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

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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 78
The general policy FortisBC follows in determining capitalization of any cost is that an
expenditure provides substantial benefits for a period of more than one year and the
expenditure extends the useful life or increases the capacity of an asset or the quality of output
efficiency (2012-2013 Revenue Requirements Application, Appendix M).
In applying this general principle, it has been FortisBC’s policy to capitalize 50 percent of all
annual software costs. This is based on analysis that has been conducted, including information
provided by software vendors, where it has been determined that at least 25 percent of annual
costs paid to vendors include service packs and enhancements that extend the life and enhance
the functionality of software and at least 25 percent of annual costs paid to vendors are
considered prepayments of the next software upgrade, which generally occur at no additional
cost to the Company when the upgrade occurs and also extend the life and enhance the
functionality of the software. The remaining 50 percent of the annual costs paid to vendors are
considered purely maintenance and support and are therefore included in operating and
maintenance expenses.
Based on the above, FortisBC has applied 50 percent of the forecast IT Support Costs that are
referenced in Exhibit B-3 as Capital Costs, and 50 percent as Operating Expenses (as part of
New Operating Costs as referenced in Exhibit B-3).
Response:
42.3 Please confirm that all estimated AMI capital costs per Exhibit B-3, tab “Gross
AMI”, Line No. 32 are those that would normally be capitalized under FortisBC’s
accounting policy for capitalization under US GAAP. If not confirmed, please
explain otherwise.
Confirmed. Capital Costs included in Line No. 32 (IT Hardware, Licencing, and Support Costs)
would normally be capitalized under FortisBC’s accounting policy for capitalization under US
GAAP. Please see the response to BCUC IR1 Q42.2.1 above, as well as Appendix M to the
2012-2013 Revenue Requirements Application for the assessment of general consistency
between FortisBC’s Capitalization Policy and US GAAP.
42.4 Please provide the justification for treating each of the following cost categories
per Table 5.1.a as capital, as opposed to expenditures:
• System Integration
• Project Management, including resources, design, testing and training