Rates – Compliance Filing
In this decision, the AUC considered an application filed by ATCO Pipelines (“AP”), a division of ATCO Gas and Pipelines Ltd., requesting approval of its compliance filing to Decision 23793-D01-2019, for AP’s 2019-2020 general rate application (“GRA”). This decision also addressed compliance with Decision 20514-D02-2019 (“IT Common Matters Decision”), for information technology common matters and the associated costs to ATCO Gas and Pipelines Ltd. and ATCO Electric Ltd. A separate IT Common Matters Decision was concurrently issued by the AUC for ATCO Electric Ltd.’s transmission function in Proceeding 24805. The AUC approved the majority of AP’s compliance application but there were outstanding items that will require a second compliance filing.
Introduction
AP applied with the AUC on August 15, 2019, requesting approval of its compliance filing to Decision 23793-D01-2019, AP’s 2019-2020 GRA. In its application for approval of its transmission revenue requirement in the compliance filing, AP requested the AUC’s approval or confirmation of:
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The 2019 forecast revenue requirement of $274,530,000 and its 2020 forecast revenue requirements of $304,730,000 as final, subject to any placeholders;
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The finalization of all outstanding 2019 and 2020 reserve accounts and deferral accounts;
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The disposition of the information and technology costs and 2018 generic cost of capital (“GCOC”) placeholders; and
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Its compliance with directions given in previous decisions.
Concerning the GCOC placeholders beyond 2018, AP noted that the equity thickness and return on equity placeholders for 2019 and 2020 included in the GRA were equivalent to the percentages approved in Decision 22570-D01-2018.
Background
In the IT Common Matters Decision, the ATCO Transmission Utilities (AP and ATCO Electric Ltd. for its transmission function, referred to as “ATCO Electric”) were directed to apply (i) a reduction of 13 per cent in pricing in year one (2015) of the master service agreements (“MSAs”); and (ii) a glide path that reduces prices on a weighted average across towers by 4.61 per cent in each of years two through 10 of the MSAs. The ATCO Transmission Utilities were directed to file their compliance applications to the IT Common Matters Decision in the compliance filings to their GRA or general tariff application (“GTA”). Separate directions were issued for ATCO Gas – Distribution, and ATCO Electric – Distribution (“ATCO Distribution Utilities”).
AP’s GRA decision, Decision 23793-D01-2019, included its proposed revenue requirement for 2019-2020. The AUC approved AP’s 2018 opening rate base on an actual basis. In the decision, the AUC gave further directions on 2018 closing rate base, 2019 opening rate base and other substantive matters to be addressed in this compliance filing or future GRAs. The AUC directed, with respect to one of AP’s facilities projects, the Pembina-Keephills project, that it was more efficient to address the rates and facilities matters for the project in Proceeding 23799. The AUC approved placeholder treatment for the project costs until a determination was made in Proceeding 23799. The AUC also assigned a placeholder for one program, the Weld Assessment and Repair Program (“WARP”), due to Review Proceeding 24176. The AUC noted that any determination in the review proceeding may affect the consideration of the forecast WARP costs related to AP’s 2019-2020 GRA.
Compliance with AUC Directions
The AUC was satisfied that the compliance application and subsequent information request (“IR”) responses adequately addressed many of the directions, and set those out in Appendix 3 of its decision. It also set out directions that relate to future applications in Appendix 5 of its decision.
In its decision, the AUC focused on issues identified by interveners or the AUC, including AP’s compliance with directions 1, 3, 4, 10, 12, 13, 27, 28, 30, and 35 from Decision 23793-D01-2019, and directions 1 and 4 from the IT Common Matters Decision.
Decision 23793-D01-2019
Direction 1 – 2019 Opening Rate Base
AP was directed to provide its 2018 rate base actuals in the compliance filing. The AUC was satisfied with the variance explanations provided by AP concerning its 2018 rate base and capital expenditures, including variances between forecast and actual. The AUC approved AP’s 2018 closing rate base balance and the related 2019 opening rate base, subject to the AUC’s determination regarding a further true-up of property, plant, and equipment (“PP&E”) for 2018 and 2019 related to the IT Common Matters Decision.
AP was directed, in future compliance filings, to report actual expenditures by specific project and report all projects exceeding $500,000 that were not identified in the previous GRA and explain any deviations of over/under expenditures for large projects ($500,000+) against forecast expenditures.
Direction 3 – Weld Assessment and Repair Program
Given that WARP was under consideration in Proceeding 24176, the AUC directed AP to set the WARP placeholder amount at $0. AP complied with this direction. On January 10, 2020, the AUC issued Decision 24176-D01-202023 granting AP’s variance of Decision 22986-D01-2018 and Decision 23537-D01-2018 (Errata). By granting AP’s variance, the AUC approved AP’s capitalized 2016 actual and forecast 2017-2018 reinspection and incremental repair costs (WARP costs) for inclusion in AP’s 2017 opening rate base and 2017-2018 revenue requirement. AP was directed to revise its WARP placeholder to reflect the findings from Decision 24176-D01-2020 in the second compliance filing to this decision.
Direction 4 – Remote Operating Valve (“ROV”) Program
AP was directed to provide additional information regarding the installation of ROVs. The AUC found that AP complied with Direction 4, by providing evidence of growing widespread industry consensus on their necessity and value; an explanation of advantages and disadvantages, as well as detailed cost estimates.
Direction 10 – Depreciation Expense
Direction 10 of Decision 23793-D01-2019 stated:
127. For these reasons, the Commission accepts ATCO Pipelines’ proposal to credit depreciation expense in the amount of $1,584,000. ATCO Pipelines is directed to record the credit entry to depreciation expense as a one-time adjustment in the 2019 test year in its compliance filing to this decision. However, ATCO Pipelines is directed to record the debit side of the entry to the account of the shareholder because the shareholders were originally the beneficiaries of the PPA [prior period adjustment] in 2012 and that accounting was in error. ATCO Pipelines shall therefore not recover the debit side of the directed accounting entry through rate base or through revenue requirement.
In response to Direction 10, AP stated that it reflected the one-time adjustment to depreciation expense of $1,584,000, as directed. However, AP added that notwithstanding that Direction 10 sought to correct for the overcollection of depreciation expense collected from customers in revenue requirement from 2001 to 2012, it did not take into account the impact on return calculations during that same time frame in which accumulated depreciation was overstated.
… while customers over contributed to depreciation in the amount of $1,584,000, that impact was partially offset by reduced rate base and correspondingly reduced regulated returns, until corrected by the 2012 prior period adjustment …
AP requested that the AUC consider the effect the error had on rate base and correspondingly, return on equity, and the appropriateness of symmetrically correcting for both these items. AP estimated the pre-tax return impact to be approximately $623,000, which reflected the returns resulting from the effect the error had on the lower rate base. The AUC agreed with this submission and found that AP had complied with Direction 10.
Directions 12 and 13 – Pressure Vessel Inspection Compliance Program
Direction 12 required AP to provide a revised timeline that included a risk assessment if the pressure vessel inspection compliance program was completed over a longer timeframe. AP was also required under Direction 13 to provide a status update on its pressure vessel inspection compliance program.
The AUC noted that with respect to Direction 12, although AP did not provide a revised timeline for the program to comply with the direction, it explained that implementing the program over a longer period would cause AP to be in non-compliance with CSA Z662 and API RP 510 for a greater period of time. The AUC accepted that AP’s Pressure Vessel Inspection Compliance Program is necessary to bring AP into compliance with CSA Z662 and API RP 510, and that AP’s timeline was reasonably supported. The AUC found that additional information provided by AP complied with Direction 13.
Direction 30 – Deferral Accounts
AP was directed to include any differences in the deferral balances arising from December 31, 2018, actual amounts in its compliance filing. The AUC found that in the application, AP did not provide any explanations of the adjustments made to deferral account balances and had not sufficiently complied with Direction 30. As no explanations were provided on the updated amounts in the deferrals, the AUC was not prepared to approve the requested one-time settlement of $3,896,000. The AUC directed AP, in its second compliance filing to this proceeding, to provide the explanations, and any supporting calculations, of the adjustments made to each deferral account balance identified.
Direction 35 – Head Office Rent
The AUC directed AP to file in its compliance filing, any information or evidence on how its corporate cost allocator for head office rent may be affected by the AUC’s findings and determinations issued in the decision on Proceeding 22742 (where the AUC was considering head office rent and corporate allocations).
AP did not apply a proration formula to its compliance filing that was applied to ATCO Electric to reduce its head office costs. The AUC considered head office rent should be consistently calculated and that AP should provide information on the allocation of its costs employing a proration formula and using the best available information on total square footage, to ensure that no cross-subsidization of rent costs occurred or will occur between each of the ATCO Transmission Utilities, and between individual regulated and unregulated utilities in the ATCO Group of companies. The AUC directed AP to file, in its second compliance filing, a recalculation of its head office rent based on the AUC’s findings and determinations issued in the decision arising from Proceeding 25282 (a variance application of 22742-D01-2019).
Directions Related to IT Common Matters Costs
This portion of the decision mirrored AUC Decision 24805-D01-2020, ATCO Electric Transmission, 2018-2019 General Tariff Application Compliance Filing, which is summarized in this newsletter. The only difference between this decision and Decision 24804-D01-2020 was an order for AP to provide a 2018 capital true-up associated with the IT common matters in AP’s second compliance filing, with any 2019 IT capital true-up in its next GRA, consistent with the true-up of non-IT costs. In addition, for ATCO Electric, the AUC commented on ATCO Electric’s tax deferral account.
