Electricity – General Tariff Application
In this decision, the AUC considered the 2022 and 2023 general tariff application (“GTA”) and 2020 direct assigned capital deferral account (“DACDA”) reconciliation application from AltaLink Management Ltd. (“AML”). The AUC also considered the 2022 and 2023 GTAs filed by AML on behalf of PiikaniLink Limited Partnership (“PiikaniLink”) and KainaiLink Limited Partnership (“KainaiLink”).
The AUC directed AML to make corrections in its 2022-2023 GTA reducing the applied-for revenue requirements in a compliance filing. The reductions relate to the applied-for capital expenditures for capital replacement and upgrade (“CRU”) programs and information technology (“IT”) and direct assigned capital programs. The AUC denied AML’s applied-for tariff refund of accumulated depreciation and directed AML to remove $96 million from its opening 2022 net salvage reserve account. The AUC’s directions also reduced applied-for base pay escalations and certain internal labour expenditure forecasts.
PiikaniLink and KainaiLink were directed to adjust their depreciation parameters in their 2022-2023 GTAs to align with those approved for AML in this decision and to include incremental audit and hearing costs in its revenue requirements consistent with the Alberta Court of Appeal (“ABCA”)’s directions in AltaLink Management Ltd. v Alberta (Utilities Commission).
Introduction and Background
In its 2022-2023 GTA, AML requested approval of: (i) revenue requirements of $877.9 million for 2022 and $895.5 million for 2023; (ii) transmission tariffs of $811.5 million in 2022 and $835.5 million in 2023; (iii) the continued use of deferral and reserve accounts and other aspects of the proposed tariff; (iv) updated depreciation parameters as supported by a depreciation study; and (v) its compliance with past AUC directions.
In its 2020 DACDA reconciliation application, AML requested a determination of reasonable project costs for direct assigned capital projects completed in 2020, and an order disposing of the associated DACDA balances pertaining to direct assigned capital projects completed in 2020; approval of the 2020 balances for other deferral accounts; and approval of a revenue true-up for 2020 from AML’s 2019-2021 GTA.
The PiikaniLink and KainaiLink applications sought approval of their respective 2022 and 2023 revenue requirements. PiikaniLink requested revenue requirements of $4.94 million in 2022 and $4.84 million in 2023. KainaiLink requested revenue requirements of $3.17 million in 2022 and $3.11 million in 2023. Both applications requested approval of the continued use of deferral and reserve accounts.
AML 2022-2023 GTA
Are AML‘s 2022 and 2023 Escalation Rates for its Non-Union, Union, and Executive Employees Reasonable?
AML focused on target total direct compensation (”TTDC”) to measure whether its employees are reasonably compensated. AML relied on several forecasts showing that Alberta’s economy will recover from the effects of the COVID-19 pandemic and the 2020 collapse in oil prices to show that it must provide its employees with market average TTDC to attract and retain qualified and high-performing employees.
The AUC determined that Alberta’s economy is recovering from the effects of the COVID-19 pandemic. However, there is uncertainty as how quickly, it will fully recover. As a result of the recovery, the AUC found a modest pay increase to be reasonable. The AUC approved a base pay increase of 1.8 per cent for both the non-union and the union employee groups for each of 2022 and 2023.
Has AML Reasonably Forecast Its Operations and Maintenance Expenses, Including the Number of Full-time Equivalent Employees, As Well As Its Insurance Premiums?
AML records and tracks the costs of its operations and maintenance (“O&M”) expenses using the uniform system of accounts (“USA”). The AUC found that variances of several USA accounts were material and needed detailed evaluation. AML requested approval of O&M expense amounts of $55.2 million and $57.3 million for 2022 and 2023, respectively.
The AUC was not convinced that AML’s legal and regulatory full-time equivalent forecast was reasonable or that it accurately reflected the expected activity levels for the department.
The AUC approved AML’s forecasted Security IT General & Administrative O&M expenses, subject to any impact directions regarding capital IT programs and projects may have. AML was directed to file a comparison of its total IT expenditures including both O&M and capital IT expenditures against other relevant comparators in the utility industry.
The AUC approved AML’s insurance costs for 2022-2023, but noted that if AML continues to purchase third-party liability insurance, AML is expected to provide detailed justification in its next GTA for continuing to pay potentially increasing premiums.
Is AML’s 2022 Opening Rate Base Reasonable?
The actual capital additions to rate base for AML’s CRU projects for 2019, 2020, and 2021 are $146.8 million, $157.1 million, and $141.6 million, respectively. The AUC similarly considered AML’s actual capital additions to rate base for IT projects, facility projects, direct assigned capital projects in 2022 and emergency spares inventory. Based on its review of the record pertaining to the actual capital additions for these items, the AUC approved the 2022 opening rate base amounts.
The AUC denied capital additions in the amount of $3.052 million to AML’s 2022 opening rate base for (i) targeted right of way (“ROW”) improvements in high-risk fire areas (“HRFAs”) and (ii) wildfire tree removals, both of which are in AML’s Transmission Line ROWs Upgrades in HRFAs Program. The AUC instead approved the amount of $1.505 million to be added to AML’s 2022 opening rate base for these two project categories.
Are AML’s 2022 and 2023 Capital Expenditures for its CRU Program, WMP and IT Program Reasonable
(a) CRU Program Capital Expenditure Forecasts
Issues arose regarding the reasonableness of forecast expenditures related to a number of capital or equipment related programs. AML request approval of forecasts that show increasing expenditures over the test period. AML provided insufficient supporting evidence for some expenditures and the AUC further found that AML overestimated the needed expenditures given the state of equipment, or given the evidence provided in associated studies.
(b) Wildfire Mitigation Plan Capital Expenditure Forecast for the 2022 to 2023 Test Period
The AUC approved the forecast capital expenditures of $4.2 million in each of 2022 and 2023 under AML’s Targeted Component and Structure Replacements in HRFAs Program identified under the Wildfire Mitigation Plan (“WMP”) but directed AML to provide a more detailed breakdown of notifications that were resolved in a prior test period or are forecast to be resolved in the next test period.
The AUC denied 2023 forecast capital expenditures of $3.68 million to rebuild transmission lines 185L and 412L, located in HRFAs because AML did not sufficiently explain or justify these expenditures. The explanation particularly lacked detail regarding the requirement of a facility application and potential outstanding landowner concerns.
(c) IT Capital Expenditures Forecast for the 2022 to 2023 Test Period
The AUC found the forecast IT capital expenditures to be reasonable with the exception of the expenditures related to a number of specifically identified projects. The AUC found that the costs associated with the individual projects would not provide sufficient benefits, or the benefits suggested by AML. The AUC found that the evidence provided suggested that AML had not sufficiently explored viable, more cost-effective options to reduce costs or to take steps to prevent the expenditures altogether.
Has AML Reasonably Forecast its 2022 and 2023 Capital Expenditures for its Direct Assigned Capital Projects?
The central issue was the timing of the forecast for 2022-2023 capital expenditures for system transmission projects. AML indicated that there was some uncertainty surrounding timing of the Central East Transfer Out Project including possible delays to the in-service date. As a result, the AUC directed AML to remove forecast capital expenditures of $5.4 million in 2022 and $53.1 million in 2023 for this project in its compliance filing. Similar uncertainties arose regarding the Nilrem to Vermillion Project and its costs and the AUC denied the applied-for capital expenditures of $59.2 million in 2022 and $40.6 million in 2023. AML was directed to remove forecast capital expenditures of $21.4 million for 2022 and $31.0 million for 2023 for the Provost to Edgerton Project, and $1.7 million in each of 2022 and 2023 for the Chapel Rock to Pincher Creek Project, for the same reasons.
Should AML’s Requests Related to Depreciation be Approved?
AML applied for approval to change service life or Iowa curve (life-curve) depreciation parameters for 11 of its 14 depreciation study accounts. The effect of these life-curve changes would be a reduction in AML’s depreciation expenses when compared to maintaining the current life-curve parameters used to compute AML’s depreciation rate.
The AUC denied AML’s request to refund $120 million of accumulated depreciation life surplus in 2022-2023. The AUC was not persuaded that the exceptional economic circumstances needed to approve the tariff refund that would result in higher transmission rates, will continue in 2022 and 2023, when AML’s proposed refund would be put into effect. In this respect, the AUC found that the reasoning of Decision 26248-D02-2021, where the AUC authorized a refund of accumulated depreciation in the amount of $80 million, does not continue to apply.
AML’s reporting of actual 2019-2020 and forecast 2021 net salvage costs was found to be insufficient. The limited information provided by AML in support of the prudency of the actual costs incurred did not allow the AUC to accurately determine the prudency. The AUC directed AML to remove the amounts from its 2022 opening net salvage reserve account.
Is AML’s Forecasted Necessary Working Capital Reasonable?
AML proposed a change to its necessary working capital calculation. After its previous lead lag study, AML began paying its equity distributions to its partners on a monthly rather than quarterly basis to align AML’s balance sheet with the AUC approved capital structure. The AUC denied the request as its approval would lead to electricity ratepayers bearing higher transmission rates that are attributable to more frequent distributions of equity to AML’s partners. The AUC determined this to be unreasonable.
Should AML’s Special Facilities Charge be Approved?
AML applied for approval of a special facilities charge that would apply to transmission assets that are customer-owned but would be purchased by AML. Following the purchase, the customer would pay a special facility charge for use of the asset and AML’s shareholders would accept all risk of potential customer default while retaining a premium for accepting this risk.
The AUC denied the special facilities charge. The AUC saw no reason to regulate transmission assets subject to a special facilities charge. It was not convinced that the charge would benefit the ratepayers and noted that the charge is inconsistent with the Electric Utilities Act as it would result in AML, as a transmission facility owner, having a tariff relationship with individual customers.
Should AML’s Termination of its Service Agreement with TransAlta Utilities Corporation be Approved?
AML included transmission revenue offsets as part of its application. The offsets include revenue AML expects to earn by providing O&M services for transmission assets owned by TransAlta Utilities Corporation (“TransAlta”). AML submitted that the O&M agreement from April 29, 2002 (the “Agreement”) terminates April 29, 2022. The AUC was not convinced that AML could terminate the Agreement or that the Agreement effectively expires on April 29, 2022, considering a 5-year extension clause. The AUC decided to fix revenue requirement offsets connected with the Agreement at the level forecast by AML over this test period on a placeholder basis.
AML 2020 DACDA Reconciliation Application
AML applied for approval and reconciliation of direct assigned capital projects that were completed in 2020 as well as all 2020 trailing costs considered in prior DACDA proceedings, all other deferral account balances, and a revenue true-up for the year 2020 in relation to amounts determined in its 2019-2021 GTA.
The AUC found adding the actual costs associated with the direct assigned capital projects to the rate base to be reasonable. The AUC also approved the actual costs spent on direct assigned capital and associated DACDA balances for the direct assigned projects completed in 2020, and the 2020 revenue true-up of AML’s 2019-2021 GTA, resulting in a one-time charge to the Alberta Electric System Operator (“AESO”) of $0.4 million. The AUC noted that ongoing disputes involving the litigation of defective helix spacer dampers installed on 14 AML projects and foundation deficiencies for transmission lines 675L and 676L on the Medicine Hat 138 kV Area Reconfiguration Project remain unresolved. As the litigation is still ongoing, the AUC approved the placeholder treatment again. AML was directed to submit a request for final approval of these costs, including all trailing costs, in the next DACDA proceeding.
PiikaniLink and Kainai 2022-2023 GTAs
The ABCA allowed the appeal in respect of AUC Decision 22612-D01-2018. Several changes therefore needed to be made to the GTAs of PiikaniLink and KainaiLink to accord with the judgment of the ABCA. Contrary to the AUC’s decision, the ABCA allowed including incremental audit and hearing costs as part of general and administrative costs in PiikaniLink’s and KainaiLink’s GTAs. AML was directed to include the incremental costs as part of its revised Minimum Filing Requirement schedules and respective revenue requirements, in accordance with the ABCA’s decision.
In Decision 22612-D01-2018, the AUC had deferred the decision regarding deferral account treatment of annual structure payments (“ASP”) and payment in lieu of taxes (“PILOT”) and raised the concern that the Piikani and Kainai Nations may be incented to seek increases in the amount of ASPs and PILOT. In this proceeding, the AUC approved the ASP and PILOT deferral accounts.
AML was directed to file its 2022-2023 transmission GTA compliance filing, in respect of the AUC’s findings and to charge $0.4 million through a one-time billing to the AESO to dispose of its final settlement balances for its 2020 DACDA. PiikaniLink and KainaiLink were directed to file individual compliance filings to their 2022-2023 transmission general tariff applications.