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ATCO Gas and Pipelines Ltd. 2021 Annual Performance-Based Regulation Rate Adjustment, AUC Decision 25863-D01-2020

Link to Decision Summarized

Rates – Performance-Based Regulation


In this decision, the AUC considered the 2021 annual performance-based regulation (“PBR”) rate adjustment filing from ATCO Gas and Pipelines Ltd. (“ATCO”). Customer and retailer terms and conditions (“T&Cs”) were approved; ATCO’s 2017 capital tracker actual K factors and updated depreciation parameters were approved as final; and ATCO Gas’s 2018 going-in rates and 2018 K-bar were approved as final, subject to the filing of post-disposition documents reflecting adjustments related to the IT common matters refunds as directed by the AUC

Background

The PBR framework approved in Decision 20414-D01-2016 (Errata) provides a rate-setting mechanism based on a formula that adjusts rates annually by means of an indexing mechanism that tracks the rate of inflation (“I”) that is relevant to the prices of inputs the utilities use, less a productivity offset (“X”).

In Decision 20414-D01-2016 (Errata), the AUC approved the continuation of certain PBR rate adjustments to enable the recovery of specific costs where certain criteria have been satisfied. These include an adjustment for certain flow-through costs that should be recovered from, or refunded to, customers directly (“Y factors”), and an adjustment to account for the effect of exogenous and material events for which the distribution utility has no other reasonable cost recovery or refund mechanism within the PBR plan (“Z factor”).

In Decision 24881-D01-2019 ATCO’s 2020 PBR rates were approved on an interim basis in accordance with the framework established by the AUC in Decision 20414-D01-2016 (Errata).

PBR Rate Adjustments

PBR Indices and Annual Adjustments

The 2020 PBR plan for ATCO provided a rate-setting mechanism based on a formula that adjusted rates annually through an indexing mechanism plus specifically approved adjustments.

(a) I-X index

ATCO calculated a 2021 I-X index of 2.12 percent. The AUC approved the 2021 I factor and the resulting I-X index.

(b) Y and Z factor materiality threshold

ATCO calculated the Y and Z materiality threshold to be $2.10 million for ATCO Gas North and $1.76 million for ATCO Gas South in 2021. The AUC approved the Y and Z factor materiality threshold.

(c) Y factor

ATCO applied for Y factor amount of $6.4 million (excluding the “Other Proceeding Adjustments” item of ($9.31) million), inclusive of carrying costs. The applied-for Y factor amount was approved.

(d) Z factor

ATCO did not apply for any Z factor adjustment in 2021

(e) Q Value

The AUC approved ATCO’s 2021 Q of 0.62 percent for ATCO Gas North and 0.99 percent for ATCO Gas South.

(f) K-bar factor

ATCO applied for the 2021 K-bar funding of $57.8 million for ATCO Gas North and 59.5 million for ATCO Gas South, calculated as its 2021 required K-bar and the 2019-2020 K-bar true-up.

The AUC approved ATCO’s 2021 K-bar, true-ups, for each of North and South, subject to the filing of post-disposition documents as directed with regards to the 2021 PBR rates.

(g) K Factor

ATCO did not apply for any Type 1 capital funding.

Forecast Billing Determinants and Variance Analysis

In the application, ATCO reconciled forecast and actual billing determinants from 2019. There were variances larger than ± five percent for the irrigation rate class which had an increase in average customers of 11.16 percent than was forecast. In response to previous AUC direction, ATCO explained that this variance was due to a higher number of active customers than forecast. The AUC found that ATCO’s methodology and the resulting 2021 forecast billing determinants were reasonable and approved them as filed.

2017 Capital Tracker Compliance Filing True-up

The AUC found that ATCO had complied with all directions from Decision 24333-D01-2019 and approved ATCO’s true-up of its 2017 capital trackers and the resulting 2017 actual K factor on a final basis.

2021 PBR Rates

The AUC approved the 2021 PBR rates calculated by ATCO. This approval was made subject to adjustments directed with regards to recalculating the IT common matters refund, using revised carrying charges on IT common matters refunds, and removing the proposed rate mitigation measures related to depreciation. ATCO was directed to file its 2021 PBR rate schedules reflecting the findings in this decision as post-disposition documentation in this proceeding, by January 21, 2021. The AUC noted that because of Decision 26170-D01-2020, these rates would not be charged to customers effective January 1, 2021.

Other Matters

IT Common Matters Refund

In its 2020 annual PBR rates adjustment application, ATCO updated its notional 2017 revenue requirement and its 2018 base K-bar amounts to reflect certain adjustments related to the IT Common Matters Decision, which considered whether to approve the prices contained in the IT Master Services Agreements (“MSAs”) between the ATCO Utilities (ATCO Gas and Pipelines Ltd., and ATCO Electric Ltd.) and Wipro Solutions Canada Limited. Accordingly, ATCO calculated the IT common matters-related adjustments to its notional 2017 revenue requirement and its 2018 base K-bar. It calculated a refund of $10.325 million that remained interim pending the finalization of related compliance filings. ATCO stated in this proceeding that no adjustments were required to the refund amounts.

ATCO was directed to recalculate its 2017 notional revenue requirement, K-bar and 2021 PBR rates, reflecting the use of a two-year (2015 and 2016) average of its capital adjustment related to the IT common matter refunds. The AUC was satisfied with ATCO’s true-up calculations but found that an adjustment was required from what had been filed in Proceeding 24880 for PBR rebasing purposes. ATCO’s IT common matters refund adjustments were approved, subject to the direction regarding the filing of post-disposition documents related to 2021 PBR rates.

Carrying Costs on IT Common Matters Refunds

The AUC disagreed with ATCO’s argument that WACC should be used for capital and Rule 023 for O&M. The IT common matters refunds resulted from both O&M and capital. Therefore, the use of WACC on both capital and O&M amounts to determine carrying costs would not be unreasonable in the circumstances.

The AUC directed ATCO to reflect carrying costs on IT common matters refunds using WACC for both the capital and O&M refunds in the filing of post-disposition documents as directed with regards to 2021 PBR rates.

Depreciation Study Implementation

To comply with AUC directions, ATCO included revised schedules of depreciation parameters and rates resulting from Decision 24188-D02-2020. ATCO also updated its 2018-2022 interim K-bar amounts to reflect the impact of the updated depreciation parameters.

The AUC approved ATCO’s updated depreciation parameters on a final basis and found that ATCO had complied with directions from Decision 24188-D02-2020. The AUC directed ATCO to, in the filing of post-disposition documents, recalculate its 2021 PBR rates to reflect the implementation of the approved depreciation parameters, net of Rider S, in 2021.

Terms and Conditions of Service

The AUC found that ATCO had complied with a direction from Decision 24880-D01-2019, and approved changes to the T&Cs as proposed by ATCO.

Financial Reporting Requirements and Senior Officer Attestation

The AUC was satisfied that ATCO had complied with the financial reporting requirements

Finalizing the Going-In Rates and Associated 2018 Capital Factors

The AUC set the going-in rates for the 2018-2022 PBR plans based on a notional 2017 revenue requirement that was calculated using the actual pre-2017 costs, adjusted as required for anomalies. The resulting 2018 going-in rates and associated 2018 capital factors (K-bar and K factors) were interim because they contained certain items that were either placeholders or subject to review and variance proceedings.

ATCO confirmed that the schedules filed as part of this 2021 PBR rate adjustment application included all adjustments necessary for the purposes of finalizing its going-in rates and associated 2018 capital factors. The AUC approved ATCO’s going-in rates and 2018 capital factor, K-bar, provided in this proceeding, as final, subject to the filing of post-disposition documents reflecting adjustments related to the IT common matters refunds as directed in this decision.

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