decision |
FortisBC Energy Inc. and FortisBC Inc. Application for Approval of a Multi-Year Rate Plan for the Years 2020 through 2024 Decision dated June 22, 2020 |
|
MRS |
Mandatory Reliability Standards |
|
O&M |
Operating & Maintenance |
|
OMS |
Outage Management System |
|
OPEB |
Other Post Employment Benefits |
|
PBR |
Performance-based ratemaking |
|
Project |
Playmor Substation Upgrade Project |
|
ROE |
Return on equity |
|
RRA |
Revenue Requirement Application |
|
SAIDI |
System Average Interruption Duration Index |
|
SAIFI |
System Average Interruption Frequency Index |
|
SQI |
Service Quality Indicators |
|
UCA |
Utilities Commission Act |
|
UCOM |
Base O&M per Customer |
|
UPC |
Use per Customer |
|
WACC |
Weighted Average Cost of Capital |
|
WACD |
Weighted Average Cost of Debt |
|
Workshop |
Virtual workshop hosted by FortisBC Inc. on October 21, 2020. |
|
X-Factor |
Productivity Factor |
|
YTD |
Year to Date |
IN THE MATTER OF
the Utilities Commission Act, RSBC 1996, Chapter 473
and
FortisBC Inc.
Annual Review for 2020 and 2021 Rates
EXHIBIT LIST
Exhibit No. Description
Commission documents
|
A-1 |
Letter dated August 4, 2020 – Appointing the Panel for the review of FortisBC Inc.’s Annual Review for 2020 and 2021 Rates
|
|
A-2 |
Letter dated August 11, 2020 – Order G-211-20 establishing a Regulatory Timetable for the review of FortisBC Inc.’s Annual Review for 2020 and 2021 Rates |
|
A-3 |
Letter dated September 10, 2020 – BCUC Submitting Information Request No. 1 to FBC |
|
Letter dated October 27, 2020 – BCUC response to ICG request regarding FBC IR responses and FBC’s reply submission (Exhibit B-11) |
|
|
A-5 |
Letter dated October 29, 2020 – BCUC Order G-274-20 amending the regulatory timetable |
|
A-6 |
Letter dated November 4, 2020 – BCUC Submitting Information Request No. 2 to FBC |
|
A-7 |
Letter dated November 6, 2020 – BCUC Order G-287-20 amending the regulatory timetable |
|
A-8 |
Letter dated November 13, 2020 – BCUC Order G-293-20 on ICG’s request with reasons for decision |
|
A-9 |
Letter dated November 24, 2020 – BCUC Order G-298-20 regarding FBC’s Interim Rates Application |
Commission Staff documents
|
A2-1 |
Letter dated September 10, 2020 – BCUC Staff submitting FortisBC Energy Inc. and FortisBC Inc. Multi-Year Rate Plans for 2020 through 2024 Decision Compliance Filing dated July 20, 2020 Pages 3 and 4
|
Applicant documents
|
B-1 |
FortisBC Inc (FBC) – Letter dated July 20, 2020 – Proposed Process for the Annual Review for 2020 and 2021 Rates
|
|
B-2 |
Letter dated August 19, 2020 – FBC Submitting Annual Review for 2020 and 2021 Rates Materials
|
|
B-3 |
Letter dated October 1, 2020 – FBC Submitting Responses to BCMEU’s IR No.1 |
|
B-4 |
Letter dated October 1, 2020 – FBC Submitting Responses to BCOAPO’s IR No.1 |
|
B-5 |
Letter dated October 1, 2020 – FBC Submitting Responses to BCSEA’s IR No.1 |
|
B-6 |
Letter dated October 1, 2020 – FBC Submitting Responses to BCUC’s IR No.1 |
|
B-7 |
Letter dated October 1, 2020 – FBC Submitting Responses to CEC’s IR No.1 |
|
B-8 |
Letter dated October 1, 2020 – FBC Submitting Responses to ICG’s IR No.1 |
|
B-9 |
Letter dated October 1, 2020 – FBC Submitting Responses to MoveUP’s IR No.1 |
|
B-10 |
Letter dated October 9, 2020 – FBC Submitting Evidentiary Update to the Application |
|
B-11 |
Letter dated October 13, 2020 – FBC Submitting Response to ICG’s Request
|
|
B-12 |
Letter dated October 14, 2020 – FBC Submitting Workshop Agenda |
|
B-13 |
Letter dated October 21, 2020 – FBC Submitting Workshop Presentation |
|
B-14 |
Letter dated October 28, 2020 – FBC Submitting Evidentiary Update |
|
B-15 |
Letter dated October 28, 2020 – FBC Submitting response to Workshop Undertakings
|
|
B-16 |
Letter dated November 6, 2020 – FBC Submitting Extension Request for information request responses
|
|
B-17 |
Letter dated November 9, 2020 – FBC Submitting Request for Approval of Interim Rates effective January 1, 2021 |
|
B-18 |
Letter dated November 23, 2020 – FBC Submitting Responses to BCUC’s IR No.2 |
|
B-19 |
Letter dated November 23, 2020 – FBC Submitting Responses to BCOAPO’s IR No.2 |
|
B-20 |
Letter dated November 23, 2020 – FBC Submitting Responses to BCSEA’s IR No.2 |
|
B-21 |
Letter dated November 23, 2020 – FBC Submitting Responses to CEC’s IR No.2 |
Intervener documents
|
C1-1 |
BC Sustainable Energy Association (bcsea) - Letter dated August 14, 2020 Request to Intervene by William Andrews
|
|
C1-2 |
Letter dated September 10, 2020 – BCSEA Submitting Information Request No. 1 to FBC |
|
C1-3 |
Letter dated November 4, 2020 – BCSEA Submitting Information Request No. 2 to FBC
|
|
C2-1 |
Commercial Energy Consumers Association of British Columbia (CEC) Letter dated August 20, 2020 Request to Intervene by Christopher Weafer
|
|
C2-2 |
Letter dated September 10, 2020 – CEC Submitting Information Request No. 1 to FBC |
|
C2-3 |
Letter dated November 4, 2020 – CEC Submitting Information Request No. 2 to FBC
|
|
C3-1 |
British Columbia Old Age Pensioners’ Organization et al. (BCOAPO) - Letter dated August 26, 2020 Request to Intervene by Leigha Worth & Irina Mis
|
|
C3-2 |
Letter dated September 10, 2020 – BCOAPO Submitting Information Request No. 1 to FBC |
|
C3-3 |
Letter dated November 4, 2020 – BCOAPO Submitting Information Request No. 2 to FBC
|
|
C4-1 |
Industrial Customers Group (ICG) - Letter dated August 26, 2020 Request to Intervene by Robert Hobbs |
|
C4-2 |
Letter dated September 10, 2020 – ICG Submitting Information Request No. 1 to FBC |
|
C4-3 |
Letter dated October 8, 2020 – ICG submission regarding Information Request response |
|
C4-4 |
Letter dated October 29, 2020 – ICG Submitting Reply to FBC (Exhibit B-11) |
|
C5-1 |
British Columbia Municipal Electrical Utilities (BCMEU) - Letter dated August 26, 2020 Request to Intervene by Alex Love and Gabriel Bouvet‐Boisclair
|
|
C5-2 |
Letter dated September 10, 2020 – BCMEU Submitting Information Request No. 1 to FBC |
|
C6-1 |
Movement Of United Professionals (MoveUP) – Letter dated September 2, 2020 request for Late Intervener Status by Jim Quail |
|
C6-2 |
Letter dated September 9, 2020 – MoveUP Submitting Information Request No. 1 to FBC |
[1] FortisBC Energy Inc. and FortisBC Inc. Application for Approval of a Multi-Year Rate Plan for the Years 2020 through 2024 Decision and Orders G-165-20 and G-166-20 dated June 22, 2020.
[2] Order G-303-19 dated November 28, 2019.
[3] On October 9, 2020, FBC filed an Evidentiary Update correcting an error with respect to the in-service date of the Playmor Station Upgrade project, which FBC states does not have an impact on proposed 2020 or 2021 rates (Exhibit B-6). On October 28, 2020, FBC filed a further Evidentiary Update revising its revenue requirements, which resulted in amendments to the approvals sought (Exhibit B-14).
[4] Exhibit B-21, CEC IR 26.1.
[5] Exhibit B-14, p. 3.
[6] Ibid., pp. 1, 3.
[7] Order G-298-20 dated November 24, 2020.
[8] FortisBC Energy Inc. and FortisBC Inc. Application for Approval of a Multi-Year Rate Plan for the Years 2020 through 2024, Decision and Orders G-165-20 and G-166-20 dated June 22, 2020 (MRP Decision), p. 1.
[9] Ibid., p. 170.
[10] Order G-166-20 dated June 22, 2020.
[11] MRP Decision, p. 167.
[12] MRP Decision, p. 168.
[13] Exhibit B-10, p. 1.
[14] Exhibit B-14, p. 1.
[15] Exhibit B-14, pp. 1, 3; Exhibit B-2, pp. 2–3; Exhibit B-6, BCUC IR 26.4.
[16] Order G-211-20 dated August 11, 2020, and later amended by Orders G-274-20 and G-287-20 dated October 29, 2020 and November 6, 2020, respectively.
[17] Exhibit B-2, pp. 141–142.
[18] FBC Reply Argument, p. 6.
[19] Exhibit B-2, p. 1.
[20] Exhibit B-14, p. 1.
[21] Exhibit B-14, p. 3.
[22] Exhibit B-2, p. 4.
[23] Exhibit B-21, CEC IR 26.1.
[24] Exhibit B-14, p. 3.
[25] Exhibit B-2, p. 5.
[26] Exhibit B-14, p. 4.
[27] Ibid., p. 2.
[28] Calculated as $11.866 million less $4.352 million.
[29] Calculated as $2.962 million plus $0.259 million.
[30] Exhibit B-2, p. 39.
[31] Ibid., p 6.
[32] Ibid., p. 39.
[33] Ibid.
[34] Exhibit B-2, p. 9.
[35] Ibid.
[36] The percentage change in BC-CPI from July 2018 to June 2019 (Exhibit B-2, p. 10).
[37] The percentage change in BC-AWE from July 2018 to June 2019 (Exhibit B-2, p. 10).
[38] Exhibit B-2, p. 9.
[39] Exhibit B-14, p. 2.
[40] Exhibit B-14, Appendix A Revised Section 11 Financial Schedules, Section 11 – 2020, Schedule 20.
[41] Exhibit B-2, p. 7.
[42] FBC Multi-Year Performance Based Ratemaking Plan for 2014 through 2018 Decision and Order G-139-14 dated September 15, 2014.
[43] Exhibit B-2, p. 158.
[44] Ibid.
[45] Ibid., pp. 158–159.
[46] Exhibit B-6, BCUC IR 28.5.
[47] Exhibit B-2, p. 159.
[48] Ibid., p. 7.
[49] Exhibit B-14, p. 3.
[50] Exhibit B-20, BCSEA IR 9.1.
[51] Exhibit B-2, p. 7; Workshop Transcript Volume 1, p. 33.
[52] Exhibit B-19, BCOAPO IR 37.1.
[53] Percentage changes in BC-AWE and BC-CPI are for the period from July 2019 to June 2020 (Exhibit B-19, BCOAPO IR 37.1).
[54] Exhibit B-4, BCOAPO IR 4.3.
[55] Exhibit B-15, Undertaking No. 1.
[56] Exhibit B-4, BCOAPO IR 4.3.
[57] BCSEA Final Argument, p. 3.
[58] CEC Final Argument, p. 3.
[59] Ibid., p. 23.
[60] FBC Reply Argument, p. 6.
[61] MRP Decision, p. 116.
[62] BCOAPO Final Argument, p. 37.
[63] Exhibit B-4, BCOAPO IR 16.1.
[64] FBC Reply Argument, p. 11.
[65] BCOAPO Final Argument, p. 14.
[66] ICG Final Argument, p. 8.
[67] FBC Reply Argument, p. 12.
[68] MRP Decision, p. 165.
[69] Exhibit B-2, p. 50.
[70] Ibid., Appendix B, p. 1.
[71] Exhibit B-10, p. 1.
[72] Exhibit B-2, p. 50.
[73] MRP Decision, p. 132-133.
[74] Workshop Trancript Volume 1, p. 132.
[75] Exhibit B-2, Appendix B, p. 1.
[76] Exhibit B-2, Appendix B, p. 4.
[77] Ibid.
[78] Ibid., Appendix B, p. 7.
[79] Exhibit B-6, BCUC IR 14.1.
[80] Ibid., BCUC IR 14.3.
[81] Exhibit B-2, Appendix B, p. 13.
[82] Ibid., Appendix B, pp. 14–16.
[83] Exhibit B-10, BCUC IR 32.1.
[84] Exhibit B-2, Appendix B, p. 19; Exhibit B-10, BCUC IR 34 series.
[85] MoveUP Final Argument, pp. 4–5.
[86] BCOAPO Final Argument, p. 47.
[87] CEC Final Argument, pp. 16–17.
[88] ICG Final Argument, p. 6.
[89] Exhibit B-4, BCOAPO IR 22.1.
[90] FBC Reply Argument, p. 14.
[91] Workshop Transcript Volume 1, p. 131.
[92] These are the amended amounts following FBC’s second evidentiary update as shown in Appendix B of Exhibit B-14.
[93] Exhibit B-4, BCOAPO IR 27.1.1.
[94] Regulatory Account Filing Checklist, Item X.
[95] Exhibit B-2, p. 62.
[96] Exhibit B-4, BCOAPO IR 27.1.1.
[97] Ibid.
[98] BCSEA Final Argument, p. 5.
[99] CEC Final Argument, p. 18.
[100] BCOAPO Final Argument, p. 52.
[101] Exhibit B-4, BCOAPO IR1 27.1.1.
[102] Exhibit B-4, BCOAPO IR1 27.1.1.
[103] FBC 2012-2013 Revenue Requiremetns and Review of 2012 Integretated System Plan Decision and Order G-110-12 dated August 15, 2012 (FBC 2012-2013 RRA Decision), p. 105.
[104] FBC 2012-2013 RRA Decision, p. 105.
[105] ICG Final Argument, pp. 2–5.
[106] Ibid.
[107] FBC Reply Argument, p. 15.
[108] Ibid., p. 18.
[109] Ibid., pp. 17–18.
[110] Ibid., p. 18.
[111] FEI Annual Review for 2020 and 2021 Delivery Rates, Decision and Order G-319-20 dated December 8, 2020 (FEI 2020-2021 Annual Review Decision), p. 17.
[112] MRP Decision, pp. 98–99.
[113] Ibid., p. 166.
[114] Ibid., p. 93.
[115] Exhibit A2-1, p. 4.
[116] Exhibit A2-1, p. 4.
[117] Ibid., p. 3.
[118] BCSEA Final Argument, p. 7.
[119] FBC Reply Argument, p. 21.
[120] MRP Decision, p. 94
[121] Ibid., p. 99.
[122] Exhibit B-2, p. 12.
[123] Ibid., pp. 12–13.
[124] Exhibit B-15, Undertaking No. 2, p. 1.
[125] Exhibit B-15, Undertaking No. 2, p. 1.
[126] Exhibit B-14, p. 2.
[127] Exhibit B-15, Undertaking No. 2.
[128] Exhibit B-18, BCUC IR 38.1
[129] Ibid., BCUC IR 38.4.
[130] CEC Final Argument, p. 7.
[131] BCSEA Final Argument p. 3.
[132] BCOAPO Final Argument, p. 17.
[133] ibid.
[134] Exhibit B-18, BCUC IR 38.1.
[135] FBC Reply Argument, p. 6.
[136] Exhibit B-2, Appendix A3, p. 3.
[137] Ibid., Appendix A3, pp. 3–4.
[138] Exhibit B-2, Appendix A3, Tables A3-3 and A3-4.
[139] Exhibit B-7, CEC IR 2.3.
[140] Exhibit B-4, BCOAPO IR 8.6.
[141] Ibid.
[142] BCOAPO Final Argument, p. 19.
[143] BCOAPO Final Argument, pp. 19– 20.
[144] Ibid., p. 21.
[145] FBC Reply Argument, p. 9.
[146] Ibid., p. 9.
[147] Exhibit B-2, Appendix A3, p. 6.
[148] Ibid., p. 14.
[149] Exhibit B-5, BCSEA IR 1.1.
[150] BCSEA Final Argument, p. 2.
[151] CEC Final Argument, p. 7.
[152] Exhibit B-2, p. 164
[153] Exhibit B-2, pp. 164–165.
[154] Ibid., p. 165.
[155] Exhibit B-2, p. 8.
[156] Ibid., p. 147.
[157] Exhibit B-2, p. 148.
[158] Exhibit B-6, BCUC IRs 26.10, 26.11.
[159] BCSEA Final Argument, p. 7.
[160] ICG Final Argument, p. 7.
[161] BCOAPO Final Argument, pp. 65–69.
[162] CEC Final Argument, p. 3.
[163] Ibid., p. 26.
[164] Ibid., p. 24.
[165] Ibid., p. 25.
[166] FBC Reply Argument, p. 24.
[167] Order G-14-15 dated February 4, 2015 in the matter of the Application by FortisBC Energy Inc. and FortisBC Inc. for Approval of the Service Quality Indicator Performance Ranges.
[168] FBC Reply Argument, p. 23.
[169] MRP Decision, p. 165.
[170] Ibid., p. 87.
[171] BCOAPO Final Argument, p. 56.
[172] FBC Reply Argument, p. 20.
[173] Retrieved from: https://www.bcuc.com/Documents/Proceedings/2021/DOC_60592_A-1-GCOC-Proceeding-Notice.pdf.
[174] MRP Decision, p. 136.
[175] Ibid., p. 137.
[176] FBC Reply Argument, p. 19.