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ATCO Electric Ltd. 2018-2019 General Tariff Application Compliance Filing – Information Technology Common Matters, AUC Decision 24805-D01-2020

Link to Decision Summarized

Rates – Information Technology Compliance Filing


In this decision, the AUC considered the compliance of ATCO Electric Ltd. (“ATCO Electric”) with Decision 20514-D02-2019 (“IT Common Matters Decision”), for information technology common matters and the associated costs. This decision refers to both ATCO Electric and to ATCO Pipelines, a division of ATCO Gas and Pipelines Ltd. (referred to as “AP”), the two transmission utilities that were the subject of the IT Common Matters Decision. The AUC collectively referred to ATCO Electric and AP as the “ATCO Transmission Utilities”. A separate decision was concurrently issued by the AUC for AP in Proceeding 24817. In this decision, the AUC approved the majority of ATCO Electric’s IT common matters compliance application but noted that there are outstanding items that will require a second compliance filing.

The AUC noted that ATCO Gas, a division of ATCO Gas and Pipelines Ltd., and ATCO Electric’s distribution function also incur IT common matters costs, which will be addressed separately under performance-based regulation (“PBR”). The distribution utilities were referred to as the “ATCO Distribution Utilities” in this decision.

Background

In the IT Common Matters Decision, the ATCO Transmission Utilities were directed to apply:

(a)      a reduction of 13 percent in pricing in year one (2015) of the master service agreements (“MSAs”); and

(b)      a glide path that reduces prices on a weighted average across towers by 4.61 per cent in each of years two through 10 of the MSAs, as approved by the AUC.

The ATCO Transmission Utilities were directed to file their compliance applications to the IT Common Matters Decision in the compliance filings to their general rate application (“GRA”) or general tariff application (“GTA”). Separate directions were issued for the ATCO Distribution Utilities.

In Proceeding 24817 and Proceeding 24805, the AUC noted that it had to determine whether AP and ATCO Electric, respectively, have complied with the findings and directions issued by the AUC in Decision 23793-D01-2019, Decision 22742-D01-2019, Decision 22742-D02-2019, and the IT Common Matters Decision.

Directions Related to IT Common Matters Costs

In accordance with directions 1 and 4 of the IT Common Matters Decision, the ATCO Transmission Utilities provided schedules referencing the placeholder dollars for capital, indirect capital, and operations and maintenance from the previous GTA proceedings on a total dollar basis per annum. The schedules included in ATCO Electric’s compliance filing detailed the first-year pricing reduction of 13 per cent and glide path reductions, which were calculated as the difference between the 4.61 per cent as approved in the IT Common Matters Decision and the average glide path set out in the MSA.

While the IT Common Matters Decision did not require a line-by-line or tower-by-tower assessment, the ATCO Transmission Utilities submitted an alternative approach to their original IT placeholder adjustment. In a supplementary filing, the ATCO Transmission Utilities provided a detailed back-up for a Service ID-by-Service ID analysis, which applied the 13 per cent reduction on the first-year pricing and the 4.61 per cent glide path for years two to 10 to the individual Service IDs and approved volumes.

Placeholders

In the IT Common Matters Decision, the AUC noted that it approved an adjustment to IT rates on a weighted average tower basis. The AUC was of the view that the placeholder adjustment, when compared with the detailed line-by-line adjustment resulted in the same refund amounts. It further noted that the more detailed line-by-line Service ID approach offers greater transparency into how the ATCO Transmission Utilities applied the first-year pricing reduction of 13 per cent and the 4.61 per cent glide path to years two to 10 of the MSA prices. The AUC found that, in the circumstances, the variance between the two methods was not material. However, the AUC was mindful of its comments in the IT Common Matters Decision, regarding placeholders and the finalization of IT rates and revenue requirement, which are reproduced below:

The approved IT rates will be multiplied by utility-specific IT volumes to determine costs that will be approved for inclusion in revenue requirement in a future rate proceeding. The IT costs for each of the ATCO Utilities will then be finalized and included in revenue requirement and rates.

The AUC was of the view that to properly assess adjustments to IT placeholders the ATCO Transmission Utilities must show their adjustments to MSA rates based on the IT rates being multiplied by volumes and the resulting adjustments to IT placeholders. The AUC considered that the proposed adjustment to IT rates by applying the 13 per cent first-year reduction and the 4.61 per cent glide path thereafter to the placeholder rate or dollar value was reasonable for Service IDs not traced to the price schedules or where the Service ID is not volume-based.

Custom Unit Rates and New Services

Interveners made submissions regarding custom unit rates and new services. The AUC noted that in the IT Common Matters Decision, it did not provide any specific direction on these issues. The ATCO Transmission Utilities stated that they applied the IT common matters directions to the placeholder dollar amounts for custom rates, consistent with past decisions related to truing-up placeholder costs. The AUC found that the ATCO Transmission Utilities’ proposed IT adjustments to custom unit rates demonstrated a reasonable approach, and accepted the ATCO Transmission Utilities’ method to adjust custom unit rates, as filed.

With regard to new services, the AUC accepted that new services may be required over the term of the MSA and similar to custom unit rates, the ATCO Transmission Utilities’ approach of applying a 13 per cent adjustment in year one and then a glide path adjustment for years two to 10 from the date service begins is reasonable to account for new services, and complies with the AUC’s general Direction 1 of the IT Common Matters Decision.

True-up for Capital Amounts for 2018 and 2019

Interveners submitted that the ATCO Transmission Utilities did not include adjustments to property, plant, and equipment (“PP&E”) to account for actual amounts for direct capital and other capital and the impacts of those adjustments with respect to 2018 and 2019.

The AUC accepted the ATCO Transmission Utilities’ explanation that the true-up of non-IT rate base items in the original AP and ATCO Electric GRA/GTA proceedings included actual amounts up to 2017. The AUC noted that for ATCO Electric, capital true-up of 2018 and 2019 should be addressed in ATCO Electric’s next GTA.

Opening Rate Base and Accumulated Depreciation

The AUC found that the ATCO Transmission Utilities calculated the rate base adjustments, and depreciation amounts to be refunded or collected, in a manner consistent with Decision 3378-D01-2016. However, unlike Decision 3378-D01-2016, which calculated placeholder and actual adjustments to prior GRA or GTA revenue requirement periods, the IT Common Matters Decision affects prior periods, current periods, and future GRA and GTA test periods.

The AUC noted that IT service volumes for AP’s 2019-2020 GRA and ATCO Electric’s 2018-2019 GTA (subject to any adjusted full-time equivalent amounts) were approved in decisions 23793-D01-2019 and 22742-D01-2019, respectively, and were to be adjusted by the revised IT services pricing approved in the IT Common Matters Decision. The AUC found that ATCO Transmission Utilities did not comply with those directions provided in Decision 23793-D01-2019 and Decision 22742-D01-2019 to reflect changes relating to the IT Common Matters Decision. To ensure that the proper adjustments are made in accordance with previous compliance filing directions, and for consistency amongst the ATCO Transmission Utilities, the AUC directed the ATCO Transmission Utilities to provide additional information in their second compliance filing MFR schedules.

Tax Deductions

The AUC noted that ATCO Electric has a tax deferral account should a tax rate change in the future. It further noted that ATCO Electric did not include the refund of previously collected future income tax in its calculated refund amounts to customers. ATCO Electric calculated future income tax (“FIT”) expenses as part of its 2015, 2016, and 2017 revenue requirements. As explained by ATCO Electric, FIT is calculated based on forecast tax inputs (e.g., capital cost allowance, depreciation, and “running costs”). These inputs included IT costs, which were adjusted in response to the IT Common Matters Decision. As a result, the amount of FIT that was collected for 2015, 2016, and 2017 should also be adjusted for the change in the tax inputs. ATCO Electric estimated that a total of $0.5 million of FIT was over-collected for the years 2015 to 2017 as a result of tax inputs being adjusted to comply with the IT Common Matters Decision. ATCO Electric was directed to refund the FIT amounts for the years 2015, 2016, and 2017 that it should not have collected from customers as a result of its adjusted IT costs. ATCO Electric was also directed to reflect the effects of the 2018 and 2019 test period adjustments in its corresponding MFR schedules.

Carrying Costs

The AUC noted that it has the discretion to apply Rule 023 or the weighted average cost of capital (“WACC”) in the individual circumstances that are applicable to a GRA or GTA. Consistent with the method used in Decision 3378-D01-2016, which is the most recent IT common matters decision that applied interest for carrying costs, the AUC found that WACC should be used when calculating interest on IT refund balances.

The AUC directed the ATCO Transmission Utilities to recalculate the balances using its WACC as the interest rate applied to carrying costs, and to file the resulting refund and regulatory schedules for ATCO Electric and AP in the compliance filing to this decision.

Net Present Value (“NPV”)

Although the NPV method was used in some prior decisions, the AUC considered that whenever possible, costs should be removed from rate base consistent with the method traditionally applied to PP&E – capital project disallowances. The AUC directed the ATCO Transmission Utilities to remove all IT directed adjustments to direct and indirect capital from rate base in compliance with the IT Common Matters Decision in the compliance filing to this decision and future IT common matters, GRA, GTA, or other relevant transmission proceedings and compliance proceedings.

A determination of how the ATCO Distribution Utilities apply their directed IT adjustments or disallowances from the IT Common Matters Decision is a matter to be determined at the relevant PBR-related proceeding or proceedings. In this decision, the AUC did not evaluate the NPV methodology as it would apply to either of the ATCO Distribution Utilities under the PBR framework.

Future Rate Proceedings

As the ATCO Transmission Utilities provided both placeholder and detailed line-by-line adjustments in the current proceedings, the AUC considered that populating Excel worksheets with forecast and actual volumes, new services, and approved IT rates in future proceedings, should not be overly burdensome. For future rate applications, the AUC directed the ATCO Transmission Utilities to provide such information, to comply with directions from the IT Common Matters Decision and this decision.

Order

ATCO Electric was directed to file a second compliance filing in accordance with the findings and directions in this decision.

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