B R I T I SH C O L U M B IA U T I L I T I E S C O M M I S S I O N O R D E R N U M B ER G-10-03 SIXTH FLOOR, 900 HOWE STREET, BOX 250 TELEPHONE: (604) 660-4700 VANCOUVER, B.C. V6Z 2N3 CANADA BC TOLL FREE: 1-800-663-1385 web site: http://www.bcuc.com FACSIMILE: (604) 660-1102 IN THE MATTER OF the Utilities Commission Act, R.S.B.C. 1996, Chapter 473 and Aquila Networks Canada (British Columbia) Ltd. 2002 Annual Review and 2003 Revenue Requirements Application BEFORE: P. Ostergaard, Chair ) R.D. Deane, Commissioner ) February 17, 2003 K.L. Hall, Commissioner ) O R D E R WHEREAS: A. Commission Order No. G-134-99 approved the November 22, 1999 Settlement Agreement for the period beginning January 1, 2000 and ending December 31, 2002, whereby West Kootenay Power Ltd. [now Aquila Networks Canada (British Columbia) Ltd. (“Aquila”)] is required to file annually with the Commission materials for any rate change effective January 1 of the next year; and B. The terms of the 1999 Settlement Agreement require that Aquila institute a negotiated settlement process (the “Negotiated Settlement Process”) and also an annual review process whereby the public will be invited to examine the filed material, submit other issues for determination by the Commission and meet to discuss all issues prior to the final rate application being made (the “Annual Review”). Following the Annual Review, unsatisfied customers may initiate a complaint with the Commission; and C. A 2002 Annual Review is required to assess Aquila’s performance and to make adjustments against the 2001 and 2002 Revenue Requirements; and D. On November 15, 2002, Aquila requested that the Settlement Agreement be extended for a period of one year ending December 31, 2003, and filed a Preliminary 2003 Revenue Requirements Application in support; and E. By Order No. G-83-02 the Commission approved an interim rate increase of 5%, effective January 1, 2003 and established a regulatory timetable for a Negotiated Settlement Process; and …/2
B R IT I S H C O L U M B IA U T I L I T I E S C O M M I SS I O N O R D E R N U M B E R G-10-03 2 F. A Negotiated Settlement Process was held on January 13-14, 2003 in Penticton B.C. and the Negotiated Settlement reached among the participants was circulated to all Registered Intervenors and the Commission on January 31, 2003; and G. No letters of comment were received from other Registered Intervenors; and H. The Commission has reviewed the Negotiated Settlement for Aquila’s 2002 Annual Review and 2003 Revenue Requirements Application and finds that it should be approved. NOW THEREFORE the Commission orders as follows: 1. The Commission approves for Aquila the Negotiated Settlement as issued on January 31, 2003 and attached as Appendix A to this Order. 2. A general rate increase of 4.3% for all customer classes effective with consumption on and after January 1, 2003 is approved. 3. The Commission will accept revised Electric Tariff Rate Schedules in accordance with the terms of this Order. 4. Aquila is to inform all customers of the rate changes approved by this Order. 5. Aquila is to proceed with refunds to its customers of record, where necessary. Such refunds are to include interested calculated as specified in Order No. G-83-02. DATED at the City of Vancouver, in the Province of British Columbia, this 18 th day of February 2003. BY ORDER Original signed by: Peter Ostergaard Chair Attachment Orders/Aquila/2003RR NegStlmnt
APPENDIX A to Order No. G-10-03 Page 1 of 25 WILLIAM J. GRANT SIXTH FLOOR, 900 HOWE STREET, BOX 250 EXECUTIVE DIRECTOR, VANCOUVER, B.C. CANADA V6Z 2N3 REGULATORY AFFAIRS & PLANNING TELEPHONE: (604) 660-4700 bill.grant@bcuc.com BC TOLL FREE: 1-800-663-1385 web site: http://www.bcuc.com FACSIMILE: (604) 660-1102 Log No. 1915 VIA FACSIMILE January 31, 2003 To: Registered Intervenors Re: Aquila Networks Canada (British Columbia) Ltd. Negotiated Settlement 2002 Annual Review and 2003 Revenue Requirements Application Enclosed with this letter is the proposed settlement package with respect to the Aquila Networks Canada (British Columbia) Ltd. Application for Approval of the 2002 Annual Review and 2003 Revenue Requirements Application. This settlement package is now public and is being submitted to the Commission and all intervenors. Also enclosed are letters of comment received from the participants in the negotiated settlement process. Prior to consideration by the Commission, intervenors who did not participate in the settlement negotiations are requested to provide to the Commission any comments on the settlement package by Monday, February 10, 2003. Thereafter, the Commission will consider the settlement package. A public hearing may not be required unless there is significant opposition to the proposed settlement. Yours truly, W.J. Grant BMK/cms Attachments cc: Mr. Bryan Curtis Vice President, Regulatory Aquila Networks Canada (British Columbia) Ltd.
WILLIAM J. GRANT EXECUTIVE DIRECTOR, REGULATORY AFFAIRS & PLANNING bill.grant@bcuc.com web site: http://www.bcuc.com C O N F I D E N T I A L VIA FACSIMILE Dear Participants: Re: Aquila Networks Canada (British Columbia) Ltd. 2002 Annual Review and 2003 Revenue Requirements Application Commission staff received no suggested edits to the draft of the Negotiated Settlement Agreement on the Aquila Networks Canada (British Columbia) Ltd. Application for Approval of the 2002 Annual Review and 2003 Revenue Requirements Application and it is therefore accepted as the final copy. Please provide written correspondence confirming your acceptance of this settlement by Thursday, January 30, 2003. The Negotiated Settlement Agreement and letters of comment from the participants will be made public and forwarded to the Commission for its review. Prior to consideration by the Commission, intervenors who did not participate in the settlement negotiations will be requested to provide to the Commission their comments on the settlement package by Monday, February 10, 2003. Thereafter, the Commission will consider the settlement package. WJG/rtAPPENDIX A to Order No. G-10-03 Page 2 of 25 SIXTH FLOOR, 900 HOWE STREET, BOX 250 VANCOUVER, B.C. CANADA V6Z 2N3 TELEPHONE: (604) 660-4700 BC TOLL FREE: 1-800-663-1385 FACSIMILE: (604) 660-1102 Log No. 1915 January 24, 2003 Yours truly, W.J. Grant
APPENDIX A to Order No. G-10-03 Page 3 of 25 C O N F I D E N T I A L IN THE MATTER OF the Utilities Commission Act, R.S.B.C. 1996, c. 473 - and IN THE MATTER OF Aquila Networks Canada (British Columbia) Ltd. 2002 Annual Review and 2003 Revenue Requirements Application NEGOTIATED SETTLEMENT Commission Order No. G-134-99 approved the November 22, 1999 Settlement Agreement (the “ 1999 Settlement Agreement”) for the period beginning January 1, 2000 and ending December 31, 2002, whereby West Kootenay Power Ltd. [now Aquila Networks Canada (British Columbia) Ltd. (“Aquila”)] is required to file annually with the Commission materials for any rate change effective January 1 of the next year. The terms of the 1999 Settlement Agreement require that Aquila institute a Negotiated Settlement Process and also an Annual Review process whereby the public will be invited to examine the filed material, submit other issues for determination by the Commission and meet to discuss all issues prior to the final rate application being made. On November 15, 2002, Aquila requested that the 1999 Settlement Agreement be extended for a period of one year ending December 31, 2003, and filed a Preliminary 2003 Revenue Requirements Application in support. Commission Order No. G-83-02 approved an average interim rate increase of 5 percent, effective January 1, 2003, subject to refund, and established a 2002 Annual Review and a Negotiated Settlement Process to determine rates for 2003. The regulatory timetable included Information Requests to be issued by Commission staff and Intervenors, with responses by Aquila. The proceedings commenced in Penticton on Monday, January 13, 2003 and concluded on Tuesday, January 14, 2003. A Public Information Town Hall Meeting was scheduled in the evening for those parties not wishing, or able, to participate in the Annual Review. The following are the results of the 2002 Annual Review and the negotiated settlement arrived at between Aquila and the parties attending the Negotiated Settlement Process, with the participation of the Commission Staff. This Settlement is a simple extension of the 2000-2002 rate adjustment mechanism approved by the November 22, 1999 Settlement Agreement. Aquila agrees to provide a detailed revenue requirements application for 2004 which will contain a full analysis in support of any proposed rebasing of any of the cost categories.
APPENDIX A to Order No. G-10-03 Page 4 of 25 Aquila Networks Canada (British Columbia) Ltd. 2003 Revenue Requirements Application 2003 Revenue Requirements Settlement 1. The Load Forecast recommended by the Load Forecast Committee is accepted. 2. The DSM Committee report is accepted. As part of the 2004 Revenue Requirement Application, Aquila, in cooperation with the DSM committee, will provide a fresh and comprehensive assessment of the Utility's DSM strategy. By February 28, 2003 Aquila will file terms of reference for this assessment. 3. Aquila will file a report on its Customer Contact Centre, detailing its success in responding to trouble calls, reducing waiting times, and improving contractor satisfaction with the centre. The report will be filed with the Commission and copied to registered intervenors, and will cover the experience to June 2003. Filing will be done by July 31, 2003. 4. The Customer Satisfaction Index will be revamped for 2004 and beyond. The existing survey and index will continue to apply in 2003. 5. The report on Extraordinary Capital life extensions and upgrades will be finalized and filed with the Commission. 6. The proposed Extraordinary Capital program for 2003 is accepted, subject to review and Commission approval of individual CPCN's. (Tab 3, slide 3) 7. The SAP projects are accepted, including the $6.6 million of Extraordinary Capital and the expensing of $2.1 million in 2002. Aquila is to provide a report on its proposed allocation of costs and savings to municipal customers as part of its 2004 Revenue Requirement Application. Any significant computer or IT investments must be filed with the Commission in advance, together with business cases in support of the expenditures. 8. The cost of the Brilliant Terminal Station should be a flow-through application filed pursuant to the original Commission Order. It would presumably flow into rates in June 2003, provided the costs have been prudently incurred. 9. Aquila will provide reports on the determinations of the Brilliant Management Committee, along with forecasts of upcoming expenditures, to be reviewed at the Annual Reviews. A business case for the 2002 expenditures is to be filed with the Commission by February 28, 2003. 10. There will be no rebasing of Base Costs during this last year of the Settlement extension. Rebasing will only occur in 2004 after detailed review of each individual Base Cost category. 11. The O&M Productivity Improvement Factor for 2003 is to be set at 1.0% to recognize potential synergies between B.C. and Alberta operations. 12. The Base Capital Productivity Improvement Factor is also 1.0%. 13. Other Income should not be rebased prior to the expiration of the current Settlement.
APPENDIX A to Order No. G-10-03 Page 5 of 25 14. Extraordinary O&M Costs Parties accept the Extraordinary O&M costs of $1.2 million, as detailed in Table 4-C, being Head Office Lease Payments, Pension Expense Adjustments, WAN Lease, Lease Savings-Kelowna Consolidation, and 2003 Pension Expense Adjustment. 15. Deferral Accounts Parties accept most of the request for deferral accounts, being: • Deferral of the costs of renegotiating the Canal Plant Agreement, pending disposition; • Deferral of future incremental costs related to regulatory and related activities as they arise; • Deferral of issue costs of new debenture series until such time as those costs can be incorporated into rates; • Amortization of $34,000 of costs incurred for the 2001 Annual Review and 2002 Revenue Requirements during 2003; • Amortization of $450,000 of expense incurred in issuing Series J Secured Debentures over seven years, beginning in 2003; • Recovery of $297,900 related to the higher interest expense incurred between June 20, 2002 and December 31, 2002, through rates in 2003. 16. B.C./Alberta Integration Parties do not accept the deferral of $2.2 million in integration expenses. The costs are to be expensed in 2002, and the variance shared equally with ratepayers. 17. Rate Stabilization Fund Parties agree to the application of the rate stabilization provision to smooth the rate increases in 2003, if required. 18. GAAP Variance Parties agree to the Commission approving a variance from Generally Accepted Accounting Principles, permitting the Company not to expense $870,000 in 2003, and to continue to expense unamortized past service costs at $178,000 per year for 12.2 years. 19. Power Purchases The proposed power purchase expenses are accepted. The parties recognize that the capacity purchase from Cominco in January and February is desirable and that only small purchases at market prices are forecast for November/December. Any savings are shared with customers at an initial rate of 65% to customers.
APPENDIX A to Order No. G-10-03 Page 6 of 25 Aquila Networks Canada (British Columbia) Ltd. 2002 Annual Review Parties accept the following items related to the 1999 Settlement, as determined in the January 6, 2003 Update: • Approval of the Final 2001 Incentive Adjustment; • Approval of the Final 2001 Power Purchase Incentive; • Approval of the Preliminary 2002 Incentive Adjustment, amended for the Integration costs expensed in 2002; • Approval of the Preliminary 2002 Power Purchase Incentive Adjustment; • Approval of the Final 2001 DSM Incentive; • Approval of the Preliminary 2002 DSM Incentive.
APPENDIX A to Order No. G-10-03 Page 7 of 25 Performance Criteria: meet or exceed 3 year average. 1. Reliability • Adjust 2002 for IEEE 2.5 beta correction (windstorm statistics removed) A. SAIDI - System Duration Index 3 year average - 2.875 2002 - 2.080 B. SAIFI - System Frequency Index 3 year average - 3.361 2002 - 2.110 C. CAIDI - Customer Duration Index 3 year average - 0.885 2002 - 0.986 Trending upward slightly, however as SAIFI Index improves CAIDI will increase, ie. less frequent system outages which have short restoration times leaves higher ratio of none distribution outages which have longer restoration times. Accepted D. Index of Reliability 3 year average - 99.967% 2002 - 99.976% 2. Safety Statistics A. Disabling Injury Frequency Rate (Lost Time Accidents) 3 year average - 3.43 2002 - 3.56 Trending upward. Composed of more minor injuries. B, Incident Severity Rate (Duration of Lost Time) 3 year average - 85.7 2002 - 22,6 Large improvement C. Vehicle Incident Rate 3 year average - 4.6 2002 - 4.6 3. Customer Satisfaction Index 3 year average - 90.7 2002 - 89.6 However, slight improvement over 2001.
2003 REVEN8UE REQUIREMENTS JANUARY 15, 2003 Revisions to Tab 2 Revenue Requirements 2003 Revenue Requirements as reflected in the Settlement Agreement are shown in the following tables. Table 2-A Revenue Requirements 1 POWER PURCHASES 2 OPERATING EXPENSES 3 O&M Expense 4 Extraordinary O&M 5 Capitalized Overhead 6 Wheeling 7 Water Fees 8 Other Income 9 Extraordinary Income 10 FINANCING COSTS 11 Interest Expense 12 Cost of Equity 13 Amortization Expense 14 AFUDC 15 TAX EXPENSE 16 Income tax 17 Property tax 18 B.C. Capital Tax 19 REVENUE REQUIREMENTS 20 ADJUSTMENTS TO REVENUE REQUIREMENTS 21 Final 2001 Incentive Adjustment 22 Preliminary 2002 Incentive Adjustment 23 Final 2001 Power Purchase Incentive 24 Preliminary 2002 Power Purchase Incentive 25 Rate Stabilization Provision 26 REVISED REVENUE REQUIREMENTS 27 REVENUE AT PRIOR YEAR RATES 28 RATE INCREASE REQUIRED APPENDIX A to Order No. G-10-03 Page 8 of 25 2003 (000s) $ 6 0,635 2 8,346 1 ,072 ( 2,492) 3 ,715 7 ,470 ( 3,634) ( 75) 3 4,402 2 0,494 1 7,300 1 5,145 ( 3,001) 4 9,939 6 ,935 9 ,572 - 1 6,507 1 61,482 ( 99) ( 132) ( 840) ( 242) $ 1 60,169 $ 1 53,555 4.3%
2003 REVEN8UE REQUIREMENTS JANUARY 15, 2003 Table 3-A Target Cost Variables 1 Cost Drivers 2 Number of Direct Customers (Year-End) 3 Customer Growth (Year-End) 4 Number of Direct Customers (Simple Average) 5 Customer Growth (Simple Average) 6 System Energy Sales (GW.h - Normalized) 7 Losses (GW.h - Normalized) 8 Gross Load (GW.h - Normalized) 9 System Energy Sales Growth 10 Peak Load (MW - Normalized) 11 Generation (GW.h) 12 Power Purchases (GW.h - Normalized) 13 Gross Load (GW.h - Normalized) 14 Base Cost Escalators 15 CPI - Canada 16 CPI - British Columbia 17 Notes: 18 (1) 2003 Load and Customer Forecast Update of January 6, 2003 19 (2) Power Purchase Forecast Update of January 6, 2003 20 (3) Consensus Economics Forecast, December 2002 21 (4) B.C. Ministry of Finance, B.C. Economic Review and Outlook, September 2002APPENDIX A to Order No. G-10-03 Page 9 of 25 Current Estimate Normalized Normalized Forecast 2001 2002 2003 Notes 89,222 9 0,670 92,163 (1) 1.6% 1.6% 1.6% 8 8,527 89,946 9 1,417 1.4% 1.6% 1.6% 2 ,753 2,822 2,832 (1) 3 13 327 314 (1) 3 ,066 3,149 3,146 2.4% 2.5% 0.4% 678 676 672 (1) 1 ,510 1,504 1,520 (2) 1 ,556 1,645 1,626 (2) 3 ,066 3,149 3,146 2.6% 2.2% 2.4% (3) 1.7% 2.1% 2.0% (4)
2003 REVEN8UE REQUIREMENTS JANUARY 15, 2003 Table 4-A Operating Expenses 1 Operating & Maintenance 2 Cost Dr iver Direct customers 88,527 3 Base Cost ($ 1998) 305.30 4 Base Cost Escalator CPI BC (Cumulative) 1 .047 5 Productivity Improvement Factor (Cumulative) 0 .960 6 27,184 7 Software Development Expense 9 BC/Alberta Integration Expense 10 Extraordinary O&M 7 10 11 Capitalized Overhead 12 Cost Dr iver Capital exp. excl. DSM 40,257 13 Base Cost 14 Base Cost Escalator None 15 ( 2,214) ( 2,450) 16 Wheeling 17 Cost Dr iver MW Months 2 ,415 18 Base Cost (weighted average) 1 ,769 19 Base Cost Escalator BC Hydro rate 1 .000 20 4 ,272 21 Water Fees 22 Cost Dr iver GW.h 1 ,489 23 Base Cost ( includes upgrade) 4 ,878 24 Base Cost Escalator BC Hydro rate 1 .000 25 7 ,264 26 Other Income 27 Cost Dr iver Direct customers 88,527 28 Base Cost ($ 1998) ( 35.44) 29 Base Cost Escalator CPI Canada (Cumulative) 1 .072 30 ( 3,363) ( 4,538) 32 Extraordinary Income ( 62) (73) 33 Total Operating Expenses $ 33,791 Table 4-C Extraordinary O&M Target 2001 1 Head Office Lease Payments 1 06 2 Pension Expense Adjustments 3 33 3 Wide Area Network Lease 2 71 4 Lease Savings - Kelowna Consolidation 5 Subtotal - 1999 Settlement Agreement 7 10 6 2003 Pension Expense Adjustment 7 Total Extraordinary O&M Expenses 7 10 APPENDIX A to Order No. G-10-03 Page 10 of 25 Current Target Actual Target Estimate Target 2001 2001 2002 2002 2003 ($ 000s) 89,946 91,417 305.30 305.30 1.069 1.090 0.941 0.932 27,670 27,631 29,068 28,346 - 2,075 - 2,180 723 686 7 22 1,072 83,043 61,648 5.5% 2.5% 4.0% (2,076) (2,336) (2,492) 2,409 2,199 1,697 1,689 1.000 1.000 4 ,334 4,089 4,177 3,715 1,510 1,504 4,775 4,967 1.000 1.000 7 ,178 7,210 7,156 7,470 89,946 91,417 (35.44) (35.44) 1.095 1.122 (3,492) (5,474) (3,634) (75) (75) ( 75) $ 32,844 $ 33,973 $ 37,493 $ 34,402 Current Actual Target Estimate Target 2001 2002 2002 2003 106 104 104 104 333 333 333 333 284 271 309 309 (22) (24) (114) 723 686 722 632 4 40 723 686 722 1,072
2003 REVEN8UE REQUIREMENTS JANUARY 15, 2003 Table 4-D Extraordinary Other Income Target 2001 1 Head Office Lease Receipts $ ( 62) $ ( 73) 2 Total Extraordinary Income $ ( 62) $ ( 73) Table 4-E Financing Costs 1 Interest Expense 2 Cost Driver Weighted average debt 3 Base Cost Weighted average cost of debt 4 5 Cost of Equity 6 Cost Driver Average shareholder's equity 7 Base Cost Return on equity (Note 1) 8 9 Amortization Expense 10 Cost Driver Assets subject to amortization 11 Base Cost Weighted average amortization rate 12 13 AFUDC 14 Cost Driver Capital expenditures subject to AFUDC 15 Base Cost 16 17 Total Financing Costs 18 Note: 19 (1) The approved return on equity, not the actual, is shown for the purposes 20 of calculating the return on capitalization for financing cost adjustments. Table 4-G Amortization Expense 1 Amortization Expense 2 Amortization of Plant & Equipment 3 Amortization of Deferred Charges 4 Previously Approved 5 To be Approved 6 2001 Annual Review for 2002 7 2002 Interest Expense Series 1 Refinancing 8 Debt Issue Costs Series J 9 10 APPENDIX A to Order No. G-10-03 Page 11 of 25 Current Actual Target Estimate Target 2001 2002 2002 2003 $ (75) $ (75) $ ( 75) $ (75) $ (75) $ ( 75) Current Actual Estimate Forecast 2001 2002 2003 $ 2 06,260 $ 228,629 $ 2 64,254 7.7% 7.4% 7.8% 15,797 16,917 2 0,494 1 37,507 152,419 1 76,169 9.75% 9.53% 9.82% 13,407 14,526 1 7,300 n/a n/a n/a n/a n/a n/a 12,695 14,024 1 5,145 n/a n/a n/a 8.0% 8.0% 8.0% ( 846) (2,344) (3,001) $ 41,053 $ 43,124 $ 4 9,939 Current Actual Estimate Forecast 2001 2002 2003 1 0,745 12,016 12,846 1 ,950 2,008 1 ,903 3 4 2 98 6 4 $ 1 2,695 $ 1 4,024 $ 1 5,145
2003 REVEN8UE REQUIREMENTS JANUARY 15, 2003 Table 4-H Tax Expense 1 Income Tax 2 Cost Driver Earnings before income taxes 3 Base Cost Effective tax rate 4 5 Property Tax 6 Cost Driver Assessed Value 7 Base Cost Composite mill rate 8 9 B.C. Capital Tax 10 Cost Driver Total capitalization 11 Base Cost Effective tax rate 12 13 Total Tax Expense APPENDIX A to Order No. G-10-03 Page 12 of 25 Current Actual Estimate Forecast 2001 2002 2003 $ 2 4,393 $ 21,718 $ 24,235 3 5.1 30.3 28.6 8 ,566 6,570 6,935 2 98,588 294,627 309,627 3 0.3 30.1 30.9 9 ,055 8,863 9,572 3 43,767 381,048 3 .11 1.49 1 ,068 5 69 $ 1 8,689 $ 16,002 $ 16,507
2003 REVEN8UE REQUIREMENTS JANUARY 15, 2003 Final Adjustment to 2001 Revenue Requirements Schedule A Statement of Adjustments – 2001 Final Target Cost SHARED COMPONENTS OPERATING EXPENSES 1 O&M $ 2 7,184 2 Other income (3,363) (4,538) (1,175) FINANCING COSTS 3 Cost of Capital (Base Capital Expenditures) 7 20 (Volume variance) 4 SHARED ADJUSTMENT $ 2 4,541 FLOW-THROUGH COMPONENTS OPERATING EXPENSES 5 Extraordinary O&M $ 7 10 6 Extraordinary Other Income (62) (73) (11) 7 Capitalized Overhead (2,214) (2,450) (236) 8 Wheeling 4 ,272 9 Water fees 7 ,264 FINANCING COSTS 10 Cost of Capital (Base Capital Expenditures) 7 47 (Rate Variance) 11 Amortization expense 1 2,147 12 AFUDC (1,395) ( 846) 549 TAXES 13 Income tax 8 ,781 14 Property tax 9 ,280 15 B.C. capital tax 9 91 16 FLOW-THROUGH ADJUSTMENT $ 4 0,521 17 FINAL 2001 INCENTIVE 18 LESS PRELIMINARY ADJUSTMENT TO 2002 RATES 19 ADJUSTMENT TO 2003 RATES Schedule B Financing Cost Adjustments – 2001 Final 1 Base Capital Expenditures 2 Average Rate Base Increase 3 Return on Capital 4 Earned Return 5 Volume Variance 6 Rate Variance 7 Total Variance APPENDIX A to Order No. G-10-03 Page 13 of 25 Customer Shared Adjustment to Actual Variance Percentage Rates (000's) (000's) $ 27,670 $ 4 86 747 27 $ 23,879 $ ( 662) 50% $ (331) $ 723 $ 13 4,334 6 2 7,178 ( 86) 744 ( 3) 12,695 5 48 8,566 (215) 9,055 (225) 1,068 7 7 $ 40,994 $ 4 73 100% $ 473 $ 142 241 $ ( 99) Target Cost Actual Variance $ 1 6,890 $ 1 7,514 $ 624 $ 8 ,445 $ 8,757 $ 312 8.53% 8.50% 0.03% $ 7 20 $ 744 $ 2 4 $ 7 20 $ 747 $ 2 7 $ 7 47 $ 744 $ ( 3) $ 2 4
2003 REVEN8UE REQUIREMENTS JANUARY 15, 2003 Schedule C Statement of Adjustments – 2002 Preliminary 2002 Target Cost SHARED COMPONENTS OPERATING EXPENSES 1 O&M $ 2 7,631 2 Software Development Expensed - Integration Costs 3 Other income (3,492) (5,474) (1,982) FINANCING COSTS 4 Cost of Capital (Base Capital Expenditures) 7 00 (Volume variance) 5 PRELIMINARY SHARED ADJUSTMENT $ 2 4,839 2002 Target FLOW-THROUGH COMPONENTS Cost OPERATING EXPENSES 6 Extraordinary O&M $ 6 86 7 Extraordinary Other Income (75) (75) - 8 Capitalized Overhead (2,076) (2,336) ( 260) 9 Wheeling 4 ,089 10 Water fees 7 ,210 FINANCING COSTS 11 Cost of Capital (Base Capital Expenditures) 7 27 (Rate Variance) 12 Amortization expense 1 3,729 13 AFUDC (2,434) (2,344) 9 0 TAXES 14 Income tax 7 ,818 15 Property tax 9 ,720 16 B.C. capital tax 6 60 17 PRELIMINARY FLOW-THROUGH ADJUSTMENT $ 4 0,054 18 PRELIMINARY 2002 ADJUSTMENT Schedule D Financing Cost Adjustments – 2002 Preliminary 1 Base Capital Expenditures 2 Average Rate Base Increase 3 Return on Capital 4 Earned Return 5 Volume Variance 6 Rate Variance 7 Total Variance APPENDIX A to Order No. G-10-03 Page 14 of 25 Customer Current Shared Adjustment to Estimate Variance Percentage Rates (000's) (000's) $ 2 9,068 $ 1,437 2 ,075 2,075 2 ,180 2,180 727 27 $ 2 8,576 $ 3,737 50% $ 1,868 Customer Current Shared Adjustment to Estimate Variance Percentage Rates $ 722 $ 36 4 ,177 8 8 7 ,156 ( 54) 729 2 1 4,024 2 95 6 ,570 (1,249) 8 ,863 ( 857) 569 (91) $ 3 8,054 $ (2,000) 100% $ (2,000) $ ( 132) Current Target Cost Estimate Variance $ 1 7 ,026 $ 1 7,684 $ 6 58 $ 8 ,513 $ 8 ,842 $ 3 29 8 .22% 8.24% -0.02% $ 7 00 $ 7 29 $ 2 9 $ 7 00 $ 7 27 $ 2 7 $ 7 27 $ 7 29 $ 2 $ 2 9
2003 REVEN8UE REQUIREMENTS JANUARY 15, 2003 Schedule E Return on Capitalization 1 EARNED RETURN 2 Interest Expense 3 Cost of Equity 4 5 CAPITALIZATION 6 Weighted average debt 7 Average shareholders' equity 9 10 RETURN ON CAPITALIZATION Schedule C Power Purchase Incentive Adjustment – 2001 Final 1 FORECAST POWER PURCHASE EXPENSE "FPPE" 2 3 ADJUSTED POWER PURCHASE EXPENSE "APPE" 4 5 6 SHARED COMPONENT 7 On first $1 million 8 Over $ 1 million 9 10 FINAL INCENTIVE 11 LESS PRELIMINARY ADJUSTMENT IN 2002 RATES 12 ADJUSTMENT TO 2003 RATES Schedule G Power Purchase Incentive Adjustment – 2002 Preliminary 1 FORECAST POWER PURCHASE EXPENSE "FPPE" 2 3 ADJUSTED POWER PURCHASE EXPENSE "APPE" 4 5 6 SHARED COMPONENT 7 On first $1 million 8 Over $ 1 million 9 10 PRELIMINARY INCENTIVE APPENDIX A to Order No. G-10-03 Page 15 of 25 Current Actual Estimate Forecast 2001 2002 2003 $ 15,797 $ 16,917 $ 20,494 13,407 14,526 17,300 $ 29,204 $ 31,443 $ 37,794 206,260 228,629 264,254 137,507 152,419 176,169 $ 343,767 $ 381,048 $ 440,424 8.50% 8.24% 8.58% Power Purchase Aquila Share Variance of Market Adjustment to Target Cost Actual "PPV" Incentive Rates (000's) $ 5 2,172 $ 5 1,562 $ 51,051 $ (511) (511) (179) (332) - - - (511) (179) $ (332) $ 5 08 $ (840) Power Purchase Aquila Share Current Variance of Market Adjustment to Target Cost Estimate "PPV" Incentive Rates (000's) $ 5 3,673 $ 5 2,194 $ 51,821 $ (373) (373) (131) (242) - - - (373) (131) $ (242)
2003 REVEN8UE REQUIREMENTS JANUARY 15, 2003 Table 6-A Rate Stabilization Provision 1 Balance at Jan 1, 2000 Utilization of Fund in: 2 2000 3 2001 4 2002 5 2003 6 Balance at Dec. 31, 2007 Table 7-A Sales Load (GW.h) Normalized CUSTOMER CLASS 1 Residential 999 2 General Service 515 3 Industrial 323 4 Wholesale 863 5 Other 5 3 6 TOTAL SALES LOAD 2 ,753 Table 7-B Revenue from Sale of Electricity Normalized CUSTOMER CLASS 1 Residential $ 6 0,680 2 General Service 3 1,012 3 Industrial 1 4,778 4 Wholesale 3 2,801 5 Other 3 ,603 6 TOTAL SALES REVENUE $ 142,874 APPENDIX A to Order No. G-10-03 Page 16 of 25 (000s) $ 3 2,900 - (3,109) - -$ 2 9,791 Forecast Forecast 2001 2002 2003 1,016 1,029 527 539 344 315 880 894 55 55 2,822 2,832 Forecast Forecast 2001 2002 2003 $ 64,553 $ 65,378 33,388 34,149 16,401 15,195 34,964 35,520 3,313 3,313 $ 152,619 $ 153,555
2003 REVEN8UE REQUIREMENTS JANUARY 15, 2003 Table 8-A Base Capital Expenditures 1 Generation 2 Cost Driver Generating Plants 3 Base Cost ($ 1998) 4 Base Cost Escalator CPI Canada (Cumulative) 5 Productivity Improvement Factor (Cumulative) 6 7 Transmission and Distribution Upgrade 8 Cost Driver Peak MW (Normalized) Note 1. 9 Base Cost ($ 1998) 10 Base Cost Escalator CPI Canada (Cumulative) 11 Productivity Improvement Factor (Cumulative) 12 13 Distribution Extensions 14 Cost Driver Number of New customers 15 Base Cost ($ 1998) 16 Base Cost Escalator CPI Canada (Cumulative) 17 Productivity Improvement Factor (Cumulative) 18 19 General Plant 20 Cost Driver Direct Customers 21 Base Cost ($ 1998) 22 Base Cost Escalator CPI BC (Cumulative) 23 Productivity Improvement Factor (Cumulative) 24 25 Total Base Capital Expenditures Note 1. Peak Load for Transmission and Distribution Upgrades reduced for Celgar load.APPENDIX A to Order No. G-10-03 Page 17 of 25 Current Target Actual Target Estimate Target 2001 2001 2002 2002 2003 ($ 000s) 4 4 4 1,275 1,275 1,275 1.072 1.095 1.122 0 .96 0.94 0.93 1,312 8 48 1,315 1,512 1,333 6 66 664 660 1 4,224 14,224 14,224 1.072 1.095 1.122 0 .96 0.94 0.93 9,751 10,270 9 ,737 10,303 9,812 1,390 1,448 1,493 1,325 1,325 1,325 1.072 1.095 1.122 0 .96 0.94 0.93 1,896 1,888 1,978 1,415 2,068 8 8,527 89,946 91,417 44.14 44.14 44.14 1.047 1.069 1.090 0 .96 0.94 0.93 3,930 4,508 3,995 2,893 4,098 $ 16,890 $ 17,514 $ 17,026 $ 17,684 $ 17,310
2003 REVEN8UE REQUIREMENTS JANUARY 15, 2003 Table 8-C Aggregate Capital Expenditures Previously Approved: 1 South Slocan Unit 2 Upgrade/Life Extension 3 ,669 2 Upper Bonnington Unit 5 Upgrade/Life Extension 2 ,714 3 Upper Bonnington Dam Rehabilitation 4 Upper Bonnington Powerhouse Crane 2 43 5 Kootenay 230kV System Development 9 ,285 6 Insulator Replacements 2 24 7 CSP Transformer Replacement 1 ,239 8 Penticton Subtransmission System Upgrade 3 42 9 Vernon Capacitors 1 ,066 1 0 44 Line Easement 1 1 Slocan City Substation Redevelopment 5 31 1 2 Joe Rich Reconductoring 1 3 Kootenay Area Voltage Conversions 1 ,946 1 4 Kelowna Operations Center 3 34 1 5 Trail District Facilities Upgrade 1 6 Intergraph AM/FM System 5 68 To be Approved: 1 7 Upper Bonnington Unit 6 Upgrade/Life Extension 1 8 Upper Bonnington Unit 5 Headgate Reguild 1 9 Lower Bonnington Unit 1 Upgrade/Life Extension 2 0 South Okanagan Supply Reinforcement 2 1 Substation Metering/Automation 2 2 Lambert Substation Upgrade 2 3 Lee Terminal Upgrade 2 4 Midway Substation Rehabilitation 2 5 West Trail Voltage Conversion 2 6 Integrated Enterprise Resource Management System 2 7 Warfield-Okanagan Fibre Optic Communications 2 8 Pension Benefits Capitalized 2 2,161 Demand Side Management 2 9 Demand Side Management 1 ,449 3 0 DSM Income Tax Adjustment ( 656) 7 93 3 0 Total Extraordinary Capital Expenditures 2 2,954 3 1 Total Base Capital Expenditures 1 7,514 3 2 Total Capital Expenditures 4 0,468 Notes: Expenditures for 230 kV Transmission project are net of third party contributions. Pension Benefits Capitalized are included in project expenditures for 2001 and 2002. APPENDIX A to Order No. G-10-03 Page 18 of 25 Current Actual Estimate Forecast 2001 2002 2003 (000s) ( 72) 1,766 5,880 3 0 420 188 46,800 10,413 7 1 3 2 95 5 51 659 150 4 00 475 1,185 3 00 3,266 1,100 3,530 1,060 2 ,491 3 02 1 ,208 9 38 7,143 200 1 12 3,612 5 ,871 1 ,026 2 00 777 6 ,625 2 09 3 31 65,177 44,338 1,722 1,840 (656) (692) 1,066 1,148 66,243 45,486 17,684 17,310 83,927 62,796
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