FortisBC Energy Inc. and FortisBC Inc. Applications for Approval of Multi-Year Performance Based Ratemaking (PBR) Plans for 2014 through 2018

Transcription

1 FortisBC Energy Inc. and FortisBC Inc. Applications for Approval of Multi-Year Performance Based Ratemaking (PBR) Plans for 2014 through 2018 B2-36 UNDERTAKING NO. 16 HEARING DATE: March 13, 2014 TRANSCRIPT REFERENCE: Volume 4, Page 772, Line 21 to Page 773, Line 9 REQUESTOR: Mr. Miller WITNESS: Ms. Roy QUESTION: Recreate the case scenarios (similar to Exhibit A2-27) correcting the errors and include whatever other assumptions or columns are appropriate. RESPONSE: Recreated cases are attached for Cases 1 to 4 of the Staff Witness Aid (Exhibit A2-27). FortisBC has not included recreated versions for Cases 3A and 4A which were cases that represented combined effects for two of the situations modelled in Cases 1 to 4. FortisBC has revised the summary section at the bottom of each case to highlight the total costs and benefits to customers and the utility of having the Efficiency Carryover Mechanism (ECM) as proposed in the FortisBC Applications relative to the assumption of having no ECM. FortisBC provides the following comments on each of the cases: Case 1 Case 1 is the same example as provided in Attachment 3 to the FEI-FBC Undertaking from the Procedural Conference (FEI Exhibit B-16 and FBC Exhibit B- 6). The information added to Case 1 includes the revised summary section discussed above. The main observations are that the motivational power of the ECM provides a net benefit to customers of 14.8 million during the combined duration of the PBR Term and ECM Period, and an ongoing reduction of 6.6 million per year after the ECM period has completed. Case 2 Case 2 assumes that the utility comes forward after the PBR Term with an incremental O&M request over and above an inflationary increase to the actual O&M from the final year in the PBR Term. The Staff Witness Aid used an incremental increase of 14.5 million based on FEI s requested incremental O&M increase in 2010, the year following the PBR. FortisBC has removed an inflationrelated quantity of 2.8 million from the 14.5 million amount in order to avoid double counting inflation. The main adjustment that FortisBC has made to Case 2 is to add Page 1

2 FortisBC Energy Inc. and FortisBC Inc. Applications for Approval of Multi-Year Performance Based Ratemaking (PBR) Plans for 2014 through 2018 UNDERTAKING NO. 16 the same 2019 incremental cost increase of 11.7 million to the No ECM scenario as is added to the ECM scenario. Since these incremental cost increases were for items such as codes and standards changes, accounting changes and new business initiatives they are unrelated to whether the PBR does or does not include an ECM. With these revisions to Case 2 the overall benefits to customers of having an ECM remain the same as in Case 1. Case 3 Case 3 in the Staff Witness Aid (Exhibit A2-27) assumed that the O&M savings diminished in the later years of the PBR term in the ECM scenario only. FortisBC cannot envision a situation in which there would be a reduction in O&M savings in later years with an ECM in effect and there would not also be similar cost pressures that would reduce the O&M savings in the No ECM scenario. In contrast FortisBC believes that, even if some unanticipated cost increases arose within the PBR term, the incentive power of having the proposed ECM in the PBR Plan would still induce greater O&M savings in later years relative to the No ECM scenario. The revised Case 3 attached makes adjustments related to the foregoing comments and, in summary, demonstrates net benefits for customers during the PBR Term and ECM Period, as well as in the years after the ECM Period has ended. Case 4 Case 4 in the Staff Witness Aid (Exhibit A2-27) assumed a large O&M loss occurring in the first year of the PBR term in the ECM scenario only. As discussed above with respect to Cases 2 and 3, the same large loss in year 1 needs to be incorporated into the No ECM scenario as well. The ECM only provides motivational power to maintain lower spending in years 2 through 5, and does not impact year 1. However, having the ECM continues to motivate the utility to pursue additional O&M savings in the later years so the ECM case continues to show net (although somewhat smaller) benefits to customers during the PBR Term and ECM Period, and the same level of annual benefits in the O&M going forward after the ECM Period has expired. While this case of a large first year O&M increase or loss shows a diminished benefit of the ECM relative to the other three cases, Fortis BC does not believe Case 4 is a likely occurrence. If such a large unanticipated O&M increase was to occur in the first year it would likely give arise from an exogenous factor, in which case the cost increase should not be tied to the formula-based controllable O&M that will form part of the earnings sharing in the PBR Term or ECM afterward. Page 2

3 FEI/FBC Revisions to Staff Witness Aid - ECM (Exhibit A2-27) FEI-FBC Undertaking No. 16 Page 1 CASE 1: Using Utility's ECM example W/staff Calculations* B-6 Scenario 1 without ECM % 2.01% 2.01% 2.02% 1 Allowed O&M (A) (B) Actual O&M O&M Savings Achieved by the Utility Change in Actual O&M Incremental O&M Savings Less 50% Earnings Sharing with Customers (C) O&M Savings Retained by the Utility Benefit from incremental 2014 savings Benefit from incremental 2015 savings Benefit from incremental 2016 savings Benefit from incremental 2017 savings Benefit from incremental 2018 savings For 2023+, With ECM (Scenario 2) starts at a lower O&M level of million compared to Without ECM (Scenario 1) of million. B-6 Scenario 2 with ECM % 2.02% 1.98% 1.99% 13 Allowed O&M (D) (E) Actual O&M O&M Savings Achieved by the Utility Change in Actual O&M Incremental O&M Savings Less 50% Earnings Sharing with Customers (F) O&M Savings Retained by the Utility Benefit from incremental 2014 savings Benefit from incremental 2015 savings Benefit from incremental 2016 savings Benefit from incremental 2017 savings Benefit from incremental 2018 savings (G) 15.0 *Does not include benefits from capital expenditures Financial Impact Calculation ( Millions) Scenario 1 without ECM: (A) - (C) 1,035.0 (B) ,918.0 Scenario 2 with ECM: (D) - (F) 1,030.5 (E) + (G) ,903.2 Net Cost Increase / (Decrease) from ECM (4.5) (10.3) (14.8) 2. Annual Net O&M Benefit for Customers from ECM after PBR Term and ECM Period 6.6 Scenario 1 without ECM: (C) Scenario 2 with ECM: (F) 22.5 (G) Utility Net Benefit Case 1

4 FEI/FBC Revisions to Staff Witness Aid - ECM (Exhibit A2-27) FEI-FBC Undertaking No. 16 Page 2 Case 2: ECM example with an incremental 11.7 million** O&M increase after PBR period Scenario 1 without ECM % 2.00% 2.00% 2.00% 1 Allowed O&M (A) (B) Actual O&M O&M Savings Achieved by the Utility Change in Actual O&M Incremental O&M Savings Less 50% Earnings Sharing with Customers (C) O&M Savings Retained by the Utility Benefit from incremental 2014 savings Benefit from incremental 2015 savings Benefit from incremental 2016 savings Benefit from incremental 2017 savings Benefit from incremental 2018 savings M incremental O&M increase added in 2019 due to external factors ** / *** For 2023+, With ECM (Scenario 2) starts at a lower O&M level of million vs. Without ECM (Scenario 1) of million. Scenario 2 with ECM % 2.00% 2.00% 2.00% 13 Allowed O&M (D) (E) Actual O&M O&M Savings Achieved by the Utility Change in Actual O&M Incremental O&M Savings Less 50% Earnings Sharing with Customers (F) M incremental O&M increase added in 2019 due to 19 O&M Savings Retained by the Utility external factors ** 20 Benefit from incremental 2014 savings Benefit from incremental 2015 savings Benefit from incremental 2016 savings Benefit from incremental 2017 savings Benefit from incremental 2018 savings (G) 15.0 *Does not include Plant Additions Benefit ** The original 14.5M increase in O&M is based on 2010 increase in O&M, and has been reduced by 2.8 M for labour and benefits inflation ( RRA Application, Table C-6-3, Page 348). *** Use the same O&M rebasing for the 'without ECM' and 'with ECM' scenario Financial Impact Calculation ( Millions) Scenario 1 without ECM: (A) - (C) 1,035.0 (B) ,966.1 Scenario 2 with ECM: (D) - (F) 1,030.5 (E) + (G) ,951.3 Net Cost Increase / (Decrease) from ECM (4.5) (10.2) (14.7) 2. Annual Net O&M Benefit for Customers from ECM after PBR Term and ECM Period 6.5 Benefit for Utility from ESM and ECM Scenario 1 without ECM: (C) Scenario 2 with ECM: (F) 22.5 (G) Utility Net Benefit Case 2

5 FEI/FBC Revisions to Staff Witness Aid - ECM (Exhibit A2-27) FEI-FBC Undertaking No. 16 Page 3 Case 3: ECM example with lower O&M savings in later years* Scenario 1 without ECM Allowed O&M (A) (B) Actual O&M O&M Savings Achieved by the Utility Change in Actual O&M Incremental O&M Savings Less 50% Earnings Sharing with Customers (C) O&M Savings Retained by the Utility Benefit from incremental 2014 savings Benefit from incremental 2015 savings Benefit from incremental 2016 savings Benefit from incremental 2017 savings Benefit from incremental 2018 savings If there are reduced O&M savings in later years with an ECM (i.e. with an incentive to find continuing efficiencies), with no ECM the actual O&M in later years would be higher still. The O&M amounts for 2017 and 2018 are greater than with an ECM. For 2023+, With ECM (Scenario 2) starts at a lower O&M level of million compared to Without ECM (Scenario 1) of million. Scenario 2 with ECM Allowed O&M (D) (E) Actual O&M O&M Savings Achieved by the Utility Change in Actual O&M Incremental O&M Savings Less 50% Earnings Sharing with Customers (F) O&M Savings Retained by the Utility Benefit from incremental 2014 savings Benefit from incremental 2015 savings Benefit from incremental 2016 savings Benefit from incremental 2017 savings Benefit from incremental 2018 savings (G) -6.0 *Does not include Plant Additions Benefit Financial Impact Calculation ( Millions) Scenario 1 without ECM: (A) - (C) 1,051.5 (B) ,997.4 Scenario 2 with ECM: (D) - (F) 1,047.0 (E) + (G) ,961.7 Net Cost Increase / (Decrease) from ECM (4.5) (31.2) (35.7) 2. Annual Net O&M Benefit for Customers from ECM after PBR Term and ECM Period 6.5 Benefit for Utility from ESM and ECM Scenario 1 without ECM: (C) Scenario 2 with ECM: (F) 6.0 (G) (6.0) 0.0 Utility Net Benefit 4.5 (6.0) (1.5) Case 3

6 FEI/FBC Revisions to Staff Witness Aid - ECM (Exhibit A2-27) FEI-FBC Undertaking No. 16 Page 4 Case 4: Witness Aid - ECM example with an early O&M loss* Scenario 1 without ECM Allowed O&M (A) (B) Actual O&M O&M Savings Achieved by the Utility Change in Actual O&M Incremental O&M Savings Less 50% Earnings Sharing with Customers (C) O&M Savings Retained by the Utility Benefit from incremental 2014 savings Benefit from incremental 2015 savings Benefit from incremental 2016 savings Benefit from incremental 2017 savings Benefit from incremental 2018 savings If there is an early O&M loss under ECM (where there is incentive to continue finding efficiencies) the actual O&M with no ECM would experience the same loss. With an ECM the incentive would still provide motivation to pursue greater savings in later years. For 2023+, With ECM (Scenario 2) starts at a lower O&M level of million compared to Without ECM (Scenario 1) of million. Scenario 2 with ECM Allowed O&M (D) (E) Actual O&M O&M Savings Achieved by the Utility Change in Actual O&M Incremental O&M Savings Less 50% Earnings Sharing with Customers (F) O&M Savings Retained by the Utility Benefit from incremental 2014 savings Benefit from incremental 2015 savings Benefit from incremental 2016 savings Benefit from incremental 2017 savings Benefit from incremental 2018 savings (G) 22.5 *Does not include Plant Additions Benefit Financial Impact Calculation ( Millions) Scenario 1 without ECM: (A) - (C) 1,050.0 (B) ,945.5 Scenario 2 with ECM: (D) - (F) 1,045.5 (E) + (G) ,938.2 Net Cost Increase / (Decrease) from ECM (4.5) (2.7) (7.2) 2. Annual Net O&M Benefit for Customers from ECM after PBR Term and ECM Period 6.5 Benefit for Utility from ESM and ECM Scenario 1 without ECM: (C) Scenario 2 with ECM: (F) 7.5 (G) Utility Net Benefit Case 4