March 11, Ms. Erica M. Hamilton Commission Secretary British Columbia Utilities Commission Sixth Floor 900 Howe Street Vancouver, BC V6Z 2N3

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1 B-1 Joanna Sofield Chief Regulatory Officer Phone: Fax: March 11, 2011 Ms. Erica M. Hamilton Commission Secretary British Columbia Utilities Commission Sixth Floor 900 Howe Street Vancouver, BC V6Z 2N3 Dear Ms. Hamilton: RE: British Columbia Utilities Commission (BCUC) British Columbia Hydro and Power Authority (BC Hydro) Smart Metering and Infrastructure (SMI) Regulatory Account - F2011 Expenditures Application BC Hydro is writing to the BCUC to request approval to include in the SMI Regulatory Account (established pursuant to BCUC Order No. G-64-09) the amount of the actual operating costs BC Hydro will incur in F2011 for its activities in relation to its SMI Program. These costs are forecast to be $5.8 million as of the date of this application. In addition, BC Hydro requests BCUC approval to accelerate the rate of depreciation on existing meters to align with the requirements of Canadian Generally Accepted Accounting Principles (CGAAP) 1, and include in the SMI Regulatory Account the increased amortization in F2011 associated with the accelerated depreciation of the existing meters. The amount of the increased amortization in F2011 is forecast to be $8.9 million. BC Hydro is not requesting BCUC approval to change BC Hydro s rates as part of this application. This application requests regulatory accounting treatment so that BC Hydro may seek to recover in future rates the operating costs and increased amortization that BC Hydro incurs in F2011 for the SMI Program. As part of its F2012 to F2014 Revenue Requirements Application, BC Hydro is requesting approval to include in the SMI Regulatory Account the amount of actual net operating costs, amortization on capital assets, finance charges and return on equity that BC Hydro will incur in relation to the SMI Program from F2012 to F2014 (refer to Exhibit B-1, section at page 7-18). 1 Refer to section of the CICA Handbook. British Columbia Hydro and Power Authority, 333 Dunsmuir Street, Vancouver BC V6B 5R3

2 March 11, 2011 Ms. Erica M. Hamilton Commission Secretary British Columbia Utilities Commission Smart Metering and Infrastructure (SMI) Regulatory Account - F2011 Expenditures Application Page 2 of 11 Previous Applications On May 20, 2009, BC Hydro requested BCUC approval to establish a regulatory account for operating costs incurred in F2009 and to be incurred in F2010 for the Smart Metering and Infrastructure Program. BCUC Order No. G authorized BC Hydro to establish a regulatory account for the purposes of deferring $8.9 million of costs (inclusive of $0.3 million interest charges on the regulatory account balance) incurred in F2009. The Order also indicated that a determination regarding the deferral of any F2010 operating costs had not been made and would be evaluated as a separate matter at a separate date. On March 31, 2010 BC Hydro requested approval to include in the SMI Regulatory Account the amount of the actual operating costs BC Hydro had incurred in F2010 for its activities in relation to its SMI Program. BCUC Order No. G authorized BC Hydro to include up to $8.8 million of costs in the SMI Regulatory Account. 1. Background Provincial Policy Objectives and Legislation In February 2007 the British Columbia (B.C.) Government released The BC Energy Plan - A Vision for Clean Energy Leadership (2007 Energy Plan). As contemplated in the 2007 Energy Plan, Policy Action Item No. 4, the Utilities Commission Act 2 (UCA) was amended in 2008 to require BC Hydro to install and put into operation smart meters. Subsequently the UCA requirements with regard to smart meters were repealed and replaced by section 17 of the Clean Energy Act 3 (CEA). BC Hydro is required by section 17 of the CEA to install and put into operation smart meters, and to establish a program to install and put into operation a smart grid, in accordance with and to the extent required by the regulations. The Smart Meters and Smart Grid Regulation was issued by the Minister on December 15, 2010, and is included as Attachment SMI Program BC Hydro s SMI Program is designed to meet the requirements of section 17 of the CEA and the Smart Meters and Smart Grid Regulation. The program is an important foundational step in the modernization of BC Hydro s electricity system. The program involves replacing existing customer meters, now becoming obsolete, with a comprehensive smart metering system. This system includes technology and telecommunications infrastructure BC Hydro will use to manage the electricity system in a reliable, safe and cost-effective manner. 2 3 R.S.B.C C. 473, as amended.

3 March 11, 2011 Ms. Erica M. Hamilton Commission Secretary British Columbia Utilities Commission Smart Metering and Infrastructure (SMI) Regulatory Account - F2011 Expenditures Application Page 3 of 11 The SMI Program will: 1. Improve safety and reliability through faster and precise outage identification and a reduction in the damage caused by illegal electricity diversions; 2. Enhance customer service by reporting electricity use more accurately, eliminating estimated bills, simplifying the process of opening and closing an account when moving, and reducing the need for onsite visits by field crews; 3. Reduce electricity theft that currently amounts to an estimated $100 million a year in lost revenue costs that are borne by all legitimate BC Hydro customers; 4. Improve operational efficiency and reduce wasted electricity through voltage optimization resulting in lower operating costs that are passed on to all customers through lower rates; 5. Support greater customer choice and control by offering optional in-home feedback tools that provide direct and timely information to customers about their electricity consumption; and 6. Help modernize British Columbia s electricity system by replacing nearly obsolete meters, and creating the foundation for supporting new uses of electricity such as electric vehicles, customer generation and microgrids. The SMI Program is comprised of the following six major components that will be managed and implemented as part of a single, integrated program: Smart Metering System captures and communicates consumption data and meter events, such as outages, to both the customer and BC Hydro. Solution Integration designs, develops, and implements the software components, business processes, and ongoing support structures required to enable smart metering capabilities. Theft Detection enables BC Hydro to detect electricity diversions and reduce electricity theft. Conservation Tools provides information enabling customers to make informed and timely decisions in relation to their electricity consumption. Grid Modernization Infrastructure Upgrades provides the smart meter operations centre, and advanced technology and telecommunications infrastructure, to help improve the reliability and security of the electricity system. Program Delivery Activities provides the overall project management activities and responsibilities designed to ensure a quality implementation of each solution component included in the program scope SMI Program Activities in F2011 Table 1 identifies the major SMI Program activities undertaken during F2011.

4 March 11, 2011 Ms. Erica M. Hamilton Commission Secretary British Columbia Utilities Commission Smart Metering and Infrastructure (SMI) Regulatory Account - F2011 Expenditures Application Page 4 of 11 Table 1 SMI Program Activities in F2011 Date Activity April to June 2010 Revised procurement strategy (disaggregated approach to procurement Smart Metering System, Meter Deployment Services, Meter Data Management System (MDMS), and Solution Integrator Services Retained fairness advisor to provide advice with respect to the SMI Program procurement processes Released Solution Integrator Request for Proposals (RFP) Held interactive workshops with prospective Solution Integrators Developed Interim Service Agreement with Solution Integrator Issued MDMS Request for Qualifications (RFQ) July 2010 Issued RFPs for Metering System and Meter Deployment Services to BC Bid August 2010 Held technical workshops with Metering System proponents Selected preferred Solution Integrator vendor, with work commencing under an Interim Service Agreement (term of 90 days) September 2010 Issued RFP for MDMS to qualified proponents Received initial proposals from Metering System proponents Received initial proposals from Meter Deployment Services proponents Pursuant to BCUC Order No. G-67-10, submitted Quarterly Update Report No. 1 to the BCUC October 2010 Held interactive sessions with qualified MDMS proponents Evaluated initial proposals from Metering System proponents to arrive at a short list of three candidates November 2010 Held interactive workshops with short-listed Metering System proponents Selected preferred Meter Deployment Services vendor Submitted Quarterly Update Report No. 2 to the BCUC

5 March 11, 2011 Ms. Erica M. Hamilton Commission Secretary British Columbia Utilities Commission Smart Metering and Infrastructure (SMI) Regulatory Account - F2011 Expenditures Application Page 5 of 11 Date Activity December 2010 Selected preferred MDMS vendor Finalized contract for Solution Integrator Pursuant to BCUC Order No. G-67-10, submitted a business plan for the SMI Program to the BCUC Developed communications and engagement planning Conducted customer focus groups to inform IHF product requirements January 2011 Approved the preferred Metering System vendor Finalized the contract for Meter Deployment Services Began transformation activities with the Meter Deployment Services vendor for order management, supply chain and call center processes Publicly released the SMI Program Business Case Finalized the Project Execution Plan, which defines the project activities to be completed for the balance of F2011 through to the end of implementation Finalized the Project Execution Plan, which defines the project activities to be completed for the balance of F2011 through to the end of implementation February 2011 Finalized contracts for Smart Metering System and MDMS components Finalized IHF Product Requirements document and initiated IHF eligibility process and testing framework definition Conducted business case and technical workshops with key stakeholders Completed Release 0 (Architectures and Execution Framework) Commenced Release 1 requirements validation and solution design Submitted Quarterly Update Report No. 3 to the BCUC March 2011 (Planned) Release 1: Commence installation and configuration of the Automated Data Collection System (ADCS) Release 2: Commence installation and configuration of the MDMS Release 6: Commence Procurement Process for Theft Detection Solution components

6 March 11, 2011 Ms. Erica M. Hamilton Commission Secretary British Columbia Utilities Commission Smart Metering and Infrastructure (SMI) Regulatory Account - F2011 Expenditures Application Page 6 of SMI Program Operating Costs in F2011 SMI Program operating costs that BC Hydro incurred in F2009, F2010, and F2011 (plan and forecast) are shown in Table 2 and Table 3. The F2009 and F2010 costs and interest are included in the SMI Regulatory Account. Similarly, BC Hydro is requesting BCUC approval to record in the SMI Regulatory Account the actual operating costs it incurred in F2011, forecast to be $5.8 million at the date of this application. On September 16, 2010, the BC Hydro Board of Directors approved the SMI Program for implementation with an expected cost of $840 million and an authorized cost of $930 million. Following this decision, and now entering the Implementation Phase, SMI Program costs are capitalized, with the exception of costs not eligible for capitalization under CGAAP (for example, change management and business transformation, communications and stakeholder engagement, disposal of existing meter assets, and meter route decommissioning). Table 2 Operating Costs for the SMI Program Summary ($ million) F2009 Actual F2010 Actual F2011 Plan F2011 Forecast 1 Labour Consultants & Contractors Other Total Operating Costs Operating expenditures in F2011 are $13.9 million below plan due to the extension of SMI Program definition phase activities, and in particular procurement activities. This represents a shift of expenditures into future years and not a reduction in program costs. The variance from plan for labour reflects lower than planned FTEs. Forecast FTEs for F2011 are 55.5 versus a plan of Table 3 shows the largest variance from plan is in the Other cost category (which includes program management, business transformation, communications and stakeholder engagement) with forecast costs being $9.5 million less than plan. Forecast costs related to In-Home Feedback are $3.3 million less than plan.

7 March 11, 2011 Ms. Erica M. Hamilton Commission Secretary British Columbia Utilities Commission Smart Metering and Infrastructure (SMI) Regulatory Account - F2011 Expenditures Application Page 7 of 11 Table 3 Operating Costs for the SMI Program by Program Component 1 ($ million) F2009 Actual F2010 Actual F2011 Plan F2011 Forecast 1 Smart Meters Telecommunications Systems 3 Meter Data Management System 4 Solution Integration 5 In-Home Display / In-Home Feedback Conservation Based Rates Smart Grid Other Total Operating Costs By Order No. G-67-10, the BCUC directed BC Hydro to report SMI Program costs broken down by these components. 2. Smart Grid includes theft detection and other advanced telecom infrastructure related expenditures. 3. Other expenditures include program management, business transformation, communications and stakeholder engagement, security, safety, procurement and facilities Accelerated Amortization Existing Meter Assets In accordance with CGAAP 4, BC Hydro began amortization of existing revenue meter assets at an accelerated rate once the SMI Program received Board approval on September 16, The additional amortization is required to recognize that the existing revenue meters will be removed from service at the completion of smart meter installation in December The book value of existing revenue meters in service and in inventory at the beginning of F2011 is estimated at $89.2 million, and in the absence of any acceleration, amortization for the F2011 to F2013 period is a total of $14.2 million. The total amount of accelerated amortization required so that the net book value of all existing revenue meters is zero as at December 2012 is estimated at $75.0 million. Table 4 below provides details of the F2011 to F2013 accelerated amortization. The profile of accelerated amortization during the F2011 to F2013 period (refer to line 4 of Table 4) is aligned to the smart meter installation schedule and timing of SMI Program expenditures. To avoid differences between the amortization used for financial reporting and regulatory purposes, BC Hydro seeks BCUC approval to adjust the rates of amortization 4 Refer to section of the CICA Handbook.

8 March 11, 2011 Ms. Erica M. Hamilton Commission Secretary British Columbia Utilities Commission Smart Metering and Infrastructure (SMI) Regulatory Account - F2011 Expenditures Application Page 8 of 11 on existing revenue meters to correspond to a remaining life of 3.3 years in F2011, 2.0 years in F2012, and 2.1 years in F Further, BC Hydro seeks BCUC approval to include the resulting F2011 incremental amortization due to the acceleration (i.e., $8.9 million) in the SMI Regulatory Account. Table 4 Amortization of Existing Revenue Meters ($ million) F2011 F2012 F2013 Total 1 Balance Beginning of Year Additions Amortization Existing Amortization - Accelerated Balance End of Year Amortization Rates 6 Portion of Year (Years) Remaining Life (Years) Annual Rate % 48.8% 35.8% 1. The existing $4.8 million in amortization is being recovered in F2011 rates. 2. The portion of a full-year in which meters are amortized on an accelerated basis. 3. The remaining life in years of revenue meters in service. 4. The annual rate of amortization implied by the remaining life of meters in service SMI Regulatory Account Balance Table 5 provides the continuity schedule for the SMI Regulatory Account, including the addition of the forecast operating costs, accelerated amortization, finance charges and F2011 interest, resulting in a closing balance (inclusive of interest) as at March 31, 2011 of $33.9 million. Interest for F2011 on the cumulative balance in the SMI Regulatory Account is forecast at $0.4 million and is calculated at BC Hydro s weighted cost of debt for the previous fiscal year. 5 The rates of accelerated amortization in each year are not equal due to the non-linear meter deployment profile.

9 March 11, 2011 Ms. Erica M. Hamilton Commission Secretary British Columbia Utilities Commission Smart Metering and Infrastructure (SMI) Regulatory Account - F2011 Expenditures Application Page 9 of 11 Table 5 SMI Regulatory Account Continuity Schedule ($ million) 1 Additions actual Interest actual Balance as at April 1, Additions actual Interest actual Recovery 7 Balance as at March 31, Additions forecast: 9 Deferred Operating Amortization on Capital Assets Finance Charges Assets 12 Interest forecast Recovery 14 Balance on March 31, Finance Charges are interest on deferred operating expenditures incurred in F Request for Relief In support of this request for approval to record F2011 SMI Program operating costs and incremental amortization of existing meters in the SMI Regulatory Account, BC Hydro makes the following submissions CEA Requirements BC Hydro is required by section 17 of the CEA to install and put into operation smart meters, related components, equipment, and metering and communications infrastructure, and establish a program to install and put into operation a smart grid, as prescribed by the Smart Meters and Smart Grid Regulation. BC Hydro s SMI Program is designed to meet the requirements of the CEA and regulations. Prior to the release of the Smart Meters and Smart Grid Regulation, BC Hydro s activities in relation to the SMI Program focused on foundational program elements which would reasonably be expected to be part of any program mandated by the regulations. Procurement activities undertaken in F2011 were designed to allow for

10 March 11, 2011 Ms. Erica M. Hamilton Commission Secretary British Columbia Utilities Commission Smart Metering and Infrastructure (SMI) Regulatory Account - F2011 Expenditures Application Page 10 of 11 flexibility with respect to the functions and features of the smart meters and related equipment. Section 8 of the CEA directs the BCUC, in setting BC Hydro s rates, to ensure the rates allow BC Hydro to recover its costs incurred with respect to actions taken to comply with section 17 of the CEA and Smart Meters and Smart Grid Regulation Summary BC Hydro continued to work on the SMI Program in F2011, and made significant progress towards meeting the requirements of section 17 of the CEA. The costs BC Hydro incurred in F2011 for the SMI Program were not provided for in the F2011 Revenue Requirements Application, 6 nor in the approved F2011 rates. Accordingly, BC Hydro is now seeking the approval of the BCUC to record actual F2011 operating costs for the SMI Program in the SMI Regulatory Account, to accelerate the rate of depreciation on existing meters to align with GAAP requirements, and to record in the SMI Regulatory Account increased amortization in F2011 associated with the accelerated depreciation of the existing meters, to preserve the ability of BC Hydro to apply to recover such costs in future rates. A draft order is provided in Attachment 2 to this application. BC Hydro is not seeking a determination by the BCUC at this time as to the manner in which the amount in the regulatory account may be recovered in rates. 4. Future Regulatory Activities BC Hydro has included in its F2012 to F2014 Revenue Requirements Application a request for BCUC approval to include in the SMI Regulatory Account the amount of actual net operating costs, amortization on capital assets, finance charges and return on equity that BC Hydro will incur in relation to the SMI Program from F2012 to F2014 (refer to Exhibit B-1 section lines 18 to 21 of page 7-18). BC Hydro anticipates that it will request recovery of SMI Regulatory Account commencing in F2015 as part of the future revenue requirements application for the test period which includes F F2011 Revenue Requirement Application, section , page 7-21.

11 March 11, 2011 Ms. Erica M. Hamilton Commission Secretary British Columbia Utilities Commission Smart Metering and Infrastructure (SMI) Regulatory Account - F2011 Expenditures Application Page 11 of 11 For further information, please contact Guy Leroux at or by at bchydroregulatorygroup@bchydro.com. Yours sincerely, Joanna Sofield Chief Regulatory Officer cf/rh Enclosure Copy to: BCUC Project No (F11 RRA) Registered Intervener Distribution List.

12 Smart Metering and Infrastructure (SMI) Regulatory Account F2011 Expenditures Application Attachment 1 Smart Meter and Smart Grid Regulation

13 SMI Regulatory Account - F2011 Expenditures Application Attachment 1 B.C. Reg. 368/2010 Deposited December 15, 2010 M361/2010 Clean Energy Act SMART METERS AND SMART GRID REGULATION Definitions 1 In this regulation: "Act" means the Clean Energy Act; "automation-enabled device" means a device that, when installed on the authority's electric system, is capable of being used by the authority, at a location remote from the device, to control the flow of electricity; "connectivity model" means a computer model of the electric distribution system identifying all of the following: (a) the locations at which eligible premises are connected to the electric distribution system; (b) the locations known to the authority at which unmetered buildings, structures or equipment are connected to the electric distribution system; (c) the locations of (i) distribution transformers, (ii) distribution circuit conductors, (iii) substations, (iv) system devices, and (v) switches, Page 1 of 7

14 SMI Regulatory Account - F2011 Expenditures Application Attachment 1 that are within the electric distribution system; (d) the locations of generators connected to the electric distribution system; (e) the phase and direction of the electricity flowing through the conductors referred to in paragraph (c); (f) whether or which of the distribution circuit conductors connected to switches referred to in paragraph (c) are energized; "electric distribution system" means the equipment of the authority that is energized at less than 60 kilovolts and is used by the authority to provide electricity at less than 60 kilovolts; "electricity balance analysis" means an analysis of the electricity in a portion of the electric distribution system, including an analysis of the amount of electricity that (a) is measured by the smart meters at all eligible premises supplied from that portion, (b) is measured by the system devices installed on that portion, (c) is supplied from that portion to unmetered loads known to the authority, and (d) is lost in that portion because of resistance or another cause known to the authority; "eligible premises" means a building, structure or equipment of a customer of the authority if the building, structure or equipment is connected to the electric distribution system and has an electricity meter; "in-home feedback device" means a device that is capable of Page 2 of 7

15 SMI Regulatory Account - F2011 Expenditures Application Attachment 1 (a) displaying (i) a smart meter's measurements of electricity supplied to an eligible premises, and (ii) the cost of the electricity measured by the smart meter, and (b) transmitting information in digital form to and receiving information in digital form from a smart meter with which the authority has established a secure telecommunications link; "system device" means a device, including a distribution system meter and a sensor, that, when installed on the electric distribution system, is capable of (a) measuring and recording measurements of electricity as frequently as smart meters, (b) transmitting and receiving information in digital form, (c) measuring bi-directional flow of electricity, and (d) being configured by the authority at a location either remote from or close to the device. Prescribed requirements for smart meters 2 For the purposes of the definition of "smart meter" in section 17 (1) of the Act, the prescribed requirements for a meter are that it is capable of doing all of the following: (a) measuring electricity supplied to an eligible premises; (b) transmitting and receiving information in digital form; (c) allowing the authority remotely to disconnect and reconnect the supply of electricity to an eligible premises, unless (i) the point of metering for the eligible premises (A) is greater than 240 volts, Page 3 of 7

16 SMI Regulatory Account - F2011 Expenditures Application Attachment 1 (B) is greater than 200 amperes, or (C) is three phase, or (ii) the eligible premises (A) has a bottom-connected meter, (B) has an output or input pulse meter, or (C) has a meter that measures maximum electricity demand in watts; (d) recording measurements of electricity, and recording the date and time of the recording, at least as frequently as in 60- minute intervals; (e) being configured by the authority at a location either remote from or close to the meter; (f) measuring and recording measurements of electricity generated at the premises and supplied to the electric distribution system; (g) transmitting information to and receiving information from an in-home feedback device, unless the point of metering for the eligible premises meets any of the criteria set out in paragraph (c) (i) or the eligible premises meets any of the criteria set out in paragraph (c) (ii). Installation of smart meters and related equipment 3 (1) Subject to subsection (3), by the end of the 2012 calendar year, the authority must install and put into operation (a) a smart meter for each eligible premises, and (b) all of the following related equipment: (i) communications infrastructure for transmitting information among smart meters and the computer hardware and software systems described in subparagraph (ii); Page 4 of 7

17 SMI Regulatory Account - F2011 Expenditures Application Attachment 1 (ii) secure computer hardware and software systems that enable the authority to do all of the following: (A) monitor, control and configure smart meters and the communications infrastructure referred to in subparagraph (i); (B) store, validate, analyze and use the information measured by and received from smart meters; (C) provide, through the internet, to a person who receives electricity from the authority secure access to information about the person's electricity consumption and generation, if any, measured by a smart meter; (D) establish a secure telecommunications link between in-home feedback devices and smart meters that are compatible with each other; (E) bill customers in accordance with rates that encourage the shift of the use of electricity from periods of higher demand to periods of lower demand; (F) integrate the systems with the authority's other business systems. (2) The communications infrastructure referred to in subsection (1) (b) (i) must include a telecommunications network that is capable of delivering two-way, digital, and secure communication. (3) If it is impracticable because of distance, electromagnetic interference, physical obstruction or other similar cause for the authority to establish a telecommunications link between the smart meter at an eligible premises and the computer hardware and software system referred to in subsection (1) (b) (ii), the authority is not required to install or put into operation the communications Page 5 of 7

18 SMI Regulatory Account - F2011 Expenditures Application Attachment 1 infrastructure referred to in subsection (1) (b) (i) for the purpose of establishing that telecommunications link. (4) The authority must integrate the operation of smart meters and related equipment with the authority's other operations. Smart grid 4 (1) The program required under section 17 (4) of the Act must be established by the end of the 2015 calendar year and include the following components: (a) the establishment and operation of a connectivity model and the installation and operation of (i) at least but no more than system devices, and (ii) computer hardware and software systems to enable the authority to (iii) perform electricity balance analyses for the electric distribution system, and (iv) estimate the amount of electricity supplied from a portion of the electric distribution system to unmetered loads that are not known to the authority and to estimate the location of those loads; (b) the acquisition of investigation devices and computer software to enable the authority to identify the location of the unmetered loads referred to in paragraph (a) (iv); (c) the establishment and operation of telecommunications networks that (i) have sufficient speed and bandwidth, and (ii) enable two-way, digital, and secure communication among system devices, automation-enabled devices Page 6 of 7

19 SMI Regulatory Account - F2011 Expenditures Application Attachment 1 and the systems and equipment used by the authority for monitoring and controlling its electric system to facilitate (iii) the operation of the authority's electric system, (iv) the integration, on a large scale, of distributed generation into the electric distribution system, and (v) the provision of electricity service that allows for the large-scale use of electric vehicles by its customers. (2) The authority must integrate the operation of the smart grid with the authority's other operations. [Provisions relevant to the enactment of this regulation: Clean Energy Act, S.B.C. 2010, c. 22, section 37 (g)] Page 7 of 7

20 Smart Metering and Infrastructure (SMI) Regulatory Account F2011 Expenditures Application Attachment 2 Draft Order

21 SMI Regulatory Account - F2011 Expenditures Application Attachment 2 BRITISH COLUMBIA UTILITIES COMMISSION ORDER NUMBER G- SIXTH FLOOR, 900 HOWE STREET, BOX 250 VANCOUVER, BC V6Z 2N3 CANADA web site: TELEPHONE: (604) BC TOLL FREE: FACSIMILE: (604) IN THE MATTER OF the Utilities Commission Act, R.S.B.C. 1996, Chapter 473 and Application by British Columbia Hydro and Power Authority (BC Hydro) to include in the SMI Regulatory Account the Actual F2011 Smart Metering Infrastructure Program Operating Costs and Accelerated Amortization of Revenue Meters BEFORE:, 2011 ORDER WHEREAS: A. The Clean Energy Act, 2011 requires the British Columbia Hydro and Power Authority (BC Hydro) to install and put into operation smart meters in accordance with and to the extent required by regulations, and to complete such obligations by the end of the 2012 calendar year; B. The Clean Energy Act also requires BC Hydro to establish a program to install and put into operation a smart grid; C. On December 15, 2010, the Smart Meters and Smart Grid Regulation was enacted as contemplated in the Clean Energy Act; D. By way of Order No. G-64-09, the British Columbia Utilities Commission (Commission) authorized BC Hydro to establish the a regulatory account (the SMI Regulatory Account) for the purpose of deferring the operating costs BC Hydro incurred in its fiscal year 2009 (F2009) for its Smart Metering Infrastructure (SMI) Program, plus interest at BC Hydro s weighted average cost of debt; E. By way of Order No. G-67-10, the Commission authorized BC Hydro to establish the SMI Regulatory Account for the purpose of deferring the F2010 operating costs BC Hydro incurred for its SMI Program, plus interest at BC Hydro s weighted average cost of debt; Page 1 of 3

22 SMI Regulatory Account - F2011 Expenditures Application Attachment 2 BRITISH COLUMBIA UTILITIES COMMISSION ORDER NUMBER G- 2 F. On March 11, 2011 BC Hydro applied to the Commission for the approval: to include in the SMI Regulatory Account the amount of the actual operating costs BC Hydro will incur in F2011 for its activities in relation to its SMI Program; to accelerate the rate of depreciation on existing meters to align with the requirements of Canadian generally accepted accounting principles (CGAAP); and to include in the SMI Regulatory Account the increased amortization in F2011 associated with the accelerated depreciation of the existing meters.; G. BC Hydro advised that the expenditures in F2011 relate to planning, investigating and testing activities in relation to smart meters, theft detection and the related equipment and infrastructure; selection of solution integration, meter deployment, meter data management system, and smart metering system vendors; finalization and release of the SMI Program business case and business plan; and BC Hydro advised that it considers the expenditures as necessary to meet the requirements of the Clean Energy Act; H. BC Hydro advised that it excluded all costs related to its SMI Program from its F2011 Revenue Requirements Application and that the costs it incurred in F2011 for the SMI Program are not provided for in BC Hydro s current rates as approved by the Commission by Order No. G ; I. BC Hydro advised that the operating costs it will be incurring for the SMI Program in F2011 will be $5.8 million; J. BC Hydro also advised that CGAAP require BC Hydro to accelerate the depreciation of existing customer meters following BC Hydro s Board of Directors approving SMI Program implementation on September 16, 2010, and that the rate of amortization required to fully amortize existing revenue meters by December 2012 implies a remaining asset life of 3.3 years in F2011, 2.0 years in F2012, and 2.1 years in F2013; K. BC Hydro advised that the incremental amortization it will be incurring in F2011 due to accelerated depreciation of existing revenue meters will be $8.9 million; L. The Application also sought approval to change the rates of depreciation for the existing meters accordingly, and to include in the SMI Regulatory Account the incremental amortisation BC Hydro incurred during F2011 in relation to the accelerated depreciation of the existing meters; and M. The Commission considers that the Application is in the public interest. NOW THEREFORE the Commission orders as follows: 1. BC Hydro is authorized to accelerate the rate of depreciation on its existing revenue meters as proposed in its Application. Page 2 of 3

23 SMI Regulatory Account - F2011 Expenditures Application Attachment 2 BRITISH COLUMBIA UTILITIES COMMISSION ORDER NUMBER G BC Hydro is authorized to include in the SMI Regulatory Account, its actual operating costs incurred in F2011 for its SMI Program, and $8.9 million in additional amortization incurred in F2011 in relation to the accelerated amortization of existing revenue meters, both as described in the Application, plus interest at BC Hydro s weighted average cost of debt for its most recent fiscal year. 3. BC Hydro is authorized to continue to carry forward the SMI Regulatory Account until BC Hydro files an application with the Commission requesting recovery of the account balance in rates and the Commission has made determinations thereon. DATED at the City of Vancouver, in the Province of British Columbia, this day of, BY ORDER Page 3 of 3