R&V – Revenue Requirements
In this decision, the Alberta Utilities Commission (“AUC”) considered whether ATCO Electric Ltd. (“AE”), ATCO Transmission and ATCO Pipelines, a division of ATCO Gas and Pipelines Ltd. (the “ATCO Utilities”), complied with the direction issued in Decision 25938-D01-2021.
In Decision 25938-D01-2021, the AUC reviewed and varied a direction issued in Decision 24805-D02-2020 requiring AE to include the equity portion of the allowance for funds used during construction (“AFUDC”) as part of the total utility earnings before tax, but not the debt portion, among other things.
The amended direction affects the calculation of AE’s regulatory income tax expense in its 2017 to 2022 revenue requirements. After the release of Decision 25938-D01-2021, and to be consistent with the amended direction, AE revised the calculation of its regulatory income tax expense in its applied-for 2020 to 2022 revenue requirements. ATCO Pipelines also revised the same calculation for its applied for 2021 to 2023 revenue requirements.
To comply with the amended direction, the accounting of AFUDC in the calculation of income tax expense, for regulatory purposes, required the ATCO Utilities to include the equity portion of AFUDC as part of the total utility earnings before tax, excluding the debt portion. The accounting then requires a deduction for the equity portion, which results in no net deduction for the equity component of AFUDC being reflected in the regulatory income tax expense. The accounting also requires a deduction for the debt component, which reduces revenue requirements.
The AUC noted that the Stage 1 review decision and this decision affect the calculation of income tax expense in several ways. These decisions also affect ATCO Pipelines’ 2021 to 2023 general rate application (“GRA”). On April 13, 2021, ATCO Pipelines revised its compliance application in Proceeding 26443, proposing an adjustment to its treatment of AFUDC for calculating its regulatory income tax expense to comply with the amended direction. It submitted that this proposed adjustment decreased its 2021, 2022 and 2023 revenue requirements by $380,000, $257,000 and $148,000, respectively.
In this proceeding, the AUC considered the potential impacts to the revenue requirement calculations and any other corresponding adjustment along with AE’s treatment of AFUDC.
Has AE Updated the Placeholder Amount, Approved in Decision 26247-D01-2021, Disposing of Its 2015-2017 Transmission Deferral Accounts Application to Comply with the Amended Direction?
In Decision 26247-D01-2021, the AUC determined that AE had complied with Direction 14 from Decision 24375-D01-2020. AE calculated and included the refund for the difference in 2017 AFUDC tax inputs between the forecast and actual costs. ATCO Electric had also proposed a second calculation based on the method proposed in proceeding 25938. Proceeding 25938 was still in progress at the time of Decision 26247-D01-2021.
In response to the amended direction, AE provided an amended 2017 AFUDC refund amount of $2.19 million in the current Stage 2 review and variance application, which was approved by the AUC. To adjust for the approved amended 2017 AFUDC refund, the AUC ordered ATCO Electric to settle the placeholder adjustment of $800,000 through a one-time billing to the Alberta Electric System Operator (“AESO”) by October 30, 2021
Has AE Amended the Calculation of its Regulatory Income Tax Expense, for its 2018 and 2019 GTA, to Comply with the Amended Direction?
AE was directed to remove the equity and debt portions of AFUDC from the utility earnings before tax in its calculation of income tax expense. In this proceeding, in response to the amended direction, AE added the equity portion of AFUDC to the utility earning before tax and deducted both the equity and the debt portions of AFUDC in the calculation of its income tax expense. The effect of adding the equity portion of AFUDC to the utility’s income before tax results in a revenue requirement increase of $2.4 million in 2018 and $2.2 million in 2019.
The AUC determined that ATCO Electric’s final approved revenue requirement should be $678.8 million in 2018 and $681.6 million in 2019.
Do the Placeholder Amounts from ATCO Pipelines’ Compliance Filing and the 2020-2022 GTA Compliance Filing Schedules Comply with the Amended Direction?
The AUC determined that the 2020-2022 GTA compliance filing schedules were adjusted as required to adjust for the change in revenue requirement. Further, ATCO Pipelines’ treatment of AFUDC, for the purposes of calculating its income tax expense, is consistent with the amended direction.
In AE’s next GTA, the AUC will consider if the collection of future income tax should continue and if AE should be permitted to continue to treat the equity portion of AFUDC as a temporary rather than a permanent tax difference in the calculation of its tax expense.
AE was ordered to settle $800,000 through a one-time billing to the AESO by October 30, 2021. The AUC approved ATCO Electric’s revenue requirements for 2018 and 2019 as $678,800,000 and $681,600,00, respectively.