Review and Variance – Purchase Price
ATCO Electric Ltd. (“ATCO”) requested a review of AUC Decision 2014-283 (the “Panel Decision”). In the Panel Decision, the AUC was prepared to approve the purchase price for the Kearl 240-kV line (the “Kearl Line”) that reflected the construction costs incurred by Imperial Oil Resources Ventures Limited (“IORVL”). However, the AUC found that the inclusion of Allowance for Funds Used During Construction (“AFUDC”) costs was not reasonable. ATCO sought approval to include final capital costs of approximately $80.5 million for the acquisition of the Kearl Line, $75.3 million of which was attributed to the purchase cost of the Kearl Line. The remaining $5.2 million was described by ATCO as an account of both AFUDC costs and accumulated depreciation.
ATCO applied for a review of the Panel Decision based on the following two grounds:
(a) That the Panel Decision was based on an unsupported, factually incorrect assumption that the capital project cost for the Kearl Line included interest during construction. ATCO alleged that the AUC made an error of fact, law and/or jurisdiction in making a finding inconsistent with uncontroverted evidence that the AFUDC costs were the only items in the Kearl Line purchase price related to project financing; and
(b) The implementation of the Transmission Deficiency Regulation, that came into force on September 22, 2014, which specifically recognizes the Market Participant Choice framework, constitutes new facts or changed circumstances not previously available and could not have been placed before the AUC. ATCO alleged the recognition of the framework created new circumstances that impacted the appropriateness of the AUC’s determination not to include legitimate financing costs in the Kearl Line project costs.
In the Panel Decision, the AUC denied the inclusion of AFUDC costs on the basis that IORVL is not a regulated utility. However, ATCO in its review application submitted that the exclusion of financing costs altogether was not reasonable, as the financing costs themselves were clearly not zero cost. ATCO also submitted that a failure on the part of the AUC to recognize and include legitimate construction and financing costs could act as a disincentive to similar transactions, resulting in an inconsistency with the policy objectives of the Transmission Deficiency Regulation.
The AUC rejected the first ground advanced by ATCO, holding that the wording of the Panel Decision did not specifically address interest costs incurred by IORVL. Rather, the Panel Decision disallowed the recovery of amounts described as AFUDC costs. As IORVL was not a regulated entity, it had no entitlement to, and no reasonable expectation of, recovering amounts described as AFUDC costs. The AUC also pointed to the determination in the Panel Decision whereby the AUC found that ATCO did not incur interest costs or forego earnings during construction of the Kearl Line. Therefore, the AUC determined that:
(a) ATCO opted to pay IORVL an AFUDC cost amount equivalent to what IORVL would have received had it been a regulated entity; and
(b) The record of the Panel Decision did not support the first ground of review asserted by ATCO.
The AUC also rejected the second ground of review advanced by ATCO as without merit. The AUC noted that the Market Participant Choice framework was implemented on March 1, 2014, while the Panel Decision was rendered on October 2, 2014. The AUC also noted that the Kearl Line began construction in 2009, was energized in 2010, and the transfer to ATCO was completed by July 31, 2012, all of which predated the inception of the Market Participant Choice framework, and the Transmission Deficiency Regulation. The AUC ruled that the disallowance of costs prior to the inception of new legislation does not act in any way as a disincentive to use the framework. The AUC further noted that this was particularly so, as the Panel Decision did not make a general finding concerning the regulatory treatment of interest during construction within the Market Participant Choice Framework.
The AUC therefore dismissed ATCO’s application for review and variance of the Panel Decision.
