Capital Tracker Treatment
In this decision, the AUC provided its assessment of METSCO Energy Solutions Inc. (“METSCO”)’s risk-based asset management framework and determined what weight it should be given in considering ENMAX Power Corporation (“ENMAX”)’s 2015 and 2016 capital tracker application and EPCOR Distribution & Transmission Inc. (“EPCOR”)’s 2016 capital tracker true-up application. ENMAX and EPCOR referenced analyses and modelling undertaken by METSCO in relation to their respective asset management programs and capital planning activities.
ENMAX provided METSCO’s analysis in support of its 2015 and 2016 capital tracker application for two projects: PG4-A-4 Proactive Cable Replacement Project (“PG4-A-4”) and PG4-A-8 Overhead Conductor Replacement Project (“PG4-A-8”).
The AUC found that ENMAX failed to meet its burden of proof in establishing the prudence of the scope, level, and timing, and the actual costs, for the Proactive Cable Replacement Project and the Overhead Conductor Replacement Project in 2015 and 2016, as required under the project assessment test under Criterion 1. Accordingly, the AUC did not extend capital tracker treatment to ENMAX’s actual 2015 and 2016 costs associated with the PG4-A-4 Proactive Cable Replacement Project and the PG4-A-8 Overhead Conductor Replacement Project. EPCOR did not rely on METSCO’s analysis to support costs associated with any applied for 2016 capital tracker true-up amounts but indicated it would use METSCO’s analysis in its 2017 asset management and capital planning processes.
The AUC provided its assessment of METSCO’s analyses, as proposed for use in EPCOR’s 2017 asset management and capital planning processes. EPCOR did not request the AUC evaluate any of its capital expenditures for capital tracker treatment in this proceeding.
The AUC is generally supportive of utilities developing a risk-based asset management framework for asset management and capital planning purposes. Such a framework can enhance the basis on which capital investments and retirement decisions are made, and can increase the efficiency with which capital is managed. However, the AUC found that a fundamental requirement of such a framework was that it should be based on sound data, the methodology be reproducible and transparent, and parties should be given an opportunity to test it.
Overview of METSCO’s Risk-Based Asset Management Framework
ENMAX and EPCOR each independently contracted METSCO to conduct studies to provide recommendations on the timing of asset replacements for certain asset classes.
For ENMAX, METSCO re-evaluated a previous asset management model, producing a report intended to determine the levels of investment required to maintain asset risk at optimal levels and provide criteria for prioritizing:
(a) underground cable rehabilitation and replacement for six different categories of that asset class; and
(b) overhead conductor replacement; also for six different categories of that asset class.
For EPCOR, METSCO developed what it referred to as an “asset risk-based framework” for six asset classes. METSCO summarized this risk-based asset management framework (METSCO’s analyses) as balancing the risks of asset failures and consequence costs against the costs of asset intervention strategies to produce long-term capital investment programs.
The AUC found that METSCO’s analysis had a number of shortcomings. The AUC found that the METSCO report did not support ENMAX’s application for capital tracker treatment of its 2015 and 2016 PG4-A-4 and PG4-A-8 project expenditures.
The AUC found that the PG4-A-4 and PG4-A-8 project costs incurred in 2015 and 2016 were not eligible for capital tracker treatment, these expenditures will not be funded through the K factor provision of the PBR formula and are to be accounted for under I-X. Consistent with these findings, in the compliance filing to this decision, ENMAX was directed to refile the accounting test for the PG4 Program reflecting the removal of the 2015 and 2016 capital additions for the PG4-A-4 and PG4-A-8 projects.
The AUC found there to be inadequate support for the values of economic life calculated in the METSCO analysis for ENMAX. As a result, the AUC found that the METSCO recommendations for asset replacement were unreliable for making any asset management or capital planning decisions. Consequently, the AUC found that any determinations based exclusively on the METSCO economic life values were also unreliable. This included the volume of assets that reached their economic age in any year and therefore needed to be replaced or rejuvenated, as well as the volume of assets whose ages already exceed their economic life, and which, thereby, created a backlog of assets that need replacement or rejuvenation.
The AUC directed ENMAX to file a compliance filing application on or before May 27, 2019. As part of its compliance filing, the AUC directed ENMAX to apply for approval of capital tracker treatment of its 2017 actual capital expenditures for the PG4-A-4 and PG4-A-8 projects.
With respect to EPCOR, the AUC provided its assessment of METSCO’s analyses, as proposed for use in EPCOR’s 2017 asset management and capital planning processes. EPCOR did not request the AUC evaluate any of its specific capital expenditures for capital tracker treatment in this proceeding.
The scope of this proceeding for EPCOR was confined to a technical consideration of METSCO’s studies, analyses, and methodologies.
The AUC divided EPCOR’s 2017 capital tracker true-up application (Proceeding 23571) to process the non-METSCO-related matters (Module One), while the METSCO-related matters (Module Two) were suspended until the release of this decision. The AUC will issue a process schedule for Module Two on the record of Proceeding 23571 in due course.