British Columbia Utilities Commission
Information Request No. 3.221.1 Dated: 15 April 2004
British Columbia Hydro & Power Authority
Response issued 7 May 2004
British Columbia Hydro & Power Authority Revenue Requirements
Application 2004/05 and 2005/06
221.0 Reference:
3.221.1
Page
1
BC Hydro Deferral Accounts
Can BC Hydro provide a better definition of controllable versus noncontrollable costs and why does BC Hydro not include weather related
load variations as a non-controllable cost which should also be
covered? Rather than “controllable” versus “non-controllable,” would
another possible exclusion from the accounts be to exclude those
costs which were symmetric and which could go either way from year
to year? Is “controllable risk” a contradiction in terms given that if a
risk is controllable then it is not really a risk?
RESPONSE:
BC Hydro used “controllable vs. non controllable costs” in a broad sense
intended to capture a variety of characteristics including:
• BC Hydro’s ability to directly influence the cost category;
• The volatility of the costs category;
• The materiality of the cost category to the revenue requirement and
• The frequency of major exceptions within the cost category.
Weather related variations in load were not included because while weather itself
is outside BC Hydro’s control, the impact of weather on energy sales is generally
offset by changes in the cost of energy thus reducing the materiality of this
influence on costs.
BC Hydro is committed to managing normal business and operational risks on an
economic basis and mitigates the chance of catastrophic losses to tolerable risk
levels. In referring to cost variances from forecast, the term “controllable risk”
was used loosely to infer that the probability and cost consequence of the risk of
variation from forecast is within a tolerable level given that prudent cost and risk
management is in place.