Decision D ATCO Electric Ltd. Compliance Filing to Decision D Capital Tracker True-Up

Transcription

1 Decision D ATCO Electric Ltd. Compliance Filing to Decision D Capital Tracker True-Up May 4, 2018

2 Alberta Utilities Commission Decision D ATCO Electric Ltd. Compliance Filing to Decision D Capital Tracker True-Up Proceeding May 4, 2018 Published by the: Alberta Utilities Commission Eau Claire Tower, 1400, 600 Third Avenue S.W. Calgary, Alberta T2P 0G5 Telephone: Fax: Website:

3 Contents 1 Decision Introduction and procedural background Compliance with Commission directions Direction 1: Project descriptions of all non-capital tracker projects and programs Direction 4: 2016 actual capital additions for the Fort McMurray North Service Building Project Directions 5 and 7: Accounting test requirements of Criterion 1 and Criterion actual K factor Direction 11: Refund of the amount resulting from this compliance filing Order... 7 Appendix 1 Proceeding participants... 9 Appendix 2 Commission directions from Decision D List of tables Table K factor true-up... 4 Decision D (May 4, 2018) i

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5 Alberta Utilities Commission Calgary, Alberta ATCO Electric Ltd. Compliance Filing to Decision D Decision D Capital Tracker True-Up Proceeding Decision 1. This decision provides the Alberta Utilities Commission s determination of ATCO Electric Ltd. s (ATCO Electric or AE) compliance with the Commission s directions issued in Decision D For the reasons outlined in this decision, the Commission determines that ATCO Electric has complied with the Commission s directions and approves ATCO Electric s 2016 K factor adjustment as applied for in the present compliance filing. The Commission approves the 2016 K factor true-up adjustment of $3.4 million arising from this decision to be included in ATCO Electric s 2019 performance-based regulation (PBR) rates, which will be established in the 2019 annual PBR rate adjustment filing due September 10, Introduction and procedural background 2. On February 23, 2018, the Commission issued Decision D , dealing with ATCO Electric s 2016 capital tracker true-up application. The decision included a direction to ATCO Electric to file a compliance filing by March 28, On March 28, 2018, ATCO Electric submitted its compliance filing with the Commission. The Commission issued a notice of application on April 5, 2018, providing an opportunity for interested parties who may be affected by the compliance filing to provide their statements of intent to participate (SIPs) by April 12, The Commission received SIPs from the Consumers Coalition of Alberta and the Office of the Utilities Consumer Advocate (UCA). 4. On April 11, 2018, ATCO Electric responded to a clarification information request (IR) that was issued by the Commission on April 5, On April 13, 2018, the Commission established a procedural schedule granting the Consumers Coalition of Alberta and the UCA an opportunity to test the application with a round of IRs to ATCO Electric. On April 19, 2018, the UCA advised the Commission that it would not be filing any IRs and did not see the need for any further process. After receiving ATCO Electric s responses to its IRs, the Consumers Coalition of Alberta advised the Commission on April 30, 2018, that it also did not see a need for any further process. 6. The Commission considers the record for this proceeding to have closed on April 30, 2018, when ATCO Electric and the Consumers Coalition of Alberta filed their submissions on the need for further process. 1 Decision D : ATCO Electric Ltd., 2016 Performance-Based Regulation Capital Tracker True-Up, Proceeding 22788, February 23, Decision D (May 4, 2018) 1

6 7. 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 PBR and capital tracker decisions. Accordingly, reference 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 Compliance with Commission directions 8. In Decision D , the Commission issued 12 directions. Direction 12 directed ATCO Electric to file this compliance filing by March 28, Five other directions related to this compliance filing. The Commission has reproduced all 12 directions in Appendix 2 to this decision, and addresses ATCO Electric s response to the five relevant directions, directions 1, 4, 5, 7 and 11, in turn, in the sections that follow. 9. ATCO Electric also filed schedules 2 in the compliance filing that contain the results of the updated accounting test calculations and information required to demonstrate compliance with the Commission s directions. 3.1 Direction 1: Project descriptions of all non-capital tracker projects and programs 10. In its 2016 capital tracker true-up application, ATCO Electric did not provide descriptions of its non-capital tracker projects and programs that adequately described the nature and purpose of the proposed project or program for understanding project or program groupings. Therefore, at paragraph 22 of Decision D , the Commission directed ATCO Electric to provide these project descriptions. 11. In response to this direction, ATCO Electric provided descriptions of its non-capital tracker projects and programs in Appendix B of the compliance filing. 3 Commission findings 12. The Commission has reviewed the non-capital tracker projects or programs descriptions provided by ATCO Electric and is satisfied that the descriptions meet the minimum filing requirements set out in Appendix 3, part 3a of Decision 3558-D Therefore, the Commission finds that ATCO Electric has complied with the Commission s direction in Decision D at paragraph Direction 4: 2016 actual capital additions for the Fort McMurray North Service Building Project 13. In Decision D , the Commission determined that the existing building space available in the Fort McMurray area was sufficient to maintain service quality in 2016 and, therefore, that the new Fort McMurray North Service Building was not required in Accordingly, the Commission denied capital tracker treatment of the 2016 actual capital 2 Exhibit X0002, application, Appendix A. 3 Exhibit X0001, application, Appendix B. 4 Decision 3558-D : Distribution Performance-Based Regulation Commission-Initiated Proceeding to Consider Modifications to the Minimum Filing Requirements for Capital Tracker Applications, Proceeding 3558, Application , April 8, Decision D (May 4, 2018)

7 additions for this project and directed ATCO Electric to remove the 2016 capital additions related to the Fort McMurray North Service Building Project from the Buildings, Structures and Leasehold Improvements Program In the compliance filing, ATCO Electric removed actual capital additions of $20.2 million associated with the Fort McMurray North Service Building Project. 6 Commission findings 15. The Commission has reviewed the supporting schedules provided by ATCO Electric in the compliance filing and is satisfied that ATCO Electric correctly removed the actual 2016 capital addition amounts denied for capital tracker treatment from the Buildings, Structures and Leasehold Improvements Program in its accounting test model. The Commission finds that ATCO Electric has complied with the Commission s direction in Decision D at paragraph Directions 5 and 7: Accounting test requirements of Criterion 1 and Criterion At paragraph 145 of Decision D , the Commission directed ATCO Electric to revise its accounting test for 2016, based on the actual capital additions that were subject to adjustment and Commission directions in other sections of Decision D Further, at paragraphs 145 and 156 of the same decision, the Commission directed ATCO Electric to use the revised accounting test for 2016 to reassess whether its programs included in the 2016 trueup satisfy the accounting test requirement of Criterion 1 and the two-tiered materiality test requirement of Criterion In the compliance filing, ATCO Electric indicated that it revised its 2016 accounting test to reflect the directions set out in Decision D and confirmed that the programs included in the 2016 true-up continue to satisfy the accounting test requirement of Criterion 1 and the two-tiered materiality requirement of Criterion 3. 7 Commission findings 18. The Commission has reviewed ATCO Electric s updated accounting test calculations and finds that ATCO Electric has updated its accounting test schedules to reflect the directions set out in Decision D Further, the Commission has reviewed ATCO Electric s reassessment of its 2016 capital tracker programs, and is satisfied that ATCO Electric s capital tracker programs continue to satisfy the accounting test requirements of Criterion 1 as well as the materiality requirements of Criterion 3. Therefore, the Commission finds that ATCO Electric has complied with the directions set out at paragraphs 145 and 156 of Decision D Accordingly, the Commission finds that each and all of ATCO Electric s programs included in the 2016 true-up, as shown in Table 1 below, satisfy the requirements of the first and third criteria for capital tracker treatment. 5 Decision D , paragraphs Exhibit X0002, application, Appendix A, Schedule 8-1, lines 50 and 180; Schedule 8-3, lines 6, 25 and Exhibit X0001, application, paragraphs 7-8. Decision D (May 4, 2018) 3

8 actual K factor 20. Having made the above changes to respond to the Commission s directions from Decision D , ATCO Electric recalculated its actual K factor for Table 1 below compares ATCO Electric s applied-for forecast 2016 K factor amounts, the actual 2016 K factor amounts applied for in Proceeding and the updated K factor amounts calculated in the compliance filing for each capital tracker program. As shown in Table 1, the removal of the Fort McMurray North Service Building Project 2016 capital additions proposed to be included in the Buildings, Structures and Leasehold Improvements Program resulted in a total 2016 actual K factor that is $0.5 million lower than the K factor applied for in Proceeding Table 1 also shows that the reduction in the K factor for the Buildings, Structures and Leasehold Improvements Program is offset by an increase of $0.1 million in the 2016 actual K factors for two programs, which was driven by changes to the income tax component. 22. In response to the Commission IR requesting clarification of the calculation of the tax component of the revenue requirement that determines the K factor, ATCO Electric explained why a decrease in capital additions in one program could increase the K factor in other programs. The calculated income tax is equal to the return and depreciation, less tax deductions, multiplied by the tax rate. Consistent with the methodology used to allocate capital cost allowance (CCA) in its capital tracker proceedings, ATCO Electric direct assigns CCA where possible and then allocates the remaining amount. This allocation methodology results in less CCA being allocated to the capital tracker programs, because a decrease in capital additions for one or more capital tracker programs results in a decrease in CCA available for the allocation. Less CCA being allocated to these programs reduces the total tax deductions available and increases the tax component of the revenue requirement used in the accounting test, which, in turn, increases the total revenue requirement and thus the K factor. 8 Table K factor true-up Capital tracker program 2016 approved forecast K factor actual K factor Proceeding actual K factor compliance filing 11 Variance A B C D=C-B ($ million) 1 Distribution to Transmission Contributions Information Technology Related Tools and Instruments Transportation Equipment Third-Party Driven Relocations New Extensions Exhibit X0008, AE-AUC-2018APR Decision D : ATCO Electric Ltd., 2014 True-Up and Forecast PBR Capital Trackers Compliance Filing, Proceeding 21516, August 4, 2016, Table Decision D , Table Exhibit X0001, application, Table Decision D (May 4, 2018)

9 Capital tracker program 2016 approved forecast K factor actual K factor Proceeding actual K factor compliance filing 11 Variance A B C D=C-B ($ million) 7 Overhead Line Rebuilds, Replacement, and Life Extension Wood Pole Replacements, and Life Extension Reliability Wild Fires Mitigation Underground Rebuilds, Replacements and Life Extension 12 Buildings, Structures & Leasehold Improvements (0.7) Total (0.5) Note: Totals may not match summation of each individual program due to rounding. Commission findings 23. In Decision D , based on the project assessment under Criterion 1, the Commission approved the need, scope, level, timing and the prudence of actual capital additions for each project or program that ATCO Electric included in the 2016 true-up, except for the capital additions related to the Fort McMurray North Service Building Project in the Buildings, Structures and Leasehold Improvements Program. Because this adjustment would affect actual 2016 costs for certain projects or programs, the Commission indicated it could not make a determination in that decision as to whether all of ATCO Electric s programs included in the 2016 true-up satisfy the project assessment requirement of Criterion Further, the Commission found the general form of ATCO Electric s accounting test model to be reasonable and consistent with the methodology approved in Decision However, because ATCO Electric s accounting test for 2016 needed to be revised, the Commission could not make a determination in that decision as to whether all of ATCO Electric s programs included in the 2016 true-up satisfied the accounting test requirement of Criterion 1 and accordingly, whether all of ATCO Electric s programs satisfied Criterion 1 in their entirety. 14 Similarly, the Commission indicated that it could not determine in that decision whether all of ATCO Electric s programs included in the 2016 true-up satisfied the materiality test requirement of Criterion In previous sections of this decision, the Commission determined that ATCO Electric has complied with directions 1, 4, 5, 7 and 12, as set out in Decision D Based on the Commission s review of ATCO Electric s capital tracker projects or programs included in the 2016 true-up, and its acceptance of the compliance filing calculations, the Commission finds the revised actual capital additions in 2016 to be prudent for each capital tracker project or program included in the 2016 true-up. Further, the Commission is satisfied that the methodology used to 12 Decision D , paragraph Decision : Distribution Performance-Based Regulation, 2013 Capital Tracker Applications, Proceeding 2131, Application , December 6, Decision D , paragraphs 141 and Decision D , paragraph 155. Decision D (May 4, 2018) 5

10 calculate the tax component of the revenue requirement in the accounting test is consistent with the methodology used in prior capital tracker proceedings. 26. In light of the above, the Commission finds that each and all of ATCO Electric s projects or programs included in the 2016 true-up, as part of this compliance filing, satisfy the requirements of each of the criteria for capital tracker treatment on an actual basis. Therefore, the Commission approves capital tracker treatment for these projects or programs and finds the resulting K factor calculations for 2016, as provided in the compliance filing, to be reasonable. 27. Based on the foregoing, the Commission approves, on an actual basis, the 2016 K factor of $47.6 million, as calculated in the compliance filing. 5 Direction 11: Refund of the amount resulting from this compliance filing 28. At paragraph 184 of Decision D , the Commission gave the following direction: 184. The Commission directs ATCO Electric to propose a method to refund the difference between the approved 2016 K factor forecast amount of $51.0 million and the approved 2016 K factor final true-up amount that will be reviewed by the Commission in the compliance filing to this decision. 29. In Decision D , 16 the Commission approved, on an interim basis, ATCO Electric s 2016 PBR rates which included a 2016 K factor placeholder amount of $43.4 million. 17 In Decision D , the Commission approved a 2016 K factor forecast of $51.0 million. 18 In Decision D , 19 the Commission directed ATCO Electric to include the difference between the approved 2016 K factor forecast and the 2016 K factor placeholder amount, which is equal to $7.6 million, in its 2017 PBR rates. 20 In this decision, the Commission has approved a 2016 K factor of $47.6 million on an actual basis, which is $3.4 million less than the 2016 K factor amount of $51.0 million collected in 2016 and 2017 PBR rates. Therefore, the 2016 K factor true-up amount arising from this decision is negative $3.4 million. 30. ATCO Electric proposed to include the $3.4 million 2016 K factor adjustment in its 2019 annual PBR rate adjustment filing. 21 Commission findings 31. The Commission finds ATCO Electric s proposal to include the approved 2016 K factor true-up amount of $3.4 million arising from this decision in its 2019 annual PBR rate adjustment filing to be reasonable, with the refund period to be determined as part of that proceeding. 16 Decision D : ATCO Electric Ltd., 2016 Annual Performance-based Regulation Rate Adjustment Filing, Proceeding 20822, December 17, Decision D , paragraph Decision D , paragraph Decision D : ATCO Electric Ltd., 2017 Annual Performance-Based Regulation Rate Adjustment Filing, Proceeding 21978, December 23, Decision D , paragraph Exhibit X0001, application, paragraph Decision D (May 4, 2018)

11 Accordingly, the 2016 K factor final true-up amount of $3.4 million arising from this decision is approved and shall be included as part of a proceeding to establish ATCO Electric s 2019 PBR rates. 6 Order 32. It is hereby ordered that: (1) The 2016 actual K factor of $47.6 million is approved. (2) The 2016 K factor adjustment amount of $3.4 million arising from this decision is approved and shall be included as part of a proceeding to establish ATCO Electric Ltd. s 2019 performance-based regulation rates. Dated on May 4, Alberta Utilities Commission (original signed by) Neil Jamieson Commission Member Decision D (May 4, 2018) 7

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13 Appendix 1 Proceeding participants Name of organization (abbreviation) Company name of counsel or representative ATCO Electric Ltd. (ATCO Electric) Consumers Coalition of Alberta Office of the Utilities Consumer Advocate (UCA) Alberta Utilities Commission Commission panel N. Jamieson, Commission Member Commission staff J. Graham (Commission counsel) A. Corsi Decision D (May 4, 2018) 9

14 Appendix 2 Commission directions from Decision D (return to text) Direction 1 The Commission has also reviewed ATCO Electric s capital tracker schedules, which include its non-capital tracker projects, and finds that ATCO Electric has generally complied with the Commission s directions in Appendix 3 of Decision 3558-D , with one exception. In Appendix 3, part 3a of Decision 3558-D , the Commission directed the distribution utilities to provide descriptions of all non-capital tracker projects and programs that adequately describe, for understanding project or program groupings, the nature and purpose of the proposed project or program. Given that ATCO Electric did not provide these descriptions in the application, the Commission directs ATCO Electric to provide project descriptions of all non-capital tracker projects and programs that adequately describe the nature and purpose of the proposed project or program in the compliance filing to this decision and in its 2017 true-up capital tracker application. 2 The Commission evaluated the ATCO Electric business cases, engineering studies, cost related information, and related evidence and argument against each of the project assessment minimum filing requirements. In this decision, the Commission comments only on those aspects of the minimum filing requirements that it considers were not sufficiently addressed by ATCO Electric s evidence or were otherwise raised as an issue in the proceeding. In the 2017 capital tracker true-up application, ATCO Electric is directed to continue to provide similar information with respect to each of the minimum filing requirements, including updated business cases, engineering studies and cost-related information, including actual costs by cost category and unit costs, in sufficient detail to allow an evaluation of the prudence of its incurred costs. 3 The Commission has reviewed ATCO Electric s project management policies and procedures and finds that ATCO Electric has complied with the direction set out at paragraph 52 of Decision D The Commission directs ATCO Electric to continue to provide this information in its 2017 capital tracker trueup application. 4 Accordingly, the Commission directs ATCO Electric to remove the 2016 capital additions related to the Fort McMurray North Service Building Project from the Buildings, Structures and Leasehold Improvements Program in its compliance filing to this decision. Reference paragraph from Decision D Reference to ATCO Electric s response in the application, Exhibit X Appendix B Not applicable related to the 2017 capital tracker application Not applicable related to the 2017 capital tracker application Appendix A, paragraphs 7 and Decision D (May 4, 2018)

15 Direction 5 For the same reason, the Commission cannot make a determination in this decision as to whether all of ATCO Electric s programs or projects included in the 2016 true-up satisfy the accounting test requirement of Criterion 1. The Commission directs ATCO Electric, in its compliance filing to this decision, to revise its accounting test for 2016, based on the directions set out in the previous sections of this decision, and reassess whether the capital tracker projects or programs included in the 2016 true-up satisfy the accounting test requirement of Criterion 1. 6 The Commission directs ATCO Electric, in its 2017 capital tracker true-up application, to address whether the driver for any of the previously approved forecast programs or projects has changed and, in the event that the driver of the project or program has changed since the forecast project or program was approved, to identify such projects and programs and to provide evidentiary support that each project or program continues to satisfy the requirements of Criterion 2, as previously directed at paragraph 502 of Decision 3218-D Given these findings, the Commission directs ATCO Electric, in its compliance filing to this decision, to reassess whether its programs or projects included in the 2016 true-up satisfy the two-tiered materiality test requirement of Criterion 3. For this reassessment, ATCO Electric will use the 2016 threshold amounts approved in this decision. 8 Because the Commission stated at paragraph 48 of Decision , that a company may apply for capital tracker treatment of capital expenditures after the capital additions are made, in Section 7 of this decision, the Commission approved projects proposed for capital tracker treatment on an actual basis, for which there were no Commission-approved forecasts. However, to aid the Commission and parties in evaluating such projects for prudence, in its 2017 capital tracker true-up application ATCO Electric is directed to include internal approved cost estimates for all projects or programs without an approved forecast that are proposed for capital tracker treatment on an actual basis The cost estimates should provide clear context identifying the project, relevant management signatures and dates. Reference paragraph from Decision D Reference to ATCO Electric s response in the application, Exhibit X0001 Appendix A, paragraph 5 Not applicable related to the 2017 capital tracker application Appendix A, paragraph 6 Not applicable related to the 2017 capital tracker application Decision D (May 4, 2018) 11

16 Direction 9 Regarding customer contributions, the Commission finds that the CCA has not sufficiently supported its concern. The Commission however agrees that this is a Terms and Conditions of Service issue, and specifically a maximum investment level issue, and considers that there is merit in having ATCO Electric provide a more detailed explanation. Accordingly, ATCO Electric is directed, in its next application dealing with its Terms and Conditions of Service or maximum investment levels, to explain how the length of investment term is determined, how much, if any, influence customers can have on it, and what safeguards are in place to protect customers from the concern the CCA has outlined. 10 In the 2017 true-up capital tracker application, ATCO Electric is directed to continue to provide similar information to that provided in its 2014, 2015 and 2016 true-up capital tracker applications, with respect to each of the minimum filing requirements, including updated business cases, engineering studies and cost-related information, with actual costs by cost category and unit costs, in sufficient detail to allow an evaluation of the prudence of its incurred costs. ATCO Electric is further directed to file its capital tracker business cases and updates, as filed in proceedings 3218, 20555, and this proceeding, for the programs and projects for which ATCO Electric is applying in its 2017 true-up capital tracker applications. 11 The Commission directs ATCO Electric to propose a method to refund the difference between the approved 2016 K factor forecast amount of $51.0 million and the approved 2016 K factor final trueup amount that will be reviewed by the Commission in the compliance filing to this decision. 12 ATCO Electric Ltd. is directed to file a compliance filing application in accordance with the directions contained within this decision on or before March 28, Reference paragraph from Decision D Reference to ATCO Electric s response in the application, Exhibit X0001 Not applicable related to a future application Not applicable related to the 2017 capital tracker application 184 Paragraph (1) Paragraph 2 12 Decision D (May 4, 2018)