Allwest Reporting Ltd. #1200 - 1125 Howe Street Vancouver, B.C. V6Z 2K8
BRITISH COLUMBIA UTILITIES COMMISSION
IN THE MATTER OF THE UTILITIES COMMISSION ACT
R.S.B.C. 1996, CHAPTER 473
and
British Columbia Hydro and Power Authority -
F2020-F2021 Revenue Requirements Application
BBEFORE:
D. Morton, Panel Chair/Commission Chair
A. Fung, Q.C., Commissioner/Deputy Chair R. Mason, Commissioner B. Lockhart Commissioner VOLUME 8A
PROCEEDINGS
Vancouver, B.C. January 23rd , 2020
APPEARANCES P. MILLER, Commission Counsel M. GHIKAS, British Columbia Hydro & Power Authority T. AHMED, C. BYSTROM, C. WEAFER, Commercial Energy Consumers Association of British Columbia (CEC) P. WEAFER, M. KEEN, Association of Major Power Customers of B.C. (AMPC) E. CHAN, A. BAER, W. ANDREWS, B.C. Sustainable Energy Association (BCSEA) M. JACKSON, T. HACKNEY, L. WORTH, British Columbia Old Age Pensioners’ Organizations, Active I. MIS, Support Against Poverty, Disability Alliance B.C., Council of Senior Citizens’
Organizations of B.C., Tenants Resource and Advisory Centre and Together Against Poverty Society (BCOAPO)
D. AUSTIN, Clean Energy Association of British Columbia (CEABC) J. WEIMER, J. QUAIL, Movement of United Professionals (MoveUP) S. QUAIL, J. McLEAN, Zone II Ratepayers H. WANG, L. DONG, D. INCE, Self E. GJOSHE, Self P. WILLIS Self I. CULLIS BC Non-Profit Housing Association
INDEX OF EXHIBITS
NO. DESCRIPTION PAGE
VOLUME 5 – January 20th, 2020
C9-14 EXCERPT FROM SAP INQUIRY REPORT .............. 378
C9-15 VANCOUVER SUN ARTICLE, FRACKING POSES THREAT . 392
C9-16 "ZAPPED…BY: KEN DAVIDSON, DATE: FEBRUARY 2019" ........................................ 405 C11-15 TERMS OF REFERENCE FOR THE COMPREHENSIVE
REVIEW OF BC HYDRO - PHASE ................... 418 C11-16 IR RESPONSE FROM F2012 TO F2014 REVENUE
REQUIREMENT APPLICATION ...................... 440 C11-17 AMPC AID-TO-CROSS 9, "NEWS" DATED MAY 16, 2018 ................................. 462 C6-8 PRESS RELEASE STATEMENT DATED MARCH 1, 2018 .. 468 C10-9 EXCERPT FROM SHAREHOLDER'S LETTER OF
EXPECTAITONS… DATED JANUARY 6 AND JANUARY 10, 2010 ............................. 512 C10-10 EXCERPTS FROM BC HYDRO'S SERVICE PLAN 2011/12 TO 2013/14 ........................... 513 C10-11 LETTER REF: 98538 DATED FEBRUARY 16, 2017 ... 527 C10-12 EXCERPT FROM LETTER DATED AUGUST 24, 2017 TO KENNETH PETERSON .......................... 530
VOLUME 5 – January 20th, 2020 B-32 BC HYDRO UNDERTAKING NO. 1 ................... 579 B-33 BC HYDRO UNDERTAKING NO. 2 ................... 580
INDEX OF EXHIBITS
NO. DESCRIPTION PAGE C10-13 EXTRACT OF BC HYDRO EXECUTIVE SUMMARY, DAM
SAFETY Q1 REPORT - F2014 ..................... 583 C10-14 "CEABC RESPONSE TO ZAPPED REPORT…March 21,
2019" ........................................ 600 C10-15 EXCERPT FROM CALIFORNIA PUBLIC UTILITIES 2018
ANNUAL REPORT ON THE RENEWABLE PORTFOLIO STANDARD TO THE CALIFORNIA LEGISLATURE ....... 601
C10-16 EXTRACTS FROM ZAPPED REPORT .................. 613 C11-18 AMPC AID TO CROSS 11 ......................... 803
VOLUME 7 – January 22nd, 2020 C11-19 EXCERPT FROM "MAKING LIFE BETTER, FIRST
QUARTERLY REPORT SEPTEMBER 2019" ............. 902 C11-20 AMPC WITNESS AID TO CROSS 2 .................. 923 B-34 Reserved ..................................... 927
VOLUME 8A – January 23rd, 2020 B-35 BC HYDRO UNDERTAKING NO. 8 .................. 1081
B-36 BC HYDRO UNDERTAKING NO. 9 .................. 1082 A2-5 PAGE 34 OF 118 FROM ORDER G-47-18 ........... 1143 A2-6 EXCERPT FROM BC HYDRO APPLICATION FOR APPROVAL OF DEBT MANAGEMENT REGULATORY ACCOUNT, PAGES 3, 6, 7 AND 10 ............... 1194 B-37 BC HYDRO UNDER TAKING NO. 10 ................ 1204 B-38 BC HYDRO UNDER TAKING NO. 7 ................. 1204 B-39 BC HYDRO UNDER TAKING NO. 5 ................. 1204
INDEX OF EXHIBITS
NO. DESCRIPTION PAGE A2-7 EXCERPTS FROM BCUC'S F2009/2010 RRA DECISION DATED MARCH 13, 2009 ............... 1208
INFORMATION REQUESTS
JANUARY 20, 2020 - VOLUME 5 No Information Requests
JANUARY 21, 2020 - VOLUME 6 For Mr. Austin: Page 586 For Mr. Ince: Page 652 For Mr. C. Weafer: Page 775
JANUARY 221, 2020 - VOLUME 7 For Commission Panel: Page 910, 1074 For Mr. Ghikas: Page 926 For Ms. Worth: Page 996 For Mr. Quail: Page 1019, 1021, 1033 For Mr. Austin: Page 1057
JANUARY 23, 2020 - VOLUME 8A For Ms. Gjoshe: Page 1102 For Commission Panel: Page 1129, 1214-1215 For Mr. Miller: Page 1173, 1198, 1207
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VANCOUVER, B.C.
January 23rd, 2020
(PROCEEDINGS RESUMED AT 8:31 A.M.)
THE CHAIRPERSON: Thank you, please be seated.
BC HYDRO PANEL 2 - OPERATING COSTS:
JANET FRASER, Resumed:
CAROLYNN RYAN, Resumed:
DAVID WONG, Resumed:
RYAN LAYTON, Resumed:
KIP MORISON, Resumed:
THE CHAIRPERSON: Good morning everyone, I hope you had
a good evening, as short as it may have been, and
managed to stay dry.
Mr. Ahmed, I understand that you have some
undertakings for us?
MR. AHMED: Yes please, thank you, Mr. Chair. If it's
all right, we're trying to knock these off as quick as
we can. A couple are written. The first one is
marked as BC Hydro Undertaking No. 8, and it was a
question that appears in the transcript at page 1057
from my friend Mr. Austin, asking about the number of
key account managers who work with oil and gas
customers. And I believe that undertaking has been
provided in writing. And the exhibit number should B-
35.
(BC HYDRO UNDERTAKING NO. 8 MARKED EXHIBIT B-35)
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THE CHAIRPERSON: Thank you.
MR. AHMED: The second written undertaking that we have
this morning is marked BC Hydro Undertaking No. 9, and
that request was made on the transcript on page 1049
and it was again a question from my friend Mr. Austin
in relation to demand side management, and how many
people are doing demand side management work on behalf
of BC Hydro that would be considered to be the sales
force. And I believe the exhibit number for that
should be Exhibit B-36.
(BC HYDRO UNDERTAKING NO. 9 MARKED EXHIBIT B-36)
THE CHAIRPERSON: Thank you.
MR. AHMED: Thank you, Mr. Chair. There are a few
other ones that we're hoping to just take care of
verbally this morning. The first one, the transcript
reference for that was on page 910 of the transcript,
and Chairman Morton was asking about the calculation
of Powerex's net income and the methodology that was
used by BC Hydro in the last RRA, as well as whether
that five year average was updated in the evidentiary
update in that proceeding.
Mr. Wong, did you have an opportunity to
look into that?
MR. WONG: A Yes, we looked into that, and in the
previous application which was in Fiscal '17 to '19,
BC Hydro actually did not file an evidentiary update,
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so there wasn’t one.
The application in itself, the full
application for '17 to '19 was filed in July 2016, and
just to note there, BC Hydro did calculate Powerex's
net income using the five year average for trade
income using actual results for Fiscal '12 to Fiscal
'16. The consistent approach that we applied to this
application as well. So, consistent in the principles
there.
THE CHAIRPERSON: Thank you.
MR. AHMED: Thank you. The next question that was left
was by my friend Ms. Mis at page 1008 of the
transcript. And there she was asking what are the
most recent quarterly results for fiscal 2020 for
trade income and how does that compare with the same
period for Fiscal 2018 and Fiscal 2019.
Did you have an opportunity to looking into
that?
Proceeding Time 8:33 a.m. T2
MR. WONG: A Yes. So for trade income for Fiscal 2020
I'd mentioned it was 65 million. The exact number is
61 million for the six months ended September 30th,
2019. For Fiscal '19, the same six month period, was
208 million and Fiscal '18 was 118 million.
MR. AHMED: Thank you. The final item I have, the
transcript reference for that is page 1036, and there
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my friend, Mr. Austin, was asking about whether there
were debt instruments longer than 30 years. And, Mr.
Wong, your response was, "Yeah, I don't believe 30
years is our max. I could double check that, but I'm
pretty sure it's 30 years." Did you have an
opportunity to look into that last night?
MR. WONG: A Yeah, we have only two issuances that are
greater than 30 years, and those are identified in --
we have a list of all our debt issuances in AMPC IR
2.26.1 which lists out all the maturities, but just
two.
THE CHAIRPERSON: Just a follow up question, Mr. Wong.
Thank you for that.
MR. WONG: A Yeah.
THE CHAIRPERSON: Did you only check debt that's
currently outstanding?
MR. WONG: A That's correct, yes.
THE CHAIRPERSON: So it's possible that --
MR. WONG: A It's possible that in the past there could
have been issues.
THE CHAIRPERSON: It could have been -- and be retired
already. But -- yeah, okay, thank you.
MR. WONG: A We didn't look into that.
THE CHAIRPERSON: Yeah, understood.
MR. AHMED: I'm sorry, I did speak too soon. I did
have one more item that I did want to address and that
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was Ms. Worth was asking Mr. Layton -- and there was a
fairly lengthy exchange. It begins at page 996 of the
transcript and it was asking about an update for
capacity hours gained from the WorkSmart program. And
perhaps if it jogs everyone's memory, Mr. Layton did
some rough math and there was consideration whether
that tentative undertaking needed to be addressed.
And I think that conversation concluded at page 1001
of the transcript where Ms. Worth said, "Provided it's
not materially different, we're satisfied with that in
conjunction with the provisional undertaking that
we've asked for."
Mr. Layton, did you have a chance to have
your team looking into that further?
MR. LAYTON: A I did indeed, and what I can report is
that we're confident that when we actually tabulate
the final number it's not going to be materially
different than the estimation I gave yesterday, and so
we consider that matter closed.
THE CHAIRPERSON: Thank you.
MR. AHMED: Thank you, Mr. Chair.
THE CHAIRPERSON: Thank you, MR. Ahmed. Mr. Ince?
MR. INCE: Good morning, Mr. Chair, panel members.
THE CHAIRPERSON: Good morning.
CROSS-EXAMINATION BY MR. INCE:
MR. INCE: Q. BC Hydro. An exchange just occurred with
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regards to Powerex net income for Fiscal '20 and, Mr.
Wong, I believe you said that Powerex net income for
the first six months is approximately $60 million?
MR. WONG: A That's correct.
MR. INCE: Q And would that imply that -- well, net
income for this Fiscal '20 will we lower than what
occurred in Fiscal '19? I believe the number was $430
million.
MR. WONG: A Based on the result to date that would
imply that, but, you know, subject to -- trading
income goes up and down, but yes.
MR. INCE: Q It's been mentioned several times in this
proceeding that $430 million is a very good outcome
historically. Is that the case?
MR. WONG: A That is.
MR. INCE: Q Not wanting to see Mr. Ghikas rise with
regards to the history of net incomes.
Proceeding Time 8:37 a.m. T3
MR. WONG: A I think if you took a look at the history
of actual net income of Powerex, and there's IRs
associated with that, you'd see that Fiscal '19 was an
exceptional year for Powerex.
MR. INCE: Q Okay, thank you. I do remember the
2000/2001 so-called California Energy Crisis being at
BC Hydro and earning, I believe, 1.5 billion net.
Although I think there was a significant portion of
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that having to be given back, but I accept that $430
million is possibly one of the best years ever?
MR. WONG: A Let me just -- if you take a look at the
last 13 years, definitely Fiscal '19 was the best year
ever.
MR. INCE: Q Okay, thank you. So, Mr. Wong, do you
remember on Tuesday we were talking about the risk
framework of BC Hydro, so we had a discussion, Mr.
O'Riley, yourself and myself, regarding the risk
priorities of BC Hydro. So risk identification and
risk prioritization, hopefully how that flowed into
capital, sort of the money is tight, scarce capital,
how capital is allocated within BC Hydro based on
those risk allocations. Do you remember that?
MR. WONG: A Yes, I do.
MR. INCE: Q And now I'm going to -- first, can I ask,
is this specific regulator process an exercise in
compromise in terms of trying to weigh the interest of
the ratepayer, BC Hydro and the shareholder?
MR. WONG: A I don't see this hearing, the revenue
requirement, as an exercise in compromise. I see that
what this is is a -- BC Hydro has to put its budgets
together every year and there's lots of stakeholders
that we have, our shareholder, ratepayers, regulator,
and every budget we put together we have -- takes
months. There are definitely things that we need to
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do and tradeoffs that need to happen, and what the
management team does throughout the company is to put
together what we believe is the best budget to put
forward, taking into account all those tradeoffs that
need to occur.
And so I think the purpose of this process
is to validate that, for us to explain why the
tradeoffs that we did to come to what we had here, why
we need the funding that we need to do and to provide
the evidence around the thoughtfulness that we went
through in order to come up to the budgets that we
have, in order to therefore determine the rates to
ratepayers.
MR. INCE: Q So you're saying there's a tradeoff
process within BC Hydro to balance those different
objectives, including the lowering of rates, but
there's also a tradeoff exercise in terms of this
process in terms of the interaction between the
ratepayer advocates, the Commission and BC Hydro?
MR. WONG: A Yeah, it's a good opportunity for everyone
to ask us questions and hear what those tradeoffs are,
and how we think about in developing our budgets.
Proceeding Time 8:40 a.m. T04
MR. INCE: Q And perhaps mitigate costs as a result of
identification of potential tradeoffs? Further
tradeoffs?
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MR. WONG: A Well, no, we will leave that for the panel
to decide. I mean the opportunity here is for us to
have this dialogue, and to get the information out on
the table, clarifications, on top of all the
information that has been filed to date, to give that
insight. So that's really why we're here.
I believe that we have a strong budget in
place. That we've done a lot of thinking and hard
work to rationalize where we got, and make some
difficult tradeoffs to get here. So, I'm not saying
that I think there are opportunities for additional
mitigations.
MR. INCE: Q That was the point I was trying to get to,
is that I have been involved in four utilities and
three different regulatory jurisdictions, and I've
never been involved in a rate case in which the
applicant went in expecting to get all of it that they
asked for. Is BC Hydro expecting, in terms of the
rates it's asking for, to get that rate? Is it
essential to get that rate?
MR. WONG: A I would say yes. We put an application,
we didn’t -- in your case I'm going to paraphrase, but
pad the application in expectation there will be cuts.
We were very diligent about putting the numbers
together, really rationalizing. I mean Mr. Layton
talked about our budgeting process and how we did the
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top-down, keeping the application operating costs
increase below inflation, not funding everything
everyone wanted, because we wanted to come up with
what is we believe our best budget. And we want to be
here to defend our best budget, and I think any
reduction will be very difficult to manage.
MR. INCE: Q That was the point I was trying to get to.
So on Tuesday we talked about how BC Hydro spent money
based on prioritization and trying to get to a
justification in terms of those costs, but I'm going
to turn the coin around in terms of what happens if BC
Hydro does not get what it wants in terms of the
compromises and tradeoffs that it has to make? I've
never been involved in a regulatory proceeding which
the applicant got everything it wanted. There was
invariably reductions, in some sense.
So can I ask the panel members, and every
panel member, in terms of what will be the difficult
tradeoffs that you have to make, and the reduction in
service, safety, reputation of the metrics that we
talked about on Tuesday? So what will be those
reductions? What will be to the detriment of BC Hydro
as customers and perhaps the shareholder?
MR. WONG: A Maybe I will just start by saying that in
development of this, I think any reductions will be a
challenge and could impact the service metrics that we
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put because we've developed a budget to be able to
meet the services that require both for ratepayers and
for our shareholder.
Proceeding Time 8:43 p.m. T05
The actual determination of where we would
make changes, it's hard to conjecture right now
because, you know, we're going through a whole bunch
of discussions from many areas and we need to wait for
the Commission to opine on each particular area. And
so unless it was just a general cut, we needed to
actually take a look at where these determinations
would be.
I just want to caution the fact that, you
know, we had discussions yesterday about finance
charges as an example, where the current forecast of
finance charges are lower than what we had in the
application. But we shouldn't be looking at things
in isolation, we should be looking at it as a whole
because as an example there are areas where our load
forecast is higher than actuals, so there's offsets
against that.
And so we need to make sure that -- I would
recommend if you're going to make changes we make sure
that we get the whole picture looked at because what
we don't want to be doing is having rate reductions
for ratepayers in the test period but knowing that
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there's going to be higher costs coming in the future
that's going to bump up rates significantly forward.
And I'll maybe leave it to the other panel
members, they may some comments.
MR. INCE: Q I've got another follow-up question on it.
Mr. Wong, have you prepared internally within BC Hydro
a contingency plan in the event that you have to make
a cut, let's say half a percent across the board?
MR. WONG: A No, we have not.
MR. INCE: Q Okay. Have you identified a
prioritization in terms of not necessarily the costs,
but the areas that you would look at first in terms of
making cost reductions?
MR. WONG: A We haven't done that.
MR. INCE: Q Thank you.
MS. FRASER: A I'd just like to add, from a regulatory
perspective, we prepared this application with the
budget that we feel is necessary to run our business
and that's the approach we take in every revenue
requirements application, is to put forward a budget
that we feel is appropriate, that we feel that we can
provide evidence and show that it's the appropriate
budget, and that's the approach we take.
MR. LAYTON: A And maybe just speaking for the overall
budgeting perspective, I think we've talked a little
bit this week about how we're about nine and a half
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months into the year, and I think you've heard
evidence from a number of members that the budget this
year is very, very tight. There's no doubt that in
previous applications, we did -- and we've talked
about this, we had some unallocated funds that grew
over time. For example, when we repatriated
Accenture, that helped create an unallocated funds
amount in the previous fiscal years and that helped be
able to absorb increases in cost pressures that were
happening across our business.
As you know, in this application there's no
unallocated funds budget and therefore those two fact,
the fact that we are very, very tight in our budget
nine and a half months into the year, and that we have
no unallocated funds to deal with cost pressures,
again I think speaks to what Mr. Wong said, which we
would be that reductions in any case would be
impactful.
I also think, though, as Mr. Wong said,
what we would have to do in the case that they were
nonetheless ordered, is we have to read the decisions
and the feedback from the Commission in order to be
able to decide what reductions we might make.
MR. INCE: Q We talked on Tuesday about the overall
revenue requirement of BC Hydro being $5.3 billion of
which $780 million was OMA. And the discussion at
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that time was that it was very difficult to make
reductions within that narrow, or relatively narrow
sliver of costs. I thought I heard the testimony that
things like water rentals, the $712 million return to
the government -- sorry. How would you phrase the
$712 million, Mr. Wong?
MR. WONG: A The net income.
MR. INCE: Q Net income. So looking around that pie,
there weren't a lot of opportunities to make
reductions. Would you agree with that?
MR. WONG: A I'd say it's very challenging and that's
coming back to my original statement, is that we put
in a budget that truly reflects what BC Hydro needs to
spend in order to deliver the service to ratepayers.
MR. INCE: Q I didn't imply, as you said, that the
forecast was padded. But nonetheless, if there are
reductions that are required out of this process, can
you provide me with examples of how that would
deteriorate the behaviour -- or the service quality,
the reliability, the safety of BC Hydro?
Proceeding Time 8:47 a.m. T6
MR. WONG: A And I don't know if we -- what will
happen and where the changes will be made. I mean,
what we would have to do is get together, Chris would
have to bring us all together as an executive team,
determine where we rationalize our costs, what it will
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take to be able to do that and what further tradeoffs
we need to make in the organization. I think it would
be premature for us to say that, you know, this is
what the impact will be.
Suffice it to say is that, you know with
our operating costs, I think I mentioned earlier, we
are already forecasting to be over the budget that we
have within the application for this fiscal year and
we're doing everything we can to rationalize to make
sure we can meet that.
MR. INCE: Q Okay, thank you. Changing directions, Mr.
Layton, financial forecasting and modeling, what's the
turnaround time if BC Hydro has to make a financial
forecast? So a quick internal financial forecast such
as an exchange in long-term interest rates?
MR. LAYTON: A So, in our world "quick internal
financial forecasts" may be an oxymoron. They
typically are not quick and Mr. Ince will know, from
having worked with him in BC Hydro, he used to work in
load forecasts and that's one of many many many many
inputs from across our company that go into the
forecasts that will underlie an RRA or they will
underlie an evidentiary update. It takes months to
prepare that forecast from all the inputs that we take
and then we have to run them through our model, which
is our general model. We have to run finance charts
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models and then we have to through a process to review
all of that, obtain approvals and so on. So it's many
many months.
There are, though, Mr. Ince, as you'll
know, there are always back of the napkin type
calculations one can make. Some components are easier
than others to do that with. I'll use an example, an
easy example is were the return on equity to change
from $712 million to something else, we can model that
pretty quickly. That's just one number, it's not
driven off other this, it doesn't onward impact other
things generally.
Something like finance charges, something
like load, those things are much more difficult to
model and take much longer to model than some simple
things. So sometimes we can make simple
approximations, but to do the full process takes many
months.
MR. INCE: Q Thank you. So I'm going to be asking
questions regarding the load forecast I believe
shortly, and regarding BC Hydro's load forecasts you
mentioned that as a key input into your revenue
forecasting process?
MR. LAYTON: A Yes.
MR. INCE: Q And I assume that's one of the more
challenging ones in terms of all the dials and levers
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behind the load forecasts and the lead time required
to get those forecasts?
MR. LAYTON: A Yes, absolutely.
MR. INCE: Q So load forecasts typically are housed
within corporations within either the resource
planning group or the finance group, often the
treasury group. Is it possible that the load forecast
group, I mean just technically, could be housed within
the finance group of BC Hydro?
MR. LAYTON: A It's possible, sure. I think where
we've got it now within integrated planning, I think
it is a planning function and it resides therefore
with other planning functions and I think it, to me,
makes more sense there than it would in finance. It's
more in tune with the operations and what's happening
across our system. Financial forecasting, as the name
suggest, is mostly taking a bunch of inputs and then
putting the financial piece on it. This is more of, I
think, more tied to the overall operation of our
system and therefore arising -- sorry, therefore
residing within our integrated planning group makes
sense to me.
MR. WONG: A I also think that Chris was very
thoughtful when he developed -- he talked a lot about
the land, build, operate, support, all of that he's
implemented at BC Hydro and putting revenue
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forecasting into the planning group, which is very
much a planning function which supports the planning,
incorporating that together was something that I think
he was very deliberate about.
I think Ms. Daschuk can talk a lot more
about having the full group together, as well, in her
panel.
MR. INCE: Q Thank you. There has been criticism, the
load forecasts within corporations, they are run by
engineers for engineers and that is the load forecast
supports the building activity aspirations of the
people who are actually doing the load forecast. And
moving the load forecast out of resource planning
group could potentially alleviate some of those
concerns? Or should I ask that question at a later
panel?
Proceeding Time 8:52 a.m. T07
MR. WONG: A I think you should defer it to the next
panel.
MR. INCE: Q Would having a load forecast group within
the finance group speed turnaround time in terms of
direct interaction?
MR. LAYTON: A I don’t think so. I think we work very
collaborative and productively with that team, so I
don’t think having them reporting to us would change
very much.
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MR. WONG: A I should also, I mean, just reflecting
back on Chris' comments about how moving away from
lines of businesses to creating the one BC Hydro model
that we have now, really supports the further
collaboration or the collaboration across the company.
And just a personal reflection of how we work on the
executive team. We meet weekly, we bring all the
issues on the table, we are having the dialogue and
the tradeoffs. And so the point of this model is to
prevent the siloing and to encourage us to have those
conversations so we can tackle the issues across the
company. And so the load forecast people know it's a
key input to the forecast. They know they need to get
it in time, and we get a better appreciation for what
the challenges are. And so I think it's a very
cohesive model that we have now.
MR. INCE: Q The finance group, though, typically on a
short term has to make adjustments to the load
forecasts when it gets better information in respect
to, let's say an industrial customer going down or
ramping up unexpectedly or a weather event. So, Mr.
Layton, if you had insights as far as an El Nino or La
Nina, that the load forecast takes perhaps months or
weeks to retool, you would make those changes for the
near term, is that correct?
MR. LAYTON: A No, the load forecast team will
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sometimes make adjustments throughout the year when
they see things like that happen, and I think of the
Howe Sound Pulp and Paper a couple years ago, when
that suddenly went down. It's the load forecast team
that obtains that information and considers what the
impacts are, and then they collaborate with us.
Again, as Mr. Wong said, I think it's fairly cohesive.
I think we are able to pivot on those kinds of things
so that we're aware of the kinds of changes we might
be seeing.
But as you'll know, Mr. Ince, the running
of a full load forecast is quite an exercise, whether
it is in finance or somewhere else. And I think while
changes do happen from time to time, a full load
forecast is a very full-on exercise that takes many
months.
MR. INCE: Q So your testimony is that the load
forecast is well integrated within the corporation and
serves the finance function well?
MR. LAYTON: A Yes, absolutely.
MR. INCE: Q Those are my questions. Thank you for
your responsive answers.
THE CHAIRPERSON: Thank you, Mr. Ince.
Ms. Gjoshe?
MS. GJOSHE: Q Good morning Mr. Chair, panel members.
THE CHAIRPERSON: Good morning.
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CROSS-EXAMINATION BY MS. GJOSHE:
MS. GJOSHE: Q Good morning BC Hydro panel.
I will start with taking us to Exhibit B-
28. It's BC Hydro's rebuttal evidence to AMPC.
Appendix A refers to BC Hydro's electricity rate
comparison annual report number 12, which is provided
as Attachment B. In there, there is a reference that
is made that says,
"The report adheres to the Province of B.C.'s
rate comparison regulation…"
And then it's called Ministerial order number N167.
MS. FRASER: A Correct.
MS. GJOSHE: Q Yes. So, I believe this line of
questioning initially is for Mr. Wong, but please feel
free to answer if anyone feels that the question
should be answered by them.
So the report consists of information taken
from the BC Hydro Quebec rate survey report titled,
"Comparison of electricity prices in major North
American cities."
MS. FRASER: A Correct.
MS. GJOSHE: Q In all of the tables, but if you wanted
a particular table as a reference, there is a note to
the tables. You may want to go to table 9 for
example, and it says that,
"Bill calculations exclude taxes and levies, and
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include deferral account rate rider."
MS. FRASER: A Correct.
Proceeding Time 8:56 a.m. T08
MS. GJOSHE: Q I was wondering if you could shed some
light, Mr. Wong, as to whether the thought behind
excluding the taxes in the calculation is a
requirement of that particular Ministerial order or
how that Ministerial order is interpreted?
MS. FRASER: A My understanding is that it's not a
requirement of the Ministerial order, it is the way
that we do the calculations on it.
MS. GJOSHE: Q Yes. And would that -- thanks, Janet,
for that answer. And would that -- or Ms. Fraser. Is
that how BC Hydro interprets it or is it perhaps a
component of how Hydro Quebec itself conducts the
study?
INFORMATION REQUEST
MS. FRASER: A I believe it's a component of how Hydro
Quebec conducts the study, but I can check that for
you.
MS. GJOSHE: Q Mm-hmm. Okay, thank you, that would be
great.
For a moment here I'm going to put on an
economist's hat. It's not a commentary on the
Ministerial order or the interpretation of it. But
say you have an economist sitting somewhere in the
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Ministry of Finance and they look at the
attractiveness of certain jurisdictions in terms of
their ability to attract new business, and I would
presume that a lot of the customers, perhaps those
clients or say large industrial customers or even
commercial customers that make their decisions about,
say, locating to B.C. versus other jurisdictions, is
it fair to say that they would experience their
experience of rates including taxes?
MS. FRASER: A So I'm understanding your question to be
if customers were thinking about locating in the
province they would consider taxes in their decisions?
MS. GJOSHE: Q Yes.
MS. FRASER: A Yes.
MS. GJOSHE: Q So is that a consideration in their
decision making, to either locating or relocating to
B.C. versus other North American jurisdictions?
MS. FRASER: A I can't comment specifically on what
someone else would consider, but I'm assuming that,
you know, customers when they consider locating in the
province look at a number of different factors,
including electricity rates, including all sorts of
taxes and incentives available, and they would do a
fulsome economic analysis of their own when they are
making decisions.
MS. GJOSHE: Q Okay. As a residential customer I
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receive a bill from BC Hydro bimonthly and there is a
GST component to the bill and there is a provincial
tax component to the bill. I presume that's the case
for commercial and industrial customers as well?
MS. FRASER: A Yes.
MS. GJOSHE: Q So it's fair to say that the taxes
collected by the ratepayer -- by BC Hydro on behalf of
the ratepayer --
MR. LAYTON: A Sorry, Ms. Gjoshe, just one
clarification if I may? The government has removed
PST from electricity bills. So the GST will appear
but not the PST.
THE CHAIRPERSON: For clarity, from all customers'
bills, correct?
MR. LAYTON: A Yes.
THE CHAIRPERSON: All classes.
MS. GJOSHE: Q And that's the same across all customer
classes.
MR. LAYTON: A I'm quite sure of that, yes.
MS. GJOSHE: Q Thank you for that clarification. I was
unaware of that. But that's specific to the
electricity bills, right? To the industry as opposed
to other industrial activities in the province?
MR. LAYTON: A Yes.
MS. GJOSHE: Q Yes. So thank you for that, Mr. Layton,
yes.
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That aside, it's fair to presume that how
the experience is felt from the customers and how they
deem a jurisdiction to fair in terms of their ability
to locate or relocate to B.C. would include the tax
component.
MS. FRASER: A Yes. As I said before, customers would
look at a number of different factors including taxes
in the jurisdiction that they're looking at.
MS. GJOSHE: Q Thank you for that. So I'll take us now
to two different offshoots, if I may to this question.
One concerns the load forecasting efforts, but in
relation to this benchmarking study, and the other one
concerns the performance metrics in relation to this
benchmarking study.
Proceeding Time 9:01 a.m. T9
So, I'll start with the load forecasting
component first. So, as that is a consideration in
B.C. deciding to look -- in B.C. companies or
potential companies deciding to locate or relocate to
B.C., as I mean as tax plus rates, I presume that that
would be a factor in how the load forecast
expectations are built, particularly with regard to
new account formation.
MS. FRASER: A So I think that that would probably be
best asked of the load forecast that's up in the next
panel and I think they'll be able to provide you
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information on how they factor in new opportunities.
MS. GJOSHE: Q Absolutely, and I'm willing to park it
there. Just in so far as to say that is there a
general agreement that it will inform new account
formation estimations?
MS. FRASER: A Well, the load forecast team works with
the key account managers in customer service to
understand different opportunities and then how they
factor that in is probably best asked of that group.
MS. GJOSHE: Q I will, I will do so. But just a final
comment on that note, if I may, while we're here with
this panel. So the competitive ranking of BC Hydro as
compared to other North American jurisdictions, if
there is any potential of a confidence in that as a
result of the tax picture being excluded from that
ranking that would impact our assessment of new
account formation, no?
MS. FRASER: A I don't believe so.
MS. GJOSHE: Q Okay, so I'll park it there. Now, I'll
take us to the implications of that question for the
performance part of the -- the role that the
benchmarking study plays in the performance review and
the performance measures. Exhibit B-1, pdf page 70,
but actual page number is page 1-9, line 12. And this
line of questioning relates to that note that I quoted
earlier that accompanies the tables that says, "Bill
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calculations exclude taxes and levies but include
deferral account rate riders." And so this is with
regard to that component of the notes that says, bill
calculations include deferral account rate riders.
MS. FRASER: A While they're getting prepared to answer
the question on the deferral rate rider, I'm just
reading our annual report to the Minster, and it's the
Hydro Quebec report that excludes taxes and non-
utility levies, and so therefore that's why it's
excluded in our report to the Minister.
MS. GJOSHE: Q I appreciate that, thank you, yes.
So, to follow with Exhibit B-1, page 1-9,
line 12, I will quote, I will read from that.
"The following provides a summary of the actions
that the Government of B.C. and BC Hydro are
taking to keep rates affordable. Further on
line 15 it describes the first measure as
writing off 1.1 billion deferral account
balance. The write-off of the rate smoothing
regulator account contributes to a reduction in
BC Hydro's forecast overall regulatory account
balance at the end of Fiscal 2019 by 24 percent,
from 4.7 billion to 3.6 billion. Lowering the
overall regulator account balance means lowering
the amount that would otherwise be recovered
from ratepayers, reducing pressure on rates."
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Is it fair to say that this is largely a
government action?
MR. LAYTON: A It is fair, that came out of the
comprehensive review phase 1. Obviously we
contributed as part of that review, but that was
ultimately a government decision and the impact of
that decision was therefore felt by the shareholder as
government and in essence that write-off, what it
meant was, that's $1.1 billion that we will not
recover from our customers in the future. Instead,
that's borne by the shareholder, first in form of
lower net income last year. We actually had a net
loss last year as a result of that write-off and what
that means is that that contributes to government's
overall budget, surplus or deficit, as opposed to
being recovered from ratepayers in the future.
Proceeding Time 9:06 a.m. T10
MS. GJOSHE: Q Thank you for that, Mr. Layton.
Notwithstanding the merits of it, is it fair to say
that it contributes to BC Hydro achieving top quartile
rankings in the benchmarking efforts study?
MR. LAYTON: A Yes, I think that and many other factors
that contribute to overall budgets and rates, but
absolutely it's fair to say that having lower rates
that was enabled in part by this write-off absolutely
contributes to our place in the survey, yes.
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MS. GJOSHE: Q Thank you for that. So just a question,
you may choose to answer it or not, has BC Hydro done
a sensitivity analysis as to what that ranking,
comparative ranking would be if the 1.1 billion that
was written off were to be added to the rate impact
calculation, say, in year 1 of the test period?
MR. LAYTON: A We have not.
MS. GJOSHE: Q Would BC Hydro be willing to do that?
MR. LAYTON: A I think that's quite a lot of work
because you have to -- if the question is just to add
$1.1 billion to the revenue requirement using some
framework over the next five years, I think we can do
something like that. But to -- if the suggestion is
go back and sort of create a revenue requirement as if
the write-off hadn't happened, that's a very high
amount of work to do.
MS. GJOSHE: Q Absolutely. And I completely agree with
that. The only reason why I'm raising that question
as to, say, a sensitivity analysis, is because it does
inform your performance metrics. If I'm not mistaken,
during the Panel 2 questioning yesterday Mr. Wong
alluded to that being part of the service plan, the
performance metric, and a relative ranking of BC Hydro
as compared to other jurisdictions.
And so you have a relative ranking that's
derived in large part from a combination of both BC
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Hydro and government action and I'm wondering as to
whether if you can add that into the calculation, the
government component contribution to it, then perhaps
you'd have a more fair representation of BC Hydro
performance as it concerns that benchmarking study.
MR. LAYTON: A Well, I think one can always engage in
hypotheticals, but the write-off is one component of a
revenue requirement. The other entities in there,
jurisdictions have all sorts of things going on,
whether driven by governments, whether driven by
themselves, I think all we can do is look at the
actual bills that customers are actually experiencing
and that's what that study seeks to do. And so I
think for us there relevant hypothetical is the actual
bills that customers are facing.
I think trying to do other hypotheticals is
probably a lot of work and I'm not frankly sure for
how much utility.
MS. GJOSHE: Q And I'm not a partisan of that, but to
the degree that, say, if as a result of the inclusion
of that 1.1 billion write-off you -- let's say
hypothetically BC Hydro would no longer be in the top
quartile, would that impact your performance review
and, therefore, your -- and there was lots of
discussion yesterday about holdback, and bonuses, and
this and that, would that impact the performance
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review and how BC Hydro views its own efforts?
MS. FRASER: A I think some information just before
perhaps Mr. Wong answers that question, is that in
prior years we have been the first quartile and those
prior years included the rate smoothing without the
write-offs. So we have been consistently over a
number of years been in the first quartile with or
without the rate smoothing write-off.
MS. GJOSHE: Q Thank you for that. I will leave it at
that, I just wanted to --
THE CHAIRPERSON: May I? Ms. Fraser, the rate
smoothing, historically the way that's been working is
that that's been keeping rates lower, whereas I think
in this scenario I think what Ms. Gjoshe's talking
about is the review being a scenario where you would
be amortizing the rate smoothing account, am I correct
there?
MS. FRASER: A Right.
THE CHAIRPERSON: That may not be a correct assumption,
but --
MR. LAYTON: A I think that's fair, yes.
THE CHAIRPERSON: Yeah. So the result might well be
different in a scenario where you're amortizing it in
a scenario where you're, you know, building it up and
keeping rates down.
MS. FRASER: A Right.
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THE CHAIRPERSON: I just want to point that out.
MR. LAYTON: A If the rate smoothing regulatory account
had not been written off, then we would be recovering
it between now and Fiscal '24 and that would result in
higher rates then otherwise would be the case.
THE CHAIRPERSON: Exactly. Exactly, yeah.
MR. LAYTON: A And in those future years it would
result -- all else equal and higher bills than would
otherwise be the case, that I think would be reflected
in our ranking in future studies as that amount is
recovered in rates.
THE CHAIRPERSON: Right. So the calculation that's
being asked for would be to take the amortized amount
over four years and simply add that to the rates.
That doesn't -- I mean whether you do it or not,
that's up to you and Ms. Gjoshe, but it just doesn't
sound that complicated to me.
MR. LAYTON: A Yeah. And if it's -- as I mentioned, if
it's simply taking that and making a base assumption
on when we would recover it, we can do that. I think
if the request is just to add that to the forecast we
have in the evidentiary update and show what would
rates be, I think that is indeed relatively straight
forward. Yes.
THE CHAIRPERSON: I'll just leave it at that.
MR. LAYTON: A Sure, thank you.
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COMMISSIONER FUNG: If I can just follow up on one
aspect of what you just said. Ms. Gjoshe referred to
the connection between your rankings and the eservice
plan targets. So what I want to understand is is your
ranking relevant to whether or not an individual
executive or director meets a service plan targets, in
the sense that it affects their compensation or
holdback?
Proceeding Time 9:12 a.m. T11
MS. FRASER: A It does.
MR. WONG: A The service plan has several metrics, one
being the ranking on the Hydro Quebec study. So the
result of that will have an impact on the variable
component payout for sure, that they didn’t find the
percentages. So yes.
COMMISSIONER FUNG: So that is part of your corporate
scorecard?
MR. WONG: A That is part of the corporate scorecard,
yes.
COMMISSIONER FUNG: Thank you.
MR. WONG: A I think I just want to reflect, Ms.
Gjoshe, on your request. Is that -- I mean, as part
of the comprehensive review, phase 1, and the whole
affordability, the province was deliberate of the
writing off of the $1.1 billion in rate smoothing.
Not to impact ratepayers, and --
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MS. GJOSHE: Q I wasn’t disputing the merits of the
decision. I did say notwithstanding the merits of the
decision.
MR. WONG: A I understood, but the point being is that
through that process, that is resulting in -- and this
is a future impact, as Mr. Layton says, not the past
impact related to this Hydro Quebec study. But that
is the reason why -- and part of the reasons why we
are having keeping rates low. And that benefit to the
ratepayers.
And so I'm just pointing out that I'm not
sure there is a lot of value in recalculating these
out, and just -- we are calculating them based on what
ratepayers need to pay.
MS. GJOSHE: Q I believe the discussion between Mr.
Layton and the panel chair perhaps led me to believe
that Mr. Layton you may deliver that calculation or --
MR. LAYTON: A Well as I said, we certainly can do
that. I think Mr. Wong is just pointing out there may
not be a lot of utility in so doing, but I think we
can do that, yes.
MS. GJOSHE: Q As I said -- and we can leave it at
that. The only reason I was interested in it is
because the benchmarking study forms part of your
corporate scorecard, which in turn informs your
performance reviews, which in turn reforms your
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performance payouts. So I am happy to leave it at
that, as long as you understand where I am trying to
go with that question.
MR. LAYTON: A I do, thank you.
MS. GJOSHE: Q Thank you. One more, since we are on
this benchmarking topic, just one more question. In
the first particularly two days of hearing, there was
some discussion about how difficult it is to
benchmark. Particularly in this industry, largely
related to the different sizes of various utilities,
different ages of assets, different footprints,
geographical footprints. Different perhaps
operations. So it's very difficult to benchmark.
I just have a general question with regard
to -- there was an IR that I asked in round 1 and just
summarized the sustaining capital expenditures over
the last 20 years, and I was just thinking about that
and said, well maybe could you for some of these
comparisons that have to do with benchmarking, could
you use sustainment capital and operational
expenditures a proxy for comparison between the
utilities? And this is a general question, Mr. Wong,
feel free to weigh in. But is that, say if I were to
compare the size of some spending here with -- can I
use the DSM? Would that be a fair comparison to use
the -- I'm sorry, sustainment expenditure as a proxy
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for comparisons?
MR. WONG: A I'll have to think about that, because we
have to consider the age of the equipment of other
utilities, the types of equipment of other utilities.
So, sustainment capital in itself is not necessarily
consistent amongst all types of utilities. So, it's
just something I will have to go back and think about.
MS. GJOSHE: Q When the entirety of say capital and
operational sustainment expenditures reflect the age
of the assets or the expected age of the assets?
MR. WONG: A Well, certainly the capital expenditures
reflect the state of the assets, and age is a big
component of that.
MS. GJOSHE: Q Thank you for that. I have a few more
questions related to that, but I will reserve them for
the DSM panel.
I will move on to a different topic, and
this is my final question for the day. And this is
for Mr. Morison. Good morning, sir.
In your testimony yesterday, there was some
discussion about the base at which that particular --
the IT side of the organization has grown. It's fair
to say that it's outpaced a number of other areas
within the organization in terms of growth?
Proceeding Time 9:16 a.m. T12
MR. MORISON: A I'm not sure I agree with that. I
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think in terms of our operating expenditures they've
only increased effectively over the last few years
around the labour cost increases. Our head count has
increased because of the workforce optimization
program over the last four years.
MS. GJOSHE: Q Yeah, and I wasn't trying to get to
that. I just mean strategically down the road, the
way you see this part of the organization. There's
room for lots of potential growth there.
MR. MORISON: A Well, I think it's true, we certainly
have some pressures coming from growth in cyber
security. We have a larger digital footprint. So I
think there is an increasing need to, you know, expand
our capabilities to meet those needs.
MS. GJOSHE: Q I'd like to take you to a component of
your business that is one of these growth areas that,
as you mentioned yesterday, are coming at you fast.
And that's appreciable. It has to do with something
that might be facilitated related to the smart
metering infrastructure. There is a data analytics
component to the smart metering infrastructure and so
the completion or the largely completion of that
project might bring in the future the ability to do a
lot more with that component of the business. I'm not
trying to quantify either the timing or the magnitude
of it. But do you see any room in there, in that data
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analytics function to perhaps provide in the future,
if not in the test period, some connection or loop
back to the load forecasting functions of the
organization?
MR. MORISON: A Yeah, I think that's absolutely true.
The recent smart metering infrastructure audit that we
had, one of the findings of that audit was that we
should make data more available to the business units
and try to exploit that data more fully in the
company. We're currently developing a smart meter
strategy which will lay out the various opportunities
within the business to exploit that data for a variety
of purposes, and you could further refer that to Ms.
Daschuk on the capital panel. She is now currently
the executive sponsor to the smart metering program
and is the owner of that strategy.
MS. GJOSHE: Q Thank you so much. I appreciate that.
These are my questions, thank you.
THE CHAIRPERSON: Thank you, Ms. Gjoshe.
Mr. Miller, before you begin, I just would
like to advise you, I'd like to try to schedule a
break roughly 9:45-ish. So if you could let me know
when's a good time.
MR. MILLER: That was going to be one of my questions,
when did you want a break. So I'll target 9:45.
THE CHAIRPERSON: Thank you.
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MR. MILLER: Staff was going to hand out another exhibit
aid. All the documents in this exhibit aid are from
the application with the exception of -- there will be
three documents and I'll flag them when we get to
them, and we'll mark them.
THE CHAIRPERSON: Thank you.
CROSS-EXAMINATION BY MR. MILLER:
MR. MILLER: Q Good morning, Panel. My first set of
questions deal with labour costs and I assume these
questions will be answered by Ms. Fraser and Ms. Ryan.
So if we go to the first document in the
exhibit aid, it's page 522 from the application. In
lines 9 through 14 of page 1 BC Hydro states that it
considers management and professional compensation
increases to be a priority akin to non-controllable
costs given how BC Hydro employee compensation
compares to median market. BC Hydro also states it
has limited ability to increase management and
professional salaries since 2012 due to the public
sector employees council prior salary freeze, correct?
Proceeding Time 9:21 a.m. T13
MS. FRASER: A Correct.
MR. MILLER: Q And now if we turn to page 2 of the
exhibit aid, this is a response to BCUC IR 42.5 -- and
this is actually, sorry, page 3 of the exhibit aid,
the IR starts on page 2. There's a table set out and
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it provides the actual management and professional
salary increase each year between 2012 and 2019,
correct?
MS. FRASER: A Correct.
MR. MILLER: Q And so generally what the table shows is
management and professional salary increases as
percentage are less than the union salary increases,
correct?
MS. RYAN: A That's correct.
MR. MILLER: Q And if we go page 4 of the witness aid,
this is a response to BCUC IR 42.6. In the last
paragraph on that page BC Hydro states that:
"Public Sector Employers' Council sets policies
for exempt compensation in the B.C. public
sector. For example, from 2012 to 2018 their
manager salary freeze policy limited salary
increases between 0 and 2 percent per year…"
Correct?
MS. RYAN: A That's what it says, yes.
MR. MILLER: Q So I have a question then. Is it
correct that the upper limit on the manager's salary
freeze from 2012 to 2018 was 2 percent or was 2
percent the average? I'm trying to figure out what
the numbers actually represent.
MS. RYAN: A Sure. The first few years of the PSEC
salary limitation policy was 0 percent increases for
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management and professional, and then beginning in
Fiscal '16 there was an allowance for between 0 and 2
percent for some management and professional
employees, there were some exemptions. And then again
in Fiscal '17, '18 and '19 it was a maximum of 2
percent increase per individual.
MR. MILLER: Q So no individual employee could get
greater than a 2 percent increase.
MS. RYAN: A Up until -- yeah, during that time, yes.
MR. MILLER: Q Okay, great.
THE CHAIRPERSON: Per year?
MS. RYAN: A Per year, that's correct.
THE CHAIRPERSON: But you said -- the last gap that you
said, '17, '18 and '19 I think that was it, right?
You said no one could get greater than 2 percent.
That's 2 percent per each of those three years,
correct?
MS. RYAN: A No, 2 percent per year maximum for that
individual.
THE CHAIRPERSON: For each of those three years?
MS. RYAN: A Yes. Yes, maximum.
THE CHAIRPERSON: Thank you.
COMMISSIONER LOCKHART: What's the difference between 2
percent and maximum and 0 to 2 percent for the earlier
years?
MS. RYAN: A In the earlier years there was 0 percent
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possible.
THE CHAIRPERSON: But then 2016 you said 0 to 2
percent. So what's the difference between 0 to 2 -- I
think --
MS. RYAN: A Sorry, it's the same thing, 0 to 2 or 2
percent max is the same thing. Yes, sorry.
COMMISSIONER LOCKHART: Okay.
MS. FRASER: A I think just to clarify that it's always
dependent on the person's performance during the year.
MR. MILLER: Q If we can turn to page 6 of the witness
aid, this is page 5-23 of the application and there's
a table set out, Table 5-5. And under "Labour Costs"
in the middle of the description there's a comment
made and it states:
"The cost increase for this test period includes
a 2.0 percent general wage increase for union
employees and a 2.5 percent general wage
increase for Management and Professional
employees. Since 2012, due to the Public Sector
Employers' Council salary freeze, salary
increases for Management and Professional
employees have been limited and below the amount
provided to unionized employees over the same
period."
Correct?
MS. RYAN: A Correct.
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MR. MILLER: Q So the question then is, in light of
that explanation is the proposed 2.5 percent
management and professional employee wage increase for
2020 and 2021 test period been set higher than the
union 2 percent limit as a sort of catch up because
they've been behind in prior years?
Proceeding Time 9:26 a.m. T14
MS. RYAN: A Yes, that's correct. We're in a little
bit of a catch up period and we are trying to stay
consistent with market increases which, according to
the Conference Board of Canada, are anticipated to be
2.6 percent. So in order to keep our rates
competitive to attract and retain the employees that
we need at BC Hydro in the management/professional job
categories, we don't want to fall further behind. So
there is a little bit of catch up there.
MR. MILLER: Q So I wanted to talk a bit about what's
been referred to as the holdback as part of certain
individual's compensation. So when talk about the
holdback, is the 2.5 percent for
management/professional, does that include the
holdback or does that exclude the holdback? In other
words, is the holdback an additional amount that can
be earned on top of the 2.5 percent?
MS. RYAN: A Yes, the 2.5 percent proposed increase in
the budget for management and professional salaries
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includes the amounts needed for the corresponding
holdback.
MR. MILLER: Q So if there's a cap at 2.5 percent and
it includes the holdback amount, if all the targets
aren't met then the actual wage increase paid may be
less than 2.5 percent. Is that correct?
MS. RYAN: A We have set the budget anticipating target
rates of .75 or so. But it's all inclusive.
MR. MILLER: Q And the 2 percent for union and 2.5
percent proposed increase for management/professional,
that's for both 2020 and 2021, correct?
MS. RYAN: A That's correct.
MR. MILLER: Q Would you turn to page 8 of the witness
aid.
COMMISSIONER FUNG: Actually, Mr. Miller, are you
moving off this issue?
MR. MILLER: No.
COMMISSIONER FUNG: Okay, thank you.
MR. MILLER: Q On page 8 of the witness aid, in line 7
BC Hydro makes the comment that your total
compensation package is designed to attract and retain
qualified employees, correct?
MS. RYAN: A Correct.
MR. MILLER: Q And on the same page of the witness aid,
in lines 15 through 17, this is referring to the
Morneau Shepell assessment or report. It says:
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"After factoring-in the value of pension
benefits and time off programs, BC Hydro's
compensation package is comparable, at 2
percent below median market rates."
Correct?
MS. RYAN: A That's correct.
MR. MILLER: Q So will the 2 percent general wage
increase for union employees for each of 2020 and 2021
place those employees at the median market rate?
Where will they be placed?
MS. RYAN: A They would -- the market comparison for
our unionized employees is increasing by 2 percent as
well, so I would expect that they would remain overall
2 percent below the median market.
Proceeding Time 9:32 a.m. T15
MR. MILLER: Q Okay, and what about the 2.5 percent,
same question for the management/professional
employees. Where would that place them relative to
the median and 2020 and 2021?
MS. RYAN: A The median market increases that the
Conference Board of Canada has predicted is 2.6
percent. So, I would expect that we would again
remain in a similarly consistent position against the
market.
THE CHAIRPERSON: Sorry, can I just ask a follow up
question?
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MS. RYAN: A Sure.
THE CHAIRPERSON: But I think you just said, and please
correct me if I am wrong, but I think you just said
that the actual professional increase is expected to
be, I think you said, .75, not 2. Did I hear that
correct?
MS. RYAN: A Sorry, I don’t think I said .75. The
market increase is 2.6 percent?
THE CHAIRPERSON: But within Hydro.
MS. RYAN: A Within Hydro --
THE CHAIRPERSON: Your actuals you said.
MS. FRASER: A Oh, I think what Ms. Ryan said was we
have budgeted 2.5 percent increase and that is based
on the performance levels of .75.
MS. RYAN: A That's for the holdback.
THE CHAIRPERSON: Sorry, so I am a little confused
about what all of this is.
MS. FRASER: A Our accountants are helping us.
THE CHAIRPERSON: That's good to hear.
MR. MILLER: Q So are you going to provide a further
explanation to the Chair?
MS. RYAN: A Yes, sorry. When I referenced the .75, on
average, with respect to the holdback, employees
receive awards that are about 75 percent of the
maximum award. So that's specific to the holdback.
So that is encompassed, that expectation is
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encompassed within the 2.5 percent budget.
THE CHAIRPERSON: Okay, but overall you are expecting
to pay out the budgeted increase to your professional
workers, is that --
MS. RYAN: A That's correct, yes.
THE CHAIRPERSON: Okay.
MR. MILLER: Q So let me just follow up on that then.
So let's assume BC Hydro had an excellent year and
made all of its targets, then the wage increase might
be slightly higher than the 2.5 percent?
MR. LAYTON: A I think that would mean in that
instance, the actual holdback payouts would be higher
than planned?
MR. MILLER: Q That's right.
MR. LAYTON: A Yes.
MR. MILLER: Q So that would mean the 2.5 percent would
actually be slightly -- something, a number slightly
higher than the 2.5 percent?
MR. LAYTON: A I actually don’t think that's what it
means. I think the 2.5 percent, if that were awarded
to an individual, that would be the maximum increase
they could achieve. The holdback is calculated
encompassing that increase if -- and therefore, and we
budget three-quarters, 75 percent payout on the
holdback. And so in other words, if you are awarded
2.5 percent, but we didn’t achieve all of our goals,
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the actual payout of our holdback is less, you're
actually a net. Would it receive less than 2.5
percent is the way I believe that it works.
MR. MILLER: Q Okay.
MS. RYAN: A And for clarity though, the 2.5 percent
relates to the budget increase. There isn’t a limit
on a 2.5 percent for an individual.
MR. MILLER: Q Okay.
COMMISSIONER LOCKHART: Mr. Miller, sorry, I have two
more questions. So, yesterday I think we established
that the holdback only applies to one percent of BC
Hydro employees?
MS. RYAN: A That's correct.
COMMISSIONER LOCKHART: And the 75 percent that you
referenced, does that respond to my question at the
end of yesterday that you're going to follow up, in
terms of the 1.4 million budgeted for payout in
holdback, is it in fact 75 percent that was paid out
in F2019? I think that was something you were going
to follow up on?
MS. RYAN: A Yes, we have that undertaking, and we are
just not complete on it.
COMMISSIONER LOCKHART: I see, okay.
MR. GHIKAS: Yeah, we will be filing, we are working on
that in the background, and so we will be providing --
the specific question that was left as I understand
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it, Commissioner Lockhart, was how much was actually
paid out in Fiscal 2019. We will provide that, I
think what this is making clear to me is that there is
some confusion around this. So I think it might be of
assistance if we provided in addition to the amount
that -- the budgeted amount I guess, and what that
amount would have been had everybody received 100
percent of their holdback pay at all times. And then
it sounds like it would be of assistance to explain
the 75 percent, the .75, and so maybe we can just try
to put some of that information and lay it out in a
way that everybody will understand.
INFORMATION REQUEST
THE CHAIRPERSON: Thank you, that will be very helpful.
Thank you Mr. Ghikas.
COMMISSIONER FUNG: And perhaps one other request. If
you can confirm that the 2.5 percent is the maximum
that any individual employee would get by way of an
increase?
MS. RYAN: A That is not correct. 2.5 percent is the
budget. An individual can receive increases based on
a performance matrix.
COMMISSIONER FUNG: Which can be more than 2.5 percent?
MS. RYAN: A The PSEC limitation -- or the PSEC policy
going forward is a maximum of 10 percent, is what an
individual could receive. That's the maximum. Very
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few people, according to our performance matrix, would
be eligible for that. Our matrix is intended to
reward higher performers, and those who are lower in
their salary range.
COMMISSIONER FUNG: When did this change in policy
become effective?
Proceeding Time 9:38 a.m. T16
MS. RYAN: A September 1st of 2018 is when the PSEC
relaxed.
COMMISSIONER FUNG: Okay, thank you.
MR. MILLER: Q A couple more questions on this topic.
On page 8 of the handout, again a reference to page 5-
47 of the application, lines 7 through 11, BC Hydro
makes the point that,
"A low turnover rate is important because some
of the skillsets required by BC Hydro are
specialized, and the complexity of our assets
and operations required an experienced
workforce. These skills and experience are
difficult to find in the market and require
significant time and costs to develop."
But down the bottom of the page, in line
19, you make the point that your voluntary turnover
rate is 1.3 percent, which is below the 3.8 percent
average for the power utilities industry as reported
by the Conference Board of Canada, correct?
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MS. RYAN: A Yes, that's correct.
MR. MILLER: Q So your voluntary turnover rate is one-
third of the average, correct?
MS. RYAN: A That's correct.
MR. MILLER: Q And I believe yesterday you made the
point that some employees are delaying retirement
eligibility dates by four to five years, correct?
MS. RYAN: A Some are, yes.
MR. MILLER: Q And retirement rates are not included as
part of the voluntary turnover rates, correct?
MS. RYAN: A That's correct.
MR. MILLER: Q And I think you also said, but I may be
wrong, that at least for some apprentice positions you
had a hundred applicants for each position.
MS. RYAN: A That's correct.
MR. MILLER: Q So you don't seem to be having any
trouble in attracting and retaining employees at the
current level, do you agree? Your current salary
levels, compensation levels?
MS. RYAN: A We are very pleased with our low turnover
rates and we work very hard to maintain those. We do
also have non-voluntary turnover and retirement. So
it's about 5 percent. You know, hundreds of
employees each year are leaving. That figure is just
the voluntary turnover rate.
MR. MILLER: Q So the non-voluntary retirement, how
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does your -- I think you said 5 percent compare to
your industry peers?
MS. RYAN: A I don't have that data handy in terms of
the other non-voluntary or retirements, how that
compares.
MR. MILLER: Commissioner Morton, I'm about to move onto
a new topic and I note it's -- it's not 9:45 but it's
close. Would you prefer to break right now?
THE CHAIRPERSON: Yes, please, Mr. Miller.
MR. MILLER: And when will we recommence?
THE CHAIRPERSON: We'll come back at five to.
MR. MILLER: Thank you.
THE CHAIRPERSON: Thank you.
(PROCEEDINGS ADJOURNED AT 9:43 A.M.)
(PROCEEDINGS RESUMED AT 9:58 A.M.) T17/18
THE CHAIRPERSON: Please be seated, sorry about that.
Thank you.
Mr. Miller, please go ahead.
MR. MILLER: Thank you, Commissioner Morton.
MR. MILLER: Q I'd like now to move on to the topic of
the WorkSmart program.
COMMISSIONER LOCKHART: Sorry, Mr. Miller. Mr. Miller,
at the risk of interrupting, just to clarify one more
thing regarding before the break. The 5 percent of
employees, is that a combination of non-voluntary
dismissal and retirements or is that just non-
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voluntary dismissal?
MS. RYAN: A So, in BCUC IR 1.6213.3 we outline the
voluntary, non-voluntary and retirement. So for
Fiscal '19, yes, if you add up the 1.9 voluntary, the
1.1 voluntary [sic] and the 2 for retirement that's
about 5 percent.
COMMISSIONER LOCKHART: I see, okay. Thank you.
MR. MILLER: Q Mr. Layton, I believe the next question
is for you. I just want to confirm some of your
testimony from yesterday. Now, with respect to the
cumulative capacity hours gained as a result of the
WorkSmart program, is it correct that at the end of
2019 the total hours gained was just over a hundred
thousand, 100,973?
MR. LAYTON: A That's correct.
MR. MILLER: Q And if you turn to page 10 of the
witness aid, this is a response to BCUC IR 2.223.9.
In the bottom of the first paragraph of the response
it says,
"This capacity is used to manage increases in
work load and work complexity, as well as
enabling employees to focus on the highest value
work."
Correct?
MR. LAYTON: A That's correct, yes.
MR. MILLER: Q So can you explain to the panel what is
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meant by addressing work complexity and maybe give
some specific examples?
Proceeding Time 10:01 a.m. T19
MR. LAYTON: A Sure. I'll maybe reference two Work
Smart projects as examples here. And the first one
I'll mention can actually be seen in BCUC IR response
which Mr. Miller has actually got in his package and
witness aid, page 14. So that one is probably easy to
see.
And in that case we are working with a team
that does a number of inventory cycle counts in
various locations across the province, and that's a
team that was struggling with workload issues and they
came to us and said, "Can you help us with this?
We're having to travel all over the province a lot of
the time, including in the winter, and we need help to
manage our workload." And so we worked with them.
And what we were able to do was free up a bunch of
their time, again in a form of what we call capacity
hours saved. So we worked with them to figure out a
way to still complete their obligations and objectives
with their inventory cycle counts, but just in a more
efficient way so maybe you wouldn't have to travel as
much, maybe have a more efficient way to do each
count. And that creates what we call capacity hours
gained. In other words, the amount of time it took to
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do an inventory cycle count before the Work Smart
project and after we'd improved that process creates
hours and when you multiply that by the number of
times a process is carried out, you have an annual
number of savings that you have available to you.
In the case of this team particularly, one
of the workload challenges that they were facing was
new WorkSafe regulations and so essentially again they
came to us and said, "We need your help. We obviously
have to comply with WorkSafe regulations, we just
don't have the resources to do both, to carry on with
the inventory cycle counts as we're doing them." So
by enabling them to do more efficient work over here
on the cycle counts, we enable them to deal with a
workload issue they had over here, which was a new
WorkSafe regulation.
I'll maybe give another example which is
more of a project situation, which is with Site C.
And so in the case of Site C, as you can imagine they
work with many, many stakeholders and branches of
government and so on. And they do something that's
called a "leave to commence" and "leaves to
construct". And essentially it involves working with
folks like the Ministry of Forests, Lands and Natural
Resource Operations, the Comptroller of Water Rights,
their external contractors. So in other words, a
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whole bunch of different people. And what they came
to us and said was that, "This is a very onerous
process. It is taking us away from the work we need
to do because it's taking far too long."
So what we did in Work Smart is we brought
together all of those stakeholders and said, "Let's
find a more efficient way. Let's find a better way."
And the outcome of that project was to reduce that
whole process on average by 12 days per leave to
commence, from 33 days to 21 days.
And so again, that creates what we call
capacity hours gained. And so instead of having to
spend 33 days, they only had to spend 21. So that
employee or those employees now had 12 extra days each
time they had one of these to do, to focus on
something else.
And in the case of Site C, as I think we've
heard testimony, there's lots of challenges in
constructing a big project like Site C and so anytime
they can identify ways to save time, they will do so.
And that again freed them up to do more important
parts of the project.
MR. MILLER: Q Are there any other examples that
readily come to mind?
MR. LAYTON: A I think -- we're planning one in fiscal
2020 on storm response and I think I would use that as
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an example of the kind of work we're doing. So I
think about half of our projects in fiscal '20 relate
to either Site C or a thing we call "Making it easier
to get work done". And I think we've filed our
overall annual, what we call our placemat for Fiscal
'20 of all our priorities within the corporation, and
one of them is "Making it easier to get work done".
And so we're focussed very heavily in our
projects in those areas and what it represents again
is that the areas that need our help the most are the
ones that are struggling the most with workload.
Proceeding Time 10:05 a.m. T20
MR. MILLER: Q So in the response that I referred you
to, there was a distinction made between work
complexity and highest value of work. Are there any
-- what is meant, or are these related concepts? Or
are these distinct concepts? Can you provide any
examples where the Work Smart program allowed people
to focus on the highest value work?
MR. LAYTON: A I'm not sure if I have any examples of
those. They are different, slightly different
concepts. Sometimes you are just freeing people up to
stay above water, if I can use that phrase. Sometimes
it is being able to work on higher value work. I'm
not sure I have a great example in hand of the highest
value work. But I mean, the Site C is maybe an
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example of both. It's something where -- it's taken
away a lot from your day job, but it is also probably
not the highest priority or highest value work that
you're undertaking on that project. And so I think
perhaps that's an example of both things being
addressed through a Work Smart project.
MR. MILLER: Q Now again, Mr. Layton, I'm going to
refer to some of your testimony from yesterday. And I
believe in response to Ms. Worth's questions you
indicated that the imputed benefit or value of the
roughly 100,000 hours gained as result of the work
group program was approximately 9.5 million, correct?
MR. LAYTON: A That's correct, yes.
MR. MILLER: Q Are the total capacity hours gained and
the imputed benefit value split evenly between capital
and operating components? Or have you analyzed that?
MR. LAYTON: A I believe we have analyzed that. I
think we put an IR on the record that went through the
assumptions we make imputing that value and I think we
take into account the capital and the operating. I
don’t have that split at my fingertips, but we do look
at that, yes.
MR. MILLER: Q So what is the rationale for splitting
between those two?
MR. LAYTON: A It is just being aware of the two. We
don’t actually -- like the 9 and a half million
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dollars I mentioned yesterday, is the total value. We
don’t say this much is capital and this much is
operating. We are focused on the total value the
program has created. We haven’t -- so we are aware
that we are working in both capital and operating, and
that there are different amounts to each. But our
goal is to bring the most value we can bring to the
areas that need the help the most.
THE CHAIRPERSON: Just a quick question on value, Mr.
Layton.
MR. LAYTON: A Sure.
THE CHAIRPERSON: So is that a net amount? Because
presumably there is some costs associated with this
program. Is that a fair assumption?
MR. LAYTON: A Yes, and in our response to BCUC IR
1.38.9 I think we tackle that issue, Commissioner, and
we show the value of the capacity hours gained,
divided by the program cost. And so through the end
of Fiscal '18 what that calculation showed is -- the
ratio of benefits to cost is 5 to 1.
THE CHAIRPERSON: And the numerator in that is the 9.2?
MR. LAYTON: A Sorry, that is through Fiscal '18, I
haven’t -- I just mentioned the nine and a half, so.
THE CHAIRPERSON: But that would be the numerator in
the calculation?
MR. LAYTON: A It would be, yes, through Fiscal '19.
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MR. MILLER: Q In your response a few moments ago, you
referenced the Work Smart initiative which is set out
on page 14 of the witness aid. And that's relating to
people travelling across the province and inventory
cycle counts. Are you able or have you analyzed the
capacity hours gained for that particular initiative?
MR. LAYTON: A Absolutely. As you will see in that
response, in the second paragraph, four lines from the
bottom, we mentioned that that project created
capacity hours gained of 1500.
MR. MILLER: Q Okay, thank you. Now I have a more
general question. How can you establish or the cause
and effect relationship between the Work Smart
program, and what would have occurred without the Work
Smart program? Can we not assume that there would
have -- this may have been identified, this problem,
without the Work Smart program?
Proceeding Time 10:10 a.m. T21
MR. LAYTON: A I think that's possible, but I think
what we hear from employees when we talk to them is
that Work Smart brings a structure. We fundamentally
believe in Work Smart, and employees know the answers
to the problems that they're facing but sometimes it's
just very hard to implement that, and I think the Site
C might be a great example of that, where you're
working with many stakeholders, some internal, some
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external, and it may be very difficult for the project
itself without the kind of framework and structure
that we bring through Work Smart to make those kinds
of changes.
I think employees every day in BC Hydro
look to make improvements in the way they do their
work and their processes. Those are generally, I
think, fairly smaller kind of improvements.
Hopefully, I think we all do that, we look for ways to
do everyday tasks better and smarter. What Work
Smart's doing though is coming in and looking at a
process. We're not trying to improve it a little bit,
we're trying to improve it a lot, and I think that
kind of big improvement takes a lot more effort and a
lot more structure and framework and that's what we're
able to do through Work Smart that employees probably
just on their own would struggle to be able to
achieve.
MR. MILLER: Q Can you turn to page 15 of the witness
aid? This is a response to BCUC – excuse me – IR
1.39.5 and in the first paragraph BC Hydro notes that
both itself and ICBC operate in a Crown environment
and both entities, like BC Hydro, need to be efficient
and continuously improve to keep costs/rates low for
taxpayers/ratepayers as the case may be. Correct?
MR. LAYTON: A Yes.
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MR. MILLER: Q How is that any different than in the
private sector, a non-Crown related business that
wants to be successful? Don't they need to do the
same thing?
MR. LAYTON: A I think so. I think what we looked at a
couple of nearby entities that we're familiar with
that provide, hopefully, the context that those
entities have well respected lean based programs and
are taking the same approach that we're taking at BC
Hydro.
MR. MILLER: Q And at the bottom of page 15 BC Hydro
makes the point that,
"…Work Smart is not confined to a specific
business structure, but rather is a process
improvement methodology that can be translated
across many different businesses and
industries."
Correct?
MR. LAYTON: A Yes.
MR. MILLER: Q So, if we assume that most successful
businesses need to have an objective to be efficient
and continuously improve to keep costs low and the
Work Smart program offers a methodology to achieve
this that is also applicable in other businesses, how
is this program really different from what other
businesses are doing? Or is it not different?
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MR. LAYTON: A Again, I can't speak to what all other
businesses are doing, what I can speak to is the
couple that we mentioned here, being ICBC and
Washington State. I know we participate in a group
across -- in the local Lower Mainland region that have
these kinds of programs, and so I can speak to their
experience and the way they run their programs. I'm
sure other private sectors perhaps do the same thing
or perhaps do different things, I'm not sure.
MR. MILLER: Q Can we turn to page 16 of the witness
aid?
Now, Mr. Chair, this is one of the
documents I referred to that is not part of this
application. This is an excerpt from page 34 of the
2017 to 2019 revenue requirements decision and I'd
like to have that marked as Exhibit A2-5.
THE CHAIRPERSON: Thank you.
(PAGE 34 OF 118 FROM ORDER G-47-18 MARKED EXHIBIT
A2-5)
THE CHAIRPERSON: We're still on the Work Smart topic?
MR. MILLER: Yes.
MR. MILLER: Q Now, if we go to page 16 under item
number 3, the last sentence in that paragraph states:
"The Panel recognizes that while BC Hydro states
it is not the intention of Work Smart to reduce
costs but rather to allow for the reallocation
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of staff to more productive purposes, in our
view a measured increase in productivity should
result in cost savings."
You see that reference?
MR. LAYTON: A I do.
MR. MILLER: Q As a result of that panel's
determination in the decision that we've just referred
to, has BC Hydro made any refinements or been able to
identify any cost savings as a result of the Work
Smart program as opposed to avoided costs?
Proceeding Time 10:15 a.m. T22
MR. LAYTON: A We continue to focus on avoided costs
and I appreciate the panel's feedback, but we do feel
very strongly that Work Smart is a program about
productivity savings. It is not a program, in our
view, about reducing costs.
If in the examples that I used, I'll take
Site C for example, we freed up a whole bunch of time
for them to carry on the project through those leave
to commence processes. If we came to them and said,
"Hey, we saved you guys 22 days per each of those
instances and you have 100 of them each year, that's
2200 hours, therefore, we're going to reduce your
budget by two people," we don't think that's a valid
concept, because as we know that project is facing
many, many challenges and that process was simply
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taking too long for them in the first place and,
therefore, just causing their workers to work harder
and not get to the tasks they need to get to.
So if we came to them and said, "Help us
improve this process, and then we'll take away some of
your people and some of your budget," they would never
engage in the first place, and in our estimation
that's not a practice that we'd want to see.
Work Smart for us is a tool about limiting
our operating cost increases and our -- well, our
overall increases. And what we've shown in the nine
and a half million dollars that I mentioned yesterday,
is that's the imputed value of what we’ve created.
And if we didn't have the Work Smart program what
we're saying is our costs would be nine and a half
million dollars higher.
So this is a case where we're viewing it as
a cost avoidance measure and not an area where it
would be wise or sustainable to take those costs away.
THE CHAIRPERSON: When you talk about Site C or doing
this Work Smart work at Site C, are you talking about
as it relates to BC Hydro employees or are you talking
about contractors at Site C?
MR. LAYTON: A In the case of Site C it's both. In
fact it's Hydro employees, contractor employees, and
government employees. When we calculate saving
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capacity hours gained, we're calculating on ourselves,
on our own.
THE CHAIRPERSON: Only on yourselves.
MR. LAYTON: A Yes.
THE CHAIRPERSON: So presumably there's some benefit to
contractors accruing from this, is that correct?
MR. LAYTON: A Indeed, yes. Yes.
THE CHAIRPERSON: And does that -- but you're under
contractual obligation to pay them a certain amount so
presumably that -- Hydro would get no benefit, no
monetary benefit, direct monetary benefit?
MR. LAYTON: A No, it's a -- again, it's a productivity
benefit. Just like Hydro, those contractors have been
spending way too much time of these activities, and so
by freeing them up to go back to what they're meant to
be doing to build the dam, that's the value really.
THE CHAIRPERSON: And I suppose it helps to manage
contractor risk then too.
MR. LAYTON: A Absolutely, yes.
THE CHAIRPERSON: Yeah.
COMMISSIONER MASON: Can I possibly interrupt as well?
Sorry. I assume it's reasonable that the unionized
employees would be paid overtime and non-management
employees would be paid overtime if they worked
overtime.
MR. LAYTON: A Yes.
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COMMISSIONER MASON: I don't know whether managers get
paid overtime or not. Is that a factor?
MR. LAYTON: A In some cases managers can earn
overtime. It's not a very common thing in most parts
of the business. In operation it may be, but --
COMMISSIONER MASON: Okay. So which leads to the
question, have you observed any reduction in overtime
payments as a result of these Work Smart initiatives?
MR. LAYTON: A I'm not sure. I think it's a good
question, I'm just not sure.
MR. MILLER: Q I want to refer to page 11 of the
witness aid. This is following up on a comment you
just made with regard to the incentive for employees
to participate or possibly the disincentive that may
come from focusing on specifically cost savings as
opposed to avoided costs.
And this response is to BCUC IR 2.23.9 and
in that response in the middle of the page is the
statement:
"If, on the other hand, Work Smart solutions
were required to deliver incremental cost and
headcount savings instead of avoiding higher
costs, the program would not be successful.
More specifically, employees and teams facing a
more growing and complex workload would not
participate since they would not obtain the
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capacity hours gained that they need. Instead
they would be disincented to participate and
offer the best solutions to improve processes as
their position could be terminated as a result.
Without positive participation from employees
involved in the process, Work Smart initiatives
would be unsuccessful."
Proceeding Time 10:20 a.m. T23
So my question to you is, surely there must be
potential costs savings as a result of Work Smart that
won't result in employee terminations.
MR. LAYTON: A I think for the most part, it's all
about labour in this case. I guess -- I take your
point that once in a while there could be. We haven't
observed many of those, but for the most part, we're
improving the people side of the processes here and
that's why it really, for us, does boil down to
labour.
MR. MILLER: Q Has BC Hydro examined whether there are
any initiatives or programs where you could save costs
where employees are not specifically at risk of having
their positions terminated? Have you examined this as
a specific area? What can we do to save costs that
won't result in employee terminations?
MR. LAYTON: A I think we haven't. I think the way
that we plan our program is we work with the business,
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we go across all the business, all the executive teams
and we ask them where is the biggest need for
assistance through Work Smart here? We don't parse it
out that way and say, "Okay, tell us about a process
that we can improve without impacting employees?" We
just say, "Tell us where your biggest need is?" And
that tends to involve areas involving people and
that's what we're facing in our company with a growing
and more complex work environment. When people tell
us where they need our help, it's typically in areas
again involving people processes.
MR. MILLER: Q Thank you.
MR. LAYTON: A Sorry, one more point, if I may, Mr.
Miller. One of the distinctions with Work Smart is
Work Smart generally does not play in the IT area
because those kind of fixes take longer to implement,
and so that would be perhaps examples of -- you know
IT projects can sometimes drive non-labour savings,
and Mr. Morison has talked about those and others have
talked about those. But because Work Smart is trying
to quickly address and quickly implement changes,
that's one of the things about it, it's about speed
and doing things quickly and efficiently, it's looking
at again, primarily people based processes.
If the answer to a problem is we need a new
information technology system, then we'll phone Mr.
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Morison and say, "Mr. Morison, here's an opportunity
for you to consult with the business," and bring new
solutions that way. But Work Smart is very people
focussed. It generally does not tackle multi-year
technology kind of improvements.
THE CHAIRPERSON: Mr. Miller, are you finished that
line?
MR. MILLER: Yes.
THE CHAIRPERSON: Could I just ask a follow-up question
to that then, or a related question let's say.
On page 15 of Mr. Miller's witness aid, at
the end of that IR response you indicate that Work
Smart is a process improvement methodology that can be
translated across many different businesses and
industries. At a very high level, is this some sort
of established methodology that is used by other
companies, and if so, what kind of practitioners do
you have that apply this methodology, or is it
something you've learned in house? Just at a high
level.
MR. LAYTON: A Yes, thank you. I appreciate the
ability to provide some context there. It actually
started in the 1930s in Toyota and it's since spread.
I have a number of notes here on big large companies
doing it: General Electric, Ford, Boeing -- maybe I
don't want to talk about Boeing at the moment. Bank
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of America.
THE CHAIRPERSON: Not in front of a regulator.
MR. LAYTON: A Perhaps. Inside voice. And it started
there. And it really is about reducing what the
program calls waste, and waste meaning steps that
aren't needed. Rework that happens because of
inefficient steps or bad outputs. Removing the
unnecessary reviews and so on. It's very focussed on
what does the customer care about. If the customer
wants you to produce a widget, they don't care about
many of your internal processes. They care about the
ones that have value to them. And that's
fundamentally what it's predicated on. And so that's
what our program is predicated on as well.
Proceeding Time 10:25 a.m. T24
And because it is a global things, we call
it Work Smart, that's our branding internally. You'll
generally hear it called "Lean". You might hear it
called "Six Sigma". That's another phrase that you
may hear. And there are bodies that will -- that you
can take tests and be accredited, and they use the
white belt, yellow belt, black belt, et cetera and so
the lead of our program actually has a black belt,
which is the -- actually I’m not sure if it's a
highest level, but it's quite a high level. Yes. And
so our team comes from those kinds of backgrounds
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generally because it is an accredited thing. And
because it really is a structure that's unique. It's
a unique way of thinking, a unique way of doing.
THE CHAIRPERSON: So thank you for that. So an
additional follow-up question then is, given Mr.
Miller's line of questioning there regarding the
difference let's say between avoided costs and
realized, crystallized, saved cost, to you knowledge
these other companies that apply this methodology, do
they actually have crystallized cost savings, or is it
part of the methodology that it's only targetted
towards improved efficiencies but not avoided costs
and not crystallizing those savings?
MR. LAYTON: A Yeah, so the methodology itself is about
identifying and implementing the savings. It doesn't
tell you whether you should take the savings or
redirect that effort. What we have looked at when we
-- the entities that we have worked with, like ICBC,
like Washington State, what I can tell you, and we put
evidence on the record more detailed than what I'll
get into here, but essentially what I can say is they
take the same approach that we do. They are about
avoiding costs. They are not about reducing their
budgets. And I think the ones that work with in the
Lower Mainland, it's for the same reason as us. We
have an increasingly complex environment, we need to
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keep our costs down. This is one tool to help us do
that and to help avoid higher costs and higher rates.
THE CHAIRPERSON: Thank you.
MR. MILLER: Q Just following up on your response to
Commission Morton's questions, is there a
certification program for Work Smart?
MR. LAYTON: A Not for Work Smart. Sorry, let me take
that in two different ways.
If I back away from Work Smart, which is
our program, there are certification programs for Lean
professions, and as I mentioned, our manager of
program is certified black belt there. Internally we
do delivery training to employees and different levels
of training. So there's an online course, just to
give you a flavour for what is it all about, what
kinds of things should you be thinking about in your
day-to-day job. What small improvements might you be
able to make just at your desk within your sphere of
responsibility. And then there's progressively higher
levels. We go all the way up to a green belt, what we
call a green belt. And green belt members are -- once
they’ve gone through it, we take them through a
project. But once we've gone through a project with
them, are therefore internally able to facilitate Work
Smart projects within the business.
So what we're trying to do to build our
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culture of Work Smart is to have as many of those
green belts, as many of those white belts, as many of
those yellow belts as we can to embed it throughout
our culture, so that we're always at an individual and
a team at a company level thinking and looking for
ways to be more efficient.
MR. MILLER: Q Thank you. I'd like to move onto to a
new topic now. Who do I address questions related to
the MRS program and the provincial reliability
coordination?
MS. FRASER: A You could probably address them to
myself and maybe Mr. Morison. In terms of the
reliability coordinator role, that would probably be
better addressed to Charlotte Mitha.
MR. MILLER: Q So the questions I have are mainly
towards budget for the program. So would that be this
panel?
MS. FRASER: A Yes. No.
THE CHAIRPERSON: You have to check with your
accountant.
MR. LAYTON: A I mean if it's a very high level
question maybe, but generally each executive is
prepared to speak to their budgets.
MR. MILLER: Q So why don't we start and see if we can
get anywhere and if not you can put me -- or point me
in the right direction for a future panel.
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Now, the former reliability coordinator for
the province used to be an entity known as Peak
Reliability, correct?
MS. FRASER: A Correct.
MR. MILLER: And they gave notice that they wouldn't be
providing services after December 31, 2019, correct?
MS. FRASER: A That's my understanding. Again, this
area of responsibility is with Ms. Mitha.
MR. MILLER: Q And BC Hydro made an application to
become the reliability coordinator and was approved by
order of the BCUC in roughly mid-fiscal 2020 to become
the reliability coordinator, correct?
MS. FRASER: A That's correct.
Proceeding Time 10:30 a.m. T25
MR. MILLER: Q So you may be able to answer this next
question, perhaps not, but if Peak Reliability stopped
providing services during Fiscal 2020, then there
should be no fees of any type to peak in Fiscal 2021,
correct?
MS. FRASER: A I don’t have the information to answer
that question.
MR. MILLER: Q So we should defer that to another
panel?
MS. FRASER: A I think so, yeah. That would be the
next panel.
THE CHAIRPERSON: Mr. Miller, I think you might be
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getting an answer here, I'm not sure.
MR. WONG: A Excuse me, we are going to look into it,
we might have the response for this question.
So, Mr. Miller, I think there might be a
number of IRs on the record on this topic, but I will
reference one, which is BC Hydro's response to BCUC IR
2.241.1, and in there we talk about why there are
amounts in the application related to the two fiscal
years.
MR. MILLER: Q So the query is really are there any
fees in Fiscal 2021 being paid to Peak, and if you are
not able to answer that specifically I can defer it to
the next panel.
MR. LAYTON: A No, I think I can speak to it. In that
IR we mention that costs related to Peak in Fiscal
2021 are estimated at $0.4 Million.
MR. MILLER: Q And what are those fees comprise? What
are they for?
MR. LAYTON: A I think at that point we are beyond my
depth on the matter.
MR. MILLER: Q So I have a series of questions relating
to start-up and annual on-going costs. Should those
be deferred to the next panel?
MR. LAYTON: A Yes.
MR. MILLER: Q Okay, so the whole series of questions
then we will defer to the appropriate panel in the
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future.
We are probably going to skip a bunch in
the witness aid, because I no longer have any
questions to unallocated funds, and I would like to
confirm also -- and I spoke to your counsel on this,
questions relating to vegetation management should be
going to panel 4, the capital panel, correct?
MR. LAYTON: A That's correct.
MR. MILLER: Q Okay.
THE CHAIRPERSON: The capital panel?
MR. MILLER: Panel 4, the capital panel.
THE CHAIRPERSON: On vegetation maintenance?
MR. MILLER: On vegetation management.
MR. WONG: A Yes, they'll speak to maintenance costs as
well.
THE CHAIRPERSON: Okay.
MR. MILLER: Q The next topic I'd like to address then
is vacancy factor savings. And I think you need to
jump to page 41 of the witness aid. Page 41 is page
5-3 of the application, and in lines 1 and 2, BC Hydro
makes the statement that it has,
"…achieved reductions in controllable costs
through a variety of means, including vacancy
factor savings…"
Correct?
MR. LAYTON: A Yes.
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MR. MILLER: Q If we turn the page in the witness aid
to page 42, which is table 5-6, in the top row under
the description for vacancy factor savings, the first
sentence states, "In previous years, some KBUs," And
that's Key Business Units, correct?
MR. LAYTON: A Yes.
MR. MILLER: Q "…have reduced their labour budgets to
recognize that positions will not remain filled
100 percent of the time. …"
Correct?
MR. LAYTON: A Yes.
Proceeding Time 10:35 a.m. T26
MR. MILLER: Q And,
"The exact approach for identifying these
reductions for each KBU is varied. In the test
period, BC Hydro has taken a consistent approach
to assessing each KBU and identifying any budget
reductions associated with unfilled positions.
Across all KBUs, labour budgets have been
reduced by an additional $5.6 million in total."
Correct?
MR. LAYTON: A Correct.
MR. MILLER: Q Now, if we can turn to page 44 of the
witness aid. This is a response to BCUC IR 143.1 and
on the bottom of the page, the last paragraph --
excuse me. Oh, sorry, top of the page. It says,
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"Vacancy factor savings are budget adjustments
must take into account the fact that positions
will not remain filled 100 percent of the time."
And that's similar to what you've said in the
application, correct?
MR. LAYTON: A Yes.
MR. MILLER: Q Down at the last paragraph of the same
response on page 44 of the witness aid, it says:
"The saving of $5.6 million for each of fiscal
2020 and fiscal 2021 is our estimated operating
savings as a result of applying a consistent
approach to labour analysis for all key business
units."
And then it says:
"The approach entailed a review of historical
operating labour expenditures, estimated future
vacancies, and charge out expectations for each
key business unit. Adjustments as appropriate
were made to each key business unit's budget
based on resulting data."
If we go to page to page 47 of the witness
aid, in the response to BCUC IR 1.43.3.2, BC Hydro
states:
"Our approach to vacancy factor savings is cost
based rather than position by position vacancy
duration estimates and while there may be a
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number of positions that are not filled 100
percent of the time…the vacancy factor is an
estimated aggregation of all partial year
vacancies."
Correct?
MR. LAYTON: A Correct.
MR. MILLER: Q And if we turn the page to page 48 of
the witness aid, and this is a response to BCUC IR
2.230.8, in the last paragraph of the response on that
page BC Hydro states:
"The estimated aggregation of all partial year
vacancies to determine the vacancy factor
savings for each KBU was assessed taking into
account historical operating labour
expenditures, estimated future vacancies, and
charge our expectations. As a result, the
vacancy factor savings applied to each KBU
varied based on judgement based assessment of
the factors noted above."
Correct?
MR. LAYTON: A Correct.
MR. MILLER: Q Now considering -- this is the question
and thank you for all those confirmations. This is
the question, considering that the vacancy factor
saving was based on judgement, what methodology or
what factors were applied in making that judgement
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amount of 5.6 million in savings?
MR. LAYTON: A So I think it's exactly the factors that
you just referenced in this IR, Mr. Miller, which is
BCUC IR 2.230.8, and you'll see in there that we look
at historical operating labour expenditures, estimated
future vacancies and charge out expectations.
If I can add a little bit of colour to
that, so if I was going to talk to a KBU manager, say
Ms. Ryan, you would look at both the historical
experience that her KBU has experienced, so in other
words, it is a KBU that tends to have a lot of
vacancies throughout the year or is it one that
doesn't? But we also look at the future. In other
words, we don't accept that the past is necessarily an
indicator of the future. Perhaps there's a unique
circumstance operating in Ms. Ryan's department coming
up and she might say, for example, "I had a vacancy in
this area last year, we didn't fill that for whatever
reason but we're going to be filling it very soon."
And so, yes, that position's been vacant but it's not
going to continue that way.
Proceeding Time 10:40 a.m. T27
And so that would be one that we would look at and
consider both -- in other words both the past and our
expectations of the future.
Of course we don't have actual data for the
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future. I can't go to Ms. Ryan and say, "How many
vacancies will you have next year?" Don't know. We
have to, again, look at historical data to help us and
future expectations on the work and the circumstances
in a given department, those are the two factors
there.
And then the charge out expectations are,
some workers charge to what we call "work," which may
be capital in nature, and if we expect some of those
percentages are going to be changing in a specific
business, then we'd want to consider that as well as
we build the vacancy factor for that KBU.
MR. MILLER: Q Thank you.
THE CHAIRPERSON: Just to follow up on that, Mr. Layton
--
MR. LAYTON: A Sure.
THE CHAIRPERSON: -- due to comparisons -- well, a
couple of questions. First of all, do you do
comparisons with other companies or does your HR
consultant provide any -- you know, are there any --
is there any published data around this? Because I'm
-- it's an issue -- or not an issue, but it's a
circumstance that's faced by almost every company.
You don't always have your FTE's filled. I mean --
MR. LAYTON: A Absolutely.
THE CHAIRPERSON: Yeah.
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MR. LAYTON: A Yeah, I'm not aware of any third-party
data on this. There may well be. As you say, every
company faces this challenge. Our approach was focus
on our individual KBUs and their circumstances.
THE CHAIRPERSON: All right. And so just to confirm,
again generally speaking, I'm not referring to a
specific previous year, but generally speaking, prior
to you including this calculation in -- or including
this circumstance in your budget forecasting, your
budget simply included -- or your budget provided for
all of the FTE positions that you had available?
MR. LAYTON: A Except for the ones we mentioned. Some
KBUs were doing this kind of approach in the past with
the factor, but absent that, yes.
THE CHAIRPERSON: So absent that then, that would
result in savings then that would arise. If you don't
take this approach, then those saving would have gone
to the shareholder, is that a fair statement,
generally speaking?
MR. LAYTON: A All else equal, yes. I will say that
some departments if they have vacancies will simply
use contractors instead. And so that's a way where --
that's a situation where you wouldn't have those
savings in that case.
THE CHAIRPERSON: Because that money, the money that
would have been spent on FTEs is spent on -- for
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budget purposes is spent on contractors, so it's a
wash.
MR. LAYTON: A Exactly, yes.
THE CHAIRPERSON: Do you have any idea then of over the
past number of years how much has accrued to the
shareholder as a result of this, of not doing this on
an enterprise basis?
MR. LAYTON: A Well, again, I think we manage our
budget on an overall basis and I think in -- it's
either three or four, or four of the last five, I
can't remember exactly which, we missed our net income
target, and so the shareholders actually received less
from us than they were expecting. So this is one
piece of that puzzle. We do manage that as well as
every other piece of our operating budget to --
THE CHAIRPERSON: Understood. But they would have
received a little less than the less that they
would've received were it not for --
MR. LAYTON: A I think I follow, yes.
THE CHAIRPERSON: Yes.
MR. LAYTON: A I think that's fair.
THE CHAIRPERSON: Thank you.
MR. MILLER: Q Mr. Layton, given the fact that -- and I
think I understood this from your answer, there is
some crystal ball gazing into the future about what
you're expecting, and so that's part of the judgment
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that you're applying, correct?
MR. LAYTON: A Yes.
MR. MILLER: Q And so given that --
MR. LAYTON: A Sorry, just to clarify, we don't
actually have crystal balls. We're -- hopefully we're
-- we're trying to use data. We're trying to make it
as --
THE CHAIRPERSON: We're disappointed.
MR. LAYTON: A We're trying to be as data focused as we
can. As I mentioned, we'll look at historical data.
We look into the future, but we base that on facts and
information, not merely a guess or anything. I don't
want to imply that it's that imprecise.
MR. MILLER: Q I didn't intend it was a literal crystal
ball.
MR. LAYTON: A Thank you, I suspected so. Thank you.
MR. MILLER: Q But if there is some estimation about
what's to happen in the future, which generally is
tough to predict 100 percent accuracy, then there's
likely to be some variation from your $5.6 million
vacancy amount, correct?
MR. LAYTON: A Correct.
MR. MILLER: Q And are you planning on measuring the
variation from your 5.6 million in the next RRA
application?
MR. LAYTON: A Absolutely. I think this is something
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that you would always want to evaluate how it's going
and if we see a different experience, then in a future
RRA we would take a different approach and we would be
informed again by the facts of the day.
MR. MILLER: Q So in your last RRA was this -- I think
Mr. Morton, or Commissioner Morton, referred to it as
an across the enterprise approach with respect to
vacancy factors. Was that done for the last RRA?
Proceeding Time 10:45 a.m. T28
MR. LAYTON: A As I mentioned, and I think it's in our
evidence, that in previous RRAs it was not a
consistent approach taken across the company. Some
groups were doing it, some groups were not. Some
groups would be using different methodologies. The
improvement that we made in this application is to
make a consistent approach across the company.
MR. MILLER: Q And so we don’t have any historical data
then to look at with respect to -- your estimate was X
dollars in savings, and you were off by this much.
Enterprise wide?
MR. LAYTON: A I do not.
COMMISSIONER MASON: Mr. Layton, if I can ask a follow
up question on this topic. With respect to staff's
attachment page 42, where it demonstrates the 5.6
million for these vacancy factor savings. That's in
Fiscal 2020, yes?
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MR. LAYTON: A Yes.
COMMISSIONER MASON: It says "incremental." Do I
interpret "incremental" as meaning savings over the
base budget? Over the labour budget without the
savings?
MR. LAYTON: A Yes, and that is why you'll see in
Fiscal 2021 it's incremental zero, but that just means
we are keeping those savings, we are not taking them
away the next year, they just stay at 5.6 in Fiscal
'21.
COMMISSIONER MASON: That was going to be my next
question. Is the 2021 incremental to 2020?
MR. LAYTON: A Yes.
COMMISSIONER MASON: So why wouldn’t -- thank you for
that clarification. Why wouldn’t you show a savings
of 5.6 million in that year as well? Maybe I am just
misinterpreting?
MR. LAYTON: A It's just a different presentation. We
could easily do a relative to before the RRA, and in
each year it would show 5.6 and 5.6.
COMMISSIONER MASON: Okay, but just for clarity, you are
expecting --
MR. LAYTON: A Absolutely.
COMMISSIONER MASON: -- savings in both years?
MR. LAYTON: A Yes indeed.
COMMISSIONER MASON: Thank you.
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THE CHAIRPERSON: I'm looking at 11 o'clock for a
break. I see you looking at the clock, if that's
okay.
MR. MILLER: Well, I was just going to make the
comment, Mr. Chair, that I am moving much quicker than
I had anticipated, and I am about to move on to a new
topic. So we could either break at 11, or we could
break for a brief break now, I am in your hands.
THE CHAIRPERSON: But you are not going to be finished
by 11?
MR. MILLER: No, I won't be finished.
THE CHAIRPERSON: Okay, let's wait. If you can work a
break in at 11 that would be good, thank you.
MR. MILLER: Q My next series of questions relate to
standard charges. So who would I direct those to?
MS. FRASER: A Standard labour charges?
MR. MILLER: Q No, standard -- well, I guess it's
partly labour. Let me ask the question and then you
can tell me who to address it to.
If we go to page 69 of the handout, there
is a section called "Standard charges", and it refers
to BC Hydro's electric tariff, and it's schedule of
standard charges?
MS. FRASER: A I can answer those.
MR. MILLER: Q You can answer these? Okay. Now, if we
go to the first paragraph, and this is, just for
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reference sake, this is page 2-27 of the application.
It says,
"Section 11 of BC Hydro's Electric Tariff
includes its Schedule of Standard Charges. Some
of these charges were last approved by BCUC
order number G-5-17 to BC Hydro's 2015 Rate
Design…"
It says,
"…BC Hydro proposed to regularly review its
Standard Charges and to propose changes as
required in the upcoming revenue requirements
application so that the charges would remain
current."
Correct?
MS. FRASER: A Correct.
MR. MILLER: Q And then in the next paragraph you make
the comment that you're not proposing any update to
standard charges in the current application, and you
also note that BC Hydro recently repatriated customer
services function from Accenture, and is still
identifying the costs of tasks involved in the account
charge, return payment charge and minimum connection
charge, correct?
MS. FRASER: A Correct.
MR. MILLER: Q Okay, and that's a spill over onto page
70 of the witness aid.
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Proceeding Time 10:49 a.m. T29
So when does BC Hydro expect to have
sufficient information in order to identify the costs
of tasks related to account charge, return payment
charge and minimum reconnection charges?
MS. FRASER: A I actually don't have an exact date of
when we'll have the information. I can certainly
check to see --
MR. MILLER: Q Just roughly what do you anticipate?
MS. FRASER: A Well, I would imagine that we would want
to have enough data from the repatriation as the --
you know, we're still working through what the savings
will be that BC Hydro will see. So, you know, I would
gather that it would be a year or two.
MR. MILLER: Q Okay.
MS. FRASER: A But it's something that -- something
that we review on a monthly basis, how we're doing
with the repatriation specifically of the contact
centre, because we have seen actually that we've been
able to achieve more savings by repatriating than
originally thought, so.
But I don't have an exact date.
MR. MILLER: Q Oh, that was fine. Your response was
fine.
On page 70 the handout, which is page 2-28
of the application, there's another comment made with
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respect to additional charges. It says -- this is
lines 3 to 5. It says:
"BC Hydro plans to review and file separate
applications related to the methodologies
for calculating the service connection,
Meter Choices Program and Net Metering
related Standard Charges, in the future."
Correct?
MS. FRASER: A Correct.
MR. MILLER: Q Now, BC Hydro currently has an
application with respect to net metering in front of
the Utilities Commission. Correct?
MS. FRASER: A Correct.
MR. MILLER: Q And to my understanding, but you may
have a better understanding, the application does not
include a review of the methodology for calculating
the net metering standard charges.
MS. FRASER: A Correct. In the net metering
application that is in front of the Commission, we
look to address some of the issues related to net
metering, specifically the overbuilding that we saw
some customers doing in terms of the amount of net
metering and technology and capacity that they were
putting in. We wanted to address high impact issues
first and we may follow up with another application in
the future.
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MR. MILLER: Q Is there any anticipated timing with
respect to that future application?
MS. FRASER: A I don't have that information in terms
of timing. I think once we get through the net
metering application process that's in front of the
Commission, then we'll look to the next phase.
MR. MILLER: Q Okay, new topic then. This is Exhibit
B-29. This was filed last week, where BC Hydro
provided updates on changes to six technology capital
projects and also referred to the cancellation of the
Metro North transmission project. Correct?
MR. LAYTON: A Correct.
MR. MILLER: Q So in that document, BC Hydro states
that any changes in capital expenditures or additions,
including resulting amortization, for the test period
associated with these updates will be managed within
the amounts that were included in the application,
correct?
MR. LAYTON: A Correct.
MR. MILLER: Q And actually the letter is found at page
68 of the witness aid.
Do you have any idea of what the dollar
amount impact to the revenue requirement is as a
result of these changes for the six technology
projects?
MR. LAYTON: A I do not offhand. You have to do some
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math to assess that.
MR. MILLER: Q So perhaps you can do this in an
undertaking. Can you provide the impact to the
revenue requirement broken down by expense categories
such as amortization expense, financing charges, and
operating expenses? Is that possible?
INFORMATION REQUEST
MR. LAYTON: A I think so. If I can clarify, Mr.
Miller, I think what we're saying here is that we're
seeking not to impact the revenue requirement on the
capital side. So to be responsive to your question I
think what it would show is that these project in
isolation, how much of the expected incremental costs
related to these updates in this letter. Would that
be responsive to your question?
MR. MILLER: Q Staff would like to know what the impact
would have been had you chosen to include in the
revenue requirement.
MR. LAYTON: A Thank you. I think we are saying the
same thing.
MR. MILLER: Q Okay. Commission Morton, I note we're
not quite at ll:00, but this is probably a convenient
time to break.
THE CHAIRPERSON: Okay, let's come back at ten past
eleven then. Thanks.
(PROCEEDINGS ADJOURNED AT 10:55 A.M.)
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(PROCEEDINGS RESUMED AT 11:10 A.M.) T30-32
THE CHAIRPERSON: Please be seated, thank you.
Please go ahead, Mr. Miller.
MR. MILLER: Thank you, Commissioner Morton.
MR. MILLER: Q My next series of questions are going to
relate to various regulatory accounts, the first of
which is the DSM regulatory account and we're going to
start on page 73 of the witness aid. Now, page 73 of
the witness aid sets out section 7 of Direction No. 7
to the BCUC. And I'm not going to ask you to
interpret this. For the record I'm going to indicate
that subsection 7(d)(i) states that the Commission
must allow BC Hydro to defer to the DSM regulatory
account the costs arise from the development,
implementation and administration of demand side
measures, including costs arising from the specified
demand side measures and public awareness programs.
And then if we turn to page 87 of the
application -- sorry, of the witness aid, this a
response to BCUC IR 3-298-1. At the bottom of the
page, BC Hydro will confirm that, with respect to the
DSM Regulatory Account, Directions No. 3, 6 and 7 to
the BCUC did not direct any changes to the regulatory
account other to approve a 15-year amortization
period. Correct?
MR. LAYTON: A Correct.
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MR. MILLER: Q And we go to page 88 of the witness aid,
this is a response to BCUC IR 1-150-1. BC Hydro also
confirmed that it defers all of its DSM expenditures
to the DSM regulatory account, correct?
MR. LAYTON: A Correct.
MR. MILLER: Q Now, during yesterday afternoon's
testimony, I think this was in response to a question
asked by Clean Energy, BC Hydro stated there are
various DSM related activities that are done outside
of the conservation and management team such as
marketing and sale of the DSM programs. And BC Hydro
indicated, I believe, that these costs are then
transferred to DSM via an accounting allocation. Is
that correct?
MS. FRASER: A Correct.
MR. MILLER: Q Is it fair to say that there are costs
for activities deferred to the DSM regulatory account
that are not directly involved in an installed DSM
measure such as marketing, sales, public awareness
programs, education and outreach?
MS. FRASER: A I think that all of the costs that go
into the DSM regulatory account meet the definition
that you just read out.
MR. MILLER: Q So all the costs are recorded in,
they're not recorded outside, is that right?
MS. FRASER: A The costs associated with DSM
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activities, including the public awareness, et cetera,
are recorded in the DSM regulatory account.
THE CHAIRPERSON: I'd just like to clarify some wording
here because the word "marketing" has been used and
the word "public awareness program" has been used, but
I don't see word "marketing" appearing in Direction 7.
So, are we using the term "marketing" and "public
awareness program" interchangeably?
MS. FRASER: A Yes. Yes, so when I'm referring to
marketing I am meaning the conservation programs that
you see on media and social media where we're
promoting conservation and energy management.
THE CHAIRPERSON: Thank you.
MR. MILLER: Q You may need to do this as undertaking,
but can you tell the panel what the forecast cost of
the activities such as marketing, sales, public
awareness, education and outreach are during the test
period?
MS. FRASER: A I can take that as an undertaking or you
may want to ask the panel number 5.
MR. MILLER: Q We'll direct it towards panel 5, thank
you.
Proceeding Time 11:15 a.m. T33
Now, if we can turn to page 89 of the
witness aid, and this is a copy of page 10-37 of the
application. And at the top of the page there's Table
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10-14 which shows the average measure life in years of
its DSM portfolio for the test period, correct?
MS. FRASER: A Correct.
MR. MILLER: Q And in footnote 371 down at the bottom
of the page, the first footnote, BC Hydro states:
"The average measure life is based on the
median number of years that the measure is
installed is still in place and operable."
Correct.
MS. FRASER: A Correct.
MR. MILLER: Can you confirm whether the measure life of
activity such as marketing, public awareness,
education, and outreach are included in the average
measure life in Table 10-14?
MS. FRASER: A I am unable to provide that information,
but again Panel 5 will be able to.
MR. MILLER: Q So maybe we'll defer the rest of these
questions because they are related. Or maybe I can
try them with you.
With respect to the activity such that we
just mentioned, this group of activities, marketing,
public awareness et cetera, are there any direct
energy savings that can be measured with these type of
activities?
MS. FRASER: A Again, probably better to ask Panel 5.
MR. MILLER: Q Fair enough. New topic, real property
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sales regulatory account. And we should go to page 71
of the witness aid. Page 71 is a copy of page 7-41 of
the application. At line 13 of page 7-41 of the
application, BC Hydro states:
"Since fiscal 2015 BC Hydro has been
preparing surplus properties for sale."
Now, Direction 7, which we've referred to earlier and
it's at page 74, required the BCUC to establish a real
property sales regulatory account to defer the
variances between actual and forecast real property
gains and losses, correct?
MR. LAYTON: A Correct.
MR. MILLER: Q And the regulatory account was then
established with interest to be applied to the account
based on BC Hydro's weighted average cost of debt,
correct?
MR. LAYTON: A Correct.
MR. MILLER: Q Now, in the application, and this page
72 of the witness aid, this is lines 3 and 4, BC Hydro
states:
"If this regulatory account was discontinued
at the end of fiscal 2019 then the balance
would be amortized into rates starting in
F2020 but instead, if this account was
maintained, it would mean that the exiting
account balance would not be borne by
ratepayers."
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Actually that goes through line 9. Do you see that?
MR. LAYTON: A I do.
MR. MILLER: Q Okay. Now, in the evidentiary update
which is on page 76 of the handout, this is under
column -- sorry, row 10. It's real property sales.
The amount in that account at the end of fiscal 2019
is 49 million, is that correct?
MR. LAYTON: A That's correct.
MR. MILLER: Now, can you clarify what is meant by the
phrase "borne by ratepayers"?
MR. LAYTON: A Yes, the real property sales account,
the idea here is that in the former ten year rates
plan BC Hydro committed to achieving $100 million of
sales of surplus properties and provide that benefit
to ratepayers over the period ending in fiscal 2024.
And so I think what we're talking about here is that
there is a balance in that account, as Mr. Miller
enunciate, $49 million at the end of fiscal '19 and
if -- well, when we achieve the targeted $100 million
of sales over the next five years, up to fiscal 2024,
as we've said in the application, subject to interest,
that account should self -- what we call self-clear.
In other words, the balance at the end again, only
subject to interest at the moment, would be zero
because we will have achieved $100 million in gains
and ratepayers would have got that benefit.
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MR. MILLER: Q Thank you.
THE CHAIRPERSON: Are you finished with that topic, Mr.
Miller? Could I just ask a follow-up question.
MR. MILLER: Yes.
THE CHAIRPERSON: So Direction 8 states that the balance
is recoverable but it doesn't state that it must be
recovered. Is that -- on March 31st, 2019?
MR. LAYTON: A I'm looking at my counsel here.
MR. GHIKAS: Maybe I could just ask a clarification
question about -- are you emphasizing the date there
or are you emphasizing the recoverability, full stop?
THE CHAIRPERSON: The date. The larger question is --
maybe I'm misunderstanding this, but Direction 8 says
that on a certain date it's recoverable but you are
not to recover it and you're proposing instead to
leave the balance and let it decline against future
gains.
Proceeding Time 11:21 a.m. T34
MR. LAYTON: A As we have the sales, yes.
THE CHAIRPERSON: So I am just wondering does Direction
8 give you the discretion to do that?
MR. GHIKAS: So as I understand it, I am just flipping
to see what page that direction was on, this package.
Do you remember what page it was, Paul?
MR. MILLER: 75?
MR. GHIKAS: Thank you.
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MR. LAYTON: A I think I can actually take a shot at
this, and then maybe let my lawyer correct me, if we
can try that?
THE CHAIRPERSON: If that's okay with your lawyer, go
for it. You don't have to check with your accountant,
at least.
MR. GHIKAS: So, as I understood it, what that's
actually doing in the cost recovery, you are talking
about Direction 8 now?
THE CHAIRPERSON: Well, page 72 it states, "pursuant to
Direction 8, the existing balance in this regulatory
account as of March 31st, 2019, is recoverable from
ratepayers." So I just want some clarification about
what that actually means.
MR. GHIKAS: Okay, so I am with you. I have the
section here. So what it's saying is, that the
accrued balance up to that date is recoverable.
THE CHAIRPERSON: Okay, but not necessarily on that
date?
MR. GHIKAS: That's right. And so it just must -- the
Commission is directed to allow recovery of that
balance. My submission to you is that you retain the
discretion to determine how it is recovered, and over
what period.
THE CHAIRPERSON: And what you are requesting is that
we leave it in there, and let it decline as the gains
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roll in, so to speak? Is that --
MR. LAYTON: A Yes.
THE CHAIRPERSON: Thanks for the clarification.
MR. MILLER: Q If we go to page 71 of the witness aid
again? The second paragraph under the heading "real
properties sales regulatory accounts," it's lines 10
to 12. It says,
"The timing of the completion of real estate
transactions is difficult to forecast
accurately, and that this regulatory account
would smooth the recognition of gains and losses
from real property sales that could otherwise
impact rates in a particular year,"
Correct?
MR. LAYTON: A Correct.
MR. MILLER: Q And so the main purpose of this account
is to smooth out gains and losses from real property
sales, is that right?
MR. LAYTON: A Essentially, yes. And to provide a
vehicle to ensure that when those sales do occur,
ratepayers get the benefit.
MR. MILLER: Q And since 2015 when this account was
approved, about 50 million has been credited to
ratepayers at the rate of 10 million per year,
correct?
MR. LAYTON: A Correct.
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MR. MILLER: Q And that treatment, or the crediting of
roughly 10 million a year, has had the effect of
reducing the overall revenue requirement and rate
increases for BC Hydro customers, correct?
MR. LAYTON: A That's correct.
MR. MILLER: Q And you are proposing to continue this
for another five years, correct?
MR. LAYTON: A That's correct.
MR. MILLER: Q Okay. Page 78 of the witness aid. The
second full paragraph, not including the indented
paragraphs at the top of the page. This is a response
to BCUC IR 3-299-3. BC Hydro states, that
"It has recognized annual cumulative gains of
4.4 million prior to F2020. And to reach BC
Hydro's revised net gains target of 100 million,
it is forecasting gains of 95.6 million between
F2020 and F2024, which would self-clear this
regulatory account subject to interest charges."
Correct?
MR. LAYTON: A Correct.
MR. MILLER: Q So tell me if what I am going to state
is wrong. Over the last five years BC Hydro has
forecast a cumulative net gain from property sales of
50 million, but has only actually realized $4.4
million of net gains, correct?
MR. LAYTON: A That's correct, and in our evidence, I
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don’t have it at my fingertips, but we've explained
some of the reasons why we absolutely would have liked
to see more gains by now. But what we've seen is that
in preparing properties for sale and actually going to
the market, and working with groups like First Nations
that we consult with when trying to facilitate these
kinds of transactions, it has been challenging to
actually conclude the transactions so far.
Proceeding Time 11:27 a.m. T35
What we said very clearly and very strongly I think in
our evidence is that we're absolutely committed to
achieving the $100 million for ratepayers by the end
of Fiscal 2024 and we will do so. And so I take your
point that we haven't seen the gains yet, but what
we're saying very clearly is we're still committed to
achieving those gains, our $100 commitment still
stands, and when we achieve those, that will be to the
benefit of ratepayers.
MR. MILLER: Q I wasn’t making any point so far, I was
just reading what was there.
MR. LAYTON: A Okay, thank you.
MR. MILLER: Q Now, gains of approximately 95.6 million
between F2020 and F2024 would be approximately 20
times higher than the 4.4 million you've actually
realized between F2015 and F2019, correct?
MR. LAYTON: A Yes.
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MR. MILLER: Q And there's no guarantee that gains from
future property sales will occur or materialize. I
mean it may well be probable, but there's no
guarantees, correct?
MR. LAYTON: A I agree with that, yes. As I said,
we're committed to that target, but there's never a
guarantee.
MR. MILLER: Q Now, on page 79, which is the response
to, again, to BCUC IR 3-299.3, BC Hydro states that:
"In the absence of this regulatory account, the
net gains would be to the account of the
shareholder."
correct?
MR. LAYTON: A Correct.
MR. MILLER: Q Now, prior to the creating of this
regulatory account, were the net gains and losses
going to the account of the shareholder?
MR. LAYTON: A I believe so, yes.
MR. MILLER: Q Now, on page 79 of the witness aid,
which is again a copy of the response to BCUC IR 3-
299.3, in the third paragraph on the page, it says:
"BC Hydro does not consider the period between
Fiscal 2020 and Fiscal 2024 over which time the
account is expected to sell clear subject to
interest charges to create material
intergenerational equity issues."
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Correct?
MR. LAYTON: A Correct.
MR. MILLER: Q Now, do you agree that to promote
intergenerational equity it's important to accurately
reflect gains and losses within a relatively close
timeframe to when those gains and losses occur?
MR. LAYTON: A I think so. And I think, again, the
program was always a ten-year program, so that was
always the timeframe under which we were operating,
but I agree with your suggestion, yes.
MR. MILLER: Q I wasn’t making any comment, I just
wondered if you agree with the general statement.
MR. LAYTON: A Yeah, I do.
MR. MILLER: Q And then, just generally, delaying
benefits to ratepayers when the benefits actually
occur promotes intergenerational equity, correct?
MR. LAYTON: A Sorry, can you repeat that, Mr. Miller?
MR. MILLER: Q Do you agree that delaying benefits to
ratepayers to when the benefits actually occur – so
matching them – promotes intergenerational equity
generally?
MR. LAYTON: A Yes.
MR. MILLER: Q And do you agree that if BC Hydro
continues its approach of forecasting gains of 10
million every year and it encounters further
difficulties or hurdles when selling properties,
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there's an increased risk of intergenerational
inequity?
MR. LAYTON: A I think so, although as I mentioned that
we view that five-year period as not generally
creating intergenerational equity. In other words,
within that five-year period if the gains are
different, we don't think that a five-year period
creates a lot of intergenerational equity.
Proceeding Time 11:31 a.m. T36
MR. MILLER: Q Okay. If you can turn to page 82 of the
witness aid. This is a response to BCUC IR 3.299.1.
And in the second paragraph of that response BC Hydro
explains why the actual net gains from real property
sales have been lower than planned ,which is mainly
attributable to a delay in sales. And then you
referenced several contributing factors for the delay
which include First Nation consultations on property
dispositions and environmental remediation prior to
sale. Agreed?
MR. LAYTON: A Agreed.
MR. MILLER: Q I just want to deal with the First
Nations consultations on property dispositions. As a
Crown Corporation are you required to go to First
Nations first to determine if they want to buy
property?
MR. GHIKAS: I'm going to arise, Mr. Chairman. Just --
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I think the question as phrased is asking about the
legal requirements of consultation and so perhaps if I
could ask my friend to rephrase it.
MR. MILLER: I could rephrase.
MR. GHIKAS: Thank you.
MR. MILLER: Q Is it BC Hydro's policy to go to First
Nations to determine if they want to acquire surplus
properties when they are going to be disposed of?
MR. LAYTON: A I'm a little out of my depth on this. I
would suggest probably this is a question for Mr.
Leonard coming up on Panel 4. Thank you.
MR. MILLER: Q Let's put that aside then, but let's
focus on the four items that are bulleted on the
response on page 82. Would you agree that some of
these contributing factors also create additional
unanticipated costs for BC Hydro?
MR. LAYTON: A Yes.
MR. MILLER: Q And these increased or possible
increased costs could result in lower net gains from
sales than originally forecast.
MR. LAYTON: A They could, but again, our commitment is
$100 million in net gains, so net of any costs that we
incur to achieve those. It's net $100 million.
MR. MILLER: Q Now, in response to BCUC IR 299.7, BC
Hydro provided a confidential list of properties that
will be sold to achieve the $100 million in net gains
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by the end of 2024. My question is, is the increase
in net gains from 50 to 100 million due to the
increase in the value of properties to be sold, or has
the number of properties increased, or is it a
combination of both?
MR. LAYTON: A So I can speak to part of that. Part of
it I think you'll want to talk to Mr. Leonard about.
I can speak to the increase from 50 to 100 million
dollars. That was a commitment that we made. The
initial commitment was $50 million and then we
increased it to 100 and that's because, in
consultation through the rates plan that's what we
thought we could achieve and we thought we could
deliver that value to ratepayers.
The number of properties and the reasons
why and so on, those are questions that Mr. Leonard
will be able to answer for you.
MR. MILLER: Q Okay. Now, there's a difference between
-- when you sell a property between net proceeds and
net gains, correct? Or is this a question for Panel
4?
MR. LAYTON: A That's probably a question for me. I'm
not sure of the answer to that.
MR. MILLER: Q Okay, so in a confidential IR, BC Hydro
-- and it's in its Exhibit B-16-1 and BCUC IR 2.99.7
which is confidential, BC Hydro provided a schedule
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that lists properties it had sold and properties for
potential future sale. And then BC Hydro has
realized 4.4 million from the sale of properties to
date which differs from the net proceeds provided on
the schedule, correct?
MR. LAYTON: A I don't have that in front of me. I
think it's probably again a question for Mr. Leonard.
If we can have a moment, we will check the IR though.
Mr. Miller, I do think that's a question
best directed to Mr. Leonard.
MR. MILLER: Q Fair enough. Now, on page 83 of the
handout, this is a response to BCUC IR 3.299.7. Down
at the bottom of the page, BC Hydro states that the
current lists of surplus properties are properties
that BC Hydro does not require for operational
purposes, correct?
MR. LAYTON: A Yes.
MR. MILLER: Q Now, BC Hydro core business is not about
selling land or assets, agreed?
Proceeding Time 11:36 a.m. T37
MR. LAYTON: A Agreed.
MR. MILLER: Q So, can you explain why there is such an
extensive list of properties that you need to dispose
of? Like what was led to the accumulation of all
these properties?
MR. LAYTON: A Again, I think that's a questions for
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Mr. Leonard. He leads, among other things, our
properties function and could speak to that.
MR. MILLER: Q Can you speak to whether "surplus" means
no longer used and useful?
MR. LAYTON: A I cannot.
MR. MILLER: Q Okay. I think then that probably the
balance of the questions should go to panel 4, you
said, correct?
MR. LAYTON: A Yes.
MR. GHIKAS: I think also I would just note for future
reference, I think a question about whether something
is used and useful is actually a legal question that
involves a legal interpretation to some degree. So,
questions that involve the factual issues about
whether something's in use or not I think are
completely appropriate but just when they're worded
like that it creates some problems.
THE CHAIRPERSON: Okay. Well, perhaps Mr. Miller could
rephrase when he puts the question to panel 4 then,
please.
MR. MILLER: We’ll address it in panel 4.
THE CHAIRPERSON: Okay, thank you.
MR. MILLER: Q Next series of questions is with respect
to the debt management regulatory account.
THE CHAIRPERSON: Sorry, we just go -- can I ask?
MR. MILLER: Sure.
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THE CHAIRPERSON: Without -- you know, I appreciate
some part of this question may be more appropriate for
panel 4, but to the extent that what's driving this
disposition of property is need to dispose of it for
whatever reason, then it's possible that you could
incur losses and I'm wondering what happens to losses
if they occur. Would they go into this account also?
MR. LAYTON: A It is about achieving net gains and I
think --
THE CHAIRPERSON: Then you can adjust the timing
accordingly if that's the driver.
MR. LAYTON: A Yeah, and I think Mr. Leonard probably
would give a better answer than I might, but I suspect
what he would say is that we wouldn't as part of this
program sell something if we were going to incur a
loss because it wouldn't contribute to the achievement
of the program.
THE CHAIRPERSON: But if there were a loss for whatever
reason, just from strictly the accounting answer to
the question, is it would go into this account, is
that correct?
MR. LAYTON: A I'd just like to read the original
direction. I think the answer to your question,
Commissioner, is yes.
THE CHAIRPERSON: Thank you. Thank you, Mr. Miller.
COMMISSIONER FUNG: Mr. Miller, may I just ask a
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question to follow up to Mr. Layton?
If contrary to BC Hydro's commitment to
achieve $100 million of net gains from property sales
by the end of 2024 and there's a large balance
remaining in that account as a result of the
Commission agreeing for you to continue the current
practice, what is BC Hydro's current expectation as to
what happens to that balance at the end of 2024?
MR. LAYTON: A I'm not sure we have turned our mind to
that, Commissioner, because I think, as I said, we're
very committed to achieving that. Thinking aloud, I
think under the direction the Commission is required
to let us recover the balance at the end of Fiscal
2019, I think, again thinking aloud without prejudging
how me might deal with that in a future set of
proceedings, but I think I might take a view that
perhaps we would seek to extend the program to ensure
that we did achieve that project. In other words, so
that we would not be in a position where we would be
recovering from ratepayers when we didn’t deliver on
our commitment.
COMMISSIONER FUNG: And in that event would you agree
with Mr. Miller's characterization that would raise
the issue of intergenerational inequity?
MR. LAYTON: A At some point, yes, absolutely.
COMMISSIONER FUNG: Okay, thank you.
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COMMISSIONER LOCKHART: Mr. Layton, so in terms of
either $100 million in value or the number of
properties, can you give us a sense of what proportion
are subject to First Nations consultations?
MR. LAYTON: A I cannot. Again, I think Mr. Leonard
will be happy to answer that question for you.
COMMISSIONER LOCKHART: Thank you.
MR. MILLER: Q My next topic is with respect to the
debt management regulatory account. And if you can
turn to pages 90 through 93 of the witness aid, these
are excerpts from the application for approval -- the
application for approval of the debt management
regulatory account. And they are pages 3, 6, 7 and
10. And that should be marked as Exhibit A2-6.
Proceeding Time 11:42 a.m. T38
(EXCERPT FROM BC HYDRO APPLICATION FOR APPROVAL OF
DEBT MANAGEMENT REGULATORY ACCOUNT, PAGES 3, 6, 7 AND
10 MARKED EXHIBIT A2-6)
MR. MILLER: Q Now, when the debt management regulatory
account was approved in 2016, BC Hydro stated in the
application, and it starts at line 7 on page 90 of the
witness aid, that the regulatory account is necessary
to capture market-to-market gains and losses from
future debt hedges as existing accounting options
available to BC Hydro under prescribed standards,
namely mark to market accounting, and hedge
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accounting, could give rise to the following two
undesirable consequences. And the first is,
intergenerational inequity and rates, and rate
volatility, and the second is increased overall debt
load and finance charges as a result of impacts on
dividends. Correct?
MR. LAYTON: A Yes.
MR. MILLER: Q Now, in the application, and this is
page 93, lines 9 through 16, BC Hydro states that,
"One of the pros in using this regulatory
account compared to the two other accounting
options available is that the amounts amortized
out of this regulatory account would be included
in finance charges. And these finance charges
would be eligible for inclusion in the
calculation of interest during construction,
otherwise known as IDC, to the extent the debt
relates to capital projects,"
Correct?
MR. LAYTON: A Correct.
MR. MILLER: Q Now, am I correct that interest during
construction can be capitalized and included in the
capital costs of the asset under construction and
thereby recovered through rates over the life of the
capital asset?
MR. LAYTON: A Yes.
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MR. MILLER: Q And that helps to better match costs and
benefits for customers, correct?
MR. LAYTON: A It does.
MR. MILLER: Q Now, in the current revenue requirement
application, and this is on page 94 of the handout, in
lines 16 through 18, it is stated that as a result of
adopting IFRS 14, interest during construction cannot
include de-amortization of the debt management
regulatory account, correct?
MR. LAYTON: A Correct.
MR. MILLER: Q Since interest during construction can
no longer be included in the amortization, can you
confirm that the debt management regulatory account is
still achieving its intended purpose and is still the
best option compared to other options available to
mitigate the two undesirable consequences?
MR. LAYTON: A Yes.
MR. MILLER: Q Yesterday I believe it was Mr. Keen
referred you to an attachment to BCUC panel IR 2.17.3,
and that's Exhibit B-31 dealing with future debt
hedges? Sorry, this one is not in the handout, do you
have it?
MR. LAYTON: A I have it, thank you, yes.
MR. MILLER: Q So, the first question is, where do the
interest rates on the right-hand column of the table
represent?
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Proceeding Time 11:46 a.m. T39
MR. LAYTON: A So those are the rates on the hedges.
MR. MILLER: Q The rates on the hedges?
MR. LAYTON: A Yes, the hedge contracts.
MR. MILLER: Q Can you turn to the Panel IR 2.17.4 of
Exhibit B-31? Let me know when you're there.
MR. LAYTON: A We're there, thank you.
MR. MILLER: Q I understand that IR response to make
two points. The first is the effective interest rate
is 3.02 percent and the hedged interest rate is 3.36
percent. Is that correct?
MR. LAYTON: A Yes.
MR. MILLER: And so if you go to the column that says
"settlement value", which is I think the fifth or the
sixth column on the Table to 217.3, or the attachment.
It's the same table I was asking you what do the rates
represent on the right side, right-hand column.
MR. LAYTON: A And sorry, which line are you one?
MR. MILLER: Q The line is "Hedges placed during 2018"
and particularly "2017-9-28". There the rate is 16.7.
That doesn't seem to match -- or sorry, 2.5 -- sorry,
on the right-hand side, 2.57. Excuse me, the table
that says on the right-hand table -- sorry, right-hand
column for the same timeframe.
So forget the settlement value, go right
over to the right side of the page. It's 2.57
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percent.
The query from staff is, this doesn't seem
to match either the effective interest rate or the
hedged interest rate provided in the response to
2017.4. Do you have any comment on that?
MR. LAYTON: A I'm just going to take a moment and see
if I can obtain the answer.
MR. MILLER: Q Yes.
MR. LAYTON: A Mr. Miller, I absolutely understand your
question and what staff is seeking confirm, I can't
immediately provide an answer to that, but I'm happy
to undertake to do so.
INFORMATION REQUEST
MR. MILLER: Thank you so much.
A couple of -- on a different topic.
THE CHAIRPERSON: Mr. Miller?
MR. MILLER: Yes.
THE CHAIRPERSON: Are you moving off the debt management
regulatory account?
MR. MILLER: Yes.
THE CHAIRPERSON: So I just have a couple of questions
for the panel, please.
Mr. Wong, I'm sorry, I don't have the
transcript reference for this but I seem to recall --
I think it was in your conversation with Mr. Austin
yesterday, and you said that -- it was a discussion
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about amortization and interest rates, debt interest
rates on long-term debt. And I think you said that
you can't associate any particular interest rate or
any particular debt issuance with a particular project
or an asset. Did I hear you correctly?
MR. LAYTON: A That's correct.
THE CHAIRPERSON: So that would seem to be inconsistent
with the statements made in the DMRA application,
where you are identifying specific debt with a
specific project.
MR. LAYTON: A Yeah, I mean the way we do the debt
issuance is, is we take a look at our cash flow
forecasts in future years. And so we take our capital
plan and our operating income as such, and say, "Okay,
this is our net cash expenditures."
Proceeding Time 11:51 a.m. T40
At that point then we need to determine
when we need to issue debt, and then that
determination is what then drives us to say, okay,
well if we need to issue a debt in this particular
year, say for ten years, then we're going to add an
interest rate hedge associated with that. We don't go
through and say, okay, well this particular piece of
debt is for, let's say, the Site C project or this
particular debt is for the PRES project, it's all just
done on a portfolio basis.
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THE CHAIRPERSON: So do all interest costs go into IDC
then?
MR. WONG: A Okay, so -- sorry, I understand your
question then. So we issue debt, then accounting
rules say when you do a capital project you're allowed
to capitalized interest associated with borrowing to
develop that asset.
THE CHAIRPERSON: I understand that concept.
MR. WONG: A Yeah. And so we're not saying, oh, we've
identified this particular piece of debt that goes to
that project, it's more of a concept that, okay, we
spend a billion dollars on a capital project, we have
to go borrow money, that billion dollars, in order to
--
THE CHAIRPERSON: But how do you know what interest
rate you’ve borrowed it at if you can't associate that
with a particular piece of data?
MR. WONG: A Yeah, so -- exactly. So we use a weighted
average cost of debt. So we look at our entire
portfolio and what our weighted average costs of the
entire portfolio debt is to allocate that cost of
interest to capitalize.
THE CHAIRPERSON: So your answer to Mr. Austin
yesterday could arguably have included that nuance
then, because you do in fact associate interest rate
costs with capital projects and you use a weighted
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average cost of debt to do that.
MR. WONG: A Yeah. And that's against the entire
portfolio of debt. There's no specific individual.
THE CHAIRPERSON: Right. Yeah.
MR. WONG: A And that was the distinction I was trying
to make there.
MR. MILLER: Q Thank you.
MR. WONG: A Yeah.
THE CHAIRPERSON: And second, second, I just would like
some confirmation that as Mr. Miller pointed out -- or
he questioned whether the debt management account is
still, you know, useful I suppose, or is still
achieving its intended purpose because of this IFRS
rule, and the difference between what was then and
what is now is that you've adopted IFRS since the
application for the deferral account. I just want to
confirm that that's the case. That this IFRS standard
didn't apply at the time you -- to BC Hydro at least,
or it didn't exist, I don't know, one of the two, at
the time you applied for the account. Is that
correct?
MR. LAYTON: A That's correct. And the implications of
the change are actually quite small relatively. What
it results in is a couple million dollar change and
what has to go through the Site C regulatory account
instead of the normal debt management process. And
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also about -- less than a million dollars in terms of
the difference to all the other capital projects
across the whole company in total, less than a
million-dollar change. And just for reference I'll
reference BCUC IRs 1.157.8 and 1.157.8.1 that talks
about some of those issues.
THE CHAIRPERSON: Thank you.
MR. WONG: A Yeah, and while the accounting rules have
changed and it's not a material change related to the
implication, as Mr. Layton put out, I have to say the
step management regulatory account is a very elegant
solution to managing a very complex area of accounting
and ensuring that costs are allocated to match the
benefits the ratepayers have. And so by using this we
don't have to do hedge accounting, therefore we can
reduce costs associated with hedge accounting, it's
very expensive, we don't have the auditor costs, so
it's a very nice way to tie it together.
THE CHAIRPERSON: Right. No, I appreciate that. I
remember the application.
MR. WONG: A Yeah, okay. Good, excellent.
THE CHAIRPERSON: Mr. Miller, given that we're at five-
to-twelve, is this a good time to take a lunch break?
MR. MILLER: So I have two very short, or expected to
be short issues to address. I expect to be about 10
to 15 minutes.
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THE CHAIRPERSON: And then you're complete your --
MR. MILLER: Yeah, and I'm done.
THE CHAIRPERSON: Well, I think the panel also has some
questions of the witness panel also so perhaps we'll
leave everything until after lunch then. We'll come
back at one o'clock, thanks.
(PROCEEDINGS ADJOURNED AT 11:56 A.M.)
(PROCEEDINGS RESUMED AT 1:01 P.M.) T41/42
THE CHAIRPERSON: Please be seated. Good afternoon, I
hope you all had a good lunch.
Good. Mr. Ahmed, I'm sure you have
something for us?
MR. AHMED: I do, we have some paper for you, Mr.
Chair.
THE CHAIRPERSON: Thank you.
MR. AHMED: There are three undertakings that should be
on everybody's desk, or handed around the room, and
one correction after that.
THE CHAIRPERSON: Okay.
MR. AHMED: The three undertakings, they are not
necessarily in numerical order by title, I will go
through them in the order they've been pre-numbered as
exhibits.
The first is BC Hydro Undertaking Number
10, and this is a response to Commissioner Lockhart's
questions yesterday about holdback pay for F2019. And
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the transcript reference for that is page 1073. And
BC Hydro has attempted to supplement this response
too, to provide a little bit more information as well,
based on the discussions earlier today. I believe
that should be Exhibit B-37.
(BC HYDRO UNDER TAKING NO. 10 MARKED EXHIBIT B-37)
THE CHAIRPERSON: Thank you.
MR. AHMED: The next undertaking is titled BC Hydro
Undertaking Number 7, that's an undertaking with
respect to my friend Mr. Austin's question about when
BC Hydro first funded the low carbon electrification
budget. And the transcript reference for that is page
1056. And I believe that should be Exhibit B-38.
(BC HYDRO UNDER TAKING NO. 7 MARKED EXHIBIT B-38)
MR. AHMED: The third one is titled BC Hydro
Undertaking number 5, and that was a request that my
friend Mr. Quail had with respect to retirement
statistics I believe. And the transcript reference
for that is page 1018, and the next exhibit number is
B-39.
(BC HYDRO UNDER TAKING NO. 5 MARKED EXHIBIT B-39)
THE CHAIRPERSON: Okay. Thank you.
MR. AHMED: And there is one small correction to be
made as well, and that is in reference to yesterday's
transcript, beginning at the bottom of page 1004, and
Mr. Layton, you were talking about the Metro North
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project, and beginning at line 25 you say,
"I think the Metro North project write off that
we mentioned in our letter will result in the
budget in Fiscal '21 being exceeded, and
therefore there is no true up."
Did you have a correction you wanted to
make about that?
MR. LAYTON: A I did. I was talking about the current
fiscal year, and so I should have said Fiscal '20,
instead of Fiscal '21.
THE CHAIRPERSON: Thank you.
MR. AHMED: Thank you, Mr. Chair.
THE CHAIRPERSON: Thank you. Mr. Miller, good
afternoon.
MR. MILLER: Thank you, Commissioner Morton.
CROSS-EXAMINATION BY MR. MILLER (Continued):
MR. MILLER: Q I have two more topics and then I will
conclude my cross-examination. The first topic
relates to the errata that was filed in Exhibit B5-2,
and it should be either a loose-leaf or the last page
of the handout. Do you have that?
Proceeding Time 1:04 p.m. T43
MS. FRASER: A Is it the Transmission Revenue
Requirement?
MR. MILLER: Q Yes.
MS. FRASER: A Yes, I have that.
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MR. MILLER: Q BC Hydro, down the bottom of the page,
the revised response, clarifies that:
"The point-to-point allocation to
distribution shown on Appendix A, schedule
3.4 line 12, represents the cost to use
point-to-point transmission service to re-
export the Canadian entitlement plus
associated scheduling and dispatch fees, and
that these costs are borne by BC Hydro
domestic load customers and is recovered
through BC Hydro's bundled sales rate."
Correct?
MS. FRASER: A Correct.
MR. MILLER: Q Now, can you confirm that the revenue
from the re-export of the Canadian entitlement is
included in the revenue requirement?
MS. FRASER: A The transmission cost associated with
the sales that Powerex makes of the Canadian
entitlement on behalf of BC Hydro is a point-to-point
transmission cost that is recovered through our
electric tariff.
MR. MILLER: Q So that revenue is recorded in the
revenue requirement, then?
MS. FRASER: A That's my understanding.
MR. MILLER: Q Okay.
THE CHAIRPERSON: Sorry, you're talking about
transmission rates, though. Mr. Miller is talking
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about revenues, I believe, from the sale of the
entitlement. Is that correct, Mr. Miller?
MR. MILLER: Q It was the revenue from the tariff is
what I understood Ms. Fraser to be referring to.
THE CHAIRPERSON: Is that what you mean?
MS. FRASER: A Yes.
THE CHAIRPERSON: Okay, the revenue from the tariff.
Okay.
MS. FRASER: A Yes, from the electric tariff. That's
my understanding, subject to check.
MR. MILLER: Q Subject to check. If it's different,
let us know.
MS. FRASER: A Yes.
MR. MILLER: Q Now, where in appendix A is that revenue
recorded? Is there a particular line item that you
can refer us to?
INFORMATION REQUEST
MS. FRASER: A I don't know exactly where in appendix A
it's recording.
MR. MILLER: Q Can we do it as an undertaking?
MS. FRASER: A Yes, I can. Yeah.
MR. GHIKAS: Just for clarity, Mr. Miller, would you
mind just restating what the undertaking is for us?
MR. MILLER: Q We would like to know, or staff would
like to know where in Appendix A, which are the
financial schedules, the revenue from the tariff, as
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Ms. Fraser put it, is recorded. Where is it shown?
Now, a different topic and my last topic,
and this relates to a discussion that was held
yesterday regarding the uniform systems of account.
And I believe it was by the Old Age Pensioners
Association regarding Hydro's request in this
application for a rescission of Directive 57 from the
BCUC's prior decision in the F2009/2010 RRA. And I
believe a copy of excerpts of that decisions have been
circulated, that should be marked as Exhibit A2-7.
Proceeding Time 1:04 p.m. T44
(EXCERPTS FROM BCUC'S F2009/2010 RRA DECISION DATED
MARCH 13, 2009 MARKED EXHIBIT A2-7)
MR. MILLER: Q Now, in the top paragraph on page 216 of
that decision, in the second line -- sorry, second
sentence, it says:
"The ability to have reported information in a
particular year that is comparable without
modification to any other years assists in
establishing a historical financial record that
is transparent, comparable and consistent."
Correct?
MR. LAYTON: A Yes.
MR. MILLER: Q And then the directions that were
referred to, or the directives, were that BC Hydro was
to adopt a BCUC uniform system of account by no later
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than the F2012 reporting year, correct?
MR. LAYTON: A Correct.
MR. MILLER: Q Now, was the purpose, to your
understanding, of this directive to provide BC Hydro's
data on a comparative basis year over year?
MR. LAYTON: A I believe so, yes.
MR. MILLER: Q And are you aware of any discussion in
that decision that would indicate the purpose of that
directive was relating to a comparison to other
utilities in other jurisdictions for benchmarking
purposes?
MR. LAYTON: A I am not.
MR. MILLER: Q Now, yesterday -- I don't think you need
to turn there, you'll probably recall the exchange,
but on transcript page 1013 Commissioner Morton asked
BC Hydro to confirm that it uses, and he used the term
"our uniform system of account, not the FERC uniform
systems of account" and you agreed. Do you recall
that?
MR. LAYTON: A I do, although I'm not sure that's quite
the right context. I think the discussion
Commissioner Morton and I were having was around if we
were to revert and start using uniform system of
account again, whether the old BCUC one would be
preferable to the FERC one. At the moment we're using
neither, just so we're clear, in BC Hydro.
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THE CHAIRPERSON: That's where you would go to the
transcript reference, Mr. Miller.
MR. MILLER: Q So, on page 1013 down towards the bottom
where it says, "THE CHAIRPERSON" starting on line 24.
It says,
"Mr. Layton, so just to be clear, when you spoke
just now about the US of A, you're talking about
our US of A, so to speak, not the FERC US of A?"
And Mr. Layton responds over the top of page 1014,
"I am indeed, yes."
So, that's just for context purposes.
MR. LAYTON: A Yeah, and I agree with that and I would
just refer to the lines immediately before that on
transcript page 1013, where on line 16 to 23,
hopefully it's clear there that I'm talking about a
hypothetic situation where we return to using the US
of A. I don't want to leave the impression that we're
using it today, we're not. This was a hypothetical
around were we to resume using it, which one might be
useful.
MR. MILLER: Q Fair enough. Now, was it your
understanding when you answered the panel Chair's
question that he was referring -- that you understood
him to refer to the B.C. uniform systems of account
that was referred to in the F2009/2010 RRA decision?
MR. LAYTON: A Yes.
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MR. MILLER: Q Are you aware of when the BCUC uniform
systems of account was last updated?
MR. LAYTON: A I am not.
Proceeding Time 1:12 p.m. T45
MR. MILLER: Q Would you, for the purposes of this next
series of question, assume that the uniform systems of
account was brought in in the 1960s, BCUC uniform
system of accounting was last updated in May 1980, and
hasn’t been updated since then. That's roughly a 40
year period that we are talking about since there has
been revisions to the Uniform System of Account,
correct?
MR. LAYTON: A It would be, yes.
MR. MILLER: Q Now, your business has evolved over the
past 40 years, and there are different cost centres
and different asset categories, correct?
MR. LAYTON: A Yes.
MR. MILLER: Q Now, at page 1014 of the transcript you
made the comment that if BC Hydro,
"…were we to receive feedback that the Brattle
study in and of itself is very valuable, then we
might actually want to think about, could we
follow the FERC? Because that would make,
actually, the benchmarking much simpler."
Correct?
MR. LAYTON: A Yes.
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MR. MILLER: Q I'm going to read a section of the
Utilities Commission Act to you, I'm not going to ask
you to interpret it, but under section 49 of the UCA,
it says,
"The Commission may, by order, require every
public utility to do one or more of the
following…"
And under subsection (a) it says,
"(a) keep the records in account of the conduct
of the utility's business that the Commission
may specify, and for public utilities of the
same class, adopt a uniform system of accounting
specified by the Commission."
Now, do you have that in front of you?
MR. LAYTON: A I do now, yes.
MR. MILLER: Q Okay, there is no specific reference in
that section that -- to BCUC's uniform systems of
accounting that you can see, is there? It just says
"a uniform system of account, specified by the
Commission," correct?
MR. LAYTON: A I agree.
MR. MILLER: Q Now, given that BC Hydro is seeking
relief to continue to report under the BCUC's uniform
systems of account, which I've asked you to assume
hasn’t been revised since 1980, is BC Hydro asking or
does it have an answer to whether or not you are
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seeking to adopt any other set of UCA [sic] in order
to meet the intent of the 2009/2010 RRA decision?
MR. LAYTON: A So, in the application we have not
sought -- or we have not proposed to use any other
system of account, we have simply sought to rescind
the previous order.
MR. MILLER: Q Do you have an opinion? Or does BC
Hydro have an opinion on whether FERC's uniform system
of accounting would be a reasonable and easy
transition for it to use?
MR. LAYTON: A I think there is a bunch of work that we
would need to do to see how easy or hard that is. I
think the point that I was making yesterday I our
conversations was that if we get the feedback from the
Commission that the Brattle study was useful, that was
based on the peers using the FERC uniform system of
account. So if the panel feels that there is a lot of
value in that particular study, the Brattle study,
then perhaps that would be useful to use the FERC
system of accounts instead of the BCUC system of
accounts.
MR. MILLER: Q One last question and then I'm done. Do
you know how often FERC updates their uniform systems
of account?
MR. LAYTON: A I do not.
MR. MILLER: Q Are you aware whether for comparison
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purposes, what other Canadian utilities use? Is there
a standard uniform systems of account?
MR. LAYTON: A My understanding is there is no such
standard across Canada.
MR. MILLER: Q Thank you, those are my questions.
Proceeding Time 1:16 p.m. T46
THE CHAIRPERSON: Thank you, Mr. Miller.
The panel has some questions.
COMMISSIONER LOCKHART: Mr. Layton, I'd like to go back
to the real property regulatory account, and I
appreciate that Panel 4 will get inundated with a lot
of questions about this, but I'm hoping that perhaps
we can clarify some of the things. When was this
regulatory account established?
MR. LAYTON: A It was established, I believe, in fiscal
2015 which was the first year of the ten year rates
plan.
COMMISSIONER LOCKHART: And do you happen to know the
balance for fiscal 2015 or 2016? I see that we've got
the balance for 2017.
MR. LAYTON: A Yeah. Just one moment please. I can
find that easily.
And just for reference I'm referring to
Table D-2 of appendix D which is the evidentiary
update, and in their on line 10 -- well, unfortunately
on this table, I only have back to fiscal '17 but at
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the end of fiscal '17 the balance was $28 million.
Fiscal '18, $38 million. Fiscal '19, $49 million.
Happy to get fiscal '15 and '16, I just don't have
those at my fingertips, I don't think.
COMMISSIONER LOCKHART: Sure, okay. If you could, I
would appreciate that.
INFORMATION REQUEST
COMMISSIONER LOCKHART: Essentially the 2017, 2018,
2019, those amount represent losses, is that correct?
MR. LAYTON: A It essentially represents that we had
what I will call minimal sales during those periods.
So they are not losses per se, they are variances to
plan. So we planned to achieve 10 million in sales
and we didn't and so it essentially represents that
variance plan, which is most of the plan.
COMMISSIONER LOCKHART: So if that $10 million started
out in 2015, then by 2017 we would have had $30
million you were expecting, and the fact that you've
got $28 million means there were $2 million in sales?
MR. LAYTON: A Yes, I think that's about correct, yes.
COMMISSIONER LOCKHART: I see. And so then in 2019
when we've got $49 million in there, that was kind of
a net of $1 million in sales?
MR. LAYTON: A No, slightly more than that, but there
has been interest on that account which is why it's at
49 million. So there are a few million more in sales
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than that.
COMMISSIONER LOCKHART: And then in fiscal '20 $42
million. So you're expecting that you will have
achieved some more sales to reduce that balance.
MR. LAYTON: A Yeah, and we have achieved some sales in
fiscal '20. I don't have an up-to-date figure, but Mr.
Leonard coming up in Panel 4 will be able to provide
you with a pretty up-to-date number on that.
COMMISSIONER LOCKHART: And how -- this represents
sales of land as opposed to building, is that right?
MR. LAYTON: A Correct.
COMMISSIONER LOCKHART: And most of the properties have
buildings on them? Or is that too general a comment?
MR. LAYTON: A I'm not sure. Again, I think Mr.
Leonard can help you there. He's got the familiarity
on all the properties on that list.
COMMISSIONER LOCKHART: What actually constitutes a
loss? It's a loss on the initial price that was paid?
MR. LAYTON: A It would be a loss on whatever the
value, the original cost was. So on just a piece of
land that doesn't have anything on it, it would just
simply be whatever it was acquired for. If there were
assets on that land, it could become more complicated.
COMMISSIONER LOCKHART: Except this doesn't represent
any of the assets, or losses on the assets. It's just
the losses on the sales of land?
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MR. LAYTON: A Well, this just represents the fact that
we've have variances to plan on the sales of land.
So it's essentially saying we haven't had the gains
yet. We're just still working through trying to get
those 100 million gains.
COMMISSIONER LOCKHART: How do you determine that, even
though you have had years of losses against plan, that
suddenly something is going to happen and now we're
going to expect gains? How does that come about?
MR. LAYTON: A I think, as I mentioned before earlier
this morning, it hasn't been a fast uptake to get
these sales. I think we acknowledge that. We would
have liked to see them come more uniformly and come
sooner, but for the same reasons we talked about
before, whether that's environmental remediation,
whether it's preparing the properties for sale,
whether it's the market conditions, whether it's
consultations with First Nations, all of those factors
have meant that we haven't had the sales occur as fast
as we would have liked.
What I said this morning was that we're
absolutely committed to that plan and therefore we're
committed to it by the end of fiscal '24 we will
achieve those sales. And so I think the passage of
time has helped us prepare those properties and now we
are still committed to being able to achieve those
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sales by the end of Fiscal '24.
Proceeding Time 1:21 p.m. T47
COMMISSIONER LOCKHART: All right, thank you.
THE CHAIRPERSON: Can I just ask a follow-up question?
MR. LAYTON: A Sure.
THE CHAIRPERSON: Given what you've just said, do you
think it's fair to say that continuing this strategy
puts the ratepayer in at least some risk that the
losses will continue?
MR. LAYTON: A I think that's fair. Again, our
commitment is to make sure that we achieve our
commitment of $100 million, but I think your comment
is fair, yes.
THE CHAIRPERSON: Thank you.
COMMISSIONER MASON: Okay. Mr. Layton, I'll give you a
break and as Ms. Ryan a couple of questions. I'll be
back to you of course.
MR. LAYTON: A Okay.
COMMISSIONER MASON: Hopefully a fairly easy question.
Ms. Ryan, you mentioned in your earlier testimony that
BC Hydro is adjusting its hiring of apprentices
because of the delayed retirements of some employees
and perhaps receive lower demand in the short-term.
I'm wondering if you can explain – perhaps I missed it
last time – how you're going to be sure that in a few
years' time BC Hydro doesn't have a shortage of
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qualified employees that could have been taken on as
apprentices in the test period?
MS. FRASER: A Maybe I'll start just with a high-level
comment. The apprentice program is actually managed
and administered through our safety and chief
compliance office group, so not under human resources.
But human resources is very much involved in that
process as well are the operations groups who actually
take on those apprentices.
And the process that occurs every year is
that there is an analysis and discussion of the
apprentice program, what the resources are required in
the different operations groups for powerline
technicians and et cetera. And what happens is the
group that's responsible for the apprentice program
works with our operations group and the human
resources group to determine, you know, what we should
do from an intake perspective. And they do go out,
subject to check, it's five or ten years out, and so
they are thinking very long-term in terms of --
long-term for what the resource requirements are.
COMMISSIONER MASON: Thank you.
MS. FRASER: A Does that help?
MS. RYAN: A Yeah, that's helpful. Sorry, I'm quite
new to BC Hydro and it's just -- it's not in my area,
so it's something I've just been learning, so I
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apologize. And thank you to Janet.
COMMISSIONER MASON: No, no. Thanks, Ms. Fraser.
On Tuesday is response to a question from
Mr. Ince, I believe, Mr. O'Riley mentioned that there
had been some incidence of bullying and harassment,
including sexual harassment at BC Hydro. In addition
to any of the harm done to the victims themselves,
there's obviously a risk of harm to BC Hydro as a
corporation, whether it's financial, reputational and
so on. Mr. O'Riley made mention of a code of conduct
manager and of potentially external investigations
when appropriate.
I'd just like to understand the process by
which accusations, whether it's from a victim or from
a whistle-blower, are handled at BC Hydro these days
and how the various parties -- what the various
parties do in their respective role?
MS. FRASER: A Sure. I can respond to that. We have a
merits and ethics office and officer that reports
directly to myself. So is separate from the human
resources group and intentionally so to maintain some
separation there, not unlike an internal audit group.
And we have a Code of Conduct. We also have a
respectful workplace policy, and we have a merit based
hiring practice.
The role of the merit and ethics office is
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to hear employees' concerns and inquires around those
three things. When an individual is feeling as though
they are being treated unfairly, or they are being
treated in a way that is unwelcome or inappropriate,
they have a couple of different options on how to
reach out.
Proceeding Time 1:27 p.m. T48
We have an anonymous line where people can
phone and get advice anonymously. They can contact
our ethics office directly. We also tell them that
they should talk to their manager or if they're not
comfortable talking to their manager, maybe go to
another manager within the organization and lastly, to
talk to their HR business partner.
So we have a lot of information on our
internal website that tells employees how they can
reach out if they are subjected to any kind of
inappropriate behaviour.
When it reaches the ethics office and
becomes and official complaint two things can happen
depending on what the complaint is. It can either be
dealt with through an internal investigation through
the human resources business partners or it can go to
an external investigation and it is the ethics officer
that determines which route it will go.
For all matters of sexual harassment, they
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go through an external investigator, and we have two
of them that are on contract to do this work. They
have this set process they go through independently.
We receive a report and the investigator tells us
whether or not they have found in favour of the
complainant or the respondent, and then management
then determines what the consequence is. And in
sexual harassment cases the final decision makers are,
in all cases, myself and Mr. O'Riley.
COMMISSIONER MASON: Okay, thank you. So when the
results of an investigation come, you said, "they come
to us" that means the -- which group is "us", sorry?
MS. FRASER: A So, it's set out in our policy who
precisely it goes to. So the investigation report
will go to the chief human resources officer, will go
to -- well, it comes to the ethics office, then it's
distributed to the chief human resources officer, the
executive in charge of that particular area and then a
copy comes to myself and Mr. O'Riley.
COMMISSIONER MASON: Is this process anonymous as far
as the complainant or whistleblower is concerned?
MS. FRASER: A So, if a complainant comes forward they
agree to the investigation and so the respondent will
know, you know, that the investigation is going on.
They will be -- it's separate from a whistleblower.
COMMISSIONER MASON: Okay, so they're two separate
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processes for you?
MS. FRASER: A Two separate.
COMMISSIONER MASON: Okay.
MS. FRASER: A You can do something anonymously and
therefore that person, the whistleblower, is not
identified by anyone but, you know, we encourage
people to come forward and it's -- for the
investigation, if you can identify specific incidents
that have happened, that is more efficient in getting
to the root of the problem.
COMMISSIONER MASON: You haven't mentioned the legal
department in any of your description. Is that
because the investigations, whether anonymous or not,
are conducted entirely by these independent experts?
MS. FRASER: A Yeah, and they are lawyers who actually
carry out the investigations and it is completely
separate.
COMMISSIONER MASON: Understood.
MS. FRASER: A When the report comes in and we're
determining what action we're going to take, we would
obviously involve our internal employment law experts,
depending on the course of action we were taking.
Proceeding Time 1:31 p.m. T49
COMMISSIONER MASON: So, would you characterize these
investigations then as fact finding?
MS. FRASER: A Yes. Fact finding, and then the
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investigators use their techniques to determine
probabilistically who they -- what fact they think is
the accurate fact. So it's a balance of
probabilities.
COMMISSIONER MASON: Do they tend to look -- not tend
to. Do they just look at the specific circumstances?
Or do they make comments also on beyond that, in terms
of BC Hydro's culture? Because I think that was the
context where Mr. O'Riley was making his comments.
MS. FRASER: A There have been reports where they do
make some other general observations. But it tends to
be focused on exactly the specifics that the complaint
is about.
MS. RYAN: A If I could add, it is an area where we in
human resources are focusing on going forward around
inclusion and diversity and making sure that everyone
feels safe and comfortable to bring their whole self
to work, and there is a number of initiatives such as
Bystander training that we are supporting to ensure
that we have a safe and holistic culture that everyone
feels welcome.
COMMISSIONER MASON: Great. Thank you. I think I have
-- oh yes, one more HR question, if I may, or HR
related. In the application, and I think you've
referred to this in testimony, BC Hydro estimates
savings of $8.2 million a year from the repatriation
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of certain tasks from Accenture.
So my question concerns how we can have
confidence that those savings are sustainable.
Firstly, as a background question, is it reasonable to
assume that the tasks or the work that you've
repatriated, you're doing the same work now that
Accenture was doing? So it is comparable?
MS. RYAN: A Yes, so that was in customer service, HR,
finance, payroll, and IT, yes. All of that was
brought back in to be done by --
COMMISSIONER MASON: So they are doing basically the same
work?
MS. RYAN: A Yes.
COMMISSIONER MASON: So what I'd like to understand is
how those savings were achieved. So for example, were
they achieved because the costs per person are lower
in BC Hydro than they were in Accenture? Or are you
more efficient than Accenture because you are doing
the same work with fewer people? Or is it some other
factor which is reducing the cost?
MS. FRASER: A Well, I can comment on the customer
service group that was brought in, that that was the
largest group, it was our contact centre. And we are
achieving savings for a reduction for sure in
management roles, because we don’t have to manage our
contract anymore.
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As well, and I'm just some high-level
examples, is in the contact centre, we are able to be
more flexible with the resources that are working
there. So, for example, we get a lot of questions
related to electric vehicles, and that wouldn't have
been covered before, and now we can just have our call
centre representatives -- you know, also some of them
answer those questions. So, we are able to be more
flexible in how we're using the resources that we
have, and those are just a couple of examples for the
contact centre.
COMMISSIONER MASON: But they speak to efficiency I
think in the term that I asked?
MS. FRASER: A Yes.
Proceeding Time 1:36 p.m. T50
COMMISSIONER MASON: Okay, thank you. In the same
section of your application, I think it was 5.6, you
say that you do expect standard labour rates to
increase over the test period. So I’m not asking for
an estimate of numbers, but wouldn't that suggest that
the savings could be eroded during the test period and
beyond?
MS. FRASER: A I'm sorry, are you asking back to the --
COMMISSIONER MASON: From, sorry, the savings from the
repatriation. Yes, sorry. It was all about that.
MS. FRASER: A The standard labour increases in the
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test period are related to the salary increases that
we've chatted about, the employer health tax which
will be applied across for every employee and then
just inflationary increases related to the benefits
plans that we have.
So I think the savings for the Accenture
are already part of that wholistic picture.
MR. LAYTON: A Yeah, and I'll just expand to hopefully
answer your question as well, Commissioner. I think
that it's true that the employees who have repatriated
will see salary increases through higher standard
labour rates in the future, but I think generally when
we have contractors, we see the same thing, which is
to say that most costs tend to increase with inflation
over time and therefore whether insourced or
outsourced, that's a pressure probably either way.
How it actually gets experienced, the deltas and so on
can differ, but it's not something that we avoid by
outsourcing. It's an issue in either situation.
COMMISSIONER MASON: I appreciate it's only an
estimate, but your estimate was the same savings in
each year and I was thinking if your costs are going
up, you must be becoming more efficient to overcome
the cost savings. Okay. Thank you.
And while I have your attention, Mr.
Layton, I do have one more final financial question.
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It relates to interest expense costs, and this came up
yesterday. I believe it was Mr. Keen who was
referring to a response that you'd made to one of
their IRs. It's response -- BC Hydro's response to
AMPC IR 1.4.2.2, and you had an attachment and it's
probably not necessary but absolutely fine if you
wanted to find that. It's got a list of debt
instruments, outstanding bonds, Canadian dollar bonds.
The question is, as an example, line 2 of
that table shows a bond that's nearly $600 million in
outstanding debt. It was issued in September 1990,
coupon rate is 10.6 percent, which I think we would
agree is considerably higher than current interest
rates on bond debt.
In that table, in that IR response BC Hydro
showed that those interest costs of, I think, 63
million in fiscal 2020, 27 million in 2021. So that's
over $90 million in interest costs just on that one
bond.
It expires in September 2020. So I
appreciate it doesn't have long to live. But that is
a very large amount of interest to be paying on a
bond. Is it something that -- well, I suppose the
first question is, are those interest costs real costs
to BC Hydro in the two fiscal period referred to
there?
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MR. LAYTON: A Yes, absolutely. That is the bond and
the interest rate that's applicable related to that,
yes.
COMMISSIONER MASON: Okay. Is there no way, or has BC
Hydro found some way to offset those interest costs?
Is it not possible to retire the bond? I'm not a
financial expert, but it does seem that there is a
very large amount of interest being paid there.
MR. LAYTON: A Yeah. Well, specifically I haven't
looked personally into whether we could retire this
bond, knowing once you enter into long-term debt at a
fixed rate, particularly as interest rates change and
fall like this, it becomes very difficult. Often in
order to get out of that you're going to need to pay
up the present value of all the interest that you
would need to pay in the future. There might be some
discount associated with that.
So historically I don't believe BC Hydro
has gone through and look at retiring the debt early
and paying the penalty costs. And certainly that
would be a -- on that current basis, a big shock to
expenses in order to do that. So that's the situation
from that perspective.
COMMISSIONER MASON: Okay. So there's no provision
within the bond itself to retire it obviously without
buying it back at the present value.
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MR. LAYTON: A Yeah. Highly likely there'd be a
significant penalty essentially to retire the bond
early.
COMMISSIONER MASON: Okay. Great. I think that
answers my question, thank you.
THE CHAIRPERSON: Thank you. A question for Mr.
Morison. I'm looking at these capital projects in B-
29, and in particular on page 4, the next generation
desktop. I think you talked a little bit about that
yesterday.
MR. MORISON: A Correct.
THE CHAIRPERSON: And that's to upgrade roughly 9,000
personal computers and upgrade them to Windows 10 and
the newer version of office.
MR. MORISON: A That's right.
THE CHAIRPERSON: Is that right? And it says the
capital cost range is 6.3 million to 11.1. You don't
have any tighter estimate than that? It's --
MR. MORISON: A Our current forecast is $12.7 million.
THE CHAIRPERSON: Right. So when I do the math on
that, it seems like that comes to, I don't know, $1300
dollars a machine, something like that.
Proceeding Time 1:41 p.m. T51
MR. MORISON: A Correct.
THE CHAIRPERSON: Yeah. That seemed like a lot to me,
and I realize I might be off base, but I just wondered
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if you had any comments and can you assure me that
it's not.
MR. MORISON: A Yeah, it does seem like a lot at first
blush. You have to recognize that those are 9,000
laptops generally held by individuals that have to be
completely reimaged. Many of them have different
applications on them, so we have to progression test
that in reimaging to ensure that the new operating
system doesn't break any of the applications that are
on those machines.
THE CHAIRPERSON: Right, but you don't have to
regression test every single machine, you just have to
regression test every application against the --
MR. MORISON: A Every application, but many machines
will have a unique set of those applications so we
found that -- I think the original estimate was under
$10 million and that rose to over 12, primarily for
two reasons -- well three reasons. One was that we
had more work to do on the security to make sure that
the security was good on those machines with the new
operating system. The second one was that we found
that many of those laptops needed higher touch for
reimaging than we thought. So TELUS is our service
provider reimaging those machines, they have to go and
actually physically touch those machines to reimage
them.
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And the third one was we had an upgrade of
the operating system mid-way in that project so we had
to actually upgrade the machines involved. So that
all in all brought that cost up to $12.7 million.
THE CHAIRPERSON: Okay, thank you. Thank you very
much.
MR. WONG: A Just to let you know, there's a lot of
pressure from my perspective and looking at these
costs as well and --
THE CHAIRPERSON: Okay.
MR. WONG: A -- presents to the executive team on these
things, so we do allow them to push on it.
THE CHAIRPERSON: I understand, thank you. A couple of
questions for Ms. Fraser. I don't have the transcript
reference here but I believe that yesterday you
mentioned in a longer list of things that one of the
items that pay incentives are tied to or are
associated with are rates. Did I hear that correctly?
Keeping rates low, I think, is what you may have said.
MS. FRASER: A Yes. And it was, I believe, mentioned
this morning too. So our service plan scorecard
contains a metric of achieving first quartile for
residential according to the Hydro Quebec report and
so the service plan contains a number of metrics,
that's one of them, and how we achieve all those
metrics is used for holdbacks for the corporate
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portion of the holdback.
THE CHAIRPERSON: But basically the metric is whether
you match or come in below Hydro Quebec's rate?
MS. FRASER: A It's whether you're in first quartile or
not, yeah.
THE CHAIRPERSON: Right. So if government comes along
with a direction to us to set rates at a certain
amount or not increase rates so that that aligns it
with -- and then orders a rate smoothing account, do
your employees still get the benefit of that
incentive?
MS. FRASER: A They would. They would still get the
benefit. And remember, the holdbacks, I believe Ms.
Ryan said, it's 1 percent of the employee population
that get those holdbacks.
MS. RYAN: A That's correct.
THE CHAIRPERSON: Understood. But your executive team,
for example, gets --
MS. FRASER: A Yes.
THE CHAIRPERSON: So that could be described as a bit
of a windfall from a government decision then, one
could describe it that way, couldn't one?
MS. FRASER: A If they're setting rates to ensure that
-- or if they're making directions to ensure that our
rates are actually in the first quartile, then that's
beneficial from a perspective of the amount of
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holdback.
THE CHAIRPERSON: Right, but you don't have to manage
costs to those rates though. During the rate
smoothing period or during the ten-year rates plan
rates were set but you didn't have to manage cost of
those rates because there was a rate smoothing
deferral account in which costs went. So you're still
getting the benefit of the incentive, presumably,
assuming that those rates put you in that quartile.
You would still get the benefit of the incentive
without having to do the managing costs part of it?
MS. FRASER: A Yeah, so during the rates plan period we
were managing costs to the rates plan.
THE CHAIRPERSON: Okay, and that's what the incentive
was based on then?
MS. FRASER: A No, the incentive was still based, you
know, on the one -- on that metric. But internally we
had to, for government, meet the rates plan.
THE CHAIRPERSON: Understood.
Proceeding Time 1:46 p.m. T52
MS. FRASER: A And, you know, there were times during
the -- especially when we saw some closures early on
in the forest industry, that we really had to make
some tough decisions internally to stay on the rate
plan, because that was our commitment to our
shareholder, was to stay on that rates plan, and so we
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were definitely managing, you know, costs internally
to keep them as low as possible.
THE CHAIRPERSON: But is it fair to say though that --
let's say -- to simplify this let's say there's two
components to the ten-year rates plan. One is the
costs the government asked you to manage to, and the
second are the rates that government ordered us to
impose or to approve.
So if they had only done the former and not
the latter, then -- and there had been no deferral
account, then rates may have been higher and you may
not have been in that quartile and you would then not
have gotten --
MS. FRASER: A Correct.
THE CHAIRPERSON: Okay.
MS. FRASER: A Correct.
THE CHAIRPERSON: You would agree with that?
MS. FRASER: A Correct.
THE CHAIRPERSON: Thank you.
MS. FRASER: A Depending on what was happening with the
other utilities in that survey.
THE CHAIRPERSON: Understood. Yeah, all else equal,
yeah. Thank you.
MS. FRASER: A Yeah.
THE CHAIRPERSON: Again this came up yesterday and it
was a discussion of BC Hydro's electrification plan,
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and I think you brought this up as an example of a
project, and that was promoting the use of electric
vehicles.
MS. FRASER: A Mm-hmm.
THE CHAIRPERSON: Now, I don't want to pick on that
particular project, but you did bring it up, so let's
use it as an example then.
MS. FRASER: A Yes. Sure.
THE CHAIRPERSON: So this is then a project that you
consider part of the electrification plan. It's not a
DSM project, is that correct?
MS. FRASER: A Correct.
THE CHAIRPERSON: Okay. So this is similar to a
question I asked Mr. O'Riley the other day. Do you
keep track of these costs separately or are they just
buried in your -- somewhere in your overall budgets?
MS. FRASER: A So the way they would be tracked is, as
an example, if we take a public awareness campaign
that perhaps we're doing for electric vehicles, I
think we called the last one Dave's Getaway.
THE CHAIRPERSON: Okay.
MS. FRASER: A And --
THE CHAIRPERSON: Not after me I don't think, right?
MS. FRASER: A No, no. And those costs would have been
an initiative that would've arisen out of the
communications department. So the communications
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department would have a business plan and within that
business plan they have different initiatives for
electric vehicle public awareness. And they would
have a budget for that specific initiative, but it
would be included in their overall operations budget.
But they would know below that what the budget was.
THE CHAIRPERSON: So when developing that budget then,
presumably that comes out of a business case of some
sort for this program.
MS. FRASER: A Mm-hmm, the business plan for
communication.
THE CHAIRPERSON: But the overall program, like the
amount of money that you're going to spend on whatever
this particular promotion for an electric vehicle
program is, you're going to spend a certain amount of
money on it and as a result of that you're going to
achieve some incremental amount of electrification.
MS. FRASER: A Yeah.
THE CHAIRPERSON: So somebody presumably would put
together a business case with the costs and the
revenue targets, I'm assuming. Is that a correct
assumption?
MS. FRASER: A Well, so for the low carbon
electrification programs in the DSM, we do that.
Currently for electric vehicles we do have an overall
plan for the different things that we're doing. I'm
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just not quite sure if it's detailed at the level
that, you know, you're referring to.
THE CHAIRPERSON: Well, from my perspective, you know,
the way I look at this is that BC Hydro, from what
I've heard over the last few days, is involved in a
number of activities involving increased
electrification, or low carbon electrification, or
whatever it may be called. And, you know, that's a
good idea and, you know, obviously there are economic
benefits and environmental benefits that will accrue
from that program.
Proceeding Time 1:51 p.m. T53
So I don’t have issues with doing those
activities, but one can do an activity not well, and
one can do an activity well. And one can spend an
awful lot of money on an activity and not get the
benefit either environmental or economic, or one can
do it a different way and get good benefits from it.
So my concern is before going into an
activity like this, what do you do? I mean do you
have targets? Do you look at the costs and benefits?
How do you weigh one against the other? Do you inform
the Commission that that's what you're doing?
MS. FRASER: A Well, we don’t have any targets for low
carbon electrification. We are anticipating that the
decisions that come out of the comprehensive review,
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phase 2, will advance that discussion.
So, the answer to your question is, for --
overall we don’t have a target, and we could get there
once we understand what's in that report, and how BC
Hydro is looked at in terms of delivering on the
provincial CleanBC plan. But we are advancing
specific initiatives ahead of that because of the
customer demand.
So there have been some low carbon
electrification projects. For example, in the oil and
gas sector where there is a business case where we
have to get to a specific net present value. But
there are other initiatives and I would call them more
on the communications side, where it's maybe not as
detailed in terms of the business case around it.
But most of it is centered in the demand
side management program as well, and on some of our
capital projects like PRES, so there are specific
business cases.
THE CHAIRPERSON: So I understand that there is DSM,
that you treat that differently and there is different
evaluation methodologies and so on, I get that. But I
guess my overall question, and it may be rhetorical,
but the question is, how should the Commission
evaluate these programs? The non-DSM programs. If
there is no clearly defined cost and benefit analysis,
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and all it is is a spending on a program, and we have
no idea what benefits are expected to accrue, or
planned to accrue. How can the Commission evaluate
that kind of spending?
I mean, we can evaluate spending in other
program areas, because the objectives are a little bit
clearer. Keeping the lights on, for example, keeping
the vegetation maintained, those are a little more
straightforward. But these are highly speculative
spending programs, and there is risk involved with
them, but that can be factored into an analysis. But
there has to be a basic analysis there to begin with.
MS. FRASER: A Yeah, and I think that -- and I know it
is after the RRA, but we will have those targets I
believe going forward, and be able to demonstrate if
they are not part of DSM.
But if you were to look at specific -- for
example, the electric vehicle public awareness
program, when we do that as well as our safety public
awareness, we use a metric that is our customer
satisfaction, and our reputation scores as well, so
those are our internal measurements.
I think that if the Commission had specific
spending in the RA that if you were concerned about,
perhaps let us know, and then there may be some form
of business case that could give you that information
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that you need. But the last couple of days we have
been talking quite high level, but if there was a
specific area --
Proceeding Time 1:56 p.m. T54
THE CHAIRPERSON: I'm not pointing to a specific program
or a specific concern, it's more of a general -- a
general --
MS. FRASER: A Yeah, and I take your point that at some
point, you know, we'll have a target and we'll be
working towards that and we'll better understand what
areas of reducing greenhouse gas emissions BC Hydro's
role will be going forward.
THE CHAIRPERSON: Thank you. Thank you, Ms. Fraser.
MS. FRASER: A Yeah? Okay.
COMMISSIONER FUNG: Maybe, Ms. Fraser, I can just
follow up on Chair Morton's questions with respect to
electric vehicles. I'm just wondering, is there any
discussion underway at BC Hydro currently about
bringing on an application to the Commission relating
to investment in the electric vehicles or the electric
vehicle charging stations?
MS. FRASER: A So there was the enquiry of the electric
vehicle charging and so BC Hydro would like to have
eventually a rate for that.
COMMISSIONER FUNG: But right now, currently, in the
application your spending on electric vehicle public
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awareness or , it's elsewhere contained in the
application in different places. Is that correct? In
terms of the actual expenditure? There's no specific
line item that says electric vehicle program.
MS. FRASER: A Correct. Correct.
COMMISSIONER FUNG: And do you regard that as just part
of your strategy to deal with low carbon
electrification?
MS. FRASER: A Well, a couple of things, and I’m glad
you asked because I was thinking about something else
after my discussion with Commission Morton. There is
great electrification opportunities in transportation,
electric vehicles, and a couple of things. That helps
us achieve load growth. Second of all, it helps
reduce greenhouse emissions. Third, you know, our
customers' expectations around who they go to to get
information around electric vehicles, they want to be
able to come to BC Hydro.
And so all of those things are wrapped up
in why we do these programs and -- so.
COMMISSIONER FUNG: Okay, thank you. Now, Ms. Ryan, I
just want to follow up on Commissioner Mason's
question to you about the anti-bullying and anti-
harassment, including sexual harassment initiatives
underway at BC Hydro. I understand from your
introduction that you worked at WorkSafeBC previously.
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MS. RYAN: A Correct, yes.
COMMISSIONER FUNG: So you are well aware that there
are obviously requirements now for a company to have
policies in place addressing those issues.
MS. RYAN: A Yes.
COMMISSIONER FUNG: Now, we've heard earlier from Ms.
Fraser that there's been various incidents and in fact
we heard this from Mr. O'Riley involving that sort of
behaviour at BC Hydro. I'm just wondering to what
extent that's now been elevated as a risk the
organization needs to address and if so, what exactly
is being done to address it on a systematic basis as
opposed to an investigation by investigation, you
know, private confidential results that are not
disclosed to anybody.
MS. RYAN: A Good question. So I think where it came
up in Mr. O'Riley's comments was that it was on our
risk register around workplace culture and that's what
the Commission was asking about and that's how that
conversation came up. So it is something that we have
raised to that level of insuring that the board and --
that we are looking at that as a whole and it's
something that I have to report on every quarter in
front of the HR committee of the board of directors.
We are -- our team is partnering with the
executive team and the managers throughout the
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organization to look at that issue systemically. So
some of the things that we're pursuing is we're having
a workshop in February to talk to all of our leaders
of the executive team at BC Hydro to ensure that we
have -- that we're all united and consistent on the
direction that we want to take with respect inclusion
and diversity. We are partnering with our unions in a
governance. We meet every month in a workplace, a
respectful workplace sort of task force, that we are
meeting to ensure that we are on the same page and
that we are holding employees to account together,
that we're partnering on that issue because it is a
serious issue for all of us.
And we are looking at training for our
leaders throughout the organization, as well as
employees. I mentioned the bystander training.
Proceeding Time 2:02 p.m. T55
So we are looking at ways to ensure that
everyone knows that they can speak up if they see
something that isn't what we would expect in the
workplace. And each people leader throughout the
organization has a year specific objective around
making BC Hydro a more inclusive and psychologically
safe work place and the requirement to have that
objective has led to a lot of interest and lot of
invitations from my HR team to come and speak on the
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topic, educate, train and enable employees and the
people leaders to do things to work toward a more safe
culture in that regard. It's a bit initiative for us
this year.
COMMISSIONER FUNG: And does that get reflected in the
variable compensation or the holdback on either a
personal level or a corporate level?
MS. RYAN: A It would only show up in an individual
level based on those performance metrics that the --
remember, the holdback is only for the senior people
and that they would set that as a target for their own
performance goals for the year.
COMMISSIONER FUNG: Okay, thank you. Now, Mr. Wong, I
just have one question and clarification perhaps. You
and I had an exchange on the first day, I believe, and
it's at transcript 445. I don't think you need to
refer to it because I can tell you what it was, sir,
with respect to what your understanding was about what
the accounting best practice or the industry best
practice is with respect to the requirements to have
regular depreciation studies.
And then somewhat to my surprise, because
your answer was -- well, you didn't directly answer my
question. What you said was that it's based on your
review as a professional of whether or not there's
been changes or substantive changes in the life cycle
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or the asset life of various classes of assets.
And then when Mr. Keen in Exhibit C-11-21,
which he filed yesterday I believe -- and there's a
depreciation study that was done in 2005 by, I
believe, an expert on behalf of BC Hydro called Gannet
Fleming and that was the last depreciation study, I
believe, that was done at BC Hydro.
And then I turned to the bottom of page 9
of 454 and I see, lo and behold, a recommendation
that, "complete depreciation studies which re-evaluate
the depreciation parameters should be performed every
three to five years." Do you disagree with that
recommendation?
MR. WONG: A I don't disagree with the recommendation.
I just believe that it's a -- well no, I don't
disagree with the recommendation. It's something that
a utility could undertake to validate its depreciation
rates that it has.
COMMISSIONER FUNG: And that was known or at least made
explicit in 2005. So do I take it that the reason
that BC Hydro has chosen not to do that, contrary to
this recommendation, is simply what Mr. O'Riley and
both and you and yourself -- and Mr. O'Riley have both
said which is it's a matter of rationalization of
resources and the Commission simply has not directed
you to do one.
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MR. WONG: A That was correct. The cost savings, cost
consciousness of the organization and looking at the
various things that we need to do, we felt that that
was one thing based on our experience of our assets
that we didn’t think added value to our financial
review, relative to everything else we wanted to do in
the company. And so that is absolutely -- that was a
decision taken and made my management.
COMMISSIONER FUNG: But I guess, and it's easier to say
that in hindsight, it's now 15 years later. Would you
agree that it's timely for BC Hydro to undertake a new
depreciation study? Particularly given the changes in
assets that you've experienced recently, particularly
in terms of technology advances, Site C, your aging
assets?
Proceeding Time 2:06 p.m. T56
MR. WONG: A Yeah, no, certainly I am not disagreeing
that there was value in doing a depreciation study,
and something at some point we would like to
undertake. It's just the matter of if we want to
manage our costs, and taking a look at all the things
that we have in front of us to do, that wasn’t the
most highest priority thing for us. At some point
absolutely, we should be doing a depreciation study
again.
COMMISSIONER FUNG: Thank you.
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THE CHAIRPERSON: Thank you. Mr. Miller?
MR. MILLER: I believe Mr. Quail had a follow up question
to an issue Commission Mason raised
THE CHAIRPERSON: Sure. Please go ahead, Mr. Quail.
CROSS-EXAMINATION BY MR. QUAIL (Continued):
MR. QUAIL: Q Yes, just to sort of finish up the
picture in terms of bullying and harassment. Is it
not the case that these situations can trigger
grievances arising under the collective agreements
where there is bargaining members involved?
MS. FRASER: A Correct.
MR. QUAIL: Q And that might involve either an alleged
violation of the employer obligation to maintain a
harassment free workplace, or if there is
consequential discipline to a bargaining member that
could also be the subject of a grievance, either of
those for example might arise?
MS. FRASER: A Correct.
MR. QUAIL: Q And potentially in either of those
circumstances could give rise to an arbitration which
could result in damages, reinstatements in the case of
discipline and other remedies?
MS. FRASER: A Correct.
MR. QUAIL: Q The issue of WorkSafeBC has already been
referred to, I was going to mention that, but it can
also under some circumstances, these situations can
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trigger proceedings before the Human Rights Tribunal,
is that not the case?
MS. FRASER: A Correct.
MR. QUAIL: Q Okay, so just finishing up the picture on
that question.
THE CHAIRPERSON: Thank you, Mr. Quail. We have
another question.
COMMISSIONER LOCKHART: Sorry, I just have one more
follow up question for Mr. Wong in terms of the
depreciation study. I gather from everything we've
heard so far, that but for a direction from BCUC, BC
Hydro is unlikely to initiate a depreciation study?
MR. WONG: A That's correct. We don’t -- well, we
don’t have in our current plan related to what the
finance team is going to do, as a depreciation study
in our, let's say the next couple years plan, business
plan.
COMMISSIONER LOCKHART: Thank you.
COMMISSIONER FUNG: Now I have a follow up question.
Surely, Mr. Wong, you are not telling me that as a
utility management executive that you rely on the BCUC
to tell you what you ought to be doing as a prudent
operator, and a manager of assets?
MR. WONG: A No, absolutely not, and like I said, I
think it's something that we will be doing, it's just
a matter of the timing associated with that. And so I
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think I mentioned earlier, we do have the return on
capital process we are going to go through. We have
got the performance based ratemaking process that
we're looking through. And those are two heavy things
on our finance team. As well we will be soon coming
up to the next RRA process, and then supporting the
IRP.
So when I look at those four collective
things that we need to do as an organization, and the
impact on the finance team, When I add depreciation
study into that, amongst everything, of course, are
the regular day-to-day things that need to be done.
It is just the load of work. And so I do not
disagree. A depreciation study is a valuable thing to
do. It's just a matter of when to put that in a
timing relative to everything that we need to do.
COMMISSIONER FUNG: Thank you.
THE CHAIRPERSON: Mr. Ghikas, do you have any re-
examination for your panel?
MR. GHIKAS: Not re-examination, but I did have -- we
located in the record the information that
Commissioner Lockhart was looking for, so I can just
provide reference to the information, and then if you
have any follow up questions, please feel free.
THE CHAIRPERSON: Sure.
MR. GHIKAS: So, the questions were with respect to the
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list, we were talking about the real property sales
regulatory account, and so there is a list of property
sales to date, including net proceeds from those
sales, found in confidential attachment 1 to BCUC IR
3.299.7, and you'll see when you go to that --
obviously it's confidential, because we don’t want BC
Hydro's market position on these things to be
revealed.
Proceeding Time 2:11 p.m. T57
But I can say in this forum that BC Hydro
hasn’t sold any of those properties at a loss. So
what that account is recording is they were
forecasting gains of a particular amount and they've
-- the gains that they've achieved are lower than the
gains that they were anticipating. It's not a loss in
any of those circumstances.
The other one was with respect to the
fiscal '15 and '16 account balances for that
regulatory account. That is found in Appendix A to
the application and it is found in line 143 of
Schedule 2.2, just for the record. And I can give you
the amounts. In Fiscal '15 the amount was 7.9 million
and in Fiscal '16 the amount was 17.7 million.
And that concludes all I had to say. So
unless there were follow-up questions based on that, I
think we're finished.
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COMMISSIONER LOCKHART: I think I will have follow-up
questions, but I need time to digest and it may be
that they end up being Panel 4.
MR. GHIKAS: Yes. And, again, it was correct that if
there are specific questions about the properties
themselves, the Panel 4 would be the place to go.
THE CHAIRPERSON: All right, so thank you, and unless
there's anything else for the panel I'd like to say
thank you very much. Your answers have been very
helpful. Hopefully it hasn’t been too grueling for
you and I hope you enjoy the rest of the day. Thank
you very much again.
(PANEL ASIDE)
THE CHAIRPERSON: We'll take our break now while the
next panel gets organized. So let's go until twenty-
five after. Mr. Ghikas, is that enough time for you
or do you want to go till 2:30?
MR. GHIKAS: No, that should be fine.
THE CHAIRPERSON: Twenty-five after. Okay, thank.
(PROCEEDINGS ADJOURNED AT 2:13 P.M.)