Rates – Interim Rate Applications
In this decision, the AUC considered an application filed by ATCO Pipelines (“AP”) requesting approval of its 2021 interim revenue requirement and its Pioneer Pipeline interim revenue requirement. The AUC found AP’s request to implement the Pioneer Pipeline revenue requirement on an interim basis to have been premature and found that AP’s approved 2021 interim revenue requirement should be set based on a continuation of its approved 2020 revenue requirement in the amount of $307,199,000 (before the removal of forecast franchise taxes).
On October 30, 2020, AP requested approval of its 2021 interim revenue requirement in the amount of $316,943,000 on an interim refundable basis, effective January 1, 2021. The 2021 interim revenue requirement would be recovered from NOVA Gas Transmission Ltd. (“NGTL”) by way of a monthly rate of $26,140,667, after the removal of forecast franchise taxes recovered through Rider A.
On November 4, 2020, AP revised its application, requesting approval to implement, on an interim basis, the Pioneer Pipeline revenue requirement of $10,174,000, subject to AUC approval of AP’s acquisition application in Proceeding 25937 (the “Facilities Application”) and effective upon closing of the pipeline acquisition transaction.
Background and Details of the Application
AP filed its 2021-2023 general rate application (“GRA”) with the AUC on June 16, 2020, requesting approval of a forecast 2021 revenue requirement in the amount of $316,943,000, which is the same amount as AP’s applied-for 2021 interim revenue requirement. AP submitted that it did not expect a decision on its 2021-2023 GRA to be issued by the Commission before January 1, 2021.
AP’s 2020 revenue requirement of $307,199,000 was approved by the AUC in Decision 25789-D01-2020. AP stated that the 2021 interim revenue requirement represents a 3.2 percent increase (or a $9,744,000 increase) over its approved 2020 revenue requirement.
In addition to its 2021 interim revenue requirement of $316,943,000, AP requested approval to implement, on an interim basis, the after-tax Pioneer Pipeline revenue requirement in the amount of $10,174,000, noting that the collection would commence only after AUC approval of the Facilities Application and upon closing of the acquisition transaction. The interim revenue requirement for the Pioneer Pipeline alone is a 3.3 percent increase over the 2020 revenue requirement. AP further indicated that it would transfer a 29.9 kilometre (km) segment of the Pioneer Pipeline located in the NGTL footprint to NGTL, and that it would also reduce the Pioneer Pipeline revenue requirement after the disposition is completed.
AP submitted that its 2021 interim revenue requirement application meets both quantum and need criteria and is in the public interest, noting that the quantum and need were driven by assets put in service in 2020 for the Pembina Keephills Transmission Pipeline Project, and other projects. It asserted that there is a large degree of certainty as to the quantum of revenue deficiency associated with the Pioneer Pipeline.
AP further submitted that the integration of the Pioneer Pipeline into the Alberta system is expected to lower the aggregate full-path system toll and have positive toll impacts for Alberta system shippers, as advised by NGTL in the Facilities Application.
AP’s request to implement the Pioneer Pipeline revenue requirement on an interim basis and effective upon closing of the acquisition transaction was found to have been premature. The Facilities Application and related regulatory approvals for the Pioneer Pipeline acquisition were outstanding and interveners and the AUC had filed numerous information requests in that proceeding. AER Approvals with respect to the Pioneer Pipeline were also required.
Consequently, the AUC found that approval of the acquisition of the Pioneer Pipeline as well as the timing of the interim Pioneer Pipeline revenue requirement collection were uncertain. It further noted that AP has identified that its applied-for revenue requirement of $10,174,000 associated with the Pioneer Pipeline was not final because a portion of this revenue requirement was to be reduced in accordance with the subsequent transfer of the 29.9 km pipeline segment to NGTL at the time of disposition of the segment. The final Pioneer Pipeline revenue requirement amount was not provided in the application. The AUC noted that the findings in this decision did not preclude AP from applying for an interim revenue requirement increase at a later date.
Concerning the requested 2021 interim revenue requirement, when evaluating interim rate applications, the AUC noted that it had consistently applied the two-part test established by its predecessor, the Alberta Energy and Utilities Board, in Decision 2005-099. The first part of the test relates to quantum and need factors, and includes the following considerations:
(a) The identified revenue deficiency should be probable and material;
(b) All or some portion of any contentious items may be excluded from the amount collected;
(c) Is the increase required to preserve the financial integrity of the applicant or to avoid financial hardship to the applicant?
(d) Can the applicant continue safe utility operations without the interim adjustment?
Where a requested rate increase appears warranted, the AUC would consider the second, public interest related part of the test, which includes the following considerations:
(a) Interim rates should promote rate stability and ease rate shock;
(b) Interim adjustments should help to maintain intergenerational equity;
(c) Can interim rate increases be avoided through the use of carrying costs?
(d) Interim rate increases may be required to provide appropriate price signals to customers; and
(e) It may be appropriate to apply the interim rider on an across-the-board basis.
The AUC acknowledged AP’s arguments as to the probability of its forecasted revenue shortfall for 2021. However, AP’s applied-for 2021 revenue requirement had not yet been decided in AP’s 2021-2023 GRA proceeding. The AUC noted that approval of 100 percent of AP’s revenue requirement was uncertain. In recognition of the uncertainty that exists at the time of any interim tariff application, concerning the ultimate disposition of the related GRA and any contentious items, the AUC has historically approved only a portion of a requested interim rate increase; typically falling within a range of 50 to 75 percent of the requested amount.
The AUC also found that AP did not demonstrate that the forecast revenue shortfall was material. AP identified that its 2021 interim revenue requirement represents a 3.2 percent increase (or a $9,744,000 increase) over its approved 2020 revenue requirement. The AUC further found that AP did not persuasively explain or otherwise demonstrate that the requested increase was necessary to preserve its financial integrity, avoid financial hardship or continue to provide safe utility operations.
The AUC found that part one of the test had not been met. The AUC was not satisfied that the AP’s requested increase was warranted. The AUC denied the requested increase and found that AP’s 2021 interim revenue requirement should be set based on a continuation of AP’s approved 2020 interim revenue requirement in the amount of $307,199,000 (before the removal of forecast franchise taxes), which resulted in a $303,944,000 revenue requirement after the removal of forecast franchise taxes. The AUC approved an interim monthly rate of $25,328,667,32 effective January 1, 2021. The interim revenue requirement approval was to remain in effect until it was varied through approval of a new interim revenue requirement or a final revenue requirement for 2021.