IN THE MATTER OF
the Utilities Commission Act, R.S.B.C. 1996, Chapter 473
and
British Columbia Transmission Corporation
Filing of Financial Information for F2011
And
An Application for Approval of a Deferral Account for F2011 Capital Portfolio Project Sustaining Costs
BEFORE: L.F. Kelsey, Commissioner
D.A. Cote, Commissioner March 11, 2010
O R D E R
WHEREAS:
A. On December 16, 2009, the British Columbia Transmission Corporation (BCTC) filed its Fiscal 2011 (F2011) Financial Forecast to the British Columbia Utilities Commission (the Commission) stating that it does not intend to seek a change to existing rates. On the same date, BCTC also filed an Application for Approval of a Deferral Account to record the F2011 Capital Portfolio Project Sustaining Costs (collectively, the Applications), which seeks to record the operation, maintenance, and administrative costs for three specific capital projects, which are forecast to be in-service during F2011; and
B. BCTC states that it plans to file a separate application to reflect a new return on equity at a later date; and
C. BCTC submitted an update to the F2011 Financial Forecast on January 12, 2010, which reflects an increase in higher short-term borrowings as a result of its forecasted cash flows; and
D. The Commission issued Letter L-9-10 on February 4, 2010 indicating that a public review of the Applications may not be necessary pending the responses to Commission Information Requests; and
E. On February 5, 2010 the Commission issued Information Requests (IRs) to BCTC pertaining to certain items in the Applications; and
F. Responses to IRs were received by the Commission on March 1, 2010. The Commission notes that External Communication costs are increasing from $1.8 million forecast for F2010 to $2.8 million forecast for F2011, representing a 56 percent increase, with an incremental headcount of two additional staff. Furthermore, the Commission notes that labour increases of 3 percent are significantly higher than average BC Consumer Price Index (CPI) for the last 3 years; and
G. The Commission has reviewed the Application, the updated financial material and BCTC’s responses to the IRs and finds that the approvals are warranted.
NOW THEREFORE the Commission orders as follows:
1. BCTC’s application for a Deferral Account to record the F2011 Capital Portfolio Project Sustaining Costs for three specific capital projects of $0.8 million is approved.
2. The Commission approves BCTC’s F2011 salary increase of 3 percent that is related to existing labour contracts. Any additional F2011 salary increases outside of labour contracts can be escalated by no more than a 2.0 percent inflation rate. The incremental increases outside of labour contracts shall be placed into a deferral account and credited to ratepayers in BCTC’s next revenue requirement application.
3. The Commission denies BCTC’s increase of $1 million for External Communication costs. This amount shall be placed into a deferral account and credited to ratepayers in BCTC’s next revenue requirement application.
4. BCTC is also required to provide a specific and more fulsome justification of the linkage between its Community Investment and Sponsorship program and its key influences, key cost drivers and objectives in its next revenue requirement application.
DATED at the City of Vancouver, in the Province of British Columbia, this 19th day of March 2010.
BY ORDER
Original signed by:
L.F. Kelsey
Commissioner
Attachment
In The Matter Of
British Columbia Transmission Corporation
Filing of Financial Information for F2011
and
An Application for Approval of a Deferral Account for F2011 Capital Portfolio Project Sustaining Costs
REASONS FOR DECISION
March 19, 2010
Before:
L.F. Kelsey, Commissioner
D.A. Cote, Commissioner
Table of Contents
2.0 OPERATING, MAINTENANCE, AND ADMINISTRATIVE EXPENSES (OMA)
b)......... External Communications cost increases
1.0 INTRODUCTION
On December 16, 2009, British Columbia Transmission Corporation (BCTC) filed an application with the British Columbia Utilities Commission (BCUC or Commission) for approval of its Fiscal 2011 (F2011) Financial Forecast. On the same date, BCTC also filed an Application for Approval of a Deferral Account to record the F2011 Capital Portfolio Project Sustaining Costs (collectively, the Applications), which seeks to record the operation, maintenance, and administrative costs for three specific capital projects which are forecast to be in service during F2011. BCTC has also indicated that, aside from a future application to revise its allowed Return on Equity, it does not intend to seek a change to its existing rates.
On January 12, 2010, BCTC submitted an update to its F2011 Financial Forecast, which reflects an increase to its forecasted short-term borrowing costs. However, BCTC states that it can manage its costs for F2011 under the existing rates.
2.0 OPERATING, MAINTENANCE, AND ADMINISTRATIVE EXPENSES (OMA)
In the responses to Information Requests to the Commission, BCTC has indicated that a 3 percent salary increase is included in their F2011 Financial Forecast. The 3 percent salary increase equates to an increase of $0.8 million in Operations, $0.7 million in Maintenance, and $0.9 million in General and Administration. Additionally, BCTC is forecasting an increased head count of two in Maintenance and an additional headcount of two related to external communications activities.
BCTC also explains a forecast increase of $1.0 million for external communications activities, which includes Media Relations Activities, Community Relationship Activities, Stakeholder Relations Activities, Operational Advertising, Community Investment and Sponsorship, Measurement and Research Activities. The change from F2011 compared to F2010 is shown in the table below:
|
External Communication Activities ($m) |
Forecast F2010 |
Plan F2011 |
Change |
|
Media Relations |
0.2 |
0.2 |
- |
|
Community Relations |
0.8 |
0.9 |
0.1 |
|
Stakeholder Relations |
0.2 |
0.4 |
0.2 |
|
Operational Advertising |
0.4 |
0.7 |
0.3 |
|
Community Investment and Sponsorship |
0.2 |
0.5 |
0.3 |
|
Measurement and Research |
- |
0.1 |
0.1 |
|
Total |
$1.8m |
$2.8m |
$1.0m |
3.0 COMMISSION DETERMINATION
In the Company’s responses to Commission information requests, BCTC has provided BC’s Consumer Price Index (CPI) (for all items) for the last 3 years; calendar 2007: 1.8%, calendar 2008: 2.1%, calendar 2009: 0.0%.
During BCTC’s last revenue requirement application, it was noted that “tightly constrained markets for labour, materials and equipment have resulted in cost escalation impacts on BCTC’s capital projects significantly outpacing general economic inflation.” (p. 24, BCTC F2009-F2010 RRA)
The Commission believes that market labour conditions have changed since the last revenue requirement application. Forecasting a salary rate increase of 3 percent is not reflective of forecast BC CPI for F2011. The Commission notes that the provincial budget (Budget 2010) uses a forecast of 1.8 percent for 2010 and 2.0 percent for 2011.
BCTC is allowed to include 3 percent salary inflation for labour costs that are subject to labour contract agreements for F2011. All other salary increases will be based on Budget 2010’s forecast inflation of 2.0 percent for F2011. The portion of costs that are denied will be placed in a regulatory deferral account for credit to ratepayers in the next revenue requirement application.
b) External Communications cost increases
BCTC’s response to Commission information requests in the area of External Communications spending was vague and the distinctions of each of the activities were unclear. The Commission acknowledges the need for community investment and sponsorship to enable BCTC to effectively build relationships and promote a positive reputation in their service area. However, the justification for the level of spending is questionable. The Commission also notes that BCTC should encounter a reduced learning curve and process / service improvements gained through previous capital projects and therefore an increase in spending for external communication costs are not justified.
BCTC’s request to increase $1.0 million in external communication costs is denied. BCTC will place $1.0 million in a regulatory deferral account for credit to ratepayers in the next revenue requirement application.
BCTC believes that external communication activities, including donations, provide the associated benefits of good relationships with stakeholders but does not generate “goodwill.” The Commission is not convinced that the shareholders obtain no financial benefit from these external communication activities, particular for Community Investment and Sponsorship activities.
BCTC is required to provide a specific and more fulsome justification of the linkage between its Community Investment and Sponsorship program and its key influences, key cost drivers and objectives in its next revenue requirement application.