F ORTIS BC E NERGY 2015 D ELIVERY R ATES A NNUAL R EVIEW E XHIBIT B-7 FEI Annual Review of 2015 Rates Workshop March 6, 2015
Agenda Diane Roy Director, Regulatory Services Introduction Michael Mulcahy President and CEO Opening Remarks Michelle Carman Manager, Cost of Service Revenue Requirements and Rates David Bailey Customer Energy & Forecasting Demand Forecast Manager Mike Bains Business Development Manager Natural Gas for Transportation James Wong Director, Finance and Planning Service Quality Indicators (SQIs) • Responsiveness to Customer Needs SQIs Dawn Mehrer Director, Customer Contact Centres • Reliability and Safety SQIs Rolf Lyster Director, Gas Plant Operations & PMO Diane Roy Director, Regulatory Services Summary and Closing - 2 -
FEI Annual Review - 3 -
Opening Remarks 2014 Highlights and Future Outlook Michael Mulcahy – President and CEO
Company Priorities During 2014 Productivity • O&M below formula by $6.8 million • Capital expenditures above formula by $4.1 million Customer Focus • Maintaining service quality • Initiatives - Regionalization and Project Blue Pencil Amalgamation • Gas utilities amalgamated December 31, 2014 • Phased implementation of common rates starting January 1, 2015 - 5 -
Amalgamation of FEI, FEVI, FEW FortisBC Energy FortisBC Energy Inc. FortisBC Energy (Vancouver Island) (Mainland) (Whistler) Inc. Inc. FortisBC Energy Inc. (amalgamated into one legal entity) Customer Benefits • Common rates for customers • Improve natural gas competitiveness on Vancouver Island • Common customer programs – Transport service, Customer Choice, Renewable natural gas - 6 -
Amalgamation - Status Department Primary Activities Status Customers Common rates for FortisBC gas customers Establishing additional resourcing for contact centres New bill format New program offerings Customer communications Employees HR system changes Payroll changes Pension changes Operations and Gas Supply, unbundling Support Information Services – migration of data, billing system changes Operations Compliance Legal Taxation, Finance, Treasury Internal Audit - 7 -
Company Priorities During the PBR Term Productivity • O&M savings • Capital efficiency Customer Focus • Maintaining SQIs Financing • Medium term note shelf prospectus of $1 billion • Extension of existing credit facilities Major Projects • Lower Mainland IP System Upgrade, Coastal Transmission System, Tilbury Expansion, Eagle Mountain Gas Pipeline - 8 -
Lower Mainland IP System Upgrade Project E.2 nd & Woodland Station Coquitlam Gate Station Coquitlam Gate IP: replace with 20km NPS30 2070kPa Fraser Gate IP: 500m NPS30 ~246 million as spent seismic replacement $18million as spent Fraser Gate Station Source: FEI data overlaid on Google Earth mapping TP pipelines operating at greater than 2070 kPa IP pipelines operating from 700 kPa to 2070 kPa - 9 -
Four Coastal Transmission System Projects - 10 -
Tilbury Expansion Phases 1A & 1B Direction No. 5 to the BCUC (as • Direction No. 5 provides for CPCN exemptions for Tilbury Expansion Phases 1A and 1B amended in Dec 2014) Phase 1A • $400 million capital plus AFUDC & development costs (underway) • 1.1 PJ tank and 34 TJ/day liquefaction • $400 million capital cost plus AFUDC & development costs Phase 1B • Planned liquefaction 122 TJ/day – no storage • Phase 1B must be 70% contracted (avg.) over 1 st 15 years for the CPCN exemption to apply. - 11 -
Tilbury Expansion – Phases 1A & 1B - 12 -
Eagle Mountain Gas Pipeline Project 47 Km pipeline & compression facilities Construction to commence following executed long term agreement with Woodfibre LNG In-Service (earliest): Q4/2017 Investment: $475M - $600M Environmental assessment process underway - 13 -
Eagle Mountain Gas Pipeline Project - 14 -
Revenue Requirements and Rates Michelle Carman – Manager, Cost of Service
Revenue Requirement and Rates Summary of Revenue Requirement Agenda Rate Change & Contributing Factors The PBR Formula Operating & Maintenance Expense Capital Expenditures Rate Base Other Cost of Service Flow Through & Earnings Sharing Accounts Customer Impacts - 16 -
Revenue Requirement Summary Total Revenue Requirement of $1,390 million Depreciation Other, $71 & Amortization, $192 Cost of Gas, Managed through Delivery Costs of $633 Quarterly Review & $757.0 million Rate Setting Process Earned Return, $256 O&M, $238 - 17 - Exhibit B-1-1, Section 11, Schedule 1 and 2
Rate Change Summary Forecast of Revenues at Existing Rates = “Revenue Forecast” = $1,375 million Forecast of Expenses for the year = “Revenue Requirement” = $1,390 million Revenue Requirement < Revenue Revenue Requirement > Revenue Forecast = Forecast = Revenue Surplus Revenue Deficiency - 18 -
Rate Change Components $ million 18.0 1.6 15.4 16.0 1.5 4.1 14.0 (0.8) 1.7 Formula 12.0 10.1 10.0 2.4 Forecast 8.0 (1.2) • 2.03% Delivery 6.0 Rate Impact 4.0 2.0 - Demand Other O&M Depreciation Financing and Taxes 2015 Forecast Revenue & Return on Deficiency Amortization Equity - 19 -
The PBR Formula 2014 average customer Inflation of 1.303% growth of 1.228% less & Productivity Factor of 2014 service line addition 1.101% growth of -11.230% Net Inflation 2014 2015 Factor ½ of 2014 Formula Formula Customer O&M and = 0.203% O&M and Growth Capital Capital 2015 𝐺𝑝𝑠𝑛𝑣𝑚𝑏 𝑃&𝑁 = $ 233.960 𝑛𝑗𝑚𝑚𝑗𝑝𝑜 𝑦 1 + 0.203% 𝑦(1 + 0.614%) 2015 𝐻𝑠𝑝𝑥𝑢ℎ 𝐷𝑏𝑞𝑗𝑢𝑏𝑚 = $ 30.114 𝑛𝑗𝑚𝑚𝑗𝑝𝑜 𝑦 1 + 0.203% 𝑦(1 − 5.615%) 2015 𝑃𝑢ℎ𝑓𝑠 𝐷𝑏𝑞𝑗𝑢𝑏𝑚 = $ 116.261 𝑛𝑗𝑚𝑚𝑗𝑝𝑜 𝑦 1 + 0.203% 𝑦(1 + 0.614%) - 20 -
O&M 2015 Formula O&M $ Million $1 $250 $35 Total Net $200 O&M = Base $238 million $150 of $234 $30 2015 Forecast O&M million $199 $100 $26 $25 $50 $20 $- $15 2014 FEI Base 2014 FEVI & FEW Base Inflation Customer Growth $10 $7 $5 $1 $1 $1 $- Pension & OPEB Insurance Biomethane NGT RS 46 - 21 -
Capital Expenditures $ Million 2015 Formula Growth 2015 Formula Other Capex Capex Total Capital $140 $1 Expenditures $120 $18 = $100 $156 million $80 $60 2015 Forecast Capex $98 $40 $15 $9 $13 $20 $21 $11 $- $9 $(2) $7 $(20) 2014 FEI Base 2014 FEVI & FEW Base $4 $5 $3 $3 Inflation Customer Growth $3 $1 $(1) Pension & OPEB Biomethane NGT - 22 -
Rate Base $ Million Deferred Total Rate Base of $3,656 million Rate Design New Charges Application Accounts Cost of Capital $20 $116 for Long Term Resource Plan Regulatory $24 Matters Capex leads to Plant Additions that are included in rate base FEW 2014 Revenue Account Surplus/Deficiency Dispositions Account $3,496 & Transfers BFI Costs & Recoveries Account Opening Net Plant Changes in Net Plant EEC Incentives for AES/TES Deferral Deferred Charges Account Working Capital & Other - 23 -
Other Cost of Service Property Taxes • Based on municipal rates Depreciation and Amortization • Based on approved depreciation rates and amortization periods Income Taxes • Based on legislated tax rates Debt & Interest Rates • Short term debt rate is forecast at 1.75% • Forecast long term debt issue of $325 million, with only $75 million to be included in 2015 • Remaining portion of new debt issue will be included when work in progress is added to rate base Return on Equity and Capital Structure • Approved ROE of 8.75% and equity of 38.5% - 24 -
Flow Through Account Replaces For the term of the PBR, the Flow Through Account will be used rather than the Tax Variance, Insurance Variance, Property Tax Existing Variance & Interest Variance Accounts Accounts Captures All costs and revenues that do not have an existing deferral account Annual Variances Includes variances in customer additions and industrial recoveries Amortized Balance from previous year will be amortized through delivery rates in the year following Over 1 Year $2.8 Million Largest single contributing factor is the variance in industrial customer recoveries. The increase in demand directed in Order G- Projected 138-14 did not materialize. for 2014 - 25 -
Earnings Sharing Mechanism $ Million Capital O&M $3.3 $6.8 50% ($0.2) Million Million Million 2014 Earnings Sharing Deferral Account approved by G-138-14 Sharing Disbursement by rate rider is required because the PBR was applicable to Mainland only in 2014 12 month rate rider effective January 1, 2015 Will be a component of the bill adjustment for permanent and interim rates - 26 -
Customer Impacts Compared Sales customers annual bill to impact of approximately 1% Approved Common Rates Transport customers annual bill impact of approximately 2% Inclusive of all rate riders - 27 -
Residential Customer January 1, 2015 Variable Delivery Rates $10.000 $8.000 $6.000 Phase In Rider RSAM $4.000 ESM Delivery Rate $2.000 $- Mainland Vancouver Island Whistler $(2.000) - 28 -
Demand Forecast David Bailey – Customer Energy & Forecasting Manager
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