General Rate Application – Compliance Filing
On August 29, 2017, the Commission issued Decision 22011-D01-2017, in which it directed ATCO Pipelines, a division of ATCO Gas and Pipelines Ltd. (“ATCO”) to file a compliance application in accordance with the findings and specific AUC directions set out in Decision 22011-D01-2017.
In this decision, the AUC considered ATCO’s compliance with:
• Direction 5 regarding Weld Integrity Inspections and Replacements Program (“WIIR Program”);
• Directions 11 and 18 regarding pension costs;
• Direction 20 regarding accumulated depreciation balances for Account 496.05 (general plant – equipment – SCADA); and
• Direction 36 regarding removal costs charged to Account 451.00 (underground storage plant) and the continued necessity for any negative net salvage percent.
Direction 5 – Weld Integrity Inspections and Replacements Program
The AUC directed ATCO to remove its 2016 re-inspection costs from its 2017 opening rate base and the forecast 2017 and 2018 re-inspection capital expenditures from its 2017-2018 revenue requirements.
The AUC found that ratepayers should not bear the costs to re-inspect welds that were not properly inspected in the first place. The AUC noted that the costs of the original deficient inspections were being recovered through rates and that it would be unreasonable to permit ATCO to recover re-inspection costs from customers when it could and was pursuing such costs through litigation for the deficient work.
The AUC found that rather than approving ATCO’s proposal to recover the costs from customers, and then credit customers for any litigation proceeds obtained, ATCO should recover the costs from the involved radiographic companies and technicians for its own account to the extent that it can do so.
In determining that the WIIR Program capital expenditures should not be included in ATCO’s 2017 opening rate base and 2017-2018 revenue requirements, the AUC considered whether these costs were prudently incurred and whether ATCO’s forecast costs were reasonable, and therefore borne by customers.
The AUC previously set out the test for prudence or reasonableness of costs in Decision 2001-110:
… a utility will be found prudent if it exercises good judgment and makes decisions which are reasonable at the time they are made, based on information the owner of the utility knew or ought to have known at the time the decision was made. In making decisions, a utility must take a fair return.
In assessing the prudence of the inspection and repair costs, the AUC considered:
(a) ATCO’s actions since discovering the deficient radiographic inspections, including its plan and forecasts to assess and remedy the deficiencies;
(b) whether it was reasonable, in the circumstances, for ATCO not to have discovered the deficient radiographic inspections until 2015; and
(c) whether all of the costs associated with assessing and remedying deficiencies from 2008 to 2015 were prudent and reasonable given all of the circumstances.
The AUC found that:
(a) ATCO should have established some quality control measures to ensure work was being properly performed and completed by its contractors, such as radiographic inspection companies and technicians;
(b) greater oversight of the radiographic inspections/inspectors could have ensured a more reliable process and mitigated the risk of seven years of deficient inspections and welds being placed in service;
(c) it was not reasonable for this type of deficient work to have continued for seven years or more without being discovered; and
(d) better processes could have been and should have been in place.
Direction 11 and 18 – Pensions Costs
The AUC found that ATCO complied with directions 11 and 18 of Decision 22011-D01-2017.
Decision 22011-D01-2017, Direction 11, stated:
257. The Commission directs ATCO Pipelines to incorporate the findings of Decision 21831-D01-2017 for all pension costs and COLA [cost-of-living adjustment] into its compliance filing to this decision. Based on Decision 21831-D01-2017, the Commission does not approve the placeholders for a pension COLA adjustment from 50 per cent to 100 per cent.
Decision 22011-D01-2017, Direction 18, stated:
365. … The Commission directs ATCO Pipelines to update its placeholder schedule for pension COLA costs in its compliance filing according to Decision 21831-D01-2017.
Given that Decision 21831-D01-2017 approved COLA at 50 percent, which was the percent assumed by ATCO in its original application, no adjustments were required to the forecast pension amounts. ATCO, in response to the AUC’s directions, removed the COLA placeholder from the placeholder schedule.
Direction 20 – Accumulated Depreciation Balances for Account 496.05 (General Plant – Equipment – SCADA)
The AUC found that ATCO complied with Direction 20 and denied the Office of the Utilities Consumer Advocate’s (“UCA”) request to eliminate depreciation expense for Account 496.05. The AUC accepted ATCO’s explanation that the restated opening 2012 Account 496.05 balance was a result of a prior period adjustment of $1,584,000 (debit) to accumulated depreciation.
Notwithstanding the above, the AUC found that:
(a) ATCO failed to adequately address this issue in Proceeding 22011 and this compliance proceeding; and
(b) ATCO’s unresponsiveness to interveners’ concerns did not meet the AUC’s expectations concerning record development nor did it contribute to an efficient and better understanding of the issues considered in Decision 22011-D01-2017 or this decision.
The AUC noted, however, that ATCO explained the cause of confusion in its reply argument and apologized to the UCA and the AUC for what it indicated was an unintentional oversight.
Direction 36 – Regarding Removal Costs Charged to Account 451.00 (underground storage plant) and the Continued necessity for any Negative Net Salvage Percent
The AUC confirmed that Direction 36 remained outstanding, to be addressed in full in ATCO’s next depreciation study.
In making this finding, the AUC set out that in Decision 22011-D01-2017, the AUC approved a net salvage percent of -10.0 for Account 461.00 – transmission plant – land rights. However, the AUC directed ATCO in its next depreciation study to discuss the nature of the proceeds and removal costs being charged to this account and the continued necessity for any negative net salvage percent.
In its response to Direction 36, ATCO Pipelines reiterated there was no change to its depreciation expense as a result of the Commission approving a net salvage percent of -10.0 for Account 461.00 – transmission plant – land rights as filed. However, in response to Commission IR55 and again in argument, ATCO confirmed that the latter part of Direction 36 remained outstanding. ATCO submitted that it would “discuss the nature of the proceeds and removal costs being charged to this account and the continued necessity for any negative net salvage per cent” in its next depreciation study.
