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ATCO Electric Ltd. Disposal of 2018-2021 Transmission Deferral Accounts and Annual Filing for Adjustment Balances, AUC Decision 26573-D01-2023

Link to Decision Summarized

Electricity – Rates

Application

ATCO Electric Ltd. (“AE”) applied for approval of its 2018-2021 transmission direct assigned capital deferral accounts (“DACDAs”) and annual filing for adjustment balances (the “DACDA Application”). AE requested approval of a one-time net refund to the Alberta Electric System Operator (“AESO”) of $11.3 million.

Decision

The AUC disallowed the recovery of the following amounts from Alberta electricity customers, increasing the total amount of the refund to the AESO:

  • $4.381 million of forgone return on rate base related to its treatment of customer contributions;
  • $3.0 million related to AE’s imprudent management and execution of the Jasper Transmission interconnection Project (the “Jasper Project”);
  • A further 20 percent reduction for amounts imprudently incurred connected with AE’s engagement of Backwoods Contracting Ltd. (“Backwoods”) on the Jasper Project; and
  • $0.250 million for work conducted in an effort to mislead and conceal information associated with AE’s decision to engage Backwoods on the Jasper Project.

Applicable Legislation

Alberta Utilities Commission Act, SA 2007, c A-37.2. – ss 8 and 63.

Canadian Energy Regulator Pipeline Damage Prevention Regulations – Authorizations, SOR/2016-124, ss 2 and 6 – 14.

Pertinent Issues

Background and Application Process

AE initially filed its DACDA Application for the 2018-2020 period in June 2021. In October 2021, after oral argument, AE requested that the AUC stay its release of the decision regarding that application. AE advised that a matter that was under an ongoing internal and AUC enforcement staff investigation could impact the recoverable amount. The AUC approved the stay application.

On April 14, 2022, AUC enforcement staff and AE entered into a settlement agreement regarding the matter, which related to AE’s imprudent management and execution of the Jasper Project. The AUC approved the settlement on June 29, 2022. As part of the settlement, AE agreed to amend the initial DACDA Application, and on July 13, 2022, the AUC reopened the proceeding admitting the amended 2021 DACDA Application on the record.

Issue 1: Has AE Complied with Previous AUC Directions?

There were three outstanding directions (5, 7 and 12) from Decision 24375-D01-2020. The AUC found that AE complied with directions 5 and 12 and held that no further action was required in relation to both of them.

In Direction 7 of AUC Decision 24375-D01-2020, the AUC required that AE charge air travel costs at no more than commercial airlines’ economy fare. AE stated that an applicable adjustment had not been incorporated into its application on the basis that the amount at issue is immaterial. The AUC determined that AE did not comply with this direction. The AUC directed AE to reduce its applied-for costs by $11,267 in its compliance filing to this decision.

The AUC further determined that AE had not sufficiently complied with Direction 3 of Decision 22393-D02-2019, which required that AE charge legal counsel travel time at 50 percent of the hourly rate rather than the 100 percent rate used by AE. AE submitted that it would apply the reduction in the compliance filing to this decision.

Issue 2: Are AE’s Canceled Project Costs Reasonable?

In the 2021 DACDA Application, AE outlined its proposal to recover the net costs associated with the three categories of cancelled direct assigned projects: Cancelled System Projects; Cancelled Customer Projects; and Cancelled Other Projects. AE requested approval of the recovery of a net amount of $2.585 million for cancelled direct assigned projects during 2018-2021.

The AUC determined that the costs incurred for projects classified as Cancelled System Projects and Cancelled Other Projects costs were reasonable.

Customer Projects are initiated by a market participant (or customer) to facilitate the construction of, and that customer’s connection to, a transmission facility. The customer funds the project, which is built for the customer’s benefit and use, by making a customer contribution to the transmission facility owner (“TFO”), which is responsible for Alberta’s transmission system, where the customer project is located. The costs incurred by the TFO to construct the customer project are offset by the customer contribution.

AE, as the TFO, received and retained customer contributions to cover the project costs from the relevant market participants for 14 cancelled Customer Projects before their cancellation. AE requested permission to recover $4.381 million through its DACDA Application for what it submitted was a benefit received by Alberta electricity customers. AE argued that the benefit represented a revenue shortfall for AE, connected with the 14 Cancelled Customer Projects. It indicated that this customer benefit/revenue shortfall arose because customer contributions associated with the Cancelled Customer Projects were not removed from the rate base and acted as an offset to AE’s 2017-2021 rate base.

The AUC decided that the difference may not be trued up. The AUC determined that there were no Customer Project costs for AE to recover, as AE had retained the customer contributions associated with the cancelled projects. As a result, AE could not characterize the amounts as revenue shortfalls.

What AE described as a “benefit” to Alberta electricity customers can equally be characterized as AE’s forgone return on rate base from 2017 to 2021. In either case, the amount is not a cost that has been booked into a deferral account. The AUC further noted that granting permission to AE to recover any forgone return for the 2018-2021 period would constitute impermissible retroactive ratemaking.

Issue 3: Were AE’s Capital Costs on the Jasper Project Prudently Incurred

Following adjustments directed by the AUC, AE requested approval of capital additions for the Jasper Project of $105.5 million to December 31, 2021. These costs exceed the $84.0 million cost that AE expected to incur in its proposal to provide service.

The AUC disallowed the recovery of $3.0 million for the imprudent management and execution of the consultation, regulatory and approval phases of the Jasper Project. The AUC determined that AE made unreasonable assumptions and did not adequately assess foreseeable risks, which contributed to project delays.

The AUC ordered AE to submit a compliance filing that reflects the findings, conclusions and directions in the decision on or before May 29, 2023.

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