Electricity – Rates
In this decision, the AUC approved the negotiated settlement agreement (“NSA”) applied for by ENMAX Power Corporation (“EPC”) regarding its 2021-2022 general tariff application (“GTA”). Regarding issues excluded from the NSA, the AUC denied EPC’s proposed depreciation and Enhanced Asset Management Strategy (“EAMS”) initiative costs.
The only matters regarding EPC’s 2021-2022 GTA that were excluded from the NSA are depreciation expense and EAMS.
Fairness of the Negotiated Settlement Process
The AUC evaluated whether the negotiated settlement process (“NSP”) that resulted in the NSA was fair. As the Consumers’ Coalition of Alberta (“CCA”), the Utilities Consumer Advocate (“UCA”), and EPC each submitted correspondence confirming the fair and open negotiations, the AUC accepted that the NSP had been conducted fairly.
EPC submitted that the NSA for its 2021-2022 GTA would result in just and reasonable rates and that the settlement aligns with the public interest and abides by all applicable law. EPC further submitted that the NSA meets all the requirements of Rule 018. EPC provided that, in summary, the parties agreed to reductions to the 2021-2022 GTA totaling $8.1 million. The revenue requirement for 2021 was reduced by $2.44 million, with the largest reduction representing a $0.81 million reduction applied to operations and maintenance (“O&M”) shared services. The 2022 revenue requirement was reduced by $5.67 million, with the largest reduction being a $2.59 million reduction applied to the Capital Substation 45.
The AUC noted that the NSA represents a unanimous agreement reached as a result of a successful negotiation that typically reflects a number of compromises of different interests and positions of the parties. The signatories to the NSA represent a constituent group of Albertans that has historically participated in the testing of EPC’s general tariff applications, which supports a finding that the NSA is in the public interest.
The AUC was satisfied that the NSA is not patently against the public interest or contrary to law and should result in rates and terms and conditions that are just and reasonable, as required by Section 8 of Rule 018. The NSA was approved as filed.
EPC requested forecast depreciation expenses for the years 2021 and 2022 in the amounts of $29.2 million and $32.4 million, respectively. EPC stated that in determining its forecast 2021-2022 depreciation expense, it relied on parameters and corresponding depreciation rates approved by the AUC in Decision 2014-347. EPC was unable to provide detailed support for its depreciation expense calculations given reporting limitations of its fixed asset software. Further, EPC was not willing to prepare alternative manual depreciation calculations because “the time and effort required to prepare the analysis requested are beyond the time given for responding to this information request.” EPC stated it would provide the requested calculations at the time of its next depreciation study.
EPC calculated a single weighted average depreciation rate for its total property, plant and equipment, followed by two further weighted average depreciation rates for each of its transmission and general plant groups of assets. While accepting that depreciation expense is a complicated element of the revenue requirement, and in consideration of the depreciation expense amounts at issue, the AUC found that the high-level calculations provided by EPC did not reasonably support its forecast depreciation expense in the current application.
Accordingly, EPC’s forecast depreciation expense for the years 2021 and 2022 were declined and EPC was directed to incorporate its last approved depreciation expense in the amount of $24.1 million (2020) in its revenue requirement for each of the test years at issue. EPC was also directed to ascertain and submit, with its next depreciation study, a detailed plan for how the AUC and parties can test EPC’s depreciation expense calculations between the submission of depreciation studies.
Enhanced Asset Management Strategy Initiative
EPC requested $1.65 million in 2021 and $1.69 million in 2022 in incremental O&M costs to undertake a new EAMS initiative, beginning in 2021. Under the initiative, five additional full-time equivalents would be required, and several activities would be undertaken.
The AUC noted that a business case was not provided to support the initiative, and EPC only identified high-level activities to be undertaken. In response to AUC questions, EPC provided a cost-benefit study undertaken in 2019 that identified savings of approximately $6.7 million. As the scope for the EAMS initiative was further refined, an updated cost-benefit analysis was provided that did not identify any savings in the test period. Savings were expected to start occurring in 2023. EPC also estimated that it would incur additional expenditures totaling $1.09 million from 2023 to 2026 for the EAMS initiative, and based on its net present value analysis, the EAMS initiative would break even in 2031.
The AUC was not convinced that the EAMS initiative can be justified based on the cost-benefit analysis provided, particularly as no savings were expected in the 2021-2022 test period. Further, some of the estimated savings would arise from activities unrelated to the main activities being completed under the EAMS initiative. For example, EPC has included standards and estimation improvements as part of the EAMS initiative. The AUC found it unclear how the development of these standards is dependant on or related to the other EAMS activities and was not persuaded that these standards and estimation improvements should be included in the EAMS initiative.
The AUC was not satisfied that EPC provided sufficiently detailed information regarding the comparison and assessment of realized benefits against the costs of the EAMS initiative in the future. The AUC noted that tracking and measuring the outcomes from any new initiative proposed by a utility is needed to ensure that ratepayers are receiving concrete benefits from the initiative. EPC had not provided information to make such an assessment possible. Further, the AUC found it unclear whether EPC’s current asset management practices and tools were sufficient that the AUC could not determine the necessity of reasonableness of increased costs to improve the tools and practices.
Further, the AUC found that evidence regarding the allocation of EAMS initiative costs by EPC between EPC transmission and distribution was inconsistent and conflicting. As a result, the AUC was unable to ascertain the basis on which the costs for the EAMS initiative were allocated and whether the allocations were reasonable.
Accordingly, the AUC did not approve the EAMS initiative. EPC was directed to remove the forecast expenditures associated with the EAMS initiative in its compliance filing to this decision. Should EPC request funding for the EAMS initiative in a future tariff application, the AUC required that EPC provide a full business case.