Facilities – Rate Base – Disposition
EPCOR Distribution & Transmission Inc. (“EDTI”) applied for approval to dispose of Substation No. 450, located at 11803 – 114 Avenue Northwest in Edmonton, Alberta (the “Property”), pursuant to section 101(2)(d) of the Public Utilities Act.
EDTI submitted that the Property was placed into service in 1950, and due to the average service life for depreciation, all of the assets had been removed from rate base as of 1995. EDTI submitted therefore that all of the assets in question were fully depreciated and that they were retired from the accounting records at the end of their average service lives. EDTI noted that this retirement occurred prior to the physical retirement of the assets from electric distribution service.
EDTI submitted that the reason for its requested disposition of the Property was due to the Property’s configuration with 5-kV equipment, which is no longer standard, and not supported by the manufacturer any longer. EDTI submitted that in 2013 and 2014 its 5-kV feeders were converted to 15-kV substations. As a result, the Property was no longer required for the provision of utility service by EDTI. EDTI proposed to remove the book value of the land from rate base on December 31, 2017, at the end of its current performance based regulation (“PBR”) term.
EDTI submitted that the fair market land value of the Property was approximately $730,000 with estimated net proceeds of $530,000, and that no environmental remediation work would be required at the Property, after performing environmental site assessments.
EDTI submitted that its proposed disposition occurs outside the ordinary course of business (as it had only disposed of six properties outside the normal course of business since 2006 – three of which were substations), and therefore required AUC approval. EDTI further submitted that the estimated market proceeds of $730,000 was material.
The AUC held that the proposed disposition would occur outside the ordinary course of business, since utilities are not in the business of acquiring and divesting real estate.
The AUC determined that the proposed disposition of the Property was material, noting its prior determinations on materiality for EDTI’s dispositions in Decision 3206-D01-2015, which had approved $500,000 as material for the purposes of a disposition outside the ordinary course of business.
EDTI submitted that the proposed disposition would not harm ratepayers, as the disposition would result in a small reduction in operating costs borne by rate payers, and reiterated that the Property was no longer needed to provide reliable service to customers. EDTI also noted that ratepayers would not see any rate impacts due to the disposition, since costs and revenues are decoupled during the current 2013-2017 PBR term.
The AUC held that since the Property was no longer required for the provision of utility service, the proposed disposition would not have any effect on the quality and quantity of utility service. The AUC also held that there would be no financial harm to ratepayers, since rates would not be impacted by the disposition, and noted that ratepayers will not bear any costs arising from the disposal of the Property.
The AUC held that it would not require EDTI to make any adjustments or remove land from rate base prior to the expiry of the current PBR term, since the impact would be largely immaterial. The AUC also noted its previous holdings in Decision 2012-237 that adjustments to going-in rates are not to be made to reflect actual events during the PBR term. Therefore the AUC directed EDTI to remove the book value of the land from its rate base, effective December 31, 2017.
The AUC held that all net proceeds of sale and any net gains from the sale are to be for the account of utility shareholders, and directed EDTI to provide confirmation of the net proceeds of the disposition and include its proposed rate adjustment for the disposition of the Property at the time of its next revenue requirement application.
Accordingly, the AUC approved the sale of the Property, as filed.
