Electricity – Depreciation Application
In this decision, the AUC considered a 2018 depreciation application (the “Application”), filed by ATCO Electric Ltd. (“ATCO Electric”) on December 31, 2018, which was supported by a depreciation study prepared by Mr. Larry Kennedy of Concentric Advisors, ULC (“Concentric”). The AUC determined that the life-curves and estimated net salvage percentages as proposed by ATCO Electric for its depreciation study accounts were a reasonable future expectation for the assets in those accounts, except for the net salvage percentage proposed for Account 473.00 Poles and Fixtures and the life-curve proposed for Account 476.30 Automated Meter Reading.
The AUC directed ATCO Electric to provide specific information related to oilfield sites and to incorporate the depreciation rates reflective of the approved life-curves and net salvage percentages in its 2020 annual performance-based regulation (“PBR”) rate adjustment filing.
ATCO Electric’s Depreciation Study
ATCO Electric’s current depreciation parameters were approved by the AUC in Decision 2011-134. The proposed depreciation parameters would result in an overall net increase of $1.1 million in depreciation expense over that resulting from the depreciation parameters approved in Decision 2011-134 (composed of a decrease of $2.1 million due to changes in the depreciation parameters and an increase in the amortization of reserve differences of $3.2 million).
Accounts for which No Issues Were Raised
The asset accounts in respect of which no issues were raised by the interveners fell generally into three categories: generation plant accounts; accounts for which no changes were proposed and no issues were raised; and accounts for which changes were proposed but no issues were raised.
The proposed depreciation parameters for the generation plant accounts, including the mobile generation unit, were approved. For the assets in the accounts for which no changes were proposed, the AUC accepted ATCO Electric’s continued use of the approved net salvage percentages. For accounts for which changes were proposed and no issues were raised, the AUC accepted ATCO Electric’s proposed life-curve parameters.
Account 473.00 Poles and Fixtures
The AUC approved the continuation of the previously approved life-curve for Account 473.00 Poles and Fixtures as filed by ATCO Electric. The AUC found that a continuation of the presently approved negative fifty per cent salvage percentage was reasonable for this account.
Account 476.10 Meters
The AUC approved an 18-R1.5 life-curve for Account 476.10 Meters, as filed. The estimated net salvage percentage of zero was also approved. ATCO Electric was directed to incorporate the depreciation rate reflecting the 18-R1.5 life-curve and an estimated net salvage percentage of zero for Account 476.10 Meters in its 2020 annual PBR rate adjustment filing.
Account 476.30 Automated Meter Reading
The AUC found no compelling evidence on the record of this proceeding for the continuation of the previously approved life curve of 15-R2.5 as recommended by Concentric and found the recommendation from the Utilities Consumer Advocate (“UCA”) for an Iowa 20-R2.5 life-curve to be reasonable. The AUC found no reason to adjust the net salvage percentage and, therefore, the estimated net salvage percentage of zero was approved as filed.
The AUC directed ATCO Electric to incorporate the depreciation rate reflective of a 20-R2.5 life-curve and an estimated net salvage percentage of zero for Account 476.30 Automated Meter Reading in its 2020 annual PBR rate adjustment filing.
Change to Amortization Accounting for some Accounts
ATCO Electric proposed changes to amortization accounting for multiple accounts. The AUC approved the use of amortization accounting and the corresponding amortization periods for the non-software accounts. The AUC found the amortization accounting to be reasonable for the non-software accounts given the administrative benefits, that a similar approach for similar accounts has been adopted by most other North American utilities, and neither the Consumers Coalition of Alberta (“CCA”) nor the UCA identified any concerns with this approach.
The AUC directed ATCO Electric to incorporate in its 2020 annual PBR rate adjustment filing the depreciation rates reflective of the proposed changes to the life-curve parameters and estimated net salvage percentages.
Additional Issues Raised
In response to additional issues raised by the CCA, the AUC directed ATCO Electric to include new information in its 2020 annual PBR rates filing. The AUC directed the inclusion of information regarding age, cost and value of salvaged assets by asset class for each year 2013-2017. ATCO Electric was also directed to provide verification with supporting evidence with respect to each retirement of assets that were salvaged because of a customer request. Finally, the AUC directed that ATCO Electric include in its 2020 annual PBR rates filing, contractual requirements or customer terms and conditions for electric service applied by ATCO Electric that could potentially mitigate the risk of stranded assets if a customer discontinued electric service before full depreciation of the asset.
Compliance with Minimum Filing Requirements for Depreciation Studies
Under the circumstances of this application, the AUC did not require ATCO Electric to provide detailed packages of working papers to comply with section 16 of the minimum filing requirement (“MFR”) due to the significant effort and additional costs this would have imposed.
The AUC found that the information provided by ATCO Electric in its application and through the interrogatory process was generally sufficient to meet the intention of the filing requirements of section 16 of the MFR. However, the AUC directed ATCO Electric to include in future filings that require either a depreciation study or a technical update, comprehensive physical records containing all relevant correspondence between ATCO Electric and its depreciation experts that support the selected life and net salvage accounts and sub-accounts that were selected or explain the rejection of the alternative life or net salvage patterns that were examined.
The AUC ordered ATCO Electric to incorporate depreciation rates reflective of the findings, conclusions and directions in this decision in its 2020 annual performance-based regulation rate adjustment filing. However, the AUC noted that the resulting adjustments would be interim pending the outcome of Proceeding 24609.