EPCOR Distribution & Transmission Inc.

Transcription

1 Decision D June 23, 2017

2 Alberta Utilities Commission Decision D Proceeding June 23, 2017 Published by the: Alberta Utilities Commission Fifth Avenue Place, Fourth Floor, 425 First Street S.W. Calgary, Alberta T2P 3L8 Telephone: Fax: Website:

3 Contents 1 Decision Introduction Background Discussion of issues WACC calculation Effective date of the CS45 rate Commission findings Order... 4 Appendix 1 Proceeding participants... 5 Appendix 2 Summary of Commission directions... 6 Decision D (June 23, 2017) i

4

5 Alberta Utilities Commission Calgary, Alberta 2017 Customer Specific Distribution Access Service Decision D Rate Proceeding Decision 1. In this decision, the Alberta Utilities Commission approves EPCOR Distribution & Transmission Inc. s (EPCOR or EDTI) customer specific (CS) distribution access service (DAS) rate for a new customer, CS45, of $ per day, effective July 6, This rate is subject to a true-up based on the actual 2017 weighted average cost of capital (WACC) and in-service date. 2 Introduction 2. On April 25, 2017, EPCOR filed an application with the Commission requesting approval for a CS DAS rate for a new customer. EPCOR requested approval for a CS45 rate of $ per day effective July 6, The Commission issued notice of the application on April 26, 2017, and invited parties who wished to comment on the application to provide their statements of intent to participate (SIPs) on or before May 3, No SIPs were received. 4. The Commission determined that the application would be considered by way of a basic written process, as outlined in Commission Bulletin , 2 and set out a process and schedule. The Commission issued information requests (IRs) to EPCOR on May 18, 2017, to which EPCOR responded on May 26, The Commission considers the record of this proceeding to have closed on May 26, In reaching the determinations set out in this decision, the Commission has considered all relevant materials comprising the record of this proceeding, as well as related information and decisions. References in this decision to specific parts of the record are intended to assist the reader in understanding the Commission s reasoning relating to a particular matter and should not be taken as an indication that the Commission did not consider all relevant portions of the record with respect to this matter. 3 Background 7. The CS rate class, which would include CS45 if this application is approved, is available to customers with energy demand over 5,000 kilowatts. 1 2 Exhibit X0001, application, page 1. Bulletin , Performance standards for processing rate-related applications, March 26, Decision D (June ) 1

6 8. EPCOR calculates its CS DAS rates based on the cost-of-service principles and methodology approved in Decision Under this methodology, depreciation, return and operating, maintenance, and general costs are allocated to the customer based on its use of the assets. 9. In the application, EPCOR indicated that it applied the same methodology to calculate the CS DAS rate CS45 that was used and approved for previous CS customers, designated as CS43 and CS44, in Decision D Discussion of issues 4.1 WACC calculation 10. Calculating the revenue requirement associated with the capital-related costs included in the CS rate requires the use of a WACC, which is comprised of the return on equity (ROE), embedded cost of debt and equity thickness. The 2017 ROE of 8.5 per cent and equity thickness of 37 per cent were approved for EPCOR in Decision D However, for this application, EPCOR requires a forecast of the embedded cost of debt for 2017 since the actual cost of debt would not be known until the end of that year. 11. In the application, EPCOR provided a table showing the 2017 forecast WACC used in calculating the new CS rate to be 5.92 per cent. In response to EDTI-AUC-2017MAY18-001, 7 EPCOR explained the WACC used in the application was not the same as the previously approved 2017 forecast WACC of 6.50 per cent used for capital tracker purposes, which was calculated based on the 2014 actual cost of debt, the most current information available at the time. The 2017 forecast WACC of 5.92 per cent used in this application is based on more recent information and was calculated using the 2016 cost of debt based on 2016 actual ending debt balance. 12. As part of the same IR response, EPCOR proposed an updated 2017 forecast WACC of 6.38 per cent. EPCOR explained that in its 2016 Rule filing, the company adopted a new approach to calculate cost of debt. Specifically, EPCOR calculated the embedded cost of debt for Rule 005 reporting purposes as though new debt issued during the reporting year attracted a full year of interest expense, with the subsequent application of the mid-year rule. Prior to the change, EPCOR calculated its embedded cost of debt based on its actual interest expense incurred in the Rule 005 reporting year relative to the principal amount of all debt outstanding at the end of the year. 13. Based on the updated 2017 forecast WACC of 6.38 per cent, EPCOR provided an updated rate calculation schedule for CS45 resulting in a new CS45 rate of $ per day Decision :, Customer Specific Distribution Access Service Rate for New Customer, Proceeding 1731, Application , June 8, Exhibit X0001, application, pages 1-2. Decision D : Customer Specific DAS Rates (CS43 and CS44) for a New Customer, Proceeding 21700, August 30, Decision D : Generic Cost of Capital, Proceeding 20622, October 10, Exhibit X0008, EDTI-AUC-2017MAY , page 2. Rule 005: Annual Reporting Requirements of Financial and Operational Results. 2 Decision D (June 23, 2017)

7 4.2 Effective date of the CS45 rate 14. EPCOR proposed that the new CS rate be effective July 6, In response to EDTI- AUC-2017MAY18-002, EPCOR explained that the proposed CS rate is sensitive to the inservice date. In the event the actual in-service date differs from the July 6, 2017 date used in the application, EPCOR proposed to true up the difference through an adjustment to be included either in the 2018 annual performance-based regulation (PBR) rate adjustment application or as directed by the Commission. 9 5 Commission findings 15. The methodology used by EPCOR to calculate the CS45 rate is the same cost-of-service methodology that was used by EPCOR in its calculation of other CS rates, previously approved in Decision and most recently confirmed in Decision D , approving the CS43 and CS44 rates. The Commission has reviewed EPCOR s proposed calculations of the CS45 rate and finds them to be reasonable and consistent with the previously approved methodology. 16. In response to a Commission IR, EPCOR proposed to use the 2017 WACC estimate of 6.38 per cent based on the ROE and equity thickness approved for 2017 and using the 2016 actual embedded cost of debt reported in its 2016 Rule 005 filing as an estimate for 2017 cost of debt. 10 The Commission finds the use of a WACC of 6.38 per cent reasonable as a placeholder, until the actual 2017 WACC is known, i.e., when the actual embedded cost of debt becomes available for The Commission observes that as part of the true-up for the 2014 rates CS39 and CS40 approved in Decision D , 11 EPCOR included the reconciliation of WACC to reflect the ROE and equity thickness approved for 2014 and the actual embedded cost of debt for Consistent with this approach, the Commission directs EPCOR to true up rate CS45 to reflect the actual 2017 WACC. 18. Furthermore, and consistent with the past practices, the Commission directs EPCOR to true up any differences if the actual in-service date differs from the July 6, 2017, the effective date contemplated in the application. For purposes of regulatory efficiency, EPCOR is directed to true up the CS45 rate to reflect both the 2017 actual WACC and the actual in-service date at the same time, as part of the 2019 annual PBR rate adjustment application to be filed in September Given the information provided in the application and responses to IRs were sufficient to explain the proposed CS DAS rate, the CS45 rate of $ is approved for 2017, subject to a true-up to reflect the 2017 actual WACC and in-service date Exhibit X0008, EDTI-AUC-2017MAY , page 5. Exhibit X0008, EDTI-AUC-2017MAY , page 3 Decision D :, 2016 Annual PBR Rate Adjustment Filing, Proceeding 20821, December 15, Exhibit X0004, Appendix D, and Exhibit X0001, tables and , EPCOR Distribution & Transmission Inc Annual PBR Rate Adjustment Filing, Proceeding Decision D (June 23, 2017) 3

8 20. In granting approval of the application for the proposed CS45 rate, the Commission expressly does not authorize the recovery by EPCOR of any amount payable by the rate CS45 customer from other EPCOR customers in the event of default or bankruptcy of the rate CS45 customer. The Commission directs EPCOR to bring to its attention any such unpaid amount, at which time the regulatory treatment of the outstanding amounts will be determined. 21. Following the establishment of the CS45 rate based on cost-of-service principles, the PBR methodology requires the calculation of a base rate for determining the PBR rates for subsequent years. For 2018, the Commission expects that the 2018 CS45 rate under PBR will be calculated using the same method as for other PBR rates, involving the calculation of a base rate and application of the I-X index and any rate adjustments approved as part of the PBR plan for EPCOR. 6 Order 22. It is hereby ordered that: (1) s new customer specific distribution access service CS45 rate of $ per day is approved, effective July 6, (2) shall true up any differences to reflect the actual 2017 weighted average cost of capital and in-service start date as part of the 2019 annual performance-based regulation rate adjustment filing. Dated on June 23, Alberta Utilities Commission (original signed by) Mark Kolesar Vice-Chair 4 Decision D (June 23, 2017)

9 Appendix 1 Proceeding participants Name of organization (abbreviation) Company name of counsel or representative (EPCOR or EDTI) Alberta Utilities Commission Commission panel M. Kolesar, Vice-Chair Commission staff K. Dumanovski (Commission counsel) S. Sharma A. Spurrell Decision D (June 23, 2017) 5

10 Appendix 2 Summary of Commission directions This section is provided for the convenience of readers. In the event of any difference between the directions in this section and those in the main body of the decision, the wording in the main body of the decision shall prevail. 1. The Commission observes that as part of the true-up for the 2014 rates CS39 and CS40 approved in Decision D , EPCOR included the reconciliation of WACC to reflect the ROE and equity thickness approved for 2014 and the actual embedded cost of debt for Consistent with this approach, the Commission directs EPCOR to true up rate CS45 to reflect the actual 2017 WACC.... Paragraph Furthermore, and consistent with the past practices, the Commission directs EPCOR to true up any differences if the actual in-service date differs from the July 6, 2017, the effective date contemplated in the application. For purposes of regulatory efficiency, EPCOR is directed to true up the CS45 rate to reflect both the 2017 actual WACC and the actual in-service date at the same time, as part of the 2019 annual PBR rate adjustment application to be filed in September Paragraph In granting approval of the application for the proposed CS45 rate, the Commission expressly does not authorize the recovery by EPCOR of any amount payable by the rate CS45 customer from other EPCOR customers in the event of default or bankruptcy of the rate CS45 customer. The Commission directs EPCOR to bring to its attention any such unpaid amount, at which time the regulatory treatment of the outstanding amounts will be determined.... Paragraph 20 6 Decision D (June 23, 2017)