Compliance Filing – Rates
ATCO Gas, ATCO Pipelines and ATCO Electric Ltd. (collectively, “ATCO”) submitted a compliance filing based on the direction in Decision 2014-169 respecting ATCO’s 2010 Evergreen application.
ATCO’s Evergreen application was originally a benchmarking report to establish a fair market value pricing for information technology (“IT”) and customer care and billing (“CC&B”) services for ATCO by non-regulated ATCO affiliates. ATCO’s Evergreen strategy was aimed at ensuring that pricing for IT and CC&B services remained aligned to the market in future years without the necessity to periodically benchmark the costs of such services. The AUC originally considered ATCO’s 2010 Evergreen application in Decision 2014-169, ordering a compliance filing.
IT Costs and Customer Care Costs
ATCO submitted that it applied the approved glide paths approved by the AUC in Decision 2014-169 (which were redacted) to its 2010 prices, in order to establish the 2011 and 2012 IT prices and CC&B prices. ATCO submitted that the 2012 IT and CC&B prices were reflected in the 2012 base rates for its distribution companies operating under performance based regulation (“PBR”).
The City of Calgary submitted that it had no concerns with the pricing updates made by ATCO, and stated that the updated filings were satisfactory to demonstrate compliance with base year adjustments for IT costs. However, the City of Calgary submitted that ATCO had incorrectly calculated CC&B costs for central processing unit (“CPU”) minutes, and labour rates.
The AUC held that after review, it was satisfied that any potential misstatement of CPU minutes did not have a material effect on the relevant CC&B amounts or resulting refund amounts. The AUC also held that ATCO correctly applied a blended rate of consultants, project managers and other staff in calculating labour rates.
The AUC held that ATCO had complied with the AUC’s direction in 2014-169 to adjust the IT costs as directed.
Placeholders
The AUC directed ATCO to filed its actual IT and CC&B costs collected in revenues from customers in 2010 for consideration in a true-up as part of any ATCO companies’ next annual PBR rates adjustment, or as part of annual filing adjustments for cost-of-service. However, the AUC noted that ATCO should not be using actuals for placeholders, noting that placeholders should be based on forecast values.
Present Value Approach
ATCO further submitted that the rates approved in Decision 2014-169 impacted capital items and associated property, plant and equipment balances. ATCO proposed using a present-value (“PV”) approach to deal with any resulting balance adjustments as a one-time adjustment. ATCO submitted that this approach would allow ATCO to keep existing direct capital and other capital amounts included in rate bases of each of the ATCO companies, allowing customer rates to remain unchanged.
ATCO also submitted that the use of the PV method would align with its audited financial statement and income tax filings, thereby avoiding further administrative effort and complexity associated with making further adjustments.
For PBR utilities, ATCO proposed to calculate the impacts for 2013 and 2014 using the I-X mechanism (revenue requirement, multiplied by an inflation factor less a productivity factor). For cost-of-service utilities, ATCO proposed to calculate impacts by applying approved rates to actual volumes, and comparing that to actual costs to arrive at the adjustment amount.
ATCO calculated the refund amounts using the PV methodology as follows:
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ATCO Electric Distribution – $13,791,000;
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ATCO Gas South – $12,845,000;
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ATCO Gas North – $12,853,000;
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ATCO Electric Transmission – $7,883,000; and
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ATCO Pipelines – $3,225,000.
The Utilities Consumer Advocate (“UCA”) submitted that international financial reporting standards (“IFRS”) asset impairment would eliminate the need for the use of the PV methodology. The UCA argued that it would have the same benefits in avoid duplication of work, while also avoiding intergenerational equity concerns and risk problems from future economic conditions assumed in the PV method.
The City of Calgary submitted that the information provided by ATCO for the PV method was inconsistent past 2014, because ATCO had not provided all the data required to quantify the amounts for the purpose of redetermining rate base overstatement for the IT and CC&B costs. The inconsistency from ATCO resulted in an overstatement of revenue requirement beyond 2015 of approximately $27,643,000. The City of Calgary submitted that ATCO’s PV proposal should be denied, since it would otherwise lead to intergenerational inequity, and would deny the benefit of reduced prices to consumers.
The AUC held that the PV methodology was a reasonable methodology for the purposes of this decision and the PV methodology would be consistent with ATCO’s audited financial statements and accordingly avoid duplication of administrative efforts. The AUC held that the PV methodology would not result in intergenerational inequity because the impacts on revenue requirements beyond 2014 were, in the AUC’s determination, not material.
Carrying Charges
The City of Calgary noted that ATCO calculated carrying charges of $2.609 million in connection with the payment of refunds to customers. However the City of Calgary expressed concern with the difference of $2.75 million in carrying charges that arose in favour of customers in applying carrying costs using weighted average cost of capital.
The City of Calgary advocated for the calculation using weighted average cost of capital, noting that ATCO was able to invest its overcharged amounts at its weighted average cost of capital, but was only obligated to pay back at a lesser interest rate prescribed by Rule 023: Payment of Interest (“Rule 23”).
ATCO did not make any submissions on the appropriate method of calculating carrying costs.
The AUC considered that while Rule 23 had been used extensively to determine carrying charges, the use of weighted average cost of capital was not precluded. The AUC held that final approved pricing was applied to both operating and capital projects. Accordingly, the use of weighted average cost of capital was not unreasonable, and directed ATCO to calculate its carrying costs using weighted average cost of capital.
Order
The AUC held that ATCO had complied with the directions made by the AUC in Decision 2014-169, and:
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Directed ATCO to provide evidence of a reconciliation of the true-up amounts as part of its next annual filings for PBR utilities, and as part of its next annual adjustment filings for cost-of-service utilities; and
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Directed ATCO to use weighted average cost of capital in determining carrying charges for any placeholder amounts determined in Decision 2014-169 and in this decision.
