IN THE MATTER OF
the Utilities Commission Act, R.S.B.C. 1996, Chapter 473
and
An Application by Pacific Northern Gas Ltd.
for Approval of its 2010 Revenue Requirements
for the PNG-West Service Area
BEFORE: D.A. Cote, Panel Chair/Commissioner March 4, 2010
R.K. Ravelli, Commissioner
O R D E R
WHEREAS:
A. On October 2, 2009, Pacific Northern Gas Ltd. (PNG) applied to the British Columbia Utilities Commission (Commission) for approval of its PNG-West service area 2010 Revenue Requirements Application (the Application) to amend its rates on an interim basis, effective January 1, 2010, pursuant to sections 89 and 58 of the Utilities Commission Act (the Act); and
B. The Application proposes to increase delivery rates to all customers, except West Fraser-Kitimat, as a result of increases in cost of service and decreased deliveries to most customer classes. West Fraser-Kitimat delivery rates do not increase in view of a contract in place that provides for fixed delivery rates over the term of the contract; and
C. The Application forecasts a 2010 revenue deficiency of approximately $7.7 million comprised of a net increase in cost of service of $7.5 million and a decrease in margin of $0.2 million; and
D. Methanex Corp. closed its methanol/ammonia complex in Kitimat in November 2005. PNG’s 2010 cost of service includes an increase of $5.5 million compared to 2009 due to the amortization of the Methanex contract termination payment being completed in October 2009; and
E. On July 16, 2009, PNG and its wholly owned subsidiary Pacific Northern Gas (N.E.) Ltd., filed with the Commission a Capital Structure and Equity Risk Premium Application (the CAP/ROE Application) seeking a common equity thickness of 47.5 percent and a rate of return on common equity (ROE) set at 75 basis points above the Commission’s low risk benchmark utility ROE. PNG recommended that rates set in the Application remain interim pending the Commission’s disposition of the CAP/ROE Application; and
F. The Application reflects the changes to PNG’s capital structure and ROE as applied for in the CAP/ROE Application and PNG sought Commission approval to increase the delivery charge, on an interim basis, for residential service by $2.911/GJ from $8.380/GJ to $11.291/GJ representing an increase of 34.7 percent compared to the 2009 delivery rates, for small commercial service by $2.33/GJ from $7.267/GJ to $9.597/GJ corresponding to an increase of 32.1 percent compared to 2009 delivery rates, and for Granisle propane service by $1.753/GJ from $4.479/GJ to $6.232/GJ corresponding to an increase of 39.1 percent compared to 2009 delivery rates; and
G. By Order G-130-09 the Commission approved PNG’s interim delivery rates effective January 1, 2010 on the basis of the existing Commission approved common equity thickness of 40 percent and a rate of return on common equity at the existing 65 basis points above the Commission’s low risk benchmark utility ROE. This results in a forecasted 2010 revenue deficiency of approximately $6.87 million comprised of a net increase in cost of service of $6.67 million and a decrease in margin of $0.2 million. Interim rates were set as follows:
The delivery charge for residential service increased by $2.597/GJ from $8.380/GJ to $10.977/GJ, for small commercial service by $2.078/GJ from $7.267/GJ to $9.345/GJ, and for Granisle propane service by $1.564/GJ from $4.479/GJ to $6.043/GJ; and
H. Order G-130-09 also set the preliminary regulatory timetable for the Application which allowed for: Intervener registration, the preliminary review of the Application, and Interveners to make written submissions on a formal review process; and
I. On November 30, 2009 by Letter L-108-09 the Commission confirmed the Application to be reviewed through a Negotiated Settlement Process (NSP) with negotiations to commence on January 18, 2010; and
J. The Commission revised the regulatory timetable in Letter L‐111‐09 to have negotiations commence on February 8, 2010 in order to accommodate the availability requirements of the participants; and
K. The NSP discussions were held in Vancouver on February 8 and 9, 2010. An Interim Negotiated Settlement Agreement was reached among the participants and circulated to all registered Interveners and the Commission on February 22, 2010. No comments were received from the Interveners who had not participated in the NSP discussions; and
L. The participants understand that the potential disposition of the Merrill Lynch option fees deferral account, the return on equity deferral accounts established under Order G-172-09, the level of deferred income taxes draw down in 2010 and PNG’s common equity thickness and relative risk premium are to be issues at the upcoming CAP/ROE hearing and agree that following the disposition of PNG’s CAP/ROE Application, the 2010 Revenue Requirements negotiations would resume for the purpose of establishing permanent delivery rates for 2010; and
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M. The Commission has reviewed the Interim Negotiated Settlement Agreement for PNG’s 2010 Revenue Requirements and considers that approval is warranted.
NOW THEREFORE the Commission orders as follows:
1. The Interim Negotiated Settlement Agreement for PNG’s 2010 Revenue Requirements Application, as issued on February 22, 2010 and attached as Appendix A to this Order, is approved.
2. PNG’s 2010 delivery rates will remain as interim until the PNG Revenue Requirements negotiations have resumed to establish permanent 2010 delivery rates and a further Negotiated Settlement Agreement is provided for Commission approval.
DATED at the City of Vancouver, in the Province of British Columbia, this 4th day of March 2010.
BY ORDER
Original signed by:
D.A. Cote
Panel
Chair/Commissioner
Attachment