Rates – Compliance Filing
In this decision, the AUC determined ATCO Electric Ltd.’s (“ATCO Electric’s”) compliance with AUC directions issued in Decision 21609-D01-2019. The AUC found that ATCO Electric complied with AUC directions and approved ATCO Electric’s revised Z factor amount of $10.3 million related to 2016, and $3.2 million related to 2017. Further, the AUC approved the $0.051 million Z factor adjustment to be included in ATCO Electric’s 2021 annual performance-based regulation (“PBR”) rate adjustment filing to be refunded to customers over the 12-month period effective January 1, 2021, to December 31, 2021.
Background
On October 2, 2019, the AUC issued Decision 21609-D01-2019, regarding ATCO Electric’s Z factor adjustment for the 2016 Regional Municipality of Wood Buffalo (RMWB) wildfire. The decision included seven directions, including a direction, Direction 7, requiring ATCO Electric to file a compliance filing on or before November 13, 2019.
Directions 1 and 7
Direction 1 required ATCO Electric to make certain adjustments to the applied-for amounts and provide specific information in the compliance filing to this decision, and Direction 7 required a compliance filing on or before November 13, 2019.
The AUC found that ATCO Electric complied with directions 1 and 7.
Direction 2: Criterion 2 – Materiality Threshold
The AUC’s Direction 2 addressed the materiality threshold requirement of Criterion 24 for ATCO Electric’s Z factor for 2017:
The magnitude of the adjustments for 2017 as directed in Section 6 are more significant relative to the 2017 materiality threshold of $2.370 million. The Commission cannot therefore determine in this decision whether ATCO Electric’s Z factor for 2017 is material. The Commission therefore directs ATCO Electric to reassess whether its Z factor for 2017 satisfies the materiality threshold requirement of Criterion 2 in its compliance filing to this decision.
The AUC reviewed ATCO Electric’s revised 2017 Z factor revenue requirement calculation and was satisfied that ATCO Electric’s applied-for 2017 Z factor adjustment of $3.158 million for costs incurred in 2017 exceeds the approved 2017 materiality threshold of $2.370 million. The AUC found that ATCO Electric complied with the AUC’s Direction 2.
Direction 3: Information Technology Costs
Direction 3 required ATCO Electric to adjust the information technology (“IT”) costs paid to Wipro to reflect the AUC’s findings in Decision 20514-D02-2019:
Consistent with the findings in Decision 20514-D02-2019, including that the IT services sourcing strategy was not prudent, the Commission finds that the IT costs paid to Wipro as applied for in this application were not prudently incurred. The Commission does not accept ATCO Electric’s explanation above and as such, directs ATCO Electric to adjust the $0.061 million paid to Wipro to reflect the Commission’s disallowance and glide path reductions as directed in Section 6 of Decision 20514-D02-2019 and to clearly show all calculations in the compliance filing to this decision.
The AUC directed ATCO Electric to recalculate the 2016 Z factor amount to reflect the adjustment made to the IT costs.
The AUC was satisfied that the adjustment to the $0.061 million paid to Wipro reflects the AUC’s disallowance and glide path reductions as directed in Decision 20514-D02-2019. The AUC was also satisfied that ATCO Electric correctly reflected the reduction in its revised 2016 Z factor revenue requirement calculation. Accordingly, the AUC found that ATCO Electric complied with Direction 3.
Direction 4
The AUC concluded that for regulatory purposes, the RMWB wildfire gave rise to an extraordinary retirement of the destroyed assets and determined that:
… As a result of these findings, the principles established by Stores Block and the related Court of Appeal decisions dictate that the remaining net book value of the destroyed assets associated with the RMWB wildfire must be for the account of the ATCO Electric shareholders. ATCO Electric is directed, in the compliance filing to this decision, to provide all accounting entries reflecting the retirement of the assets destroyed by the RMWB wildfire.
In response to this direction, ATCO Electric provided the accounting entries reflecting the retirement of the assets destroyed by the RMWB wildfire as follows:
DR [Debit] Loss $3.177 million
CR [Credit] Accumulated Depreciation $3.177 million
The AUC reviewed the accounting entries cited above supplied by ATCO Electric and was satisfied that the entries are consistent with the assets destroyed by the RMWB wildfire and reflect an extraordinary retirement of the destroyed assets.
The AUC was satisfied by ATCO Electric’s explanation that the treatment of the destroyed assets as an extraordinary retirement will have minor impacts on the accumulated depreciation reserve and not affect the depreciation rate calculation as the cost of the destroyed assets has been removed from its plant balance. It accepted ATCO Electric’s proposal to reflect the effect on the amortization of reserve differences in ATCO Electric’s next depreciation study. The AUC found that ATCO Electric complied with Direction 4.
Direction 5: Continued Use of the Assets After 2017
The AUC considered that a verification of the continued use of the assets was warranted, given the uncertainty of whether all of the repaired and replaced assets continue to be used or required to be used after 2017. The AUC directed ATCO Electric to include further information about whether these assets would continue to be used after 2017.
The AUC reviewed the information provided by ATCO Electric, including the map showing active customers as at September 30, 2019, and the locations of the repaired and replaced assets as a result of the RMWB wildfire, and accepted that all of the assets that the AUC found were used or required to be used in 2016 and 2017 continue to be used or are required to be used after 2017. The AUC found that ATCO Electric complied with Direction 5.
Direction 6
The AUC directed ATCO Electric, in its compliance filing, to:
… remove any costs associated with the Boundary Lake area and Fox Creek wildfires, recalculate the revenue requirement for 2016 and 2017, identify and remove the manager and supervisory labour costs from the O&M expenditures, adjust the insurance proceeds amount, adjust the IT service costs to reflect the directions in Decision 20514-D02-2019, recalculate the lost revenue for 2017 by excluding inactive sites after May 2, 2017, and recalculate the total Z factor amount for 2016 and 2017 to reflect these adjustments.
Boundary Lake Area and Fox Creek Wildfires Costs
The AUC was satisfied that the removal of costs associated with the Boundary Lake area and Fox Creek wildfires was done correctly. As a result, the AUC found that ATCO Electric has complied with this portion of Direction 6, and approved the reduction of $0.133 million to 2017 net rate base. ATCO Electric was directed to reflect the adjustment in its 2021 annual PBR rate adjustment filing.
Lost Revenue for 2017
The AUC reviewed the schedule provided by ATCO Electric showing how it excluded lost revenue from sites inactive on May 2, 2017, and was satisfied that the adjustment to the lost revenue was done correctly. The AUC was also satisfied that ATCO Electric correctly reflected the reduction in its revised 2017 total Z factor amount. Accordingly, the AUC found that ATCO Electric complied with this portion of Direction 6, and approved lost revenue costs of $0.814 million for 2017 as filed.
Manager and Supervisory Labour Costs and Insurance Proceeds Amount
The AUC verified that ATCO Electric removed the manager and supervisory labour costs of $0.147 million from the operations and maintenance (“O&M”) expenditures and adjusted the insurance proceeds amount to the correct amount of $0.085 million. The AUC also reviewed the revised revenue requirement for 2016 and 2017. The AUC was satisfied that ATCO Electric correctly reflected the reductions in its revised 2016 and 2017 Z factor revenue requirement calculation, and as such, complied with this portion of Direction 6.
Based on the foregoing, combined with its determinations regarding ATCO Electric’s compliance with the AUC’s directions related to the Boundary Lake area and Fox Creek wildfires, the IT costs paid to Wipro and lost revenue for 2017, the AUC was satisfied that the revised total Z factor amount for 2016 and 2017 reflected all adjustments required as per Direction 6.
Revised Z Factor Amount for 2016 and 2017
The AUC determined that ATCO Electric complied with the AUC’s directions from Decision 21609-D01-2019 and reflected the directed modifications in its revised Z factor calculation. The AUC, therefore, approved the revised Z factor amount of $10.3 million related to 2016, and $3.2 million for 2017.
The AUC noted that in Decision 23895-D01-2018, the AUC approved a 90 percent Z factor placeholder to be included in ATCO Electric’s 2019 PBR rates, subject to true-up in subsequent PBR annual filings to reflect the approved amount. As such, the AUC approved the $0.051 million Z factor adjustment to be included in ATCO Electric’s 2021 annual PBR filing to be refunded to customers over the 12-month period effective January 1, 2021, to December 31, 2021.
