Capital Tracker
This decision sets out the AUC determination regarding the compliance of ATCO Gas, the distribution division of ATCO Gas and Pipelines Ltd., with the AUC’s directions issued in Decision 23789-D01-2019.
The AUC found that ATCO Gas did not comply fully with the AUC’s directions and denied, in part, ATCO Gas’ 2017 applied-for K factor adjustments.
The AUC approved:
(a) the 2017 actual K factor for the New Regulating Meter Station (“NRMS”) Program in the amount of $0.521 million for ATCO Gas North and $0.366 million for ATCO Gas South; and
(b) that portion of the 2017 actual cost (i.e., net book value or “NBV”) of assets transferred from ATCO Pipelines, the transmission division of ATCO Gas and Pipelines Ltd., to ATCO Gas in excess of forecast attributable to contributions being transferred and recorded separately as opposed to being netted against capital expenditures as they were in the forecast.
The AUC denied:
(a) the portion of the 2017 actual cost (i.e., NBV) of assets transferred from ATCO Pipelines to ATCO Gas in excess of forecast attributable to:
(i) additional assets required as a result of the completion of the detailed design; and
(ii) additional capital work completed on the transmission line after the original estimate.
The AUC directed ATCO Gas to calculate and remove the capital additions associated with these costs from its calculation of its 2017 K factor.
Compliance with AUC directions
Direction 1 – Breakdown of costs for NRMS program projects
Direction 1 required ATCO Gas to provide a breakdown of costs for the NRMS program projects identified by the AUC, which reflected the top five projects in terms of capital expenditures for each of ATCO Gas North and ATCO Gas South.
The AUC found that ATCO Gas complied with Direction 1. The 2017 actual K factor for the NRMS Program in the amount of $0.521 million for ATCO Gas North and $0.366 million for ATCO Gas South was approved.
Direction 2 – Explanation of increases in net book value for assets transferred from ATCO Pipelines to ATCO Gas
Direction 2 in Decision 23789-D01-2019 required a further explanation of material increases in NBV of transferred Utility Pipelines Replacement (“UPR”) assets:
… ATCO Gas is directed to provide a list in the compliance filing to this proceeding that includes each UPR pipeline project, a detailed description and associated dollar amounts of the additional assets required as of the time of the transfer of assets. The additional assets that must be included in the list are those assets required to complete the detailed design and those assets that were required due to the additional capital work completed on the transmission line two years or more after the original NBV estimate was generated.
The AUC found that ATCO Gas did not meet its evidentiary burden of adequately explaining and reasonably justifying the increase in NBV due to (i) work orders dating back to the 1950s relating to additional assets required as a result of the completion of the detailed design; and (ii) additional capital work completed on the transmission line after the original estimate.
Accordingly, the AUC found that the information provided by ATCO Gas did not reasonably support a finding that the increased costs (i.e., NBV) arising from the claimed need for additional assets or additional capital work beyond the costs originally anticipated were prudent.
The AUC accepted ATCO Gas’ explanation for the increase in NBV for (i) contributions being transferred and recorded separately as opposed to being netted against capital expenditures (as they were in the forecast) and approved these amounts for inclusion in the K factor. The AUC was not persuaded that the evidence filed by ATCO Gas adequately established that the costs associated with the (ii) additional assets required as a result of the completion of the detailed design, and the (iii) additional capital work completed on the transmission line after the original estimate were prudent and, as such, required these amounts to be removed from ATCO Gas’ 2017 K factor.
The AUC provided the following directions to ATCO for its 2021 annual rate adjustment application:
(a) to review all the UPR assets transferred from ATCO Pipelines to ATCO Gas to confirm that all of the assets are used and useful or required to be used for gas distribution service. ATCO Gas must identify in its 2021 PBR annual rate filing any assets that are not required for the provision of gas distribution service and remove those assets from the ATCO Gas rate base;
(b) to revise its accounting test for 2017, based on the findings and directions in this decision, and to reassess whether the capital tracker programs or projects included in the 2017 true-up satisfy the accounting test requirements of Criterion 1; and
(c) to reassess whether its projects or programs included in the 2017 true-up continue to satisfy the two-tiered materiality test requirement of Criterion 3.
