ORDER NO. G-21-97 SIXTH FLOOR, 900 HOWE STREET, BOX 250 a TELEPHONE: (604) 660-4700 VANCOUVER, B.C. V6Z 2N3 BC TOLL FREE: 1-800-663-1385 CANADA FACSIMILE: (604) 660-1102 IN THE MATTER OF the Utilities Commission Act, S.B.C. 1980, c. 60, as amended and An Application by Pacific Northern Gas Ltd. for Approval of its 1997 Revenue Requirements BEFORE: M.K. Jaccard, Chairperson; and ) L.R. Barr, Deputy Chairperson ) February 27, 1997 O R D E R WHEREAS: A. On NovemberÊ5, 1996 Pacific Northern Gas Ltd. (ÒPNGÓ) filed with the Commission, pursuant to Sections 64 and 106 of the Utilities Commission Act (the "Act"), a 1997 Revenue Requirements Application ("the Application") to increase rates effective JanuaryÊ1, 1997 on an interim basis, to be made permanent at a later date; and B. The Commission reviewed the Application and issued Order No.ÊG-112-96 and Notice of Pre-Hearing Conference to commence on DecemberÊ18, 1996 to discuss potential issues in the Application; timing of the Alternative Dispute Resolution (ÒADRÓ) or public hearing process; and for participants to clarify and have questions answered regarding the Application; and C. On December 12, 1996 PNG filed revisions to the Application to reflect changes due primarily to the 1997 Return on Equity (ÒROEÓ) set for PNG under the automatic adjustment mechanism and changes in the equity component to reflect the proposed acquisition of the utility operations of Centra Gas Fort St.ÊJohn Inc. at Dawson Creek, Pouce Coupe and Rolla, B.C.; and D. Following input from the pre-hearing conference the Commission by Order No. G-126-96, approved for PNG an interim rate increase effective JanuaryÊ1, 1997 and scheduled an ADR process to commence on JanuaryÊ29, 1997 and, if required, a hearing to commence on March 3, 1997; and E. The ADR process was held on JanuaryÊ29 and 30, 1997. The Commission was informed by PNG, ADR Participants and Commission staff that a Settlement Agreement had been reached on the Application; and F. Submissions were received from both a registered intervenor and an interested party objecting to the inclusion of a strike adjustment clause in the Application; and G. The Commission has reviewed the Settlement Agreement and considers that approval of the Settlement Agreement is in the public interest. .../2
2 NOW THEREFORE the Commission orders as follows: 1. The Commission approves for PNG the Settlement Agreement attached as Appendix A. 2. The submissions on the strike adjustment clause will be treated as a complaint. Accordingly, the utility and registered intervenors are to provide written submissions to the Commission regarding this issue no later than MarchÊ14, 1997. The complainant will then be provided an opportunity to reply in writing before the Commission makes its decision on this matter. 3. PNG is to inform all customers of the ADR process and the Settlement Agreement's effect on rates. 4. PNG is to file permanent Gas Tariff Rate Schedules that are in accordance with the terms of the ADR settlement and this Order. 5. The interim increase in effect since JanuaryÊ1, 1997 is to be refunded with interest in accordance with the terms contained in Order No. G-126-96. 6. The public hearing into the Application that was tentatively scheduled for MarchÊ3, 1997 is cancelled. DATED at the City of Vancouver, in the Province of British Columbia, this ÊÊÊ 28thÊÊÊÊÊday of February, 1997. BY ORDER Original signed by: Dr. Mark K. Jaccard Chairperson Attachment
APPENDIX A to Order No. G-21-97 Page 1 of 15 a SIXTH FLOOR, 900 HOWE STREET, BOX 250 VANCOUVER, B.C. CANADA V6Z 2N3 WILLIAM J. GRANT TELEPHONE: (604) 660-4700 EXECUTIVE DIRECTOR, BC TOLL FREE: 1-800-663-1385 REGULATORY AFFAIRS & PLANNING FACSIMILE: (604) 660-1102 C O N F I D E N T I A L VIA COURIER February 12, 1997 Mr. Craig P. Donohue Manager of Regulatory Affairs Pacific Northern Gas Ltd. & Pacific Northern Gas (NE) Ltd. 1400 - 1185 West Georgia Street Vancouver, B.C. V6E 4E6 Dear Mr. Donohue: Re: Proposed Settlement of Issues Concerning the Revenue Requirement Application _____of Pacific Northern Gas Ltd.("PNG")_____ The purpose of this letter is to forward the enclosed settlement we have achieved with respect to specific issues in the PNG Revenue Requirements Application. This letter remains confidential until it is submitted to the Commission hearing panel for consideration. I, therefore, ask that you provide to me a communication of endorsement for the proposal so that we may forward it to the Commission and make it public by Friday, February 14, 1997. The terms of the settlement proposal will then be circulated to all registered intervenors for comments to be received by the Commission by Wednesday, FebruaryÊ26, 1997. These comments will be used by the Commission in determining whether or not a public hearing will be necessary on MarchÊ3, 1997. The settlement participants agree with the content and details of the Application, save for the following adjustments and identification of specific issues. It is recognized by all the parties that the agreement represents a package proposal within which there has been give and take by all parties. No issue is to be severed from the proposed settlement without allowing signatories the opportunity to address other related issues in the package. The terms of the settlement are as follows: Revenue Requirement: 1. L ong-Term D ebt It is agreed that the 1997 long-term debt issue will be removed. It is understood that PNG may apply to the Commission for approval to issue long term debt in 1997. The Commission's approval of a long term debt issue would provide that the impact on 1997 debt costs would be recorded in a deferral account for recovery in rates in 1998. É/2
APPENDIX A to Order No. G-21-97 Page 2 of 15 2. S hort-Term D ebt Interest R ate It is agreed that the forecast interest rate on short-term debt will be reduced from 5.25 percent to 4Êpercent. 3. C apital P roject s It is agreed that the capital projects scheduled for 1997 will be adjusted by the removal of the Skeena River and Kitimat River Crossings capital projects ($2.684 and $1.272Êmillion respectively). The removal of these projects will also have the consequence of reducing disposals by $1.164 million and increasing accumulated depreciation by $0.240 million ( a net difference of $0.924 million). The Kitimat River Crossing may be substituted with an alternative solution which would require PNG to apply to the Commission for approval. Such approval would be predicated on PNG being kept revenue neutral. 4. L ead/Lag S tud y The Lead/Lag study is to be adjusted by the removal of depreciation and return from the working capital calculations. The result is a reduction in working capital from $1.509 million to $.703Êmillion. 5. A mortization for S tress C orrosion C racking ("SCC") The amortization period applicable to SCC costs is to be increased from 5 years to 10 years to be consistent with the amortization period applicable to pipeline rehabilitation and repair costs. 6. L ong-Term D ebt Issuance C ost s The impact of not deducting long term debt issuance costs of $50,000 for income tax purposes in 1997 is an increase in revenue requirements of $40,090. 7. 1 997 L ump S um R eduction It is agreed that the 1997 revenue requirement will be further reduced by a lump sum of $395,000. The result of the above adjustments is a revenue surplus of $540,000. Subsequent to the ADR settlement reached on JanuaryÊ30, 1997, Methanex, a major industrial customer of PNG and party to the ADR settlement process, and PNG revised the projected revenue stream to be received from deliveries to Methanex in 1997 to reflect the impact of actual 1996 deliveries to Methanex. When preparing its application to the Commission, PNG had assumed the balance of deficiency volumes applicable to Methanex would be a certain figure based on budgeted deliveries in December 1996. The actual deficiency volumes as of December 31, 1996 were greater than forecast as of December 12, 1996 when an updated Application was prepared. Consequently, more deliveries of interruptible gas in 1997 are reclassified to firm margin in 1997 than was forecast as of December 12, 1996. This results in more revenue projected to be received from Methanex in 1997. In addition, PNG has adjusted its operating expenses subsequent to the ADR settlement by an increase of $56,000. This reflects an increase in Company use gas supply costs resulting from changing the peak day allocators for residential and commercial customers. More demand charges have been allocated to the
APPENDIX A to Order No. G-21-97 Page 3 of 15 other categories including the Company use gas category. The total projected 1997 gas supply costs has not changed but the allocation of demand charges has changed. The combined impact of the above two changes is an increase in the revenue surplus of $20,000. Therefore, the effective ADR settlement revenue surplus has increased from $540,000 to $560,000. Other Matters: The following issues were also agreed to in the process of reaching an ADR settlement: 1. The issue of how the gains on PNG's 1996/97 contract year hedge will be passed through to its customers will be dealt with separately. The resolution of this issue will impact the calculation of the 1996 and 1997 gas supply cost deferral account balances. Intervenors may provide written submissions to the Commission suggesting appropriate disposition of the funds. 2. The issue of WEI/PNG shared services will be dealt with through a workshop and/or written/oral hearing process once the report on shared services has been finalized by Coopers and Lybrand. Any decision on this matter will have no impact on the 1997 ADR settlement. 3. PNG will ensure that Commission staff and interested parties are kept advised of any CIS initiatives. The intent is to ensure that the issue is addressed fully before PNG makes any commitments to a new CIS system. 4. The 1997 rate design study will include an analysis of the different risks imposed on the system by each customer class with particular emphasis on the issue of the risk imposed by the large industrial customers. 5. The allocation of the projected 1997 gas supply costs is to be adjusted to reflect a peak day demand based upon the current rate design allocation. The attached 1997 rates include this adjustment. Attached to this letter are Schedules 1 to 5 showing the impact of the revenue surplus of $560,000 as a result of the above adjustments. Also enclosed are the relevant pages from the "Rates" section of the Application revised to reflect the allocation of the revenue surplus of $560,000 to each customer category on a gross margin basis. It is proposed that these rates be made permanent effective JanuaryÊ1, 1997. In closing, I wish to commend the efforts of PNG and all intervenors in the settlement discussions. The efforts made by all parties to understand each issue along with the concerns and interests of other parties has allowed this settlement to come to fruition. Yours truly, Original Signed by: W.J. Grant FSJ/ssc Attachments
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.