pacific northern gas (n.e.) ltd. 888 dunsmuir street ......pacific northern gas (n.e.) ltd....

Verlon G. Otto Director, Regulatory Affairs

Pacific Northern Gas (N.E.) Ltd. 750 – 888 Dunsmuir Street Vancouver, BC V6C 3K4 Tel: (604) 691-5680 Fax: (604) 697-6210 Email: [email protected]

Via E-file October 13, 2020 B.C. Utilities Commission File No.: 4.2.7(2020) Suite 410, 900 Howe Street Vancouver, BC V6Z 2N3 Attention: Marija Tresoglavic Acting Commission Secretary Dear Ms. Tresoglavic: Re: Pacific Northern Gas (N.E.) Ltd.

Application for a Certificate of Public Convenience and Necessity to Implement Automated Meter Reading (AMR) Infrastructure

Considerations on Requests for Confidentiality

On October 8, 2020, the British Columbia Utilities Commission (BCUC) issued a letter to Pacific Northern Gas (N.E.) Ltd. (PNG(NE)) requesting written comments regarding the confidentiality treatment of several exhibits filed in the referenced proceeding. Specifically, the BCUC stated:

The Panel requests further information on the reasons for the confidentiality requests taking into account the considerations in Rule 20 for Exhibits B-1-1, B-4, and B-7-1 and for the names of the two preferred vendors. In addition, the Panel requests PNG(NE)’s submissions on the estimated duration of the requested confidentiality: such as, to the conclusion of contract negotiations, to the conclusion of project construction or indefinitely. The Panel has no questions regarding the requested confidentiality of Exhibit B-2-1.

The following discussion provides PNG(NE)’s response to the BCUC’s request for further information on the request for confidentiality on each of the identified items. Exhibit B-1-1 – Confidential Appendix E – Vendor A Pricing Summary In the referenced Application, PNG(NE) submitted the Vendor A quotation for materials and services whereby it will undertake the installation and implementation of a fully-functioning AMR system for all residential and small commercial customers on a confidential basis. PNG(NE) sought confidential treatment of this document on the basis of commercial sensitivity of pricing

B-9

PNG~ PACIFIC NORTHERN GAS

https://www.bcuc.com/Documents/Participant-Info/G-15-19_BCUC_Rules_of_Practice_and_Procedure.pdf

https://www.bcuc.com/Documents/Participant-Info/G-15-19_BCUC_Rules_of_Practice_and_Procedure.pdf

Yvonne.Lapierre

PNG NE CPCN AMR Infrastructure

Pacific Northern Gas (N.E.) Ltd. Application for a CPCN to Implement AMR Infrastructure Considerations on Requests for Confidentiality of 4

information in the quotation and that this information had been provided by the vendor on a confidential basis and for a limited time period. Section 20.01 of the BCUC Rules of Practice and Procedure indicate that the BCUC will have regard to matters that it considers relevant in assessing confidentiality of information or documents. Specifically, under Section 20.01 (a)(ii), the BCUC will give consideration as to whether disclosure of information could reasonably be expected to result in significant harm or prejudice to that person’s competitive or negotiating position noting, and under Section 20.01 (b), whether the person’s interest in confidentiality outweighs the public interest in disclosure of the information or documents in the hearing. PNG(NE) reiterates that the vendor quote was provided to PNG(NE) on a confidential basis. That the quotation was provided on a confidential basis reflects the vendor’s interests in protecting their competitive position in a global marketplace. Much of the information in the quotation is considered to be confidential, specifically, topics such as pricing, technical product information, warranty terms, and others. This information is considered closely held by vendors, as public disclosure would be useful to their competitors in bidding and other competitive procurement situations, especially in consideration that vendors generally do not have access to such information for their competitors. Thus, public disclosure of quotation details could unfairly harm the vendor’s revenue and profitability. Further, while the PNG(NE) contract may be considered modest in value, contracts awarded in these bidding and competitive procurement situations can total hundreds of millions of dollars, meaning the potential damages suffered by the vendor is considerable. On this basis, PNG(NE) submits that the vendor pricing summary should not be publicly disclosed and should remain confidential indefinitely. PNG(NE) further submits that a redacted version of the pricing summary would be impractical to prepare. Exhibit B-4 – PNG(NE) Response to BCUC Confidential Information Request No. 1 In the referenced Application, the BCUC issued Confidential Information Request No. 1 to PNG(NE) and PNG(NE) responded to this information request on a confidential basis. PNG(NE) notes that the certain question contained in this information requests and the responses thereto included detailed information from vendor quotations, specifically the response to Question 1.9 and the responses to the Question 3.0 series. Once again, PNG(NE) reiterates that vendor quotes were provided on a confidential basis. That the quotations were provided on a confidential basis reflects the vendors’ interests in protecting their competitive position in a global marketplace. Much of the information in the quotation is considered to be confidential, specifically, topics such as pricing, technical product information, warranty terms, and others. This information is considered closely held by vendors, as public disclosure would be useful to their competitors in bidding and other competitive procurement


situations, especially in consideration that vendors generally do not have access to such information for their competitors. Again, public disclosure of quotation details could unfairly harm the vendors’ revenue and profitability, and while the PNG(NE) contract may be considered modest in value, vendor contracts awarded in these bidding and competitive procurement situations can total hundreds of millions of dollars, meaning the potential damages suffered by the vendors is considerable. On this basis, PNG(NE) submits that the details from the vendor quotations should not be publicly disclosed and should remain confidential indefinitely. In the interest of improved transparency around responses to information requests that do not address specific quotation details considered commercially sensitive, PNG(NE) has prepared and appended a version of the response to Confidential Information Request No. 1 with sensitive information in the responses to Question 1.9 and the Question 3.0 series redacted. Exhibit B-7-1 – PNG(NE) Response to BCUC Confidential Information Request No. 2 In the referenced Application, the BCUC issued Confidential Information Request No. 2 to PNG(NE) and PNG(NE) responded to this information request on a confidential basis. At the time of submission, PNG(NE) advised the BCUC that, in PNG(NE)’s view, the responses provided were acceptable for public distribution, however, that it considered the ERT unit cost information presented in the preamble to Question 5.1 to be commercially sensitive in nature and that it should not be publicly disclosed. A version of the response to BCUC Confidential Information Request No. 2 with the sensitive information redacted was submitted as Exhibit B-7-2. Again, PNG(NE) reiterates that vendor quotes were provided on a confidential basis. That the quotations were provided on a confidential basis reflects the vendors’ interests in protecting their competitive position in a global marketplace. Much of the information in the quotation is considered to be confidential, specifically, topics such as pricing, technical product information, warranty terms, and others. This information is considered closely held by vendors, as public disclosure would be useful to their competitors in bidding and other competitive procurement situations, especially in consideration that vendors generally do not have access to such information for their competitors. PNG(NE) reiterates that public disclosure of quotation details could unfairly harm the vendors’ revenue and profitability, and while the PNG(NE) contract may be considered modest in value, vendor contracts awarded in these bidding and competitive procurement situations can total hundreds of millions of dollars, meaning the potential damages suffered by the vendors is considerable. On this basis, PNG(NE) submits that the details from the vendor quotations should not be publicly disclosed and should remain confidential indefinitely. PNG(NE) submits that Exhibit B-7-2 effectively addresses this concern.


Preferred Vendors At this time, PNG(NE) has no objection to disclosure of the names of the preferred vendors providing quotations in connection with the Application. Vendor A quoting on Itron technology was Itron Canada Inc. and Vendor B quoting on Sensus Flexnet technology was KTI Limited. To close, it is PNG(NE)’s view that maintaining confidentiality of information identified as commercially sensitive has not adversely impact the BCUC’s ability to hold an effective public hearing on PNG(NE)’s Application. Further, it is PNG(NE)’s view that continuing to hold the identified commercially sensitive information confidential does not adversely impact the public interest. Please do not hesitate to contact me directly with any questions on this submission or the Application. Yours truly, Original on file signed by: Verlon G. Otto Enclosure

PNG(NE) AMR CPCN Application Response to BCUC Confidential IR No. 1 May 21, 2020 Page 1 of 16

Pacific Northern Gas (N.E.) Ltd. Application for a Certificate of Public Convenience and Necessity to Implement Automated

Meter Reading Infrastructure

CONFIDENTIAL INFORMATION REQUEST NO. 1 TO PACIFIC NORTHERN GAS (N.E.) LTD.

Reference: PROJECT COST ESTIMATES Exhibit B-1-1, AMR Implementation Pricing Summary; Exhibit B-1, Section 2.5, p. 22; Exhibit B-2-1, Confidential Excel version of Appendix B, System Pricing Analysis tab Capital Cost Estimates – Vendor A (Itron)

Pacific Northern Gas (N.E.) (PNG(NE)) provided a copy of the quotation for materials and services provided by Vendor A in Appendix E of the Application and filed as Confidential Exhibit B-1-1 (Automated Meter Reading (AMR) Implementation Pricing Summary).

1.1 Please confirm, or explain otherwise, that the following items included in the AMR Implementation Pricing Summary are not included in the financial model for Vendor A:

Items #7-8 – Itron Cloud Services, Initial Set-up Fee and Itron Analytics CSR Portal (up to 25,000 Endpoints);

Item #15 – Professional Services, Itron Analytics Implementation and Training;

Item #16 – Professional Services, Travel and Expenses - Analytics;

Item #19 – Annual Maintenance, Itron Mobile Radio 2 W/USB Cable and Charger;

Item #20 – Annual Maintenance, MC3LiteRF Unit (1-year warranty);

Items #22-22 – Optional Itron Mobile Subscription – Up to 50,000 endpoints; and

Items #23-24 – Optional Itron Cloud Services, Initial Set-up Fee and Itron Analytics CSR Portal (up to 40,000 endpoints)

Response: PNG(NE) confirms that the items #7, #8, #15, #16, #19, #20, #22, #23, and #24 were not included in the capital cost financial model for Vendor A. PNG(NE) further notes that Items #19 and #20 are included in the forecast operational expenses and is part of the financial analysis.


1.1.1 For each item confirmed in the Information Request (IR) above, please explain what it is and why it is not included.

Response: Most of the items noted as being excluded from the financial analysis relate to the Itron Analytics module (#7, #8, #15, #16) or the Itron mobile and cloud options (#21, #22, #23, #24), all of which PNG(NE) has assessed as having nominal benefit for the incremental cost at this time. PNG(NE) may consider the addition of the Itron Analytics module in the future however would undertake a cost/benefit analysis to support such a decision at that time..

On page 22 of the Application, PNG(NE) identified “Foreign Exchange” as Key Risk #5 to the proposed AMR Project.

1.2 For clarity, please confirm whether the AMR Implementation Pricing Summary provided by Vendor A, and included in Appendix E of the Application, is in US or Canadian dollars.

Response: PNG(NE) confirms that the AMR Implementation Pricing Summary provided by Vendor A, and included in Appendix E of the Application, is in Canadian dollars.

1.2.1 Please explain why a foreign exchange conversion (from US to Canadian dollars) is included in the estimated unit prices in rows 18 and 19 only (rather than all rows) in the System Pricing Analysis tab for the Confidential Excel version of Appendix B, given that all amounts (after conversion) match the prices provided in the AMR Implementation Pricing Summary.

Response: PNG(NE)’s preliminary analysis was based on a quote that the vendor advised may be subject to foreign exchange impacts as most components were sourced from the USA. Consequently, in the initial analysis a foreign exchange conversion was incorporated in rows 6, 7, 12, 13, 18, 19, 20, 24, 25, 26 and 27 to capture the potential impacts of changes in the value of the Canadian dollar relative to the US dollar. Following receipt of the updated quote from the vendor (AMR Implementation Pricing Summary) providing pricing security through September 30, 2020, PNG(NE) removed the modelling of foreign exchange impacts from rows 6, 7, 12, 13, 20, 24, 25, 26 and 27 of its analyses however neglected to remove the foreign exchange links in rows 18 and 19. PNG(NE) notes that the correct pricing is shown and that the financial modelling is sound, however does apologize for any confusion this may have caused.


1.2.1.1 Please confirm, or explain otherwise, that the Foreign Exchange risk relates to the estimated prices in rows 18 and 19 only.

Response: PNG(NE) notes that while Itron provided a quote in Canadian dollars, Itron is a U.S.-based firm and prices would change in updated quotes based on the changes in the Canadian/US exchange rate. As such, all component prices included in the Itron quote would be subject to the impacts of changes in the exchange rate should the items not be procured before the quotation expires on September 30, 2020.

PNG(NE) states in Rows 6 and 7 of the System Pricing Analysis tab of the Confidential Excel version of Appendix B refer to “meters in inventory.”

1.3 Please explain how many Itron meters PNG(NE) plans to keep in inventory and how this number was determined.

Response: PNG(NE) maintains a meter inventory to assist with its ongoing meter recall and replacement program. While the level of inventoried meters fluctuates over the course of a year, PNG(NE) typically keeps approximately 7% in inventory. The number of meters in inventory is calculated as 7% of installed customer meters.

In the System Pricing Analysis tab of the Confidential Excel version of Appendix B, Row 18, PNG(NE) states the number of “System: IMR Upgrades.” In a note in Row 18, PNG(NE) states: “PNG estimates that only 3 and not 5 as specified in quote.”

1.4 Please provide a definition of IMR Upgrades.

Response: IMR Upgrades refers to the purchase of Itron Mobile Radio devices to be used for mobile collection of meter reads. This is hardware that will be property of PNG(NE).


1.5 Please explain what the note in the preamble means and what it refers to. Why does

PNG(NE) estimate that fewer IMR Upgrades will be required than specified in the quote?

Response: Currently, PNG(NE) requires 5 FTEs to read the existing meters. Each FTE currently uses a handheld device to record meter data. The upgraded Itron Mobile Radio (IMR) is the device that will be used to capture meter data transmitted by radio frequency from the ERTs on customer meters. As described in the Application, PNG(NE) will mount the IMR in a vehicle and capture data via driving by customer premises. The 5 IMR upgrades in the quote refers to changing the 5 existing handheld devices that each FTE currently uses to record meter data with 5 new IMRs. PNG(NE) believes that by utilizing only one-half of an existing FTE to collecting meter data, it will require less than the quoted 5 IMRs. PNG(NE) has identified that it would require one IMR being charged while another is in use, and has included provision for a third unit as a backup.

PNG(NE) states in Row 27 in the System Pricing Analysis tab of the Confidential Excel version of Appendix B that it “opted out of analytics modules.”

1.6 Please explain the features of the Itron analytics modules PNG(NE) opted out of and why PNE(NE) opted out of these features.

Response: PNG(NE) has made the assessment that there was limited financial customer benefits associated with the collection and interpretation of the data that is expected to be generated through the Itron Analytics module. PNG(NE) proposal for the AMR Project is based on delivering an improved meter reading process that provides solid financial and qualitative benefits to its customers, and as part of this evaluation has determined that it would not burden ratepayers with the unnecessary capital and operating costs of the Itron Analytics module at this time. PNG(NE) may consider the addition of the Itron Analytics module at some future date, however, this decision would be based on a cost/benefit analysis of doing so.


1.7 Please confirm, or provide a correct list, the cost estimate of the Itron analytics

modules in the AMR Implementation Pricing Summary is comprised of the following amounts:

Items #7-8 – Itron Cloud Services, Initial Set-up Fee and Itron Analytics CSR Portal (up to 25,000 Endpoints);

Item #15 – Professional Services, Itron Analytics Implementation and Training; and

Item #16 – Professional Services, Travel and Expenses – Analytics;

Response: PNG confirms that items #7, #8, #15, #16 in the AMR Implementation Pricing Summary provided by Vendor A is the cost estimate of the Itron Analytics module.

1.8 Please provide the capital cost estimate, cost of service forecast and net present value (NPV) of customer benefits of Vendor A if PNG(NE) had opted to include the Itron analytics modules.

Response: PNG(NE) estimates that if it had opted to include the Itron Analytics module in the Vendor A financial analysis, the capital cost would be $4,240,633 and the net present value (NPV) of customer benefits would be $1,957,325, compared to $4,198,000 and $2,179,000 presented in the Application, respectively.


The AMR Implementation Pricing Summary shows the unit price of “Residential Gas Module Retrofit” and “Commercial Direct Mount Gas Module Retrofit” are $ and $ , respectively.

1.9 Please explain why the estimated unit price of “Retrofit installation – residential” and “Retrofit installation – commercial” are $ and $ , respectively, as shown in rows 12 and 13, and not the amounts shown in the AMR Implementation Pricing Summary in the System Pricing Analysis tab for the Confidential Excel version of Appendix B.

Response: As noted in PNG(NE)’s response to Question 1.3, PNG(NE) estimates the inventoried meters at 7% of total meters at customer sites. The cost of the gas module retrofit on the inventoried meters is significantly lower than the cost of the gas module retrofit on the in situ meters located at residential and commercial sites, due mainly to travel time between meters, locational and accessibility challenges. PNG(NE) has estimated the cost of gas module retrofit on inventoried meters at $7/unit.

PNG(NE) notes that the 19,900 residential meters includes inventoried meters at 7%. In other words 18,598 meters on residential sites and 1,302 meters in inventory. The calculation for the average cost of a residential meter retrofit is:

PNG(NE) further notes that the 2,987 commercial meters includes inventoried meters at 7%. In other words 2,792 meters on commercial sites and 195 meters in inventory. The calculation for the average cost of a commercial meter retrofit is:

1.9.1 Please explain the note “Installation costs on inventoried meters are

~$7/meter” in rows 12 and 13, respectively.

Response: Please see the response to Question 1.9.


Reference: PROJECT COST ESTIMATES Exhibit B-2-1, Confidential Excel version of Appendix B, Regulatory tab; Exhibit B-1, Section 2.5, p. 22 Failure Rate of Modules – Vendor A (Itron)

Row 93 in the Regulatory tab of the Confidential Excel version of Appendix B shows the estimated failure rate of modules for the years 2020E to 2040E for the Itron product. Row 94 calculates the number of new meters required based on the failure rate in row 93.

On page 22 of the Application, PNG(NE) states, “[the] Financial analysis modelled an average 0.5% annual failure rate although the Itron product claims failure rate is much lower.”

2.1 Please provide the rationale for the estimated failure rate of the Itron product modules as shown in the Regulatory tab of the Confidential Excel version of Appendix B for the years 2020E to 2040E.

Response: Annual failure rates are based on the average failure rate over the life of the equipment and PNG(NE) believes that estimated failure rates for equipment increases with its age. PNG(NE) has attempted to model this accordingly in its financial analysis while maintaining an average annual failure rate consistent with stated failure rates. PNG(NE) believes this is more accurate than modelling a 0.5% failure rate in each year of the analysis.

2.2 What is the estimated annual failure rate of modules as claimed by the Itron

product?

Response: Itron has publicly stated an estimated annual failure rate of its ERT modules at 0.5%, a rate similar to that provided by vendors of similar technology. However, in discussions with Itron representatives and industry participants, PNG(NE) was made aware that actual failure rates for ERTs are significantly lower than those represented by Itron and other vendors.

2.3 Please explain why the calculation of the number of new meters required in row 94 is based on 21,306 meters, considering that the number of new modules to be purchased is 22,887, as shown in row 9 in the System Pricing Analysis tab for the Confidential Excel version of Appendix B.

Response: PNG(NE) has excluded the inventoried meters in the calculation of new meters required based on failure rates. This accounts for the lower number of meters used to calculate replacement meters in row 94.


2.3.1 Please provide the NPV of customer benefits of Vendor A based on the annual failure rate of modules claimed by the Itron product and 22,887 meters.

Response: The NPV of customer benefits of Vendor A based on the annual failure rate claimed by Itron and 22,887 meters is $2,150,568, compared to $2,179,000 as presented in the Application.


Reference: PROJECT COST ESTIMATES Exhibit B-2-1, Confidential Excel version of Appendix C, System Pricing Analysis tab; Exhibit B-2-1, Confidential Excel version of Appendix B, System Pricing Analysis tab; Exhibit B-1, Section 3.1, p. 26. Capital Cost Estimates – Vendor B (Sensus)

PNG(NG) provides the details of the Vendor B capital cost estimate in the System Pricing Analysis tab of the Confidential Excel version of Appendix C. Similarly, details of the Vendor A capital cost estimate are provided in the System Pricing Analysis tab of the Confidential Excel version of Appendix B.

On page 26 of the Application, PNG(NE) states: “This Application proposes implementation of an AMR system for residential and commercial customers. Industrial customers are not within the scope of the AMR Project…” [Emphasis added].

3.1 Please explain the difference in cost per unit in ‘residential gas modules’ between Vendor A ($ ) and for Vendor B ($ ). Please explain any difference in functionality or features between the two products.

Response: Vendor B’s module has the ability to be read by either their AMR or AMI collection technology, whereas Vendor A’s module can only be read by their AMR collection technology. With that said, Vendor A’s AMI residential gas module is only $ more than their AMR module at $ , which is $ less than Vendor B’s similar module.

3.2 Please explain the difference in cost per unit in ‘commercial gas modules’ between Vendor A ($ ) and Vendor B ($ ). Please explain any difference in functionality or features between the two products.

Response: Vendor B’s module has the ability to be read by either their AMR or AMI collection technology, whereas Vendor A’s module can only be read by their AMR collection technology. With that said, Vendor A’s AMI commercial gas module is only $ more than their AMR module at $ , which is $ less than Vendor B’s similar module.


3.3 Please explain why a cost of $ for “Industrial – 900 GM” gas modules is

included in the Vendor B capital cost estimate, as shown in row 8 in the System Pricing Analysis, considering that industrial customers are not within the scope of the AMR Project.

Response: PNG(NE) received the quote from Vendor B that included a cost of $ for “Industrial – 900 GM” gas modules. The cost of $ for “Industrial – 900 GM” gas modules was included in the System Pricing Analysis as an error and should have been removed. Removing the “Industrial – 900 GM” gas modules from the financial analysis calculates a revised capital cost of $5,203,108 (previously $5,443,395) and a revised net present value of customer benefits of $1,042,920 (previously $803,547).

3.4 Please explain how PNG(NE) determined the installation cost estimate in rows 13

and 14 for Vendor B in the System Pricing Analysis tab given that it states “no estimate [was] provided” for third-party installations in row 11.

Response: In the absence of an installation quote provided by Vendor B, PNG(NE) estimated the installation cost using Vendor A’s installation costs as the basis. To be clear, PNG(NE) used:

Vendor A’s estimated price ($ for Retrofit installation (row 15 of Exhibit B-2-1,

Confidential Excel version of Appendix B, System Pricing Analysis tab);

The costs ($ ) of the Project Manager/System Eng/Field Eng (row 24 of Exhibit B-2-

1, Confidential Excel version of Appendix B, System Pricing Analysis tab);

The costs ($ ) associated with the T&E Estimate: X per diem and X airfare (row 26 of

Exhibit B-2-1, Confidential Excel version of Appendix B, System Pricing Analysis tab); and

Less Vendor B’s cost ($ ) of the Project Manager/System Eng/Field Eng (row 29 of

Exhibit B-2-1, Confidential Excel version of Appendix C, System Pricing Analysis tab).

This amount was divided by the total number of meters to be retrofitted (22,887). This came to $ /unit which was rounded up to $ /unit to arrive at an estimate for Third Party installation:

/ unit


3.4.1 Please explain why the cost per unit of installations for Vendor B ($ /unit for residential and commercial customers) is higher than the cost per unit of installations for Vendor A ($ /unit for residential customers and $ /unit for commercial customers).

Response: PNG(NE) notes that the cost per unit of installation for Vendor B includes Project Manager/System Engineer/Field Engineer and associated expenses. These costs were separated in the quote provided by Vendor A. Also, please see the response to Question 3.4.

3.5 Please explain the difference in “Project Manager/System Eng/Field Eng” costs

between Vendor A ($ ) and Vendor B ($ ). What additional services will be provided by Vendor A, which will not be provided by Vendor B?

Response: PNG(NE) notes that the quote provided by Vendor A included oversight and supervision of the implementation of the installation of the gas modules of the meters. Vendor B was not responsible for the installation of the gas modules and had no costs for the oversight and supervision of the implementation of the installation of the gas modules. Please refer to the responses to Question 3.4 and Question 3.4.1.

3.6 Please explain the proposed training plan provided by each vendor, highlighting any

differences.

Response: PNG(NE) notes that training costs are not a significant element of either vendor proposal. As noted in the Vendor A Implementation Pricing Summary included as confidential Appendix E to the Application, training costs are estimated at $ (Item 14). As per Exhibit B-2-1, confidential Appendix C, tab System Pricing Analysis, Vendor B training costs are estimated at $ (also noted in Question 3.9.1). As PNG(NE) presently makes use of Itron technology, the planned training is in the form of online offerings in the form of tutorials on new equipment being implemented. As Vendor B’s Sensus technology would be new to PNG(NE), planned training would include a combination of on-site and online training programs.


3.7 Please explain why a provision of 10 percent for overheads is appropriate for the

Vendor B capital cost estimated.

Response: In forecasting capital projects, PNG(NE) typically includes a provision for overhead for internal resources that may be incidental to the base cost components of a project. For a project such as the AMR Project which will be executed primarily by a third-party, the 10% provision for internal overhead might be considered very conservative, however, PNG(NE) is comfortable with this provision. PNG(NE) has attempted to maintain consistency across the quotes of Vendor A and Vendor B and the respective financial analyses to provide a fair, side by side comparison. To maintain consistency of the analyses, PNG(NE) applied the 10% overhead provision to both quotes.

3.8 Please explain why a 15 percent provision for contingency is appropriate for the

Vendor B capital cost estimate, considering that the provision is also 15 percent for Vendor A.

Response: PNG(NE) has attempted to maintain consistency across the quotes of Vendor A and Vendor B and the respective financial analyses to provide a fair, side by side comparison. To maintain consistency of the analyses, PNG(NE) has applied the 15% contingency to both quotes.

The quotes provided by Vendor A and Vendor B were considered to be Class 1 to Class 2 level of accuracy as per AACE guidelines. With respect to the magnitude of possible cost escalations, a Class 2 estimate has an expected accuracy range of +5% to + 20% at an 80% confidence interval and a Class 1 estimate has an expected accuracy range of +3% to + 15% at an 80% confidence interval. This implies that quoted capital costs have the statistical potential to increase by up to 15% - 20%. PNG(NE) believed it appropriate to add the high end of the Class 1 range of accuracy as a conservative contingency provision for its expected capital costs.


On page 4 of the Application, PNG(NE) states, “A further qualitative factor supporting the recommendation to proceed with Vendor A is that PNE(NE) presently makes use of Itron technology supported by Vendor A and to change to another technology and product line would have additional switching costs.”

Row 22 in the System Pricing Analysis tab of the Confidential Excel version of Appendix C shows there is an “Integration and Training” cost of $10,014 included in the Vendor B capital cost estimate.

3.9 Please clarify whether or not the switching costs of “changing to another technology and product line,” as stated on page 4 of the Application, are included in the Vendor B capital cost estimate.

Response: As reproduced in the preamble to this question, in PNG(NE)’s Application remaining with technologies PNG(NE) was presently using was identified as a “qualitative” factor in proceeding with Vendor A’s Itron technology. PNG(NE) has not attempted to quantify the switching costs, though notes that if it could, these costs would further support the financial analysis in favor of Vendor A.

3.9.1 If not, please explain what the “Integration and Training” costs of $10,014 in

the Vendor B capital cost estimate are.

Response: As with any implementation of new technical systems, there will be training requirements. This modest amount provides for training of PNG(NE) personnel by Vendor B on the Sensus technology. Again, this is a modest amount for services provided by a product vendor and is not meant to be a representation of PNG(NE)’s “switching costs”, which would encompass the cost of internal process and procedure changes to adopt the new technology.


Reference: PROJECT COST ESTIMATES Exhibit B-2-1, Confidential Excel version of Appendix C, Regulatory tab Failure Rate of Modules – Vendor B (Sensus)

Row 88 in the Regulatory tab of the Confidential Excel version of Appendix C shows the estimated failure rate of modules for the years 2020E to 2040E for the Sensus product. Row 89 shows the number of new meters required based on the failure rate in row 88.

4.1 Please provide the rationale for the estimated failure rate of the Sensus product modules as shown in the Regulatory tab of the Confidential Excel version of Appendix C for the years 2020E to 2040E.

Response: Failure rates are based on averages over the life of the equipment and PNG believes that estimated failure rates for equipment increases with its age. PNG(NE) has attempted to model this accordingly in its financial analysis while maintaining an average annual failure rated consistent with stated failure rates. PNG(NE) believes this is more accurate than modelling a 0.5% failure rate in each year of the analysis. This is consistent to what has been modeled for the Vendor A analysis, as noted in response to Question 2.1.

4.2 What is the estimated annual failure rate of modules as claimed by the Sensus product?

Response: As noted in response to Question 2.2, vendors of AMR ERTs including Sensus and Itron have publicly stated an estimated annual failure rate of its ERT modules at 0.5%. However, in discussions with industry participants, PNG(NE) was made aware that actual failure rates for ERTs are significantly lower than those represented by the vendors of this technology.

4.3 Please explain why the calculation of the number of new meters required in row 88 is based on 21,306 meters considering that the number of new modules to be purchased is 22,887, as shown in row 9 in the System Pricing Analysis tab for the Confidential Excel version of Appendix C.

Response: PNG(NE) has excluded the inventoried meters in the calculation of new meters required based on failure rates. This account for the lower number of meters used to calculate replacement meters in row 88.


4.3.1 Please provide the NPV of customer benefits of Vendor B based on the annual failure rate of modules claimed by the Sensus product and 22,887 meters.

Response: The NPV of customer benefits of Vendor B based on the annual failure rate claimed by Sensus and 22,887 meters is $992,871 (previously $1,042,920).


Supplemental Confidential Submissions

Please consider the following response to BCUC IR No.1 filed on a confidential basis:

9.2 Please provide a detailed breakdown of the cost estimate for AMI infrastructure implementation and the anticipated cost savings.

Response: Please see the attached Excel file: ”Attachment BCUC 9.2 - PNGNE AMR CPCN - AMI Evaluation - Working Model for BCUC – Confidential,” a working copy of the Excel model with information on the AMI infrastuture evaluation, including underlying costs.