General Tariff Application- Revenue Requirement
In this decision, the AUC considers the general tariff application (“GTA”) from the City of Lethbridge Electric Utility (“Lethbridge”). Lethbridge is a transmission facility owner (“TFO”) under the Electric Utilities Act. In the GTA, Lethbridge sought AUC approval of its revenue requirement to provide transmission service for 2021, 2022 and 2023.
In its GTA, Lethbridge applied for revenue requirements of $9.295 million, $9.312 million and $9.719 million for 2021, 2022 and 2023, respectively. Lethbridge also requested AUC approval of the reconciliation and continuation of its deferral and reserve accounts and compliance with previous AUC directions.
Compliance with AUC Directions
The AUC found that Lethbridge has complied with the requirements of directions 5, 6 and 12 from Decision 21213-D01-2016, which remained outstanding. Pursuant to the directions, Lethbridge was required to make specific adjustments to its depreciation studies, to conduct analyses of assets in different accounts, to use uniform account names across its next depreciation study and minimum filing requirement schedules, and to include various information about new depreciation parameters. The AUC also found that directions 4, 5, 7 and 8 from Decision 24847-D01-2020 had been complied with. Directions 4 and 8 of Decision 24874-D01-2020, required Lethbridge to make improvements to its tracing of municipal corporate expenses, to use AUC approved depreciation parameters and to prepare intervening parties for the next GTA in a workshop no later than three months prior to its filing.
Should the AUC Approve Lethbridge’s Redesigned Minimum Filing Requirement Schedules?
Lethbridge redesigned its Minimum Filing Requirements (”MFR”) schedules for this application to facilitate the finding and interpretation of information, eliminate repeated information, minimize redundancy, and improve regulatory efficiency.
The AUC was of the view that the redesigned MFR schedules did not achieve their desired effect and were confusing. Lethbridge departed from the standardized organization of MFR schedules that applies to all electric transmission utilities in Alberta. The AUC was generally concerned with the consistency of information provided by Lethbridge and repeated that the onus is on the applicant to provide complete and clear information to avoid having costs disallowed.
While the AUC approved Lethbridge’s redesigned MFR schedules as filed, the AUC directed Lethbridge not to make further changes to its MFR schedules in the future, unless specifically directed by the AUC.
Should the AUC Direct any Changes to Lethbridge’s Forecasting Methodology for Operating Costs, and is any Disallowance Required for the 2021-2023 Test Period?
Interveners to this proceeding took issue with the simplistic method to forecasting operation and maintenance (“O&M”) expenses, arguing that it failed to incorporate current and available information and did not explain cost variances. The AUC approved Lethbridge’s forecasting methodology used in this application, as well as forecast operating costs as filed, but instructed Lethbridge that, in future GTAs, all forecast dollar amounts must be reasonably supported, irrespective of the forecast methodology used.
Is Lethbridge’s Forecast Depreciation Expense Reasonable?
(a) Lethbridge’s proposed net salvage procedure
The AUC’s direction in Decision 21213-D01-2016 and 24847-D01-2020 led Lethbridge to conclude that its municipal depreciation practices were not compatible with the AUC’s expected methods for ratemaking. Lethbridge has taken steps to reconcile its municipal depreciation practices and the AUC’s expected methods for ratemaking. The AUC accepted the proposal to implement a single “accumulated net salvage account” as opposed to an asset retirement obligation. The AUC directed that this single account be treated like Lethbridge’s accumulated depreciation accounts, where the account balances inform the rate base.
(b) Depreciation parameters proposed by Lethbridge in its depreciation study
In 2022 and 2023, the amortization of reserve differences true-up continued to reduce forecast depreciation expense, as they had from 2020 to 2021. Significant forecast capital additions in the amounts of $9.4 million and $4.9 million, respectively, were offset by forecast asset retirements in the amounts of $2.5 million and $1.7 million. However, in 2023 depreciation expense increased over the previous year. The depreciation rates were calculated on the basis of using a straight-line depreciation method, an equal life group procedure, and applied on a whole life basis.
The AUC examined Lethbridge’s depreciation study in support of its proposed changes to life-curve depreciation parameters for each of its transmission plant accounts. The AUC approved all life-curve changes proposed, excluding Uniform System of Account (“USA”) 356.00, as it found that the changes are reasonable, supported by the depreciation study and the retirement rate analysis included therein.
The AUC denied Lethbridge’s proposed -45 percent net salvage for USA 356.00 – Transmission Lines. The AUC noted that Lethbridge’s currently approved -40 net salvage percent is within the -25 to -90 percent range of its peer utilities. Further, no salvage costs that could provide support for an increase to -45 percent have been incurred for this account since the time of its previous depreciation study. The AUC approved net salvage of -40 percent for USA 356.
Lethbridge reported differing December 31, 2019, book balances between its depreciation study and MFR schedules. The AUC directed Lethbridge to explain this difference.
The AUC accepted Lethbridge’s method of accounting for any USA account subject to amortization accounting and the use of an SQ curve; and approved Lethbridge’s inclusion of costs related to its 2019 depreciation study in its transmission tariff, but directed Lethbridge to include such costs as part of its costs claim application going forward.
Should the AUC Approve Lethbridge’s Forecast Fleet Capital Additions?
Lethbridge applied for approval of forecast capital additions of $201,000 for 2022 and $135,000 for 2023. The vehicle fleet is allocated to the transmission function based on the number of hours the vehicle was used to work on transmission projects. While the AUC was able to reconcile the forecast capital additions of the vehicles in 2022 and 2023, it observed inconsistencies and was unable to identify several of the vehicles Lethbridge stated were to be replaced.
The AUC approved Lethbridge’s transmission function fleet capital additions, conditional thereon that Lethbridge provide, in the compliance filing, clarifications necessary to address the AUC’s observation and provide evidence to adequately support that fleet vehicles are required to be replaced.
The City of Lethbridge is required to file its 2021-2023 transmission GTA by March 7, 2022, to address the issues noted by the AUC in its decision.