Review and Variance – Rates
In this letter, the AUC dismissed the application from the Consumers’ Coalition of Alberta (“CCA”) for a review and variance (“R&V”) of Decision 25938-D01-2021. In Decision 25938-D01-2021 (the “Original Review Decision”), a Review Panel of the AUC approved ATCO Electric Ltd.’s (“AE”)’s application to review the AUC’s directions in Decision 24805-D02-20202 (the “Compliance Decision”), related to the issue of the calculation of AE’s income tax expense.
As part of its findings in the Original Review Decision, the Review Panel found that for regulatory purposes, the accounting required a deduction for the debt portion of the allowance for funds used during construction (“AFUDC”) in calculating regulatory income tax expense. Ultimately, the Review Panel granted AE’s request and revised the directions from the compliance decision, and required AE to file a second stage variance application to adjust the debt portion of AFUDC in determining AE’s regulatory income tax expense.
The CCA, in this review application, argued that the AUC had erred in fact, law or jurisdiction by allowing AE to maintain amounts in its transmission revenue requirement and directing customers to pay for these amounts that are not just and reasonable.
Should the AUC Reconsider Issues Regarding the Calculation of the Income Tax Expense Determined in its Original Review Decision, Decision 25938-D01-2021, Due to an Error in Fact, Law or Jurisdiction?
The CCA argued that the original Review Panel had erred by finding that a net equity deduction is not permissible for statutory income tax purposes and that the equity component of AFUDC is the portion of the financing expense funded by equity, for which there is no offsetting expense. The CCA alleged that:
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The AUC made a reviewable error by erring in fact or law by determining without compelling fact-based evidence the statutory tax requirements applicable to AFUDC equity;
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The AUC made a reviewable error by erring in law or jurisdiction by suggesting a statutory interpretation of the Income Tax Act that has no basis within the Income Tax Act; and
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The AUC has erred in finding that there should be an increase in income taxes paid by ratepayers as a result of the inclusion of AFUDC in rates.
In considering the review application, the current Review Panel considered that principles of finality and certainty are engaged. Finality allows parties to AUC proceedings to rely on AUC decisions once they are issued and the period to challenge them through the administrative review or court process has expired. The review process is not an opportunity for parties to re-argue matters or express concerns that they chose not to raise at first instance.
The correct calculation of the AFUDC portion of income tax was at issue in the proceedings leading to Decision 22742-D01-2020, Decision 24805-D02-2020, and Decision 25938-D01-2021. The AUC found that the original Review Panel was aware of the issues of statutory income tax and the treatment of AFUDC under regulatory income tax. This is particularly evident in the findings noted in paragraphs 60-70 of the Original Review Decision. Accordingly, the panel reviewing the CCA’s application found that the issues alleged by the CCA had been considered in the original review proceeding. The AUC was, in this proceeding, not persuaded that it should exercise its discretion to allow new evidence on the calculation of the AFUDC portion of the net utility earnings before tax calculation of the regulatory income tax expense for AE’s 2018-2019 revenue requirement. Accordingly, there was no error requiring a review.
Conclusion
The current Review Panel found that the CCA did not demonstrate the existence of an error of fact, law or jurisdiction that could lead the AUC to materially vary or rescind the decision. It found that there had been a reasonable opportunity to provide calculations or submissions in the original review proceeding and to comment on the income tax borne by ratepayers. As a result, it was not necessary for the AUC to exercise its discretion and to adjudicate new evidence in this review application. The CCA’s application for review was dismissed.
