Capital Tracker Compliance
In response to directions from the AUC provided in Decision 3220-D01-2015, FortisAlberta Inc. (“FAI”) requested approval of its 2013-2015 Capital Tracker compliance filing. FAI’s original 2013-2015 Capital Tracker application requested adjustments to its performance-based regulation (“PBR”) rates through a “K Factor”.
The PBR framework provides a formula mechanism to adjust rates annually, using inflation (I Factor) less an offset (X Factor) to reflect the productivity improvements the utility can expect to achieve during the test period. However, the PBR framework also requires certain adjustments, including amounts to fund necessary capital expenditures (K Factor), flow-through costs to be recovered directly from the consumer (Y Factor), and material events for which the company has no other reasonable cost recovery mechanism (Z Factor). Capital tracker costs form part of the K Factor adjustments within the PBR mechanism.
FAI submitted a summary table of the changes to its requested K Factor adjustments as a result of Decision 3220-D01-2015:
The adjustments submitted by FAI included reductions to the following programs:
(a) Customer Growth program;
(b) Alberta Electric System Operator Contributions program;
(c) Substation Associated Upgrades program;
(d) Distribution Line Moves program;
(e) Urgent Repairs program;
(f) Distribution Capacity Increases program;
(g) Worst Performing Feeders program;
(h) Pole Management program;
(i) Cable Management program;
(j) Distribution Control Centre/Supervisory Control and Data Acquisition project;
(k) Compliance, Safety, Aging Facilities, and Reliability program; and
(l) Metering Unmetered Oilfield Services project.
The AUC approved each of FAI’s proposed adjustments as filed, finding that they were in compliance with the directions in Decision 3220-D01-2015.
FAI submitted it would recover the proposed rate adjustments in its 2016 annual PBR rates filing, which was submitted in September 2015. FAI proposed to charge carrying costs using its weighted average cost of capital on the difference between the placeholders and the requested K factor revenue amounts in its application, as follows:
The AUC, through an information request, inquired why the calculation of carrying charges for K Factor amounts should be granted a different treatment than for Y Factor and Z Factor amounts, which are calculated using AUC Rule 023: Rules Respecting Payment of Interest (“Rule 023”). FAI stated that such expenditures were financed using the weighted average cost of capital (“WACC”) since the K Factor amounts themselves reflect capital investment, and that it was therefore appropriate to recover them using WACC calculations.
The AUC determined that both Y Factor and Z Factor amounts also recover costs that may be incurred on account of capital, and relied on its prior findings in Decision 2012-237 as a basis to treat K Factor amounts in a similar manner through AUC Rule 023. The AUC also noted that ATCO Electric Ltd., ATCO Gas and EPCOR Distribution & Transmission Inc. each used AUC Rule 023 to calculate carrying charges on their respective K Factor amounts. For purposes of consistency, the AUC ordered FAI to calculate its K Factor amounts in a like manner for its 2016 PBR application.
In place of a separate rate rider, FAI proposed to reconcile the K Factor amounts for 2013-2015 as an addition to any 2016 K factor placeholder that may be applied in its annual PBR rate adjustment. FAI’s proposed collection period would begin on January 1, 2016 and continue until December 31, 2016.
In response to an information request from the AUC, FAI submitted that it would not be opposed to extending its proposed collection period to 15 months, by beginning collection on October 1, 2015 to avoid rate shock. However, FAI cautioned that, due to rate changes in 2015, such an extension may produce a secondary impact on its irrigation customers, who have already experienced increases to rates in 2015.
The AUC held that the collection of the 2013-2015 K Factor amounts as part of its 2016 PBR rate adjustment would result in regulatory efficiency. In noting the potential additional impacts on FAI’s irrigation customers, the AUC approved FAI’s proposed collection period from January 1, 2016 to December 31, 2016.
The AUC ordered that the 2013 K Factor amount of $17.4 million for 2013 was approved on an actual basis. The 2014 and 2015 K Factor amounts of $42.2 million and $62.2 million respectively, were approved on a forecast basis.
The AUC further ordered FAI to include the collection of additional K Factor amounts associated with the 2013 actual, 2014 and 2015 forecast amounts (as well as any associated carrying charges) as part of its 2015 annual PBR rate adjustment application. As such, the AUC notified FAI that it would undertake an assessment of FAI’s final bill impacts and approve the carrying costs as part of FAI’s 2015 PBR rate adjustment application.
