BRITISH COL UMBIA UTILITIES COM MISSION ORDER NUMBER G -82-04 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 FortisBC Inc. (formerly known as Aquila Networks Canada (British Columbia) Ltd.) Application to Replace Residential Discount BEFORE: L.F. Kelsey, Commissioner and Panel Chair L.A Boychuk, Commissioner September 9, 2004 K.L. Hall, Commissioner O R D E R WHEREAS: A. On May 21, 2004, Aquila Networks Canada (British Columbia) Ltd. [now FortisBC Inc. (“FortisBC”)] applied to the Commission for approval to amend its Electric Tariff, Terms and Conditions of Service, to replace the bi-monthly customer charge of $21.19 and a flat energy rate of 6.659 cents per kWh, both subject to a 10 percent discount given to residential customers for prompt payment, with a bi-monthly customer charge of $19.35 and a flat energy rate of 6.08 cents per kWh, both subject to a 1.5 percent late payment charge; and B. FortisBC states that the proposed rate will be compliant with all applicable laws and more consistent with its other rate categories and sound public utility practice; and C. The Commission accepts FortisBC’s current position that recent judicial decisions suggest that the appropriateness of certain late payment arrangements may be challenged; and D. FortisBC states that the impact of the change is revenue-neutral and notes that the use of a 1.5 percent late payment charge on overdue accounts is a standard practice of other utilities under Commission jurisdiction; and E. Commission Order No. G-56-04 established a written public hearing process including an Information Request and Response stage and an opportunity for Intervenors and the Applicant (“the Parties”) to present Submissions to deal with the Application; and F. The Commission has reviewed the Application, supporting materials, the evidentiary record and Submissions of the Parties and finds that approval is in the public interest. . . ./2
2 NOW THEREFORE for the Reasons attached as Appendix A, the Commission approves the Application as filed, to be effective October 1, 2004. The Applicant is directed, as set out in the Reasons, to prepare and file for Commission approval, a communication to customers which explains the basis of and need for the Application and the Commission’s approval thereof. DATED at the City of Vancouver, in the Province of British Columbia, this 9 Attachment Order/FortisBC_ Residential Discount Decision BRITISH COLUMBIA UTILITIES COMMISSION ORDER NUMBER G-82-04 th day of September 2004. BY ORDER Original signed by: L.F. Kelsey Commissioner and Panel Chair
APPENDIX A to Order No. G-82-04 Page 1 of 4 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 FORTISBC INC. (FORMERLY KNOWN AS AQUILA NETWORKS CANADA (BRITISH COLUMBIA) LTD. Application for Approval to Replace Residential Discount REASONS FOR DECISION THE APPLICATION On May 21, 2004 Aquila Networks Canada (British Columbia) Ltd. [formerly West Kootenay Power Ltd. and now FortisBC Inc. (“FortisBC”, “Company”, “Applicant”)] applied to the Commission for approval to amend its Electric Tariff, Terms and Conditions of Service for Residential Customers (“the Application”). The current rate schedule for residential service includes a customer charge of $21.19 per bi-monthly period and an energy charge of 6.659 cents per kilowatt-hour. The rate schedule offers a 10 percent discount if paid before the date shown on the bill. After that date the full amount is due. The Applicant proposes to discontinue the 10 percent discount for prompt payment and introduce a 1.5 percent late payment charge. Further, the Applicant requests that the rate for residential service be composed of a bimonthly customer charge of $19.35 and a flat energy rate of 6.08 cents per KW.h. Both of these charges would be subject to a charge of 1.5 percent per month, compounded monthly, if the customer fails to pay by the stated due date. In its Final Submission, FortisBC stated that it has made the Application because it believes that a recent decision of the Supreme Court of Canada renders FortisBC’s prompt payment discount mechanism, in certain circumstances, potentially contrary to law. FortisBC states that the new residential rate proposed in the Application is intended to be compliant with all applicable laws, and is forecast to be revenue-neutral to the residential customer class (Final Submission, paragraphs 1 and 8). THE REGULATORY PROCESS The Commission established a written public hearing process to consider the Application as described in the May 21, 2004 filing. The Commission ordered FortisBC to publish a Notice of Written Hearing in local news publications in its service area. The Notice established a timetable and instructions on how the public could register as an intervenor, request information concerning the Application from FortisBC, and make written submissions to the Commission. The Application and supporting material were made available for inspection at public Libraries in Castlegar, Creston, Grand Forks, Kelowna, Oliver, Penticton and Trail, at the Head Office of FortisBC at 1290 Esplanade, Trail, B.C. and at the British Columbia Utilities Commission in Vancouver, B.C.
APPENDIX A to Order No. G-82-04 Page 2 of 4 BACKGROUND Utilities regulated by the Commission commonly charge an approved rate for service to customers and many apply a 1.5 percent per month late payment charge to help reduce bad debts and encourage prompt payment. The FortisBC residential service tariff also charges a rate for service but, instead of a 1.5 percent per month late payment charge, the residential tariff states that a discount of 10 percent is allowed if the customer pays on or before the date shown on each bill. All other classes of customer classes of FortisBC are charged 1.5 percent per month for late payments. A 1998 decision of the Supreme Court of Canada (Garland v. Consumers’ Gas Co., [1998] 3 S.C.R. 112.) (the “First Garland Decision”) considered that, with a one-time late payment charge (in that case 5 percent), the effective rate of interest is calculated on the basis of when a customer actually pays an overdue bill, and that it can greatly exceed the legal limit of 60 percent established by section 347 of the Criminal Code of Canada. In 1999 the Commission forwarded to West Kootenay Power Ltd., a legal opinion obtained from Commission counsel who suggested that the prompt payment discount offered by West Kootenay Power Ltd also probably constitutes interest at a criminal rate under section 347 of the Criminal Code of Canada. On July 21, 1999 West Kootenay Power Ltd. filed an application to remove the 10 percent discount and replace it with a 1.5 percent late payment charge. On October 14, 1999 West Kootenay Power Ltd. withdrew the application. However, another decision of the Supreme Court rendered in April 2004 in the Consumers’ [now Enbridge Gas Distribution Inc.] litigation (the “Second Garland Decision”), has persuaded Aquila Networks Canada (British Columbia) Ltd. to reintroduce the requested change. That decision established the principle that regulatory approval of a utility’s overall rate structure does not authorize the utility to retain late payment penalties that are contrary to section 347 of the Criminal Code. In its response to Commission Information Request No. 1, FortisBC stated that it believes that the principles established by the Supreme Court of Canada in the two decisions concerning late payment penalties do apply to the substance of the Company’s prompt payment discount. In its response to a Commission Information Request, FortisBC suggested that based on the First Garland Decision, the substantive effect of prompt payment discount amounts forfeited upon the late payment of bills may constitute “interest” and the forfeited prompt payment discount amounts are likely to be perceived as being for the “advancing of credit” and therefore may be subject to section 347 of the Criminal Code of Canada. As well, FortisBC suggested that based on the Second Garland Decision, the Commission’s approval of FortisBC’s current rate structure (which includes the forfeited discount) would not justify FortisBC’s prompt payment discount feature, and section 347 of the Criminal Code of Canada would override. INTERVENOR AND FORTISBC SUBMISSIONS Submissions were made by Mr. H. Wartenburg, Mr. H. Karow and the Kootenay-Okanagan Electric Consumers Association (“KOECA”). These Intervenors were mainly concerned that neither the Application nor the Commission’s written hearing process properly informed customers about the consequences if the Application were to be approved, and suggested certain improvements in the Hearing Notice procedures. The KOECA requested that the hearing be adjourned. FortisBC noted that it has posted the Application to its website for public viewing together with all submissions which it had received and submitted that its efforts to publicize the Application have been both reasonable and appropriate in the circumstances. FortisBC also submitted that the written hearing process established by the Commission has allowed all participants an opportunity to participate fully and effectively in the Commission’s consideration of the Application. The Panel notes that the public hearing process is designed to allow the Commission and Intervenors to request additional information if they believe that the Application was inadequate or required further elaboration. All Intervenors were provided with the opportunity to ask questions of, and received responses from, FortisBC and made submissions.
APPENDIX A to Order No. G-82-04 Page 3 of 4 The KOECA was concerned that the prompt payment discount was designed to generate income for the Company, rather than to compensate for late payments. However, as the forfeited discounts are factored into the Company’s approved revenue requirement, the consequence actually decreases the rates to all customers. As noted below, this seems to have caused some confusion for the Intervenors since the rate on the customer bills is shown net of discount. The KOECA believed that there was no justification for the use of Terasen Gas Inc. data to estimate the impact of a 1.5 percent late payment charge and requested that the proposed rate increase of 1.45 percent be rejected. FortisBC responded that there was a very high correlation between the Terasen Gas Inc. residential customer base and its own in that Terasen Gas Inland Division serves essentially the same customer base as does FortisBC. FortisBC considered that the average of these two rates would be a reasonable number to use for its calculations. FortisBC also explained that the proposed rate change is intended to be revenue neutral and that it is forecasting that it will receive no increased revenues if the Application is approved. Rather, according to FortisBC, the new residential rate proposed in the Application is designed to yield the same forecast revenues for FortisBC as are generated by the current residential rate ANALYSIS The Panel agrees that the consequences of the initial Application may have been unclear to some customers due to the current format of customer billing statements. The Panel also notes FortisBC’s willingness to consult with customers on the design of a revised billing format and its suggestion that the bill content and format issues would be better addressed in the context of a public hearing into its upcoming General Revenue Application. As stated above, the current FortisBC residential rates approved in its tariff filed May 19, 2004, consist of a bimonthly customer charge of $21.19 and an energy rate of 6.659 cents per KW.h. However, the bills to residential customers do not show these amounts; rather they identify a bi-monthly customer charge of $19.07 and an energy rate of 5.993 cents/KW.h., both being the approved rates net of the 10 percent discount. By identifying both the net-of-discount rates and the dollar amount which must be paid after the due date, the bills enable prompt payment customers to easily see the dollar impact of paying late. If the customer does pay late, then the next bill identifies the late payment charge as a “Discount Forfeit”. It is this amount that in certain circumstances, may constitute an illegal rate of interest under section 347 of the Criminal Code of Canada. If the 10 percent discount is removed, then it is the Company’s position that the only rates the Company can legally charge are the $21.19 and 6.659 cents tariff rates shown above. The Applicant acknowledges that these rates would return too much revenue to the Company and it therefore requested the Commission to reduce these rates to $19.35 and 6.08 cents/KW.h respectively. While these reductions may make the change revenue-neutral to the Company, the prompt payment customer will see an increase of 1.45 percent in the bill rates. As shown in the response to Mr. Karow’s Information Request, with a bi-monthly consumption of 5000 KW.h, the impact on a customer who pays on time will be an increase of $4.63, while customers who pay after the due date will see a reduction of $25.94. COMMISSION DETERMINATIONS Section 59 of the Utilities Commission Act states: “59 (1) A public utility must not make, demand or receive (a) an unjust, unreasonable, unduly discriminatory or unduly preferential rate for a service provided by it in British Columbia, or (b) a rate that otherwise contravenes this Act, the regulations, orders of the commission or any other law.
APPENDIX A to Order No. G-82-04 Page 4 of 4 (2) A public utility must not (a) as to rate or service, subject any person or locality, or a particular description of traffic, to an undue prejudice or disadvantage, or (b) extend to any person a form of agreement, a rule or a facility or privilege, unless the agreement, rule, facility or privilege is regularly and uniformly extended to all persons under substantially similar circumstances and conditions for service of the same description. (3) The commission may, by regulation, declare the circumstances and conditions that are substantially similar for the purpose of subsection (2) (b). (4) It is a question of fact, of which the commission is the sole judge, (a) whether a rate is unjust or unreasonable, (b) whether, in any case, there is undue discrimination, preference, prejudice or disadvantage in respect of a rate or service, or (c) whether a service is offered or provided under substantially similar circumstances and conditions. (5) In this section, a rate is "unjust" or "unreasonable" if the rate is (a) more than a fair and reasonable charge for service of the nature and quality provided by the utility, (b) insufficient to yield a fair and reasonable compensation for the service provided by the utility, or a fair and reasonable return on the appraised value of its property, or (c) unjust and unreasonable for any other reason.” On April 22, 2004 the Supreme Court of Canada rendered a decision which FortisBC believes, and the Panel accepts, applies to its circumstances and may lead to FortisBC as being seen to be in receipt of forfeited prompt payment discounts that constitute interest at a rate higher than that permitted under section 347 of the Criminal Code of Canada. The Panel notes that FortisBC’s revenue requirement for 2004 was established following a negotiated settlement process in April, 2004. . The Panel also notes that FortisBC’s proposal is intended to be revenue neutral based on the approved revenue requirement and considers that FortisBC’s proposal should have this effect. The Panel approves the FortisBC Application to replace the prompt payment discount provision with a 1.5 percent per month late payment change and reduce the tariff residential rates as filed, to be effective October 1, 2004. The Panel considers that the requested changes to the Tariff, when taken in the context of the current customer billing statement, may be confusing to customers. The Panel, therefore, requests that the Applicant develop a billing stuffer or similar customer communications piece to explain the changes in terms that will be understandable to customers. The communications piece must be submitted to the Commission for review and approval prior to use.
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