Performance-based Regulation (PBR) – K-Factor – AESO Contributions
In this decision, the AUC considered FortisAlberta Inc.’s (“FortisAlberta”) compliance filing to Decision 22741-D01-2018 (the “Original Decision”). In the Original Decision, the AUC considered FortisAlberta’s application for approval of its 2016 performance-based regulation (“PBR”) capital tracker true-up and directed FortisAlberta to provide additional information and calculations in a compliance filing.
Background
On February 28, 2018, FortisAlberta filed an application with the AUC requesting approval of its compliance filing. Due to adjustments made as a result of directions in the Original Decision, FortisAlberta revised its requested refund in K factor revenue from $10.8 million to $11.3 million.
Projects or programs are eligible for capital tracker treatment, provided that they meet the following three criteria:
(a) the project must be outside the normal course of ongoing operations (“Criterion 1”);
(b) ordinarily, the project must be for replacement of existing capital assets or the project must be required by an external party (“Criterion 2”); and
(c) the project must have a material effect on the company’s finances (“Criterion 3”).
For the reasons further summarized below, the AUC made the following determinations:
(a) The AUC relieved FortisAlberta of its obligation to comply with certain directions (5, 8, and 9) pending the AUC’s consideration of the review and variance application in Proceeding 23505.
(b) The AUC found that FortisAlberta had complied with all other AUC directions as they pertain to the compliance filing.
(c) The AUC directed FortisAlberta to refund $11.3 million in K factor revenue related to the true-up of the 2016 capital tracker, subject to treating $3.3 million of this refund as a placeholder pending the AUC’s decision in Proceeding 23505 in relation to the Alberta Electric System Operator (“AESO”) Contribution Program. FortisAlberta was further directed to include this refund with any associated carrying costs in its 2019 annual PBR rates filing due on September 10, 2018.
Load Settlement Replacement Project
In the Original Decision the AUC found it could not make a determination on the reasonableness of treating the Load Settlement Replacement Project as a separate capital tracker project without further information. As a result, the AUC directed FortisAlberta to:
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explain the activities that justify the historical capital additions (from 2005 to 2012) included in the accounting test for the Load Settlement Replacement Project;
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identify all projects in its accounting test that included historical capital additions associated with the old Energy Vision Enterprise (“EVE”) and/or Post Final Adjustment Mechanism (“PFAM”) applications; and
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explain why it did not group all of its expenditures related to load settlement together under the Load Settlement Replacement Project.
The AUC found that FortisAlberta’s explanations regarding why the Load Settlement Replacement Project was included as a separate project grouping to be reasonable. FortisAlberta relayed that the indicative service life for the Load Settlement Replacement Project is determined using a weighted calculation of the asset classes involved because it consists of both hardware and software asset classes. FortisAlberta noted that while the weighted calculation resulted in the same indicative service life for 2016, as the weightings change so will the indicative service life, which will not always be equal to the Software – Load Settlement group.
The AUC found that the Load Settlement Replacement Project and the Software – Load Settlement groupings were sufficiently different that they both could exist on their own. The AUC approved the K factor revenue of $1.6 million for the Load Settlement Replacement Project.
AESO Contributions Program
In the Original Decision, the AUC rejected FortisAlberta’s proposal that AESO contributions be deemed to be final each year. The AUC further rejected FortisAlberta’s related proposal that the 2016 AESO contribution capital tracker be considered final upon the issuance of the AUC’s Original Decision. In Direction 5 of the Original Decision, the AUC directed FortisAlberta to recalculate AESO contributions for all projects to reflect the AESO contribution refund. This would reflect the AESO contribution refund FortisAlberta would be eligible for under the ISO tariff if it immediately increased demand transmission service to the amount of the maximum capacity of the project.
In the compliance filing, FortisAlberta declined to comply with Direction 5. FortisAlberta stated it believed that the AUC had signalled “an intention to embark on an overarching reassessment of the fundamentals of the AESO Tariff’s contribution policy as applied to distribution facility owners (“DFOs”) and customers, and the ways in which DFOs are permitted a reasonable opportunity to recover capital that they invest in accordance with that policy.”
The AUC assigned Proceeding 23505 to review Direction 5 with respect to the AUC’s determination of how to finalize the AESO Contributions Program (the “Contributions Program”) amounts to enable FortisAlberta’s transition to the next generation PBR. The Contributions Program recognizes the cost to FortisAlberta of contributions paid to the AESO for the construction of transmission facilities and are required to supply aggregate load growth in Fortis’ distribution area. That proceeding is ongoing.
In Direction 8 of the Original Decision, FortisAlberta was required to file a report for each project showing whether FortisAlberta intended to seek a refund, the date by which the refund was expected, and the amount of the contribution refund in each case. FortisAlberta explained that the contribution adjustment amount and date of adjustment for each of the system access service requests are pending the outcome of the AESO assessments and, therefore, the timing and estimated contribution adjustment, if any, were not determinable.
Direction 9 of the Original Decision directed FortisAlberta to provide its view and potential recommendations on the finalization of 2017 AESO contribution amounts. FortisAlberta was of the view that the requirements of second generation rebasing cannot be fairly addressed by using notional demand transmission service contract levels to adjust actual AESO contribution amounts. Instead, FortisAlberta submitted that any consideration of AESO contribution amounts should be guided by the following:
(a) general concerns relating to policies implemented under that tariff are most properly considered within the context of the pending AESO 2018 ISO Tariff proceeding, where impacts on all stakeholders may be assessed; and
(b) to the extent that the AUC determines that FortisAlberta’s historical AESO customer contributions should be examined for the purpose of rebasing for the second term of PBR, such assessment should take place in the appropriate PBR rebasing proceeding, where all potential impacts of adjustments can be understood.
Summary
The AUC found that FortisAlberta complied with all AUC directions as they pertain to the compliance filing, with the exception of directions 5, 8 and 9, for which the AUC made no specific determination pending the AUC’s consideration of its review and variance application in Proceeding 23505. FortisAlberta was consequently relieved of its obligation to comply with these directions at this time.
FortisAlberta was directed to:
(a) refund $11.3 million in K factor revenue related to the true-up of the 2016 capital tracker, subject to treating $3.3 million of this refund as a placeholder until such time that the AUC makes its determinations in Proceeding 23505; and
(b) include this refund with any associated carrying costs in its 2019 annual PBR rates filing due on September 10, 2018.
