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ATCO Electric Ltd. 2023-2025 General Tariff Application and Negotiated Settlement Agreement, AUC Decision 27062-D01-2023

Link to Decision Summarized

Electricity – Rates

Application

As a transmission facility owner (“TFO”), ATCO Electric Ltd (“AE”) recovers the costs of providing regulated electric transmission service through a transmission tariff that must be approved by the AUC. AE recovers the AUC-approved tariff amounts through the Alberta Electric System Operator (“AESO”), which collects the costs of transmission services provided to Alberta ratepayers.

AE applied for approval of a Negotiated Settlement Agreement (“NSA”) regarding its 2023-2025 general tariff application (“GTA”) and determination of three excluded issues.

Decision

The AUC approved the NSA. The AUC also approved the revenue requirements adjustments and the implementation of two new deferral accounts.

In respect of the excluded issues, the AUC: (i) approved the elimination of AE’s Vegetation Management Reserve (“VMR”); (ii) approved modifications to AE’s Variable Pay Program (“VPP”) reserve; and (iii) disallowed true-up treatment of the $7.5 million undepreciated balance for the Jasper Palisades isolated generation plant.

Applicable Legislation

Electric Utilities Act, SA 2003, c E-5.1 ss 122, 132 and 135.

AUC Rule 018: Rules on Negotiated Settlements

Isolated Generating Unit and Customer Choice Regulation, Alta Reg 165/2003 – ss 20 and 22.

Pertinent Issues

The NSA

The AUC found that the NSA was negotiated under a fair process, is in the public interest, and results in just and reasonable rates. The AUC, therefore, approved the NSA.

Vegetation Management Reserve

In AUC Decision 20272-D01-2016, the AUC directed the implementation of a VMR due to the historic variance between forecast and actual vegetation management costs. AE requested that the VMR be discontinued because the reasons it was created no longer apply. Given that the evidence demonstrates that AE’s forecasts have been more closely aligned with its actual vegetation management, the AUC found that it is reasonable to transition away from the VMR over the 2023-2025 test period. The AUC directed AE to maintain the VMR for 2023 but approved the elimination of the VMR beginning in 2024.

VPP Reserve

In AUC Decision 20272-D01-2016, AE was directed to establish a reserve account for its ratepayer-funded VPP. The reserve account mechanics were structured such that AE could not recover more than its approved VPP forecast amounts for a given year, nor carry over any unused VPP funds into a future test period. The VPP reserve was designed to address AE’s need to fund VPP in support of its recruitment, retention, and operational performance goals while ensuring that any incentive to withhold VPP amounts to increase the utility’s retained earnings was removed. AE requested two changes to its VPP reserve mechanics. It sought to: (i) exclude direct assigned capital VPP from the VPP reserve account; and (ii) include the revenue requirement amount related to the portion of capitalized VPP amounts in the reserve account, rather than the total amount of the non-direct assigned capital VPP forecast costs.

The AUC found that as a result of disaggregating the three components of the VPP (Operations and Maintenance, non-direct assigned capital and direct assigned capital), and given that variances between actual and approved capitalized expenditures are settled through the direct assigned capital deferral account, there is no need to track these costs through the VPP reserve. The AUC further noted that a reserve account is used to fund specific expenses that are paid out infrequently or at unpredictable intervals and are funded in advance through rates. The revenue requirement amount related to the portion of capitalized VPP amounts in the reserve account, rather than the total amount of the non-direct assigned capital VPP forecast costs, is the proper amount that should be reflected in the VPP reserve account. This is because these amounts reflect what AE has collected from ratepayers over each of the test periods towards the funding of AE’s non-direct assigned VPP before ATCO Electric distributes the VPP payout to its employees. The AUC approved the proposed changes to the mechanics of the VPP reserve.

True-up for Undepreciated Jasper Palisades Power Plant Switchgear Assets

As a result of an accounting error, from 2009 to 2020 certain switchgear assets forming part of AE’s Jasper Palisades Power Plant (“JPPP”) were depreciated at rates consistent with longer-lived transmission and general plant assets, rather than at a depreciation rate reflecting the expected shorter-lived assets. The accounting error resulted in a remaining undepreciated balance of $7.5 million at the time all JPPP assets were removed from service. AE submitted that it is just and reasonable for the AUC to approve the proposed $7.5 million one-time true-up of the switchgear assets in its 2023 tariff to provide AE with a reasonable opportunity to recover these costs.

The AUC denied the request and found that the correct undepreciated balance concerning the JPPP switchgear assets should be $0, permanently disallowing recovery of the undepreciated amount. The AUC found AE’s explanation of how the undepreciated balance arose to be incomplete. The AUC found the error to have occurred due to an initial incorrect booking of the investment and thereafter an ongoing failure to discover and correct the mistake. The AUC held that there were reasonable opportunities for AE to discover and correct the mistake. The AUC further found that placing costs associated with AE’s error on ratepayers provides the wrong incentives to AE and creates issues of intergenerational equity. The AUC, therefore, denied the true-up request.

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