Docket UE20706
Order UE92-6IN THE MATTER of an application of Maritime Electric Company, Limited for approval of the Company's 1992 Capital Programs.
BEFORE THE COMMISSION
on Monday, the 3rd day of August, 1992.
Linda Webber, Chairman
John L. Blakney, Vice-Chairman
Order
Contents
Appearances & Witnesses
Reasons for Order
1 Introduction
2 The Application
2.1 Program Summary
2.2 Demand Side Management
2.3 General Expenditures
2.4 Production
2.5 City Distribution
2.6 Rural Distribution
2.7 Transmission
2.8 Capitalized General Expenses
3 Other Matters
3.1 Proposed Amendments to 1990 & 1992 Capital Programs
3.2 Supplementary Capital Items-1990
Order
Appearances & Witnesses
1. For Maritime Electric Company, Limited
Counsel:
William G. LeaWitnesses:
P.H. Newcombe, Vice-President, Engineering and Operations
J.A. Lea, Vice-President, Customer Service and Energy Management
James Landrigan, Manager, Transmission & Distribution
E.B. MacKay, Manager, Administration2. For the Minister of Energy & Forestry, Government of Prince Edward Island
Counsel:
Shauna Sullivan-Curley
J. Gordon MacKay3. For The Island Regulatory and Appeals Commission
Counsel:
Thomas A. MathesonStaff:
Donald G. Sutherland
Director, Utilities DivisionHeather Walker & Joan MacKay
Recording Secretaries
Reasons for Order
1 Introduction
This is an application by Maritime Electric Company, Limited (the "Applicant" or "Company") for approval of the Company's 1992 capital programs. The application, which was filed with the former Public Utilities Commission on October 16, 1991, was heard in public before this Commission on November 21 and 22, 1991 and February 10, 11 and 14, 1992, after due public notice. An intervention in this case was entered by the Minister of Energy and Forestry, Government of Prince Edward Island (the "Minister" or "Government").
2 The Application
2.1 Summary
Table 1 shows a summary of the major account items submitted to the Commission for approval.
Table 1
Summary of 1992 Capital Programs
Major Account Amount Demand Side Management $ 880,750 General 125,000 Production 5,458,000 City Distribution 1,434,000 Rural Distribution 3,560,000 Transmission 325,000 $11,782,750 Capitalized General Expenses 1,822,000 Total $13,604,750 Contributions Demand Side Management 30,750 City Distribution 97,400 Rural Distribution 375,000 503,150 Net Total $ 13,101,600 2.2 Demand Side Management
Specific Demand Side Management (DSM) Programs proposed in this application are set out in Table 2.
Table 2
1992 Demand Side Management Programs
Item Program Amount DSM-1 Residential Compact Fluorescent Lamps $ 58,150 DSM-2 Residential Krypton Bulb Program 59,800 DSM-3 Residential Hot Water Conservation 132,000 DSM-4 Refrigerator Rebate 165,000 DSM-5 Farm Compact Fluorescent Lamps 55,300 DSM-6 Farm Fluorescent Lighting 53,100 DSM-7 Farm High Efficiency Motors 95,000 DSM-8 Commercial Compact Fluorescent Lamps 28,400 DSM-9 Commercial Fluorescent Lighting 114,000 DSM-10 Commercial High Efficiency Motors 120,000 Total $ 880,750 Contributions DSM-1 Residential Compact Fluorescent Lamps 18,750 DSM-3 Residential Hot Water Conservation 12,000 30,750 Net Total $ 850,000 In addition to the specific DSM programs proposed in this application, the Company proposes an amortization period for each program based on the program's estimated useful life.
The Commission continues to view DSM initiatives as essential elements of the Company's activities. To this end, the Commission encourages the Company to continue to explore new and innovative approaches to the management of system demand in an effort to reduce, over time, the rate of load growth and the need to acquire new generation.
The Company's 1992 DSM proposals are approved. The Company is expected to continue to treat DSM as one of its highest priorities.
1. The following 1992 DSM programs and amortization periods are approved:
Item Program Amount Amortization Period
DSM-1 Res. Compact Fluorescent Lamps $ 58,150 4 Yrs
DSM-2 Res. Krypton Bulbs $ 59,800 3 Yrs
DSM-3 Res. Hot Water Conservation $132,000 12 Yrs
DSM-4 Refrigerator Rebate $165,000 15 Yrs
DSM-5 Farm Compact Fluorescent Lamps $ 55,300 4 Yrs
DSM-6 Farm Fluorescent Lighting $ 53,100 12 Yrs
DSM-7 Farm High Efficiency Motors $ 95,000 10 Yrs
DSM-8 Commercial Compact Fluor. Lamps $ 28,400 4 Yrs
DSM-9 Commercial Fluor. Lighting $114,000 12 Yrs
DSM-10 Commercial High Eff. Motors $120,000 12 Yrs
2.3 General Expenditures
General Capital Items proposed for 1992 are shown in Table 3.
Table 3
1992 General Items
Item Program Amount G-1 Insulation & Siding - Head Office 55,000 G-2 Office Equipment & Furniture 20,000 G-3 Management Information Systems 50,000 Total $ 125,000 Item G-3-Management Information Systems-includes an expenditure of $34,000 for terminal servers and modems for enhancing communications with the Company's district offices as well as an expenditure of $16,000 for computer workstations. The Company notes in its application that it is studying the need for additional expenditures of some $435,000 for an upgrade to its central computing facility and related computing and printing equipment.
During the hearing, it became apparent to the Commission that the information systems area of the Company is in need of a comprehensive review. Questions posed to Company witnesses indicate that long-range planning in this area is effectively absent. This situation must be rectified.
2. The Company shall prepare and file with the Commission, at the earliest date, a comprehensive study into the Company's long-range information systems needs.
3. The study in 2 shall include, but not be limited to, a minimum five-year needs analysis together with an implementation plan.
4. The proposed 1992 information systems expenditures totaling $50,000 are approved; however, additional expenditures-including supplementary budget requests-will not be authorized pending review of the above information systems study.
5. Other 1992 general expenditures of $75,000 are approved.
2.4 Production
Production Expenditures proposed for 1992 are shown in Table 4.
Table 4
1992 Production Programs
Item Program Amount P-1 Misc. Mechanical Equipment 5,000 P-2 Misc. Electrical Equipment 3,000 P-3 Engineering & Test Equipment 40,000 P-4 Machine Shop Lathe & Press 65,000 P-5 Dalhousie Capital Additions 5,000 P-6 Steam Plant Life Extension 5,000,000 P-7 Generation Planning Studies 100,000 P-8 Communications System 50,000 P-9 Supervisory System 2,000 P-10 Steam Plant Property Improvements 100,000 P-11 Air Conditioner for No. 4 Boiler Area 3,000 P-12 Sump Pump, Main Oil Tank Const. Area 15,000 P-13 Replacement Battery - West Royalty & Borden 20,000 P-14 Snow Hoods for No. 1 Gas Turbine 50,000 Total $ 5,458,000
These expenditures have been reviewed by the Commission and are approved. The Company shall continue to update the Commission on the steam plant life extension program.
6. 1992 Production Expenditures totaling $5,458,000 are approved.
2.5 City Distribution
Proposed 1992 City Distribution Expenditures are shown in Table 5.
Table 5
1992 City Distribution Programs
Item Program Amount C-1 SCFD* Replacements 10,000 C-2 Street Alteration Rebuilds 20,000 C-3 Distribution Transformers 200,000 C-4 Service Lines 40,000 C-5 Service Line Upgrades 40,000 C-6 Street and Yard Lighting 45,000 C-7 Distribution Line Extensions 25,000 C-8 Distribution Line Rebuilds 15,000 C-9 System Meters 350,000 C-10 Line Tools 25,000 C-11 Engineering & Test Equipment 10,000 C-12 Transportation Equipment 370,000 C-13 Rebuilds Due to Joint Use 5,000 C-14 Transformer Shop Equipment 2,000 C-15 Meter Shop Equipment 2,000 C-16 Job Order Transfers 75,000 C-17 Hazardous Waste Facility 200,000 Total $ 1,434,000 Contributions City Service Lines - New (44%) 17,600 City Service Lines - Replacements (12%) 4,800 Job Order Transfers (100%) 75,000 97,400 Net Total $ 1,336,600 *Storm, Fire, Collision & Deterioration
The City Distribution Budget is approved. A discussion on the need for a review of the Company's customer contribution schedules is contained in Section 2.6 of these reasons.
7. 1992 City Distribution Expenditures totaling $1,434,000 are approved.
2.6 Rural Distribution
1992 Rural Distribution Expenditures are shown in Table 6.
Table 6
1992 Rural Distribution Programs
Item Program Amount R-1 SCFD Replacements 100,000 R-2 Road Alteration Rebuilds 10,000 R-3 Distribution Transformers 550,000 R-4 Service Lines 440,000 R-5 Service Line Upgrades 250,000 R-6 Street and Yard Lighting 80,000 R-7 Distribution Line Extensions 150,000 R-8 Line Rebuilds & Improvements 530,000 R-9 Line Control Devices 20,000 R-10 Rebuilds due to Joint Use 50,000 R-11 Job Order Transfers 100,000 R-12 Pole Replacement Program 1,280,000 Total $ 3,560,000 Contributions Service Lines - New (50%) 220,000 Service Lines - Upgrades (19%) 47,500 Extensions (19%) 7,500 Job Order Transfers (100%) 100,000 375,000 Net Total $ 3,185,000 In Order E91-4 dated June 26, 1992, the Public Utilities Commission ("PUC") reviewed the Company's 1991 capital programs and ordered, among other things, that the Company file additional evidence supporting budget items R - 8-Rural Line Rebuilds and Improvements and item R-12-Pole Replacement Program. The PUC's filing requirement was based on the following expressed concern:
Although Company witness Newcombe gave additional evidence on this topic [items R-8 and R-12] and later filed supplementary information, the Commission believes that the proposal to further reduce the level of expenditures is...unsupported.1
Exhibit A-6 in this docket is the Company's response to the PUC Order. This was supplemented at the hearing by the filing of Exhibit A-10, a report of the Company entitled DISTRIBUTION: Pole Replacement and Rural Rebuild, February 1992.
The Commission has reviewed the submissions of the Company on the issue and wants it clearly understood that poles and conductors in the Company's rural distribution system must not be allowed to return to the condition they were in in the early 1980's. Although we accept at this time the Company's position that the overall rural distribution system is in good condition, we remain concerned that the Company may sacrifice needed work on the system in favor of other capital projects.
The Commission notes that the Company has commenced the filing of a monthly Outage Statistics Report that should, over time, allow the Commission-and indeed the management of the Company-to more effectively monitor the Company's system in terms of system reliability. Although this report should help identify potential problem areas, it is not viewed as a substitute for a systematic program of pole and line replacements and rebuilds. The Commission will expect the Company to continue to refine its distribution planning methodology and to demonstrate, on an annual basis, that annual expenditures for line rebuilds and improvements and the Company's pole replacement program are adequate. The Commission will also expect the Company to improve communications with its field personnel over the reporting of non-critical problem areas in the Company's distribution system. Based on the evidence presented at the hearing, we are left with the impression that a formal reporting system for such problems is not in place.
Having considered all of the Company's submissions on 1992 rural distribution proposals,
8. 1992 Rural Distribution Expenditures totaling $3,560,000 are approved.
The Commission has been aware for some time and the Company has acknowledged that the Company's customer contribution schedules and policies are in need of review. We understand that such a review was commenced in 1988 by the PUC but later abandoned in favor of more pressing issues. We are also advised by Commission staff that the Company recently suggested that the matter be revisited. We agree.
The Company is directed to undertake a review of this matter and to file a report thereon with the Commission by mid-December of this year. The report should contain recommendations on changes to the contribution schedules and policies with the view of ensuring that the schedules and policies are fair and equitable to the Company and its customers.
A public review of the matter will be conducted in early 1993. An order mandating the above review is not considered necessary.
2.7 Transmission
1992 proposed transmission expenditures are shown on Table 7.
Table 7
1992 Rural Transmission Programs
Item Program Amount T-1 SFCD Replacements $ 10,000 T-2 Rebuilds due to road construction 10,000 T-3 Rebuild Victoria Cross substation 180,000 T-4 Power transformer radiators 35,000 T-5 Protection additions 15,000 T-6 Transmission planning study 75,000 Total $ 325,000 The proposals have been reviewed by the Commission and approved.
7. Transmission expenditures totaling $325,000 in 1992 are approved.
2.8 Capitalized General Expenses
General expense-capital represents general overheads associated with capital items to be installed or constructed in 1992 that the Company proposes to capitalize.
The Commission notes that the Company does not strictly adhere to NARUC2 guidelines relating to the capitalization of general overheads. These guidelines specify, among other things, that a Utility should undertake periodic studies at least one a year on the proportion of an employee's time that is includible in capital accounts. According to Counsel for the Company, Mr. Lea:
I am advised that although not all departments of Maritime Electric examine the allocation of administrative costs to capital annually an effort is made to re-examine the allocations from time to time and, where a significant change in the amount of capital-related activity occurs, an analysis of the associated costs is carried out.3
A review of this account over the last several years and the manner in which it has fluctuated4 leads the Commission to believe that strict adherence to the NARUC guidelines is necessary.
The Company's 1992 proposal will be approved. However,
8. The Company shall hereinafter strictly comply with the NARUC guidelines respecting the allocation and treatment of administrative and general expenses to be capitalized.
9. 1992 capitalized general and administrative expenses totaling $1,822,000 are approved.
3 Other Matters
3.1 Proposed Amendments to 1990 and 1991 Capital Programs
The Company seeks approval of amendments to its PUC-approved 1990 and 1991 capital programs. Specifically, the Company seeks approval
- of additional expenditures of $561,238.63 associated with the Company's head office at 180 Kent Street, Charlottetown; and
- of additional expenditures of $417,665.00 associated with the Company's West Royalty Service Center.
The properties in question have been the subject of extensive discussion and debate before the PUC since 1989. The economics of the Company's decision to purchase and renovate these properties has, we believe, been adequately reviewed and the Commission is satisfied that, even with the capital additions proposed herein, the acquisition of these properties remains within the best long-term interests of the Company's customers.
The proposals are approved. However, we want to caution the Company on the need to seek, in a timely fashion, regulatory approval of capital expenditures. The Commission does not wish to see a repeat of the difficulties encountered in reviewing, after the fact, expenditures such as those considered herein.
10. Additional capital expenditures of $561,238.63 associated with the Company's head office at 180 Kent Street, Charlottetown and $417,665.00 associated with the Company's West Royalty Service Center are approved as at December 31, 1991.
During the hearing, the Company was asked to outline the status of the Company's former head office at 134 Kent Street-a leased property which remains vacant. The Company noted that efforts have and continue to be made to sub-lease the property.
In order to monitor the Company's activities in this area,
11. The Company is directed to file, in conjunction with its 1993 capital programs application, a detailed report of its efforts to sub-lease the former head office property at 134 Kent Street, Charlottetown.
3.2 Supplementary Capital Items-1990
These items have been reviewed by the Commission and are approved.
12. 1990 supplementary capital expenditures set out in section 4 of the application are approved.
An Order will therefore issue.
IN THE MATTER of an application of Maritime Electric Company, Limited for approval of the Company's 1992 Capital Programs.
Order
WHEREAS Maritime Electric Company, Limited (the "Company"), by application filed with the former Public Utilities Commission on October 16, 1991, applied for approval of the Company's 1992 capital programs;
AND WHEREAS the Island Regulatory and Appeals Commission ("Commission") heard the application at public hearings conducted in Charlottetown on November 21 and 22, 1991 and February 10, 11 and 14, 1992 after due public notice;
AND WHEREAS the Commission has issued its findings in this matter in accordance with the Reasons for Order issued with this Order;
NOW THEREFORE, pursuant to the Island Regulatory and Appeals Commission Act and the Electric Power and Telephone Act;
IT IS ORDERED THAT
1. The following 1992 DSM programs and amortization periods are approved:
Amortization Item Program Amount
Period DSM-1 Res. Compact Fluorescent Lamps $ 58,150 4 Yrs DSM-2 Res. Krypton Bulbs $ 59,800 3 Yrs DSM-3 Res. Hot Water Conservation $132,000 12 Yrs DSM-4 Refrigerator Rebate $165,000 15 Yrs DSM-5 Farm Compact Fluorescent Lamps $ 55,300 4 Yrs DSM-6 Farm Fluorescent Lighting $ 53,100 12 Yrs DSM-7 Farm High Efficiency Motors $ 95,000 10 Yrs DSM-8 Commercial Compact Fluor. Lamps $ 28,400 4 Yrs DSM-9 Commercial Fluor. Lighting $114,000 12 Yrs DSM-10 Commercial High Eff. Motors $120,000 12 Yrs 2. The Company shall prepare and file with the Commission, at the earliest date, a comprehensive study into the Company's long-range information systems needs.
3. The study in 2 shall include, but not be limited to, a minimum five-year needs analysis together with an implementation plan.
4. The proposed 1992 information systems expenditures totaling $50,000 are approved; however, additional expenditures will not be authorized pending review of the above information systems study.
5. Other 1992 general expenditures of $75,000 are approved.
6. 1992 Production Expenditures totaling $5,458,000 are approved.
7. Transmission expenditures totaling $325,000 in 1992 are approved.
8. The Company shall hereinafter strictly comply with the NARUC guidelines respecting the allocation and treatment of administrative and general expenses to be capitalized.
9. 1992 capitalized general and administrative expenses totaling $1,822,000 are approved.
10. Additional capital expenditures of $561,238.63 associated with the Company's head office at 180 Kent Street, Charlottetown and $417,665.00 associated with the Company's West Royalty Service Center are approved as at December 31, 1991.
11. The Company is directed to file, in conjunction with its 1993 capital programs application, a detailed report of its efforts to sub-lease the former head office property at 134 Kent Street, Charlottetown. And
12. 1990 supplementary capital expenditures set out in section 4 of the application are approved.
DATED at Charlottetown, Prince Edward Island, this 3rd day of August, 1992.
BY THE COMMISSION:
Linda Webber, Chairman
John L. Blakney, Vice-Chairman
1 Public Utilities Commission Order E91-4 in Docket E20705 (June 26, 1992), p.9.
2 National Association of Regulatory Utility Commissioners.
3 Letter to Commission from William G. Lea, dated April 6, 1992.
4 These fluctuations appeared to be related, in part, to time allocation difficulties.
