EPCOR Distribution & Transmission Inc.

Transcription

1 Decision 3539-D EPCOR Distribution & Transmission Inc Transmission Facility Owner Tariff October 21, 2015

2 Alberta Utilities Commission Decision 3539-D : EPCOR Distribution & Transmission Inc Transmission Facility Owner Tariff Proceeding 3539 Application October 21, 2015 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 Revenue requirement and application overview Response to previous Commission directions Directions 2 and 3 Commission concerns with respect to business cases Direction 16 Full-time equivalent (FTE) reallocations between operating and maintenance (O&M) and capital costs Direction 20 Heartland project costs Direction 31 Generic Cost of Capital decision Decision Utility Asset Disposition, Direction Three-year test period and factors related to the economic downturn Nature of best available information Operational performance and service quality (SAIFI and SAIDI) and forecasting of bucket projects Transmission operating costs overview Direct operation and maintenance costs O&M high level metrics analysis Labour related costs FTE forecasts Vacancy forecasts Account 560 (O&M supervision and engineering) Employee compensation and benefits Salary escalators Non-union employees Civic Service Union International Brotherhood of Electrical Workers Short-term incentive program Mid-term incentive program Cost escalators contractors, materials and other Administrative and general expenses EDTI shared services costs Corporate services costs Corporate development costs Allocation of sell-down and base shelf prospectus costs related to Capital Power Corporation (Capital Power) Allocations to the Heartland project Allocation of EPCOR Tower rental costs Transmission work for others (Account 577) Transmission deferral and reserve accounts Rate base opening rate base Decision 3539-D (October 21, 2015) i

4 Variance analyses and post-implementation reviews Implications of Direction 15 from Decision Overview of forecast capital expenditures and additions AESO directed projects EDTI Genesee interface to HVDC converter station (reference ) South central transmission reinforcement (reference ) kV GIS substation (reference ) Non-AESO directed growth projects and performance improvement projects Substation [building] relay room additions (reference ) Capitalization of the SEAS project and Quanta Technology reports (reference ) Life cycle projects Background and common matters Cost forecast approach Cost minimization strategy Use of contractors Work coordination EDTI s asset maintenance and replacement philosophy Asset health index Prior Commission approval of projects Protective relay and control system life cycle replacements and improvements (reference ) SCADA system life cycle replacement and improvement (reference ) SCADA MTU life cycle replacement project (reference ) Communication system life cycle replacements and improvements (reference ) Substation building life cycle replacements (reference ) Asbestos abatement Water ingress mitigation projects Building improvement projects Substation building HVAC upgrades Bellamy substation sewage line replacement Substation building systems emergency replacement Substation ancillary system life cycle (reference ) Other substation safety, environmental, regulation and code equipment life cycle replacement and improvements Addition of redundant AC and DC systems at critical EDTI substations Noise mitigation Substation fence grounding replacement Installation of new cable trays and cable ducts Medium voltage switchgear replacement (reference ) kV air blast circuit breaker life cycle replacement (reference ) Power transformer replacement (reference ) Medium voltage switchgear additions Rossdale (reference ) and Victoria (reference ) Life cycle replacement of 72-kV transmission cable splices, terminations, and cable sections (reference ) ii Decision 3539-D (October 21, 2015)

5 Life cycle replacement of 240-kV cable sections (reference ) Information requirements for future applications respecting capital projects Working capital and balances in reserve and deferral accounts Return on rate base Return on equity Capital structure Costs associated with long-term debt Depreciation Need for a review of depreciation parameters and depreciation methodology Heartland project depreciation parameters Order Appendix 1 Proceeding participants Appendix 2 Oral hearing registered appearances Appendix 3 Summary of Commission directions Appendix 4 Variance explanations between 2013 and 2014 actual and decision capital expenditures, capital additions and closing CWIP balances Appendix 5 Abbreviations List of tables Table 1. EDTI transmission forecast revenue requirement... 1 Table 2. Major components of the transmission revenue requirement... 3 Table 3. Forecast capital expenditures and capital additions for the years Table 4. Direct O&M costs by cost category Table 5. Summary of O&M reductions proposed by the CCA Table 6. Transmission FTE trend actual, with forecasts Table 7. Transmission system growth indicators actual with forecasts Table 8. Transmission capital expenditures and capital FTEs trend Table 9. EDTI succession planning FTEs Table 10. Transmission FTEs by category Table 11. EDTI staffing cost summary Decision 3539-D (October 21, 2015) iii

6 Table 12. O&M supervision and engineering costs Table 13. Ratio of O&M supervision and engineering costs to other transmission operating costs Table 14. EDTI 2014 STI performance for amounts paid out in 2015 for Table 15. Forecast values of escalators as at June 17, Table 16. Transmission administrative expenses by USA operating account Table 17. Costs included in master overhead pool Table 18. Labour and salary Non-MOP and MOP Table 19. Master overhead pool for Distribution and Transmission Table 20. EDTI historical and forecast operating and capital overhead rates Table 21. Comparison distribution and corporate costs allocated to EDTI transmission.. 57 Table 22. EDTI corporate administration and general costs updated Table 23. Total HR related costs for EDTI transmission Table 24. Heartland project revenue requirement Table 25. SCM corporate services Table 26. Impacts on EDTI costs resulting from move out of EPCOR Tower Table 27. Transmission work for others forecast Table 28. Summary of transmission deferral and reserve accounts Table 29. Transmission mid-year rate base (less working capital) actual versus decision Table 30. Transmission capital expenditures and capital additions (excluding Heartland and contributions) Table 31. Transmission capital additions summary Table 32. EDTI south central transmission reinforcement project rate base additions as applied-for and updated for 2014 actuals Table 33. EDTI south central transmission reinforcement project rate base additions as applied-for with 2014 updates and adjusted for most recent work flow expectations Table 34. EDTI south central transmission reinforcement project rate base additions as revised in undertaking on June 12, iv Decision 3539-D (October 21, 2015)

7 Table 35. Breakdown of life cycle project types and forecast costs Table 36. Rate base additions for substation building life cycle replacements Table 37. Rate base additions for substation ancillary equipment life cycle replacements Table 38. Working capital requirements Table 39. Return on mid-year transmission rate base Table 40. Comparison of forecast debt costs versus forward curve debt costs Table 41. Comparison of 10-year bond and 30-year bond costs Table 42. Summary of depreciation expense Decision 3539-D (October 21, 2015) v

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9 Alberta Utilities Commission Calgary, Alberta Decision 3539-D EPCOR Distribution & Transmission Inc. Proceeding Transmission Facility Owner Tariff Application Introduction 1. On November 25, 2014, EPCOR Distribution & Transmission Inc. (EDTI), filed an application with the Alberta Utilities Commission for various approvals associated with its transmission facility owner (TFO) function for the 2015, 2016 and 2017 test period. For the purposes of this decision, the Commission has referred to EDTI s application as a general tariff application, or GTA. Specifically, EDTI requested approval of: 1 Table 1. The transmission rates to be paid by the Alberta Electric System Operator (AESO) for the use of EDTI s transmission facilities over the test period, which are based on EDTI s forecast transmission revenue requirement. Excerpts from EDTI s updated minimum filing requirement (MFR) Schedule of its application are reproduced below: EDTI transmission forecast revenue requirement ($ million) Transmission tariffs Increase from existing tariff Annual increase 9% 2% 6% Source: Exhibit 3539-X0087, GTA schedules updated for 2014 actuals, Schedule 3-1. EDTI s applied-for transmission rates, as shown in Schedule TFO-A of the application. 3 EDTI s TFO terms and conditions of service (T&Cs) under which EDTI provides transmission service to the AESO, as shown in Schedule TFO-B 4 of its application. The continued use of the following existing transmission reserve and deferral accounts in the test period: o hearing cost reserve o self-insurance reserve o AESO directed projects deferral account o transmission property, business and linear taxes o transmission short-term incentive (STI) deferral account Exhibit EDTI-3539, application, paragraphs 1-4, PDF pages of 900. Exhibit 3539-X0087, MFR Schedule 3-1, updated for EDTI s 2014 actual results and the 2013 Generic Cost of Capital (GCOC) Decision 2191-D : 2013 Generic Cost of Capital, Proceeding 2191, Application , March 23, Exhibit EDTI-3539, Schedule TFO-A, as applied-for. Exhibit EDTI-3539, Schedule TFO-B. Decision 3539-D (October 21, 2015) 1

10 Placeholders related to capital structure and rate of return on equity for its transmission function, which were subject to the Commission s decision in the 2013 Generic Cost of Capital proceeding. 2. On November 27, 2014, the Commission electronically issued notice of the application to parties on the Commission s distribution list for proceedings related to electric utilities. The notice of application required that any party who wished to participate in this proceeding submit a statement of intent to participate (SIP) to the Commission by December 11, The Commission received SIP s from the following parties: the AESO AltaLink Management Ltd. (AltaLink) ATCO Electric Ltd. - Transmission Division the Consumers Coalition of Alberta (CCA) the Office of the Utilities Consumer Advocate (UCA) 4. Of those parties who filed SIPs, the UCA and the CCA actively participated in the proceeding. 5. Through a series of letters, 5 the Commission established the following proceeding schedule: Process step Deadline Information requests (IRs) to EDTI January 16, 2015 IR responses from EDTI February 6, 2015 Intervener evidence March 16, 2015 IRs to interveners March 31, 2015 IR responses from interveners April 17, 2015 Rebuttal evidence April 24, 2015 EDTI application updated for 2014 actual results and 2013 GCOC decision May 22, 2015 CCA filing of updated evidence May 29, 2015 Oral hearing commencement June 10, 2015 Oral hearing conclusion June 19, 2015 Argument July 10, Reply argument July 23, The Commission considers the close of the record for this proceeding to be July 23, In reaching the determinations set out within this decision, the Commission has considered all relevant materials comprising the record of this proceeding, including the evidence and arguments provided by each party. Accordingly, references in this decision to specific parts of the record are intended to assist the reader in understanding the Commission s Exhibits EDTI-3539, 3539-X0036, 3539-X0039, 3539-X0044, 3539-X0067, 3530-X0075 and 3539-X0078. Transcript, Volume 7, page 1435, lines 6-7. Ibid. 2 Decision 3539-D (October 21, 2015)

11 reasoning related 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 a particular matter. If a matter or request for approval included in EDTI s application is not specifically addressed in the findings, that matter or request is considered approved for the purposes of this decision. 2 Revenue requirement and application overview 8. The following table provides a high level summary of the updated transmission revenue requirement requested by EDTI for 2015, 2016 and 2017: Table 2. Major components of the transmission revenue requirement 2015 forecast Per cent of revenue requirement 2016 forecast Per cent of revenue requirement 2017 forecast Per cent of revenue requirement ($ million) (%) ($ million) (%) ($ million) (%) Operating costs Depreciation Return on long-term debt Return on common stock equity Income tax expense Revenue offsets (0.25) (0.3) (0.26) (0.3) (0.27) (0.3) Deferral and reserve accounts Total Source: Exhibit 3539-X0087, GTA schedules updated for 2014 actuals, Schedules 3-1 and 28-1T. 9. EDTI described the changes in forecast revenue requirement as being related primarily to capital additions in each of the test years 2015, 2016 and Further, EDTI stated that increases in 2015 were due to the recovery of the AESO directed projects deferral account for the Heartland project and increases in operating costs related to critical infrastructure protection (CIP) cyber security standards. Increases in 2016 were due to rising asset usage fees related to the work centre redevelopment project offset by decreases in other revenue. Increases in 2017 were due to increased asset usage fees related to the work centre redevelopment project and higher property, business and linear taxes The following table provides a summary of the updated forecast capital expenditures and capital additions for 2015, 2016 and 2017: 8 Exhibit EDTI-3539, application, paragraphs 17-20, PDF pages of 900. Decision 3539-D (October 21, 2015) 3

12 Table 3. Forecast capital expenditures and capital additions for the years forecast 2016 forecast ($ million) 2017 forecast Capital expenditures (cap ex) Capital additions (cap add) Source: Exhibit 3539-X0087, GTA schedules updated for 2014 actuals, Schedule EDTI stated in Section 13 of its application, that its TFO T&Cs were last approved in Decision in the context of an AltaLink application respecting updated T&Cs for regulated TFOs that provide service to the AESO. In that decision, EDTI was directed to adopt the T&Cs set out in Appendix 2, effective on March 18, EDTI stated that it is not proposing any changes to its T&Cs in this application, and provided a copy as Schedule TFO-B. 10 As there are no proposed changes to EDTI s T&Cs, the Commission confirms EDTI s continued use of the T&Cs, approved in Decision , for 2015, 2016 and Response to previous Commission directions 13. In Decision respecting EDTI s GTA, the Commission provided 38 directions to EDTI. In its compliance filing to Decision , EDTI responded to these directions or identified the future proceedings in which the Commission s directions would be addressed. 14. The Commission found, in Decision 3474-D related to EDTI s compliance filing, that directions 1, 2, 3, 4, 5, 6, 7, 9, 10, 11, 12, 16, 19, 20, 29, 31 and 34 remained outstanding and applied to future GTAs. 15. The Commission, in this GTA, has reviewed EDTI s responses and other information provided on the record of this proceeding pertaining to these 17 directions. 16. Based on the information and responses in EDTI s application, the Commission considers that, with the exception of directions 16, 20 and 31, EDTI has complied with the Commission s previous directions. The Commission provides general comments with respect to directions 2 and 3, and addresses EDTI s compliance with directions 16, 20 and 31, in greater detail below. 3.1 Directions 2 and 3 Commission concerns with respect to business cases 17. In Decision , the Commission issued the following directions to EDTI: Decision : AltaLink Management Ltd., Refiling of Transmission Facility Owner Terms and Conditions Pursuant to Decision , Proceeding 474, Application , March 18, Exhibit EDTI-3539, Schedule TFO-B. Decision : EPCOR Distribution & Transmission Inc., 2013 and 2014 Transmission Facility Owner Tariff, Proceeding 2758, Application , September 18, Decision 3474-D : EPCOR Distribution & Transmission Inc., Transmission Facility Owner Tariff Compliance Filing, Proceeding 3474, Application , February 12, Decision 3539-D (October 21, 2015)

13 2. The direction at page 105 of Decision , for EDTI to provide the appropriate business cases for capital expenditures in excess of $500,000 has been satisfied. The Commission directs, consistent with Decision and the MFR document that is posted on the Commission s website, that EDTI shall provide business cases for capital projects and programs in excess of $500,000, over the life of the project, clearly showing: the reasons for the proposed expenditure the alternatives examined the incremental capital and operating costs associated with each alternative examined for a minimum 10-year period the discount or investment rate used to compare alternatives and the basis for its use the annual costs of each alternative for the period analyzed the rationale for choosing a specific alternative, including any qualitative considerations used in choosing the alternative the date of preparation and the date of approval.paragraph The Commission has reviewed the application and is satisfied that EDTI has generally complied with this direction. The above list has been adopted in the MFRs. The Commission directs EDTI to specifically refer to either the MFRs or Decision in its future GTAs. Paragraph The Commission is of the view that EDTI has generally complied with these directions. However, the Commission remains concerned with the scope and quality of some of the business cases submitted in this application. The Commission found instances where viable alternatives were limited 13 and, in some cases EDTI did not adequately justify the projects selected relative to the identified business case criteria The Commission reminds EDTI of its expectations with respect to the scope and quality of the information provided to parties in capital business cases in its application, which was summarized in the following paragraphs from Decision : 81. the Commission found that some of the business cases provided for forecast capital projects lacked relevant information. For some business cases for which formal or empirical studies would have been helpful, the supporting information was not provided. Other business cases lacked viable alternatives and some business cases made no reference to the potential impact on operating costs while others failed to undertake a comparison of future operating costs in weighing project alternatives.[footnotes omitted] 82. The Commission recognizes that a utility may not be able to comply with all components of the business cases set out in the MFRs in all circumstances. If EDTI is unable to comply with individual requirements for business cases set out in the MFRs, it must provide, in the business case, an explanation why it is not practical to adhere to the MFRs. For example, for some business cases, there may be reasons why only one For example, T-CBC-05 respecting substation roof replacements, EDTI only considered alternatives of (1) not replacing or (2) replacing like-for-like. The Commission considers that it may have been helpful if EDTI had considered whether there were any other feasible alternatives, such as replacing a roof with a new and improved material that may have a longer life or require less maintenance. For example, T-CBC-08 respecting redundant AC and DC systems at critical substations, EDTI identified that it was considering the condition of the AC and DC systems, but did not provide the underlying criteria or assessments supporting the selected alternative. Decision 3539-D (October 21, 2015) 5

14 alternative can be recommended by EDTI. EDTI should state that this is the case and explain why other alternatives could not be considered by EDTI. In other circumstances, it may not be possible to provide the incremental capital and operating costs associated with each alternative examined, for a minimum 10-year period. Again, EDTI should state that this is the case and explain why the required information could not be provided. 3.2 Direction 16 Full-time equivalent (FTE) reallocations between operating and maintenance (O&M) and capital costs 20. In Decision , the Commission issued the following direction to EDTI: 150. The Commission directs EDTI when filing future applications to identify and fully explain any changes it has made in its comparative analyses to the approved numbers and dollar values from previous decisions. 21. In its compliance filing to Decision , EDTI identified Direction 16 as applying to future applications. However, in its GTA, EDTI did not specifically address this direction. 22. Nonetheless, the Commission in its examination of the record of this proceeding cannot find any instances where EDTI proposed or made any changes to approved numbers or dollar values from previous decisions respecting FTE reallocations between O&M and capital costs. 23. 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. 3.3 Direction 20 Heartland project costs 24. In Decision , the Commission issued the following direction to EDTI: 267. Further, as stated by EDTI, its future tariff applications will address matters specifically relating to EDTI s costs, such as corporate services cost allocations to EDTI s portion of the Heartland Transmission Line, the application of EDTI s depreciation methodology, etc. Therefore, EDTI is directed in its compliance filing to explain any material impact to corporate services costs allocated to Heartland through the AESO directed projects review process. [footnotes omitted] 25. At the time of EDTI s compliance filing respecting Decision , AltaLink had not filed its direct assigned capital deferral account (DACDA) application, which includes both the AltaLink and EDTI portions of the overall Heartland project costs for review and approval by the Commission. EDTI explained that any material impacts to its costs related to Heartland and resulting from AltaLink s DACDA application would be explained in a future application to the extent that the results of the DACDA review process were available. 6 Decision 3539-D (October 21, 2015)

15 26. At the time EDTI filed its GTA, AltaLink s DACDA application 15 had not yet been filed with the Commission. AltaLink s DACDA application was filed with the Commission in December 2014 and, at the time of the oral hearing with respect to EDTI s GTA, the AltaLink DACDA hearing had been delayed until November, The Commission considers that EDTI s compliance with Direction 20 continues to be dependent on the finalization of costs related to Heartland in the AltaLink DACDA proceeding. On that basis, Direction 20 of Decision remains outstanding and is to be addressed by EDTI in its next GTA. 3.4 Direction 31 Generic Cost of Capital decision 28. In Decision , the Commission issued the following direction to EDTI: 429. The Commission finds EDTI s use of the most recently approved return on equity of 8.75 per cent and a capital structure of 63 per cent debt and 37 per cent common equity as placeholders for the test years to be reasonable. The Commission will direct that the return on equity and common equity percentages be trued-up as necessary to be consistent with the findings to be made through the current Generic Cost of Capital proceeding, Proceeding No. 2191, in the decision to that proceeding. 29. On March 23, 2015, the Commission released Decision 2191-D (2013 GCOC decision), approving a return on equity (ROE) of 8.30 per cent and an equity ratio of per cent for transmission utilities, on a final basis for 2013, 2014 and In Decision 2191-D , the Commission directed the utilities to apply, by July 31, 2015, to adjust their respective revenue requirements for 2013, 2014 and 2015, to reflect the final approved ROE and capital structure determinations set out in this decision. These proceedings may be part of a larger (and possibly ongoing) application dealing with other rate matters (e.g., a general rate or tariff application) The applied-for revenue requirement calculations in EDTI s GTA schedules 18 used an ROE of 8.75 per cent and equity ratios of per cent, per cent and per cent for the years 2015, 2016 and 2017 respectively, on a placeholder basis. 31. At the direction of the Commission, EDTI revised its application on May 22, 2015, to reflect, amongst other things, the updated ROE and capital structure approved in Decision D EDTI stated that in addition to reflecting the changes in ROE and capital structure approved by the Commission in its 2015 forecast revenue requirement, EDTI also updated its 2016 and 2017 forecast revenue requirement to reflect the 2013 GCOC ROE and capital structure approved in Decision 2191-D on a placeholder basis for each of the 2016 and 2017 test years The applied-for revenue requirement calculations in EDTI s GTA schedules (updated for 2014 actuals and the impact of the 2013 GCOC decision) used an ROE of 8.30 per cent and Proceeding 3585, AltaLink 2012 and 2013 deferral account reconciliation. Transcript, Volume 2, page 401, lines Decision 2191-D , paragraph 498. Exhibit EDTI-3539, MFR schedules, Schedule 28-1T. Exhibit 3539-X0089, EDTI additional information 2014 actuals, PDF page 29 of 35. Decision 3539-D (October 21, 2015) 7

16 equity ratios of per cent, per cent and per cent for the years 2015, 2016 and 2017, respectively. 33. On July 31, 2015, EDTI submitted its 2013 GCOC compliance filing application in which it requested approval of EDTI s 2013 and 2014 revenue requirement adjustments to reflect the determinations set out in Decision 2191-D ; approval to adjust, as part of EDTI s TFO tariff refiling, EDTI s applied-for 2015 transmission revenue requirement to reflect the determinations from Decision 2191-D ; and approval of EDTI s proposed trueup mechanism by which the true-up refund and the anticipated 2015 revenue shortfall amount be dealt with, as part of EDTI s TFO tariff refiling application. This application is being addressed in Proceeding On EDTI s schedule of transmission capital structure and average cost of capital 20 for the year 2015, on line 66 (column G), EDTI has updated the ROE to reflect the 2013 GCOC decision approved amount of 8.30 per cent. However, on lines 64 and 66 (column E), EDTI did not reflect the 2013 GCOC decision approved debt and equity ratios of 64.0 per cent and 36.0 per cent, respectively. 35. The Commission considers that, for ratemaking purposes, EDTI s 2015 forecast revenue requirement should reflect the 2013 GCOC decision approved debt and equity ratios of 64.0 per cent and 36.0 per cent, respectively. The Commission s findings with respect to EDTI s 2015 forecast debt and equity ratios are found at Section 11.2 of this decision. 36. 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 Decision Utility Asset Disposition, Direction In Decision , 21 the Commission issued the following direction to all Alberta utilities: 327. In order to give effect to the court s guidance that the rate-regulation process allows and compels the Commission to decide what is in the rate base, i.e. what assets (still) are relevant utility investment on which the rates should give the company a return, the Commission directs each of the utilities to review its rate base and confirm in its next revenue requirement filing that all assets in rate base continue to be used or required to be used (presently used, reasonably used or likely to be used in the future) to provide utility services. Accordingly, the utilities are required to confirm that there is no surplus land in rate base and that there are no depreciable assets in rate base which should be treated as extraordinary retirements and removed because they are obsolete property, property to be abandoned, overdeveloped property and more facilities than necessary for Exhibit 3539-X0087, GTA schedules updated for 2014 actuals, Schedule 28-1 T, lines 64 and 66. Decision : Utilities Asset Disposition, Proceeding 20, Application , November 26, Decision 3539-D (October 21, 2015)

17 future needs, property used for non-utility purposes, property that should be removed because of circumstances including unusual casualties (fire, storm, flood, etc.), sudden and complete obsolescence, or un-expected and permanent shutdown of an entire operating assembly or plant. As stated above, these types of assets must be retired (removed from rate base) and moved to a non-utility account because they have become no longer used or required to be used as the result of causes that were not reasonably assumed to have been anticipated or contemplated in prior depreciation or amortization provisions. Each utility will also describe those assets that have been removed from rate base as a result of this exercise. At this time, the Commission will not require the utilities to make additional filings to verify the continued operational purpose of utility assets. [footnotes omitted] 38. During the hearing, Commission counsel questioned EDTI as to whether the detail requested in paragraph 327 of Decision had been provided in its GTA. EDTI stated that while the information had not been provided in the GTA or supplementary information, a review of all transmission rate base had been conducted and it had concluded that all transmission assets are used, presently used, and would be used in the future. EDTI also confirmed that it did not anticipate that any assets would not be used or required to be used during the test period The Commission is satisfied that EDTI has complied with Direction 2 of Decision Three-year test period and factors related to the economic downturn 40. EDTI applied for its TFO tariff to be effective for the three-year period, from 2015 to EDTI stated that a three-year test period would provide benefits in the form of reduced costs and increased regulatory efficiency, and provide greater incentives for EDTI to identify and implement cost saving measures during the test period that would ultimately benefit customers over the long term. 41. EDTI submitted that a three-year test period was approved for EDTI in Decision related to its tariff application, and in Decision for ATCO Electric Ltd. s general tariff application, the Commission endorsed the merits of having rates continue beyond a two-year test period In addition, in argument EDTI stated that a three-year test period would align with the end of the performance-based regulation (PBR) term for EDTI s distribution function, which would result in additional administrative and regulatory efficiencies and that the longer term is more consistent with prospective rate-making In response to concerns raised by interveners, EDTI argued that the recent decline in oil prices would have little meaningful impact on its forecast revenue requirement and Transcript, Volume 2, pages Decision : EPCOR Distribution & Transmission Inc., Distribution Tariff and Transmission Facility Owners Tariff, Code of Conduct Exemption, Proceeding 14, Application , December 3, Decision : ATCO Electric Ltd., General Tariff Application, Application , March 17, Exhibit EDTI-3539, application, Section Exhibit 3539-X0193, EDTI argument, paragraphs Decision 3539-D (October 21, 2015) 9

18 capital additions and that the Commission should not consider the current economic circumstances as an impediment to the approval of EDTI s applied-for three-year test period. 27 EDTI submitted that the 2008 drop in oil price did not cause a noticeable change in the number of customers or the volume of energy consumed by EDTI customers. Electric transmission utilities are a stable industry not directly impacted by a short term drop in oil prices and the impact of the decline in oil prices is offset to some extent by the Canadian dollar exchange rate. Finally, heightened transmission infrastructure activity due to aging transmission infrastructure, increasing demand and a current construction boom in Edmonton has created a tight electric utilities labour market in Alberta. EDTI s witnesses indicated in testimony that EDTI competes in a different industry, where the labour pool is different than the oil industry The CCA stated that in considering a three-year test period the Commission must weigh the regulatory efficiency arising from dealing with a three-year test period against any loss in forecast accuracy as well as any potential on the part of the applicant to overstate forecasts to safeguard against their inherent uncertainty. For the purposes of this proceeding, the CCA recommended acceptance of the three-year test period provided the forecasts of escalation rates, made post oil price collapse, are reflected so that the risk of forecast inaccuracy may be largely addressed The UCA expressed concern regarding the impact of the current economic climate on the forecasts for the test period, with specific reference to the forecast escalation rates for labour. 46. EDTI responded to the CCA that the approval of a three-year test period should not hinge on the adoption of the more recent forecast escalation rates. 30 Commission findings 47. The Commission agrees with EDTI s submission that there will be regulatory efficiencies and related cost savings in the approval of a three-year test period as compared to a two-year test period. The Commission also agrees with EDTI that aligning the end of EDTI s transmission test period with the end of the current PBR term for EDTI s distribution function has the potential to reduce duplicative efforts and result in further regulatory efficiencies. 48. The Commission agrees with the CCA that it must weigh the regulatory efficiency achieved from a three-year test period against any potential loss in forecast accuracy when considering whether a three-year test period should be approved. 49. The CCA did not object to a three-year test period but noted its concern that the escalation factors proposed by EDTI would not result in accurate forecasts. With respect to forecasting accuracy, given the timing of this proceeding, updated information has been made available on the record and the Commission has considered the impact of this information on the updated cost escalators in Section and the timing of capital additions in Section 10 of this decision. 50. The Commission has also considered the testimony of Dr. Spare, of Quanta Technology, LLC (Quanta) regarding the possible impact of oil prices on the capital forecast. Dr. Spare Exhibit 3539-X0193, EDTI argument, paragraph 23. Transcript, Volume 2, pages Exhibit 3539-X0194, CCA argument, paragraphs Exhibit 3539-X0197, EDTI reply argument, paragraph Decision 3539-D (October 21, 2015)

19 indicated that the capital forecast was based on expectations 20 to 30 years out and if oil prices were to remain low for three years, there could be a delay to the forecast capital additions or some adjustment might be required For the above reasons, the Commission approves use of a three-year test period, from 2015 to Nature of best available information 52. In argument, the UCA referenced Mr. Baraniecki s testimony 32 that due to EDTI s bottom-up approach to forecasting and the use of the best available information at the time EDTI s application was prepared, any updates during the course of the proceeding for subsequent information such as 2014 actuals would not cause EDTI to reconsider its proposed test year forecasts The UCA argued that EDTI s interpretation of what constitutes the best available information provided during a proceeding, was in direct contradiction to the many prior rulings of the Commission and its predecessors, who have clearly stated that the best available information is as of the time a decision is rendered The UCA cited Decision as informing its opinion that the best available information is what is available at the time a decision is rendered. The UCA stated that this principle had been recently reaffirmed by the Commission in Decision 2957-D and requested that the Commission confirm this approach as it relates to EDTI s current and future applications In reply argument, EDTI stated that there is no contradiction between EDTI s position and previous Commission and Alberta Energy and Utilities Board (EUB or board) decisions on the issue of best available information. EDTI agreed that the Commission will consider the best available information at the time it renders its decision as to the reasonableness and accuracy of test period forecasts, but suggested there are related aspects which the UCA has misconstrued. 56. EDTI explained that while the Commission expects a utility s application should be prepared based on the best available information at the time the forecasts are prepared, the Commission also considers additional information that becomes available during the course of a proceeding in its assessment of the utility s forecast, but only with respect to specific forecast items. Under a prospective ratemaking approach, the Commission should not generally require Transcript, Volume 6, pages Transcript, Volume 5, page 878, lines Exhibit 3539-X0192, UCA argument, paragraph 20. Exhibit 3539-X0192, UCA argument, paragraph 21. Decision : EPCOR Distribution & Transmission Inc., Phase I Distribution Tariff and Transmission Facility Owner Tariff, Proceeding 437, Application , October 28, Decision 2957-D : Direct Energy Regulated Services, Default Rate Tariff and Regulated Rate Tariff, Proceeding 2957, Application , July 7, 2015, where the Commission directed the use of actual information for three applied for test years, Exhibit 3539-X0192, UCA argument, paragraph Decision 3539-D (October 21, 2015) 11

20 revisions or updates to the forecasts. Such continuous amendments 38 would result in having never-ending proceedings EDTI argued that nothing has arisen since the filing of its application that suggests its forecasts remain anything but reasonable for rate setting purposes and, as such, subject to specific exemptions consistent with Commission precedent, EDTI s forecasts should be approved as filed. Commission findings 58. The Commission always strives to consider the best available information when rendering a decision. In Decision and Decision 2957-D , the Commission accepted the use of actual information that was available at the time of filing the application or that became available prior to the close of record of the proceeding. 59. As noted by the UCA, in Decision , the Commission stated: 23. The Commission confirms that it requires the best available information at the time it makes its decision and confirms its views from Decision [ 41 ] There, the Commission adopted the Board s views on the use of updated information in a prospective rate-setting environment as set out in Decision : 3 In recent years, when confronted with the question of whether or not to consider events that have occurred after the preparation of revenue requirement forecasts, the Board has usually taken the position that such information will be used in assessing the reasonableness and accuracy of the forecasts and the methodology utilized in preparing the forecasts. The Board has not, however, substituted the forecasts with the updated information, except with respect to certain specific forecast items. For example, the Board has updated interest rate forecasts in determining the cost of capital, income tax rates, opening balances for plant property and equipment and has excluded amounts forecast for capital projects that did not proceed. The Board has determined that the use of updated information in these particular types of categories was in the overall public interest and had as its objective an appropriate revenue stream without undue benefit or detriment to the regulated utility. The utility has also always been able to update its application and its forecasts to reflect any unforeseen increases in costs. The Board continues to be of the view that this is the appropriate use of information that becomes available subsequent to the preparation of the forecasts underpinning an application. On the basis that the Board should have the best available information, the Board has expressed a preference in having actuals for the full year prior to the test year where possible. Providing the Board with the best available information at the time it must make its decision, will assist the Board in determining a revenue requirement for the utility that most closely matches current expectations and Exhibit 3539-X0197, EDTI reply argument, paragraphs 4-8. Transcript, Volume 5, page 879, line 3. Decision : EPCOR Distribution & Transmission Inc., 2012 Phase I and II Distribution Tariff, 2012 Transmission Facility Owner Tariff, Proceeding 1596, Application , October 5, Decision , see paragraph 212 where the Commission directed, consistent with Decision , where EDTI was direct to reflect all changes to the 2012 revenue requirement using 2011 actuals. Decision : ATCO Gas, General Rate Application Phase I, Proceeding 11, Application , November 13, Decision 3539-D (October 21, 2015)

21 conditions. Properly considered, this should reduce the initial forecasting risk to the utility and reduce the possibility of overpayment by ratepayers. 24. The Commission confirms its findings from Decision to the effect that it is incumbent on the Commission to make its decision using the best information available to it. 42 [emphasis in original removed] 3 Decision : ATCO Gas General Rate Application Phase I, Application , January 27, 2006, page Decision set out principles to be considered regarding the use of actuals in determining revenue requirement: The Board continues to be of the view that this is the appropriate use of information that becomes available subsequent to the preparation of the forecasts underpinning an application. Providing the Board with the best available information at the time it must make its decision, assists the Board in determining a revenue requirement for the utility that most closely matches current expectations and conditions. Properly considered, this should reduce the initial forecasting risk to the utility and reduce the possibility of overpayment by ratepayers. This does not mean, however, that an applicant must wait until the year prior to the first test year has ended before it can file an application. Depending on the circumstances, an applicant may be required to provide updated actual information whenever the processing of an application straddles the end of a fiscal year and the time that the actual results become available prior to the close of the evidentiary portion of the proceeding. Further, partial year results may also be required when an application is processed over an extended period of time, provided the utility is offered the opportunity to put such partial results in the proper context and to describe the limitations applicable to partial actual information The Commission considers that relying on the best available information is relevant not only in the context of the initial filing of the application but also applies during the course of the proceeding, as further information becomes available. It is incumbent on the utilities to use the best available information at the time of filing an application and it is preferable to have the actuals for a full year prior to the test year, where possible. The Commission stated in Decision : The Commission agrees with the Board s comments cited above, and continues to hold that an appropriate balance can be struck which allows for a utility to plan and budget according to its forecasts but that also provides the Commission with sufficient current information to enable it to assess the reasonableness of those forecasts. It is expected that a utility will put forth its best possible case in making an application for its revenue requirement. That best possible case should reflect information available to the utility that may reasonably form part of its Application and any updates thereto With respect to information that becomes available during the course of a proceeding, both the Commission and its predecessor have confirmed that updated information may be used for adjustments to revenue requirement or for evaluating the reasonableness and accuracy of the forecasts and the methodologies employed in generating forecasts. The Commission does not Decision , paragraphs Decision , page 6. Decision , page 16. Decision 3539-D (October 21, 2015) 13