ms. - british columbia utilities commission · cec final submissions 2014 core market...

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f~ose-\lary L B<>sham, QC, AssOCldlv Counsel' Hon \ValtL'r S Owen, OC, QC, LLD {1981)

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February 18,2014

VIA ELECTRONIC MAIL

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British Columbia Utilities Commission 6111 Floor, 900 Howe Street Vancouver. B.C. V6Z 2N3

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Damd H. Coles

Ld\V Corpora!JOn Also of the 'rukon Bar Also of tlw Alberta Bdr

Attention: Ms. Erica Hamilton, Commission Secretary

Dear Sirs/Mesdames:

PO Box 49130 Three Bentall Centre 2900-595 Burrard Street Vancouver, BC Canada V7X 1)5

Telephone 604 688-0401 Fax 604 688-2827 Website www.owenbird.com

Direct Line: 604 691-7557

Direct Fax: 604 632-4482

E-mail: cweafer1~owenbird.com

Our File: 23841/0100

Re: FortisBC Energy Inc. (FEI) Application for Approval of the 2014 Core Market Administration Expense Budget

We are counsel to the Commercial Energy Consumers Association of British Columbia (CEC). Attached please find the CEC's Final Submissions with respect to the above-noted matter.

A copy of this letter and attached Final Submissions have also been forwarded to FE! and registered interveners by e-mail.

If you have any questions regarding the foregoing. please do not hesitate to contact the undersigned.

Yours truly,

CPW/jlb cc: CEC

CORPORATION

cc: FortisBC Energy Inc. cc: Registered Interveners

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COMMERCIAL ENERGY CONSUMERS ASSOCIATION OF BRITISH COLUMBIA

(CEC)

FINAL SUBMISSIONS

FortisBC Energy Inc. Application for Approval of the 2014

Core Market Administration Expense Budget

The CEC represents the interests of BC Commercial Energy consumers in regard to BC Hydro, FortisBC Inc. (FBC) and FortisBC Energy Inc. (FEI) applications before the BC Utility Commission (BCUC or Commission). The FEI is applying for approval of its proposed 2014 Core Market Administration Expense (CMAE) budget and for Commission review and approval of future CMAE budgets to be conducted as part of FEI's regular gas cost reporting1

•

Specifically FEI proposes that the Commission approve the CMAE as part of its Fourth Quarter Gas Cost Report2

.

The CEC has reviewed the Application and responses to Information Requests and offers the following comments and recommendations.

Summarv Position

The CEC submits that it is not appropriate to complete the regulatory review and approval of CMAE budget for the 2014 period at the present time, in that there is a Revenue Requirements Application which is directly related to the issue at hand for both FEI (Performance Based Regulation, and FEVI (FEVI RRA) currently before the Commission, and that these are the appropriate places for the CMAE budget to be reviewed. The proposed CMAE budget could potentially be influenced by the result of the anticipated Amalgamation decision also currently before the Commission.

The CEC submits that the FEI proposal to separate the CMAE budget from the revenue requirements process, (PBR process), is inappropriate in that it can result in unreasonable prior approvals that compromise the opportunity for interveners such as the CEC to comment on the totality of the proposed regulatory mechanism and decision-making underway in Revenue Requirements applications.

The CEC submits that segregating portions of the FEI budgets into separate approval processes is not inconsistent with FEI prior practice and results in an unreasonable 'piecemeal' approach to cost approvals to the prejudice of customer interests. Such an approach to budgeting ultimately results in a less than appropriate approval mechanism for the utility as a whole, and does not provide appropriate accountability for the utility.

1 FE! Final Submission, Page 14 2 Exhibit B-1, Cover Letter,

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CEC Final Submissions 2014 Core Market Administration Expense Budget

The CEC submits that the proposed practice of reviewing the CMAE budget as part of the regular gas reporting is inappropriate in any case, in that the CMAE budget is not an uncontrollable expense in the Cost of gas, but a controllable management expense.

The CEC further submits that regardless of the approval process, the proposed CMAE budget for 2014 is too high. History does not justify the proposed expenses as the budgeting has not undergone a sufficient direct budgeting process and many of the costs appear inflated.

The CEC recommends that the Commission reduce the proposed CMAE budget by a total of $320,900 to $4,351,300 for 2014 and that in the future, FEI incorporates the CMAE budget request as part of the revenue requirements proceeding as has been undertaken for the last several years.

Regulatory Review Process

FEI applies for approval of its Core Marketing Administration Budget under Section 61(4) of the Utilities Commission Act (UCA). 3 FEI submits that it is more appropriate to review the CMAE budget as part of the Fourth Quarter Gas Cost Reports which are typically filed late in November each year.

FEI suggests that this approach to reviewing and approving CMAE budgets for future periods is more appropriate than in the Revenue Requirements (PBR) proceeding for several reasons. These include: because the CMAE expenses form part of the commodity and not the delivery rate;4 because it would be inefficient; because it is inconsistent with prior practice5 and because there would be little to gain from an additional and separate review of the costs. 6 FEI submits that no regulatory benefit will be achieved by a separate review process.7 FEI also states that "Some components of the CMAE expenses are lumpy and difficult to forecast because, for example, they are due to the nature of how third party regulatory proceedings develop or even Commission requests for study. Since it is difficult to accurately forecast these costs, it is more efficient to review recorded variances in the gas cost deferral accounts, ... and to review them retrospectively if necessary ... The gas cost report provides a breakdown, including explanations, ofthe variances captured in the gas cost deferral accounts."8 Finally, FEI states that 'it provides an efficient mechanism for allocating CMAE to the customers who cause those costs ... through the use ofthe CCRA and MCRA9

' and that 'To the extent that the Commission has any concerns with any costs incurred at this time, they can be dealt with at that time through the mechanism of

d . ·10 a pru ence review~ .

3 Exhibit B-3, BCUC 1.2.2 4 Exhibit B-3, BCUC 1.1.1; Exhibit A2-l, BCUC IR 1.131.3.1 5 Exhibit B-3, BCUC 1.5.2.2 6 FEI Final Submission, Page 2 7 FE! Final Submission, Page 9 8 Exhibit B-3, BCUC 1.4.3 9 FE! Final Submissions, Page 13 1° FE! Final Submissions, Page 13

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The CEC disagrees with several of these rationales, with the exception of the statement that it is appropriate to record lumpy costs in a deferral account and review retrospectively from a cost perspective. The CEC submits that appropriate analysis and review should be applied to all utility expenses and that the proposed review of the CMAE in the Fourth Quarter Gas Cost report effectively undermines any prospects for stakeholders to undertake a proper review of FEI's administrative expenses. In particular, filing the CMAE in advance of the Revenue Requirements (PBR) hearing precludes an in depth discussion regarding the appropriateness of the CMAE budget being excluded from the PBR process and further presumes that a PBR process or other incentive based mechanism will be adopted. Further, the CEC submits that the approval of the CMAE budget in advance of the pending amalgamation decision is premature in that the costs could potentially be influenced by that decision.

The CEC submits that the Revenue Requirements application before the Commission should encompass all the utility costs and provide a full consideration and review of the appropriate approval process for each cost. Reviewing and approving budgets on a piecemeal basis removes an important aspect of prudency review that should be undertaken as a whole, and enables less than optimal practices to become entrenched in the budgeting process.

CMAE Within Management Control

FEI notes that the CMAE has been a component of the cost of gas since 1966 pursuant to Order G-99-95 11

• The CEC submits that regardless of whether or not it is considered a component of the cost of gas, the CMAE is an administrative expense, and as such, is mainly within company control. The CEC submits it should not be approved as a portion of the gas commodity under Section 61(4) which applies to costs 'over which the utility has no effective control, required to be paid by the public utility for its gas supplies ... or cxpenses,~ 2 .

FEI acknowledges that a portion (labour) of the costs are partially controllable 13 but submits that it is indifferent to the section of the UCA which is relied upon for approval and suggests the BCUC could approve it under Section 61(1). 14 The CEC submits that virtually all ofthe costs are within management's control, which includes Information and Technology, Consulting and legal, Subscriptions and Memberships, Sundries, Training and Travel, COPE salaries, benefits and incentives, M&E salaries, benefits and incentives, Energy Management Services Revenue and Shared Services. Excluding such costs from being considered as being within management control and flowed through as an expense to be recovered from ratepayers represents an unreasonable removal of corporate responsibility. The CEC further submits that being composed of largely controllable costs the CMAE budget should be held to appropriate productivity standards and efficiency improvements within its budgets.

11 Exhibit B-3, BCUC 1.2.3 12 FE! Final Submissions, Page 12 13 FE! Final Submissions, Page 12 14 FE! Final Submissions, Page 13

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The CEC further submits that being a component of the cost of gas does not make it unreasonable to be approved separately from the Cost of Gas report. The Gas Supply Mitigation Incentive Program (GSMIP) also forms part of the gas cost recovery rates yet are approved in a separate review and approval process from the Fourth Quarter Gas Cost Report. 15

Past Practice

The CEC submits that it is not necessarily consistent with past practice to approve the CMAE budget under the Fourth Quarter Gas Cost Report. FEI points to the years 2006-2009 in which the CMAE budget and allocations were filed under the Fourth Quarter Gas Cost report. 16

However, for the years 2010-2011 and 2012-2013 the CMAE budget and allocations were filed and reviewed as part of the relevant revenue requirements applications (Order G-141-09 and G-44-12). 17 FEI was under PBR during much of the period in which the CMAE budget was approved as part of the Fourth Quarter Gas Cost report 18 and the company noted in its PBR application that it would file the CMAE under the gas report. Approving the CMAE budget as part of the Fourth Quarter Gas Cost report at this stage is premature and effectively curtails discussion that would otherwise appropriately occur in the PBR procedure or other revenue requirement approval process. The CEC notes that FEI is not under PBR at this point.

The expected Amalgamation decision is also potentially relevant to the costs of the CMAE budget19 and notes that FEI filed is 2012-2013 CMAE budget in its Revenue Requirements application because of the pending amalgamation and harmonized rate structure application?0

Disadvantages to Fourth Quarter Gas Cost Report Approval

The CEC submits that there are several disadvantages to approving the CMAE budget in the Fourth Quarter Gas Cost report. Reporting in the Fourth Quarter Gas Cost report diminishes the importance of Commission oversight ofthis budget, and that it effectively gets 'lost' resulting in little attention or concern for ratepayer interests.

FEI acknowledges that approval of the CMAE budget in the Fourth Quarter Gas Cost report results in an expedited time frame that restricts the possibility of an in-depth review process such as IRs and IR responses and participation by other stakeholders.21 FEI states "FEI recognizes that a more detailed review of CMAE may be of value at certain times, ... Such reviews however should only be conducted on an occasional basis and not as part of the regular process for setting gas cost recovery rates." Such an expedited time frame is inadequate for stakeholders who are unable to hold the company accountable for its forecasts and expenses yet are expected to pay for the costs.

15 Exhibit B-3, BCUC 1.3.1 and 1.3.2 16 Exhibit B-3, BCUC 1.2.1 17 Exhibit B-3, BCUC 1.2.1 18 Exhibit B-3. BCUC 1.8.1 19 Exhibit B-5, CEC 1.5.2 20 Exhibit A2-2, BCUC 2.293.6 21 Exhibit B-3, BCUC 1.4.3

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The CEC submits that removing the CMAE from the PBR process, if one is developed, does not adequately provide cost-saving incentives as are intended in the process. As all gas cost variances, including those related to the CMAE are flowed through and recovered from customers22 there is no appropriate incentive for the Company to reduce costs.

The CEC submits that since the CMAE forms a very small portion of the Gas Cost Report23 it is likely to be de-emphasized and not provided with an appropriate review. FEI appears to support such minimization. All the detail presented by FEI on the contents of the 2014 CMAE forecast was on one page within the initial submission?4 This brief submission made no attempt to explain many factors relevant to the CMAE budget, such as those discussed within this submission and raised by interveners and the Commission in Information Requests #1 (IRl) 25

The FEI also states:

"some components, such as the CMAE and unaccountedfor gas (UAF) for example are relatively insignificant cost components in comparison to the costs associated with the

. f' h l d. ,. 26 pnce o t e natura gas commo zty .

The FEI states that:

"There is no meaningful benefit to a more in-depth review of the annual CMAE budget. FE! submits that this· budget should continue to be reviewed as part r~f the gas cost reporting process, as has been the practice for many years". 27

And:

" ... the CMAEforecast comprises such a small component in the gas cost recovery rates that changes in the inflation rate assumptions .ff·om those used at the time the fEI Application for Approval .... was prepared to now would be unlikely to result in any change in the gas cost recovery rate determinations ... ''28

The CEC submits that such statements are indicative of the Company treating the CMAE budget as being irrelevant despite it being forecast at over $4.6 million; it may also be representative of a potential lack of concern for the costs that are borne by the ratepayer. The CEC submits that such approaches to costs are not inconsistent with other FEI applications related to 'flowed through' costs and should be challenged appropriately by the Commission.

22 Exhibit 8-3, BCUC 1.2.3.1 23 Exhibit 8-5. CEC 1.3.3.2 24 Exhibit 8-1, FE! Application, Page I, Tab I 25 Exhibit B-3, Exhibit B-4, Exhibit 8-5 and Exhibit B-6 26 Exhibit 8-1. FE! Application Cover Letter. Page 2 27 FE! Final Submission, Page 14 2

g Exhibit 8-5, CEC 1.3.3.2

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The CEC submits that careful prudence reviews of such expenditures are not likely to be undertaken on a regular basis and notes that the Commission could only disallow recovery of gas costs, including the CMAE if the Company was found to have acted imprudentll9

The CEC submits that all expenditures, regardless of their magnitude and the timing of their impact on customers, should be managed in a manner that ensures responsible spending and subsequent accountability.

While noting the following, the CEC submits that past practice has resulted in the CMAE budgets, and others, not receiving adequate review which has enabled a series of less than optimal financial management practices causing less than optimal financial results to become entrenched in CMAE and other forecasts.

Budgeting Methodology

The methodology used to develop forecasts is based on a combination of inflationary budgeting and direct budgeting. According to FEI, 'the application of the inflation components ... was based off the 2013 approved budget, which was then adjusted for identified changes in 2013 dollars, and then the revised base was inflated by BC CPI Forecast for non-labour and A WE forecast for labour' 30

•

The CEC submits that the inflationary approach to budgeting mechanistically adopts previously approved amounts and adjustments are only made in response to obvious operational changes. This inflationary approach to budgeting largely ignores actual spending history and changes in the content of the cost components which should influence future budgets.

Productivity Metrics and Productivity Factor

The CEC submits that it is appropriate for ratepayers to require and be able to identify productivity improvements on an on-going basis in FEI budgeting to the extent they are available. The CEC notes that productivity improvements are expected in the proposed PBR mechanism, and sees no reason why such improvements should not be expected in all controllable aspects ofthe company.

In response to BCUC IR 1.16.1 FEI discusses the Utility Strategies Project (USP) and integration efforts and organizational changes it has undertaken between 2007 and 2012. Nonetheless, FEI is unable to produce productivity targets and results by year31 because it 'does not use specific productivity or efficiency metrics for managing the Gas Supply functions. ' 32

29 Exhibit B-3, BCUC 1.2.3.2 30 Exhibit B-5, CEC 1.3.1 31 Exhibit B-3, BCUC 1.16.2 32 Exhibit B-3, BCUC 1.16.1

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The CEC submits that it is important for productivity metrics, with targets, to be established and available to ratepayers to appropriately hold FEI accountable for its spending.

The CEC notes that in budget applications such as the CMAE there has been limited discussion of outputs, or expected achievements, much less measureable ones, by which the department can be held accountable in any event. FEI questions the value of HR metrics based on the size of the department. 33 FEI has not undertaken any actions to replace the EMS revenues lost due to the cancellation of the PNG contract, though they have taken actions to review staffing levels as a result. 34 The CEC submits that all departments should regularly itemize the outputs that originate from their activities and establish targets for each in order to understand the appropriate functionality and success of the department.

The CEC submits that it is appropriate for FEI to include a Productivity Factor in all its controllable budgeting to account for ongoing improvements in the industry and efficiencies that FEI should reasonably be expected to achieve, such as is included under PBR. The CEC submits that, as a budget composed of largely controllable costs (as discussed above) it would not be inappropriate for FEI to include a productivity factor in its CMAE budget. The CEC submits that a productivity factor that equates to the included inflation measure would be appropriate.

Inflation

The CEC notes that, despite stating that it 'typically uses the most current available forecast information' 35

, and despite the fact that the CMAE budget would not be included in the PBR mechanism if it were adopted, FEI has proposed to use inflation figures based on its PBR proposal36

. Inflation at the time of the PBR application (June 2013) was estimated at 1.83% (BC CPI) and 2.7% (A WE) for non-labour and labour respectively. FEI not only submitted such figures in this Application which was filed in late November, but also refuses to adopt a reduction in the rate of inflation based on more up to date figures. 37 FEI does not believe that revising the inflation rates would provide additional benefit since it is unlikely to affect the gas cost recovery rates and an 'additional 1% increase in the CMAE forecast would result in less than a $50 thousand impact to the total gas costs ... ". 38 The CEC submits that such approaches are reflective of inaccurate forecasting and may be indicative of an unwillingness to treat all costs and forecasting in a sufficiently cautious manner. The CEC submits that there is a risk such approaches may frequently be adopted in FEI applications.

The CEC submits that because an improved review process to increase scrutiny and reduce the incentive to either overspend or over-forecast is important to appropriately preserving the responsibility to ratepayers.

:n Exhibit B-3. BCUC 1.11.6.2 34 Exhibit B-3, BCUC 1.14.2 35 Exhibit B-3, BCUC 1.7.2 36 FEI Final Submission, Page 5 37 Exhibit B-5, CEC 1.3.3.2 38 Exhibit B-5, CEC 1.3.3.2

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Inadequate accountability

The CEC notes that every year since 2007 actual spending against CMAE budgets has been lower than approved amounts. And in most years, the amount of underspending has been higher than the previous year. The risk to ratepayers is that this CMAE Budget will be over forecast and overspent, impacting ratepayers negatively relative to a process where the Commission and interveners hold the Company accountable.

Total Actual YearJ'J Approved ($,000) Cost ($,000) Variance($,000) 2007 2,397 2,220 177 2008 2,441 2,220 36 2009 2,489 2,458 31 2010 4,011 3,677 334 2011 4,147 4,016 131 2012 4,374 4,220 154 2013 4,519 3,759 760

The CEC submits that most likely the BCUC would not have enabled FEI to create a long history of CMAE budgets that were higher than required if the past review processes had encouraged more explanation and accountability. Likely there has been inadequate incentive to improve productivity, especially in that it is not measured on any outputs nor tracked from year to year.

Reduced Cost Control

FEI states that:

"FE! does not agree that in-depth review r~f CMAE is required. As set out above, only a portion of the CMAE is subject to effective control ofFEI (the labour component). The non-labour costs can vary significantly from year to year and are difficult to forecast. An in-depth review of the forecast of costs that FE! has limited ability to control will not provide any benefit to customers". 40

While noting that FEI has used the inflationary aprroach to budgeting for 5 of the 7 major budgeted Cost Components 41 (includin§ IT) 4 and the remaining cost components are forecasted by a direct budget method,4

· the CEC submits that most expenses,

39 Exhibit B-3, BCUC 1.9.1, Pages 30 to 33 4° FE1 Final Submission, Page 13 41 Exhibit B-5, CEC 1.3.1 42 FE! Final Submission, Page 5 43 Exhibit B-5, CEC 1.3.1

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including a significant portion of non-labour expenditures, do not vary uncontrollably from year to year.

The CEC submits that the cost components that are not forecasted via the inflationary budget approach are significantly, or completely, controllable in that FEI plans for these expenditures and in the majority of situations is able to make the final decision as to whether or not expenditures are appropriately incurred.

Therefore, the CEC submits that FEI has a good ability to control expenditures that affect customers and should do so with continuous improvement to the productivity of its functions.

CMAE Costs and Forecast Methodology

The 2014 CMAE Forecast is based on a combination of inflationary budgeting and direct budgeting. The application of the inflation components was based on the 2013 approved budgeted, which was then adjusted for indentified changes in 2013 dollars. 44

The CEC submits that a direct budgeting approach, which includes a reasonable examination of budget detail and spending history, should be utilized whenever possible. The CEC also submits that when it is not fitting to use a direct budgeting approach, historical spending should be reviewed as part of the process of confirming the appropriateness of forecasts. The CEC notes that overall, the 2014 ~MAE Budget represents an in~rease of 3.4% over the a,Rprove? 2013 CMAE Budget and an mcrease of 15.7% over the proJected 2013 CMAE costs. · While FEI explains the excessive increase, but does not acknowledge that it is reasonable to expect that such increases would warrant closer review in response to a direct question.46

Costs

IT

According to FEI the 2014 IT forecast of$300 thousand was budgeted 'directly'.47 It was based on the 2013 approved budget amount, which was $502 thousand. The reduction of $202 thousand from the 2013 Approval was the result of the removal of the IT support costs related to the Risk Management Package and to the Gas Cost Forecasting replacement application.48 And FEI states that there is "No increase" in the Variance of the 2013 Projected over the 2014 Fore cast. 49

44 Exhibit B-5, CEC 1.3.1 45 Exhibit B-3. BCUC 1.8.2 and 1.8.3 46 Exhibit B-3, BCUC 1.8.3 47 Exhibit B-5. CEC 1.3.1 48 FE! Final Submission, Pages 5 and 6 49 FE! Final Submission, Page 4

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The CEC notes that over the past five years, FEI has a history of underspending against the approved budget for the IT component. Specifically, the following amounts were approved and spent:

Year)u Approved Actual Cost ($000) Variation 2009 $257 $238 $19 2010 $278 $249 $29 2011 $282 $246 $36 2012 $485 $245 $40 2013 $502 $259 $242

FEI, for the most part, has attributed this underspending to their deferring the implementation of software applications. 51

The CEC also notes that after budgeted IT activities have been deferred, IT actual costs ranged from $238 thousand to $259 thousand in a year. In other words, actual IT costs in any given year have never approached the $300 thousand forecasted for 2014.

Given that FEI has stated that there are no new cost items contained in the 2014 IT forecast52, the

CEC submits that the 2014 forecast for IT costs is too high, when compared to historical spending, and therefore should be reduced. The CEC submits that it is appropriate to base the IT budget on the 2013 Actual of $259. The CEC submits that an appropriate productivity factor could reasonably be expected to negate the effects of inflation. The CEC recommends that the CMAE Budget for IT be established at $259,000.

The CEC also submits that in the future the IT forecast for 2014 should be developed in a manner that enables identification and explanation for all the major components within the IT forecast.

Consulting & Legal

The CEC accepts the Consulting & Legal forecast of $500,000 within the CMAE budget to be reasonable given that it was developed by using a "Direct Budgeting" approach53 and some detail has been provided of its contents. 54 The proceedings are not deferrable at the company's discretion. 55

50 Exhibit B-3, BCUC 1.91, Pages 31 to 33 51 Exhibit B-1, FE! Application, Tab 1, Page 2 52 FE! Final Submission, Page 4 53 Exhibit B-5, CEC 1.3.1 54 Exhibit B-3, BCUC 1.1 0.1 55 Exhibit B-5, CEC 1.4.6.2

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CEC Final Submissions 20 14 Core Market Administration Expense Budget

Sundries and Subscriptions

The Sundries and Subscription Forecast of $245.4 thousand, which includes memberships, is based on the 2013 approved budget amount adjusted for subscription increases. The forecast is lower than the 2013 Actual which was $250,00056

. Regulatory fees were higher than anticipated57

. The subscription and membership fee increased by $33 thousand and the updated base budget is then adjusted for BC CPI int1ation. 58 The CEC submits that such a methodology results in some double-counting, in that membership fee increases would ordinarily reflect inflation. The CEC submits that such inflationary increases may not be necessary if properly managed.

The CEC notes that if the 2014 Forecast of $245 thousand is approved, that would represent more than a 27% increase in the cost of Sundries and Subscriptions since 2011, given that the actual cost was $193 thousand in 2011.59

The CEC acknowledges that the information obtained by FEI through their memberships and subscriptions is valuable and important. However, the CEC sees no evidence that FEI, prior to significantly increasing the cost of the component, reviewed historical expenditures with the objective of determining whether or not some historical costs could be eliminated after information was being obtained from new sources.

The CEC therefore submits that the forecast for Sundries and Subscriptions be established at $240,000, which is equal to the 2013 Approved of $207,000 plus the increase of$33,000 for subscription and membership fee increases.

Training and Travel

The training and travel budget of $170,000 has been created by a direct budgeting method60 and the detail within this item relates directly to the total number of FTE staff forecast. 61 The Forecast includes and inflation figure for 201462

.

CEC recommends that the Forecast be reduced by $3,000 (approximate inflation of 1.83%) to $167,000 to account for potential productivity improvements.

Labour

The proposed 2014 CMAE labour budget of $2,720.5 was developed by multiplying budgeted staffing levels by the average number of work weeks and adding an inflation factor of 2. 7%?

56 Exhibit B-3, BCUC 1.9.1 57 Exhibit B-3, BCUC 1.9.1 58 FE! Final Submission, Page 7 59 Exhibit B-3, BCUC 1.9.1, Page 32 60 Exhibit B-5, CEC 1.3.1 61 FE! Final Submission, Page 7 61 Exhibit B-1, Tab 1, Page 2

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Decisions regarding CMAE staffing levels are made at the department level, taking into account such factors as departmental functions and objectives, forecast work volume and organization of the department.64 The CEC submits that the inf1ation factor of2.7% is too high and is based on outdated figures from June of 2013 (to be consistent with the PBR application), despite the fact that the CMAE Budget is proposed to flow through. The CEC submits that an inflation adjustment is not required if appropriate productivity factors are incorporated into the budget setting.

CEC notes that despite the reduction of one FTE position from the 2013 approved level,65 22 FTE positions are provided for in the 2014 labour forecast when only 19 FTE gositions were actually filled in 2013 and 20 FTE positions were filled in the years 201 0 to 2012. 6

The CEC also notes that there is a history of CMAE actual labour costs being under the approved amount. For the years 2010 to 2013, actual labour costs (before benefits) and approved labour amounts (before benefits) were as follows:

Total Actual Variance Y earb 1 I pproved ($,000) Cost ($,000) ($000) 201 ,826 1,631 195 2011 1,876 1,725 151 2012 1,903 1,720 183 2013 1,932 1,730 202

The CEC does acknowledge that FEI states that there were temporary unplanned labour turnover problems in 2013 that cannot be sustained.68 That fact undoubtedly reflects in the lower number FTE positions filled in 2013.

However given the sustained history of actual labour costs being below approved levels by approximately 10% and without information on how labour deficiencies have negatively impacted operations, the CEC questions the degree to which labour deficiencies have, in fact, negatively impacted operations.

The CEC recommends that the 2014 proposed CMAE labour forecast be retained at the 2013 Projected amount of $2,449,000, without an adjustment for inflation in order to provide for appropriate productivity improvements.

63 Exhibit B-5, CEC 1.3. I 64 Exhibit B-3, BCUC 1.11.6 65 Exhibit B-1, FE! Application, Tab 1, Page 1 66 Exhibit B-3, BCUC 1.11.4, Page 49 67 Exhibit B-3, BCUC 1.9.1 (Total of COPE and M&E Salaries) 68 Exhibit B-2, FE! Final Submission, Page 8

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Energy Management Revenue

The Energy Management Revenue budget is based on the 2012 and 2013 $50 thousand cross charge for the services the Gas Supply team that was anticifgated to provide to the electric division. That estimate was increased for 2014labour inflation. )9

FEI has not identified any opportunities to replace the EMS revenues lost due to the cancellation of the PNG contract, but has taken action to review staffing levels and responsibilities that take into consideration that it no longer performs services for PNG. 70 The CEC recommends that the Company undertake to replace the EMS revenues lost but recognizes that this is unlikely in 2014.

The CEC recommends that the Energy Management Revenue forecast be maintained at the $51,400 proposed.

Shared Services Fee

The CMAE forecast of at $787,700 for the Shared Services fee is a cost allocation agreed upon with FEI and subject to labour inflation for 2014. 71

The CEC has reviewed the detail supporting this allocation and agrees that this provision is reasonable but submits that the pending Amalgamation decision could potentially alter this, and as such is premature. The CEC recommends that the allocation be approved as filed.

Conclusion

For the reasons previously discussed, the CEC submits that reviewing and approving future CMAE budgets in conjunction with Fourth Quarter Gas Reports is not appropriate. The CMAE budget should be set at $4,351,300 for the reasons given in the CEC submissions. The Commission should require the CMAE budget to be reviewed in the future as part of the regular revenue requirements review process. The Commission should direct FEI to provide budget planning and justification based on a functional view of the department performance with justification based on performance metrics.

69 FEI Final Submission, Page 8 70 Exhibit B-3. BCUC 1.14.2 71 Exhibit B-3: BCUC 1.11.2

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The CEC would support increased CMAE budgets if FEI can demonstrate substantial improvements in the management of gas costs.

ALL OF WHICH IS RESPECTFULLY SUBMITTED.

(})avUf Craig

David Craig, Consultant for the Commercial Energy Consumers Association of British Columbia

C ristopher P. W r/Coll:nSel for the Commercial Energy Consumer~ffisociation of British Columbia

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