Compliance Filing – Generic Cost of Capital
EPCOR Distribution & Transmission Inc. (“EDTI”) filed its compliance filing with the AUC pursuant to directions made in Decision 2191-D01-2015, which was the 2013 Generic Cost of Capital (“GCOC”) proceeding. In that decision, the AUC ordered that:
(a) The final approved return on equity (“ROE”) for 2013, 2014 and 2015 was 8.30 percent; and
(b) The final approved deemed equity ratio for EDTI’s transmission functions for 2013, 2014 and 2015 was 36 percent.
The AUC therefore directed that any utilities using an ROE value and capital structure during the same period on a placeholder basis must apply to the AUC by July 31, 2015 to adjust their revenue requirements to reflect the approved ROE values and capital structures. As a result, EDTI requested revenue requirement reductions in the amounts of $0.90 million for 2013 and $1.34 million for 2014. EDTI also requested approval of its true-up mechanism for refunding the amounts.
EDTI submitted that it used the AUC-approved ROE values of 8.30 percent for each of 2013, 2014 and 2015 to update its calculations for the return on mid-year rate base. EDTI however, did not use the AUC-approved figures of 36 percent for its equity component, instead using equity ratios of 36.40 percent (2013), 36.27 percent (2014) and 36.22 percent (2015) to update its calculations for the return on mid-year rate base. EDTI submitted that the debt and equity ratios in its application were the same methodology used to determine the debt and equity ratios in its 2013-2014 transmission facility owner refiling application. EDTI explained that the variance from the approved 36 percent equity ratio was due to the calculation of the revenue requirement based on its forecast balance sheet, and the fact that EDTI’s issuances of debt and equity, which occur in the millions of dollars, do not exactly match the approved ratios when calculated to two decimal places. EDTI submitted that its practice was previously approved by the AUC, and was consistent with past practice.
The AUC noted that in Decision 3539-D01-2015, it had already determined that EDTI must refile its application to reflect the approved debt and equity ratios of 64 percent and 36 percent, respectively. The AUC dismissed EDTI’s requested variances to the approved ROE figures. The AUC communicated that it dedicates significant regulatory resources to consider and determine the generic cost of capital for regulated Alberta utilities, and held that companies such as EDTI could not unilaterally substitute self-derived capital structure values for their forecast revenue requirements. The AUC also held that this principle applies regardless of whether companies complied with the AUC’s ROE and capital structure findings previously, noting that past practice cannot be used as a basis upon which to validate current or future non-compliances.
Accordingly, the AUC held that EDTI’s use of the ROE of 8.30 percent as determined in Decision 2191-D01-2015 was reasonable. However, the AUC held that EDTI did not comply with its direction in Decision 2191-D01-2015 to reflect the AUC-approved debt and equity ratios of 64 and 36 percent, respectively, and therefore ordered EDTI to refile using the approved figures.
In view of the connected and similar nature of the compliance filing directed here, and in Decision 3539-D01-2015 concerning ROE and debt and equity ratios, the AUC directed EDTI to file its compliance filing jointly for these two matters. The AUC directed that the compliance filing be filed on or before January 4, 2016.
The AUC further directed EDTI, beginning in 2015, to make its filings pursuant to AUC Rule 005: Annual Reporting Requirements of Financial and Operational Results using AUC-approved figures for ROE and debt and equity ratios.
