Rates – Refund
This decision discussed the reasons for approving, in part, AltaLink Management Ltd.’s (“AML”)’s 2021-2023 tariff refund application. AML’s proposal was not accepted as applied for. The amount of the tariff refund and the period over which the refund will be made was revised. In Decision 26248-D01-2021, the AUC found a 2021 tariff refund in the amount of $230 million, which results in a net 2021 tariff reduction in the amount of $223,512,7813 and net monthly tariff for April to December 2021 in the amount of $45,851,942 to be just and reasonable.
Introduction
On January 18, 2021, AML filed an application for approval of a proposed 2021-2023 tariff refund. AML proposed to refund $150 million of previously collected future income taxes (“FIT”) and $200 million of accumulated depreciation surplus, which would result in a reduction to its transmission tariff of $131.2 million in 2021, $123.6 million in 2022, and $62.5 million in 2023.
After a notice of application was filed, Alberta Direct Connect Consumers Association (“ADC”), the Consumers’ Coalition of Alberta (“CCA”), the COVID Relief Alliance (“CRA”), the Industrial Power Consumers Association of Alberta (“IPCAA”), the Alberta Electric System Operator (“AESO”) and the Office of the Utilities Consumer Advocate (“UCA”) registered as participants.
Proposed Tariff Refund
The FIT Refund Approved in Decision 26248-D01-2021 Does Not Offend the Prohibitions Against Retroactive and Retrospective Ratemaking
AML had proposed to refund previously collected FIT in the amount of $150 million. Contrary to concerns raised by the CCA and the AESO, the AUC determined that the proposed refund does not offend the prohibitions against retroactive and retrospective ratemaking. The AUC had approved FIT for AML, on a temporary basis, to provide credit metric relief during a period of strong capital build by allowing AML to pre-collect income tax amounts before they needed to be paid.
AML had requested to implement a FIT refund in 2021-2023, effective as soon as possible following AUC approval. The AUC determined that this request does not constitute retroactive ratemaking because the requested refund implementation date is after the date of the decision. The relief would therefore be effective on a prospective basis. The AUC noted that contrary to replacing or substituting the final amounts collected from ratepayers in prior periods under the FIT method, refunding previously collected FIT amounts to ratepayers on a prospective basis is not retroactive.
The AUC determined that AML’s proposal is not retrospective because it does not seek to remedy a past rate order’s deficiency in future rates. The AUC noted that the FIT amounts previously paid by AML customers and the findings related to the approval of those payments would not be disturbed by this decision. AML no longer required credit metric relief and did not anticipate paying income tax for approximately 24 years until the point of cross-over. AML’s proposal concerns how the FIT balance paid by past ratepayers should be distributed to current and future ratepayers, and the AUC was satisfied that the proposal mitigates concerns regarding intergenerational equity. The AUC noted that the proposal made it likely, that those ratepayers that paid into the FIT balance would be the ones receiving a refund.
The AUC noted the exceptional circumstances faced by ratepayers due to the COVID-19 pandemic. It found it necessary to consider all possibilities of rate relief in 2021. It also noted that considering the effect of the COVID-19 pandemic, even if the proposal from AML resulted in retroactive or retrospective ratemaking, applying these principles strictly in the circumstances would not result in sound utility regulation.
The Tariff Refund Approved in Decision 26248-D01-2021 Results in Just and Reasonable Rates
In Decision 26248-D01-2021, the AUC approved a tariff refund in the amount of $230 million to be refunded in 2021. It found that the timing and quantum of the FIT and accumulated depreciation surplus amount to be refunded by AML to Alberta ratepayers result in just and reasonable rates.
The AUC acknowledged that, all else being equal, the refund of $230 million decreases 2021 rates but leads to an increase in 2022 rates. This increase would be a result of the debt and equity return costs associated with the FIT and accumulated depreciation surplus refunds, and the accompanying increase in rate base. However, the exceptional circumstances faced by Albertans and businesses in 2021, including the effects of the COVID-19 pandemic and the collapse in world oil prices, brought an unprecedented need for immediate ratepayer belief. The AUC noted that in these circumstances, the relief should not be unduly diminished by undue adherence to ratemaking principles and that some immediate and temporary ratepayer relief is warranted. Considering the timing of the refund, the AUC found that the exceptional circumstances of 2021, noted above, made the approved timing preferable to the refund over a longer period, such as 2021-2022, as was proposed by AML.
AML had proposed a refund of the accumulated depreciation (life) surplus of $200 million. The amount was calculated on the basis of its proposed December 31, 2019, depreciation study. The AUC could not fully test the proposed depreciation study in the current proceeding and rejected both the amount of accumulated depreciation surplus and the method used to calculate that amount. AML then updated its accumulated depreciation surplus calculation to rely on the application of the service life and Iowa curve depreciation parameters submitted by AML in its December 31, 2017, depreciation study, which had been approved by the AUC. The technical update calculations showed that while the total accumulated depreciation (life) surplus in December 2019 was $160 million, a 2021-only refund in the amount of $80 million would leave a remaining balance of $80 million of accumulated depreciation.
The AUC therefore found that a 2021 tariff refund in the amount of $230 million, consisting of $150 million in FIT and $80 million in accumulated depreciation, would result in a just and reasonable tariff. AML’s compliance with the net tariff reduction ordered in Decision 26248-D01-2021 resulted in a revised 2021 net monthly tariff of $45,851,942 for April through December 2021.
