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AltaGas Utilities Inc. 2018 Depreciation Study Compliance Filing Pursuant to Decision 24161-D03-2019, AUC Decision 25368-D01-2020

Link to Decision Summarized

Rates – Depreciation Study – Compliance Filing


In this decision, the AUC considered whether to approve AltaGas Utilities Inc. (“AltaGas”)’s compliance with the AUC’s directions in Decision 24161-D03-2019, and AltaGas’s request to amend Rider F for collection of the resulting deficiency. The AUC found that AltaGas complied with all of the AUC’s directions and approved the amended 2020 Rider F.

Compliance with AUC Directions

AUC directions 1, 4, 5, 7, 8, 9 and 10 from Decision 24161-D03-2019 pertained to this compliance filing.

Direction 1

The AUC directed AltaGas to incorporate the depreciation rates reflective of the proposed changes to the depreciation parameters in its compliance filing to this decision.

AltaGas provided a summary of the approved depreciation parameters for all accounts and corresponding depreciation rates. AltaGas also provided financial schedules showing the calculations incorporating the changes to depreciation rates and the effects on depreciation expense and revenue requirement for 2018, 2019, and 2020. The AUC was satisfied that the calculations were accurate and found that AltaGas had complied with Direction 1.

Direction 4

The AUC directed AltaGas, for 2018, 2019 and future years, to charge site remediation costs to operating costs and not to cost of removal where there are no related asset retirements occurring concurrently or within a reasonably foreseeable period of time and the existing assets continue to be used. AltaGas was further directed to reflect this change for all accounts that include site remediation costs as part of net salvage, in its compliance filing.

AltaGas stated that the site remediation costs were all associated with Account 46700 (Measuring & Regulating Station Equipment), which, in 2018 and 2019, totalled $87,332. Of the $87,332, $15,006 was associated with assets that would continue to be in use and, therefore, that amount had been charged to operating costs in 2019. The remaining $72,326 were remediation costs associated with assets that were retired in 2019 or earlier. AltaGas also advised that these costs do not affect the 2017 notional rate base and depreciation expense and, therefore, had no impact on K-bar calculation mechanics.

AltaGas stated that effective January 1, 2020, it updated its procedures for all accounts to ensure only site remediation costs associated with assets that were either in the process of being retired or have been retired, would be included as part of cost of removal.

The AUC was satisfied with AltaGas’ response and found that AltaGas complied with this direction.

Direction 5

The AUC directed AltaGas to provide the amounts charged to cost of removal by allocation (and not actual costs) in each account and the method of allocation used for the years 2016 through 2018.

AltaGas explained that its practice for the allocation of cost of removal is based on project type. For projects involving the removal of existing assets from service with no corresponding asset replacement, 100 percent of the actual costs incurred are recorded as cost of removal. For projects involving the removal of existing assets from service and a corresponding asset replacement, an allocation of actual costs incurred is recorded as cost of removal. For these project types, a cost estimate is prepared in support of the project, including all costs for both the removal and replacement components. As actual project costs are incurred, they are allocated to the removal and replacement components based on the proportionate share determined in the project cost estimate.

The AUC found that AltaGas complied with this direction. However, the AUC considered that additional information would be helpful in fully understanding the allocation of cost of removal for projects involving the removal of existing assets from service and a corresponding asset replacement. Accordingly, AltaGas was directed, as part of its next depreciation study, to provide such additional detail.

Directions 7, 8, 9 and 10

The AUC issued specific directions regarding applied-for changes to AltaGas’s depreciation parameters. Specifically, the AUC directed AltaGas to incorporate particular negative net salvage rates for certain accounts. The AUC reviewed the calculations in AltaGas’ financial schedules and resulting depreciation rates and was satisfied that the calculations were accurate and in accordance with the directions from Decision 24161-D03-2019. Accordingly, the AUC found that AltaGas complied with these directions.

Carrying Costs

AltaGas requested carrying costs in the amount of $181,755. The AUC reviewed the carrying costs calculations in the financial schedules and was satisfied that the calculations were accurate and in accordance with Rule 023: Rules Respecting Payment of Interest. Accordingly, the AUC approved the carrying costs as applied for.

Revenue Shortfall

AltaGas advised that the updates to the depreciation parameters approved in Decision 24161-D03-2019 would result in a revenue requirement shortfall of $11.0 million for 2018, 2019 and 2020 collectively.

AltaGas proposed to recover the remaining revenue requirement shortfall and carrying charges of $4.8 million through an adjustment to its 2020 Rate Rider F from April 1 through December 31, 2020. AltaGas submitted that the proposed incremental increase to the 2020 Rate Rider F would result in bill impacts for each customer class below 10 percent. AltaGas also submitted that its proposed approach mitigates the possibility of rate shock in 2021 rates should the $4.8 million revenue requirement shortfall and carrying costs be deferred to 2021 rates instead.

The AUC reviewed the amended Rate Rider F and was satisfied that the calculations were accurate. The AUC also approved the methodology for recovery of the deficiency, using the same rate class allocation methodology as approved for its 2020 Rate Rider F in Decision 24883-D01-2019. Accordingly, the AUC approved the amended 2020 Rider F, as applied for.

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