ORDER NUMBER

G-90-18

 

IN THE MATTER OF

the Utilities Commission Act, RSBC 1996, Chapter 473

 

and

 

Creative Energy Vancouver Platforms Inc.

2018–2022 Revenue Requirements Application

 

BEFORE:

D. A. Cote, Commissioner/Panel Chair

A. K. Fung, QC, Commissioner

 

on May 10, 2018

 

ORDER

WHEREAS:

 

A.      On December 1, 2017, Creative Energy Vancouver Platforms Inc. (Creative Energy) filed its 2018-2022 Revenue Requirements Application with the British Columbia Utilities Commission (BCUC) seeking, among other things, approval of a multi-year index based ratemaking mechanism to be applied to setting steam rates (Steam Rates) for the years 2018-2022, including interim and final approval to increase Steam Rates by 2.15 percent, effective January 1, 2018 (Application);

B.      By Order G-200-17 dated December 22, 2017, the BCUC approved, on an interim and refundable basis, a Steam Rates increase of 2.15 percent effective January 1, 2018;

C.      By Orders G-12-18 dated January 17, 2018 and G-43-18 dated February 26, 2018, the BCUC established, among other things, a written public proceeding and a regulatory timetable for the review of the Application, which included Creative Energy filing additional information as directed in Appendix C to Order G-12-18, two rounds of information requests (IRs) by the BCUC and interveners, and the filing of written final and reply arguments;

D.      In accordance with the regulatory timetable established by Order G-43-18, the BCUC and interveners submitted the first round of IRs to Creative Energy on March 21, 2018;

E.       On March 26, 2018, Creative Energy filed a letter with the BCUC requesting a scope decision from the BCUC that excludes consideration of information relevant to a cost of service rate-setting mechanism, and specifically identified IRs put forth by registered interveners which Creative Energy considers out of scope;

F.       By letters dated April 3, 2018 and April 4, 2018, the BCUC suspended the regulatory timetable established by Order G-43-18 and invited Creative Energy and registered interveners to provide submissions on the disputed IRs, as outlined in Creative Energy’s letter;

G.      On April 11, 2018, Creative Energy provided a written submission. On April 18, 2018, submissions were received from FortisBC Energy Inc., FortisBC Alternative Energy Services Inc., British Columbia Old Age Pensioners’ Organization et al. and Commercial Energy Consumers Association of British Columbia. On April 25, 2018, Creative Energy provided its reply submission; and

H.      The BCUC has reviewed the submissions from Creative Energy and registered interveners, and makes the following determinations.

 

NOW THEREFORE for the reasons set out in Appendix B to this order, the BCUC orders as follows:

 

1.       Creative Energy is directed to respond to the information requests as specified in the reasons attached as Appendix B to this order.

2.       The regulatory timetable for the review of the Application is amended as set out in Appendix A to this order.

 

DATED at the City of Vancouver, in the Province of British Columbia, this               10th                  day of May 2018.

 

BY ORDER

 

Original Signed By:

 

D. A. Cote

Commissioner

 

 

Attachments

 

 

Creative Energy Vancouver Platforms Inc.

2018–2022 Revenue Requirements Application

 

 

 

 

 

 

Creative Energy Vancouver Platforms Inc.

2018–2022 Revenue Requirements Application

 

1.0              Background

On December 1, 2017, Creative Energy Vancouver Platforms Inc. (Creative Energy) filed its 2018-2022 Revenue Requirements application with the British Columbia Utilities Commission (BCUC) seeking, among other things, approval of a multi-year index based ratemaking (IBR) mechanism to be applied to setting steam rates for the years 2018-2022 (Application).

 

By Order G-12-18 dated January 17, 2018, the BCUC established a written public proceeding and a regulatory timetable which included intervener registration, two rounds of information requests (IRs) to Creative Energy, and written final and reply arguments.

The following four interveners registered in the proceeding:

•         FortisBC Energy Inc. (FEI);

•         FortisBC Alternative Energy Services Inc. (FAES);

•         British Columbia Old Age Pensioners’ Organization et al. (BCOAPO); and

•         Commercial Energy Consumers Association of British Columbia (CEC).

 

On February 26, 2018, the regulatory timetable was amended by Order G-43-18. In accordance with the amended regulatory timetable established by Order G-43-18, the BCUC, FEI, BCOAPO and CEC submitted a first round of IRs to Creative Energy on March 21, 2018.

2.0              Request for a scope decision on IRs

On March 26, 2018, Creative Energy filed a letter with the BCUC stating that the type of IRs “far exceeds” the scope of IRs that could “reasonably have been anticipated” by Creative Energy or that are appropriate for the Application. Creative Energy requests a scope decision from the BCUC that excludes consideration of information relevant to a cost of service rate-setting mechanism, specifically identifying 30 IRs put forth by CEC, BCOAPO and FEI (Identified IRs) it considers to be out of scope and should not be required to answer.[1]

 

By letters dated April 3, 2018 and April 4, 2018 (BCUC Letters), the BCUC established a process for participants to make submissions on the Identified IRs and on other related matters as identified in the BCUC Letters. In addition, the BCUC suspended the regulatory timetable established by Order G-43-18 until the resolution of the issue of IR scope and subsequent establishment of an amended regulatory timetable.

 

In its letter of April 3, 2018, the BCUC explained that based on the Application put forth by Creative Energy, the Panel ultimately needs to determine if an IBR approach is appropriate, and, given Creative Energy’s regulatory history, if such an approach is more appropriate than the status quo approach of cost of service ratemaking. Therefore, the Panel identified that the scope of this proceeding will need to include, but not necessarily be restricted to, the following areas/issues:

•         Evidence to determine the appropriate “base” for operating & maintenance (O&M) and capital expenses;

•         Evidence as to the reasonableness of utilizing an IBR mechanism, including why IBR is more appropriate than the status quo approach of cost of service;

•         Whether the design of the IBR as proposed by Creative Energy is appropriate and protects the interests of ratepayers and the utility, or whether modifications are required; and

•         The overall impact to ratepayers of moving to an IBR mechanism, including whether both the interests of ratepayers and the utility are sufficiently safeguarded.

 

The Panel invited submissions from Creative Energy and interveners on their rationale as to whether the Identified IRs should be considered as falling within the scope of the proceeding as set out above. In addition, the Panel invited submissions on the following related matters:

•         From interveners, whether any of the Identified IRs should be modified to reduce the breadth of information requested. In particular, the Panel requested CEC to consider and explain the necessity of its requests regarding historical information spanning ten years or more and how data reaching this far back in time would be of probative value for determining the appropriateness of present day or future forecasts; and

•         From Creative Energy, in the event that some or all of the Identified IRs are determined to be in scope, a revised deadline for submitting IR No. 1 responses to those IRs and the remaining IRs.[2]

 

In accordance with the BCUC Letters, Creative Energy provided its submission on April 11, 2018 wherein it withdrew its request for a scope decision over CEC IRs 7.1 and 7.2 and provided comments on the remaining Identified IRs.[3] By April 18, 2018, interveners provided their submissions and on April 25, 2018, Creative Energy filed its reply submission.

3.0              Summary of parties’ submissions

Creative Energy submits that the Identified IRs should be determined out of scope for a number of reasons, including cost, relevance to the areas/issues identified by the Panel and the quantity of historical information requested. In a few cases, Creative Energy outlines a proposed alternative response to the Identified IRs.[4]

 

CEC, BCOAPO and FEI disagree with Creative Energy’s reasons and make extensive submissions in support of the BCUC requiring Creative Energy to respond to their specific IRs. CEC submits that cost of service ratemaking has been the foundation for Creative Energy’s rates for many years and “if Creative Energy is to be awarded a formulaic regulation such as that proposed, it should be willing and able to prove the benefits and the appropriateness of such a methodology.” CEC further submits that the scope of the Application is explicitly not limited to the areas/issues identified in the BCUC Letters, and that information related to historical trends is necessary in order to determine whether the IBR formula is established on a “cost-effective base.”[5] BCOAPO submits that “due to the critical importance of accurate starting rates [in a multi-year IBR plan] and the risk of compounding the negative impact [of] an inaccurate base with subsequent adjustments,” Creative Energy should be directed to provide the information requested.[6] FEI submits that its IRs are not related to cost of service but are specific questions relating to the proposed IBR mechanism and Creative Energy’s five-year plan, and provides an explanation of the intent of its IRs.[7]

 

FAES makes no specific submissions with respect to the IRs in question. However, FAES submits that the Application requests a rate-setting mechanism that is unique and diverges from the conventional cost of service rate-setting methodology that has been in place at Creative Energy. In its view, under these circumstances, it seems reasonable to expect that the Application will require comparison to historical, current and forecast rates under the status quo. FAES continues by stating the following:

Establishing the base costs for a formulaic rate proposal does intuitively support the requirement to review historical records. With an operational history spanning five decades, it seems more than appropriate to examine the stability and trends for those historical costs in an effort to test the reasonableness of the base cost and the formula.[8]

In its reply submission, Creative Energy submits that the intervener submissions are not compelling and explains its reasons in detail.[9]

 

A table detailing the submissions made by Creative Energy and the registered interveners on each of the Identified IRs, as well as Creative Energy’s reply submission, is included in Appendix C.

4.0              BCUC determination

In assessing the reasonableness of the Identified IRs, the Panel groups the IRs into four categories:

                   1.            Requests for historical financial/revenue requirement information;

                   2.            Requests for forecast financial/revenue requirement information;

                   3.            Requests for comparative information; and

                   4.            Other requests.

 

Within these categories, the Panel determines whether the Identified IRs are within the scope of the Application as described in the BCUC Letters. Where determined to be in scope and required, the Panel also establishes what it considers to be appropriate historical temporal requirements governing the information Creative Energy is to provide.

Requests for historical financial/revenue requirement information

The Panel finds that a reasonable amount of historical information is necessary to assess whether the proposed IBR approach is appropriate. Specifically, the Panel finds that historical financial/revenue requirement information is highly relevant to assist in determining the appropriate “base” for O&M and capital expenses in an IBR approach and evaluating the appropriateness of the proposed inflationary IBR mechanism. Historical information such as annual changes to O&M and capital expenditures will help inform how these expenses will likely change annually in the future, and provide some guidance as to whether it is reasonable to expect that the expenses will exhibit increases consistent with inflation.

 

In its IRs, CEC requests 10 years, and in some cases 5 or 20 years, of historical information. The Panel accepts that to respond to these IRs, there is a direct impact on the workload for Creative Energy. However, this must be balanced against the potential probative value of the responses. In addition, the Panel acknowledges there is a risk that information beyond a certain amount of time may no longer be relevant to a regulated entity’s current business environment or for setting current and future rates. Based on these considerations, the Panel finds it appropriate to set a reasonable limit on the quantity of historical financial information requested in order to facilitate an efficient regulatory review process. Except as noted below for CEC IRs 14.2, 23.3, 26.1 and 31.5, the Panel finds that five years of historical information, three revenue requirements applications,[10] or the previous two Collective Bargaining Agreements (CBAs) is a reasonable scope of information for Creative Energy to provide. In our view, it strikes an appropriate balance between having sufficient and relevant historical data points to examine, while not being unnecessarily burdensome for Creative Energy to provide.

 

The Panel makes the following findings on CEC IRs 14.2, 23.3, 26.1 and 31.5:

•         With respect to CEC IRs 14.2 and 23.3, the Panel notes the similarities between these IRs and BCUC IRs 16.3 and 25.2. For comparative purposes, the Panel finds that Creative Energy should provide an equivalent number of years of historical information in response to CEC IR 14.2 as in response to BCUC IR 16.3. For CEC IR 23.3, the Panel notes that the current terms of the Fuel Cost Adjustment Charge (FCAC) and Fuel Cost Stabilization Account (FCSA) were established in the Creative Energy 2015-2017 and 2016-2017 Revenue Requirement Applications (RRAs). Therefore, the Panel finds that historical information prior to this time to have limited probative value.

•         With respect to CEC IR 26.1, the Panel finds that five years of historical information is a reasonable scope of information, but that the probative value of the portion of the request related to Appendix 1, Schedules 3 to 21 does not justify the expected work required for Creative Energy to prepare these schedules. Accordingly, limiting the scope of CEC IR 26.1 to the following schedules is warranted: Appendix 2 RRA Approved detail; Total units of steam sold M# per year; and Annual Approved Selling, General and Administration (SG&A) expenses broken down by Line# as in Appendix 6.

•         The Panel agrees with Creative Energy that fuel costs, including the cost of natural gas, are recovered through the FCAC and are not the subject of this proceeding. Therefore, the Panel finds that the volume of natural gas utilized by Creative Energy for the last 10 years, as requested in CEC IR 31.5, is out of scope.

 

Based on the above findings, the Panel directs Creative Energy to respond to the following IRs related to historical financial/revenue requirement information as set out in the table below:

 

 

Requests for forecast financial/revenue requirement information

In the BCUC Letters, it stated the scope of this proceeding will need to include, among other things, the following:

•         Evidence as to the reasonableness of utilizing an IBR mechanism, including why IBR is more appropriate than the status quo approach; and

•         Whether the design of the IBR as proposed by Creative Energy is appropriate and protects the interests of ratepayers and the utility, or whether modifications are required.

 

Creative Energy’s position is that many of the requests for forecast financial information are out of scope. The Panel disagrees and finds the requested information to be in scope and necessary to address the reasonableness of both the proposed move to an IBR mechanism and its rate design.

 

Creative Energy’s forecast for future revenues and expenses is relevant to answering the question of whether the proposed IBR mechanism is appropriate or requires modifications. Irrespective of whether Creative Energy sets future rates based on the proposed 5-year IBR rate-setting mechanism or a cost of service rate-setting mechanism, it is important for the forecast revenue requirements to, within reason, reflect the costs required for the utility to provide safe and reliable service to customers. In order to test the reasonableness of the IBR mechanism, the Panel considers it necessary to compare the future revenues and costs expected under IBR to Creative Energy’s best estimates of its future revenues and costs. This is particularly important given Creative Energy’s proposal to not establish a deferral account for variances in load and the lack of proposed performance-based mechanisms such as an Earnings Sharing Mechanism. Accordingly, the Panel directs Creative Energy to respond to the following IRs related to forecast financial/revenue requirement information as set out in the table below:

 

 

Requests for comparative information

The Panel has identified two sub-categories of IRs concerning requests for comparative information:

•         IRs seeking information which is internally available to Creative Energy; and

•         IRs seeking external information, verification and/or research.

 

The Panel considers CEC IR 4.7 to fall within the first category. This IR seeks to test Creative Energy’s assertion that the proposed IBR mechanism is more appropriate for Creative Energy’s business circumstances than cost of service. In the Panel’s view, this is highly relevant as it addresses whether there is a need for the proposed IBR and provides Creative Energy the opportunity to explain why a cost of service approach is not optimal. Therefore, the Panel finds CEC IR 4.7 to be within scope.

 

CEC IRs 3.1, 5.6, 6.2, 9.3, 10.3 and 12.1 fall within the second category related to external information, verification and/or research. Given that these IRs seek external data and Creative Energy’s position that some of these responses may require an extensive amount of time to prepare and are beyond Creative Energy’s expertise, the Panel considered the expected probative value of each of the IR responses in making its determination. The Panel makes the following findings:

•         The Panel finds CEC IR 5.6 is not relevant to the proceeding. CEC has not made a compelling case for the need for this IR given that Creative Energy operates in a unionized labour environment and does not have access to existing labour rates for “equivalent positions in Vancouver, BC and Canada.”

•         The Panel finds the potential informational value of the responses to CEC IRs 3.1, 9.3 and 12.1 to be limited. Therefore, the Panel finds these IRs to be unreasonably burdensome and do not justify the work required for Creative Energy to provide responses.

•         As noted above, the Panel agrees with Creative Energy that fuel costs, including the cost of natural gas, are recovered through the FCAC and are not the subject of this proceeding. Therefore, the Panel finds that CEC IR 6.2 is out of scope.

•         CEC IR 10.3 requests a summary of the differences between the Application and a cost of service revenue requirements application. Given the quantity of IRs that has been accepted pertaining to cost of service ratemaking to address this point, the Panel finds that a summary such as this will have limited, if any, value.

 

Given the above findings, the Panel determines that Creative Energy must respond to CEC IR 4.7, but not to CEC IRs 3.1, 5.6, 6.2, 9.3, 10.3 and 12.1, as outlined in the following table:

 

 

Requests for other information

In CEC IR 6.3, Creative Energy is asked to “provide a table for each of the last 10 years identifying the number of customer calls and a summary of gist of the types of complaint.” The Panel finds this IR to be in scope. Section 23 of the UCA states, “The commission has general supervision of all public utilities” and may make orders in a number of areas, including “(g) other matters it considers necessary or advisable for (i) the safety, convenience or service of the public.” Pursuant to this section, the Panel has the jurisdiction and the duty to identify problems in service and performance levels, identify the apparent causes of such problems and direct improvements in service if necessary. However, consistent with the Panel’s findings on the requests for historical financial/revenue requirement information, we also find that the expected probative value of the responses does not justify the workload required for Creative Energy to provide 10 years of historical information. Accordingly, the Panel directs Creative Energy to respond to CEC IR 6.3, but the temporal requirement for information is reduced to 5 years.

 

The Panel considers that CEC IR 37.5, requesting that Creative Energy provide “references to literature regarding the proper use and application of the Massachusetts Formula, and its advantages and disadvantages,” seeks an understanding of the cost allocation methodology proposed by Creative Energy. Given that the methodology impacts what costs are included in “base” O&M, and therefore, rates, the Panel finds this IR to have probative value and is in scope. The Panel expects Creative Energy to be able to demonstrate that it adequately understands the appropriate application of the Massachusetts Formula and directs Creative Energy to answer CEC IR 37.5.

 

Finally, in CEC IR 39.1, Creative Energy is asked to “identify the key issues affecting steam and the key issues affecting each of the other projects.” This IR seeks confirmation of Creative Energy’s current and expected future business environment. The Panel finds that the IR has probative value and will assist in determining whether an IBR approach to setting rates is appropriate compared to the status quo approach of cost of service rates; therefore, the Panel determines that the IR is in scope and directs Creative Energy to respond to CEC IR 39.1.

 

A table summarizing all of the Panel’s determinations on IR scope is provided in Appendix D.

 

 

Creative Energy Vancouver Platforms Inc.

2018–2022 Revenue Requirements Application

 

 

 

 

 

 

Creative Energy Vancouver Platforms Inc.

2018–2022 Revenue Requirements Application

 

 

This summary is provided for the convenience of readers. In the event of any difference between the directions in this summary and those in the body of the reasons for decision, the wording in the reasons for decision shall prevail.