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ATCO Electric Ltd. 2018-2019 General Tariff Application Second Compliance Filing, AUC Decision 26264-D01-2020

Link to Decision Summarized

Electricity – Rates


In this decision regarding the compliance with directions in decisions 24805-D01-2020, 24805-D02-2020, 25139-D01-2020, and 25282-D01-2020 of ATCO Electric Ltd. (“AE”), the AUC:

  • approved revenue requirements of $676,400,000 and $679,400,000, for 2018 and 2019, respectively;

  • required AE: to file, as a post-disposition filing in Proceeding 26264, its revised minimum filing requirement schedules reflecting the AUC determinations on the recovery of costs provided to affiliates and services to outside parties through revenue offsets; and the Variable Pay Program (“VPP”) expense; and

  • directed AE to file a revised Rule 005: Annual Reporting Requirements of Financial and Operational Results report comparing actual results with its approved forecast for 2018 and 2019.

Responses to Directions from Decision 24805-D02-2020: 2018-2019 GTA Compliance Filing Requiring Further Analysis

Direction 2 – 2018 full-time equivalents (“FTE”)s and Direction 3 – 2019 FTEs of Decision 24805-D02-2020 required AE to update its tariff application to reflect its actual 2018 and 2019 FTEs, and update its revenue requirement and all supporting schedules to reflect the actual labour and fringe costs.

In response to these directions, AE adjusted its operations and maintenance (“O&M”) and capital labour and fringe costs in its minimum filing requirement (“MFR”) schedules.

In response to a request from the AUC, AE stated that it had not updated the revenue offsets to match the adjusted labour costs charged to affiliates and services to outside parties as a result of updating for actuals, as this was not required by Direction 2. The AUC disagreed and determined that AE had been required to update its revenue offset schedule. The AUC expected AE to update its revenue offset schedule to account for the additional labour services and costs to be recovered from ATCO affiliates and outside parties rather than from transmission ratepayers.

In Response to Direction 4, AE provided an overhead burden rate calculation. The AUC found it unclear why an equal and offsetting adjustment to increase O&M expense for the overhead costs would be required for the additional services provided to affiliates and outside parties when costs included in AE’s forecast costs, which form part of the overhead costs, have been updated to include costs that appear to be included in the overhead burden rate calculation.

The AUC determined that an overhead burden rate should be applied to the added labour costs of providing service to affiliates and outside parties. As AE did not provide calculations for its total labour and fringe costs that should have been recovered from affiliates and outside parties, the AUC estimated the overhead costs AE should have recovered from its affiliates and from services to outside parties. The AUC estimated that compliance with directions 2 and 3 requires AE to adjust its revenue offset to account for the adjustment to the noted costs and overhead charges. AE was directed to reduce its revenue requirement by $6.1 million in 2018 and $3.9 million in 2019 to properly reflect the allocation and recovery of labour and fringe amounts used to provide services to affiliates and outside parties in those years.

The AUC directed AE, in future GTAs, to identify the number of O&M and capital FTEs that provided, or are forecast to provide, services to facilities and affiliates and services to outside parties. The AUC directed this to solve issues of transparency.

In Decision 24805-D02-2020, the AUC required updated information on the VPP eligible labour dollar amounts to approve AE’s VPP forecast amounts. In Direction 8, the AUC noted that responses to Direction 1 impact the allocation of VPP amounts in AE’s MFR schedules. AE was directed to update its VPP amounts to reconcile these schedules with any changes made in response to other directions.

In response to an information request, AE demonstrated that its revised VPP amounts included in the application were 80 percent of the 2018 and 2019 actual eligible payout amounts.

The AUC determined that there was uncertainty regarding the use of the word “labour”. The “labour dollar per FTE” amount used to calculate the revenue requirement adjustment for the changes to the 2018 and 2019 FTEs in Proceeding 24805 did not include variable pay. The AUC rejected AE’s use of the “labour dollar per FTE” method. It noted that in directing the use of actual labour and fringe, the term “labour” refers to “wage” or “salary”. AE was directed to use its actual labour and fringe amounts in directions 2 and 3.

In response to further requests from the AUC, AE calculated that VPP costs would increase by $0.5 million in 2018 and decrease by $0.8 million in 2019. The AUC determined that AE’s VPP expenditures should be $ 4.3 million and $3.5 million in 2018 and 2019, respectively. Therefore, to properly reflect the allocation and recovery of VPP amounts, the revenue requirement must be increased by $0.2 million in 2018 and decreased by $0.3 million in 2019.

Direction 9 of Decision 24805-D01-2020 was issued in regards to the allowance for funds used during construction (“AFUDC”) treatment for the purposes of calculating income tax expense. It required AE to remove the AFUDC amount from “utility earnings before tax” for the purposes of calculating its income tax expense. The AUC was satisfied that AE complied with this Direction.

Consolidated Filing Adjustments Required to Revenue Requirement

The AUC determined that more adjustments are needed to comply with directions 2, 3, and 8 of Decision 24805-D01-2020. However, in the interest of regulatory and administrative efficiency, AE was not directed to file a third compliance filing to make the adjustments required to comply with these three directions. The AUC required that to comply with directions 2 and 3, AE reduces its 2018 and 2019 revenue requirements by $6 million and $3.9 million, respectively and, to comply with Direction 8, further add $0.2 million to its 2018 revenue requirement and subtract a further $0.3 million from its 2019 revenue requirement.

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