Orders

IN THE MATTER OF

the Utilities Commission Act, R.S.B.C. 1996, Chapter 473

and

Generic Cost of Capital Proceeding
Stage 2

BEFORE:               D.A. Cote, Commissioner/Panel Chair    

                                L.A. O’Hara, Commissioner                                          March 25, 2014

                                C. van Wermeskerken, Commissioner

O  R  D  E  R

WHEREAS:

A.      By Order G-20-12 dated February 28, 2012, the British Columbia Utilities Commission (Commission) established a Generic Cost of Capital (GCOC) proceeding to review:  (a) the setting of the appropriate cost of capital for a benchmark low-risk utility; (b) the possible return to a Return on Equity Automatic Adjustment Mechanism (ROE AAM) for setting an ROE for the benchmark low-risk utility;  and (c) the establishment of a deemed capital structure and deemed cost of capital methodology, particularly for those utilities without third-party debt.  The Order also divided all participating public utilities regulated by the Commission into Affected Utilities and Other Utilities for the purpose of the GCOC proceeding;

B.      By Order G-148-12 dated October 11, 2012, the Commission determined, among other matters, that:
(a) the GCOC  proceeding would proceed by way of an oral public hearing commencing December 12, 2012;  (b) FortisBC Energy Inc. (FEI) in its pre-amalgamation state would serve as the benchmark utility;  and
(c) a Stage 2 would be added to the proceeding for the purpose of reviewing all other utilities against the benchmark;

C.      A Procedural Conference for Stage 2 was held on April 25, 2013.  The following utilities appeared and made submissions at the Procedural Conference:  FortisBC Utilities (FBCU)  comprising FortisBC Energy Inc. (FEI), FortisBC Energy (Vancouver Island) Inc. (FEVI), FortisBC Energy (Whistler) Inc. (FEW), and FortisBC Inc. (FBC); Pacific Northern Gas Ltd. and Pacific Northern Gas (N.E.) Ltd. (collectively, PNG); FortisBC Alternative Energy Services Inc. (FAES); Corix Multi-Utility Services Inc. (Corix); River District Energy Limited Partnership (RDE); and Central Heat Distribution Limited (Central Heat);

D.      The Industrial Customers Group of FBC (ICG) and the British Columbia Pensioners’ and Seniors’ Organization et al. (BCPSO) also appeared and made submissions at the Procedural Conference;

E.       On May 10, 2013 the Commission issued Order G-75-13 and the accompanying Decision on Stage 1;

F.       By Order G-77-13 dated May 13, 2013, the Commission determined that the Stage 2 review would take place by way of a written hearing for all applicant utilities, in accordance with the three Groupings of Utilities and the Regulatory Timetable that form Attachments 1 and 2 respectively to Appendix A of Order G-77-13.  The Regulatory Timetable provided for the filing of evidence by the utilities, two rounds of Information Requests (IRs) on that evidence, the filing of Intervener evidence, and one round of Information Requests on that evidence.  Order G-77-13 also deferred the decision on the review format for FBC until the Commission Panel had reviewed FBC's Stage 2 evidence;

G.     The following utilities filed evidence:  FEVI and FEW (jointly), Corix, RDE and Central Heat (jointly), FBC, PNG, and FAES.  ICG filed Intervener Evidence;

H.      By Order G-121-13 dated August 14, 2013, the Commission determined that the review of FBC would take place in a written hearing format in accordance with the Regulatory Timetable that forms Attachment 2 to Appendix A of Order G-77-13;

I.        The following utilities filed Final Submissions:  FEVI and FEW (jointly), Corix, RDE and Central Heat (jointly) FBC, PNG, and FAES ;

J.        The following Interveners filed Final Submissions:  ICG and BCPSO.  BCPSO filed four separate Final Submissions: one for FortisBC; a second for FEVI and FEW; a third for PNG; and a fourth for the Group 3 Utilities;

K.      FEVI and FEW (jointly), Corix, RDE and Central Heat (jointly) FBC, PNG, and FAES all filed Reply; and

L.       The Commission has considered the evidence and the submissions of the Parties all as set forth in the Decision issued concurrently with this Order.

NOW THEREFORE the Commission orders as follows:

1.       The common equity component of the capital structure and equity risk premium over the Benchmark for the following FBCU, effective January 1, 2013 are:

2.       The common equity component of the capital structure and equity risk premium over the Benchmark for the following PNG utilities, effective January 1, 2013 are:

3.       The common equity component for small TES utilities, effective January 1, 2013, is a minimum default capital structure consisting of 57.5 percent debt and 42.5 percent common equity.  The minimum default risk premium over the Benchmark is 75 bps except for Dockside Green Energy Inc. where its existing 100 bps equity risk premium will not be reduced as a result of establishing the minimum default Equity Risk Premium.  The minimum default capital structure and equity risk premium allowed for Central Heat is transitional until a decision on its next revenue requirement application.

4.       FEVI, FEW, FBC and the PNG-West, PNG (N.E.)-FSJ/DC and PNG (N.E.)-TR are to each file, within 40 days of the date of this Order, a document setting out:

a)      How and when it will implement the change to its capital structure;

b)      Amended rate schedules in accordance to the cost of equity for each utility as determined in the Decision issued concurrently with this Order; and

c)       A proposal on the treatment of the difference between the interim rates being charged to customers and the permanent rates established by this Order.

5.       Central Heat is directed to file, within 40 days of the date of this Order, a document setting out:

a)      How and when it will implement the change to its capital structure; and

b)      A permanent Steam Tariff Schedule of charges that reflects the changes to the cost of equity as determined in the Decision issued concurrently with this Order;

c)       A proposal on the treatment of the difference between the interim rates being charged to customers and the permanent rates established by this Order.

6.       The Kelowna District Energy System, Dockside Green Energy Inc. UniverCity and River District Energy Limited Partnership are each to file, within 40 days of the date of this Order, a document setting out:

a)      Whether they would implement the minimum default capital structure and equity risk premium for rate setting, and if so, the time line; or

b)      Whether they would let the existing contractual customer rates, if applicable, take their course, and if not, their proposed treatment of the difference between the current rates being charged to the customers and the allowed rates as determined by this Order.

7.       Each utility is to comply with all other applicable directives in the Decision issued concurrently with this Order.

DATED at the City of Vancouver, in the Province of British Columbia, this           25^th           day of March 2014.

BY ORDER

Original signed by:

D.A. Cote

Commissioner/Panel Chair

Attachment