Disposition of Substation Property Application – Outside Ordinary Course of Business – Public Utilities Act
EPCOR Distribution & Transmission Inc. (“EDTI”) requested approval to dispose of a distribution substation and property known as Substation 250 in Edmonton, Alberta (the “Substation”). The Substation consists of the land, transformers, distribution electrical switchgear, protective relaying, and communications and supervisory control and data acquisition equipment (collectively, the “Substation Property”). EDTI requested to dispose of the Substation Property as outside the ordinary course of business, and therefore requested approval pursuant to section 101(2)(d) of the Public Utilities Act.
EDTI submitted that the Substation, which was originally built in 1957, was retired from service in 2012, due to the Substations’ 5 kV equipment no longer being useful (as this equipment had been replaced with a newer 15 kV circuit), rendering the substation redundant. EDTI explained that the entire Substation was not decommissioned immediately due to timing constraints with higher priority work. EDTI submitted that the equipment was no longer required to provide service to customers and should be removed from rate base. EDTI confirmed that the equipment was still energized, and has not been decommissioned.
EDTI estimated the following:
(a) Decommissioning costs to be approximately $125,000, which would be an operating cost to EDTI and not paid by ratepayers;
(b) That the sale of the property would receive a purchase price of approximately $365,000 to $400,000, conditional upon an environmental assessment; and
(c) The salvage of equipment would net approximately $2,750.
EDTI submitted that all of the Substation Property had been fully depreciated, with the exception of the land and the building itself.
EDTI proposed to remove the Substation Property from rate base, resulting in reductions of $1,492 for the remaining book value of the land, and $103,092 for the remaining book value of the substation building.
EDTI submitted that there would be no harm to ratepayers, as the service provided would not be impacted. EDTI also noted that there would be a slight savings for ratepayers, since EDTI proposed to pay the transaction costs arising from the disposition, including the $125,000 in operating costs to decommission the Substation.
The AUC indicated that it was concerned about the timing of the disposition process for the Substation Property, given that the five-kilovolt equipment ceased to provide service in 2012, and the application to dispose of the assets was brought in May 2014. The AUC held that once an asset is no longer required for utility purposes, the utility must act expeditiously in taking prudent steps to salvage or to sell the asset in order to mitigate further depreciation costs to the ratepayers. Failure to do so may result in the disallowance of depreciation costs.
The AUC, however, accepted EDTI’s explanation for not immediately decommissioning the assets given the circumstances, noting that the delay did not impact the quality or quantity of service, and the impact of depreciation costs were minimal.
The Consumers’ Coalition of Alberta (“CCA”) submitted that the disposition should be considered as part of the ordinary course of business, due to the lack of materiality in the transaction at approximately $400,000. The CCA argued that a pro-rata adjustment of materiality threshold set down by the AUC in Decision 2011-450 should apply.
With respect to the materiality of the proposed transaction, the AUC determined that no materiality threshold should apply in this particular application, given the range of transaction values previously approved as outside the ordinary course of business. The AUC also held that the infrequency of transactions such as the sale of the Substation Property further suggested that the proposed disposition is outside the ordinary course of business.
Having found that the proposed transaction was outside the normal course of business, and required the AUC’s consent, the AUC turned to the “no harm” test in assessing whether the disposition will negatively affect service quality or quantity, or rates.
The AUC held that the transaction would not adversely affect rates or the quantity or quality of service, noting that the Substation Property was no longer required for service, and therefore would not have an impact on service. The AUC also held that the impact on the revenue requirement associated with the substation assets would be negligible, and therefore would not create any adverse financial impact.
Therefore, the AUC approved the proposed sale of the Substation Property and directed EDTI to:
(a) File the details of the disposition, including net proceeds from the sale of the Substation Property in its next revenue requirement application; and
(b) Remove the Substation Property from its distribution rate base at the end of its performance-based regulation term in 2018.
