Disposition – Rates
ATCO Gas and Pipelines Ltd., CU Inc. and Canadian Utilities Limited (collectively, “ATCO”) applied for approval to sell their Calgary Service Centre (“CSC”) located at 1040 – 11 Avenue S.W. in Calgary, Alberta.
ATCO had previously applied for approval to dispose of the CSC in Decision 20528-D01-2015, where the AUC denied the disposition on the basis that ATCO had failed to provide sufficient evidence to satisfy the AUC’s “no-harm” test to ratepayers. The AUC had previously found that the proposed disposition was outside the ordinary course of business.
ATCO proposed to structure its disposition of the CSC as follows:
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ATCO Gas and Pipelines Ltd. transfers the non-utility assets to ATCO Real Estate Holdings Ltd. (“Real Estate”) in exchange for cash and preferred shares of Real Estate.
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Real Estate redeems the preferred shares for a promissory note.
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ATCO Gas and Pipelines Ltd. distributes the Real Estate promissory note to CU Inc. as a dividend. CU Inc. distributes the promissory note to Canadian Utilities Limited (“Canadian Utilities”), as a dividend.
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Canadian Utilities contributes the promissory note to Real Estate as a subscription for additional common shares of Real Estate. The promissory note is cancelled.
The AUC assessed the application to determine whether the transaction had any adverse financial or service level impacts to customers.
Service Quality
ATCO submitted that it has since received positive feedback from customers, especially in respect of in-person service applications.
None of the interveners in the application raised any concerns regarding service applications.
The City of Calgary (“Calgary”) however, raised concerns regarding ATCO’s emergency response time metrics for events such as fires, explosions, blowing gas, gas leaks, odours or carbon monoxide.
ATCO submitted that its service standard is to respond to 87 percent of emergencies within 60 minutes. ATCO further noted that its recent emergency response performance in the Calgary region was consistent with historical levels, averaging 95.3 percent year-to-date for 2016.
Calgary however, submitted that ATCO presented those results on an aggregate basis for ATCO’s North and South service areas, and further opposed ATCO’s submission on the basis that two months of year-to-date data was not evidence of a trend.
The AUC determined that customers were no worse off due to the relocation of staff from the CSC. The AUC also determined that ATCO’s evidence regarding quality of service impacts was persuasive, noting that actual emergency response times compared to estimated response times were well within the parameters set by AUC Rule 002: Service Quality and Reliability Performance Monitoring and Reporting for Owners of Electric Distribution Systems and for Gas Distributors. The AUC also noted that the staff who typically respond to emergencies were unaffected by the closure of the CSC, and therefore such response times would likely be unaffected.
Accordingly, the AUC held that ATCO’s proposed disposition would not adversely affect the quality of service for customers.
Impact to Rates
ATCO submitted that the net book value of the CSC assets were approximately $2,392,000, with annual operating costs of approximately $506,000.
ATCO submitted that it had retained an architecture and design firm to provide estimates for potential improvements required to make the CSC suitable for long-term use. ATCO estimated that the cost of improvements, over an 18 month period, would total $7.21 million, including:
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$2.8 million to address functional deficiencies in the heating, ventilation and air conditioning;
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$1.0 million to address building code deficiencies;
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$1.7 million to address cosmetic deficiencies, including flooring, ceilings, doors and exterior finishes.
ATCO confirmed that it had previously withdrawn the CSC assets from service effective November 1, 2015 and had relocated its employees from the CSC elsewhere. ATCO submitted that the required renovations needed to relocate the employees came to $1.47 million, $0.03 million lower than estimated. ATCO argued that although its rate base increased by $1.47 million to renovate other facilities, the cost of keeping the CSC in operation would have retained $2.4 million in rate base, plus $7.2 million over the next 18 months for improvements needed to the CSC.
ATCO submitted that it did not expect any material increase in operating costs at its remaining service centres as a result of absorbing employees from the CSC, as ATCO noted that most operating costs would be incurred independent of occupancy.
The AUC accepted ATCO’s evidence that the $506,000 estimate of 2014 operating costs was a reasonable representation of the annual operational costs of the CSC would be. The AUC also held that the quantification of actual renovation costs for existing service centres was persuasive in demonstrating that the risk of unknown costs to ratepayers arising from the transaction was significantly reduced.
The AUC held therefore that the closure of the CSC would not adversely affect the rates paid by ratepayers.
Order
The AUC, having found that customers would not suffer any adverse financial or service level impacts, held that ATCO had satisfied the “no-harm” test. Accordingly the AUC approved the disposition as filed, and directed that ATCO’s rate base be adjusted to reflect the removal of the CSC from service at the end of its current performance based regulation term.
