Compliance with Decisions 22742-D01-2019, 22742-D02-2019, 24805-D01-2020, 25139-D01-2020, and 25282-D01-2020
In this decision, the AUC considered the application of ATCO Electric Ltd (“AET”) for its compliance with directions from Decision 22742-D01-2019 and Decision 22742-D02-2019 (“Compliance Application”).
The AUC required AET to file a consolidated application before the AUC to approve AET’s compliance with certain directions provided in (i) the above-noted decisions; and (ii) Decision 24805-D01-2020, Decision 25139-D01-2020, and Decision 25282-D01-2020.
In this decision, the AUC considered AET’s 2018-2019 General Tariff Application (“GTA”) in Decision 22742-D01-2019 and declined to approve certain parts of AET’s 2018-2019 forecast revenue requirement.
Consolidated Filing
AET was directed to file an application, referred to in this decision as a “consolidated filing,” to demonstrate its compliance with all applicable outstanding directions.
Discussion of Issues
Compliance With Directions Issued in Decisions 22742-D01-2019 and 22742-D02-2019 and Other Matters Raised by AET in Its Application
(a) Direction 1 – Full Time Equivalents
The AUC considered the contentious issues identified by interveners or other issues that required further analysis by the AUC in this compliance proceeding. Unless otherwise specified, the directions referred to in the sections below are from Decision 22742-D01-2019.
In response to the AUC Direction 1, AET explained how it made its adjustments to comply with Direction 1 and provided calculations to demonstrate how the labour, fringe, IT and variable pay program (“VPP”) forecast dollars changed as a result of its adjustments to full time equivalent (“FTE”).
Owing to incomplete information and other weaknesses or deficiencies in the FTE-related evidence AET filed in this proceeding, it was difficult for the AUC to compare AET’s FTEs in the 2018-2019 test period to past years, and to track actual and forecast FTEs by individual position to compare historical and forecast test years. AET was not able to track with any confidence its own FTEs.
The AUC found that AET failed to comply with Direction 1 on two grounds:
(i) 2018 Actual FTE Dollar Adjustments
AET calculated an average labour dollar per FTE and applied it to the change in the number of FTEs, to calculate the total labour dollar amounts included in its 2018 revenue requirement. Absent a specific direction from the AUC in Decision 22742-D01-2019 for AET to use average dollar per FTE, the AUC considered that AET’s adjustment of its labour costs to be non-compliant with Direction 1.
(ii) Using the Actual 2018 FTEs as the Opening 2019 FTE Complement
AET was directed to use the 2018 actual FTEs as the opening 2019 FTE complement. The AUC had concerns regarding the same adjustments having been made to each of AET’s 2018 FTEs and its 2019 FTEs. The AUC was of the view, that its direction requiring AET to use 2018 actual FTEs should have resulted in a difference between the 2019 opening FTEs and the total 2019 FTEs included in schedules 5-5.2 and 25-5.2 of its minimum filing requirement (“MFR”) schedules, since the foundation upon which the adjustments were based had itself changed.
Recognizing AET’s system limitations in recording FTEs, the AUC was concerned that AET was unable to cross-reference 181 FTEs. The AUC was unable to confirm the number of capital and operating and maintenance (“O&M”) FTEs that should be included in AET’s revenue requirement for 2019. As a result, the AUC directed AET to use its actual number of 2019 FTEs for the 2019 test year in its consolidated filing. AET was directed to use its 2019 actual labour and fringe amounts to adjust its schedules to comply with this direction in its consolidated filing.
(b) Direction 5 – Severance
AET calculated its severance costs for 2018 to be $5.2 million, a reduction of $0.7 million from its applied-for amount in Proceeding 22742.
The AUC rejected AET’s view that additional information and evidence provided on the topic of severance is directly related to the severance Direction in Decision 22742-D01-2019 and was provided in accordance with the AUC’s own direction. In its consolidated filing, AET was directed to reflect the recovery of $2.7 million in severance costs in 2018 subject to the removal of severance costs that are: (a) related to time spent providing affiliate services between 2014 and 2018; and (b) included in the 2018 $2.7 million severance costs; and the inclusion of that portion of 2018 severance, for positions listed in Table 3 in this decision, based on the portion of years of service that each severed employee worked for AET between 2014 and 2018, less any time spent providing affiliate services during the same period.
(c) Direction 8 – Variable Pay Program
The AUC was satisfied with the method that AET used to set variable pay (“VPP”) forecasts at 80 percent of the eligible employee payout amounts and finds that AET has complied with Direction 8. However, AET was directed to, in its consolidated filing, update its VPP amounts to reconcile these schedules with any changes made in response to Direction 1.
(d) Direction 9 – VPP Reserve Account
In compliance with Direction 9, AET offered a proposal for how its VPP reserve balance may operate as close to zero as possible and any changes to the structure or operations of the VPP reserve should only be made in a future GTA. With respect to the mechanics of AET’s reserve account and the treatment of any accumulated balance in AET’s VPP reserve balance, the AUC agreed with AET that this issue is best dealt with in AET’s 2020-2022 GTA proceeding, Proceeding 24964. The AUC’s direction remained outstanding and is to be addressed by AET in its next GTA.
(e) Direction 20 – Income Tax
Direction 20 required AET demonstrate in its compliance filing to Decision 22742-D01-2019, using information available on the record of that proceeding, that its treatment of allowance for funds used during construction (“AFUDC”) in its calculation of income tax expense does not, as is described in paragraph 267 of Decision 22742-D01-2019 involve charging customers current tax expenses by adding AFUDC to the total utility earnings before tax; or removing AFUDC from its undepreciated capital cost pool and charging customers current tax expenses over the asset’s service life, as demonstrated by the difference in the current tax expense total.
The AUC determined that, because AFUDC was capitalized and recovered through future period revenue requirements, the addition of AFUDC to the “Utility earnings before tax” while the asset is under construction and not yet in service resulted in AFUDC being included twice. AET was therefore directed to adjust its AFUDC in the “utility earnings before tax” in Schedule 7-3 of its MFR schedules to comply with the AUC’s findings with respect to AFUDC in this decision.
(f) Direction 21 – Income Tax
The AUC did not accept AET’s current calculations and found that AET should not have added AFUDC to its “utility earnings before tax” when calculating its tax expense for purposes of determining its revenue requirement.
The AUC directed AET to include the refund/collection calculation for the differences in 2017 AFUDC tax inputs between the forecast and actual costs, as part of its settlement of deferral account balances in a compliance filing to Proceeding 24375 and to calculate carrying costs on the refund/collection for the 2017 AFUDC tax input, as approved in Proceeding 24375.
(g) Direction 32 – USA 934 – IT General and Administration Expense
In compliance with the direction regarding the 2019 FTEs, AET was directed to adjust its forecast expenses for this account based on the AUC’s reduction in forecast FTEs in its consolidated filing.
(h) Direction 37 – Allocation of Head Office Rent Costs – Rent Escalator
AET was proposing that the $1.00 per square foot per year escalation be approved. The CCA submitted that AET’s request was unsupported by the evidence provided and should be denied because AET provided a recommendation that was inconsistent with the evidence. The AUC denied the escalator of $1 per square foot in each of the 2018-2019 test years and directed AET to reflect any changes to its revenue requirement and supporting schedules in the consolidated filing.
(i) Direction 38 – Allocation of Head Office Rent Costs
AET was directed to compute the square footage in its allocation of corporate rent for ATCO Park on the basis of (260/600) x 21 percent. The numerator is the sum of head office employees and shared services employees identified in Undertaking 52, adjusted for the seven percent vacancy factor. The denominator of 600 is the total employee capacity of ATCO Park.
AET calculated that the head office square footage allocated to it was 14,105 sq. ft. In accordance with the findings of Decision 25282-D01-2020 the AUC directed AET, in its compliance filing, to reflect the AUC’s variance of the square footage to 200 000 sq.ft.
(j) Direction 41 – Allocation of Head Office Rent Costs – USA 931.1 Lease Costs
AET was directed in its compliance filing to identify the facilities leased and to provide the calculations showing how the forecast of $1.5 million has been derived. An adjustment was required to AET’s forecast rent costs related to USA 931.1 lease costs. AET was directed to provide a revised Attachment 1 to Direction 41 that uses the AET’s share of total 2017 facility headcount to determine AET’s share of rent for each of the facilities.
(k) Directions 3, 4, 7, 10, 16, 35, 40
The AUC was satisfied that AET complied by these Directions.
Kearl Line Relocation
In Decision 25282-D01-2020 the AUC granted AET’s request to treat the Kearl Line as system costs. The AUC directed AET to include its forecast costs for the Kearl Line relocation in its consolidated filing to reflect this adjustment of Decision 22742-D01-2019.
Compliance with Decision 22742-D02-2019 – Fort McMurray Wildfire
Decision 22742-D02-2019 contained three directions in dealing with utility asset disposition and other matters pertaining specifically to the Fort McMurray wildfire. The AUC varied Directions of that decision in Decision 25319-D01-2020.
The AUC directed that if there was a second compliance filing to the 2018-2019 GTA, AET was to update its supporting schedules in accordance with the findings in Decision 25139-D01-2020. AET was therefore directed to update its supporting schedules to comply with the directions, as amended by Decision 25139-D01-2020, in its consolidated filing.
