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ATCO Electric Ltd. Decision on Preliminary Question Application for Review and Variance of Decision 27062-D01-2023 2023-2025 General Tariff Application and Negotiated Settlement Agreement, AUC Decision 28241-D01-2023

Link to Decision Summarized

Electricity – Application for Review

Application

ATCO Electric Ltd. (“AE”) applied for a review of Decision 27062-D01-2023, (the “Decision”) concerning AE’s 2023-2025 general tariff application (“GTA”).

Decision

The AUC dismissed the application from AE for review and variance of the Decision.

Pertinent Issues

The Decision concerns AE’s GTA for the 2023-2025 period. In 2018, the AUC approved an application filed by AE and AltaLink Management Ltd. to construct and operate a transmission line to connect the Municipality of Jasper, Jasper National Park, and the surrounding area (“Jasper”) to the provincial power grid. In 2019, the AUC authorized AE to discontinue operation of the Jasper Palisades Power Plant, which previously provided Jasper with electricity, and to decommission and salvage it. At the time of AE’s last depreciation study, AE anticipated that 2020 would be the year of final retirement for all the assets comprising the Jasper Palisades Power Plant. Accordingly, commencing in 2021, AE set a depreciation rate for all Jasper Palisades Power Plant asset accounts to zero percent, notwithstanding that AE intended to continue to record an annual amortization of reserve differences true-up amount over the 2023-2025 test period.

AE then prepared a sales offering for the Jasper Palisades Power Plant, as required under the Isolated Generating Unit and Customer Choice Regulation (“ISGUCCR”). While doing so, AE discovered it had recorded switchgear assets that were part of the Jasper Palisades Power Plant in incorrect depreciable transmission asset accounts, instead of the correct power plant asset accounts. This meant that, from 2009 onwards, the switchgear assets were depreciated at incorrect depreciation rates reflecting longer-lived transmission assets. AE requested, in its GTA, that the hearing panel approve a one-time $7.5 million adjustment to its depreciation expense to correct the accounting error and to allow the recovery of the amount in 2023. The AUC denied the request.

AE asserted that the hearing panel made five errors of fact, or mixed fact and law where the legal principle is not readily extricable, in relation to its findings in the Decision, which are discussed below.

Did the AUC Err in Mixed Fact and Law by Concluding it is Not Just and Reasonable to Allow Recovery of the $7.5 Million Adjustment

AE argued that the AUC erred in applying the just and reasonable standard to facts and policy considerations arising from honest mistakes generally and the accounting error specifically. During the original proceeding, AE stated that the AUC did not consider the impacts or fairness to the utility.

AE further submitted that the AUC’s determination that AE had foregone its reasonable opportunity was factually incorrect. Because AE tariffs from 2009 to 2020 were based on the mistake of capitalizing the switchgear assets to the incorrect accounts, AE submitted that its tariffs did not and could not provide a reasonable opportunity to recover the entirety of the switchgear asset costs over this time frame. Therefore, it did not forgo this opportunity. AE further argued that the hearing panel erred in mixed fact and law by applying the “reasonable opportunity” only to the 2009-2020 timeframe, rather than the 2023-2025 timeframe.

The AUC determined that AE’s grounds were outside the scope of AUC Rule 016: Review of Commission Decisions (“Rule 016”). The AUC emphasized that a review panel’s task is not to retry an application based on its interpretation of the evidence nor to second guess the weight assigned to any evidence by a hearing panel. The AUC saw no compelling reason to depart from this approach. The review panel was not persuaded that there is an error of fact, or mixed fact and law, which was material to the decision and existed on a balance of probabilities, and dismissed ATCO’s first ground of review on this basis.

Did the AUC Err in Fact, or Mixed Fact and Law, by Concluding that AE had “Forgone” the Reasonable Opportunity to Recover the $7.5 Million Adjustment in the 2023-2025 Tariff

AE argued that the AUC conflated its honest mistake with foregoing a reasonable opportunity to recover its costs under s 122 (1)(a) of the Electric Utilities Act (“EUA”). The AUC determined that the hearing  panel was live to the reasonable opportunity requirement, whether AE had a reasonable opportunity to recover its investments from 2009 to 2020 and whether it was reasonable to include the costs at issue in AE’s 2023-2025 tariff. The AUC dismissed this ground for review raised by AE as it was not persuaded that there is an error of fact, or mixed fact and law, which was material to the decision and existed on a balance of probabilities.

Did the AUC Err in Fact by Concluding that AE Did Not Apply Sufficient Diligence in Identifying the Accounting Error Sooner

AE submitted that its accounting error arose from an honest mistake. It argued that the AUC erred in fact when it found that AE made a second error in 2016 when AE did not discover the accounting error in response to a specific AUC direction in Decision 20272-D01-2016. AE argued that the 2016 direction did not specifically direct AE to undertake a physical fixed asset verification check, which is how AE ultimately identified the error at the time of sale. Therefore, the AUC erred in concluding that AE, having failed to conduct such a check, did not apply sufficient or reasonable diligence, or otherwise failed to comply with the 2016 direction.

The AUC observed that the 2016 direction was regarded as a targeted additional opportunity for AE to identify and correct the error that existed during a 12-year continuous period, as the 2016 direction was focused on the Jasper Palisade Power Plant assets.  Since the hearing panel found that reasonable opportunities existed for AE to discover the error over a 12 year continuous period, the review panel’s task is not to retry AE’s 2023-2025 GTA based upon its own interpretation of the evidence nor is it to second guess the weight assigned by the hearing panel to various pieces of evidence. The AUC was not persuaded that these grounds represent an error as required under Rule 016 and dismissed this ground.

Did the AUC Err in Fact by Finding that the Proposed $7.5 Million Adjustment was Inconsistent with the Purpose of the Amortization of Reserve Differences Account

In Proceeding 27062, AE argued that its proposed depreciation adjustment would be consistent with the amortization reserve for differences (“ARD”) mechanism. The hearing panel disagreed, finding that AE’s request was inconsistent with the purpose of the ARD mechanism in the specific circumstances of the case.

AE argued that the AUC erred in finding that ARD is restricted to true-up past “mis-estimates.” AE submitted that ARD refunds or collects any surpluses or shortfalls of accumulated depreciation over the average remaining life of an asset account.

The review panel was not convinced that the findings in the Decision referred to by AE extend to a finding that a transfer of assets more generally is not permitted under the ARD mechanism. The review panel further noted that in the Decision the hearing panel qualified its findings, specifying that they apply in the specific circumstances for reasons noted in that decision.

The AUC determined that AE was requesting that the review panel retry the 2023-2025 GTA based on its own interpretation of the evidence and to second guess the weight assigned by the hearing panel to various pieces of evidence. The AUC declined to do so.

Further, AE stated that, contrary to the finding in the Decision that “in particular, the [AUC] rejects [AE’s] suggestion that this mechanism, in effect, confers a specific entitlement that provides it with an indemnity for its errors related to mass property accounting and depreciation practices,” it did not argue or state that the ARD “conferred a specific entitlement that provides it with an indemnity for its errors.” Rather, AE argued, its position in Proceeding 27062 was that in the absence of its forthcoming application under the ISGUCCR, where the undepreciated capital cost for the assets could be recovered from the Balancing Pool, the recalculation of ARD at the time of the next depreciation study would be another “opportunity” to true up the deficiency in accumulated depreciation because of the misclassification. AE submitted that the AUC’s characterization of the requested relief in the Decision is an error of fact.

The review panel determined that the hearing panel understood that AE, as a general practice, updates the ARD true-up at the time of a new depreciation study. The AUC considered this general ARD true-up practice to be a separate issue from AE’s argument in Proceeding 27062 that the $7.5 million depreciation adjustment to the ARD was appropriate in the circumstances. Therefore, the AUC dismissed this ground for review.

Did the AUC Err in Fact, or Mixed Fact and Law, in Concluding that the “Correct Undepreciated Balance” of the Switchgear Assets Should be $0

AE argued that the hearing panel erred in stating that an issue not covered in the negotiated settlement agreement and denied by the AUC was AE’s request to collect $7.5 million in depreciation related to the Jasper Palisades amounts that were incorrectly accounted for, and determined that the correct undepreciated balance concerning the switchgear assets should be $0. AE submitted that there was no factual basis for the hearing panel to conclude that the accurate undepreciated balance should be $0 for purposes of s 20 of the ISGUCCR.

The review panel held that, in the Decision, the hearing panel found that the $7.5 million of undepreciated capital cost connected with the switchgear assets was a permanent capital disallowance and was not recoverable from current ratepayers. The AUC agreed with intervener submissions that the finding that undepreciated cost should be $0 reflects the hearing panel’s finding that no further undepreciated costs connected with the switchgear assets would be recoverable from ratepayers from 2023 onwards. The AUC was not convinced that an error of fact, or mixed fact and law, which was material to the Decision and existed on a balance of probabilities. The application for review was dismissed.

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