FortisBC Inc. (FortisBC) Application for a Certificate of Public ...

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Response:
FortisBC Inc. (FortisBC or the Company)
Application for a Certificate of Public Convenience and Necessity
for the Advanced Metering Infrastructure Project
Response to British Columbia Utilities Commission (BCUC or the Commission)
Information Request (IR) No. 1
Submission Date:
October 5, 2012
Page 292
FortisBC did consider a rate smoothing option which would have resulted in some deferred cost
recovery of the Project, however when the Company considered that the Project reduces rates
in 19 of 20 the years in the financial analysis, the rate smoothing option was rejected. Further,
the use of a rate smoothing mechanism associated with the addition of new plant in service
could cause the utility to have earning volatility issues associated with US GAAP reporting.
Although FortisBC has not considered other methods of rate recovery, the following discussion
is provided regarding the alternative rate recovery options as identified in the question above.
• Reconcilable tariff riders – FortisBC acknowledges that although the use of a tariff rider
mechanism to recover costs related to the AMI Project is feasible, such riders have not
been employed by utilities operating in BC to effect rate recovery of specific capital
expenditures. Attempting to recover the project expenditures by way of a tariff rider
would be inconsistent with the treatment of other capital expenditures made by the
Company, would provide no incremental benefit to customers and would add additional
administrative burden (costs) to the utility.
• Customer surcharge mechanisms – A customer surcharge mechanism effects recovery
of the project costs on a per-customer charge basis as opposed to a per-kwh charge
basis as provided by a tariff rider. As noted for the option above, such a mechanism
has not been employed by utilities in BC for recovery of capital project expenditures,
and would only serve to add additional administrative burden (costs) to the utility with
no resultant benefit provided to customers.
• Base-rate recovery opportunities – This is the existing rate-recovery mechanism applied
to all of FortisBC’s capital projects, and is the proposed mechanism for recovering the
costs associated with the AMI Project.
• Reconcilable balancing account mechanisms – This approach involves tracking the
project costs and forecast benefits in a separate account to be periodically trued-up for
recovery in rates. Like tariff riders and customer surcharge mechanisms, this type of
mechanism for recovery of capital expenditures has not been employed by utilities
operating in BC. As noted in the response to BCUC IR1 Q53.14.2, the benefits of the
Project would be incorporated into Revenue Requirements either as cost reductions or
incremental revenue as they are forecast to be realized. FortisBC notes that this
approach is consistent with all capital projects undertaken by the Company. Attempting
to accumulate the benefits in a "holding" deferral account would be inconsistent with the
treatment of other capital expenditures made by the Company, would provide no
incremental benefit to customers and would add additional administrative burden
(costs) to the utility.