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TransAlta Corporation 2019-2021 Transmission General Tariff Application and 2018 Edmonton Region Project Direct Assigned Capital Deferral Account Compliance Filing, AUC Decision 26436-D01-2021

Link to Decision Summarized

Electricity – Rates

In this decision, the AUC approved, in part, the 2019-2021 general tariff application (“GTA”) from TransAlta Corporation (“TransAlta”), as Manager of the TransAlta Generation Partnership, and the application for approval of its compliance filing to Decision 25369-D01-2020 regarding the Edmonton Region 240 kilovolt Upgrades Project.

2019-2021 GTA

As part of its GTA, TransAlta submitted that its transmission revenues for 2019, 2020, and forecast for 2021 were approximately $ 7.6 million, $8.4 million and $7.6 million, respectively. It further submitted that its total transmission costs for the same years were $7.6 million, $8.4 million and $8.2 million, respectively.

The AUC determined that not all costs for which TransAlta sought recovery had been reasonable. The following discusses only the contentious issues of the GTA.

TransAlta’ 2021 Escalation Rate for Non-Union Salary, Contractor, and General Inflation

The AUC determined that the escalation rate of 1.75 percent non-union salary, contractor, and general inflation for 2021, requested by TransAlta, was not reasonable.

Given that TransAlta did not undertake any studies to assess the reasonableness of the applied-for 2021 escalator and the impacts of the COVID-19 pandemic on the Alberta economy, the AUC found the requested escalator to be unreasonably high and approved a 0.8 percent escalation rate.

TransAlta’s Payments in Lieu of Property Tax to Certain First Nations

Issues arose regarding the reasonableness of TransAlta’s payments in lieu of property tax to four First Nations that do not have a property tax bylaw. TransAlta has transmission facility owner (“TFO”) assets on the lands of multiple First Nations. Four of these First Nations do not have a property tax bylaw. TransAlta makes “payments in lieu of taxes” pursuant to bylaw agreements, which utilize the mill rates of surrounding communities to determine the amount of the payments. The amounts paid by TransAlta are based on the Alberta Municipal Affairs linear property assessment and the mill rates of neighboring or adjacent counties.

The AUC had assessed and approved this methodology in previous TransAlta GTAs. The AUC remained of the view that it is a reasonable method.

Is it Reasonable for TransAlta to Continue to Adopt AltaLink Management Ltd.’s Depreciation Practices?

The AUC questioned the reasonableness of TransAlta continuing to adopt AltaLink Management Ltd. (“AML”)’s depreciation practices, including their approved depreciation parameters and depreciation rates and AML’s capitalize and expense salvage methodology.

In the past, the AUC has approved TransAlta’s approach to adopting AML’s depreciation practices as it considered this to be more efficient than requiring TransAlta to maintain actuarial data to conduct its own depreciation-related studies. The AUC noted that there are minor differences between AML’s and TransAlta’s implementation of the capitalize and expense method. However, the AUC accepted the explanation from TransAlta that suggested that the difference cannot be avoided and does not cause an unreasonable divergence from the form and intent of the capitalize and expense method. The AUC determined that it remains an efficient method for TransAlta to continue to adopt AML’s depreciation practices.

Should TransAlta Correct its Applied-for Cost-of-Debt Rates to Match AML’s Approved Rates for 2019-2021?

Similar to its previous GTAs, TransAlta requested to use the cost-of-debt rates that were approved for AML. TransAlta applied for a debt rate of 4.00 percent for each of 2019, 2020, and 2021. It indicated that it had obtained these rates from AML’s cost-of-debt rates for the 2019-2021 test period. The AUC noted that AML’s approved cost-of-debt rates for the 2019-2021 test period differed from the rates TransAlta applied for in this application. TransAlta was directed to update its cost-of-debt rates to match AML’s approved rates as follows: 3.93 percent for 2019, 3.97 percent for 2020 and 3.98 percent for 2021.

Should the AUC Approve TransAlta’s Applied-for Capital Addition Amounts Related to Rate Base Projects?

TransAlta requested approval of actual aggregate capital addition amounts related to transmission capital maintenance projects of $6.609 million for 2019 and $2.078 million for 2020, as well as forecast capital additions totaling $3.397 million for 2021.

The AUC did not approve capital addition amounts of approximately $466,000 for 2019 and $804,000 for 2020 related to the Transmission Line Rebuild Project. However, the AUC did approve these amounts as placeholders for 2019 and 2020.

TransAlta filed new information that it had recently identified costs of approximately $700,000 for the line 113L/150L rebuild project that may have been erroneously billed to TransAlta’s rate base. TransAlta submitted that the relocation of this amount could require a reduction to TransAlta’s revenue and rate base for the 2019-2021 test period and a corresponding increase to AML’s revenue and rate base. Accordingly, the AUC decided that TransAlta’s proposed 2019-2021 period capital additions of the Transmission Line Rebuild Project will be approved on a placeholder basis.

Regarding the Line 902L Structure 50 Replacement Project, the AUC found that the costs of $4.475 million set out in the application reflect that AML did not have a long lead time to procure materials for and execute this project, and therefore did not anticipate the escalation of costs when it prepared the initial estimates.

The 902L structure 50 replacement was characterized by TransAlta as an urgent repair. The repair was needed to repair the structural failure of a 43-year-old double circuit 240kV steel lattice transmission tower foundation. TransAlta showed that the complexity of the installation and the added material needed led to the increase in costs of the project.

The AUC was satisfied that the drivers of the increase in costs from the initial forecasts had been adequately explained. Accordingly, the AUC was satisfied that in the circumstances that arose for this urgent capital replacement, TransAlta’s portion ($4.762 million over the 2019-2021 period) of the cost is reasonable.

AUC Decision

In this decision, the AUC only discussed its findings related to contentious issues. All subjects and requested approvals not discussed in this decision related to the 2019-2021 GTA and the application approval of its compliance filing to Decision 25369-D01-2020 were approved as filed.

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