TABLE OF CONTENTS

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Executive Summary. i

1.0          Introduction. 1

1.1          Background on Creative Energy. 1

1.2          Relevant Decisions and 2021 IAC/TPP Decision. 2

1.3          Legislative and Regulatory Framework. 5

1.4          Regulatory Process. 6

2.0          Proposed IAC/TPP. 7

3.0          Compliance with Previous Directives. 14

4.0          Next Steps. 15

COMMISSION ORDER  G-110-23

 

 

 

Executive Summary

On November 30, 2021, the British Columbia Utilities Commission (BCUC) issued Order G-349-21 and the accompanying decision regarding the Creative Energy Vancouver Platforms Inc. (Creative Energy) Inter-Affiliate Conduct and Transfer Pricing Policy (IAC/TPP) (Original IAC/TPP) filed as part of the 2021 Revenue Requirements Application (RRA) for the Core Steam System (2021 IAC/TPP Decision). In the 2021 IAC/TPP Decision, the BCUC did not approve the Original IAC/TPP as filed because it did not adhere to the principle of ensuring minimal resource sharing between regulated and non-regulated businesses. In addition, the BCUC made several other key findings and directives to Creative Energy with respect to the Original IAC/TPP and provided recommendations for the development of the utility’s next IAC/TPP.

 

On December 1, 2022, Creative Energy filed its 2023 RRA for the Core thermal energy system (TES) which serves downtown Vancouver (Core Steam System) and Northeast False Creek (NEFC) (collectively, Core TES) which included, among other matters, a proposed IAC/TPP (Proposed IAC/TPP) for the BCUC’s approval (Application). In the Application, Creative Energy states that the Proposed IAC/TPP incorporates the changes from its “consideration of the findings and directives” in the 2021 IAC/TPP Decision “as applicable” and that it considers an “allocated share” of an employees’ time of up to, and including, 50-50 between regulated and non-regulated affiliates in the Creative Energy group (Creative Energy Group) to reflect efficient and economic resource sharing. Creative Energy infers that the BCUC’s reference to “minimal” resource sharing in the 2021 IAC/TPP Decision arises from the conclusion that Creative Energy’s parent, Creative Energy Developments Limited Partnership, is a non-regulated business (NRB). However, Creative Energy’s view is that the principle of minimal resource sharing is set out specifically in the context of resource sharing between a public utility and its NRB affiliate, as it is defined in the BCUC’s Retail Markets Downstream of the Utility Meter Guidelines. Creative Energy submits that there are no affiliates in the Creative Energy Group that provide good and services downstream of the utility meter and therefore there are no NRBs in the Creative Energy group.

 

In order to move forward with the review of the Application, including both the 2023 revenue requirements which may be impacted and the Proposed IAC/TPP, this Decision determines whether Creative Energy has addressed the directives pertaining to the Original IAC/TPP as directed in the 2021 IAC/TPP Decision.

 

The Panel considers that the key findings and directions made in the 2021 IAC/TPP Decision are essential to achieve the primary purpose of an IAC/TPP, which is to minimize or constrain the potential for cross-subsidization of activities between affiliates, particularly where such cross-subsidization occurs at the expense of ratepayers of BCUC-regulated entities. The Panel finds that Creative Energy fails to understand the BCUC’s characterisation of a non-regulated affiliate. Consistent with the 2021 IAC/TPP Decision, the Panel considers a non-regulated affiliate, or NRB for the Creative Energy Group, to be an affiliate of the Creative Energy Group not regulated by the BCUC or a division/department of a utility offering products or services not regulated by the BCUC, irrespective of the form the BCUC regulation takes. Based on this, the Panel determines that Creative Energy’s interpretation of a non-regulated business has resulted in the utility contravening the following directives from Order G-349-21 of the 2021 IAC/TPP Decision:

(a)    Directive 2: Creative Energy is directed to provide further evidence demonstrating how its labour rates are reflective of the higher of market pricing or full cost recovery where resources are shared with non-regulated affiliates in its next RRA for the Core Steam System.

(b)    Directive 3: Creative Energy is directed to cease sharing, by no later than the time of filing of its 2023 RRA for the Core Steam System, its staff resources with Creative Energy’s non-regulated affiliates, to the extent that those staff allocate more than a minimal amount of their time to activities of its non-regulated affiliates.

(c)     Directive 4: Creative Energy is directed to request advance BCUC approval, unless otherwise ordered, for any material cost or resource sharing by Creative Energy with any non-regulated affiliate. When seeking such approval, Creative Energy must provide the basis and any justification for the proposed amounts of the cost or resource sharing.

The Panel acknowledges that it has the jurisdiction to regulate the relationship between a public utility and a non-regulated affiliate to the extent that the relationship affects ratepayers and directs Creative Energy, within 30 days of the date of this Decision, to file the following:

•         a revised IAC/TPP addressing the determinations, directives, key findings and BCUC guidance in the 2021 IAC/TPP Decision; and

•         a second evidentiary update to the 2023 Core TES revenue requirements reflecting the necessary revisions as a result of the revised IAC/TPP filed and to clearly detail all accounts and cost categories (e.g. labour costs) that have been adjusted, including the amount of the adjustment.

 

In consideration of the next steps of the proceeding, the Panel establishes the regulatory timetable attached as Appendix A to Order G-110-23.

1.0              Introduction

On December 1, 2022, Creative Energy Vancouver Platforms Inc. (Creative Energy) filed with the British Columbia Utilities Commission (BCUC) its 2023 Revenue Requirements Application (RRA) for the Core thermal energy system (TES) serving downtown Vancouver (Core Steam System) and Northeast False Creek (NEFC) (collectively, Core TES) (Application) and requested, among other things, approval of a proposed Inter-Affiliate Conduct and Transfer Pricing Policy (IAC/TPP) filed as Appendix C to the Application (Proposed IAC/TPP).

 

Creative Energy previously filed an Inter-Affiliate Conduct and Transfer Pricing Policy (Original IAC/TPP) with its 2021 RRA for the Core Steam System (2021 Core RRA) which codified existing practices for conduct, transfer pricing and allocation of the costs of shared services among the Creative Energy entities at that time.[1] On November 30, 2021, by Order G-349-21 and the accompanying decision (2021 IAC/TPP Decision), the BCUC did not approve the Original IAC/TPP as filed because it did not adhere to the principle of ensuring minimal resource sharing between regulated and non-regulated businesses. In addition, the BCUC cited concerns that the benefits to the regulated entities are not appropriately balanced by the increased risks associated with unlimited resource sharing with non-regulated entities. As part of that decision, the BCUC made several key findings and directives to Creative Energy with respect to the Original IAC/TPP as well as recommendations for improvements for the development of Creative Energy’s next IAC/TPP.[2]

 

In the Application, it is Creative Energy’s view that the Proposed IAC/TPP implements the changes that arise from its “consideration of the findings and directives” [emphasis added] in the 2021 IAC/TPP Decision[3] and the utility adds that it considers an “allocated share” of an employee’s time of up to and including 50-50 between regulated and non-regulated affiliates reflects efficient and economic resource sharing.[4] The Panel, however, remains concerned that this is not reflective of the principle of ensuring minimal resource sharing between regulated and non-regulated businesses as stated in the 2021 IAC/TPP Decision, and as a result is cognizant that the associated 2023 revenue requirements may be impacted. Accordingly, in order to move forward with the review of the Application, including both the 2023 revenue requirements and the Proposed IAC/TPP, the Panel must first determine whether Creative Energy has addressed the directives pertaining to the Original IAC/TPP as directed in the 2021 IAC/TPP Decision.

 

1.1              Background on Creative Energy

Creative Energy is a wholly owned subsidiary of Creative Energy Developments Limited Partnership (CEDLP), which in turn is a wholly owned subsidiary of Creative Energy Holdings Limited Partnership (CE Holdings). CE Holdings is a partnership of Creative Energy Canada Platforms Corp. (ultimately owned by Westbank Holdings) and Emanate Energy Solutions Inc. (ultimately owned by InstarAGF Essential Infrastructure Fund).[5]

 

Creative Energy owns and operates a number of existing TES, including the Core TES, the South Downtown (Vancouver House) Heating TES and Cooling DCS[6] systems, the Kensington Gardens TES for Heating and Cooling and the Main & Keefer TES for Heating.[7]

 

1.2              Relevant Decisions and 2021 IAC/TPP Decision

As noted above, in December 2020, Creative Energy filed its Original IAC/TPP as part of the 2021 Core RRA, seeking approval of an IAC/TPP in respect of all BCUC-regulated TES that were part of the Creative Energy group at that time (2021 Creative Energy Group), as shown in Figure 1.[8]

 

Figure 1: 2021 Creative Energy Group Organization Chart from the Original IAC/TPP[9]

 

As the above chart shows, the 2021 Creative Energy Group included: four Stream A TES; five Stream B TES; Creative Energy, as the owner and operator of two Stream A TES and four Stream B TES; and CEDLP, the parent company, which is not regulated by the BCUC.[10]

 

In the BCUC’s Retail Markets Downstream of the Utility Meter Guidelines (RMDM Guidelines),[11] which provide support to utilities for the development of code of conduct and transfer pricing policy filings, and as summarized in the BCUC’s report on the Alternative Energy Solutions Inquiry (AES Inquiry Report),[12] the BCUC has jurisdiction to consider, among other things, the following objectives to guide its determinations regarding the extent to which a utility’s assets or services may be used by a non-regulated business activities:[13]

•         There must be no subsidy of unregulated business activities, whether undertaken by the utility or its [non-regulated business], by utility ratepayers.

•         The risks associated with participation in the unregulated market must be borne entirely by the unregulated business activity, that is the risks must have no impact on utility ratepayers.

In the FortisBC Energy Inc.’s Code of Conduct and Transfer Pricing Policy for Affiliated Regulated Business Operating in a Non-Natural Monopoly Environment Decision accompanying Order G-31-15, issued February 27, 2015, the BCUC reiterated this position. It stated that the primary focus of a code of conduct and transfer pricing policy is the impact it will have on the utility ratepayers and the utility has a responsibility to protect the utility ratepayers by ensuring there is no cross-subsidization and to ensure that the risks of non-regulated business activities are not transferred to the regulated utility and their respective ratepayers.[14] This purpose was again reaffirmed in the 2021 IAC/TPP Decision, where the BCUC stated the primary purpose of any inter-affiliate code of conduct and transfer pricing policy should be to minimize or constrain the potential for cross-subsidization of activities between affiliates, particularly where such cross-subsidization occurs at the expense of ratepayers of regulated entities.[15]

 

The BCUC explained in the 2021 IAC/TPP Decision that in reviewing the Original IAC/TPP, it was guided by applicable overarching principles from both the RMDM Guidelines, which address affiliate transactions between regulated utilities and their non-regulated businesses (NRBs), and the AES Inquiry Report.[16] In particular, the BCUC found the following principles from the RMDM Guidelines and AES Inquiry Report to be relevant in making its determination on whether the Original IAC/TPP adequately protected the interests of impacted ratepayers:

 

RMDM Guidelines

•         There must be no subsidy of unregulated business activities, whether undertaken by the utility or its NRB, by utility ratepayers.[17]

•         The risks associated with participation in the unregulated market must be borne entirely by the unregulated business activity, that is the risks must have no impact on utility ratepayers.[18]

•         The most economically efficient allocation of goods and resources for ratepayers should be sought.[19]

 

RMDM Guidelines – Transfer Pricing Principles

•         The operating costs of non-regulated activities are not to be reflected in the utility’s cost of service.[20]

•         The costs of developing new business ventures are to be charged to and recovered from the NRB.[21]

•         The accounting costs are to be transparent and will normally fully recover costs for all services, including overhead, space, employee benefits, inconvenience, and a profit margin where appropriate. If the service provided by the utility to the related-NRB could also be obtained from an independent supplier, the price paid by the related-NRB to the utility should be no less than the competitive market price and will never be below the incremental cost.[22]

•         The financial costs of each business are borne by the business. In the exceptional case where the utility provides guarantees for NRBs, the utility must be given financial compensation.[23]

•         Utilities will be required to file periodic reports which demonstrate that they are adhering to the transfer pricing policy. The form and timing of the report will be determined by the BCUC.[24]

 

AES Inquiry Report – Affirmation of RMDM Guidelines

•         There must be no subsidy of unregulated business activities, whether undertaken by the utility or its NRB, by utility ratepayers and this principle is extended to apply to regulated businesses.[25]

 

AES Inquiry Report – Principles and Guidelines for NRBs

•         Where activities involve sharing of resources between regulated and non-regulated affiliates, an approved code of conduct and transfer pricing policy must require minimal sharing of resources between regulated and non-regulated affiliates and use of the full cost to provide the service or market pricing, whichever is higher.[26]

•         All costs and services provided both between regulated and non-regulated affiliates and between regulated affiliates be fully disclosed to the BCUC.[27]

In the 2021 IAC/TPP Decision, the BCUC determined that the Original IAC/TPP failed to adhere to the above-noted principles,[28] and ultimately did not approve the Original IAC/TPP. In making this determination, the BCUC made the following key findings:

•         Contrary to Creative Energy’s submission, CEDLP is a non-regulated business as contemplated in the RMDM Guidelines and AES Inquiry Report, noting that, in addition to CEDLP’s ownership of several BCUC-regulated TES, it also carries on other business that is not regulated by the BCUC.[29]

•         The Original IAC/TPP applies to all entities within the 2021 Creative Energy Group including transactions between CEDLP (the non-regulated entity) and its BCUC-regulated entities, despite Creative Energy purporting to limit the application of the Original IAC/TPP to the BCUC-regulated entities that are part of the 2021 Creative Energy Group.[30]

•         The resource sharing provision within the Original IAC/TPP that allows CEDLP and its affiliates, including Creative Energy, to freely share employees, equipment, and services is not consistent with the principle from the AES Inquiry Report that states an approved code of conduct and transfer pricing policy must require minimal sharing of resources between regulated and non-regulated affiliates. While the Original IAC/TPP identified certain benefits of resource sharing, the BCUC is not persuaded that the benefits to the regulated entities are appropriately balanced by the increased risks associated with the unlimited resource sharing with the non-regulated businesses.[31]

•         As stated in the AES Inquiry Report, where non-arm’s length transactions occur between regulated and non-regulated affiliates, an approved code of conduct and transfer pricing policy must require the use of the full cost to provide the service or market pricing, whichever is higher. The definition of “Cost Recovery Basis”, as set out in the Original IAC/TPP, does not reflect this principle with respect to transactions between Creative Energy’s regulated and non-regulated affiliates.[32]

•         It is unclear whether the labour rates used by Creative Energy reflect the higher of market pricing or full cost recovery.[33]

As a result of the above determination and key findings, in November 2021 the BCUC directed Creative Energy to:[34]

(a)    Provide further evidence demonstrating how its labour rates are reflective of the higher of market pricing or full cost recovery where resources are shared with non-regulated affiliates in its next RRA for the Core Steam system;

(b)    Cease sharing, by no later than the time of filing of its 2023 RRA for the Core Steam system, its staff resources with Creative Energy’s non-regulated affiliates, to the extent that those staff allocate more than a minimal amount of their time to activities of its non-regulated affiliates;

(c)     Request advance BCUC approval, unless otherwise ordered, for any material cost or resource sharing by Creative Energy with any non-regulated affiliate. When seeking such approval, Creative Energy must provide the basis and any justification for the proposed amounts of the cost or resource sharing; and

(d)    File its total annual gross costs as part of its future RRAs for the Core Steam system.

 

As part of the 2021 IAC/TPP Decision, denying approval of the Original IAC/TPP, the BCUC did not establish a deadline for Creative Energy to file a revised IAC/TPP, rather the BCUC recognized that an appropriate transitional period would be required for Creative Energy to make changes to its organizational structure in order to enable it to ensure the proper separation of its various business activities and resources. Accordingly, the BCUC did not see value in Creative Energy resubmitting another IAC/TPP until Creative Energy’s organizational structure properly reflected the principles from the RMDM Guidelines and AES Inquiry Report the BCUC considered relevant in making its determinations on the Original IAC/TPP. Additionally, the BCUC included guidance to Creative Energy on developing a revised IAC/TPP in the future as outlined in Section 3.3 of the 2021 IAC/TPP Decision.

 

1.3              Legislative and Regulatory Framework

In considering whether an entity is regulated, the Panel assesses whether the entity meets the definition of a public utility as defined under the Utilities Commission Act (UCA):

Section 1 of the UCA defines “public utility” to mean a person, or the person's lessee, trustee, receiver or liquidator, who owns or operates in British Columbia, equipment or facilities for

(a)    the production, generation, storage, transmission, sale, delivery or provision of electricity, natural gas, steam or any other agent for the production of light, heat, cold or power to or for the public or a corporation for compensation, or

(b)    the conveyance or transmission of information, messages or communications by guided or unguided electromagnetic waves, including systems of cable, microwave, optical fibre or radiocommunications if that service is offered to the public for compensation,

but does not include

(c)     a municipality or regional district in respect of services provided by the municipality or regional district within its own boundaries,

(d)    a person not otherwise a public utility who provides the service or commodity only to the person or the person's employees or tenants, if the service or commodity is not resold to or used by others,

(e)    a person not otherwise a public utility who is engaged in the petroleum industry or in the wellhead production of oil, natural gas or other natural petroleum substances,

(f)      a person not otherwise a public utility who is engaged in the production of a geothermal resource, as defined in the Geothermal Resources Act, or

(g)    a person, other than the authority, who enters into or is created by, under or in furtherance of an agreement designated under section 12 (9) of the Hydro and Power Authority Act, in respect of anything done, owned or operated under or in relation to that agreement.

In the RMDM Guidelines, and restated in the AES Inquiry Report, the BCUC determined that its jurisdiction with respect to the use of public utility assets and services to provide unregulated goods and services included the following:[35]

The [BCUC] has the jurisdiction to regulate the relationship between a public utility and an affiliated NRB to the extent that the relationship affects ratepayers. The [BCUC] may implement a transfer pricing policy to regulate the interface between the utility and the NRB or may prohibit a utility from providing an NRB with any utility assets and services if, in the [BCUC]’s judgment, this is required to protect ratepayers.

The AES Inquiry Report also included the definitions for the following terms used in this Decision:[36]

 

Affiliate	[…] an affiliate of a regulated utility is another entity directly or indirectly owned or controlled by the same shareholders of the utility, and the affiliated business may also be regulated by the Commission or may operate as a non-regulated business. This Decision does not address how an “affiliate” should be further defined for other purposes, for example, in a Code of Conduct context.
Code of Conduct	An established standard with conditions for interaction between a utility and its affiliates (utility and/or non-utility).
Transfer Pricing Policy	A policy document which addresses the pricing of resources and services provided by the regulated utility to: (i) an NRB; (ii) a division of the utility providing unregulated products or services, and/or; (iii) a regulated affiliated utility. The aim is to protect the core ratepayers from subsidizing unregulated activities or new regulated activities.

 

The Panel considers that the definitions provided in the AES Inquiry Report are relevant for the purposes of this Decision and acknowledges that Creative Energy’s Proposed IAC/TPP filing is, in substance, equivalent to a proposed code of conduct and transfer pricing policy as defined by the AES Inquiry Report. Further, for the purposes of this Decision, from the Panel’s perspective a regulated affiliate/utility and non-regulated affiliate is equivalent to a BCUC-regulated affiliate/utility and NRB, respectively.

 

In Section 2.0 of this Decision the Panel addresses which entities are considered to be public utilities in the context of the current organizational structure of Creative Energy.

1.4              Regulatory Process

On December 20, 2022, the BCUC established, among other things, a public written hearing process and a regulatory timetable for the review of the Application, which included public notice, intervener registration, filing of an evidentiary update (Evidentiary Update), and one round of BCUC and intervener information requests (IRs) with further process to be determined.[37]

 

The following interveners registered and have actively participated in the proceeding to date:

•         BC Old Age Pensioners’ Organization, Council of Senior Citizens’ Organizations of BC, Disability Alliance BC, and Tenant Resource and Advisory Centre (BCOAPO);

•         Commercial Energy Consumers Association of British Columbia (the CEC); and

•         Residential Consumer Intervenor Association (RCIA).

On January 27, 2023, Creative Energy filed the Evidentiary Update with supporting schedules, amending its request for thermal energy rates on a permanent basis.

 

On February 9, 2023, the BCUC amended the regulatory timetable, requesting submissions from Creative Energy and registered interveners regarding the directives and BCUC guidance in the 2021 IAC/TPP Decision that are relevant to the Application, among other items.

 

Creative Energy and registered interveners filed submissions on February 27, 2023, and March 6, 2023, respectively, and Creative Energy filed its reply on March 13, 2023.

 

The BCUC has not received any letters of comments to date.

2.0              Proposed IAC/TPP

Creative Energy submits that the Proposed IAC/TPP incorporates the changes that arise from Creative Energy’s “consideration of the findings and directives” in the 2021 IAC/TPP Decision “as applicable within the factual basis as presented [in the Application] and subject therefore to the [BCUC]’s further consideration […] of the principles and objectives that apply to resource sharing among affiliated utilities and pricing upon that basis.”[38] Further, Creative Energy states that the Proposed IAC/TPP is established on the basis that the activities and expenditures of all affiliates in the current Creative Energy group[39] (Creative Energy Group) are for the provision of utility thermal energy services and concerns only the pursuit, definition, construction, and operation of utility TES projects.[40]

 

Creative Energy states that in British Columbia (BC), the provision of thermal energy services is regulated by the UCA as modified by the application of the RMDM Guidelines, the AES Inquiry Report, and the BCUC’s TES Regulatory Framework Guidelines (TES Guidelines).

 

In Creative Energy’s view, and consistent with Creative Energy’s view in the Original IAC/TPP filed with the 2021 Core RRA, there are no affiliates in the Creative Energy Group that provide goods and services downstream of the utility meter and therefore no affiliates in the Creative Energy Group engage in NRB activities as that term is defined and used in the RMDM Guidelines.[41] It adds that the reference to a “non-regulated business” in the context of the RMDM Guidelines is for the provision of non-utility goods and services in competitive markets downstream of the utility meter.[42] It also considers the following distinctions to be important to ensure “clarity and precision” in the review of the Proposed IAC/TPP and in the implementation of the changes that arise from “the applicable directives” from the 2021 IAC/TPP Decision:[43]

•         The nature of an NRB in the RMDM Guidelines is not a reference to the form of regulation of a utility service provider in BC or elsewhere; and

•         The affiliates in the Creative Energy Group do not provide any goods and services downstream of the utility meter that would define any of them as an NRB.

Creative Energy asserts that within the Creative Energy Group, the affiliates share resources to achieve economies of scale and that the resulting benefits are provided to their utility TES projects. The ratepayers within the Creative Energy Group ultimately benefit by receiving safe and reliable service that is comparable to a larger utility and at lower rates. Based on this, Creative Energy considers that the Proposed IAC/TPP:[44]

•         protects the ratepayers of operating TES projects from the relatively more speculative activities and expenditures of the affiliate that pursues new TES projects; and

•         delivers economy of scale benefits to the ratepayers of all TES Utility Affiliates[45], including the ratepayers of TES in BC with rates set by the BCUC, such as the rates for the Core TES that are the subject of this Application.

 

Ownership, Structure and Purpose of Creative Energy Group

As noted above, Creative Energy explains that all business and services provided by affiliates in the Creative Energy Group are limited to the pursuit, definition, construction, and operation of TES utility projects, which are enabled by CE Holdings.[46] Figure 2 below, reproduced from Appendix D to the Application, illustrates the structure of the ownership and affiliates in the current Creative Energy Group as at the filing date of the Proposed IAC/TPP:

 

Figure 2: Ownership, Structure and Purpose of Affiliates in the Creative Energy Group[47]

 

 

 

Creative Energy explains Figure 2 as follows:

•         Creative Energy Ventures Limited Partnership (CE Ventures) is an affiliate in the Creative Energy Group established to identify, pursue and define potential utility TES projects, from concept and project opportunity through to negotiation and execution of definitive agreements.

•         CE Holdings provides financing to CE Ventures supporting this purpose. For each feasible utility TES projects that has a definitive agreement in place to proceed to construction and/or the applicable regulatory approvals, a separate wholly owned subsidiary limited partnership of CE Ventures is established (TES Utility Affiliate). This wholly owned subsidiary of CE Ventures executes the necessary agreements to advance the individual utility TES project through its final development stages.[48]

•         CEDLP is also an affiliate in the Creative Energy Group and provides debt financing to TES Utility Affiliates with projects with the applicable regulatory approvals that are under construction or in operation.[49] Creative Energy notes that it (i.e. Creative Energy Vancouver Platforms Inc.) has its own debt facilities and operating line and is not funded via debt from CEDLP.[50]

For those utility TES projects that require a Certificate of Public Convenience and Necessity (CPCN) in BC, upon approval of a CPCN for the TES project (or if a CPCN is not required, when the necessary definitive agreements have been executed to proceed with the construction of the project), Creative Energy explains that the TES Utility Affiliate is moved from under CE Ventures to under CEDLP, which will then support the project with debt financing. At any point in time, Creative Energy states that CEDLP will support a number of projects in and outside of BC with construction debt financing. In addition, CEDLP has an operating line for in-service utility TES projects. CEDLP distributes the proceeds to its subsidiary TES Utility Affiliates as required to fund capital costs during construction and operations.[51]

 

Creative Energy states that the structure enables efficient financing of TES utility projects from their pursuit and definition through to construction and operation, and provides separation and transparency of costs between each TES project, TES Utility Affiliate, and the parent affiliates.[52]

 

Creative Energy’s position on the BCUC’s 2021 IAC/TPP Decision

As noted earlier, Creative Energy states that the Proposed IAC/TPP implements the changes from its consideration of the findings and directives from the 2021 IAC/TPP Decision.[53]

 

In its view, the purpose of the Proposed IAC/TPP is to document the policy and practice of the Creative Energy Group in regard to the following:

(a)    the allocation of shared services staff time between TES Utility Affiliates in the Creative Energy Group of companies and between the CEDLP and CE Ventures affiliates if and as applicable;

(b)    the direct assignment of the capitalization of staff time to Creative Energy and other TES Utility Affiliates and the net expenses allocated to Creative Energy overall; and

(c)     the Massachusetts Formula results for allocating the applicable residual expenses of shared services between the Creative Energy projects (including Core TES) and other TES Utility Affiliates in BC.

Creative Energy states that it has departed from the BCUC’s finding in the 2021 IAC/TPP Decision that CEDLP is an NRB and that this departure originated from a reference to Creative Energy’s “intent to adhere to the principles of the RMDM Guidelines to ensure that no subsidies will arise between affiliates that share resources.” Creative Energy notes that it is “addressing a distinction between the services provided by Creative Energy affiliates as to the stage of TES utility development versus the form of regulation within the regulatory framework in BC.” Creative Energy maintains that the references “are to thermal energy services at the utility meter” and reiterates that there are no affiliates in the Creative Energy Group “that provide goods and services downstream of the utility meter.”[54]

 

Creative Energy goes on to state that it infers the BCUC’s reference to “minimal” resource sharing arises from the conclusion that CEDLP is an NRB and in reference to the AES Inquiry Report where the principle of minimal resource sharing is set out. Creative Energy notes that this principle in the AES Inquiry Report is set out specifically in the context of resource sharing between a public utility and its NRB affiliate, as defined in the RMDM Guidelines, and restates that there are no affiliates in the Creative Energy Group that are NRBs or that otherwise provide good and services downstream of the utility meter.[55] Creative Energy considers efficient and economic resource sharing to be “defined within the practical extent of the skills required to serve individual functions in a cost-effective manner.”[56] In addition, Creative Energy states that the Proposed IAC/TPP now includes changes to “effect additional and transparent protection to all ratepayers of TES Utility Affiliates benefiting from resource sharing” and which are responsive to the overarching principles of the RMDM Guidelines and AES Inquiry Report to ensure fair, efficient, and economic cost allocation for the provision of utility thermal energy service.[57]

 

Finally, it is Creative Energy’s view that the principle of higher of market pricing or full cost recovery as directed in the 2021 IAC/TPP Decision, is not necessary and in fact will result in an unnecessary and uneconomic cross-subsidy between TES Utility Affiliates that would be contrary to the objective of resource sharing and the regulatory compact. Creative Energy considers that all activities of the affiliates within the Creative Energy Group are devoted to the provision of safe and reliable thermal energy service at just and reasonable rates. Creative Energy charges employees on a cost-of-service basis based on the actual cost of the employee without mark-up or margin. Creative Energy considers that a higher-of pricing principle to deliver utility thermal energy services would impose a market and regulatory failure to the ultimate provision of cost-effective thermal energy service to ratepayers.[58]

 

Creative Energy considers that a matter for this proceeding may be for the BCUC to review its intended determinations with respect to its above-noted considerations on the key findings and directives in the 2021 IAC/TPP Decision.[59]

 

Positions of the Parties

Apart from the CEC’s acceptance that Creative Energy does not share resources with NRB affiliates,[60] interveners either do not agree with Creative Energy or consider that adequate evidence has not been provided to support Creative Energy’s position with respect to its response to the directives and BCUC guidance in the 2021 IAC/TPP Decision.

 

BCOAPO submits that Creative Energy does not understand the BCUC’s definition of an unregulated utility and is embedding a reconsideration and variance request in this proceeding. BCOAPO adds that the approach taken and interpretations made by Creative Energy impact the resource costs for the purposes of unregulated business and therefore the 2023 revenue requirements.[61]

 

The CEC submits that Creative Energy has not developed the Proposed IAC/TPP from the perspective of safeguarding utility ratepayers.[62] It notes that there are varying grades of regulation for the affiliates within the Creative Energy Group that may be significantly lower than that for the Core TES, and consequently result in a loss of financial oversight by the BCUC, where ratepayers could potentially be paying for services not being used by the utility. The CEC adds that certain affiliates may operate in competitive environments, such that access to services from the Core TES, has the potential to distort the reality of costs for district energy systems and hinder market development.[63] The CEC does not accept that the Core TES ratepayers will be better off, or even remain harmless, with resources being shared with affiliates in the Creative Energy Group, and submits that the benefits of sharing likely accrue to the shareholders and recommends that the BCUC direct Creative Energy to cease sharing its staff resources with any of the Creative Energy Group affiliates, to the extent that those staff allocate more than a minimal amount of their time to activities to non-regulated affiliates.[64]

 

RCIA submits that the level of transparency provided by Creative Energy in its Application is not adequate to demonstrate that (i) all services provided by Core TES staff to its regulated services are the higher of market pricing or full cost recovery; and (ii) Creative Energy has addressed the directive to cease sharing its staff resources with the non-regulated affiliates, to the extent that those staff allocate more than a minimal amount of time to activities of the non-regulated affiliates.[65] RCIA adds that Creative Energy has not provided evidence demonstrating that the economies of scale achieved through the sharing of resources amongst the Creative Energy Group benefits ratepayers, and considers that these shared resources could be contributing to the increase in the 2023 revenue requirements for the Core TES.[66]

 

In reply, Creative Energy submits that there is a lack of understanding with respect to the nature of the business and services provided by the Creative Energy Group, how the Creative Energy Group is organized, and what it does and does not do. Creative Energy also infers that there is a disconnect between the understanding and expectations in respect to how the BCUC’s principles and guidelines ought to be applied to serve the purpose and intended outcomes of an IAC/TPP in view of the services provided.[67]

 

Creative Energy goes on to submit that through the evidence presented in the Application, the Proposed IAC/TPP is “responsive to the directives of [the 2021 IAC/TPP Decision] to the practical extent of the inherent objectives and underlying factual basis, and that the review of the [Proposed] IAC/TPP in this proceeding may thus entail consideration of the applicability of certain guidelines under the nature of Creative Energy’s business as directed only to the pursuit, definition, construction and operation of TES utility projects.”[68]

 

Creative Energy also notes that BCOAPO’s and RCIA’s submissions may conflate the applicability of certain guidelines with the form of regulation of thermal energy services between TES Utility Affiliates in BC or between provincial jurisdictions. Creative Energy submits that the form of public utility regulation of TES Utility Affiliates in the Creative Energy Group is not a determinant of whether the sharing of resources ought to be precluded and that the Proposed IAC/TPP does not distinguish between or define affiliates in relation to the form of regulation. It adds that to cease sharing of resources would result in a failure to capture the benefits of economies of scale and competitive cost‐based pricing that flow directly to the various utility TES projects and their respective ratepayers, and accordingly, all TES utility ratepayers in the Creative Energy Group would be worse off.[69]

 

Creative Energy submits that the purpose of this proceeding is to determine the appropriate level of resource sharing amongst the affiliates in the Creative Energy Group that will achieve the available economies of scale benefits for the ratepayers receiving TES utility services. However, Creative Energy notes that it is not reasonable for resource sharing between affiliates within the Creative Energy Group to cease.[70]

 

Panel Determination

In this section, the Panel confirms the purpose of an IAC/TPP including the definition of a non-regulated affiliate in the context of an IAC/TPP and based on this, makes determinations on whether Creative Energy has complied with the directives pertaining to the Original IAC/TPP as directed in the 2021 IAC/TPP Decision. The Panel agrees with the 2021 IAC/TPP Decision that the primary purpose of an IAC/TPP is to minimize or constrain the potential for cross-subsidization of activities between affiliates, particularly where such cross-subsidization occurs at the expense of ratepayers of BCUC-regulated entities. From the Panel’s perspective, this objective is designed to protect the ratepayers of regulated entities by ensuring a regulated utility does not pay an unreasonably high amount to a non-regulated affiliate for a service or product or that a regulated entity is not subsidizing the activities of a non-regulated business. And although not necessarily within the scope of the BCUC’s jurisdiction,[71] this objective also ensures that non-regulated affiliates are not providing a service or product to an affiliate for an unreasonably low amount, thereby protecting non-regulated service providers against anti-competitive pricing behaviour resulting from ratepayer subsidy of competitive operations.

 

This primary objective is not novel and is included in the RMDM Guidelines which specify that the BCUC has a responsibility to protect ratepayers[72] and to ensure that there is no subsidy by the regulated utility ratepayers of unregulated business activities, whether undertaken by the regulated utility or its unregulated affiliate.[73] Further in the AES Inquiry Report’s definition of a transfer pricing policy, it states that the “aim is to protect the core ratepayers from subsidizing unregulated activities or new regulated activities.”[74] Concern arises in the context where business structures include both a regulated utility(ies) and a non-regulated affiliate(s), given there may be real or potential conflict of interest between the regulated utility(ies) and the non-regulated affiliate(s). In the Panel’s view a clear separation of regulated and non-regulated operations is required to avoid the risk of cross-subsidization. This separation has other, tangential benefits, including simplifying the oversight of the regulated operations.

 

Thus, although an IAC/TPP may govern the use of utility resources for unregulated activities (i.e. those products or services where there are no BCUC-approved tariffs), including shared services and resources, the Panel disagrees with Creative Energy that the primary purpose of the Proposed IAC/TPP is to document the policy and practice of the Creative Energy Group with respect to the shared services between the affiliates. The Panel also rejects Creative Energy’s submission that this proceeding is to determine the appropriate level of resource sharing amongst the Creative Energy Group affiliates that will achieve economies of scale for the ratepayers. As explained above, an IAC/TPP is ultimately required to prevent cross-subsidization and ensure that ratepayers are kept harmless and not negatively impacted by the activities of non-regulated affiliates. Any IAC/TPP should be designed to ensure that the utility receives adequate compensation for resources and services provided to affiliates, thereby clearly and appropriately protecting ratepayers from subsidizing activities carried out by affiliates that are not related to the utility’s regulated services.

 

Having reviewed the RMDM Guidelines, AES Inquiry Report, 2021 IAC/TPP Decision, the Application including the Proposed IAC/TPP and the submissions from Creative Energy and interveners regarding the relevant directives and BCUC guidance in the 2021 IAC/TPP Decision, the Panel agrees with BCOAPO that Creative Energy fails to understand the BCUC’s characterisation of a non-regulated affiliate and appears to be using this proceeding as an opportunity to have the determinations and directives from the 2021 IAC/TPP Decision reconsidered and varied. The Panel rejects Creative Energy’s view that the BCUC misunderstood the RMDM Guidelines and the “factual basis” of the overarching purpose and objectives of the 2021 Creative Energy Group in the 2021 IAC/TPP Decision. Furthermore, the Panel considers there is effectively no substantive difference between the 2021 Creative Energy Group and the current Creative Energy Group despite the changes in the organizational structure, because resources continue to be shared by more than a minimum extent between regulated utilities and non-regulated affiliates. Based on this the Panel takes the same position with regard to the RMDM Guidelines in respect to both the 2021 Creative Energy Group and the current Creative Energy Group. That being said, the Panel notes that the RMDM Guidelines did not strictly define non-regulated affiliate or NRB, but rather provided examples of potential goods and services downstream of the utility meter for the purpose of examining to what extent, if any, utilities and/or their affiliated NRBs should be allowed to participate in energy related activities or retail markets at or downstream of the meter.[75] Additionally, the AES Inquiry Report did not explicitly define an NRB, but found that the objectives and principles of the RMDM Guidelines remain relevant and applicable, and evaluated, among other things, the principles that should be applied to determine whether an alternative energy service or other new initiative should be pursued as a regulated business.[76]

 

Consistent with the 2021 IAC/TPP Decision, the Panel considers a non-regulated affiliate, or NRB for the Creative Energy Group to be an affiliate of a Creative Energy Group not regulated by the BCUC or a division/department of a utility offering products or services not regulated by the BCUC, irrespective of the form the BCUC regulation takes. Pursuant to this, the Panel clarifies that the following Creative Energy Group affiliates are not considered BCUC-regulated entities, and are therefore regarded as non-regulated affiliates or NRBs:

•         CE Holdings;

•         CEDLP;

•         CE Ventures;

•         Any other affiliate that is not defined as a public utility under the UCA.

 

The Panel considers that the key findings and directions made in the 2021 IAC/TPP Decision are essential to achieve the primary purpose of an IAC/TPP and determines that Creative Energy’s interpretation of an NRB has resulted in the utility contravening the following directives from Order G-349-21 of the 2021 IAC/TPP Decision:

(d)    Directive 2: Creative Energy is directed to provide further evidence demonstrating how its labour rates are reflective of the higher of market pricing or full cost recovery where resources are shared with non-regulated affiliates in its next RRA for the Core Stream system.

The Panel finds Creative Energy has not complied with this directive as the evidence provided does not demonstrate whether the labour rates used by Creative Energy reflect the higher of market pricing or full cost recovery. The Panel notes that Creative Energy has not provided evidence that clearly demonstrates that its labour rates are reflective of the higher of market pricing or full cost recovery when sharing resources with non-regulated affiliates, nor does Creative Energy have an approved IAC/TPP in place to appropriately minimize and constrain the potential for cross-subsidization of activities between affiliates. Financial benefits could accrue to non-regulated affiliates at the expense of ratepayers of the regulated affiliates.

(e)    Directive 3: Creative Energy is directed to cease sharing, by no later than the time of filing of its 2023 RRA for the Core Steam system, its staff resources with Creative Energy’s non-regulated affiliates, to the extent that those staff allocate more than a minimal amount of their time to activities of its non-regulated affiliates.

The Panel finds Creative Energy has not complied with this directive, as Creative Energy has not demonstrated that it has ceased sharing with non-regulated affiliates to the extent that those employees allocate more than a minimal amount of time to activities of its non-regulated affiliates. In review of the Application, the Panel notes that some Creative Energy employees are forecast to allocate between 30 to 50 percent of their time to non-regulated business activities.[77] The Panel finds that this level of sharing with non-regulated affiliates is not “minimal” and therefore Creative Energy has not met the requirements of Directive 3 from the 2021 IAC/TPP Decision.

(f)      Directive 4: Creative is directed to request advance BCUC approval, unless otherwise ordered, for any material cost or resource sharing by Creative Energy with any non-regulated affiliate. When seeking such approval, Creative Energy must provide the basis and any justification for the proposed amounts of the cost or resource sharing.

The Panel finds Creative Energy has not complied with this directive. Based on review of Section 2.3.4 of the Application, Creative Energy continues to share resources with non-regulated affiliates at more than a minimal amount,[78] and Creative Energy has not sought BCUC’s advance approval to do so. For clarity, the Panel does not consider the filing of the Proposed IAC/TPP as part of the 2023 revenue requirements nor the accompanying information included in the Application advance notice.

3.0              Compliance with Previous Directives

As determined in Section 2.0 of this Decision, Creative Energy has not complied with the directives included in Order G-349-21 and the accompanying 2021 IAC/TPP Decision. Failure to comply with an Order of the BCUC is a serious matter. Part 8 and Part 8.1 of the UCA provide the BCUC with the ability to impose sanctions or administrative penalties against any person who is found to be in breach of the UCA, any regulation, or an order or rule of the BCUC.

 

The Panel recognizes that rather than taking the route of non-compliance with the determinations and directives in the 2021 IAC/TPP Decision, Creative Energy had other available avenues to seek relief including raising its concerns through an application for reconsideration to the BCUC or an application for leave to appeal to the Court of Appeal, if it felt there were grounds to do so. However, Creative Energy did not avail itself of these opportunities and is now outside the timeline for both. Under the BCUC Rules of Practice and Procedure attached to Order G-72-23, and the previous Rules of Practice and Procedure attached to Order G-178-22 and before that to Order G-15-19, an application for reconsideration must be filed with the BCUC within 60 days of the issuance of the order or the reasons for decision, whichever is later.

 

As discussed above, the Panel considers that an IAC/TPP is not only an important tool for proper governance but is required to protect ratepayers where there are activities that take place outside the BCUC’s jurisdiction, and which the BCUC considers to be NRB activities. The Panel reiterates that, as stated in the RMDM Guidelines, the BCUC “has the jurisdiction to regulate the relationship between a public utility and an affiliated NRB to the extent that the relationship affects ratepayers. The [BCUC] may implement a transfer pricing policy to regulate the interface between the utility and the NRB or may prohibit a utility from providing an NRB with any utility assets and services if, in the [BCUC]’s judgment, this is required to protect ratepayers.”[79] Based on this, and for the above reasons, the Panel directs Creative Energy, within 30 days of the date of this Decision, to file a revised IAC/TPP addressing the determinations, directives, key findings and BCUC guidance in the 2021 IAC/TPP Decision.

 

The Panel recognizes that the revised IAC/TPP may very likely lead to adjustments to the 2023 revenue requirements. Accordingly, as part of the filing to be completed within 30 days of this Decision, Creative Energy is directed to file a second evidentiary update to the 2023 Core TES revenue requirements reflecting the necessary revisions as a result of the revised IAC/TPP filed and to clearly detail all accounts and cost categories (e.g. labour costs) that have been adjusted, including the amount of the adjustment.

 

In developing the revised IAC/TPP the Panel considers that in addition to the BCUC guidance provided in Section 3.3 of the 2021 IAC/TPP Decision, there is merit in referring to other BCUC approved code of conduct and transfer pricing policies, including the following:

•         FortisBC Energy Inc., Code of Conduct and Transfer Pricing Policy filed as a compliance filing to Order G-237-22 on August 29, 2022; and

•         Pacific Northern Gas Ltd., Code of Conduct and Transfer Pricing Policy filed as a compliance filing to Order G-270-19-19 on December 13, 2019.

Both of these BCUC-approved code of conduct and transfer pricing policies are included as A2 exhibits in this proceeding.

 

If Creative Energy does not provide the required submissions as directed, the matter will be escalated as a non-compliance with the UCA and the Panel may recommend that the BCUC establish a proceeding to determine whether to impose administrative penalties as a result of Creative Energy’s failure to comply with Directives 2, 3 and 4 of Order G-349-21.

4.0              Next Steps

With respect to next steps for the review of the Application including the Proposed IAC/TPP, apart from RCIA, interveners do not consider that any additional information is required to proceed with regulatory process.[80]

 

BCOAPO submits that conducting at least two rounds of IRs with further submissions or a procedural conference at a later date to discuss what, if any, further process is required.[81] The CEC recommends that the BCUC provide an opportunity for review of the issues surrounding sharing of resources between the Core TES and its affiliates, as well as a round of IRs.[82]

 

RCIA recommends conducting two rounds of IRs, and requests that prior to commencing the IR process, Creative Energy do the following:[83]

•         Demonstrate, or explain why it cannot, that Core TES services provided to regulated affiliates are fully cost-tracked and charged at “the higher of market pricing or full cost recovery.”

•         Provide clarification on how it obtains services to replace those that were previously provided by Core TES employees spending less than 50 percent of their time on non-regulated activities.

•         Provide evidence to demonstrate that Creative Energy achieves economies of scale through shared resources with regulated affiliates since current evidence refutes the claim.

In reply to the interveners’ submissions, Creative Energy submits that a Streamlined Review Process (SRP) for the Panel to hear evidence and consider arguments into Creative Energy’s Proposed IAC/TPP would be beneficial as part of the next steps in the regulatory process for the review of the Application and would support regulatory efficiency.[84] Creative Energy considers the proposed regulatory process will help address “the overall lack of understanding” of the nature of the business and services provided by the Creative Energy Group, including how it is organized as well as serve to provide clarity on the BCUC’s principles and guidelines governing the Proposed IAC/TPP.[85]

 

Panel Determination

With consideration to the directive requiring Creative Energy to file a revised IAC/TPP within 30 days of the date of this Decision, the Panel establishes the regulatory timetable attached as Appendix A to Order G-110-23. The Panel appreciates Creative Energy’s recommendation for an SRP to allow all the time to review these matters further; however, it considers that the parties’ submissions adequately address the Panel’s concerns, and there is sufficient information for the Panel to make determinations with respect to the next steps for the Proposed IAC/TPP, as set forth in Section 3.0 of this Decision.

 

The Panel finds that one round of IRs with further process to be determined strikes the appropriate balance between regulatory efficiency and ensuring that the regulatory process addresses the complexities of this proceeding.

 

With respect to RCIA’s request for additional information to be filed prior to commencing the IR process, the Panel considers that the directives in Section 3.0 of this Decision requiring Creative Energy to file a revised IAC/TPP will likely resolve these items. However, if not, Creative Energy is encouraged to otherwise address RCIA's request for additional information as part of the second evidentiary update. The Panel also encourages RCIA to otherwise obtain the necessary evidence to address the identified issues through the regulatory review process.

 

 

 

 

Dated at the City of Vancouver, in the Province of British Columbia, this                  9^th             day of May 2023.

 

 

 

Original signed by:

____________________________________

T. A. Loski

Panel Chair / Commissioner

 

 

Original signed by:

____________________________________

A. C. Dennier

Commissioner

 

 

Original signed by:

____________________________________

E. B. Lockhart

Commissioner