Decision 3558-D01-2015
Distribution Performance-Based Regulation
Commission-initiated Proceeding to
Consider Modifications to the Minimum Filing Requirements
for Capital Tracker Applications
April 8, 2015
Alberta Utilities Commission
Decision 3558-D01-2015
Distribution Performance-Based Regulation
Commission-initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Proceeding 3558
Application 1611054-1
April 8, 2015
Published by the:
Alberta Utilities Commission
Fifth Avenue Place, Fourth Floor, 425 First Street S.W.
Calgary, Alberta
T2P 3L8
Telephone: 403-592-8845
Fax: 403-592-4406
Website: www.auc.ab.ca
Contents
1
Introduction ........................................................................................................................... 1
2
Background ........................................................................................................................... 3
3
Issues associated with the minimum filing requirements for capital trackers ................ 6
3.1 Adequacy of the accounting test .................................................................................... 6
3.2 Assessment of proposed project groupings .................................................................. 12
3.3 Proposed changes to the minimum filing requirements for capital trackers ................ 14
3.3.1 Approval of multi-year programs ................................................................... 15
3.3.2 Capital cost-related allocations ....................................................................... 16
3.3.3 Full disclosure of calculations ........................................................................ 18
3.3.4 Maintenance of records ................................................................................... 19
3.3.5 Affiliate transactions ....................................................................................... 19
3.3.6 Certification of evidence ................................................................................. 20
3.3.7 Cost driver tables presentation ........................................................................ 20
4
Order .................................................................................................................................... 21
Appendix 1 – Proceeding participants ...................................................................................... 23
Appendix 2 – Summary of Commission directions .................................................................. 24
Appendix 3 – Minimum filing requirements ............................................................................ 25
Decision 3558-D01-2015 (April 8, 2015) • i
Alberta Utilities Commission
Calgary, Alberta
Distribution Performance-Based Regulation
Decision 3558-D01-2015
Commission-initiated Proceeding to Consider Modifications to the
Proceeding 3558
Minimum Filing Requirements for Capital Tracker Applications
Application 1611054-1
1
Introduction
1.
In Decision 2012-237,1 Rate Regulation Initiative, Distribution Performance-Based
Regulation, the Alberta Utilities Commission established a capital tracker mechanism in the
performance-based regulation (PBR) plans approved for the distribution divisions of AltaGas
Utilities Inc. (AltaGas), ATCO Electric Ltd. (ATCO Electric), ATCO Gas and Pipelines Ltd.
(ATCO Gas), EPCOR Distribution & Transmission Inc. (EPCOR), and FortisAlberta Inc.
(Fortis), hereafter collectively referred to as “the companies.” The capital tracker mechanism was
included in the PBR plans as a means for allowing the companies to seek additional capital
funding for projects not otherwise funded under the I-X mechanism of the PBR plans. Further
clarification on the application process for capital trackers was provided in Decision 2013-435,2
Distribution Performance-Based Regulation, 2013 Capital Tracker Applications. Section 10.2 of
Decision 2013-435 set out a list of minimum filing requirements for capital tracker applications.
2.
On December 5, 2014, the Commission initiated a proceeding to review some of the
filing requirements for capital tracker applications. This proceeding arose as the result of the
various positions advocated on the level of information required to be filed in a capital tracker
application by parties in the 2013 true-up and 2014-2015 forecast capital tracker proceedings.3 In
particular, parties disagreed on whether companies should be required to show the accounting
test calculations for all capital addition projects or programs undertaken in a particular year, or
for only those capital addition projects or programs for which the companies are applying for
capital tracker treatment.
3.
The Commission considered that the parties currently, actively participating in the 2013
true-up and 2014-2015 forecast capital tracker proceedings would have an interest in
commenting on the issues related to the minimum filing requirements. Accordingly, the
Commission pre-registered the companies, the Consumers’ Coalition of Alberta (CCA), The City
of Calgary (Calgary) and the Office of the Utilities Consumer Advocate (UCA) to participate in
this proceeding. In addition, the Commission requested any other party that wished to participate
in the proceeding to submit a statement of intent to participate (SIP) by December 12, 2014.
4.
The Commission received SIPs by the specified deadline date from AltaLink
Management Ltd. and ENMAX Power Corporation (ENMAX).
1
2
3
Decision 2012-237: Rate Regulation Initiative, Distribution Performance-Based Regulation, Proceeding 566,
Application 1606029-1, September 12, 2012.
Decision 2013-435: Distribution Performance-Based Regulation, 2013 Capital Tracker Applications,
Proceeding 2131, Application 1608827-1, December 6, 2013.
Proceeding 3100, 3152, 3216, 3218, 3220, 3244 and 3267.
Decision 3558-D01-2015 (April 8, 2015) • 1
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Distribution Performance-Based Regulation
5.
In its letter of December 5, 2014 initiating the proceeding, the Commission requested
participating parties to file submissions and reply submissions on the following three questions:

Should the companies be required to provide an accounting test and all assumptions, in
Excel format with linked and working formulas, for all capital addition projects or
programs including those capital addition projects or programs for which the companies
have not applied for capital tracker treatment?

Should the companies be required to provide descriptions of the types of capital,
including capital projects or programs for which the companies have not applied for
capital tracker treatment?

Are other changes required to the minimum filing requirements for capital trackers
provided in Section 10.2 of Decision 2013-435?4
6.
On December 17, 2014, the Commission issued a process letter and determined that the
proceeding would be conducted by way of a minimal written process with the following
procedural schedule:
Process step
Submissions on the issues identified in the Commission’s
December 5, 2014 letter
Reply submissions
Deadline
December 31, 2014
January 23, 2015
7.
The Commission received submissions on the issues identified in the Commission’s
December 5, 2014 letter by the specified deadline dates from ATCO Electric and ATCO Gas
who filed a joint response (collectively ATCO), EPCOR, Fortis, ENMAX, Calgary, the CCA and
the UCA. On January 5, 2015, AltaGas registered a submission.
8.
The Commission considers the record for this proceeding to have closed on January 23,
2015 when reply arguments were filed. In reaching the determinations set out within this
decision, the Commission has considered all relevant materials comprising the record of this
proceeding and the records of the 2013 true-up and 2014-2015 forecast capital tracker
proceedings.5 Accordingly, references in this decision to specific parts of the records 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 records with respect to a particular matter.
4
5
Exhibit 0003.01.AUC-3558, AUC letter – scope of proceeding and schedule, December 5, 2014.
Proceeding 3100, 3152, 3216, 3218, 3220, 3244 and 3267.
2 • Decision 3558-D01-2015 (April 8, 2015)
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
2
Distribution Performance-Based Regulation
Background
9.
On September 12, 2012, the Commission issued Decision 2012-237, which set out the
following five principles of a PBR plan:
Principle 1. A PBR plan should, to the greatest extent possible, create the same efficiency
incentives as those experienced in a competitive market while maintaining service quality.
Principle 2. A PBR plan must provide the company with a reasonable opportunity to recover
its prudently incurred costs including a fair rate of return.
Principle 3. A PBR plan should be easy to understand, implement and administer and should
reduce the regulatory burden over time.
Principle 4. A PBR plan should recognize the unique circumstances of each regulated
company that are relevant to a PBR design.
Principle 5. Customers and the regulated companies should share the benefits of a PBR plan.6
10.
Decision 2012-237 also approved the use of a capital tracker mechanism in the PBR
plans and established the following three criteria for capital projects or programs for which a
company is seeking capital tracker treatment:
(1)
The project must be outside of the normal course of the company’s ongoing operations.
(2)
Ordinarily the project must be for replacement of existing capital assets or undertaking
the project must be required by an external party.
(3)
The project must have a material effect on the company’s finances.7
11.
At paragraph 149 of Decision 2013-435, the Commission clarified the requirements of
the first criterion indicating the following:
149.
The Commission concludes that, in general, in order for a capital project to be
considered outside of the normal course of the company’s ongoing operations, the
increase in associated revenue provided under the I-X mechanism (reflective of historical
expenditures embedded in going-in rates and industry productivity growth) would not be
sufficient to recover the entire revenue requirement associated with the prudent capital
expenditures for this project. …
12.
The Commission further clarified that the concept of normal course is “mainly a financial
and accounting consideration” and that the contemplated comparison of revenues was referred to
as the “accounting test.”8
6
7
8
Decision 2012-237, paragraph 28.
Decision 2012-237, paragraph 592.
Decision 2013-435, paragraph 150.
Decision 3558-D01-2015 (April 8, 2015) • 3
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Distribution Performance-Based Regulation
13.
The Commission determined that the accounting test should be conducted using a
“project net cost approach.”9 At paragraph 174 of Decision 2013-435, the Commission defined
the “project net cost approach:”
174.
… the revenue generated under the I-X mechanism for each capital project (or
capital program or project category) was compared to the forecast revenue requirement
associated with that capital project (or capital program or project category) in 2013. This
analysis purported to demonstrate a lack of double-counting on a project-by-project basis.
The sum of these individual project-by-project revenue shortfalls was to be recovered by
way of capital trackers through a K factor adjustment in the PBR formula. The
Commission will refer to these project-by-project analyses as a “project net cost
approach.”
14.
The revenue requirement amounts approved for collection associated with capital tracker
projects and programs are collected through the K factor component of the PBR formula. In
Section 4.4 of Decision 2013-435, the Commission set out the K factor calculation methodology
which determines the incremental revenue requirement amounts using the project net cost
approach (i.e., above the amounts provided under the I-X mechanism) for each project or
program proposed for capital tracker treatment.
15.
At paragraph 1091 of Decision 2013-435, the Commission directed the companies to
provide the detailed calculations used in determining the accounting test, materiality test and the
K factor, requiring each company to file the following documentation.
1091. … a set of Microsoft Excel® schedules setting out all the elements of the
accounting test, materiality test and the resulting K factor calculation as directed in this
decision, for each of the programs or projects proposed for capital tracker treatment. As
discussed in Section 4.4, if a company’s accounting records do not permit identification
of the portion of the going-in rate base associated with a type of capital expenditure
similar to a project or program proposed for capital tracker treatment, as required for the
accounting test and the resulting K factor calculation, then the schedules provided must
demonstrate how the calculation of these amounts was performed. In addition, the
company is required to explain any assumptions and simplifications used in their
calculation.
16.
During the 2013 true-up and 2014-2015 forecast capital tracker proceedings,10 parties
contested the amount of information that should be required to support capital tracker
applications. In particular, parties advanced contrary views on whether the companies should be
required to show the accounting test calculations for all capital projects or programs including
those capital projects or programs for which the companies have not applied for capital tracker
treatment (non-capital tracker capital projects or programs). The Commission did not generally
require an applicant to provide evidence with respect to capital projects and programs for which
the applicant had not requested capital tracker treatment in its 2013 true-up and 2014-2015
forecast capital tracker application because such information was not required under the existing
minimum filing requirements established in Decision 2012-237 and Decision 2013-435. For
example, in response to a request by the CCA for the total capital expenditures of Fortis in the
9
10
Decision 2013-435, paragraph 264.
Proceeding 3100, 3152, 3216, 3218, 3220, 3244 and 3267.
4 • Decision 3558-D01-2015 (April 8, 2015)
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Distribution Performance-Based Regulation
context of understanding the K factor applied for, the Commission provided the following ruling
in the oral hearing for the Fortis 2013 true-up and 2014-2015 forecast tracker application:
… In AUC Decision 2013-435, at paragraph 183, the Commission said: (as read) "In
Decision 2012-237, the Commission did not contemplate evaluating the totality of the
company's capital forecast or its entire forecast revenue requirement in order to determine
the effect amounts to a return to cost of service testing of the full capital forecast or total
revenue forecast, including both capital and O&M in the case of Fortis at that time."
Given that ruling, the Commission does not consider that this request is relevant and
Fortis will not be required to provide it.11
17.
The existing minimum filing requirements require information relating to the capital
projects and programs for which capital tracker treatment is being requested. The Commission
did, however, require the applicant to address questions that went to the manner in which the
accounting test for the proposed capital trackers had been performed, including whether the
allocation of rate base to the proposed grouping had been properly done historically.12 The
Commission also commented on the issue in respect of the relationship between grouping and
the accounting test in Decision 3218-D01-201513 when it stated:
79.
… the Commission requires that a company’s proposed grouping of capital
tracker projects must conform to the requirement of the accounting test “to compare the
forecast or actual revenue requirement for [a] project to the going-in revenue historically
associated with a similar type of capital expenditures …” in order to determine the extent
to which a project or program is underfunded by the I-X mechanism. The requirement to
compare forecast or actual revenue requirement amounts to the going-in revenue
historically associated with similar types of expenditures suggests that project or program
grouping for capital tracker purposes should be aligned, in most cases, with the historical
groupings utilized by the company in previous rate cases in order to facilitate the required
comparison. Where historical groupings are employed in determining groupings for
capital tracker purposes, there is little reason to question whether the company has
manipulated the grouping of projects. Where a company’s proposed grouping of projects
is at odds with its past accounting and reporting practices, as the Commission cautioned
in Decision 2013-435, the Commission must assess the reasonableness of the proposed
grouping on a case-by-case basis. In doing so, the Commission takes into account “the
unique differences among the companies with respect to their historical project
classifications in cost-of-service applications, limitations of the companies’ accounting
systems, and the nature and geographic location of the companies’ facilities.” However,
grouping on an historically consistent basis may not be sufficient for capital tracker
purposes. Historical groupings have been undertaken for a number of accounting,
organizational and business reasons, and may not be suitable for determining whether
particular projects or programs are sufficiently similar to be grouped together for capital
tracker purposes. Accordingly, the Commission may determine that such historical
groupings should be altered or refined.14
11
12
13
14
Proceeding 3220, Transcript, Volume 1, page 90, lines 12-25 and page 91, lines 1-8.
Proceeding 3218, Transcript, Volume 1, page 91, lines 22-25 and page 92, lines 1-2.
Decision 3218-D01-2015: ATCO Electric Ltd. 2013 PBR Capital Tracker Refiling and True-up and 2014-2015
PBR Capital Tracker Forecast, Proceeding 3218, Application 1610569-1, March 15, 2015.
Decision 3218-D01-2015, paragraph 79.
Decision 3558-D01-2015 (April 8, 2015) • 5
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Distribution Performance-Based Regulation
The issue was similarly addressed in Decision 3220-D01-2015,15 Decision 3267-D01-201516 and
Decision 3100-D01-2015.17
18.
Nevertheless, in response to the various positions expressed by parties on this issue, at the
oral hearing in the ATCO Electric proceeding, the chair of the Commission panel indicated that
the Commission would initiate a proceeding involving the companies and interested parties to
consider the issue of potentially amending the minimum filing requirements in future
applications. The chair specifically indicated that the outcome of the new proceeding, including
any changes to the minimum filing requirements, would only prospectively apply to future
capital tracker applications, and would not apply to the 2013 true-up and 2014-2015 forecast
capital tracker applications. Further, the evidence filed in the minimum filing requirements
proceeding would not be considered by the panel in rendering decisions in, and would have no
bearing on, the decisions reached by the Commission in the 2013 true-up and 2014-2015 forecast
capital tracker proceedings.18
3
Issues associated with the minimum filing requirements for capital trackers
19.
As noted above, the Commission requested submissions from parties on three questions.
A summary of the parties’ submissions and the associated Commission findings on the three
questions are provided in Sections 3.1 to 3.3 below.
3.1
20.
Adequacy of the accounting test
The first of the three Commission questions was:
Should the companies be required to provide an accounting test and all assumptions, in
Excel format with linked and working formulas, for all capital addition projects or
programs including those capital addition projects or programs for which the companies
have not applied for capital tracker treatment?
21.
With the exception of ENMAX the companies agreed that accounting test information is
not required to be filed in capital tracker applications for non-capital tracker projects or
programs. The companies noted that doing so would increase regulatory burden and cost.
22.
ENMAX had no objection to providing an accounting test for non-capital tracker projects
or programs. ENMAX considered that this approach would add transparency and consistency to
the proceedings, would not be onerous, and would reduce the number of information requests in
situations when a project changes from not qualifying for capital tracker treatment one year to
qualifying for capital tracker treatment in a subsequent year. However, ENMAX recommended
15
16
17
18
Decision 3220-D01-2015: FortisAlberta Inc., 2013-2015 PBR Capital Tracker Application, Proceeding 3220,
Application 1610570-1, March 5, 2015, paragraph 55.
Decision 3267-D01-2015: ATCO Gas and Pipelines Ltd., 2013 PBR Capital Tracker Refiling and True-up and
2014-2015 PBR Capital Tracker Forecast, Proceeding 3267, Application 1610634-1, March 19, 2015,
paragraphs 88-92.
Decision 3100-D01-2015: EPCOR Distribution & Transmission Inc., 2013 PBR Capital Tracker True-up and
2014-2015 PBR Capital Tracker Forecast, Proceedings 3216 and 3100, Applications 1610565-1 and 1610362-1,
January 25, 2015, paragraph 53.
Proceeding 3218, Transcript, Volume 4, pages 573-577.
6 • Decision 3558-D01-2015 (April 8, 2015)
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Distribution Performance-Based Regulation
that if this approach was adopted, companies should not be required to reply to requests related
to non-capital tracker projects.19
23.
Fortis stated that it provided the complete accounting test in its 2013-2015 capital tracker
application, and is of the view that this level of detail was appropriate, as the accounting test was
being applied and evaluated in the context of going-in rates for the first time. However, Fortis
considers that, going forward, the provision of an accounting test and all assumptions for noncapital tracker projects or programs is not required.20
24.
Fortis also noted that the inclusion of non-capital tracker projects in its 2013-2015
accounting tests resulted in negative K factor results, which Fortis submitted are beyond the
scope of capital tracker proceedings as previously determined by the Commission.21
25.
EPCOR submitted that under PBR principles, it should be left to the utility’s discretion
whether to provide non-capital tracker projects or programs and these projects or programs
should not be under the same scrutiny as the capital tracker projects.22 EPCOR explained:
… EDTI provides the calculation of the non-capital tracker project K factors for the
limited purpose of enabling the Commission to confirm that EDTI has properly
calculated its applied-for K factor amounts for its capital tracker projects. However,
requiring EDTI to provide the accounting test and all assumptions for its non-capital
tracker projects is unnecessary and would create unwarranted, additional burden and
cost.23
26.
AltaGas was of the view that if all capital projects were subject to a cost of service
approach by bringing the non-capital tracker projects into the accounting test formula, the
incentives of PBR would be dampened by a company focus on providing additional data, rather
than a focus on finding opportunities to increase productivity.24 In addition, AltaGas submitted
that providing the accounting test for non-capital tracker projects would be onerous:
… introducing additional detailed information for non-capital tracker projects, or
potentially opening up review of I-X capital as part of the minimum filing requirements
for capital tracker applications, is contrary to the objectives and principles established
under the PBR plan and increases regulatory burden. In Decision 2012-327, the
Commission established a set of criteria for capital trackers to limit the number of
projects for consideration outside of the I-X mechanism and, in AUI’s view to preserve
the incentive properties of PBR.25
19
20
21
22
23
24
25
Exhibit 0007.01.EPC-3558, ENMAX submission, page 2.
Exhibit 0008.01.FORTIS-3558, Fortis submission, page 1.
Exhibit 0008.01.FORTIS-3558, Fortis submission, page 1.
Exhibit 0009.01.EDTI-3558, EPCOR submission, paragraph 5.
Exhibit 0009.01.EDTI-3558, EPCOR submission, paragraph 3.
Exhibit 3558-X0001, AltaGas submission, paragraphs 7-9.
Exhibit 3558-X0001, AltaGas submission, paragraph 9.
Decision 3558-D01-2015 (April 8, 2015) • 7
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Distribution Performance-Based Regulation
27.
In response, the UCA clarified that it is only requiring a full accounting test to understand
how the accounting test was applied to ensure that costs have been allocated correctly, not to test
all projects or reopen the I-X mechanism.26
28.
ATCO stated that the proposal to include all capital additions in the accounting test
would require the Commission to test the utility’s entire capital program and could also produce
negative trackers. ATCO considered that these two concepts were previously rejected by the
Commission when it rejected, in Decision 2013-435, the aggregate investment shortfall approach
put forward by ATCO in Proceeding 2131. ATCO stated:
Further, the Commission already determined in Decision 2013-435 that it would not
approve an approach that required an assessment of the total capital forecast of the
utilities, which was the very method put forward by the ATCO Utilities and rejected by
the Commission in that Decision. The Commission's reliance on accounting test results
for non-trackers in formulating a decision is, in effect, acceptance of all the inputs into
the accounting test (i.e. the need and justification for the forecast and the other
requirements of the project assessment), prudence of the actuals, as well as all other
assumptions and calculations that go into the accounting test. The ATCO Utilities submit
that to rely upon non-tracker accounting test results, the Commission would indeed be
required to test the utility's entire capital program, including all assumptions and inputs
that go into it – an approach that has previously been rejected by the Commission.27
29.
The CCA, Calgary and the UCA shared the position that the provision of an accounting
test and all assumptions for non-capital tracker projects or programs is required. The CCA
explained:
29 … If the measurements are cloudy and obscure then that is not consistent with
principles of PBR, particularly Principle 3 which states
A PBR plan should be easy to understand, implement and administer and should
reduce the regulatory burden over time.
30. A plan which does not disclose relevant information is not easy to understand. In the
CCA’s view it is important to distinguish between information which provides a fair,
open and transparent picture of what is occurring under the PBR plans and what decisions
are made with that information…28
30.
The UCA further emphasized the need to address the issues of information asymmetry
and lack of transparency:
29. … there is a longstanding issue of information asymmetry, and a lack of
transparency. Customers are being requested to pay for incremental funding outside of
the I-X formula, and as such should be able to assess how the CT criteria are being
applied.29
26
27
28
29
Exhibit 3558-X0005, UCA reply submission, paragraph 18.
Exhibit 0010.01.ATCOGAS-3558, ATCO submission, page 4.
Exhibit 0011.01.CCA-3558, CCA submission, paragraphs 29-30.
Exhibit 0012.02.UCA-3558, UCA submission, paragraph 29.
8 • Decision 3558-D01-2015 (April 8, 2015)
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Distribution Performance-Based Regulation
31.
In its reply submission, ATCO disagreed with the CCA’s and the UCA’s arguments
regarding information asymmetry and the amount and quality of the information provided,
stating:
4. … Where requests for very detailed data or information could not be answered on the
stand, the information, where determined relevant by the Commission, was provided in
response to undertakings accepted by the witnesses. There were no roadblocks to the
provision of relevant information. … With respect, the fact that it took time and effort to
ensure the accuracy of detailed information in a first-time testing of the modeling for
capital trackers is neither attributable to information asymmetry nor to obstruction.30
32.
AltaGas argued that information asymmetry cannot be resolved by the provision of
information on non-capital tracker projects, as stated by the CCA and the UCA, and submitted
that the focus should be on how well capital tracker projects are defended by the utilities using
the existing criteria set out by the Commission.31
33.
Contrary to the conclusion of the companies that providing the accounting test for noncapital tracker projects would be onerous and defeat the principles of the PBR plan, the CCA
submitted that because the majority of capital is tracked, the additional effort to provide the
accounting test for non-capital tracker projects would be marginal, and would reduce information
requests during capital tracker proceedings.32 The CCA explained:
… EPCOR already performs and provides a complete accounting test. The application of
Fortis was largely the same except for one minor step which the CCA completed. Apart
from the tax calculation, the CCA was able to perform the accounting test for ATCO Gas.
The CCA’s calculations were uncontroverted. Therefore, since the majority of utilities
already provide either the actual accounting test, sufficient information to calculate the
accounting test or can calculate the accounting test with an additional “very
straightforward, simple calculation” of tax, the CCA believes it should be provided by the
utilities who have this information.33
34.
The CCA also suggested that much of the information will be available in Rule 00534
filings and when rebasing occurs; however, the CCA was of the opinion that disclosure of the
information earlier would result in a more efficient process.35
35.
The CCA and the UCA also raised the issue in their submissions that a full accounting
test is the only way to ensure that the correct depreciation, return, overheads and income tax are
attributed to the capital tracker projects.36 In its reply submission, the CCA maintained its
position that information on all projects is required. The CCA stated that the information is
required to determine if the proposed groupings are valid and do not unduly influence the
K factor to the advantage of the companies. The CCA also confirmed its position that providing
30
31
32
33
34
35
36
Exhibit 3558-X0009, ATCO reply submission, paragraph 4.
Exhibit 3558-X0010, AltaGas reply submission, paragraphs 4-6.
Exhibit 0011.01.CCA-3558, CCA submission, paragraphs 15, 17-18.
Exhibit 0011.01.CCA-3558, CCA submission, paragraph 16.
Rule 005: Annual Reporting Requirements of Financial and Operational Results.
Exhibit 0011.01.CCA-3558, CCA submission, paragraph 28.
Exhibit 0012.02.UCA-3558, UCA submission, paragraph 20 and Exhibit 0011.01.CCA-3558, CCA submission,
paragraph 25.
Decision 3558-D01-2015 (April 8, 2015) • 9
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Distribution Performance-Based Regulation
the accounting test for all capital projects would assist in verifying the allocation calculations. 37
In addition, the UCA noted that information regarding how the companies applied the criteria
and, as a result, how a project failed to meet the requirements for a capital tracker project would
assist in the project assessment.38
36.
In their reply submissions, the companies maintained their original positions and refuted
the claims made by the CCA and the UCA regarding the minimal effort that would be required to
provide more information, and the need for complete disclosure of the entire capital program of a
utility to validate the capital tracker program.
37.
The companies agreed that since they are not seeking approval for non-capital tracker
projects, detailed and additional information should not be required to test the validity of capital
tracker projects. AltaGas further noted that disclosure of non-capital tracker information is not
required to justify a capital tracker program, and it is incumbent on the utility to provide enough
information relating to the capital tracker projects and programs they are applying for to satisfy
the Commission.39
38.
ATCO disagreed with the CCA’s perception of the effort required to provide non-capital
tracker information, submitting that the additional information would likely result in more
questions and would add no value to the process.40
Commission findings
39.
Sections 3.1.2 and 3.1.3 of Decision 2013-435 established the accounting test as the
mechanism that the Commission uses to ensure the absence of double-counting and to calculate
the amount of investment that is outside the normal course of the companies’ ongoing
operations. The accounting test is to be based on the project net cost approach whereby the
revenue generated under the I-X mechanism for each capital project or program is compared to
the forecast revenue requirement associated with that capital project or program. The sum of the
individual project-by-project revenue shortfalls, approved for capital tracker treatment is
collected through a K factor adjustment in the PBR formula.
40.
In Decision 2013-435, when evaluating the alternative to the project net cost approach to
satisfying Criterion 1, the aggregate shortfall approach, the Commission stated:
258.
The principal concern with the aggregate shortfall approach is that this analysis
requires the Commission to examine the companies’ total capital forecast (or a total
revenue requirement forecast, including both capital and O&M in the case of Fortis), not
just the forecast for the projects proposed for capital tracker treatment. In Decision 2012237, the Commission did not contemplate evaluating the totality of the company’s capital
forecast or its entire forecast revenue requirement in order to determine the eligibility of a
subset of the company’s capital forecast for capital tracker treatment. A requirement to
review a company’s entire capital forecast, in effect, amounts to a return to cost-ofservice testing of the full capital forecast (or a total revenue requirement forecast,
including both capital and O&M in the case of Fortis). This would be inconsistent with
37
38
39
40
Exhibit 3558-X0003, CCA reply submission, paragraphs 7-9, 26 and 32.
Exhibit 0012.02.UCA-3558, UCA submission, paragraph 28.
Exhibit 3558-X0010, AltaGas reply submission, paragraph 20.
Exhibit 3558-X0009, ATCO reply submission, paragraph 10.
10 • Decision 3558-D01-2015 (April 8, 2015)
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Distribution Performance-Based Regulation
the PBR goals of reducing regulatory burden. Unlike the aggregate investment shortfall
approach, the project net cost approach does not require that the totality of a company’s
capital forecast or its entire forecast revenue requirement be evaluated.41
41.
The Commission continues to be of the view expressed in Decision 2012-237 and
Decision 2013-435 that the accounting test should apply only to capital tracker projects or
programs. In demonstrating that capital projects or programs satisfy the accounting test
requirements of Criterion 1, the Commission does not consider it necessary to provide
accounting test results for capital projects and programs that are not put forward for capital
tracker treatment. The companies must fund these non-capital tracker capital projects and
programs using funds provided under the I-X mechanism. Whether or not these projects and
programs pass or fail the accounting test is not relevant to the consideration of the capital
projects and programs proposed for capital tracker treatment.
42.
In addition, the Commission does not consider it necessary for the companies to provide
an accounting test in respect of non-capital tracker capital projects and programs in order to
assess whether the capital tracker projects and programs have been properly grouped. As noted
in the recent Commission decisions42 dealing with the 2013 true-up and 2014-2015 capital
tracker applications, grouping depends on several factors and may be unique to an individual
company. Historical grouping practices are ordinarily applied, which facilitates the use of the
accounting test to determine the revenue requirement associated with a capital project or
program that is not funded under the I-X mechanism using the accounting test.
43.
Nevertheless, the Commission considers there to be merit in obtaining some additional
information with respect to non-capital tracker capital projects and programs to improve
understanding of cost allocations between capital tracker and non-capital tracker projects and
programs and to demonstration that the company has performed its allocations correctly. In
particular, the Commission considers that having the company provide the actual or forecast
costs of non-capital tracker capital projects and programs, including the breakdown and
calculation of the actual or forecast depreciation, tax, and overhead amounts allocated to each
project and program, would be of assistance in verifying the allocation of these cost categories to
the capital projects and programs for which capital tracker treatment is requested. The companies
should also provide details of any new or changed cost allocation methodologies impacting these
allocations. Such information would assist in substantiating the fair distribution of these
allocated amounts and in reconciling total capital cost allocations.
44.
For the above reasons, the Commission directs the companies in their future capital
tracker applications, starting with the 2014 true-up and 2016-2017 forecast capital tracker
applications, to provide, in Excel format with linked and working formulas, the actual and
forecast capital additions for all projects and programs, including both capital tracker and noncapital tracker capital projects and programs. Companies are also directed to provide supporting
calculations for any component of capital additions or capital-related revenue requirement that
involves the allocation of an aggregated amount of dollars among projects and programs
showing how the allocations were performed, including a breakdown of the amount of
41
42
Decision 2013-435, paragraph 258.
Decision 3100-D01-2015, paragraphs 48-57; Decision 3220-D01-2015, paragraphs 53-62; Decision 3218-D012015, paragraphs 77-88; Decision 3267-D01-2015, paragraphs 87-98.
Decision 3558-D01-2015 (April 8, 2015) • 11
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Distribution Performance-Based Regulation
depreciation, overheads and income tax allocated to each capital tracker project and program and
non-capital tracker project and program reconciled to the total amount of depreciation, overheads
and income tax for all projects and programs. The Commission has added this requirement to its
revised minimum filing requirements in Appendix 3.
3.2
Assessment of proposed project groupings
45.
The second of the three Commission questions was:
Should the companies be required to provide descriptions of the types of capital,
including capital projects or programs for which the companies have not applied for
capital tracker treatment?
46.
AltaGas, ENMAX, Fortis and EPCOR all submitted that companies should not be
required to provide descriptions of capital for non-capital tracker projects or programs. AltaGas
and EPCOR are of the view that this additional information is not relevant for capital tracker
purposes. EPCOR and Fortis commented that providing it would be inconsistent with the
Commission’s third PBR principle. Fortis further considered that such a requirement would
increase the regulatory burden to that of a cost of service application, or more.
47.
In addition to its position that descriptions of non-capital tracker projects or programs are
not required, ENMAX submitted that assessments of previously approved groupings should not
be open to reconsideration in subsequent filings.43
48.
To assist in assessing capital tracker groupings, both ATCO and EPCOR suggested that
limited information could be provided for non-capital tracker projects or programs. In its reply
submission, EPCOR proposed that non-capital tracker projects that involve work similar to
capital tracker projects could be identified to assist in assessing capital tracker groupings.44
49.
The CCA, Calgary and the UCA were of the view that a paragraph of detail for each noncapital tracker project would be sufficient. The CCA submitted that if a project is new or unique,
or contains a grouping that is different from past practice, more information might be required.45
The UCA further suggested that an explanation be provided, in addition to the accounting test,
for projects not meeting the capital tracker criteria:
Unless the issue relates directly to the applied-for CTs, such as grouping, or the allocation
of costs between CT and non-CT projects, there should be limited information provided
on the non-CT projects. Evidence should be limited to a brief description of the non-CT
project, and an explanation of why the non-CT project is not included as a CT, should it
have passed the accounting test.”46
Commission findings
50.
The Commission considers that a short description outlining the nature, scope and timing
of non-capital tracker projects and programs will be of assistance in understanding the proposed
43
44
45
46
Exhibit 0007.01.EPC-3558, ENMAX submission, page 2.
Exhibit 3558-X0006,EPCOR reply submission paragraph 7.
Exhibit 0011.01.CCA-3558, CCA submission, paragraph 33.
Exhibit 3558-X0005, UCA reply submission, paragraph 28.
12 • Decision 3558-D01-2015 (April 8, 2015)
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Distribution Performance-Based Regulation
grouping of capital projects and programs for capital tracker treatment. A requirement for a
limited description should not be unduly onerous and may reduce the need for information
requests from the Commission and parties. Accordingly, the companies are directed in their
future capital tracker applications, starting with the 2014 true-up and 2016-2017 forecast
applications, to provide descriptions of the types of capital for non-capital tracker projects or
programs. The Commission has added this requirement to its revised minimum filing
requirements in Appendix 3.
51.
With respect to the need to reassess previously approved groupings in subsequent filings,
the Commission notes that it provided guidance on this matter in paragraph 43 of Decision
3267-D01-2015, paragraph 79 of Decision 2014-373 and paragraphs 75 and 83 of Decision
3100-D01-2015:
43.
To the extent that the groupings in the present 2014-2015 capital tracker and
2013 true-up application are the same as approved in Decision 2013-435, the
Commission will not re-evaluate those groupings in this decision except to the extent that
issues related to those groupings arose in this proceeding. Any new groupings [that] are
proposed in this proceeding will be assessed by the Commission in this decision.47
79.
The Commission finds that AltaGas’ proposed grouping of projects into
programs is consistent with the grouping approved by the Commission in Decision 2013435. The Commission is satisfied that this grouping remains reasonable for the purposes
of the accounting test under Criterion 1 and the materiality assessment in Criterion 3. The
groupings are approved, as proposed.48
75.
… However, as EDTI noted, its grouping uses the same capital project categories
it has used historically, which facilitates comparisons of forecast and actual costs to
EDTI’s historical costs and activities on these projects.66 In addition, since this approach
reflects the manner in which EDTI budgets for, and tracks its costs on a project-byproject basis, EDTI’s grouping of projects allows for administrative efficiency. EDTI
explained that if it were to change its approach, it would “create administrative issues
with EDTI’s budgeting processes, as well as with its field staff who would be required to
significantly change the way they record their work in the field on a project-by-project
basis.” [footnote removed]
…
83.
In light of the above considerations, the Commission finds that the grouping of
EDTI projects or programs proposed for capital tracker treatment appears to be
reasonable. EDTI’s project grouping is consistent with the Commission’s determinations
in Decision 2013-435, reflects projects that are of a sufficiently similar nature to warrant
grouping into a single program, as described in paragraph 839 of that decision, and
reflects the company’s practice in its last three GTAs.49
47
48
49
Decision 3267-D01-2015, paragraph 43.
Decision 2014-373: AltaGas Utilities Inc., 2014-2015 Capital Tracker Application and 2013 Capital Tracker
True-up Application, Proceedings 3152 and 3244, Applications 1610446-1 and 1610600-1, December 24, 2014,
paragraph 79.
Decision 3100-D01-2015, paragraphs 75 and 83.
Decision 3558-D01-2015 (April 8, 2015) • 13
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
3.3
52.
Distribution Performance-Based Regulation
Proposed changes to the minimum filing requirements for capital trackers
The third of the three Commission questions was:
Are other changes required to the minimum filing requirements for capital trackers
provided in Section 10.2 of Decision 2013-435?
53.
At paragraph 1092 of Decision 2013-435, the Commission set out a list of minimum
filing requirements for capital tracker projects:
a. The rationale for the project, including the nature, scope, location, timing and cost
of the project.
b. Any context for the project, which may include related past, present and future plans
(e.g., for multi-year capital expenditures).
c. Evidence demonstrating that in the absence of the proposed capital expenditures,
deterioration in service quality and safety would result.
d. Qualitative and, to the extent possible, quantitative descriptions of the service
quality and safety risks addressed by the project.
e. Evidence that the capital project could not have been undertaken in the past as part
of a prudent capital maintenance and replacement program.
f. A discussion of any reasonable alternatives, including the rationale for
recommending the proposed solution.
g. A detailed forecast of costs for the project or project components, in sufficient detail
to allow an evaluation of the reasonableness of the forecast.
h. A comparison of actual expenditures to forecast expenditures on similar projects
over at least the previous five years, if available, including an explanation of any
differences.
i. With respect to proposed capital trackers, an explanation of any differences between
the forecast costs of projects proposed for capital tracker treatment and the actual or
updated forecast costs of similar projects undertaken in the prior year. This
explanation should provide a breakdown of the project costs that includes both units
and costs-per-unit on a forecast and actual or updated forecast basis.
j. With respect to the true-up of capital tracker projects, an explanation of any
differences between the forecast costs of projects approved for capital tracker
treatment and the actual cost of these projects undertaken in the prior year. This
explanation should provide a breakdown of the project costs that includes both units
and costs-per-unit on a forecast and actual basis.
54.
Several specific changes to the minimum filing requirements were proposed by the CCA
and the UCA. In its reply submission, Calgary noted that the additional requirements proposed
by the CCA and the UCA would be helpful, and did not consider them to be onerous. The CCA
submitted that the spirit, intent and actual wording of the Minimum Filing Requirements50
referred to and approved in Bulletin 2006-2551 should carry over into the capital tracker
proceedings. Many of the CCA proposals are grounded by this position. The proposals by the
CCA and the UCA are discussed in Sections 3.3.2 to 3.3.7 below.
50
51
Minimum Filing Requirements – V9 Phase 1, Prepared for the Alberta Energy and Utilities Board USA/MFR
Task Force, May 4, 2006.
Bulletin 2006-25, Alberta Energy and Utilities Board, Announcing the Approval in Principle of the Form and
Content of a Uniform System of Accounts and Minimum Filing Requirements for Alberta Electric Utilities,
July 12, 2006.
14 • Decision 3558-D01-2015 (April 8, 2015)
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Distribution Performance-Based Regulation
55.
ENMAX, ATCO and AltaGas each took the position that a clarification to the minimum
filing requirements was necessary with respect to multi-year programs that have been approved
for capital tracker treatment by the Commission. This proposal is discussed in Section 3.3.1
below. ENMAX, EPCOR and Fortis submitted that no other changes are required and did not
agree with the expansion of the minimum filing requirements proposed by the CCA and the
UCA, over and above what was provided in their recent, respective capital tracker applications.
ATCO also submitted that generally no other changes are required.
3.3.1
Approval of multi-year programs
56.
ATCO noted that once the Commission has approved a capital tracker program, unless
there is a significant change, the companies should not be required to provide more information
demonstrating the prudency or need of multi-year capital programs in subsequent proceedings.52
57.
AltaGas shared ATCO’s view with respect to previously approved multi-year programs
and suggested an amendment to the minimum filing requirements to clarify this requirement.53
58.
In its reply submission, the UCA did not agree with the suggestion to clarify the
requirements for ongoing multi-year projects or programs, explaining that doing so would limit
the Commission’s ability to oversee the projects.54
Commission findings
59.
With respect to the suggestion by AltaGas and ATCO for a clarification regarding the
redundancy of a reassessment of previously approved programs, the Commission notes that it
provided guidance on this matter in paragraph 403 of Decision 2014-373 where it stated:
403.
The Commission considers that some of the less substantial streamlining options
identified by AltaGas and the UCA are reasonable to implement during the current PBR
term. As noted in the Commission’s assessment of AltaGas’ projects elsewhere in this
decision e.g., Section 6, the Commission agrees that continually revisiting the overall
need for on-going multi-year programs is not necessary each year. To provide the full
context for its business cases, AltaGas may choose to include information supporting the
need for on-going multi-year programs in future capital tracker applications, and any
significant changes to the scope or nature of an on-going multi-year capital tracker will
likely require the revised need to be supported. However, to the extent the scope and
nature of an on-going multi-year project remain relatively unchanged year-over-year, the
Commission will not focus its efforts revisiting the need for on-going multi-year
programs that have previously been approved each year.
60.
The Commission considers that adding a clarification to the minimum filing requirements
will serve to remind the parties of the direction provided in paragraph 403 of Decision 2014-373,
and has, therefore, revised the minimum filing requirements for capital trackers, as set out in
Appendix 3, to reflect this.
52
53
54
Exhibit 0010.01.ATCOGAS-3558, ATCO submission, page 5.
Exhibit 3558-X0001, AltaGas submission, paragraphs 22-23.
Exhibit 3558-X0005, UCA reply submission, paragraph 35.
Decision 3558-D01-2015 (April 8, 2015) • 15
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
3.3.2
Distribution Performance-Based Regulation
Capital cost-related allocations
61.
As noted above, the CCA submitted that the requirements set out in the Minimum Filing
Requirements for electric utility rate applications referred to and approved in Bulletin 2006-25
should apply to capital tracker proceedings. In addition to its accounting test proposal in
response to Commission Question 1 above, the CCA referred to the Minimum Filing
Requirements approved in Bulletin 2006-25, sections 24, 26 and 31, and suggested that the
capital tracker minimum filing requirements should include a requirement to file a company’s
overhead and tax allocation policy, a description of how the policies were applied and
calculations for all capital projects. Specifically, the CCA stated that “the details of the
calculations should include the allocators, the allocators’ values for the receiving projects, the
source costs and how the resulting allocations relate to all trackers and non-trackers. A
worksheet showing the trail from source costs to allocated to final projects should be provided.”55
62.
The UCA proposed that the minimum filing requirements should include a detailed
reconciliation of total depreciation to the depreciation allocated to all projects on a yearly basis,
non-capital tracker projects included, in order to ascertain that the allocation is done correctly.56
In response, Fortis and EPCOR submitted that the depreciation reconciliation provided in its
recent capital tracker proceedings already meets this proposed requirement.57
63.
AltaGas stated that it will provide information to demonstrate the reasonableness and
prudence of its overhead cost allocations. Specifically, AltaGas was of the view that providing
information regarding allocations used to derive the I-X component for capital tracker purposes
has merit, while a detailed reconciliation of tax, depreciation and return to the general ledger
does not.58
64.
To ensure the numbers provided in the accounting test are correct, the CCA proposed that
the companies provide, for all capital (capital tracker and non-capital tracker), a reconciliation of
tax, return and depreciation from the accounting test calculations to the amounts recorded in the
general ledger.59 As an additional check, the CCA proposed a reconciliation of the annual rates
filings Rule 005 return, depreciation and tax values to the same variables in the capital tracker
filings.60 In response, the companies considered this proposal out of scope for capital tracker
proceedings, stating that such a reconciliation is not feasible because Rule 005 and capital
tracker filings are not based on the same components.
65.
The UCA and the CCA requested that the minimum filing requirements include a
requirement for an income tax reconciliation showing the income tax allocation for each capital
tracker and non-capital tracker project, and to provide the prior year T2 corporate tax form and
capital cost allowance schedules.61
55
56
57
58
59
60
61
Exhibit 0011.01.CCA-3558, CCA submission, paragraphs 51-53 and 58.
Exhibit 0012.02.UCA-3558, UCA submission, paragraph 31.
Exhibit 3558-X0007, Fortis reply submission, paragraph 14 and Exhibit 3558-X0006, EPCOR reply
submission, paragraph 59.
Exhibit 3558-X0010, AltaGas reply submission, paragraphs 22-25.
Exhibit 0011.01.CCA-3558, CCA submission, paragraphs 61-63.
Exhibit 0011.01.CCA-3558, CCA submission, paragraphs 73-78.
Exhibit 0012.02.UCA-3558, UCA submission, paragraph 31 and Exhibit 0011.01.CCA-3558, CCA submission,
paragraph 59.
16 • Decision 3558-D01-2015 (April 8, 2015)
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Distribution Performance-Based Regulation
66.
AltaGas did not support the CCA’s and the UCA’s position that a copy of the prior year
T2 (including capital cost allowance schedules), and a reconciliation of how total income taxes
were allocated to each project (tracker and non-tracker) are required. AltaGas proposed that its
current accounting test model is sufficient. AltaGas did not agree with the CCA’s suggestion to
provide reconciliations for tax, return and depreciation to the general ledger, because the
methods used to determine the allocations used to derive the I-X component are clearly shown
and adding more would increase regulatory burden without adding value.62 ATCO also did not
support these additional minimum filing requirements, stating that there are many tax items that
are not relevant to capital tracker programs and, since capital tracker applications are not a full
cost of service application, the information should be limited to the depreciation, taxes, and
return associated with the incremental rate base for capital tracker projects only.63
Commission findings
67.
At paragraph 977 of Decision 2012-237, the Commission provided the following
direction on how to calculate the K factor:
977.
The calculation of the K factor rate adjustments will be similar to revenue
requirement calculations under cost of service, except that the calculation will be
limited to the depreciation, taxes and return associated with the incremental rate base
for the expenditures that form the capital tracker. [emphasis added]
68.
At paragraph 52 of Decision 2013-435, the Commission concluded that “the capital
tracker application process and K factor collection mechanism would achieve the best balance
between ensuring companies have sufficient funding to undertake necessary capital expenditures,
and maintaining the efficiency incentives of the PBR plans to the greatest extent possible.”
69.
In Section 3.1 of this decision, the Commission found there to be merit in the companies
providing certain costs information, including cost allocations, by project or program, for both
capital tracker and non-capital tracker projects or programs, and demonstrating that the allocated
amounts reconcile to the total amount for all projects and programs. However, the Commission
considers that applying the Minimum Filing Requirements approved in Bulletin 2006-025 to
capital tracker proceedings with the result that the companies would be required to provide
extensive details for non-capital tracker projects or programs is not required in order to satisfy
the capital tracker criteria established by the Commission. Accordingly, the Commission rejects
the CCA request for additional requirements, with the exception of the requirement found by the
Commission in Section 3.1. For the above reasons, the Commission rejects the proposals of the
CCA and the UCA for a reconciliation of capital cost-related items to the general ledger and
Rule 005 annual filings.
70.
With respect to the provision of prior year T2 income tax filings, the Commission finds
that a requirement for the companies to provide the entire T2 information set unnecessary,
because it provides detail that is of little value and therefore rejects this proposal. However, the
Commission considers that there is value in requiring the companies to provide evidence that the
capital cost allowance amounts have been reconciled with the amounts filed with the CRA. The
62
63
Exhibit 3558-X0010, AltaGas reply submission, paragraphs 23-27.
Exhibit 3558-X0009, ATCO reply submission, paragraphs 23-24.
Decision 3558-D01-2015 (April 8, 2015) • 17
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Distribution Performance-Based Regulation
Commission has added this requirement to its revised minimum filing requirements in
Appendix 3.
71.
Regarding provision of the company’s overhead and tax allocation policy, the officer
attestation that companies are required to provide as part of their annual rate adjustment filings
already includes the requirement to disclose all capital-related policy changes. Accordingly, the
Commission does not consider further direction is required at this time.
3.3.3
Full disclosure of calculations
72.
The CCA stated that it is convinced that showing all assumptions, all formulas and all
links in spreadsheets, with full disclosure and labelling consistent with the numbers provided,
would improve regulatory efficiency.64 The UCA stated that all calculations need to be shown to
validate the allocations in the accounting test.65
73.
EPCOR stated that it is willing to provide a “worksheet showing the trail from source
costs to allocated to final projects” on an actual basis and would not object to a requirement to
provide spreadsheet formulae, and submitted that it has provided such in its recent capital tracker
proceeding.66
Commission findings
74.
The Commission considers that a requirement for disclosure of calculations in relation to
projects and programs proposed for capital tracker treatment was established in Decision 2013435 at paragraph 1091:
1091. … the Commission directs the companies to file a set of Microsoft Excel®
schedules setting out all the elements of the accounting test, materiality test and the
resulting K factor calculation as directed in this decision, for each of the programs or
projects proposed for capital tracker treatment. As discussed in Section 4.4, if a
company’s accounting records do not permit identification of the portion of the going-in
rate base associated with a type of capital expenditure similar to a project or program
proposed for capital tracker treatment, as required for the accounting test and the
resulting K factor calculation, then the schedules provided must demonstrate how the
calculation of these amounts was performed. In addition, the company is required to
explain any assumptions and simplifications used in their calculation.
75.
During the recent capital tracker proceedings, not all assumptions, formulas and links
were provided in the accounting test spreadsheets and the Commission reminds the companies
that this is a requirement. Further, certain numbers were “hard coded.” The Commission
considers that compliance with paragraph 1091 requires that all assumptions be explained and
formulas and links be provided intact in filed materials. Accordingly, for further clarity, the
Commission has revised the minimum filing requirements for capital trackers as set out in
Appendix 3, to include the requirements set out in paragraph 1091 of Decision 2013-435.
64
65
66
Exhibit 0011.01.CCA-3558, CCA submission, paragraphs 60 and 67.
Exhibit 0012.02.UCA-3558, UCA submission, paragraph 20.
Exhibit 3558-X0006, EPCOR reply submission, paragraphs 12 and 21-22.
18 • Decision 3558-D01-2015 (April 8, 2015)
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
3.3.4
Distribution Performance-Based Regulation
Maintenance of records
76.
The CCA raised a concern that information regarding non-capital tracker projects may be
required at the time of rebasing or a return to a cost of service model, and proposed a set of
minimum requirements for records that should be maintained by the companies.67 Fortis, EPCOR
and ATCO were of the view that the CCA’s concerns with regards to rebasing are unrelated to
minimum filing requirements for capital tracker applications.
Commission findings
77.
In Decision 2012-237, the companies were directed to maintain records during the PBR
term as follows:
863.
For a company under PBR, the requirement to file the AUC Rule 005 schedules
in both its annual PBR rate adjustment filing and a separate AUC Rule 005 application,
does not exempt the company from its obligation to maintain detailed accounts in
accordance with the acts, regulations, Commission rules, or Commission decisions
applicable to the company. Therefore, unless otherwise directed or exempted by the
Commission, the companies are directed to maintain the ability to file a complete set of
MFR and GRA schedules with actual results for all years within the term of the
company’s PBR plan. The companies are not required, however, to file a complete set of
MFR and GRA schedules annually.68
78.
The Commission does not consider further direction is required at this time.
3.3.5
Affiliate transactions
79.
The CCA proposed the application of the criteria in Section 30 of the Minimum Filing
Requirements approved in Bulletin 2006-025 to overhead or other services provided by affiliates
that are included in capital tracker costs.69 These criteria include disclosure of affiliate
transactions, the costs and how those costs were determined, and the filing of financial
schedules, transfer pricing policies, audit reports and inter-affiliate compliance reports. ATCO
and EPCOR did not agree with the CCA that this should be a minimum filing requirement for
capital tracking filings.
Commission findings
80.
The Commission considers the application of all the criteria in Section 30 of the
Minimum Filing Requirements approved in Bulletin 2006-025 to overhead or other services
provided by affiliates that are included in capital tracker costs to be unnecessary detail. However,
the Commission finds merit in the separate identification of any affiliate related costs included in
the actual or forecast costs of a project or program for which a company is seeking capital
tracker treatment. Accordingly, the companies are directed to include in their business cases a
summary of the services provided by or to an affiliate, the related costs and an explanation of
how those amounts were determined. This requirement has been included in the Commission’s
revised minimum filing requirements in Appendix 3.
67
68
69
Exhibit 0011.01.CCA-3558, CCA submission, paragraphs 68-69.
Decision 2012-237, paragraph 863.
Exhibit 0011.01.CCA-3558, CCA submission, paragraphs 70-71.
Decision 3558-D01-2015 (April 8, 2015) • 19
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
3.3.6
Distribution Performance-Based Regulation
Certification of evidence
81.
The CCA suggested that capital tracker applications be accompanied by a senior officer
certification or attestation, attesting to the accuracy of the information contained in the
application.70 ATCO, EPCOR and Fortis considered this requirement to be redundant, stating that
senior officers already provide certifications in audited financial statements, as part of complying
with the requirements of Rule 001,71 in annual PBR rate adjustment applications, and by
swearing under oath in oral proceedings.
Commission findings
82.
The Commission agrees with ATCO, EPCOR and Fortis and denies the request of the
CCA for senior officer certification or attestation of capital tracker filings.
3.3.7
Cost driver tables presentation
83.
The CCA submitted that project assessment analysis would benefit from a table showing
the cost of a standard project followed by the cost drivers or components for extra items and their
associated incremental costs.72 In response, Fortis stated that a presentation, as described in the
CCA submission, would not be possible in light of the estimation tools and methods Fortis uses
to determine its forecast expenditures.73 ATCO submitted that a prescriptive approach would not
be appropriate for all utilities and believes it is up to the companies to decide the form of
presentation that is required to support the costs of their projects.74 EPCOR indicated that its
current estimation presentation approach is acceptable and submits that a different approach
would add regulatory burden.75
Commission findings
84.
The Commission recognizes that there are substantial differences between companies’
projects and programs and agrees that a prescriptive approach would be an impractical way to
proceed. Accordingly, the Commission has not, and does not plan to, prescribe one approach for
all. The Commission considers that an explanation of cost drivers gives the companies the ability
to explain the need for a project and the ability to defend the prudency of actual expenditures and
the reasonableness of forecast expenditures associated with the business cases. While a
comparison to standard projects or prior projects undertaken may be of assistance in
understanding the reasonableness of certain proposed capital tracker costs, the Commission will
not mandate a common approach above what is presently required in the minimum filing
requirements. The onus remains on the companies to present information in a manner that will
assist the parties, including the Commission, in assessing the prudency of actual expenditures
and the reasonableness of forecast expenditures. However, where necessary, the Commission
may direct that additional detail be provided on the record, as it did in Decision 2014-373 at
paragraph 280.
70
71
72
73
74
75
Exhibit 0011.01.CCA-3558, CCA submission, Section 12, Certification of Evidence, paragraph 70 (second
paragraph 70 in the CCA document).
Rule 001: Rules of Practice.
Exhibit 0011.01.CCA-3558, CCA submission, Section 13, Helpful Presentation, paragraphs 71-74 (second
paragraphs 71-74 in the CCA document).
Exhibit 3558-X0007, Fortis reply submission, paragraph 24.
Exhibit 3558-X0009, ATCO reply submission, paragraph 38.
Exhibit 3558-X0006, EPCOR reply submission, paragraphs 41-42.
20 • Decision 3558-D01-2015 (April 8, 2015)
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
4
85.
Distribution Performance-Based Regulation
Order
It is hereby ordered that:
(1)
AltaGas Utilities Inc., ATCO Electric Ltd., ATCO Gas and Pipelines Ltd.,
EPCOR Distribution & Transmission Inc. and FortisAlberta Inc. will incorporate
the findings and the revised minimum filing requirements as set out in this
decision into future capital tracker applications.
Dated on April 8, 2015.
Alberta Utilities Commission
(original signed by)
Mark Kolesar
Vice-Chair
(original signed by)
Neil Jamieson
Commission Member
(original signed by)
Henry van Egteren
Commission Member
Decision 3558-D01-2015 (April 8, 2015) • 21
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Distribution Performance-Based Regulation
Appendix 1 – Proceeding participants
Name of organization (abbreviation)
counsel or representative
ATCO Electric Ltd. (ATCO Electric)
ATCO Gas and Pipelines Ltd. (ATCO Gas)
Bennett Jones LLP
AltaGas Utilities Inc. (AltaGas or AUI)
AltaLink Management Ltd. (AML)
The City of Calgary (Calgary)
McLennan Ross
Consumers’ Coalition of Alberta (CCA)
EPCOR Distribution & Transmission Inc. (EPCOR or EDTI)
Fasken Martineau Dumoulin LLP
ENMAX Power Corporation (ENMAX or EPC)
FortisAlberta Inc. (Fortis)
Davis LLP
Office of the Utilities Consumer Advocate (UCA)
Brownlee LLP
Alberta Utilities Commission
Commission panel
M. Kolesar, Vice-Chair
N. Jamieson, Commission Member
H. van Egteren, Commission Member
Commission staff
B. McNulty (Associate General Counsel)
L. Desaulniers (Commission counsel)
A. Corsi
B. Miller
P. Howard
S. Levin
Decision 3538-D01-2015 (April 8, 2015) • 23
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Distribution Performance-Based Regulation
Appendix 2 – Summary of Commission directions
This section is provided for the convenience of readers. In the event of any difference between
the directions in this section and those in the main body of the decision, the wording in the main
body of the decision shall prevail.
1.
For the above reasons, the Commission directs the companies in their future capital
tracker applications, starting with the 2014 true-up and 2016-2017 forecast capital tracker
applications, to provide, in Excel format with linked and working formulas, the actual
and forecast capital additions for all projects and programs, including both capital tracker
and non-capital tracker capital projects and programs. Companies are also directed to
provide supporting calculations for any component of capital additions or capital-related
revenue requirement that involves the allocation of an aggregated amount of dollars
among projects and programs showing how the allocations were performed, including a
breakdown of the amount of depreciation, overheads and income tax allocated to each
capital tracker project and program and non-capital tracker project and program
reconciled to the total amount of depreciation, overheads and income tax for all projects
and programs. The Commission has added this requirement to its revised minimum filing
requirements in Appendix 3. ........................................................................... Paragraph 44
2.
The Commission considers that a short description outlining the nature, scope and timing
of non-capital tracker projects and programs will be of assistance in understanding the
proposed grouping of capital projects and programs for capital tracker treatment. A
requirement for a limited description should not be unduly onerous and may reduce the
need for information requests from the Commission and parties. Accordingly, the
companies are directed in their future capital tracker applications, starting with the 2014
true-up and 2016-2017 forecast applications, to provide descriptions of the types of
capital for non-capital tracker projects or programs. The Commission has added this
requirement to its revised minimum filing requirements in Appendix 3. ....... Paragraph 50
3.
The Commission considers the application of all the criteria in Section 30 of the
Minimum Filing Requirements approved in Bulletin 2006-025 to overhead or other
services provided by affiliates that are included in capital tracker costs to be unnecessary
detail. However, the Commission finds merit in the separate identification of any affiliate
related costs included in the actual or forecast costs of a project or program for which a
company is seeking capital tracker treatment. Accordingly, the companies are directed to
include in their business cases a summary of the services provided by or to an affiliate,
the related costs and an explanation of how those amounts were determined. This
requirement has been included in the Commission’s revised minimum filing requirements
in Appendix 3. ................................................................................................. Paragraph 80
24 • Decision 3558-D01-2015 (April 8, 2015)
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Distribution Performance-Based Regulation
Appendix 3 – Minimum filing requirements
(return to text)
The Commission sets out the following revised minimum filing requirements:
1. Schedules and related evidence
In addition to the materials required pursuant to paragraph 1091 of Decision 2013-435, a
company must include in each capital tracker true-up application and in each capital tracker
forecast application a set of Microsoft Excel® schedules setting out all the elements of the
accounting test, materiality test and the resulting K factor calculation as directed in
Decision 2013-435.
a. The schedules provided must demonstrate that the revenue generated under the I-X
mechanism for each capital tracker project or program are not covered by the actual
or forecast revenue requirement associated with that capital project or program.
b. The schedules provided must list each capital project and program, both capital
tracker projects and programs and non-capital capital projects and programs with
actual or forecast capital additions in the year. The schedules must also demonstrate,
in Excel format with linked and working formulas, that the amounts of depreciation,
overheads and income tax allocated to each capital tracker and non-capital tracker
project or program, reconciled to the total amount for all projects or programs.
c. Evidence that the capital cost allowance amounts have been reconciled with the
amounts filed with the CRA.
2. Capital tracker projects or programs
a. The rationale for the project, including the nature, scope, location, timing and cost of
the project. (To the extent the scope and nature of an approved on-going multi-year
project remain significantly unchanged year-over-year, this information is not
required.)
b. A summary of the services provided by an affiliate, the amounts paid and
identification of how those amounts were determined.
c. Any context for the project, which may include related past, present and future plans
(e.g., for multi-year capital expenditures).
d. Evidence demonstrating that in the absence of the proposed capital expenditures,
deterioration in service quality and safety would result.
e. Qualitative and, to the extent possible, quantitative descriptions of the service quality
and safety risks addressed by the project.
f. Evidence that the capital project could not have been undertaken in the past as part of
a prudent capital maintenance and replacement program.
g. A discussion of any reasonable alternatives, including the rationale for recommending
the proposed solution.
h. A detailed forecast of costs for the project or project components, in sufficient detail
to allow an evaluation of the reasonableness of the forecast.
i. A comparison of actual expenditures to forecast expenditures on similar projects over
at least the previous five years, if available, including an explanation of any
differences.
j. With respect to proposed capital trackers, an explanation of any differences between
the forecast costs of projects proposed for capital tracker treatment and the actual or
Decision 3558-D01-2015 (April 8, 2015) • 25
Commission-Initiated Proceeding to Consider Modifications to the
Minimum Filing Requirements for Capital Tracker Applications
Distribution Performance-Based Regulation
updated forecast costs of similar projects undertaken in the prior year. This
explanation should provide a breakdown of the project costs that includes both units
and costs-per-unit on a forecast and actual or updated forecast basis.
k. With respect to the true-up of capital tracker projects, an explanation of any
differences between the forecast costs of projects approved for capital tracker
treatment and the actual cost of these projects undertaken in the prior year. This
explanation should provide a breakdown of the project costs that includes both units
and costs-per-unit on a forecast and actual basis.
3. Non-capital tracker projects or programs
a. Project descriptions of all non-capital tracker projects and programs with actual or
forecast capital additions in the year, that adequately describe, for the purpose of
understanding project or program groupings, the nature and purpose of the proposed
project or program.
26 • Decision 3558-D01-2015 (April 8, 2015)