yours truly, alanna gillis...approximately $25.7m after tax at december 31, 2011 which is...

ALANNA GILLIS ACTING COMMISSION SECRETARY [email protected] web site: http://www.bcuc.com

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. 38097

PF/FEU Amalgamation/A2-19_FEVI-2011-Q4-Gas-Cost-Report

VIA EMAIL May 4, 2012

FORTISBC ENERGY UTILITIES COMMON RATES, AMALGAMATION AND RATE DESIGN EXHIBIT A2-19

To: FortisBC Energy Utilities

Registered Interveners

Re: FortisBC Energy Utilities Project No. 3698652/Order G-46-12

[comprising FortisBC Energy Inc., FortisBC Energy Inc. Fort Nelson Service Area, FortisBC Energy (Vancouver Island) Inc. and FortisBC Energy (Whistler) Inc.]

Common Rates, Amalgamation and Rate Design Application

Commission staff submits the following document for the record in this proceeding:

November 18, 2011 FortisBC Energy Inc. – 2011 Fourth Quarter Report on the Gas Cost Variance Account (GCVA) and the Rate Stabilization Deferral Account (RSDA)

Yours truly, Alanna Gillis cms Attachment

November 18, 2011 British Columbia Utilities Commission 6th Floor, 900 Howe Street Vancouver, BC V6Z 2N3 Attention: Ms. Alanna Gillis, Acting Commission Secretary Dear Ms. Gillis: Re: FortisBC Energy (Vancouver Island) Inc. (“FEVI” or the “Company”)

2011 Fourth Quarter Report on the Gas Cost Variance Account (“GCVA”) and the Rate Stabilization Deferral Account (“RSDA”) (the “Fourth Quarter Report”)

The British Columbia Utilities Commission (the “Commission”) in its Order No. G-2-03 instructed the Company to provide quarterly reports to the Commission and Interveners. Within the attached Fourth Quarter Report, FEVI outlines the forecast gas costs, the competitive market prices, and the year to date recorded and the year-end forecast balances related to the GCVA and the Annual Revenue Surplus which is to be captured in the RSDA. The Company has reviewed the forward prices for natural gas, as well as the competitive energy prices. Based on the five-day average of the November 1, 2, 3, 4, and 7, 2011 forward prices for natural gas, the annual outlook indicates that the GCVA is forecast to be at a surplus balance of approximately $11.3 million before tax at year-end December 31, 2011 while the revenue surplus is forecast to be approximately $25.7 million after tax. The Fourth Quarter Report is provided for information purposes only. FEVI Core Market rates effective January 1, 2012 are being sought through the FortisBC Energy Utilities (“FEU”) (comprising FortisBC Energy Inc., FortisBC Energy Inc. Fort Nelson Service Area, FortisBC Energy (Vancouver Island) Inc., and FortisBC Energy (Whistler) Inc.) 2012 and 2013 Revenue Requirements and Natural Gas Rates Application (“2012-2013 RRA”). Pursuant to Commission Order No. G-177-11, dated October 21, 2011, the Commission has approved on an interim basis that the FEVI Core Market rates effective January 1, 2012 remain at the same level as 2011 rates. Further, the Company notes that the Fourth Quarter Report, consistent with current practice, provides an update on the forecast 2011 year-end balances in the GCVA and RSDA. Pursuant to discussions with Commission staff, the Company anticipates that as part of the 2012-2013 RRA process and the establishment of permanent FEVI Core Market rates effective January 1, 2012, it will be submitting revised financial schedules which will reflect the amortization of the recorded 2011 year-end GCVA balance and an

Diane Roy Director, Regulatory Affairs - Gas FortisBC Energy Inc.

16705 Fraser Highway Surrey, B.C. V4N 0E8 Tel: (604) 576-7349 Cell: (604) 908-2790 Fax: (604) 576-7074 Email: [email protected] www.fortisbc.com Regulatory Affairs Correspondence Email: [email protected]

A2-19

mailto:[email protected]

http://www.fortisbc.com/


cnsmith

FEU Common Rates Amalgamation

November 18, 2011 British Columbia Utilities Commission FEVI – 2011 Fourth Quarter Report on the GCVA and the RSDA Page 2

approved 2012 cost of gas based on updated natural gas forward prices. The approved cost of gas will be used in the determination of the gas cost variances booked to the GCVA during 2012. The Company also notes that determination of the appropriate disposition of any 2012 year-end balance in the GCVA should be dealt with as part of the FEU Amalgamation and Rate Design Phase „A‟ Application process. We trust the Commission will find the attached report to be in order. Should any further information be required, please contact Brian Noel at 604-592-7467. All of which is respectfully submitted. Yours very truly, FORTISBC ENERGY (VANCOUVER ISLAND) INC. Original signed:

Diane Roy Attachments

FortisBC Energy (Vancouver Island) Inc.

2011

Fourth Quarter Report

on the

Gas Cost Variance Account (“GCVA”)

and the

Rate Stabilization Deferral Account (“RSDA”)

November 18, 2011

FORTISBC ENERGY (VANCOUVER ISLAND) INC. FOURTH QUARTER REPORT 2011

PAGE 2

1 SUMMARY

The FortisBC Energy (Vancouver Island) Inc. (“FEVI” or the “Company”) 2011 Fourth Quarter Report on the Gas Cost Variance Account (“GCVA”) and the Rate Stabilization Deferral Account (“RSDA”) (the “Fourth Quarter Report”) has been prepared for, and filed with, the British Columbia Utilities Commission (the “Commission”) to provide an update on the year to date recorded and the year-end forecast balances related to the GCVA and the Annual Revenue Surplus to be captured in the RSDA. FEVI Core Market rates effective January 1, 2012 are being sought through the FortisBC Energy Utilities (comprising FortisBC Energy Inc., FortisBC Energy Inc. Fort Nelson Service Area, FortisBC Energy (Vancouver Island) Inc., and FortisBC Energy (Whistler) Inc.) 2012 and 2013 Revenue Requirements and Natural Gas Rates Application (“2012-2013 RRA”). Pursuant to Commission Order No. G-177-11, dated October 21, 2011, the Commission has approved on an interim basis that the FEVI Core Market rates effective January 1, 2012 remain at the same level as 2011 rates. On a year to date basis as at October 31, 2011 the revenue surplus is approximately $10.8M favorable compared to budget, and the outlook is for an annual revenue surplus of approximately $25.7M after tax at December 31, 2011 which is approximately $9.3M more than the budgeted amount. FEVI has recorded a surplus of approximately $6.7M before tax into the GCVA on a year to date basis as at October 31, 2011. The year-end forecast GCVA is a surplus balance of approximately $11.3M before tax and results from the forecast royalty adjusted cost of gas, after adjustment for the purchase volume variance, being lower than the approved amount.


PAGE 3

2 REVENUE SURPLUS

Commission Order No. G-140-09 approved customer rates effective January 1, 2010 through the end of 2011. The following is a breakdown of the cost of service and the annual revenue surplus on a year to date and forecast basis.

At the end of October 2011, FEVI’s revenue surplus is approximately $10.8M higher than the budgeted amount and FEVI is forecasting a revenue surplus of approximately $25.7M by year end which is approximately $9.3M more than the annual budgeted amount.


PAGE 4

The following table provides a summary of the Rate Stabilization Deferral Account balances on a forecast and approved basis.

2.1 COST OF GAS

The largest single component of the cost of service for FEVI is the commodity cost of gas. The forecast unit cost of gas approved for 2011 is $8.63/GJ. The cost of gas at FEVI is offset by royalty revenues from the Provincial Government. These revenues are based upon the wellhead price of gas and a deemed volume for the year. The cost of gas approved for 2011 after application of the royalty revenue is $5.41/GJ. To the extent that the actual cost of gas is greater or less than the approved unit cost of gas, the difference is collected in a deferral account for future recovery or rebate. At the end of October 2011, the royalty adjusted cost of gas, after adjustment for the purchase volume variance of approximately $0.4M, has been lower than the approved amount, resulting in a surplus adjustment of approximately $6.7M before tax to the Gas Cost Variance Account. The table below summarizes the cost of gas on a year to date and forecast basis for 2011.


PAGE 5

The year-end forecast royalty adjusted cost of gas is expected to be approximately $10.4M below the budgeted total; this forecast gas cost variance is comprised of a purchase volume variance and a price variance. The GCVA adjustment is calculated by removing the purchase volume component, in this case approximately 102 TJ of more gas volumes, from the pre-royalty adjusted cost of sales variance prior to accounting for the royalty credit variance. The GCVA is forecast to be a surplus balance of approximately $11.3M before tax by year end.

2.2 REVENUES

Year to date October revenues have been higher than budgeted by approximately $2.5M. Revenues arise from sales to distribution customers, transportation revenues from the Vancouver Island Gas Joint Venture, British Columbia Hydro and Power Authority (“BC Hydro” or “BCH”), and FortisBC Energy Inc. in the form of firm and interruptible services, and from miscellaneous other revenues.


PAGE 6

3 FEVI CUSTOMER ADDITIONS

According to Canada Mortgage and Housing Corporation’s (CMHC) Housing Now – Victoria

CMA, published in October 2011, construction started on 188 new homes across the Victoria

Census Metropolitan Area (CMA) in September 2011, bringing the year to-date (January-

September) total to 1,281 housing starts. Housing starts in both the single-detached and multi-

family segments of the market increased relative to their September 2010 levels.

While September activity increased relative to last year, year-to-date housing starts were below

2010 levels. Due in part to an ample supply of resale homes listed for sale, single-detached

starts were 31 per cent below the level of starts recorded during the first three quarters of 2010,

and multi-family starts were 21 per cent below.

The City of Langford has been the centre of residential construction activity in the CMA,

accounting for the largest share of both single-detached (44 per cent) and multi-family (29 per

cent) housing starts. At the end of September, construction was underway on 461 single-

detached homes and 1,131 apartment condominiums across the CMA. The number of single-

detached homes under construction is down 15 per cent from the average recorded over the

previous ten years (Jan. 2001-Dec. 2010), while apartment construction is down by three per

cent.

In August FEVI saw only 89 net additions, compared to the target of 178. In September FEVI

saw 148 net additions, compared to the target of 200, while in October FEVI saw 323 net

additions compared to the target of 263.

In summary, year to date customer additions to the end of October are 1,351, well behind the

year to date target of 1,851. FEVI no longer expects that the Company will be able to achieve

its 2011 target of 2,430 net customer additions.


PAGE 7

4 COMPETITIVE MARKETS

One of the objectives of the rates in place at FEVI is to remain competitive with alternative energy sources, which are fuel oil and electricity. The specific energy source that FEVI competes with for each customer is dependent upon their rate class. As part of this quarterly report, FEVI’s natural gas rates per rate classes are compared with both electric and fuel oil rates.

4.1 OIL

Consistent with the FEVI 2010-2011 Revenue Requirements and Rate Design Negotiated Settlement, FEVI has used a forecast to determine the direction of oil prices, aiding in the calculation of effective fuel oil rates for the different customer classes for comparison purposes. These effective rates take into account different discounts that are applied to the various small and large commercial rate classes. The Company has also used a NYMEX US$ to CAD$ exchange rate forecast for converting US$/bbl to CAD$/bbl, using the 50th Percentile for the forecast December 2011 to November 2012, which equals 1.0162. The comparative table below shows the relative position of the FEVI approved rates effective January 1, 2010 to the forecast oil prices for the 12-month period December 2011 to November 2012, based on the forward prices for light sweet crude oil at November 7, 2011. All of the rate classes are currently below the comparative fuel oil price for each rate class.

4.2 ELECTRICITY

Consistent with the FEVI 2010-2011 Revenue Requirements and Rate Design Negotiated Settlement, when comparing FEVI’s approved effective rates against electric rates for new customers, FEVI has used both a 90 per cent efficiency adjustment and a 75 per cent efficiency adjustment to BC Hydro’s rates. The 90 per cent efficiency adjustment reflects the average new

Class $/GJ Rack/Retail $/Litre $/GJ %

RGS 16.617$ 84% 0.9795$ 25.33$ -34%

AGS 12.753$ 100% 0.8131$ 21.02$ -39%

SCS-1 18.371$ 95% 0.8639$ 22.34$ -18%

SCS-2 17.612$ 96% 0.8512$ 22.01$ -20%

LCS-1 14.099$ 99% 0.8258$ 21.35$ -34%

LCS-2 12.754$ 100% 0.8093$ 20.93$ -39%

LCS-3 12.138$ 100% 0.8093$ 20.93$ -42%

HLF 11.021$ 100% 0.8093$ 20.93$ -47%

ILF 10.296$ 100% 0.7763$ 20.07$ -49%

FEVI Rates

FEVI rates effective

January 1, 2010

No. 2 Fuel Oil (Forward Prices) Based on NYMEX WTI Light Sweet Crude Oil Forward Prices

Dated November 7, 2011


PAGE 8

customer’s natural gas space heating furnace efficiency relative to 100 per cent for electric space heating appliances. The 75 per cent efficiency adjustment represents an estimate of the average efficiency of appliances used by existing FEVI natural gas residential customers. A 90 and 75 per cent efficiency comparison is also presented for non-residential customers between comparable FEVI and BC Hydro rate classes to provide a comprehensive analysis. Also consistent with the FEVI 2010-2011 Revenue Requirements and Rate Design Negotiated Settlement, FEVI is presenting two scenarios with respect to the comparison with BC Hydro’s residential rates. Scenario 1 The first scenario includes using BC Hydro’s approved April 1, 2010 residential two-step Conservation Rate as per the F2011 Revenue Requirements Application. BC Hydro’s rates were increased by approximately 9.5% effective April 1, 2009 (inclusive of applicable rate riders) as per Commission Order No. G-16-09. BC Hydro proposed a further 9.26% interim increase (including 4% proposed rate rider) on March 20101. This number was later reduced to 7.29% (including 2.5% rate rider) as a result of the Commission negotiated settlement with BC Hydro, as per Commission Order No. G-180-10. On March 1, 2011 BC Hydro filed its F2012 – F2014 Revenue Requirements Application and proposed a rate increase of 9.73%. On April 21, 2011, the Commission approved an interim rate increase of 8%, effective May 1, 2011. Following a Provincial Government review, the Province and BC Hydro have agreed to ask the Commission to lower the earlier proposed annual rate increase of 9.73% to the current interim 8% increase. Consistent with the Third Quarter Report, the Fourth Quarter Report reflects approved interim May 1, 2011 rates. Scenario 2 In the second scenario for residential rates, FEVI has added approximately 27 per cent to the BC Hydro approved residential rate effective April 1, 2008 prior to the approval of the two-step Conservation Rate in October 2008. The 27 per cent markup consists of the cumulative annual increases to the revenue requirements since April 1, 2008. This equates to a rate of $20.05 per GJ at 90 per cent efficiency, and a rate of $16.71 per GJ at 75 per cent efficiency. BC Hydro’s fixed charge is excluded from both scenarios and all rate classes since it is assumed that customers require electricity for lighting and other home uses. In both rate scenarios, all FEVI rate classes using the rate in effect April 1, 2008 prior to the approval of the two-step Conservation Rate in October 2008 are below the proposed BC Hydro electric equivalent, adjusted for 90 per cent and 75 percent efficiency factors. The tables below summarize FEVI’s approved effective rates for 2010 with BC Hydro’s interim electricity prices effective May 1, 2011 (adjusted for 90 per cent and 75 per cent efficiency levels), and also with BC Hydro’s historical April 2008 rates adjusted for all rate changes to date.

1 The First Quarter Report utilized rates as proposed on March 2010.


PAGE 9

Scenario 1: FEVI Rates vs. BC Hydro Two Step Conservation Rate

2010 Approved FEVI Effective Rates and BCH Approved Interim Electricity Markets and Prices (BC Hydro Step 2 residential rate and adjustments for 90% Efficiency)

2010 Approved FEVI Effective Rates and BCH Approved Interim Electricity Markets and Prices (BC

Hydro Step 2 residential rate and adjustments for 75% Efficiency)

Class $/GJ $/kWh $/GJ (90% Eff.) % (90% Eff.)

RGS 16.617$ * 0.0986$ 24.65$ -33%

AGS 12.753$ * 0.0986$ 24.65$ -48%

SCS-1 18.371$ 0.0903$ 22.58$ -19%

SCS-2 17.612$ 0.0903$ 22.58$ -22%

LCS-1 14.099$ ** 0.0679$ 16.98$ -17%

LCS-2 12.754$ ** 0.0679$ 16.98$ -25%

LCS-3 12.138$ ** 0.0679$ 16.98$ -28%

HLF 11.021$ ** 0.0679$ 16.98$ -35%

ILF 10.296$ ** 0.0679$ 16.98$ -39%

**Average Commercial Electricity Rates from the Hydro-Québec 2011

Comparison of Electricity Prices in Major North American Cities Rates in effect

April 1.

FEVI Rates


January 1, 2010

Electricity Comparison

BC Hydro interim May 1, 2011 rates

(inclusive of the approved rate riders)

*BC Hydro interim May 1, 2011 Step 2 rate inclusive of the applicable 2.5%

proposed rate rider.


RGS 16.617$ * 0.0986$ 20.54$ -19%

AGS 12.753$ * 0.0986$ 20.54$ -38%

SCS-1 18.371$ 0.0903$ 18.81$ -2%

SCS-2 17.612$ 0.0903$ 18.81$ -6%

LCS-1 14.099$ ** 0.0679$ 14.15$ 0%

LCS-2 12.754$ ** 0.0679$ 14.15$ -10%

LCS-3 12.138$ ** 0.0679$ 14.15$ -14%

HLF 11.021$ ** 0.0679$ 14.15$ -22%

ILF 10.296$ ** 0.0679$ 14.15$ -27%


Comparison of Electricity Prices in Major North American Cities Rates in effect

April 1.

FEVI Rates


January 1, 2010


BC Hydro interim May 1, 2011 rates

(inclusive of the approved rate riders)

*BC Hydro interim May 1, 2011 Step 2 rate inclusive of the applicable 2.5%

proposed rate rider.


PAGE 10

Scenario 2: FEVI vs. BC Hydro April 1, 2008 Rates (Adjusted for 27% Rate Increase)

2010 Approved FEVI Effective Rates and BCH Approved Interim Electricity Markets and Prices (BC Hydro residential rate calculated and adjustments for 90% Efficiency)

2010 Approved FEVI Effective Rates and BCH Approved Interim Electricity Markets and Prices (BC

Hydro residential rate calculated and adjustments for 75% Efficiency)


RGS 16.617$ * 0.0804$ 20.10$ -17%

AGS 12.753$ * 0.0804$ 20.10$ -37%

SCS-1 18.371$ 0.0903$ 22.58$ -19%

SCS-2 17.612$ 0.0903$ 22.58$ -22%

LCS-1 14.099$ ** 0.0679$ 16.98$ -17%

LCS-2 12.754$ ** 0.0679$ 16.98$ -25%

LCS-3 12.138$ ** 0.0679$ 16.98$ -28%

HLF 11.021$ ** 0.0679$ 16.98$ -35%

ILF 10.296$ ** 0.0679$ 16.98$ -39%


Comparison of Electricity Prices in Major North American Cities Rates in

effect April 1.

FEVI Rates


January 1, 2010


BC Hydro approved April 1, 2008 rates

with an approximate 27% increase (inclusive of the approved 2.5% rate rider for

January 2011 onwards)

*BC Hydro residential rate calculated with an approximate 27% cumulative

increase to approved April 1, 2008 rates (inclusive of the approved 4% F2011

rate rider for the period of April 1 to December 2010, and 2.5% thereafter)


RGS 16.617$ * 0.0804$ 16.75$ -1%

AGS 12.753$ * 0.0804$ 16.75$ -24%

SCS-1 18.371$ 0.0903$ 18.81$ -2%

SCS-2 17.612$ 0.0903$ 18.81$ -6%

LCS-1 14.099$ ** 0.0679$ 14.15$ 0%

LCS-2 12.754$ ** 0.0679$ 14.15$ -10%

LCS-3 12.138$ ** 0.0679$ 14.15$ -14%

HLF 11.021$ ** 0.0679$ 14.15$ -22%

ILF 10.296$ ** 0.0679$ 14.15$ -27%


Comparison of Electricity Prices in Major North American Cities Rates in

effect April 1.

FEVI Rates


January 1, 2010


BC Hydro approved April 1, 2008 rates

with an approximate 27% increase (inclusive of the approved 2.5% rate rider for

January 2011 onwards)

*BC Hydro residential rate calculated with an approximate 27% cumulative

increase to approved April 1, 2008 rates (inclusive of the approved 4% F2011

rate rider for the period of April 1 to December 2010, and 2.5% thereafter)


PAGE 11

5 CONCLUSION

The 2011 Fourth Quarter Report is provided for information purposes only. FEVI Core Market rates effective January 1, 2012 are being sought through the 2012-2013 RRA. Pursuant to Commission Order No. G-177-11, dated October 21, 2011, the Commission has approved on an interim basis that the FEVI Core Market rates effective January 1, 2012 remain at the same level as 2011 rates.

ALANNA GILLIS ACTING COMMISSION SECRETARY [email protected] web site: http://www.bcuc.com

LETTER NO. L-XX-11

SIXTH FLOOR, 900 HOWE STREET, BOX 250 VANCOUVER, B.C. CANADA V6Z 2N3

TELEPHONE: (604) 660-4700 BC TOLL FREE: 1-800-663-1385

FACSIMILE: (604) 660-1102

Log No. xxxx

DRAFT ORDER VIA E-MAIL November xx, 2011 [email protected] Ms. Diane Roy Director, Regulatory Affairs – Gas FortisBC Energy Inc. 16705 Fraser Highway Surrey, BC V4N 0E8 Dear Ms. Roy:

Re: FortisBC Energy (Vancouver Island) Inc. 2011 Fourth Quarter Report on the Gas Cost Variance Account

and the Rate Stabilization Deferral Account

On November 18, 2011 FortisBC Energy (Vancouver Island) Inc. filed its 2011 Fourth Quarter Report on the Gas

Cost Variance Account and the Rate Stabilization Deferral Account (the Report) for Information. By this letter,

the Commission acknowledges receipt of the Report, regarding the Vancouver Island and the Sunshine Coast

service areas.

Yours truly, Alanna Gillis Acting Commission Secretary


yours truly, alanna gillis...approximately $25.7m after tax at december 31, 2011 which is...

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