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AltaLink Management Ltd. 2016 to 2018 Deferral Accounts Reconciliation Application, AUC Decision 24681-D01-2020

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In this decision, the AUC made the following findings on the application from AltaLink Management Ltd. (“AML”) for the disposition of certain deferral accounts in respect of the years 2016 through 2018:

(a) Regarding AML’s request for approval of its reconciliation of its direct assign capital deferral account (“DACDA”) in respect of the years 2016, 2017, and 2018, the AUC applied disallowances of approximately $4.7 million and $1 million in respect of the Medicine Hat 138 kV Area Reconfiguration and Red Deer Hazelwood 287S projects, respectively. The AUC approved AML’s applied-for costs for all of AML’s other projects during the 2016 to 2018 period, as filed.

(b) AML’s request for the recovery of expenses from projects cancelled by the Alberta Electric System Operator (“AESO”) in 2017 and 2018 was approved.

(c) AML’s proposed disposition of deferral accounts for taxes other than income taxes, long-term debt, and annual structure payments was approved.

(d) AML’s request for placeholder amounts in respect of two disputes that were active at the time of the application was approved.

(e) A refiling application to comply with the directions and disallowances made in this decision was to be completed on or before January 29, 2021.

DACDA Common Matters

DACDA Application Requirements

The AUC noted that the Consumers’ Coalition of Alberta (“CCA”) and AML devoted significant portions of their argument and reply to issues of onus, standard of proof, and prudence, which have been addressed repeatedly in previous decisions. Regarding the CCA’s suggestion that the AUC applies different standards to its examinations of expenditures in ATCO Electric proceedings than it does to AML, the AUC noted that these assertions were reckless, and addressing them hampers regulatory efficiency. The AUC noted that its position on onus, standard of proof, and prudence should now be clear.

Project Management and Overhead Costs

The AUC reviewed the reasonableness of AML’s requested project management / project controls / construction management (“PMPC”) costs by examining the drivers of the variances outlined in AML’s project summary reports (“PSRs”) for each project to determine whether the costs incurred were consistent with prudent management of the risks encountered in the context of that project.

Land Costs

The AUC determined that the limitation of land costs to a maximum of 40 percent above AML’s average per acre amount for the land cost category, as suggested by the CCA should not be applied as a disallowance from the applied-for land costs for specific projects. It also refused to impose additional reporting requirements for applications where land costs exceed the average cost per acre by 20 percent or more than $75,000 per acre.

Legal Costs

Capital additions for the projects under review in the application include approximately $6.6 million in combined external and internal legal costs, $5.8 million for completed projects and $0.8 million for cancelled projects, or less than one percent of the total costs of the projects on an aggregate basis. The AUC did not share issues regarding legal fees raised by the CCA. Following its own independent review of legal costs, the AUC was satisfied that AML’s legal costs were reasonable and approved the costs.

Pipeline AC Mitigation Costs

The AUC accepted that AML’s AC mitigation approach, practices and process were consistent with those approved in AML’s 2014-2015 DACDA in which AC mitigation was extensively reviewed. The AUC was not persuaded by the CCA that it should revise its prior findings accepting AML’s AC mitigation practices. The AUC further accepted AML’s evidence that it had pursued low-cost solutions with facility owners where possible. The AC mitigation costs were approved as filed

Salvage Costs

In response to a ruling issued in AML’s 2016-2018 DACDA application, AML stated that it had incurred $12.74 million in costs related to salvaging certain assets being retired because of the construction of its direct assign projects during the years 2016 to 2018.

The AUC found that, despite a lack of detail in some areas and salvage costs incurred on the Blackie Area 138 kV and the Edmonton Region 240 kV upgrades projects having been under the proposal to provide service (“PPS”) estimates by $0.75 million and $2.189 million, AML reasonably supported its expenditures as prudently incurred for all projects. AML’s net salvage costs were approved as filed.

Although the AUC approved AML’s net salvage costs, AML’s evidence that it was not able to provide the costs associated with each specific salvage activity was of concern to the AUC, particularly because of the AUC’s approval of AML’s request to change its net salvage methodology in Decision 25870-D01-2020, effective 2019.

Placeholders

The AUC approved the placeholder treatment of costs associated with helix spacer dampers and the Sunny Brook Retention Pond in the amount requested. AML was directed to provide the outcome of the dispute resolution and the actual trailing cost amounts in a future DACDA proceeding.

Capitalization of Deferral Account Support Costs

While the AUC agreed that deferral account support costs may be capitalized, AML did not identify the quantum of those costs claimed in this proceeding. AML was directed to provide the quantum and an explanation of the costs in the compliance filing.

Major System Projects

AML Project Delivery Model and Project Risk Management Practices

AML’s project delivery model had been assessed and approved in prior AUC decisions. Issues raised in this proceeding did not persuade the AUC to revise its prior findings.

Southern Alberta Transmission Reinforcement

The AUC reviewed the requested capital additions for the Blackie Area 138 kV project. It also reviewed the costs incurred for the southern Alberta transmission reinforcement (“SATR”) Castle Rock Ridge to Chapel Rock Project (D.0311), and the SATR Cypress SVC Project (D.0315). The AUC approved these costs as filed. The AUC also approved the requested aggregate capital additions totalling approximately $30.9 million as trailing costs incurred on the SATR Bowmanton to Whitla Project (D.0304), the SATR Cassils to Bowmanton Project (D.0305), and the SATR South Foothills Transmission Project (D.0306).

With regard to the Medicine Hat 138 kV Area Reconfiguration, the AUC found that not all expenditures related to the Medicine Hat Project had been prudently incurred. The AUC therefore directed AML to reduce its total requested cumulative capital additions of $186,682,308 by 2.5 percent.

South and West of Edmonton Area Transmission Development

The AUC determined that all costs related to the South and West of Edmonton Area Transmission Development projects (collectively the “SWEATD”) had been prudently incurred, although it directed that AltaLink address some issues differently in future, and include detailed cost-benefit analysis substantiating the prudence of material expenditures on mats.

Red Deer Area Transmission Development

Except for the Red Deer Hazelwood 287S Project (the “Hazelwood Project”), the Red Deer Area Transmission Development (“RDATD”) subproject costs had been prudently incurred. The remaining RDATD projects were approved as filed.

With regard to the Hazelwood Project, AML requested the approval of capital additions net of salvage costs but inclusive of re-accrued AFUDC to December 31, 2018, for the Hazelwood Project of approximately $67.8 million, an increase of approximately $16.9 million from the PPS forecast cost and of $6.7 million from the PPS update forecast.

The AUC found that AML imprudently assessed the risk that the AUC could approve an alternate route and the alternate substation location. When an alternate route was approved by the AUC, AML did not reasonably mitigate the foreseeable risks associated with landowner consultations on the alternate route. This lack of mitigation led to cascading risks resulting from AML’s inability to complete construction in the winter season. The failure to reasonably assess and mitigate each of these risks resulted in compounding impacts, associated delays and escalated costs that were avoidable under a more comprehensive and proactive risk management framework. The AUC found it just and reasonable to direct AML to reduce this total requested cumulative capital additions of $67.8 million by 1.5 percent.

Outstanding Directions

Direction 8 from Decision 22542-D02-2019

The AUC approved the placeholder amount for AML’s PMPC costs to December 31, 2015. The 2016 to 2018 period trailing costs for the WATL Project of $32,236,486, which included AML’s incremental PMPC costs beyond the $127,206,179 placeholder amount, were also approved.

Provision of Unit Cost Information

Because of AML’s inability or reluctance to comply with this direction, the AUC would not continue to insist on this disclosure and relieved AML from complying with this direction. The AUC reminded AML that it would still be required to justify the costs.

Responses to Other Outstanding Directions

The AUC reviewed AML’s responses to the directions summarized in Appendix 3 of this decision and found that AML compiled with outstanding directions from prior decisions.

Compliance Filing

Because of disallowances and other directions set out in this decision, the AUC directed AML to file its compliance filing application by January 29, 2021.

The AUC would consider AML’s proposed true-ups in respect of AML’s deferral account reconciliations for the years 2016, 2017 and 2018 considering the findings and directions set out in this decision as part of AML’s compliance application. The AUC would also consider AML’s request for the approval of the payment of interest pursuant to Rule 023 at that time.

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