1. OEB Presentation South Bruce Expansion Applications EB-2016-0137/-0138/-0139 (August 2, 2017)

2. Upstream Reinforcement Costs
Position of EPCOR: exclude from CIP revenue requirement
Would put key component of EPCOR’s CIP revenue requirement in hands of competitor in this process
EPCOR has no ability to control or test the assumptions and prudency of costs for any upstream reinforcements on Union’s system (limited availability for EPCOR to “value engineer” scenarios)
Even a standard methodology would have room for judgement on the part of Union
Union is not making its current rates to embedded utilities available to EPCOR. Union proposes a new rate yet to be approved by the Board
EPCOR position consistent with OEB determination in Generic Decision that upstream reinforcement must be same for all utilities
Upstream transportation costs too variable to be included – capital cost estimates are subject to a -25% to +50% accuracy range, suggesting that the estimates could vary widely

3. Inflation Costs
Position of EPCOR: Believe that there is agreement here.
The CIP revenue requirement should include a common inflation index (or basket of indices), and that the successful proponent should be held to this index during the rate stability period
We do need an agreed inflation number for the purposes of the CIP

4. OM&A Costing Methodology (1)
Position of EPCOR: OM&A costs should be fully allocated to reflect the OEB’s desire for stand-alone rates (per Generic Decision and the Partial Decision on the Issues List and PO #6)
Incremental costs are appropriate for conventional system expansions that are evaluated using EBO 188 (where new customers pay existing utility rates). Incremental costs are used for the EBO 188 feasibility test.
Incremental costs are not appropriate for competitive community expansions (contemplated by the Generic Decision) where standalone rates will apply. Costs used here should be consistent with the costs that will be included in rates.
This approach is the same as when dealing with an affiliate – the utility should be recovering the higher of fully allocated cost or market-based charges

5. OM&A Costing Methodology (2)
If rates include only incremental costs when developing standalone rates, existing customers would be subsidizing new customers
Fully allocated costs include costs that are being recovered by existing customers. As with the provision of services to an affiliate, this issue is addressed through a revenue offset for the parent utility that reflects the appropriate recovery of a contribution toward base costs from the standalone expansion system
Incremental costing would be used as the feasibility test in the event that there are future system expansions for the stand-along utility (explicitly recognized by Board in Generic Decision). (Base stand alone customers should not be subsidizing future system expansions.)
Union’s full costs of OM&A should be readily available to it

6. Treatment of Capital Costs
Position of EPCOR: the successful proponent should take on the risk for capital cost overruns
Revenue requirements for year 11 and beyond should not include any type of true-up for cost overruns incurred during the first 10 years

7. Other CIP Parameters
Position of EPCOR: In agreement with Union regarding interest during construction (provided the value is the competitive cost of debt)
Position of EPCOR: Commodity cost is common
Position of EPCOR: agrees that any amounts that will be recovered from the ratepayer should be included in the revenue requirement

8. Permissible Rate Adjustments
Position of EPCOR: there should be a definitive list of Z-factor adjustments (change of law and typical force majeure events)
Not a change to existing OEB principles but limit nature of events that give rise to Z-factor events
Consistent with notion that successful proponent be restricted from recovering (by way of a Z-factor) any costs that it assumed the risk for in its CIP submission
Position of EPCOR: rates should be standalone, without reference to existing rates. EPCOR’s concern is that use of an existing rate plus a premium (with only the premium held static) would allow a proponent to pass costs (or volume changes) through that it might otherwise not be permitted to, as a result of a rate case related to the existing rate (use of existing rates cannot truly compare with a competing standalone rate)
Position of EPCOR: Actual inflation is flow-through using agreed index/basket
Position of EPCOR: Upstream costs are flow-through, including impacts on working capital

9. Process Going Forward
Position of EPCOR: Minimal process going forward – no oral hearing, limiting interrogatory process to Board Staff
Board has opted for a competitive process (do not need a regulatory process to act as a proxy for competition – the ratepayers will benefit from the competitive process)
Proponents will be making binding commitments in their CIP that the successful proponent will have to live with
It has already been well over a year since EPCOR filed its franchise applications, and several years since EPCOR began work towards bringing natural gas to the South Bruce municipalities