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AltaLink Management Ltd. 2019 Projects Deferral Accounts Reconciliation Application, AUC Decision 25913-D01-2021

Link to Decision Summarized

Rates – DACDA


In this decision, the AUC considered the application from AltaLink Management Ltd. (“AML”) for the disposition of deferral accounts for 2019.

AML requested approval of the reconciliation of its 2019 direct assigned capital deferral account (“DACDA”). The AUC applied a reduction of 1.5 per cent to AML’s total requested cumulative capital additions to December 31, 2019, of approximately $31.0 million because of imprudently incurred costs resulting from site security and permit and license delays associated with the ATCO Jasper Interconnection Project. The remainder of the amounts for reconciliation of AML’s 2019 DACDA are approved, as filed.

AML was directed to file by April 30, 2021, an application complying with the directions and disallowances in this decision as part of either a separate compliance application or as part of its next general tariff application (“GTA”).

Introduction

AML applied for approval and reconciliation of its 2019 completed projects, all 2019 trailing costs, and all other deferral account balances for 2019. Specifically, AML requested:

·         A determination of reasonable project costs for projects completed in 2019 and orders disposing of the 2019 DACDA balance pertaining to direct assigned projects completed in 2019;

·         The 2019 balances for other deferral accounts, including long-term debt, taxes other than income taxes and annual structure payments; and

·         Revenue true-up for 2019 from AML’s 2019-2021 GTA.

It also requested approval of $0.3 million in costs associated with DACDA, $2.7 million costs associated with other deferral accounts, and $0.1 million of associated carrying costs. AML added that revenue true-up results in a one-time charge to the Alberta Electric System Operator (“AESO”) of $3.1 million, including payment of interest under Rule 023: Rules Respecting Payment of Interest.

AML requested 2019 final cost approval for a total of 98 transmission capital projects to be added to the rate base for total gross capital additions of $128.5 million and actual capital additions net of customers contributions of $89.2 million.

Discussion of Issues

Fortis-Initiated Projects

AML stated that FortisAlberta Inc. (“Fortis”) might develop a project in response to a request from a connecting or connected customer, or Fortis as the distribution facility owner may initiate a project to address load, reliability, or distribution deficiency. Fortis sets the need for a project with the submission of a need for development (“NFD”) to the AESO in both instances. The AESO tariff identifies that all costs of a connection project will be classified as either participant-related or system-related and provides the criteria to which the costs will be classified as participant-related or system-related. AML noted that the AESO, not AML, is the entity that identifies and determines the amount to be contributed by the market participant and the amount of AESO investment or system investment.

The AUC noted that, in Decision 22542-D02-2019, it had confirmed the AESO’s central role being that of system planner and that there are statutory obligations of transmission facility owners (“TFOs”) to comply with mandatory directions from the AESO. The AUC considered that determinations it makes regarding a TFO’s prudence should fully account for the fact that the TFO is obligated to build its direct assigned project in accordance with the routing and specifications set out in the permits and licenses granted in respect of the project.

The AUC noted that the consideration of utilization of assets, as raised by the Consumers’ Coalition of Alberta (“CCA”) in this proceeding, is beyond the scope of the DACDA proceeding. The AUC also found that any examination by AML or another party on the technical requirements of direct assigned projects related to Fortis was outside the scope of DACDA proceedings.

Regarding AML’s costs for the 2019 DACDA Fortis-initiated projects, the AUC was satisfied with AML’s explanation of variances between costs provided in its project summary reports and actual capital additions for projects with 2019 in-service dates. The AUC noted that the capital additions to December 31, 2019, of these Fortis-initiated projects were below the initial proposal to provide service (“PPS”) estimate and resulted in net capital additions of less than $5 million after customer contribution. The AUC found that the costs had been prudently incurred.

Salvage Costs

AML provided salvage costs incurred for the direct assigned projects for 2019, totaling $0.3 million. It explained that it uses the same control and oversight processes and procedures as it does with larger projects, and it often uses the same contractors for salvage work and larger project elements to lower the costs associated with salvage activities. AML’s salvage costs of $0.3 million were approved as filed.

Affiliate Costs

AML confirmed that no costs included in the current application involved affiliate or non-arms-length transactions. The AUC accepted this confirmation from AML.

ATCO Jasper Interconnection Project (D.0576)

AML’s ATCO Jasper Interconnection Project encompassed the construction of a transmission line and alteration of an existing substation to connect the municipality of Jasper and the surrounding areas within Jasper National Park to the Alberta Interconnected Electric System to serve new and existing electricity demand. This project did not meet the May 1, 2018 ISD planned in the PPS. AML requested the approval of capital additions net of salvage to December 31, 2019, for the project in the amount of $31,002,346, an increase of approximately $2.5 million from the PPS forecast and of $0.7 million from the PPS updated forecast. The AUC determined that not all the expenditures related to this project were prudently incurred.

(a)     Foundation Construction and Danger Tree Removal

Geotechnical investigation, conducted after the initial PPS, determined that 60 out of 73 structures on the 530L Transmission Line would require helical screw pile foundations to support structure loading. While AML had identified less expensive alternatives, the AUC accepted that the construction of helical screw pile foundations was the only viable solution available in the circumstances.

The AUC was satisfied by AML’s explanation that the trees in the common corridor shared with Fortis, who held a separate right-of-way, posed a danger to its newly built transmission line. It found the removal of the trees to be reasonable and that costs for tree removal had been prudently incurred.

(b)     Fortis 25 kV Distribution Line

AML submitted that modifications to the 530L Transmission Line design and construction plan were required to address blowout concerns from an adjacent Fortis 25kV distribution line (the “Fortis line”). AML argued that the initial desktop survey based on geographic information system coordinates conducted by AML misidentified the actual location of the Fortis lines, which was not aligned with records used by AML to perform the initial survey. Additional costs of approximately $0.34 million were incurred to address concerns that the Fortis line could potentially swing into the AML 530L Transmission Line in wind events and could create a clearance violation.

The AUC accepted AML’s clarification that the Fortis line was built correctly and that disposition records were incorrect. The preliminary desktop analysis results could not be confirmed until P&Ls were received and land access was obtained. The AUC further accepted that had the required transmission line design changes been added, the initial PPS estimate would have increased, as the need for the design changes and costs would have been identified.

(c)      Security Costs

AML incurred additional costs for site security to prevent theft. Based on the risk assessment performed at the time of the PPS development, AML identified a cost impact of theft of materials of $51,470 with a probability of occurrence of 25 per cent. This represented a probability-adjusted impact to the project of $12,868. The AUC found that site security costs incurred were higher than the $51,470 estimated for site security of the project.

The AUC found it unclear why the PPS risk register was not updated to include a higher value assessment of the cost impact of theft to the project, given the value of materials and equipment stored on site. The AUC did not consider evidence filed by AML during reply argument to support higher security costs, as it determined this was improperly filed. Recovery of security costs claimed beyond $12,868 were disallowed.

(d)     Permit and Licence Delay

AML attributed a delay of eight months in receiving P&Ls for the project to an AUC public hearing in Proceeding 22125. Because of the timing of the P&L approval, AML rescheduled the 530L Transmission Line construction from the winter season of 2017-2018 to the winter of 2018-2019, which resulted in additional costs.

While the AUC acknowledged AML’s efforts to facilitate a fast process in Proceeding 22125, it noted that as a sophisticated utility, AML should be aware that the issues of Proceeding 22125 required approvals and was likely to be public and take time. The AUC determined that AML should have planned more precisely and accounted for the likelihood of a public process in Proceeding 22125. Additional costs related to P&Ls were therefore not all prudently incurred. All imprudently incurred costs were considered in the 1.5 per cent general reduction to AML’s total requested cumulative capital additions to December 31, 2019.

Areas not Individually Addressed

AML requested approval of costs for 98 transmission direct assigned capital projects completed in 2019, orders disposing of the 2019 DACDA balance, and 2019 balances for other deferral accounts including long-term debt, taxes other than income taxes, and annual structure payments (the “other deferral accounts”).

The AUC found that those projects and associated costs not specifically discussed in previous sections were prudently incurred and approved them as filed.

The AUC noted that AML’s 2016-2018 DACDA compliance proceeding (Proceeding 26278) was ongoing, which may have an impact on costs subject to approval in the current proceeding. AML was directed to identify any findings related to the Proceeding 26278 decision that are applicable to its 2019 DACDA and to true up any impact as part of either a separate compliance application or as part of its next GTA.

Subject to the findings and directions in this decision and any impacts to 2019 DACDA amounts that may arise from Proceeding 26278 related to AML’s 2016-2018 DACDA compliance proceeding, the AUC approved AML’s 2019 DACDA, as filed.

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