General Tariff Application
TransAlta Corporation, as Manager of the TransAlta Generation Partnership (“TransAlta”) applied to the AUC for approval of its 2013-2014 general tariff application (“GTA”). TransAlta requested approval of:
(a) A revenue requirement of $4.46 million for 2013;
(b) A revenue requirement of $4.98 million for 2014;
(c) Terms and conditions of service for 2013 and 2014;
(d) Deferral and reserve accounts for 2013 and 2014;
(e) Reconciliation of its deferral account for property taxes and payments in lieu of property taxes for 2011 and 2012; and
(f) Reconciliation of its deferral account for tower payments for 2011 and 2012.
TransAlta’s relatively small rate base and revenue requirement was noted by the AUC to be a result of specific assets being withheld by TransAlta arising from the Alberta Energy and Utilities Board Decision 2002-038, which authorized the sale of TransAlta’s transmission assets and business to AltaLink. TransAlta explained that the operating and capital maintenance of these assets are performed by AltaLink, who acts as TransAlta’s sole contractor. Therefore, TransAlta explained that its GTA was inextricably linked with AltaLink’s forecasts used for its transmission assets, including:
(a) Capital ratios;
(b) Depreciation studies and resulting depreciation rates;
(c) Debt rates;
(d) Inflation rates;
(e) Salary escalators;
(f) Terms and conditions; and
(g) Other items, such as operations and management costs, as agreed to between TransAlta and AltaLink.
AltaLink’s rates were approved in Decision 2013-407.
TransAlta requested direct operation and maintenance costs of $1.68 million for 2013 and $1.865 million for 2014. The Consumers’ Coalition of Alberta (“CCA”) submitted that the salary escalator rates of 5.25 percent as applied for by TransAlta were out of line with increases in prior years, noting that the year-over-year average increase was approximately 4 percent in the previous 3 years. CCA proposed an escalator rate of 3.75 percent.
The AUC held that, consistent with previous GTA filings, TransAlta’s use of AltaLink’s approved parameters was reasonable, and therefore approved TransAlta’s operations and maintenance costs as filed.
TransAlta requested administrative and general expenses of $546,000 for 2013, and $1.051 million for 2014. TransAlta submitted that its 2014 revenue requirement increase of 11.8 per cent was predominantly due to the cost of its $500,000 insurance deductible arising from a fire on the Blood First Nation’s Reserve.
TransAlta identified an error in its filing for outside services employed, noting that its legal expenses associated with the Blood Reserve fire had been double counted. Once as part of the deductible paid, and a second time as part of its outside service account for 2013 and 2014. TransAlta proposed to remove these items from its application.
The AUC held that, consistent with previous GTA filings, TransAlta’s use of AltaLink’s approved parameters was reasonable, and therefore approved TransAlta’s general and administrative costs as filed, and directed TransAlta to refile amounts requested under “outside services employed”.
With respect to the cost of the insurance deductible, the CCA did not oppose its inclusion, but recommended that the burden of the risk of the deductible should be spread out over time as it was a cost related to an insurable event and not a one-time cost. The CCA therefore recommended that the entire amount be amortized over a five year period commencing in 2014.
TransAlta opposed the CCA’s recommendation, noting that considerable regulatory lag already exists for recovery of costs, and that the size of the deductible in relation to its overall revenue requirement was quite large. Any additional lag would be unreasonable.
The AUC agreed with TransAlta that any additional lag would be unreasonable, and approved the requested funding for the insurance deductible cost.
With respect to TransAlta’s requested reconciliation of its deferral and reserve accounts, its applications were not opposed by any interveners. The AUC determined that the requested amounts were reasonable, approving them as filed.
The AUC also approved the continued use of deferral and reserve accounts for tower payments, hearing costs and property taxes (or payments in lieu of property taxes) as each of them are paid on an actual basis.
With respect to rate base matters, TransAlta’s proposed rate base parameters were not opposed by any interveners, and were approved by the AUC as filed. However, the AUC did direct TransAlta to file an application to reconcile and direct assign capital projects for its GTA at a future date, noting that it had not requested any amounts for construction work-in-progress (or CWIP) in its GTA.
With respect to return on rate base, TransAlta’s requested capital structure of 36 per cent equity and 64 percent debt was approved by the AUC in Decision 2191-D01-2015. Therefore the AUC approved the capital structure of TransAlta as filed. However, since TransAlta’s placeholder for return on equity of 8.75 percent was adjusted by Decision 2191-D01-2015, the AUC directed TransAlta to re-file its application with a revised return on equity of 8.3 per cent for its GTA.
The AUC also approved TransAlta’s cost of debt as filed, noting that consistent with previous GTA filings, TransAlta’s use of AltaLink’s approved cost of debt parameters was reasonable.
The AUC directed TransAlta to re-file its application on or before June 5, 2015.
