PBR Regulation – Capital Tracker True-Up
In this decision, the AUC directed EPCOR to revise its accounting test for 2017 in a compliance filing.
AUC Process for Reviewing the 2017 Capital Tracker True-Up Application
The three criteria that must be satisfied in order for each project or program to receive capital tracker treatment are:
• Criterion 1 – the project must be outside the normal course of the company’s ongoing operations.
• Criterion 2 – ordinarily the project must be for replacement of existing capital assets or undertaking the project must be required by an external party.
• Criterion 3 – the project must have a material effect on the company’s finances.
Overview of Programs and Projects Included in the 2016 Capital Tracker True-Up Application
As part of the 2017 capital tracker true-up, EPCOR applied for the true-up of 25 programs or projects approved by the AUC for capital tracker treatment on a forecast basis in Decision 20407-D01-2016, with subsequent updates approved in the compliance filing Decision 21430-D01-2016. EPCOR also applied for the true-up of the following programs and projects in this application, on the basis that they satisfied all capital tracker criteria for 2017 on an actual basis:
• Vehicles – Growth and Life Cycle Replacements Project; and
• Replacement of Aerial Ground Rods and Underground Distribution Equipment Ground Grids Project.
The AUC accepted EPCOR’s grouping of projects and programs as proposed.
Criterion 1
The AUC found that it was reasonable for EPCOR to incur the additional costs to install the six-way ductline. The AUC accepted EPCOR’s evidence that the $1.7 million of capital additions on Circuit 24C related to the six-way ductline, was a prudent decision.
The AUC found the actual costs for all other 2017 actual capital additions were prudent.
Based on the project assessment under Criterion 1, the AUC approved the need, scope, level, timing and the prudence of actual capital additions for each project or program that EPCOR included in the 2017 true-up, subject to some adjustments and AUC directions, and with the exception of the Replacement of Aerial Ground Rods and Underground Distribution Equipment Ground Grids Project and the Vehicle Growth and Life Cycle Replacements Project. The AUC did not make a determination as to whether all of EPCOR’s programs or projects included in the 2017 true-up satisfied the project assessment requirement of Criterion 1.
Since the AUC was unable to approve the 2017 actual cost of debt as part of the weighted average cost of capital, the AUC did not make a determination as to whether all of EPCOR’s programs or projects included in the 2017 true-up satisfied the accounting test requirement of Criterion 1.
The AUC directed EPCOR to revise its accounting test for 2017, based on directions as set out in the previous sections of this decision, and to reassess whether the capital tracker projects or programs included in the 2017 true-up satisfied the accounting test requirement of Criterion 1.
Criterion 2
The AUC found there was no need to undertake a reassessment of the projects or programs included in EPCOR’s 2017 capital tracker true-up application against the Criterion 2 requirements because the driver or drivers did not change since the AUC undertook and approved the proposed programs.
Criterion 3
The AUC directed EPCOR to revise its accounting test based on approved 2017 actual capital additions. Accordingly, because EPCOR’s accounting test for 2017 needs to be revised, the AUC did not determine whether any of EPCOR’s programs or projects included in the 2017 true-up application satisfied the materiality test requirement of Criterion 3.
The AUC directed EPCOR to reassess whether its programs or projects included in the 2017 true-up application satisfied the two-tiered materiality test requirement of Criterion 3. For this reassessment, the AUC directed EPCOR to use the approved 2017 threshold amounts.
For the 2017 capital tracker true-up application, EPCOR used the 2017 four basis point threshold of $0.104 million and the 40 basis point threshold of $1.038 million, calculated by escalating the respective 2012 amounts by the approved 2013, 2014, 2015, 2016, and 2017 I-X index values. EPCOR then assessed each of the capital tracker projects included in the 2017 true-up application against the two-tiered materiality test, in accordance with the requirements set out in Decision 2013-435.
2017 True-Up Application K Factor Calculations
The AUC directed EPCOR to file its proposal to true-up the difference between its applied-for 2017 capital tracker true-up costs, approved to be collected in Decision 23896-D01-2018 (Errata), and the 2017 actual K factor as part of the compliance filing to this decision.
