ERICA HAMILTON COMMISSION SECRETARY Commission.Secretary@bcuc.com web site: http://www.bcuc.com
LETTER L-39-13
SIXTH FLOOR, 900 HOWE STREET, BOX 250 VANCOUVER, BC CANADA V6Z 2N3 TELEPHONE: (604) 660-4700 BC TOLL FREE: 1-800-663-1385 FACSIMILE: (604) 660-1102
Log No. 39204
VIA EMAIL
To:
All registered Parties (GCOC proceeding –Stage 1)
July 2, 2013
British Columbia Util ities Commission Generic Cost of Capital Proceeding Stage 1 Decision dated May 10, 2013 Automatic Adjustment Mechanism
FortisBC Util ities’ Request for Variance of the Regulatory Timetable
1 The Commission is in receipt of a letter from the FortisBC Util ities (FBCU) dated June 28, 2013 (attached) requesting a two-week delay to the timetable for submissions on the Automatic Adjustment Mechanism inputs. FBCU’s proposed new timetable is as follows:
ACTIONS
Written Submissions from all Parties Reply Submissions to all Submissions Oral Submissions for clarifications, if required
ORIGINAL DATES (2013)
Friday, July 12 Monday, July 29 to be determined
FBCU PROPOSED DATES (2013)
Friday, July 26 Monday, August 12 to be determined
The Commission considers that the FBCU’s request for variance of the regulatory ti metable is not material and is unlikely to prejudice any of the registered parties. The timetable is modified as requested.
EC/dg Enclosures
1
Yours truly, Erica Hamilton
FBCU is comprised of FortisBC Inc. (FBC), FortisBC Energy Uti l i ties (FEU) including FortisBC Energy Inc. (FEI), FortisBC Ener gy (Vancouver Is land) Inc. (FEVI), a nd FortisBC Energy (Whistler) Inc. (FEW).
PF/BCUC_GCOC/GC/BCUC-GCOC-Stage 1/L-39-13 FEI Request for Variance – response
June 28,2013
Diane Roy Director, Regulatory Affairs
FortisBC Energy 16705 Fraser Highway Surrey, B.C. V4N OE8 Tel (604) 576-7349 Cell (604) 908-2790 Fax (604) 576-7074 Email diane.roy@fortisbc.com www.fortisbc.com
Regulatory Affairs Correspondence Email gasreculatory.affairS@fortisbc.com
Via Email Original via Mail
British Columbia Utilities Commission 6 th Floor, 900 Howe Street Vancouver, BC V6Z 2N3
Attention: Ms. Erica M. Hamilton, Commission Secretary
Dear Ms. Hamilton: Re: British Columbia Utilities Commission (the Commission) Generic Cost of Capital (GCOC) Proceeding Stage 1 Decision dated May 10, 2013 - Automatic Adjustment Mechanism (AAM) Request for Written Submissions
FortisBC Utilities (FBCU or the Companies)1 Request for Variance of the Regulatory Timetable
On June 27, 2013, the Commission issued a letter requesting written submissions from the parties on elements of the inputs to the AAM for the benchmark Return on Equity (ROE).
The Commission set the regulatory timetable for the written submissions on the AAM inputs from the parties to be filed on Friday, July 12, 2013, 10 business days from issuing the request for submissions, with reply to follow after a further 10 business days, on Monday, July 29, 2013.
The FBCU respectfully request a two-week delay to the timetable for submissions on the AAM inputs, as follows:
Reply Submissions to all Submissions
Comprised of FortisBC Inc. (FBC), and the FortisBC Energy Utilities (FEU) including FortisBC Energy Inc. (FEI), FortisBC Energy (Vancouver Island) Inc. (FEVI), and FortisBC Energy (Whistler) Inc. (FEW)
June 28, 2013 British Columbia Utilities Commission GCOC Stage 1 Decision - AAM Request for Written Submissions FBCU Request for Variance of the Regulatory Timetable Page 2
FORTISBC'
The FBCU make this request for a variance to the timetable as a result of the resource constraints currently face by the Companies from their direct involvement in a significant number of ongoing proceedings. In particular, the following proceedings have procedural deadlines in July:
FEI 2012 Biomethane Application BC Hydro Power Purchase Agreement under Rate Schedule 3808
BC Hydro Power Purchase Agreement under Rate Schedule 3808
Final Argument Submissions Response to IRs No.1
Procedural Conference
Wed. July 17 Mon. July 22
Mon. July 29
In addition to the procedural deadlines noted above, the FBCU will also be receiving information requests for several of these proceedings during the month of July. In addition to many routine and compliance filing requirements the Companies are also preparing, the FBCU are further resource constrained as a result of preparing numerous other applications for filing to the Commission, including the FBC 2014-2018 Performance Based Ratemaking Plan to be filed on or about July 5, 2013, the revenue requirements applications for FEI Fort Nelson, FEVI and FEW, work that is underway on the FEU Long Term Resource Plan and several Certificate of Public Convenience applications which will be submitted by the Companies over the coming months.
Given that the use of the AAM commences in the 2014 calendar year, the FBCU respectfully submit that the variance requested to the regulatory timetable allowing for an additional two weeks will not affect the implementation timetable for the MM, will not prejudice any of the registered parties, and will allow the Companies to adequately review and make submissions on the AAM inputs sought by the Commission.
If further information is required, please contact the undersigned. Sincerely, on behalf of the FORTlsBC UTILITIES
For:
Original signed by: /Iva Bevacqua Diane Roy
cc (email only):
Registered Parties
ERICA HAMILTON COMMISSION SECRETARY Commission.Secretary@bcuc.com web site: http://www.bcuc.com
VIA EMAIL To: All Registered Parties (GCOC proceeding –Stage 1)
June 27, 2013
SIXTH FLOOR, 900 HOWE STREET, BOX 250 VANCOUVER, BC CANADA V6Z 2N3 TELEPHONE: (604) 660-4700 BC TOLL FREE: 1-800-663-1385 FACSIMILE: (604) 660-1102
Log No. 39204
Re: British Columbia Utilities Commission Generic Cost of Capital Proceeding Stage 1 Decision dated May 10, 2013 Automatic Adjustment Mechanism Requests for Written Submissions
The Commission in its Decision on Generic Cost of Capital (GCOC) Proceeding – Stage 1 (Decision) issued on May 10, 2013, determined that the Automatic Adjustment Mechanism (AAM) will be re-instituted for annually setting the Return on Equity (ROE) of the benchmark utility. The use of an AAM will commence in the 2014 calendar year and will operate until December 31, 2015, subject to the condition that an actual long Canada bond yield of 3.8 percent is met or exceeded. (Decision, pp. 90-91)
The formula to be used, and the basic method to determine the changes in long Canada bond forecast and the changes in utility bond spread, is as follows:
ROEt = Base ROE (8.75%) + 0.50 x (LCBFt – Base LCBF) + 0.50 x (UtilBondSpreadt – BaseUtilBondSpread) Where: LCBFt = is the Long Canada Bond Forecast for the test year, with a floor of 3.8 percent; Base LCBF = 3.8 percent;
UtilBondSpreadt = is the average spread of 30 year A-rated Canadian Utility bond yields over 30 year Government of Canada bond yields;
BaseUtilBondSpread = to be determined.
The LCBF is calculated as follows:
Where: 10CBF3,t is the 3 month forecast of the 10 year Government of Canada bond yield as published in Consensus Forecasts for [a designated month].
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2
10CBF12,t is the 12 month forecast of the 10 year Government of Canada bond yield as published in Consensus Forecasts [a designated month].
30CBi,t is the benchmark bond yield rate for the 30 year Government of Canada bond at the close of day i of [a designated month], as published by the Bank of Canada.
10CBi,t is the benchmark bond yield rate for the 10 year Government of Canada bond at the close of day i of [a designated month], as published by the Bank of Canada.
I is the number of business days for which the Government of Canada and A-rated Utility bond yield rates are published in [the designated month].
The UtilBondSpreadt is the average spread of 30 year A-rated Canadian Utility bond yields over 30 year Government of Canada bond yields over all the business days in a designated month preceding the
implementation dates and is calculated as:
Where
30UtilBondsi,t is the average 30 year A-rated Canadian Utility bond yield rate, from an agreed source, for business day I of a designated month preceding the implementation date.
30CBi,t is the benchmark bond yield for 30 year Government of Canada bond at the close of day I of a designated month preceding the implementation date, as published by the Bank of Canada.
I is the number of business days for which Government of Canada and A-rated Utility bond yields are published in a designated month preceding the implementation date.
In the Decision, the Commission noted that the potential for downward bias exists in this two-variable AAM. Therefore, the Commission directed that any change in ROE resulting from the AAM formula be subject to an actual long Canada bond yield of 3.8 percent being met or exceeded. The Commission also noted that the potential for downward bias will continue if attention is not paid to setting appropriate base rates for the formula and notified parties who participated in the GCOC proceeding – Stage 1 that it will be seeking submissions with respect to determining appropriate base levels and developing an effective methodology for deriving the inputs to the formula. (Decision, p. 91)
By this letter, the Commission is inviting all parties to make submissions on the AAM for the benchmark ROE. The Commission is not seeking further comments on the merits of the implementation of the AAM but specifically on each element of the inputs to the formula.
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The regulatory timetable for written submissions is as follows: ACTION Written submissions from all Parties Reply Submissions to all Submissions Oral Submissions for clarifications, if required
DATE (2013) Friday, July 12 Monday, July 29 to be determined
In order to assist parties in their written submissions, Attachment A to this letter lists each of the elements in the AAM formula. The Commission seeks submissions for the elements in the shaded boxes.
Please do not hesitate to contact Commission Secretary at commission.secretary@bcuc.com or Commission staff Ms. Eileen Cheng at eileen.cheng@bcuc.com for further information.
EC/dg Attachment
Yours truly, Erica Hamilton
PF/BCUC_GCOC/GC/BCUC-GCOC-Stage 1/AAM-Invitation for Submissions
Automatic Adjustment Formula for the Benchmark ROE for 2014 and 2015 if the Risk Free Rate Meets or Exceeds 3.8 Percent
Element Risk free rate Market risk premium Beta of benchmark utility Subtotal of Capital Asset Pricing Model
Results from DCF Model Average of CAPM and DCF Allowance for financing Flexibility
Total
Base LCBF 10CBF3,t
10CBF12
BaseUtilBondSpread
Value 3.8% 6.4% 0.6 7.64%
8.9% 8.25% 0.5%
8.75%
3.8% To be calculated
To be calculated
To be determined
ATTACHMENT A Page 1 of 2
Written Submissions Sought by BCUC 3.8% as floor
The allowed benchmark ROE at 8.75 percent is used as base for the formula.
This is the corresponding base for the Base ROE. Should data from the Consensus Forecasts be used? If not, where should the forecast information be sourced?
Should the month of October, similar to the old BCUC AAM formula, be used? If not, which month’s data should be used?
Should data from the Consensus Forecasts be used? If not, where should the forecast information be sourced?
Should the month of October, similar to the old BCUC AAM formula, be used? If not, which month’s data should be used?
Should the value be based on data submitted by the expert witness Dr. Laurence Booth in his evidentiary filing or his Response to Information Requests (e.g., Exhibit C6-12, p. 100; Exhibit C6-15, BCUC IR 44.4)?
If not, what should the preferred base value and why?
Element UtilBondSpreadt
30CB
10CB
AAM trigger
ROEt
Value To be determined
To be calculated
To be calculated
Decision whether or not to trigger the implementation of
the AAM effective January 1, 2014 To be calculated
ATTACHMENT A Page 2 of 2
Written Submissions Sought by BCUC Should the source of information be Bloomberg L.P. [Series C29530Y] as used by the Ontario Energy Board?
If not, what other indexes should be used as an alternative? Why?
Which month’s index should be used? Should FEI provide the information (e.g., Bloomberg data) for the designated month for the purpose of applying the formula?
Should the statistics as published by the Bank of Canada (Cansim Series V39056) be used? If not, which alternative source of information is preferred and why?
Should the month of October be used? If not, which month’s data should be used?
Should the statistics as published by the Bank of Canada (Cansim Series V39055) be used? If not, which alternative source of information is preferred and why?
Should the month of October be used? If not, which month’s data should be used?
Should the 3.8 percent threshold be based on the same calculation (data source and time period) as the factor ‘30CB’ in the AAM formula? If not, what other source and time period should
be used to make that decision, and why? Should the calculation of ROE be rounded to two decimal places as described in Letter L-43-01?