EPCOR Distribution & Transmission Inc.

Transcription

1 Decision D EPCOR Distribution & Transmission Inc Transmission Facility Owner Tariff and 2013 Generic Cost of Capital Compliance Application April 15, 2016

2 Alberta Utilities Commission Decision D EPCOR Distribution & Transmission Inc Transmission Facility Owner Tariff and 2013 Generic Cost of Capital Compliance Application Proceeding April 15, 2016 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 Introduction Compliance with directions from Decision D Compliance with directions from Decision 3539-D Direction 23 Transmission work for others Approvals requested Order... 6 Appendix 1 Proceeding participants... 7 Appendix 2 Commission directions addressed in compliance application... 8 Appendix 3 Commission directions to be addressed in future applications List of tables Table 1. EDTI s forecast revenue requirements... 2 Decision D (April 15, 2016) i

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5 Alberta Utilities Commission Calgary, Alberta EPCOR Distribution & Transmission Inc Transmission Facility Owner Tariff and Decision D Generic Cost of Capital Compliance Application Proceeding Introduction 1. On January 4, 2016, EPCOR Distribution & Transmission Inc. (EDTI) filed a combined compliance filing related to Decision 3539-D in respect of its transmission facility owner (TFO) tariff and Decision D in respect of its 2013 generic cost of capital (2013 GCOC) refiling, with the Alberta Utilities Commission. 2. In the combined compliance filing, EDTI requested approval of its transmission facility revenue requirement for , its transmission rates for , and its TFO terms and conditions. EDTI requested true-ups for the years 2013 and 2014 to reflect the 2013 GCOC decision and, for the year 2015, EDTI requested true-ups related to both the TFO tariff and the 2013 GCOC decision as well as the difference between EDTI s approved 2015 interim rate and final 2015 rate. With respect to 2016, EDTI requested a true-up related to the TFO tariff decision and the difference between EDTI s approved 2016 interim rate and the final 2016 rate. All of the requested true-ups were incorporated into an aggregated, one-time true-up shortfall adjustment in the (net) amount of $0.54 million, 3 to be added to EDTI s July 2016 TFO rate. 3. The combined compliance filing provided responses to the Commission s directions in Decision 3539-D in respect of EDTI s TFO tariff and Decision D in respect of its 2013 GCOC refiling. EDTI provided updated schedules and revenue requirement reconciliations, which identified the adjustments to revenue requirement resulting from Commission determinations. The adjusted revenue requirements were $93,867,300 for 2015, $99,816,130 for 2016 and $98,591,311 for The following table compares the components of the originally applied-for forecast revenue requirements and the adjusted revenue requirements: Decision 3539-D : EPCOR Distribution & Transmission Inc., Transmission Facility Owner Tariff, Proceeding 3539, Application , October 21, Decision D : EPCOR Distribution & Transmission Inc., 2013 Generic Cost of Capital Compliance Filing, Proceeding 20692, November 10, Consisting of: (1) 2013 true-up refund of $0.92 million, plus (2) 2014 true-up refund of $1.27 million, plus (3) 2015 true-up refund amount of $0.16 million, less (4) 2016 (January to June) true-up shortfall of $2.89 million. Decision D (April 15, 2016) 1

6 Table 1. EDTI s forecast revenue requirements 2015 TFO forecast 2015 TFO adjusted forecast 2016 TFO forecast 2016 TFO adjusted forecast 2017 TFO forecast 2017 TFO adjusted forecast ($ million) Fuel Operating costs Depreciation Return on rate base Income tax expense Revenue offsets (0.25) (0.37) (0.26) (0.38) (0.27) (0.39) Deferral and reserve accounts 3.03 (0.18) Total Source: Decision 3539-D , Table 2 and Proceeding 21229, Exhibit X0006, Schedule The Commission issued notice of application for the combined compliance filing on January 5, 2016, setting a participation closing date of January 19, Statements of intent to participate were received from AltaLink Management Ltd. and the Consumers Coalition of Alberta (CCA) prior to the participation closing date. 5. AltaLink indicated that it planned to monitor the proceeding, but reserved the right to participate if specific issues of concern materialized. The CCA indicated that it expected to file information requests (IRs), review IR responses, and file argument and reply argument. 6. On January 22, 2016, the Commission established a written process for the combined compliance filing. The schedule for the proceeding is presented below: Process step Deadline IRs to EDTI Friday, February 5, 2016 EDTI responses to IRs Monday, February 22, In its January 22, 2016 letter, the Commission set out a deadline of February 29, 2016, for comments on whether further process was required. No registered party indicated that further process was required, including any filing of argument or reply argument. 8. The Commission issued a letter indicating that the record of this proceeding closed on March 1, In reaching the determinations set out within this decision, the Commission has considered all relevant materials comprising the record of this proceeding. Accordingly, 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 that matter. 2 Decision D (April 15, 2016)

7 2 Compliance with directions from Decision D In Decision D , with respect to EDTI s refiling for the 2013 GCOC decision, the Commission provided two directions. In its combined compliance filing, EDTI responded to Direction 1, regarding the approved debt to equity ratios (included in Appendix 2 to this decision), and indicated that Direction 2, which is related to the return on equity (ROE) and debt to equity ratios and Rule filings (included in Appendix 3 to this decision), would be addressed in a future application. 11. The Commission is satisfied that EDTI s combined compliance filing adequately addresses and responds to Direction 1 and that compliance with Direction 2 will apply to a future application. 3 Compliance with directions from Decision 3539-D In Decision 3539-D , for EDTI s TFO tariff, the Commission provided 48 directions. In its combined compliance filing, EDTI responded to these directions or identified the future proceedings in which the Commission s directions would be addressed. 13. In this combined compliance decision, the Commission has provided its findings regarding the relevant directions. With the exception of Direction 23 discussed below, and directions that apply to future TFO applications, the Commission has reviewed EDTI s responses and additional information provided on the record of this proceeding pertaining to these directions, and considers that EDTI s responses comply with the directions. The Commission is satisfied that the combined compliance filing adequately addresses and responds to directions 1, 2, 3, 5, 6, 12, 13, 14, 16, 18, 19, 20, 21, 22, 24, 25, 26, 27, 29, 30, 32, 33, 34, 35, 36, 37, 38, 39, 40, 42, 43, 44, 45 and 48. These directions, for which the Commission has determined EDTI has complied, are included in Appendix 2 to this decision. 14. Directions 1, 4, 7, 8, 9, 10, 11, 15, 17, 28, 31, 35, 37, 41, 46 and 47 apply to future TFO tariff applications and are included in Appendix 3 to this decision. These directions are not discussed in the sections below and, as provided for in Decision 3539-D , EDTI must address these directions in its future TFO tariff applications. 15. The Commission observes that Direction 1 for EDTI s comparative analysis and directions 35 and 37 for two specific capital projects have components that are addressed in this proceeding as well as in future applications and have therefore been identified in both appendices 2 and Direction 23 Transmission work for others 16. In Decision 3539-D , the Commission directed EDTI as follows: 354. Accordingly, the Commission directs EDTI to incorporate the use of a three-year average using actuals to determine its transmission work for others for inclusion in its forecast revenue requirement, in the compliance filing to this decision Rule 005: Annual Reporting Requirements of Financial and Operational Results. Decision 3539-D , paragraph 354. Decision D (April 15, 2016) 3

8 17. In its combined compliance filing, EDTI submitted that it had used a three-year average of its 2012 to 2014 actual costs in order to calculate its forecast expenses, which were then increased by an approved overhead factor and cost recovery surcharge to calculate forecast revenues EDTI stated that it had updated its forecast expenses related to transmission work carried out for others using the three-year average calculation methodology described in Section of its TFO tariff application and Section 2.3 of its combined compliance filing. EDTI submitted that this methodology for the calculation of forecast expenses for work carried out by EDTI s transmission function for others was previously approved at paragraph 23 of Decision 3474-D EDTI then calculated the forecast revenue related to transmission work for others by adding an overhead factor of 69 per cent to the direct labour costs and an additional 20 per cent cost recovery surcharge EDTI clarified in information responses that, where it forecasts costs or revenues on the basis of a three-year historical average of actual results, EDTI consistently uses its refined method rather than a simple average approach. 10 EDTI submitted that its refined three-year average forecasting method first escalates 2012 and 2013 costs into 2014 dollars, and then takes the simple average of these costs. Having arrived at a three-year average cost in 2014 dollars, EDTI then applies approved or forecast escalators to each cost category to determine the 2015, 2016 and 2017 costs, and then applies the approved or forecast overhead factors and cost recovery surcharges to determine 2015, 2016 and 2017 revenues. 11 EDTI submitted that the Commission approved EDTI s use of its refined approach in Decision The total revenue requirement impact was a reduction of $0.03 million in each of 2015, 2016 and Commission findings 22. The Commission has reviewed EDTI s combined compliance filing and the information responses provided on the record of this proceeding pertaining to Direction 23, and considers that EDTI has complied with this direction. Although EDTI did not employ a simple three-year average of 2012 to 2014 actual revenue from transmission work for others, the Commission considers that EDTI s refined three-year average calculation methodology adequately accounts for inflation escalation and has been approved in prior Commission decisions. The Commission finds EDTI s refined approach is reasonable and in compliance with Direction Exhibit X0001, TFO Tariff and 2013 GCOC Refiling, paragraph 56. Decision 3474-D : EPCOR Distribution & Transmission Inc., Transmission Facility Owner Tariff Compliance Filing, Proceeding 3474, Application , February 12, Exhibit X0001, TFO Tariff and 2013 GCOC Refiling, paragraph 57. Exhibit X0001, TFO Tariff and 2013 GCOC Refiling, paragraph 58 Exhibit X0015, EDTI-ACU-2016FEB22-005(a). Exhibit X0015, EDTI-ACU-2016FEB22-005(b). Decision : EPCOR Distribution & Transmission Inc., 2012 Phase I and II Distribution Tariff, 2012 Transmission Facility Owner Tariff, Proceeding 1596, Application , October 5, 2012, paragraphs Exhibit X0001, TFO Tariff and 2013 GCOC Refiling, paragraph Decision D (April 15, 2016)

9 4 Approvals requested 23. In its combined compliance filing, EDTI requested approval of its TFO revenue requirement for , its transmission rates for , and its TFO terms and conditions. 24. EDTI also requested the 2013 and 2014 true-up refund amounts of $0.92 million and $1.27 million, respectively, which reflect the 2013 GCOC decision. With respect to 2015, EDTI requested a true-up refund amount of $0.16 million, which reflects both the TFO tariff and 2013 GCOC decisions, and the difference between the revenue recovered by EDTI under its approved 2015 interim rate and the final 2015 rate that is reflected in its combined compliance filing. With respect to 2016, EDTI requested a true-up shortfall (collection) amount of $2.89 million, which reflects the TFO tariff decision and the difference between the revenue to be recovered by EDTI under its approved 2016 interim rate and the final 2016 rate that is reflected in its combined compliance filing. All of the requested true-ups were incorporated into an aggregated, one-time true-up shortfall adjustment, in the (net) amount of $0.54 million, 14 to be added to EDTI s July 2016 TFO rate. Commission findings 25. In addition to the Commission s determinations in sections 3 and 3.1 of this decision, where the Commission found that EDTI had complied with Direction 23 and all other directions identified in Appendix 2 of this decision, the Commission approves EDTI s 2015 revenue requirement in the amount of $93,867,300; 2016 revenue requirement in the amount of $99,816,130; and 2017 revenue requirement in the amount of $98,591, The 2013 true-up refund amount of $0.92 million; the 2014 true-up refund amount of $1.27 million; the 2015 true-up refund amount of $0.16 million; and the 2016 true-up shortfall amount of $2.89 million are the same amounts proposed in the application. The aggregated net shortfall amount of $0.54 million, when added to the July TFO rate, will result in the same recovery amounts that EDTI has included in the revenue requirement for the years 2013, 2014, 2015 and Accordingly, the Commission approves the 2013 true-up refund amount of $0.92 million; the 2014 true-up refund amount of $1.27 million; and the 2015 true-up refund amount of $0.16 million on a final basis. The true-up for the 2016 shortfall amount of $2.89 million is approved, subject to the results of any placeholder or deferral account true-ups and the decision arising from the 2016 GCOC proceeding. 27. Accordingly, the Commission approves EDTI s 2016 and 2017 rates and rate schedules as set out in its Schedule TFO-A for 2016 and TFO-A for The Commission has reviewed EDTI s TFO terms and conditions as set out in Schedule TFO-B, and the terms and conditions are approved, as filed Consisting of (1) 2013 true-up refund $0.92 million, plus (2) 2014 true-up refund $1.27 million, plus (3) 2015 true-up refund amount $0.16 million, less (4) 2016 true-up shortfall for January to June 2016 $2.89 million. Exhibit X0004, Schedule TFO-A 2016; and Exhibit X0005, Schedule TFO-A Exhibit X0021, Schedule TFO-B, EDTI transmission terms and conditions dated March Decision D (April 15, 2016) 5

10 5 Order 29. It is hereby ordered that: (1) EPCOR Distribution & Transmission Inc. s transmission facility owner revenue requirements of $93,867,300 for 2015, $99,816,130 for 2016 and $98,591,311 for 2017 are approved, as filed. (2) EPCOR Distribution & Transmission Inc. s transmission facility owner rates for 2015, 2016 and 2017 are approved, as filed. (3) EPCOR Distribution & Transmission Inc. s transmission facility owner terms and conditions are approved, as filed. Dated on April 15, Alberta Utilities Commission (original signed by) Mark Kolesar Vice-Chair (original signed by) Bill Lyttle Commission Member (original signed by) Kate Coolidge Acting Commission Member 6 Decision D (April 15, 2016)

11 Appendix 1 Proceeding participants Name of organization (abbreviation) Company name of counsel or representative EPCOR Distribution & Transmission Inc. (EDTI) AltaLink Management Ltd. (AltaLink) Consumers Coalition of Alberta (CCA) Wachowich & Co. Alberta Utilities Commission Commission panel M. Kolesar, Vice-Chair B. Lyttle, Commission Member K. Coolidge, Acting Commission Member Commission staff A. Sabo (Commission counsel) K. Kellgren (Commission counsel) L. Mullen D. Cherniwchan S. Karim M. Kopp-van Egteren M. McJannet Decision D (April 15, 2016) 7

12 Appendix 2 Commission directions addressed in compliance application (return to text) This section is provided for the convenience of readers and identifies the directions from Decision D and Decision 3539-D that the Commission finds have been satisfied. In the event of any difference between the directions in this section and those in the main body of Decision D and Decision 3539-D , the wording in the main body of those decisions shall prevail. Decision D EDTI is directed to use the 2013 GCOC Commission-approved debt to equity ratio, with 64.0 per cent debt to 36.0 per cent equity, on a final basis for each of 2013, 2014 and 2015, and to recalculate its forecast transmission capital structure and average cost of capital and transmission return on rate base for accordingly in its compliance filing to this decision (in which the Commission will jointly consider the compliance filing to Decision 3539-D ).... Paragraph 27 Decision 3539-D On that basis, the Commission considers that for the purposes of this decision, EDTI appears to have effectively complied with Direction 16, but directs EDTI to confirm in its compliance filing that it has not made any changes in any comparative analyses to the approved numbers and dollar values from previous decisions with respect to FTE reallocations between O&M and capital costs. The Commission also directs that in future applications, EDTI shall expressly identify and fully explain any changes made in its comparative analyses to the approved numbers and dollar values from previous decisions or, if no such changes have been made, to indicate this in the application.... Paragraph The Commission expects that EDTI s compliance with Direction 31 will be addressed in Proceeding and in EDTI s compliance filing to that decision. However, the Commission directs EDTI, in its compliance filing to this decision, to recalculate its forecast transmission capital structure, and average cost of capital and transmission return on rate base for 2015, using the Commission-approved debt and equity ratios of 64.0 per cent and 36.0 per cent respectively. In the order section of this decision (Section 13), the Commission has included additional time for EDTI to submit its compliance filing, to allow EDTI the opportunity to include any adjustments to its generic cost of capital for 2013 and 2014 that may arise from the decision in Proceeding Paragraph Given the inconsistency of costs from one year to the next, or from one forecasting period to the next, the Commission considers that a three-year average using the most recent actuals available is sufficient for the purposes of forecasting life cycle projects such as emergency replacement of equipment. The Commission acknowledges that project cost forecasts are uncertain and can differ in any given year due to unforeseen circumstances. The expectation is that the cost forecasts would, on average, be close to the actuals over time, as over-forecasting and under-forecasting are experienced. For all projects that are forecast as a bucket, the Commission directs EDTI to use a three-year average of 2012 to 2014 actuals in its compliance filing to this decision.... Paragraph 80 8 Decision D (April 15, 2016)

13 5. In light of the preceding analysis regarding the relatively constant size of EDTI s system and the historical expenditures on performance improvement projects, the Commission finds that the forecast operating FTE additions for the test period have not been adequately supported. Accordingly, the Commission directs EDTI to reduce the forecast operating FTEs for each of the test years by 2.0 FTEs.... Paragraph EDTI is directed to use an average cost per FTE of $130,000 for 2015 and $140,000 for 2016 and 2017, which results in FTE-related operating cost reductions of $260,000 for 2015 and $280,000 for each of 2016 and EDTI is further directed not to substitute contractor resources or increased overtime for the directed FTE reductions made for the test years, for the purposes of calculating its revenue requirement for the test years, in its compliance filing. EDTI is also directed to provide a schedule identifying where the directed FTE adjustments have been made in the compliance filing.... Paragraph The record of the proceeding is unclear as to whether the 3.5 per cent escalation rate proposed for 2015 was inclusive of all labour, merit and step increases. In the compliance filing to this decision, the Commission directs EDTI to confirm whether its proposed escalation rate for non-union employees included all labour, merit and step increases. EDTI is also directed to indicate in its compliance filing, whether its application of the approved escalation rates for non-union employees includes all labour, merit and step increases.... Paragraph During the course of the proceeding, the collective agreement with the CSU was ratified for the period For , the Commission finds EDTI s salary escalation rates agreed to in the new collective agreement for the CSU to be reasonable on a final basis. No placeholder during the forecast period is required, given that the agreement with the CSU was ratified during the course of the proceeding and the actual escalation rates are known. In arriving at this finding, the Commission has also considered that the CSU escalation rates for the four years negotiated in the agreement are, on the whole, comparable to the approved escalation rates for non-union employees. Therefore, the Commission approves salary escalation rates for the CSU of 3.16 per cent in 2015, 2.33 per cent in 2016 and 2.23 per cent in The Commission directs EDTI to reflect the ratified collective agreement CSU employee escalation rates in its compliance filing application to this decision.... Paragraph With respect to EDTI s assertion that the actual 2014 escalation rate following ratification of the collective agreement should be accounted for on a go-forward basis, the Commission finds that EDTI should account for the actual 2014 escalation rate in calculating its revenue requirement for the test period, in its compliance filing to this decision. In the compliance filing to this decision, EDTI is also directed to explain all of the adjustments to revenue requirement it has included to account for the actual 2014 escalation rate for the CSU agreement.... Paragraph Given the lack of operating and capital costing information from distribution, the Commission is not persuaded that there is sufficient information to justify the change in capital overhead and MOP rates forecast for the test years. As a result, the Commission directs EDTI to revise its forecast MOP rate and capital overhead rates to be consistent with the rates approved in Decision , adjusted to include any change associated with the capitalization of STI costs. EDTI, in its compliance filing, is directed to explain any impact to MOP rates and capital overhead rates because of the change in the capitalization of STI costs for the test years. EDTI is also directed to describe the Decision D (April 15, 2016) 9

14 accounting for the STI costs from labour accounts through intermediate overhead accounts to capital accounts.... Paragraph Although the Commission recognizes that there may be potential benefits to utility customers arising from the work performed by the corporate development department, the Commission is not persuaded that these costs are directly related to the provision of electric transmission utility service. Further, EDTI failed to quantify and justify any cost reductions that may arise from the growth and diversification of the EPCOR group. For these reasons, EDTI is directed to remove corporate development costs allocated to EDTI transmission in its compliance filing.... Paragraph Although the sell-down of EUI s financial interest in Capital Power provides EUI with access to funds that could potentially be used for EDTI transmission, the Commission agrees with the UCA that the sell-down of Capital Power is entirely within the discretion of EUI and its shareholder. EDTI s cost of debt is determined on a stand-alone basis, by which the cost of debt is representative of the cost at which it could have obtained debt in the marketplace. Hence, the source of funds loaned to EDTI does not affect the cost of debt to EDTI. EDTI is directed to remove the forecast costs of the Capital Power selldown from its revenue requirement for the test period, in its compliance filing to this decision.... Paragraph The Commission is of the view that a decision by business units to transfer from the EPCOR Tower to Rossdale or another location should not necessarily lead to an increase in allocated corporate rent costs, based on a decline in direct assigned costs and utilized space. This view is based, in part, by a lack of clarity in the evidence on the record as to whether the vacated space will be utilized by corporate or another business unit, be vacant during the test period, or leased. The Commission finds that EDTI has not justified why the costs associated with higher corporate rent costs that arise because of underutilized space should be included in revenue requirement. EDTI has failed to explain why these costs are required for the provision of utility service. Accordingly, EDTI transmission is directed to remove from its revenue requirement for the test period the cost increases to EDTI that are attributed to the vacant space and higher corporate rent allocations associated with the 2015 move of EPCOR Water Services Inc. employees from the EPCOR Tower to Rossdale.... Paragraph The Commission agrees with EDTI that Table 26 above demonstrates cost savings from vacating the EPCOR Tower. However, EDTI has failed to include in the above table and in its work centre redevelopment project business case, a complete assessment of costs that include the resulting higher corporate allocation of rental costs, the savings in direct rent, and the asset usage fee associated with using assets of EDTI distribution. More importantly, the Commission is not satisfied that the costs arising from a lower utilization of EPCOR Tower are required for the provision of utility service. Accordingly, EDTI is directed to remove the increased corporate allocation of EPCOR Tower costs associated with the work centre redevelopment project from its 2016 and 2017 revenue requirement.... Paragraph For the remaining allocated costs, the Commission finds that the operating costs for be held to the 2014 rate approved in Decision , plus annual adjustment for inflation. The Commission considers that applying inflation to the approved 2014 operating costs is consistent with the range in operating costs ($15.17-$19.17 per square foot) that EDTI provided in the Collier s report (2014 Q4). 10 Decision D (April 15, 2016)

15 The Commission directs EDTI to adjust its forecast operating costs to the rates approved in 2014 escalated by the inflation rate approved in Section Paragraph Accordingly, EDTI is directed to remove the deferral account true-up respecting the Heartland project from its 2015 forecast and to reflect this amount in its forecast for 2016, in its compliance filing to this decision.... Paragraph For these reasons, the Commission directs EDTI to reduce its 2015 opening rate base by the amounts reflecting the capitalization of STI costs in In its compliance filing to this decision, EDTI is to reflect this direction in its actual closing 2014 CWIP balances on a project by project basis, in order to ensure that the 2015 forecast and actual opening rate base will not include any capitalized 2014 STI amounts.... Paragraph Accordingly, EDTI is directed in its compliance filing, to include a list identifying the projects affected by this direction and the corresponding dollar impacts in The Commission also directs EDTI to include an updated version of its CWIP continuity schedule reflecting the Commission s direction regarding the capitalization of STI costs in 2014, and an explanation of any corresponding impacts of this direction and any other direction in this decision that affects its CWIP continuity schedule.... Paragraph However, from the information on the record of this proceeding, it is not apparent whether, and in what amount, any contributions between EDTI and AltaLink are reflected in EDTI s GTA. Therefore, the Commission directs EDTI in its compliance filing to this decision, to identify the contribution amount, if any, that has been included in the $ million capital additions recorded by EDTI.... Paragraph The Commission directs EDTI to remove all forecast capital expenditures and additions, and related costs with respect to the south central project from its forecast revenue requirement, and reflect this direction in its compliance filing to this decision.... Paragraph The Commission directs EDTI to remove all forecast capital expenditures and related costs with respect to the 240-kV GIS substation project from its forecast revenue requirement, and reflect this direction in its compliance filing to this decision.... Paragraph On that basis, the Commission directs EDTI to capitalize the applied-for costs of the SEAS reports into a separate regulatory asset account, and amortize the associated costs over a period of five years.... Paragraph The Commission approves the forecast capital additions for the protective relay and control systems life cycle replacement projects for the purposes of determining EDTI s revenue requirement in the test period. EDTI is directed to include the forecast $0.10 million increase in project costs on the Woodcroft substation 72-kV breaker failure life cycle replacement project, which was provided in an undertaking to the Commission, in its updated 2015 cost forecast in the compliance filing.... Paragraph The Commission approves the forecast capital additions for the SCADA system life cycle replacement projects for the purposes of determining EDTI s revenue requirement in the test period. In its compliance filing, EDTI is directed to include the $0.03 million adjustment identified by EDTI in response to an IR, for the 2016 transducer forecast.... Paragraph 566 Decision D (April 15, 2016) 11

16 35. This project category consists of small projects which may be required to bring substation ancillary systems up to safety, environmental or regulatory codes or standards. The business case and application provided no further information regarding what those codes or standards may be, what projects are included in this subcategory, why the projects in this category could not be included in another category of life cycle programs, or why the work required to bring substation ancillary systems up to code is not considered an O&M cost. The Commission acknowledges that the forecast costs are not significant. However, given that the business case for this program provides inadequate justification for the project requirements or costs, the Commission denies the costs in this category for the test years on a forecast basis for the purposes of determining EDTI s revenue requirement during the test period. The Commission directs EDTI to remove the forecast costs associated with this project from its revenue requirement in its compliance filing. Any actual costs incurred in the test period for these projects may be capitalized in EDTI s next tariff application if the Commission is satisfied the expenditures were prudent.... Paragraph Based on the foregoing, the Commission does not approve the forecast capital additions and expenditures associated with EDTI s proposed noise mitigation project at the Meadowlark substation for the purposes of determining EDTI s revenue requirement in the test period. The Commission directs EDTI to remove the forecast costs associated with this project from its revenue requirement in its compliance filing.... Paragraph The Commission is aware of the safety component which defines the need for a fence grounding system. The Commission finds EDTI s proposal to replace the fence bonding connections at all substations to be reasonable in order to prevent emergency repairs or replacements and to prevent harm to EDTI personnel and the public. The Commission approves the forecast capital additions for the substation ancillary system life cycle replacement project for the purposes of determining EDTI s revenue requirement for the test period. However, as EDTI did not identify how substations will be selected each year for fence bonding connection replacement, EDTI is directed to provide this information in its compliance filing and future applications.... Paragraph Accordingly, the Commission denies the forecast capital additions for these projects for the purposes of determining EDTI s revenue requirement in the test period. The Commission directs EDTI to remove the forecast capital additions and related costs with respect to the Rossdale and Victoria MV switchgear addition projects from its forecast revenue requirement, in the compliance filing to this decision.. Paragraph EDTI stated that the dissolved gas levels in the cable oil have been relatively stable since 2006 due to its maintenance program. There is insufficient evidence to suggest that this maintenance program will not adequately provide for the safe and reliable operation of this cable for the remainder of the test period. In addition the cable is some 35 years old and the Quanta witness confirmed that cables of this type can be expected to last for up to 60 years. Accordingly, the Commission denies the forecast capital additions for this project in the test period for the purposes of determining EDTI s revenue requirement. The Commission directs EDTI in its compliance filing, to remove all costs associated with this project from the revenue requirement.... Paragraph The Commission notes that EDTI did not propose any changes to its methodology for calculating forecast working capital. The Commission has reviewed EDTI s forecast working capital requirements as set out in Table 38 above and approves EDTI s 12 Decision D (April 15, 2016)

17 transmission working capital forecast for 2015 to 2017, subject to any adjustments that may be necessitated by other findings set out in this decision. EDTI is directed to make any necessary adjustments to its working capital calculations to give effect to Commission findings in this decision, in its compliance filing.... Paragraph The Commission is not satisfied that EDTI has complied with its direction to reflect the findings in the 2013 GCOC decision, as specified in the Commission s May 22, 2015 letter. EDTI is directed to make corrections to the schedules to reflect the approved debt and equity ratios for the year 2015 on a final basis and for the years 2016 and 2017, on an interim basis. The Commission directs EDTI in its compliance filing to this decision, to recalculate its forecast transmission capital structure and average cost of capital and transmission return on rate base for 2015, 2016 and 2017 using the Commissionapproved debt and equity ratios of 64.0 per cent and 36.0 per cent, respectively.... Paragraph As the actual cost of debt for 2015 is known, the Commission approves EDTI s request to reflect its actual cost of debt issued for 2015 of 4.17 per cent in its forecast revenue requirement for 2015, rather than the forecast debt cost of 3.85 per cent or the forward curve debt cost of 3.95 per cent. EDTI is directed to reflect the 4.17 per cent for its 2015 cost of debt in its compliance filing to this decision.... Paragraph Accordingly, the Commission finds that the 2016 forward curve cost of debt of 4.05 per cent is a reasonable forecast of the cost of debt in EDTI is directed to reflect the 4.05 per cent cost of debt for 2016 in its compliance filing to this decision. Paragraph The Commission approves the forecast cost of debt at the actual cost of 4.17 per cent for 2015 and 4.05 per cent for 2016, for new long-term debt issues, as set out above. EDTI has not forecast a debt issue for 2017, and therefore the Commission does not need to make a determination on the forecast cost of new debt for For revenue requirement purposes, the Commission directs EDTI to set its embedded cost of debt for 2017 equivalent to its embedded cost of debt including EDTI s approved 2015 and 2016 debt issue costs, as shown in EDTI s schedule of debt capital employed and embedded cost, Schedule 28-2T, and adjusted for the Commission s findings with respect to the 2016 forecast cost of new debt.... Paragraph The Commission directs EDTI to continue to determine the forecast depreciation expense respecting the Heartland project assets using its currently approved DLM of depreciation on a placeholder basis until the prudence of the final capital additions for the Heartland project assets has been determined in Proceeding Paragraph 858 Decision D (April 15, 2016) 13

18 Appendix 3 Commission directions to be addressed in future applications (return to text) This section is provided for the convenience of readers and identifies the directions from Decision D and Decision 3539-D that the Commission considers remain outstanding. In the event of any difference between the directions in this section and those in the main body of Decision D and Decision 3539-D , the wording in the main body of those decisions shall prevail. Decision D It is not necessary for EDTI to restate its previous 2013 and 2014 Rule 005 filings to incorporate the Commission-approved ROE and debt to equity ratios consistent with Decision 2191-D However, for all future Rule 005 filings, commencing in 2015, EDTI is directed to prepare its filings using Commission-approved ROE and debt to equity ratios.... Paragraph 29 Decision 3539-D On that basis, the Commission considers that for the purposes of this decision, EDTI appears to have effectively complied with Direction 16, but directs EDTI to confirm in its compliance filing that it has not made any changes in any comparative analyses to the approved numbers and dollar values from previous decisions with respect to FTE reallocations between O&M and capital costs. The Commission also directs that in future applications, EDTI shall expressly identify and fully explain any changes made in its comparative analyses to the approved numbers and dollar values from previous decisions or, if no such changes have been made, to indicate this in the application.... Paragraph With respect to EDTI s operational performance and service quality statistics exceeding those of other transmission utilities in Canada, the Commission recognizes that the comparator SAIFI and SAIDI statistics on the record of the proceeding include both urban and rural utilities, and may not provide an accurate comparison. Nonetheless, the Commission is cognizant that EDTI s SAIFI and SAIDI results exceed the average for other transmission utilities by a significant amount. EDTI is directed to file a comparison of its SAIFI and SAIDI results with those of other urban transmission utilities, to the extent they are available, at the time of its next GTA.... Paragraph The Commission directs EDTI in its next application to disregard Direction 6 provided in Decision with respect to the calculation of vacancy rates.... Paragraph The Commission further directs EDTI to provide an analysis of vacancies and to explain the rationale for its calculations, with specific reference to the treatment of new positions, transfers and backfilling. The Commission does not understand how, if new positions are properly reflected in the vacancy calculation, it would be possible to have a negative vacancy rate.... Paragraph In light of the materiality of Account 560, however, the Commission finds that parties would benefit from additional information on the cost components included in this account. The Commission directs EDTI to provide, as part of future applications, 14 Decision D (April 15, 2016)

19 a detailed breakdown of categories and costs included in Account 560, and to separately identify the costs recorded in Account 560 that are not related to O&M in other transmission operating accounts to facilitate consideration of their inclusion and level of cost in this account.... Paragraph To better understand the possible distortion in compensation or benefits caused by using different comparator groups to assess compensation and benefits, the Commission directs EDTI in its next GTA, if it intends to rely on the BENVAL methodology, to file additional information on the BENVAL results for the subset of the comparator group in the benefits study that corresponds to the companies in the main compensation study, i.e., that are common to both the BENVAL study and the main compensation study.... Paragraph As an additional matter, the description and details of the BENVAL methodology was not provided on the record of the proceeding. The Commission directs EDTI in future GTAs if it intends to rely on the BENVAL methodology, to provide the details of the methodology in a format similar to the information provided in EDTI s application in Proceeding 2758, Exhibit EDTI-3758, AUC-EDTI-33(a), Attachment 1for EDTI s TFO application.... Paragraph However, now that EDTI has some historical information, the Commission considers for comparative purposes it would be useful for EDTI to provide historical information for its allocators of common costs. EDTI is directed to provide in its next GTA, an analysis which compares the utilization of historical and forecast allocators, including a detailed justification as to why a forecast allocator or historically-based allocator provides better information for the allocation of costs for each service.... Paragraph Consistent with Decision , the onus resides with the applicant to justify its costs included in its GTA. Accordingly, the Commission directs EDTI transmission to file distribution related information in its next GTA to support transmission forecasts.... Paragraph The Commission is concerned that EDTI appears not to have been aware of Permit & Licence Nos. U and U or Connection Order U until mid The Commission directs EDTI in its next GTA to describe the process used to monitor the status of permits, licences and orders it receives from the Commission.... Paragraph The Commission does not, however, give a general approval for this program in future test periods. The rationale for adding additional relay rooms on the basis of capacity constraints, risk of water damage and arc flash risk will be evaluated in future applications on a case-by-case basis for each substation. The Commission, at this time, does not consider that the need for additional relay rooms is sufficient on the basis of the risk of water damage alone, as demonstrated by the infrequent flooding events recorded and the minimal costs associated with those flooding events. The Commission also finds that the arc flash risk associated with the proximity of relay panels to other substation equipment is not sufficiently demonstrated in this application. If EDTI is to rely on concerns regarding the risk of arc flash in future applications, EDTI is directed to provide additional information for relay room additions that demonstrates there is a genuine arc flash risk and that the solution of installing a protective barrier is not feasible or preferable.... Paragraph 496 Decision D (April 15, 2016) 15

20 35. This project category consists of small projects which may be required to bring substation ancillary systems up to safety, environmental or regulatory codes or standards. The business case and application provided no further information regarding what those codes or standards may be, what projects are included in this subcategory, why the projects in this category could not be included in another category of life cycle programs, or why the work required to bring substation ancillary systems up to code is not considered an O&M cost. The Commission acknowledges that the forecast costs are not significant. However, given that the business case for this program provides inadequate justification for the project requirements or costs, the Commission denies the costs in this category for the test years on a forecast basis for the purposes of determining EDTI s revenue requirement during the test period. The Commission directs EDTI to remove the forecast costs associated with this project from its revenue requirement in its compliance filing. Any actual costs incurred in the test period for these projects may be capitalized in EDTI s next tariff application if the Commission is satisfied the expenditures were prudent.... Paragraph The Commission is aware of the safety component which defines the need for a fence grounding system. The Commission finds EDTI s proposal to replace the fence bonding connections at all substations to be reasonable in order to prevent emergency repairs or replacements and to prevent harm to EDTI personnel and the public. The Commission approves the forecast capital additions for the substation ancillary system life cycle replacement project for the purposes of determining EDTI s revenue requirement for the test period. However, as EDTI did not identify how substations will be selected each year for fence bonding connection replacement, EDTI is directed to provide this information in its compliance filing and future applications.... Paragraph The Commission finds EDTI s use of the most recently approved ROE of 8.30 per cent for 2015 on a final basis, and for 2016 and 2017 on an interim basis, to be consistent with the Commission s findings in Decision 2191-D The Commission directs EDTI to apply to true-up its ROE for 2016 and 2017 once a decision is issued in the next generic cost of capital proceeding.... Paragraph The Commission is also satisfied with EDTI s plans to undertake a depreciation study for the purposes of its next tariff application and directs EDTI to conduct and file a depreciation study in its next GTA. The Commission also directs EDTI to conduct and file, as a component of the depreciation study, explicit research and conclusions respecting alternative methods of accounting for the cost of removal of (old) retired assets under the DLM of depreciation beyond EDTI s current practice of capitalizing the cost of removal at the time a (new) replacement asset is installed and placed into service.... Paragraph Further, the Commission considers it necessary for EDTI to explore the effects of the ISO Rule functional specifications on the estimated useful service lives of EDTI s transmission lines and towers, and to file its findings in EDTI s next GTA. The Commission directs that EDTI include consideration of the estimated useful service lives of EDTI s transmission lines and towers as a component of the aforementioned depreciation study, irrespective of the availability of the revised version of ISO Rule EDTI shall refer to the version of ISO Rule that was in place at the time the Heartland project was constructed and, should the functional specifications change, file the same information under the new version of ISO Rule EDTI is further directed 16 Decision D (April 15, 2016)

21 in its consideration of service lives to consider other sources of information respecting estimated useful service lives, such as manufacturer s information, engineering studies or economic studies for the Heartland project lines and towers.... Paragraph 853 Decision D (April 15, 2016) 17