Review and Variance – Rates – Allocation of System Costs
In this decision, the AUC determined whether to confirm, rescind or vary Decision 22742-D01-20191 (“Decision”) on ATCO Electric Ltd.’s (“ATCO Electric”) 2018-2019 transmission general tariff application (“GTA”) relating to two specific issues: (a) the allocation of transmission line 9L101 (“Kearl Line”) relocation costs; and (b) the amount of square footage attributable to corporate and head office employees in ATCO Park for purposes of determining head office rent costs.
The AUC decided to (a) vary Decision 22742-D01-2019 as it relates to the allocation of Kearl Line relocation costs and granted ATCO Electric’s request to treat the costs associated with the relocation of Kearl Line as a system cost; and (b) vary the square footage of ATCO Park applied to the ratio used to calculate the allocation of head office rent costs to ATCO Electric to 200,000 square feet (sq. ft.), instead of the 155,000 sq. ft. directed by the hearing panel in Decision 22742-D01-2019.
On July 4, 2019, the AUC issued the Decision, which addressed the reasonableness of ATCO Electric’s forecast revenue requirements for the 2018-2019 test period. On August 19, 2019, ATCO Electric filed a review and variance (“R&V”) application requesting that the AUC review specific findings in the Decision. On January 9, 2020, the AUC issued Decision 24824-D01-2020, granting the second stage review proceeding.
In this decision, the members of the AUC panel who authored the Decision are referred to as the Hearing Panel, the members of the AUC panel who authored Decision 24824-D01-2020, granting a second stage R&V proceeding are referred to as the Stage 1 Panel, and the members of the AUC panel considering the current second stage R&V submissions are referred to as the Stage 2 Panel.
The AUC’s Review Process
The AUC’s authority to review its own decisions is discretionary and is found in section 10 of the Alberta Utilities Commission Act. That section authorizes the AUC to make rules governing its review process and the AUC established Rule 016 under that authority. The review process typically has two stages. In the first stage, a review panel must decide whether there are grounds to review the original decision. This is sometimes referred to as the “preliminary question.” If the review panel decides that there are grounds to review the decision, the AUC’s proceeds to the second stage of the process with a hearing or other proceeding to decide whether to confirm, vary or rescind the original decision. This decision addresses the second stage of the R&V process.
Allocation of Kearl Line Relocation Costs
In Proceeding 22742, ATCO Electric requested confirmation that the forecast costs associated with relocating the Kearl Line, as requested by Fort Hills Energy LP to accommodate its oil sands expansion project, be allocated by ATCO Electric as system costs rather than as direct customer costs payable by the mine owner. The Hearing Panel determined that the proposed Kearl Line relocation costs were the responsibility of the mine owner. In this Stage 2 proceeding, ATCO Electric submitted that the Decision should be materially varied to allocate Kearl Line relocation costs as system costs.
2003 Relocation Principles
The relocation principles contained in Decision 2003-043 and the treatment of these principles for the purposes of allocating Kearl Line relocation costs arose as an issue in the Decision and the current proceeding. Decision 2003-043 was issued by the AUC’s predecessor, the Alberta Energy and Utilities Board (“Board”). The Board set out broad principles to generally guide the board’s assessment of cost responsibility for the relocation of transmission lines (“2003 Relocation Principles”). The Board also expressed that the principles could assist parties in coming to commercial agreements, should they so desire.
The 2003 Relocation Principles are as follows:
The Board must be satisfied as to the balance between the public interest and the interest of any affected party.
The sterilization of mineable ore, and direct and unavoidable conflict with the infrastructure and development required to mine the ore, is a reasonable cause for the relocation of a transmission line.
A valid mineral lease and an applied for/approved mine plan should exist at the time the move is requested.
The Transmission Administrator’s customers should be required to incur relocation costs, as a system cost, when there is a reasonable cause to move a system transmission line, provided that:
A valid mineral lease existed prior to the construction of the transmission line;
A practical alternative route is available; and
There are no unusual negative impacts on the AIES [Alberta Interconnected Electric System] that cannot be reasonably addressed.
The cost of relocating a local transmission line required to serve the party requesting the relocation should be the responsibility of that party. [emphasis in original]
Stage 2 Panel Findings
The Stage 2 Panel considered that the 2003 Relocation Principles were not intended to be determinative of responsibility for relocation costs, or to displace the AUC’s consideration of the specific facts and circumstances relevant to the application before it, or of principles other than those articulated in the 2003 Relocation Principles. In the context of this proceeding, the Stage 2 Panel found that the general guidance provided by the 2003 Relocation Principles served as a helpful framework to guide its analysis. However, adherence to the 2003 Relocation Principles cannot constrain the AUC’s broad public interest discretion under the provisions of the Hydro and Electric Energy Act to provide for the payment of compensation related to transmission line relocations, including determining whether compensation is warranted and to whom.
Although the Stage 2 Panel determined that it was not bound by 2003 Relocation Principles, it stated that it was noteworthy that the first of the principles posit a broad public interest review in allocating the costs of a transmission line relocation, as follows:
The Board must be satisfied as to the balance between the public interest and the interest of any affected party.
The Stage 2 Panel found that it must ultimately weigh the costs to ratepayers against the benefits of the line relocation, including any benefits associated with avoided sterilization of mineable ore and that this weighing exercise may invoke considerations beyond the enumeration provided in the 2003 Relocation Principles.
The Stage 2 Panel re-examined the issue of allocating Kearl Line relocation costs and found that it was in the public interest to vary the treatment of Kearl Line relocation costs to a system cost. It determined that the Kearl Line is required to be relocated to allow for the recovery of the mineable ore underlying it. The Stage 2 Panel also weighed the relocation costs relative to the public interest benefits associated with relocating the line. In the circumstances of this case, the Stage 2 Panel determined that the benefits of relocating the Kearl Line outweigh the costs associated therewith. Finally, the Stage 2 Panel determined that, in this case, price signals are not a relevant factor in examining how to allocate Kearl Line relocation costs in the public interest. This is because the requirement to relocate the line was not discretionary to the mine owner as a result of legislative and regulatory requirements, including one of the stated purposes of the Oil Sands Conservation Act which is “to ensure orderly, efficient and economical development in the public interest of the oil sands resources of Alberta.”
The Stage 2 Panel noted that the AUC provided the AESO with direction to review the 2003 Relocation Principles in its next general tariff application. It further noted that nothing in this decision on the Kearl Line relocation precludes any future determinations of the AUC on the principles that should apply to line relocations and the associated costs.
Square Footage of ATCO Park Used in Allocation of Head Office Rent Costs
In Proceeding 22742, ATCO Electric forecast recovery of head office rent costs for the 2018 and 2019 test years. ATCO Electric had forecast its allocated costs to increase as a result of the ATCO Group’s move to a new corporate head office campus in southwest Calgary called ATCO Park, from its previous downtown location called ATCO Centre.
In its assessment of the allocation of head office rent costs, the Hearing Panel indicated that it had concerns concerning the excess capacity at ATCO Park beyond what it said was reasonably required for office space for current employees and common spaces. The Hearing Panel directed ATCO Electric to adjust the amount of head office rent recoverable in its revenue requirement, as follows:
680. Therefore, to adjust the number of employees used in the allocation of corporate staff, and to ensure AET’s [ATCO Electric Transmission] regulated customers are not charged for the capacity of 100 staff identified above, AET is directed to compute the square footage in its allocation of corporate rent for ATCO Park on the basis of (260/600) x 21 per cent …
The Stage 2 Panel noted that the (260/600) x 21 per cent formula (the “Proration Formula”) represented the ratio of head office employees to total employee capacity at ATCO Park. The Proration Formula was used to adjust for the excess employee capacity of approximately 100 employees at ATCO Park.
In its Stage 2 R&V submission, ATCO Electric submitted that the Hearing Panel made an error of fact when finding that the total square footage of ATCO Park was 155,000 sq. ft., and explained that the reference to 155,000 sq. ft. in its original application was the space occupied by ATCO head office staff, which corresponds to floors one through four of the west tower and floor one of the east tower of ATCO Park, not to the entirety of ATCO Park.
In its Stage 1 R&V application, ATCO Electric submitted that the total square footage of ATCO Park was approximately 246,000 sq. ft., and in its Stage 2 R&V evidence, ATCO Electric provided a certificate of area from a third-party building measurement company confirming that the total square footage of ATCO Park is 248,743 sq. ft. ATCO Electric submitted that to correct the head office rent allocation error in the Decision, its revenue requirements should be increased by $664,020 and $673,242 in each of 2018 and in 2019, respectively.
The Stage 2 Panel considered it reasonable to apply the ratio from the Proration Formula, (260/600) x 21 per cent, to the initially projected 200,000 sq. ft. to calculate the allocation of head office rent costs to ATCO Electric, rather than applying the formula to the entire square footage of ATCO Park (248,743 sq. ft.) as suggested by ATCO Electric in its Stage 2 R&V submissions, or to the 155,000 sq. ft. as directed by the Hearing Panel in the Decision. Using this allocation methodology, ATCO Electric’s revenue requirement was increased by $147,370 in 2018 and by $149,416 in 2019.
The Stage 2 Panel directed ATCO Electric to provide adequate supporting information in future GTAs to justify the square footage attributed to head office staff, and to clearly explain the usage and necessity of the common space included at ATCO Park and attributable to ATCO Electric.