BRITISH COL UMBIA UTILITIES COM MISSION ORDER NUMBER G -143-06 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 An Application by British Columbia Hydro and Power Authority (“BC Hydro”) for the Review of the F2007 and F2008 Revenue Requirements Application (“F07/F08 RRA”) BEFORE: R.H. Hobbs, Chair N. F. Nicholls, Commissioner November 10, 2006 A.J. Pullman, Commissioner O R D E R WHEREAS: A. In a letter dated March 15, 2006, BC Hydro applied for Commission approval to set its current rates as interim effective April 1, 2006 and in the same letter informed the Commission that the balance of the F07/F08 RRA would be filed in or about late April 2006; and B. By Order No. G-32-06 dated March 23, 2006, the Commission approved current customer rates as interim effective April 1, 2006; and C. By Commission Order No. G-103-05 dated October 5, 2005 the Commission approved a Negotiated Settlement in the Resource Expenditure Acquisition Plan (“REAP”) proceeding. In the REAP Negotiated Settlement, BC Hydro committed to seek, pursuant to Section 45 (6.2) of the Utilities Commission Act (the “Act, “UCA”), regulatory approval of the 2006 Long-Term Acquisition Plan (“LTAP”), to be included with the 2006 Integrated Electricity Plan (“2006 IEP”); and D. On March 29, 2006, BC Hydro filed, pursuant to Section 45 (6.1) of the Act, the 2006 IEP and the LTAP with the Commission for review; and E. The 2006 IEP is a long-term plan that describes how BC Hydro could meet customers’ electricity needs over a 20-year planning horizon and the resource options available to meet those needs under a variety of assumptions and risks; and F. The LTAP is an action plan that is supported by the 2006 IEP. It itemizes the actions BC Hydro intends to take in the next ten years to meet customers’ electricity needs as part of BC Hydro’s overall planning and resource acquisition process; and G. BC Hydro seeks an Order which: (i) states that the 2006 LTAP meets the requirements of Section 45 (6.1) of the UCA; (ii) makes specific determinations under Subsection 45 (6.2)(b) of the UCA with respect to certain
BRITISH COLUMBIA UTILITIES COMMISSION ORDER NUMBER G-143-06 2 planned expenditures; and (iii) approves the transmission LTAP plan and contingency plans for inclusion in the Utility’s Network Integrated Transmission Service application; and H. In its cover letter dated March 29, 2006, BC Hydro proposes a Pre-hearing Conference to assist with establishing a Regulatory Agenda or Agendas for both its F07/F08 RRA and the 2006 IEP and LTAP; and I. By Order No. G-37-06, the Commission established a Procedural Conference to hear submissions on the regulatory process for the review of the both the F07/F08 RRA and the 2006 IEP and LTAP. The Procedural Conference was scheduled for May 19, 2006; and J. In a letter dated May 1, 2006, BC Hydro informed the Commission and all Intervenors and Interested Parties of a delay and that the balance of its F07/F08 RRA would be filed towards the end of May 2006; and K. The Joint Industry Electric Steering Committee (“JIESC”) submitted to the Commission in a letter dated May 5, 2006 that participants should not be required to file Information Requests with respect to the 2006 IEP, LTAP or F07/F08 RRA prior to the filing of the F07/F08 RRA because the applications are intertwined. It submitted that the Procedural Conference be postponed to the week of June 19, 2006. The JIESC also requested that the Commission reconsider its Order No. G-32-06 making BC Hydro’s rates interim; and L. On May 10, 2006, the Commission issued a letter with a draft regulatory timetable and an accompanying Order No. G-51-06 (IEP Exhibit A-4) to address issues raised by Intervenors with respect to the delay by BC Hydro in filing the F07/08 RRA; and M. The Commission held a Procedural Conference on May 19, 2006 wherein the Commission Panel considered submissions on whether or not the Order on interim rates should be reconsidered, whether a rate design application should be filed, and the scheduling for the regulatory review of the 2006 IEP and LTAP, the F07/08 RRA and a rate design application; and N. By Order No. G-59-06 dated May 24, 2006 the Commission approved the reconsideration of Order No. G-32-06 on interim rates and set the regulatory timetable leading to the Second Procedural Conference; and O. On June 19, 2006, the Commission issued Order No. G-70-06 denying the Reconsideration Application. In the same Order, the Commission approved the request in the F07/F08 RRA for a regulatory asset (deferral account) to record the revenue deficiency incurred during the period from April 1, 2006 to June 30, 2006, net of any disallowance of F07 revenue requirements. The Order also required that if BC Hydro expected to bring an application for carrying costs then BC Hydro was to do so within 30 days of the Order; and
BRITISH COLUMBIA UTILITIES COMMISSION ORDER NUMBER G-143-06 3 P. By letter dated July 27, 2006, the Commission asked BC Hydro and Intervenors to comment on the consolidation of the 2006 IEP, LTAP and F07/F08 RRA; the use of the negotiated settlement process (NSP); the filing date for the rate design application; the proposed regulatory timetables; and a contemplated change to the Commission Panel; and Q. By letter dated July 28, 2006 BC Hydro informed the Commission that BC Hydro would not be charging carrying costs to the regulatory asset (deferral account) approved by Order No. G-70-06 and accordingly would not be filing an application; and R. By letter dated July 28, 2006, BC Hydro asked the Commission to confirm if the F2006 Call Energy Supply Contracts (“ESC”) as filed on August 31, 2006 will proceed without any further regulatory process; and S. At the Second Procedural Conference on August 1, 2006, JIESC and BC Hydro separately provided revisions to the proposed regulatory timetables; and BC Hydro advised that it is ready to file the rate design application within thirty days of receipt of a decision on the F07/F08 RRA; and T. Following the Second Procedural Conference the Commission issued Order No. G-96-06, dated August 3, 2006, which established, among other things, a NSP for the F07/08 RRA; and U. On August 31, 2006 BC Hydro filed an Evidentiary Update to the F07/08 RRA; and V. The NSP commenced immediately following a Workshop led by BC Hydro on October 16, 2006; and W. The participants in the NSP reached a Negotiated Settlement Agreement, dated November 2, 2006 (“NSA”); and X. On November 6, 2006, the NSA, together with the Letters of Support and one Letter of Dissent (the “Settlement Package”) received from the participants in the NSP, was made public and circulated to the Commission Panel. On the same date the Settlement Package was also distributed to Registered Intervenors in the F07/08 RRA review who did not participate in the settlement negotiations (“other Intervenors”). The other Intervenors were requested to provide their comments on the Settlement Package to the Commission at the Third Procedural Conference, which took place on November 8, 2006. The Commission Panel received no comments at the Third Procedural Conference from other Intervenors regarding the Settlement Package. One other Intervenor, EPCOR Utilities Inc.(“EPCOR”), submitted a letter dated November 7, 2006, which stated that EPCOR accepts and supports approval of the NSA; and Y. At the Third Procedural Conference the Commission Panel also posed questions, primarily to BC Hydro, regarding the NSA, including the scope of review during the 2006 IEP and LTAP proceeding.; and Z. The Commission has determined that the NSA is in the public interest and should be approved.
4 NOW THEREFORE the Commission orders as follows: 1. The Negotiated Settlement Agreement, dated November 2, 2006, attached as Appendix A to this Order is approved. 2. The Commission will accept revised Electric Tariff Rate Schedules in accordance with the terms of the NSA. 3. BC Hydro is to inform all customers in a timely manner of the rate changes approved by this Order. DATED at the City of Vancouver, in the Province of British Columbia, this 10 Attachment Orders/G-143-06/BCH F07-08 RRA-NSA BRITISH COLUMBIA UTILITIES COMMISSION ORDER NUMBER G-143-06 th day of November 2006. BY ORDER Original signed by: Robert H. Hobbs Chair
APPENDIX A to Order No. G-143-06 Page 1 of 45 WILLIAM J. GRANT TRANSITION ADVISOR SIXTH FLOOR, 900 HOWE STREET, BOX 250 bill.grant@bcuc.com VANCOUVER, B.C. CANADA V6Z 2N3 web site: http://www.bcuc.com TELEPHONE: (604) 660-4700 BC TOLL FREE: 1-800-663-1385 FACSIMILE: (604) 660-1102 Log No. 14085 VIA E-MAIL November 6, 2006 VIA FAX – Ms. Isabel Minty To: Registered Intervenors (BC Hydro – F2007/08 RRA) Dear Registered Intervenors: Re: British Columbia Hydro and Power Authority (“BC Hydro”) Negotiated Settlement F2007 and F2008 Revenue Requirements Application (“F2007/2008 RRA”) Enclosed with this letter is the proposed Negotiated Settlement Agreement, dated November 2, 2006 together with the Letters of Support and one Letter of Dissent (the “settlement package”) received from the participants in the negotiated settlement process. This settlement package is now public and is being submitted to the Commission Panel and all Registered Intervenors. Prior to consideration by the Commission Panel, Registered Intervenors who did not participate in the settlement negotiations are requested to provide their comments, if any, on the settlement package to the Commission Panel at the Third Procedural Conference scheduled to commence at 1:00 p.m. on Wednesday, November 8, 2006. Thereafter, the Commission Panel will consider the settlement package. A public hearing may not be required unless there is significant opposition to the proposed settlement. Yours truly, Original signed by William J. Grant Attachments cc: Ms. Joanna Sofield Chief Regulatory Officer British Columbia Hydro and Power Authority PF/BCH_F2007-2008RR/Final Negotiated Settlement – November 6
APPENDIX A to Order No. G-143-06 Page 21 of 45 CONFIDENTIAL – WITHOUT PREJUDICE IN THE MATTER OF THE Utilities Commission Act, R.S.B.C. 1996, Chapter 473, as amended (the UCA) and An Application by British Columbia Hydro and Power Authority (BC Hydro) for the Review of its F2007 and F2008 Revenue Requirements Application (F07/F08 RRA) BC HYDRO F07/F08 RRA SETTLEMENT AGREEMENT DATED FOR REFERENCE NOVEMBER 2, 2006 WHEREAS: A. In a letter dated March 15, 2006 (Exhibit B-1; RRA), BC Hydro applied to the British Columbia Utilities Commission (Commission) for approval to set its then-current rates as interim effective April 1, 2006, and in the same letter informed the Commission that it proposed to file the balance of the F07/F08 RRA in late April 2006; and B. By Order No. G-32-06 dated March 23, 2006 (Exhibit A-1; RRA), the Commission approved BC Hydro’s then-current customer rates (F2006 Rates) as interim effective April 1, 2006; and C. On May 25, 2006, BC Hydro filed the balance of its F07/F08 RRA (Exhibit B-5-1,2,3; RRA) . The F07/F08 RRA requested approval, pursuant to sections 58, 59, 60 and 90 of the UCA, for an across-the-board rate increase of 4.65 percent from July 1, 2006 to allow a partial recovery of its F2007 revenue requirements, a further increase of 2.71 percent effective April 1, 2007 and a regulatory asset (deferral account) to record the F2007 revenue deficiency between April 1, 2006 and the date BC Hydro’s rates would be raised on an interim basis, net of any disallowance of F2007 revenue requirements; and D. By Order No. G-70-06, dated June 19, 2006 (Exhibit A-10; RRA), the Commission denied an application brought by certain intervenors to reconsider and rescind Order No. G-32-06, and approved the creation of a regulatory asset (deferral account) to record the F2007 revenue deficiency for the period between April 1, 2006 and July 1, 2006, net of any disallowance of the F2007 revenue requirement; and 01249.89474.JC.2802887.1
APPENDIX A to Order No. G-143-06 Page 23 of 45 2 CONFIDENTIAL – WITHOUT PREJUDICE E. By Order No. G-71-06, dated June 21, 2006 (Exhibit A-8; RRA), the Commission approved BC Hydro’s requested rate increase of 4.65 percent, on an interim basis effective July 1, 2006; and F. Following a procedural conference on August 1, 2006, the Commission issued Order No. G-96-06 (Exhibit A-15; IEP/LTAP) establishing, among other things, a Negotiated Settlement Process with respect to the F07/F08 RRA (NSP), to commence on October 16, 2006. Order No. G-96-06 also set out a schedule for the oral hearing phase of BC Hydro’s 2006 Integrated Electricity Plan and Long Term Acquisition Plan (IEP/LTAP Hearing), set to commence on November 22, 2006. In the cover letter (Exhibit A-15; IEP/LTAP) to Order No. G-96-06 the Commission concluded, on the basis of the material before it at the time, that the disposition of balances in the current deferral accounts should not be within the scope of the NSP (Exhibit B-5-1, Section 2.3.2); and G. On August 31, 2006 BC Hydro filed an Evidentiary Update (Exhibit B-15; RRA) to the F07/F08 RRA. Information received by BC Hydro since May 25, 2006 and provided in the Evidentiary Update established a lower revenue requirement for F2007 than indicated in the May 25, 2006 filing, and the possibility of significant recovery of closing F2006 deferral account balances in F2007; and H. The following parties (collectively, the Parties, or individually, a Party) participated in the NSP: PARTICIPANT PARTIES W.J. Grant British Columbia Utilities Commission G.A. Fulton Commission Counsel S.P. Sue British Columbia Utilities Commission D. Chong British Columbia Utilities Commission W. J. Krampl British Columbia Utilities Commission P.W. Nakoneshny British Columbia Utilities Commission E. Cheng British Columbia Utilities Commission T. Hackney Sierra Club of Canada British Columbia (SCCBC), BC Sustainable Energy Association (BCSEA) and the Peace Valley Environment Association (PVEA) W. Andrews Counsel for Sierra Club of Canada British Columbia (SCCBC), BC Sustainable Energy Association (BCSEA) and the Peace Valley Environment Association (PVEA) L. Bertsch Energy Solutions for Vancouver Island Society 01249.89474.JC.2802887.1
APPENDIX A to Order No. G-143-06 Page 4 of 45 3 CONFIDENTIAL – WITHOUT PREJUDICE C. Weafer Counsel for Commercial Energy Consumers L. Worth Counsel for the BC Old Age Pensioners Organization et al. J. Quail Counsel for the BC Old Age Pensioners Organization et al. C. Fussell Consultant for the BC Old Age Pensioners Organization et al. D. Potts Joint Industry Electricity Steering Committee L. Guenther Joint Industry Electricity Steering Committee B. Wallace Counsel for Joint Industry Electricity Steering Committee J. Morgan Hay Counsel for Joint Industry Electricity Steering Committee D. Austin Counsel for Independent Power Producers of BC J. Weimer Independent Power Producers of BC P. Lamarche Howe Sound Pulp & Paper Limited Partnership K. MacMillan Chemtrade Pulp Chemicals D. Newlands Elk Valley Coal Corporation D. Humber West Fraser Mills (West Fraser Timber Co. Ltd.) T. Loski Terasen Gas Inc. D. Perttula Terasen Gas Inc. A. Wait Ratepayer F. Weisberg Counsel for Columbia Power Corporation J. Griffith Counsel for Haisla Nation I. Minty Ratepayer D. Farrell British Columbia Hydro and Power Authority C. Yaremko British Columbia Hydro and Power Authority J. Sofield British Columbia Hydro and Power Authority J. Christian Counsel for British Columbia Hydro and Power Authority W. Taylor British Columbia Hydro and Power Authority C. Badenhorst British Columbia Hydro and Power Authority I. Webb Counsel for British Columbia Hydro and Power Authority A. Cowan British Columbia Hydro and Power Authority L. Gray British Columbia Transmission Corporation D. Fitzgerald Catalyst Paper Corporation 01249.89474.JC.2802887.1
APPENDIX A to Order No. G-143-06 Page 5 of 45 4 CONFIDENTIAL – WITHOUT PREJUDICE NOW THEREFORE THE PARTIES AGREE AS FOLLOWS: GENERAL 1. The Parties will maintain in confidence all confidential discussions had in the course of negotiating this Settlement Agreement, unless disclosure is agreed to by all Parties and released publicly by Commission staff. 2. This Settlement Agreement represents a compromise reached on a “without prejudice” basis. Neither this Settlement Agreement, nor the positions taken and the statements made by the Parties in the course of negotiating this Settlement Agreement, will restrict in any way the positions that may be taken by any of the Parties in any future proceedings. 3. Despite the Commission’s conclusion regarding the scope of this NSP referred to in recital F above, it would have been impossible to reach any settlement of the F07/F08 RRA without addressing and agreeing on amortization of the current deferral accounts and the resulting level of the rate increases, as reflected in this Settlement Agreement. The Parties agree that none of the provisions of this Settlement Agreement are severable. If the Commission does not accept and approve the Settlement Agreement in its entirety, there is no agreement. SCOPE AND EFFECTIVE DATE OF SETTLEMENT 4. The relief sought by BC Hydro in the F07/F08 RRA, as amended by the Evidentiary Update, is accepted, subject to the provisions that follow. 5. This Settlement Agreement is a comprehensive settlement of all issues arising from the F07/F08 RRA, except for the determination under section 45(6.2)(b) of the UCA sought by BC Hydro in respect of the Aberfeldie Project at pages 4-3 and Appendix L of the F07/F08 RRA. For greater certainty, there is no agreement among the Parties that expenditures referred to in the F07/F08 RRA in regard to the Aberfeldie Project are, or are not, “in the interests of persons within British Columbia who receive, or who may receive, service from” BC Hydro. For greater certainty, the Parties also agree that the Commission’s current review of BC Hydro’s proposed expenditures in regard to the Aberfeldie Project (initiated by the filing of the F07/F08 RRA) will continue despite any Commission order approving this Settlement Agreement and could by Commission order continue as an application for a certificate of public convenience and necessity. Parties will not be precluded from raising prudency issues under the UCA with respect to costs incurred. 01249.89474.JC.2802887.1
APPENDIX A to Order No. G-143-06 Page 6 of 45 5 CONFIDENTIAL – WITHOUT PREJUDICE 6. This Settlement Agreement shall be effective on the date of the Commission order approving it, except for section 10 below, which shall be effective February 1, 2007. F2007 AND F2008 REVENUE REQUIREMENTS 7. Agreed-to adjustments of BC Hydro’s proposed F2007 and F2008 revenue requirements (from the Evidentiary Update) are as follows, and shown in Appendix A to this Settlement Agreement: i. changes to the F2008 revenue requirement arising from an increase in the F2008 Light Industrial and Commercial sales forecast from 18,381 GWh in the F07/F08 RRA to 18,700 GWh; ii. a decrease in forecast F2008 interest charges of $12 million arising from more recent interest rate forecasts than those available for the Evidentiary Update; iii. a decrease in forecast F2007 and forecast F2008 capital related charges for financing costs and depreciation of $3 million and $9 million, respectively, arising from fewer capital additions in F2007 and F2008 than forecast in the Evidentiary Update; iv. changes to the F2007 and F2008 revenue requirements arising from a change in amortization period from 45 years to 25 years for assets referred to as “Profile ID 99403 Distribution Pre-1996 Contributions in Aid”; v. changes to the F2007 and F2008 revenue requirements arising from a change in the amortization period from 2 years to 5 years for the $24 million net book value adjustment arising from the depreciation study; vi. a decrease in forecast F2007 and F2008 operations, maintenance and general & administrative expenses of $18 million and $12 million, respectively; and vii. deferral account recoveries of $50.0 million in F2007 and $55.8 million in F2008. 01249.89474.JC.2802887.1
APPENDIX A to Order No. G-143-06 Page 7 of 45 6 CONFIDENTIAL – WITHOUT PREJUDICE 8. The $18 million dollar operating expense reduction for F2007 referred to above and in Appendix A is inclusive of a $10 million dollar reduction in F2007 only, solely for the purposes of settlement. F2007 AND F2008 RATES, REFUNDS AND REVENUE DEFICIENCY DEFERRAL ACCOUNT 9. The F2006 Rates are confirmed as permanent and final for the period from April 1, 2006 to June 30, 2006, inclusive. For illustrative and explanatory purposes only, the rate changes for F2007 and F2008, as per sections 10 to 14 below, are shown in Appendix B. 10. BC Hydro’s rates in effect from July 1, 2006 to January 31, 2007, inclusive, shall be set 1.54% higher than its F2006 Rates, across-the-board, and on a permanent and final basis, as derived in Appendix C. 11. In March 2007 or as soon as practicable thereafter, BC Hydro shall issue a refund to customers, based on the difference between the interim 4.65% increase and final 1.54% rate increase in the period July 1, 2006 to January 31, 2007, including interest calculated at BC Hydro’s most recent annual weighted average cost of debt. 12. BC Hydro’s rates effective February 1, 2007 shall be 1.64% higher than its F2006 Rates, across-the-board, and on a permanent and final basis. 13. In addition to the February 1, 2007 1.64% rate increase referred to above, BC Hydro shall charge an additional rate rider (Rate Rider) on all customer bills after January 31, 2007. The Rate Rider will be the product of a fixed percent and the total charges before taxes and levies otherwise payable under the bill. Revenues received from the Rate Rider will be allocated against the sum of the closing balances of the Heritage Deferral Account, the Non-Heritage Deferral Account, the Trade Income Deferral Account and the BCTC Deferral Account. The fixed percent used to calculate the Rate Rider will be set out in a rate schedule to be filed with the Commission and included in BC Hydro’s Electric Tariff. For the period February 1, 2007 to March 31, 2008 the fixed percent used to calculate the Rate Rider will be 2%. 14. In F2007, in addition to the revenues to be received from the Rate Rider during the period from February 1, 2007 to March 31, 2007 (which are forecast to be $10.4 million), BC Hydro will apply a further $39.6 million to the deferral account balances resulting in total forecast deferral account recoveries in F2007 of $50.0 million. In F2008, the revenues to be received from the 01249.89474.JC.2802887.1
7 Rate Rider in place throughout F2008 are forecast to be $55.8 million. A continuity schedule for the deferral accounts is provided in Appendix D. 15. There shall be no balance or amount carried forward for future recovery in the F2007 revenue deficiency regulatory asset (deferral account) established by Commission Order G-70-06. 16. The allowed return on equity (ROE) for BC Hydro for F2007 shall be 13.10%. After the Commission determines the allowed ROE of Terasen Gas Inc. for 2008, BC Hydro will apply to the Commission for a further adjustment to its F2008 revenue requirement to account for the effect of such determination on BC Hydro’s F2008 ROE, calculated using the then-current corporate income tax rates. CAPITAL EXPENDITURE PLANS 17. BC Hydro’s F2007 planned capital expenditures as follows are “in the interests of persons within British Columbia who receive, or who may receive, service” from BC Hydro, pursuant to section 45(6.2)(b) of the UCA: Capital Expenditures ($ million) Corporate Generation 1 Distribution 2 Engineering Field Services DSM Total 1 Excludes costs related to Aberfeldie. 2 Includes Contributions in Aid and excludes DSM expenditures. 01249.89474.JC.2802887.1 APPENDIX A to Order No. G-143-06 Page 8 of 45 CONFIDENTIAL – WITHOUT PREJUDICE F07/F08 RRA F2007 Reference Plan Section 6.8, Table 6-22 51.0 Section 7.14, Table 7-18 219.1 Section 8.15, Table 8-22 400.6 Evidentiary Update Attachment 6, Schedule 13 3.0 Section 9.3.2, Table 9-4 27.7 Section 8.15.5, Table 8-28 55.4 756.8
APPENDIX A to Order No. G-143-06 Page 9 of 45 8 CONFIDENTIAL – WITHOUT PREJUDICE 18. BC Hydro’s planned capital expenditures in the following amounts and in regard to the following projects are “in the interests of persons within British Columbia who receive, or who may receive, service” from BC Hydro, pursuant to section 45(6.2)(b) of the UCA: i. $46 million, G3 & G4 stators at GM Shrum (Appendix I of the F07/F08 RRA); ii. $12 million, DC System at GM Shrum (Appendix I of the F07/F08 RRA); iii. $78 million, G1-G4 stators at Mica (Appendix H of the F07/F08 RRA). iv. $58 million, Coquitlam Dam seismic improvements (Appendix N of the F07/F08 RRA); and v. $67 million, G1-G4 stators at Peace Canyon (Appendix M of the F07/F08 RRA). CAPITAL PLAN REVIEW PROCESS 19. BC Hydro will file its Capital Plan bi-annually. The Capital Plan will identify all capital expenditures and for the purposes of this provision the term “capital expenditures” will include those demand-side management expenditures that are amortized, in the then-current fiscal period and the following fiscal period, as well as total expenditure and in-service date forecasts for projects underway in those periods. In addition, the Capital Plans will specifically identify projects with gross project costs greater than $2 million on an aggregated basis. These bi-annual filings will satisfy BC Hydro’s obligations under sections 45(6.1)(a) and (c) of the UCA. BC Hydro will notify stakeholders of these filings. For greater certainty, these filings and any filings made pursuant to paragraphs 20 and 21 will not preclude Parties from raising prudency issues under the UCA with respect to costs incurred or to be incurred. 20. BC Hydro will file Major Threshold Project applications for determinations under section 45(6.2)(b) of the UCA in regard to Major Threshold Projects that are ready to proceed, supported by detailed (“CPCN-like”) business cases. BC Hydro will notify stakeholders of these applications at the time they are filed. Major Threshold Projects are all capital projects with gross project costs, including without limitation contributions in aid of construction, transmission interconnection costs and upgrades and the amount of any First Nations costs attributable to the relevant project, greater than $50 million, plus other projects which BC Hydro believes should 01249.89474.JC.2802887.1
APPENDIX A to Order No. G-143-06 Page 10 of 45 9 CONFIDENTIAL – WITHOUT PREJUDICE have Major Threshold Project application treatment. The Commission will determine whether or not to hold a hearing into such an application, and may designate any process to review Major Threshold Project applications as available under section 45 of the UCA. Equally for straightforward projects the Commission may choose not to hold a hearing. 21. Projects in Capital Plans or Major Threshold Project applications designated as requiring a CPCN by the Commission under section 45(5) of the UCA, or requested by BC Hydro, will be filed as CPCN applications. BC Hydro will notify stakeholders of these applications at the time they are filed. The Commission can request additional information regarding any project to decide if an order under section 45(5) is warranted. 22. The intent of sections 19-21, above, is that stakeholders will have adequate information to propose to the Commission the appropriate process for review of each capital project or expenditures. DEFERRAL ACCOUNTS AND REGULATORY ASSETS 23. Costs incurred by BC Hydro in regard to load curtailment activities as described in page 7-19 of the F07/F08 RRA shall be included in the Heritage Payment Obligation and thus in the Heritage Deferral Account balances. 24. A regulatory asset shall be established in respect of the net book value adjustment arising from the depreciation study attached at Appendix F of the F07/F08 RRA. The $24.0 million adjustment shall be amortized over a 5 year period, beginning in F2007. 25. A regulatory asset shall be established in respect of Site C expenditures. All Site C expenditures during F2007 and F2008 shall be included in the Site C regulatory asset. The creation of this regulatory asset will not preclude the Parties from raising prudency issues under the UCA with respect to Site C expenditures incurred or to be incurred. BC Hydro confirms that there is no impact from these expenditures on the revenue requirements for F2007 and F2008. 26. The BCTC Transition Deferral Account shall be renamed the BCTC Deferral Account. All net external variances as a result of timing differences arising from the Commission approval of the BCTC and BC Hydro revenue requirement applications shall be captured in this deferral account. The BCTC costs identified in the table in section 43 of this agreement shall be subject to this 01249.89474.JC.2802887.1
APPENDIX A to Order No. G-143-06 Page 11 of 45 10 CONFIDENTIAL – WITHOUT PREJUDICE deferral account treatment. During the test period balances in the BCTC Transition Deferral Account arising from PTP and ancillary service expenses shall be excluded from amortization as these balances will be partially offset by the refund from BCTC. 27. Differences between forecast and actual cost of energy arising from differences between forecast and actual customer load shall continue to be excluded from the Heritage Deferral Account and Non-Heritage Deferral Account. BC HYDRO COMMITMENTS 28. BC Hydro shall use its weighted average cost of debt, calculated for its most recent fiscal year, as the interest rate applicable to customer refunds arising from interim rates, deferral accounts balances, and interest during construction (“IDC”), as well as customer refunds arising from customer contributions and security deposits where interest applies to those refunds under BC Hydro’s current Electric Tariff. 29. BC Hydro shall not enter into any new hedging contracts in regard to natural gas purchases subsequent to the Commission’s approval of this Settlement Agreement. No Party may in any future proceeding allege, after the fact, that BC Hydro was imprudent in discontinuing its natural gas hedging activities, or submit that some portion of BC Hydro’s actual gas costs should not be recovered in rates because of a failure to engage in natural gas hedging activities. No Party is prohibited from submitting in a Commission proceeding that on a go-forward basis BC Hydro ought to engage in natural gas hedging activities. 30. BC Hydro shall hold workshops on the following topics: i. within 6 months of the Commission’s approval of this Settlement Agreement, hedging activities in regard to electricity purchases; and ii. within 10 months of the Commission’s approval of this Settlement Agreement, regulatory reform, including without limitation issues such as form, filing times and interrelationships of BC Hydro applications, regulatory initiatives and undertakings, performance based ratemaking (PBR), information request processes, and pre-application technical workshops, all subject to any Commission determinations arising from the IEP/LTAP Hearing. 01249.89474.JC.2802887.1
APPENDIX A to Order No. G-143-06 Page 12 of 45 11 CONFIDENTIAL – WITHOUT PREJUDICE 31. BC Hydro shall maintain its current and any new customer satisfaction metrics for at least 4 years. 32. In its next revenue requirement application BC Hydro shall: i. address the appropriateness of the use of COMA, as defined at page 8-12 of the F07/F08 RRA, as a financial metric; ii. address the appropriate capitalization and amortization of demand side management (DSM) expenditures; iii. present F2007 to F2010 financial information in a consistent, year-to-year comparable format; iv. consider and address the appropriateness of an accounting policy change that would delay the recording of depreciation arising from some or all capital additions until the beginning of the fiscal period following the period in which the capital additions go into service; v. present benchmarking information regarding the cost of conducting energy calls (and BC Hydro will also provide its costs of conducting its next energy call at its first workshop for that call); vi. address whether PBR is appropriate for BC Hydro; vii. address amortizing deferral account balances in a structured or formulaic approach; and viii. file agreements and financial justification with regard to its Remote Community Electrification Program (if it does not do so sooner). 33. BC Hydro shall not seek to recover any expenditures regarding the Advanced Metering Infrastructure project beyond the $0.5 million of operating expense and the $5.1 million of capital as described in the F07/F08 RRA, in the absence of a determination by the Commission under section 45(6.2)(b) of the UCA that further expenditures are “in the interests of persons within British Columbia who receive, or who may receive, service” from BC Hydro. BC Hydro expects to bring an application for such a determination in F2008. At that time it will provide full project information and justification. 01249.89474.JC.2802887.1
APPENDIX A to Order No. G-143-06 Page 13 of 45 12 CONFIDENTIAL – WITHOUT PREJUDICE 34. BC Hydro will not object to the following issues being raised by Parties at the IEP/LTAP Hearing. This is not a comprehensive list of all possible issues, but does address those issues or questions raised by Parties at the F07/F08 RRA NSP. i. the appropriateness of the 2.5 cent utility cost threshold test for DSM programs; ii. the appropriate level of DSM incentives, including those for BC Hydro’s stepped rate customers; iii. the appropriateness of BC Hydro incurring development costs related to the Revelstoke 5, Revelstoke 6, Mica 5 and Mica 6 projects; iv. the 2007 and 2009 Calls; v. Resource Smart project evaluation, including the seismic upgrade issue; and vi. the useful life of Burrard Generating Station; 35. BC Hydro will, in its first annual report regarding stepped rates (arising from the negotiated settlement of BC Hydro’s stepped rate application), address the level and impact of DSM incentives for BC Hydro’s stepped rate customers. 36. BC Hydro shall address DSM evaluation issues in any application by BC Hydro for a determination, pursuant to section 45(6.2)(b) of the UCA, regarding the DSM programs referred to in the F07/F08 RRA as “EE3, 4 and 5”. 37. BC Hydro shall include safety and reliability performance targets in the variable pay component of F2008 generation and field operation salaries, and executive salaries. 38. BC Hydro shall notify revenue requirement intervenors from time to time of any future applications by BC Hydro regarding the creation of regulatory assets and any applications regarding proposed changes in accounting policies. 39. BC Hydro confirms that: i. the current depreciation rates do not include any negative salvage values; ii. the creation of regulatory assets does not affect “equity” as defined in Heritage Special Direction No. HC2; 01249.89474.JC.2802887.1
APPENDIX A to Order No. G-143-06 Page 14 of 45 13 CONFIDENTIAL – WITHOUT PREJUDICE iii. it is committed to building a mutually beneficial relationship with the Haisla First Nation and will discuss the development of a protocol agreement between Haisla First Nation and BC Hydro; iv. it is considering the use of IEEE reliability standards for normalized reliability statistics; v. no costs related to the Revelstoke 5, Revelstoke 6, Mica 5 or Mica 6 projects are included in the F2007 or F2008 revenue requirements as agreed to in this Settlement Agreement; vi. third party work by BC Hydro’s Engineering business unit should be confined to services requested and appropriate to the nature of the contract; and vii. awarding of BC Hydro engineering work to contractors/consultants should be done on a competitive basis. 40. BC Hydro will work with Commission staff to develop an Annual Report to the Commission that: i. follows the BCUC Electric Utilities Annual Report form adapted for BC Hydro’s unique circumstances; ii. addresses reporting for plant and deferral accounts and how BC Hydro can report its OM&A in an informative and comparative format; iii. will allow year-to-year comparisons of BC Hydro’s actual and forecast financial information regardless of how BC Hydro is internally organized. 41. BC Hydro will issue a public report regarding the proposed new Annual Report, together with recommendations on implementation, to the Commission by December 31, 2007. 42. BC Hydro will either file an application regarding its procurement project, referred to on pages 6-16 and 6-17 of the F07/F08 RRA, prior to December 31, 2006, or will make any necessary accounting adjustments. 01249.89474.JC.2802887.1
14 FORECASTS FOR DEFERRAL ACCOUNT PURPOSES 43. The following forecast amounts are accepted as the baseline amounts to be used for the purposes of setting rates and calculating closing F2007 and F2008 deferral account balances: ($ million) Heritage Payment Obligation (variances captured in HDA) Cost of Non-Heritage Energy (variances captured in NHDA) Trade Income (variances captured in TIDA) BCTC Costs (variances captured in BCTCDA) Transmission Asset Management Fee GRTA Asset Management Fee SDA Asset Management Fee Total BCTC Charges for NITS and PTP External PTP Revenues OTHER RELIEF SOUGHT IN THE F07/F08 RRA 44. For greater certainty, the Parties agree that: i. $94.7 million and $95.2 million are the appropriate costs to be incurred by BC Hydro in providing service to BCTC in F2007 and F2008, respectively, pursuant to the Field Services Service Agreement; ii. $52.6 million and $56.2 million are the appropriate costs to be incurred by BC Hydro in providing service to BCTC in F2007 and F2008, respectively, pursuant to the Engineering Service Agreement; and iii. with the exception of the change in amortization period of assets referred to as Profile ID 99403 Distribution-Pre 1996 Contributions in Aid, all other changes to depreciation rates proposed in the F07/F08 RRA, including the proposed changes to depreciation rates to the Burrard Generating Station, are accepted. 01249.89474.JC.2802887.1 APPENDIX A to Order No. G-143-06 Page 15 of 45 CONFIDENTIAL – WITHOUT PREJUDICE F2007 F2008 Final Final 463.7 388.1 569.9 632.3 179.8 136.9 87.3 87.3 5.4 5.4 11.7 11.7 511.6 520.7 (8.5) (8.5)
Appendix A Revenue Requirements Summary ($ million) Evidentiary Reference Update Line Column 1 1 Domestic Energy Costs Note 1 1,123.7 2 Operating Costs Note 2 572.4 3 Taxes 146.8 4 Depreciation & Amortization Note 3 423.2 5 Finance Charges Note 4 455.9 6 Return on Equity Note 5 394.9 7 Non-Tariff Revenue (34.9) 8 Inter-Segment Revenue (59.1) Deferral Accounts 9 Deferral Account Additions Note 6 (77.5) 10 Deferral Account Recoveries Note 7 89.0 11 Total 11.5 Subsidiary Net Income 12 Powerex Net Income (179.8) 13 Powertech Net Income (1.0) 14 Total (180.8) 15 Less Other Utilities Revenue (17.6) 16 Total Revenue Requirement 2,836.0 Revenue at Current Rates 17 Total Domestic Revenue Note 1 2,755.2 18 Less Other Utilities Revenue (17.6) 19 Total Before Interim Rate 2,737.6 20 Revenue from 4.65% Interim Note 8 98.4 21 Revenue from 1.64% Increase Note 9 0.0 22 Revenue from 2.00% Rider Note 9 0.0 23 Refund 0.0 24 Revenue Subject to Increase 2,836.0 25 Revenue Shortfall 0.0 Notes: 1 Increase in F2008 is due to increase in forecast of F2008 energy sales for light industrial and commercial. 2 Decrease in F2007 includes one-time further reduction of $10 million. 3 Decrease in F2007 is $0.8 million due to capital reduction plus $14.0 million due to change in CIAC amortization; decrease in F2008 is $2.3 million due to capital reduction plus $12.7 million due to change in CIAC amortization. 4 Decrease in F2007 is $2.2 million due to capital reduction plus impacts of change in CIAC amortization and change in deferral account balances; decrease in F2008 is $6.7 million due to capital reduction plus $12 million due to lower interest rates plus impacts of change in CIAC amortization and change in deferral account balances. 5 Decrease is due to change in CIAC amortization. 6 Change in F2007 is due to $28.9 million change in F2007 revenue deficiency deferral account offset by $7.2 million impact of change in amortization of depreciation study NBV adjustment from 2 to 5 years. 7 Change in F2008 includes $7.2 million impact of change in amortization of depreciation study NBV adjustment from 2 to 5 years. 8 Under NSP, 4.65% interim is discontinued January 31, 2007. 9 In the absence of a rate increase in F2008, under the NSP there would be a shortfall of $45.7 million. The required rate increase in F2008 of 1.64% is equal to the revenue shortfall of $45.7 million divided by the revenue at current rates of $2,790.5 million. Under NSP, the 1.64% increase is effective February 1, 2007, which increases the refund payable in F2007 by $8.5 million. 01249.89474.JC.2802887.1 APPENDIX A to Order No. G-143-06 Page 16 of 45 CONFIDENTIAL – WITHOUT PREJUDICE F2007 F2008 Evidentiary NSP Difference Update NSP Difference 2 3 = 2 -1 4 5 6 = 5 - 4 1,123.7 0.0 1,184.2 1,207.5 23.3 554.4 (18.0) 575.0 563.0 (12.0) 146.8 0.0 153.5 153.5 0.0 408.4 (14.8) 414.3 399.3 (15.0) 453.0 (2.9) 487.4 468.2 (19.2) 393.0 (1.9) 413.6 410.0 (3.6) (34.9) 0.0 (43.4) (43.4) 0.0 (59.1) 0.0 (145.9) (145.9) 0.0 (55.8) 21.7 (23.9) (23.9) 0.0 50.0 (39.0) 62.1 60.6 (1.5) (5.8) (17.3) 38.2 36.7 (1.5) (179.8) 0.0 (136.9) (136.9) 0.0 (1.0) 0.0 (1.3) (1.3) 0.0 (180.8) 0.0 (138.2) (138.2) 0.0 (17.6) 0.0 (18.7) (18.7) 0.0 2,781.1 (54.9) 2,920.1 2,892.0 (28.1) 2,755.2 0.0 2,791.6 2,809.2 17.6 (17.6) 0.0 (18.7) (18.7) 0.0 2,737.6 0.0 2,772.9 2,790.5 17.6 74.2 (24.2) 128.9 0.0 (128.9) 8.5 8.5 0.0 45.7 45.7 10.4 10.4 0.0 55.8 55.8 (49.6) (49.6) 0.0 0.0 0.0 2,781.1 (54.9) 2,901.8 2,892.0 (9.8) 0.0 0.0 18.2 0.0 (18.2)
Appendix B Summary of F2007 and F2008 Rate Changes– for illustrative, explanatory purposes only 4.65% Interim Increase Customer rates increased by 4.65% on July 1, 2006 1.54 % Final Increase July 1 2006 Level of rates that went into effect on April 1, 2004 Difference between 4.65% interim increase and 1.54% final increase is returned to customers as a onetime refund in March or April 2007 01249.89474.JC.2802887.1 APPENDIX A to Order No. G-143-06 Page 17 of 45 CONFIDENTIAL – WITHOUT PREJUDICE Net reduction in customer rates of 1% on Feb 1, 2007 2.00% Rate Rider 1.64% Final Rate Increase Feb 1 Apr 1 Apr 1 2007 2007 2008
APPENDIX A to Order No. G-143-06 Page 18 of 45 CONFIDENTIAL – WITHOUT PREJUDICE Appendix C Final Rate Increase for July 1, 2006 to January 31, 2007 ($ million) Monthly Revenue: Revenue Revenue from at F2006 Interim Increase Month Year Rates % $ Apr 2007 218.8 May 2007 205.4 Jun 2007 198.0 Jul 2007 200.2 4.65% 9.3 Aug 2007 201.6 4.65% 9.4 Sep 2007 204.7 4.65% 9.5 Oct 2007 222.6 4.65% 10.4 Nov 2007 245.3 4.65% 11.4 Dec 2007 261.1 4.65% 12.1 Jan 2008 260.3 4.65% 12.1 Feb 2008 254.1 Mar 2008 265.3 Total 2,737.6 74.2 Calculation of Final Rate Increase for July 1, 2006 to January 31, 2007: Total Revenue from 4.65% Interim Increase 74.2 Less Total Refund before Interest (49.6) Required Revenue from Final Rate Increase 24.6 Total Revenue from July 1 to Jan 31, excluding 4.65% Interim 1,596.0 Final Rate Increase from July 1, 2006 to January 31, 2007 1.54% 01249.89474.JC.2802887.1
Appendix D Deferral Account Continuity ($ million) F2005 F2006 End of Year Balance Actual Actual Heritage Deferral Account 137.9 Non-Heritage Deferral Account 130.9 Trade Income Deferral Account (114.5) BCTC Deferral Account 0.0 Total 154.3 F2007 F2008 Continuity Schedule NSP Opening Balance 239.6 Interest 14.5 Recovery - Principal (35.5) Recovery - Interest (14.5) Recovery - Total (50.0) Closing Balance 204.1 Interest Rate 6.75% F2007 F2008 Allocation of Principal Recovery NSP Heritage Deferral Account (35.7) Non-Heritage Deferral Account (30.3) Trade Income Deferral Account 31.6 BCTC Deferral Account (1.1) Total (35.5) 01249.89474.JC.2802887.1 APPENDIX A to Order No. G-143-06 Page 19 of 45 CONFIDENTIAL – WITHOUT PREJUDICE Expected F2006 F2007 F2008 Refund Adjusted NSP NSP 240.7 0.0 240.7 205.0 160.6 204.5 0.0 204.5 174.2 136.5 (213.2) 0.0 (213.2) (181.6) (142.3) 24.9 (17.3) 7.6 6.5 5.1 256.9 (17.3) 239.6 204.1 159.9 NSP 204.1 11.6 (44.2) (11.6) (55.8) 159.9 6.59% NSP (44.4) (37.7) 39.3 (1.4) (44.2)
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