Interim Revenue Requirement
ATCO Pipelines, a division of ATCO Gas and Pipelines Ltd. (“ATCO”) requested approval for an interim monthly fixed fee of $17,724,000 per month, to be effective January 1, 2015, reflecting 100 percent of ATCO’s forecast 2015 revenue requirement, representing an 11 percent ($22.1 million) increase over its $192.6 million final revenue requirement for 2014, as approved in Decision 2014-162.
ATCO also filed its general rate application on December 13, 2014, requesting revenue requirements of $214,728,000 and $250,362,000 for 2015 and 2016 respectively.
ATCO submitted that it required 100 percent of its 2015 revenue requirement on the basis that the increase was mostly attributable to a single project, being the urban pipelines replacement capital expenditure program (“UPR”). ATCO further submitted that it did not believe there to be any contentious issues or costs that might need to be removed from the interim revenue requirement application.
However, the Office of the Utilities Consumer Advocate (“UCA”) and the Consumers’ Coalition of Alberta (“CCA”) both cited the UPR, licence fees, and I-Tek (ATCO’s information technology provider) costs to be contentions and in need of further examination.
ATCO submitted that the UPR costs had already been established, and were the most significant cost drivers in the application. However, the UCA and CCA took issue with this characterization, noting that ATCO intended to re-bid the cost of one of the UPR projects in Northeast Calgary. Given the increased cost forecasts given by ATCO, the UCA and CCA argued that the original cost forecast from ATCO should be applied in the interim, until the final costs can actually be established. ATCO replied, citing that such an approach would account for only 13 percent of the requested revenue requirement increase for 2015.
With respect to information technology costs, the UCA argued that information technology costs were contentious, given is concerns with the new Master Services Agreements and their potential impacts on ATCO’s operating costs.
ATCO submitted that the information technology costs have not been finalized, and were included as a placeholder amount, and the interim amount requested was lower than that of the placeholder included in the 2015 revenue requirement.
With respect to licence fees, ATCO noted that the costs for licences were a new cost included, and amounted to approximately $628,000, or less than three percent of the requested revenue requirement increase.
The UCA and CCA argued that the inclusion of these new costs were contentious, given that both parties intended to test the inclusion of licence fees in ATCO’s general rate application for 2015 and 2016.
ATCO submitted that approval of 100 percent of the requested revenue requirement was needed to continue supporting capital and operating maintenance programs, and would otherwise impose a short-term cash shortfall that ATCO described as not sustainable or fair. However, ATCO noted that even if the interim increase was not granted, its return on equity would remain above zero, and that such a shortfall would in fact not have an immediate impact on its ability to provide safe and reliable service.
The UCA and CCA submitted that an interim revenue requirement increase of 50 per cent of the requested amount would therefore be appropriate in the circumstances.
Overall, given the quantum of increase and the need for ATCO to avoid potential shortfalls in the short term, the AUC found that an increase to a portion of the requested increase was warranted. However, given the submissions of ATCO on the effects of an increase of less than the full amount, and the contentiousness of the items listed above, the AUC held that ATCO had not demonstrated that an increase of less than 100 percent of the requested amount would impose financial hardship on ATCO.
Therefore, the AUC determined that ATCO’s interim rates should reflect an increase of 60 percent of ATCO’s 2015 forecast revenue requirement increase, or $17,157,800 per month after adjustments. The AUC held that these interim rates would become effective on April 1, 2015, and would continue in effect until such time as varied by either a new interim rate or a final rate.
