Read Decision 2010-560 FortisAlberta Inc. text version

Decision 2010-560

FortisAlberta Inc.

2010-2011 Phase I Compliance Filing December 6, 2010

ALBERTA UTILITIES COMMISSION Decision 2010-560: FortisAlberta Inc. 2010-2011 Phase I Compliance Filing Application No. 1606513 Proceeding ID. 804 December 6, 2010

Published by Alberta Utilities Commission Fifth Avenue Place, 4th Floor, 425 - 1 Street SW Calgary, Alberta T2P 3L8 Telephone: (403) 592-8845 Fax: (403) 592-4406 Web site: www.auc.ab.ca

Contents

1 2 INTRODUCTION................................................................................................................. 1 ISSUES................................................................................................................................... 2 2.1 Compliance with Directions from Decision 2010-309 .................................................. 2 2.1.1 Direction 11 ­ Depreciation.............................................................................. 2 2.1.2 Directions 20 and 32 ­ FAI's Use of Review and Variance Placeholders ....... 3 2.1.3 Balance of Directions from Decision 2010-309 ............................................... 5 2.2 Other Matters ­ Amortization of Contributions............................................................. 5 2.3 Other Matters ­ Replacement of the Open Item Database (OID).................................. 6 2.4 Other Matters ­ Transmission Revenue Requirement ................................................... 7 2.5 Other Matters ­ International Financial Reporting Standards (IFRS)-Related Impacts 7 2.6 Conclusion ..................................................................................................................... 8 ORDER ................................................................................................................................ 10

3

APPENDIX 1 ­ PROCEEDING PARTICIPANTS................................................................. 11

List of Tables

Table 1. Table 2. 2010/2011 Revenue Requirements............................................................................. 1 Summary of 2010/2011 Revenue Requirement with the Review and Variance Placeholders Removed................................................................................................ 9

AUC Decision 2010-560 (December 6, 2010) · i

ALBERTA UTILITIES COMMISSION Calgary Alberta

FORTISALBERTA INC 2010-2011 PHASE I COMPLIANCE FILING 1 INTRODUCTION

Decision 2010-560 Application No. 1606513 Proceeding ID. 804

1. FortisAlberta Inc. (FAI) filed its 2010-2011 General Tariff Application ­ Phase I Compliance Filing (Compliance Filing or Compliance Application) on August 30, 2010 with the Alberta Utilities Commission (AUC or Commission) pursuant to Decision 2010-309 FortisAlberta Inc. 2010-2011 Distribution Tariff ­ Phase I. 1 2. The Compliance Application included responses pursuant to Commission Directions in Decision 2010-309. FAI provided updated schedules and revenue requirement reconciliations, which identified the adjustment amounts resulting from Commission determinations and produced the following revenue requirement amounts: Table 1. 2010/2011 Revenue Requirements 2

2010 ($ Millions) Total Return Depreciation & Amortization Income Tax Operating Expense Miscellaneous Revenue No Cost Capital Deferrals Revenue Requirement 111.4 124.9 140.6 (34.6) 1.0 4.1 347.4 2011 ($ Millions) 123.1 142.1 140.6 (35.4) 370.5

3. The Commission issued a Notice of Application on August 31, 2010 and received Statements of Intent to Participate from ENMAX Power Corporation and the Office of the Utilities Consumer Advocate (UCA). ENMAX Power Corporation indicated in its Statement of Intent to Participate that it did not intend to actively participate in this proceeding but reserved its right to do so as it deemed necessary. The UCA indicated in its Statement of Intent to Participate that it did not support the Compliance Application because it appeared that FAI was seeking approval of certain items that were not in accordance with the Phase I Decision but rather represented outcomes that are sought in FAI's Review and Variance Application (R&V Application).

1

2

Decision 2010-309: FortisAlberta Inc. 2010-2011 Distribution Tariff ­ Phase I (Application 1605170, Proceeding ID 212) (Released: July 6, 2010). Exhibit 4, Compliance Application, Table1.

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4. The Commission determined that the Compliance Application would be addressed using a written process and established the following schedule for the proceeding: Information Requests to FAI Information Responses Argument Reply Tuesday, September 21, 2010 Tuesday, September 28, 2010 Friday, October 1, 2010 Wednesday, October 6, 2010

5. The Commission received argument and reply submissions from FAI, and the UCA as scheduled on October 1, 2010 and October 6, 2010 respectively. The Commission considers that the record with respect to this proceeding closed on October 6, 2010. 6. 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 argument 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 reasoning relating to a particular matter and should not be taken as an indication that the Commission did not consider all relevant portions of the record with respect to that matter. 2 2.1 ISSUES Compliance with Directions from Decision 2010-309

7. The UCA submitted that there were a number of Commission Directions which FAI had not properly addressed in its Compliance Filing. The Commission addresses these Directions in the sections that follow. 2.1.1 Direction 11 ­ Depreciation

8. The UCA submitted that FAI has not fully reflected the impact of the depreciation changes directed by the Commission in Decision 2010-309 and that it did not agree with the resulting calculations of the depreciation expense and revenue requirement changes proposed by FAI with respect to the use of those depreciation rates in FAI's Compliance Filing. 3 9. The UCA indicated that in FAI's calculation of the depreciation expense impact for Account 1675 and Accounts 1825, 1835, 1845, FAI had included 2009 actuals and compared the composite Distribution plant depreciation rate of 4.21 percent to Mr. Shymanski's rate of 4.08 percent based on his recommended average service life for Account 1675. The UCA submitted that FAI's GTA application did not include 2009 actuals and therefore such calculations should reflect that. 10. The UCA submitted that the depreciation expense reductions, return increases and total revenue requirement impact amounts calculated in the table that it provided at paragraph 15 of its Argument should be substituted for those used in FAI Exhibits 15.06 and 15.11. 11. FAI submitted that "[t]he UCA's concerns with depreciation expense calculations appear to have arisen largely from a misreading on the part of the UCA of the basis of the Compliance

3

UCA Argument, page 2, paragraph 5.

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Filing." 4 FAI submitted that in regard to reconciliations, it had reconciled the Compliance Filing to the updated and corrected revenue requirement filed on December 11, 2009 as Exhibit 193.03. 12. FAI submitted that its Compliance Filing depreciation expenses had properly taken account of the 2009 actual closing balances as directed by the Commission in Direction 1 to Decision 2010-309. Commission Findings 13. The Commission is satisfied with FAI's responses to its directions and to the concerns raised by the UCA including FAI's use of 2009 actual data in its depreciation calculations. In the Commission's view, FAI's approach is consistent with normal regulatory practice. The Commission approves FAI's depreciation expense subject to adjustments to depreciation expense required to give affect to the Commission's findings regarding FAI's use of placeholders related to its Review and Variance application. 2.1.2 Directions 20 and 32 ­ FAI's Use of Review and Variance Placeholders

14. With respect to FAI's advanced metering infrastructure (Metering Project), in Decision 2010-309, the Commission found: "that it is bound by the terms of the NSA [Negotiated Settlement Agreement] with respect to the revenue requirements specific to the AMI project, and cannot approve the forecast requested by FAI in the amount of $139.1 million to complete the AMI project." As such, the Commission issued Direction 32 with respect to FAI's Metering Project:

The Commission directs FAI, if it still wishes to update the AMI revenue requirements, to commence a process of negotiation with the signatories to the NSA. This process would be expected to conclude an amendment to the NSA with respect to which functionality and at what cost as can be agreed upon, and to bring an application to the Commission for approval of the amended NSA. Should not all signatories be available for a negotiation process the Commission expects that the interveners, such as the UCA and the CCA, that have participated in this proceeding, would be involved and the concurrence of others would be sought.

15. In the Compliance Application, FAI responded to this Direction indicating that it has filed an R&V Application pertaining to the Metering Project with the Commission and has included $125.7 million in this Compliance Application as a placeholder pending a decision on the R&V. 5 16. As well, in Decision 2010-309, the Commission issued Direction 20 with respect to meter reading costs:

The Commission notes that there was no specific deferral account for meter reading costs in 2009. The Commission agrees with the UCA and the CCA that there were no legislative changes respecting hourly meter reading and therefore the meter reading costs are not eligible for the legislative deferral account referenced by FAI. Therefore the Commission denies the collection of over-forecast meter reading costs from 2009. The Commission directs FAI to remove this item from its forecast revenue requirement. With respect to 2010 meter reading costs, the Commission accepts the $0.6 million increase in

4 5

FAI Reply Argument, paragraph 5. Exhibit 4, Compliance Application, page 14, paragraph 79.

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meter reading costs, but does not approve deferral treatment of these costs as they are largely in control of the company and can be reasonably forecast.

17.

FAI responded to this Direction and stated:

FortisAlberta has removed the 2009 forecast meter reading costs of $1.3 million from the 2010 revenue requirement and has added the 2010 meter reading costs of $0.6 million per the Commission's Direction. FortisAlberta requested that these contracted meter reading operating costs be increased by $0.6 million in 2010 to address the delay in the installation of Radio Frequency (RF) Equipment and Meter Upgrades (Rebuttal Evidence, Paragraph 124 (Exhibit 143.01)). The $0.6 million increase assumes that RF meters are installed in 2010, but at a date six months later than initially planned. Further delay in the installation of RF meters will see further increases in manual meter reading costs. In extending its deliberations prior to the release of Decision 2010-309, the resulting delay has caused the $100,000 per month of increased manual meter reading costs to be extended by an additional four months from that discussed in Exhibit 192. Thus, for 2010, an additional amount of $400,000 in operating costs related to manual meter reading should be recognized as part of revenue requirement. FortisAlberta has included the additional $400,000 in operating costs as a placeholder in this Compliance Filing pending a decision on the R&V. 6

18. In response to Commission information requests (IRs), FAI provided compliance filing data with both placeholders removed, 7 the $400,000 operating cost placeholder removed and $125.7 million capital cost placeholder replaced by $104.3 million. FAI indicated that given the inter-related nature of the compliance filing and the R&V, FAI endeavored to assist the R&V process to proceed as promptly as possible so that certainty can be obtained for 2010 and 2011 rates. 8 19. The UCA submitted that the Commission has yet to rule on FAI's R&V application and that any adjustments other than those expressly approved in Decision 2010-309 are speculative at best and the purpose of a Compliance Filing is to demonstrate compliance with Decision 2010 309. 9 The UCA submitted that FAI has not complied with Decision 2010-309 as it related to the Metering Project and meter reading costs and therefore should be required to revise its compliance filing to reflect Decision 2010-309. 10 20. FAI responded in its Reply:

FortisAlberta commends to the Commission the use of the placeholders. The results of the use of the placeholders, both individually and cumulatively, were detailed in the responses to AUC-FAI-001 through 003. 11

6 7 8 9 10 11

Exhibit 4, Compliance Filing, page 14, paragraphs 53, 54 and 55. AUC-FAI-001, AUC-FAI-002, AUC-FAI-003. FAI Argument, page 2, paragraphs 8 and 9. UCA Argument, pages 7 and 8, paragraphs 23 and 24. UCA Argument, page 8, paragraph 26. FAI Reply Argument, page 2, paragraph 4.

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21. The UCA submitted in its Reply that FAI does not require a placeholder and that if the R&V is successful, the result will be an amended decision for which FAI can file an application to incorporate the impact of the R&V at that time. 12 Commission Findings 22. A compliance filing is intended to reflect the Commission's approvals and directions. As the placeholder values included in the Compliance Application are different than the amounts approved by the Commission in Decision 2010-309, the Commission does not approve the adoption of these placeholder values. The Commission has used the amounts as approved in Decision 2010-309. The Commission recognizes that if the Review and Variance Application decision results in a change to the amounts approved in Decision 2010-309, those changes will be given effect in Phase II of the review and variance process. The Commission notes that Phase I of the Review and Variance Application was approved in Decision 2010-554, 13 issued December 1, 2010. 2.1.3 Balance of Directions from Decision 2010-309

23. The Commission has reviewed FAI's submissions with respect to the balance of the Directions of Decision 2010-309 that are not specifically discussed herein. The Commission is satisfied that the Compliance Application adequately addresses and responds to those Directions and accordingly accepts FAI's responses to them. 2.2 24. Other Matters ­ Amortization of Contributions In Decision 2010-309 at paragraph 144, the Commission approved:

FAI's proposal to track customer contributions on a go forward basis by vintage and account. In addition, the Commission approves the method of retiring customer contributions proposed by FAI. The Commission finds that this proxy method will retire the same percentage of customer contributions as the retirement of assets and will approximate the relationship between the respective assets and the associated customer contribution. 14

25. FAI clarified in its Compliance filing that its proposal did not include tracking customer contributions on a go-forward basis by vintage, given the cost and inefficiencies involved in tracking by vintage. FAI submitted that its current method for amortizing contributions is reasonable, will ensure all contributions are retired over the life of the asset, is cost effective and requires no additional data tracking. 15 26. The UCA submitted in its Reply:

[G]iven an apparent confusion by the AUC on FAI's proposal, if the AUC's disposition of this issue was based on an incorrect view of FAI's customer contribution proposal, the UCA submits that the AUC should, on its own volition, consider whether it should

12 13

14 15

UCA Reply, page 3, paragraph 9. Decision 2010-554: FortisAlberta Inc., Decision on Preliminary Question, Review and Variance of AUC Decision 2010-309 (Application Nos. 1606452 and 1606467, Proceeding ID. 773) (Released: December 1, 2010). Decision 2010-309, page 28, paragraph 144. Exhibit 4, Compliance Filing, page 16, paragraph 92.

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review and potentially vary its approval of the FAI customer contribution proposal from the GTA. 16

Commission Findings 27. The Commission has considered the clarification provided by FAI and finds that in paragraph 144 of Decision 2010-309 the Commission has mistakenly stated that FAI's proposal to track customer contributions on a go-forward basis was by "vintage and account." 28. However, the Commission notes that the summary starting at paragraph 139 and ending at paragraph 143 of Section 8.5 in Decision 2010-309 makes it clear that FAI did not propose to track customer contributions by vintage or by asset account. 29. The Commission considers that, notwithstanding the error identified in the first line of paragraph 144, the Commission's disposition of this issue was not based on an incorrect view of FAI's customer contribution policy as the findings in the balance of that paragraph expressly indicate support for the proxy method proposed by FAI:

...the Commission approves the method of retiring customer contributions proposed by FAI. The Commission finds that this proxy method will retire the same percentage of customer contributions as the retirement of assets and will approximate the relationship between the respective assets and the associated customer contribution. 17

30. The Commission reaffirms this finding, and confirms that it did not intend to direct FAI to change its practice to track customer contributions on a go-forward basis by vintage. 31. The Commission has considered the UCA's suggestion that the Commission review and vary Decision 2010-309 on its own motion. For the reasons noted above, the Commission will not initiate a review and variance of this finding. However, if the UCA or other parties continue to have a concern with this matter, a review and variance application may be submitted in accordance with Rule 016: Review and Variance of Commission Decisions. 2.3 Other Matters ­ Replacement of the Open Item Database (OID)

32. FAI indicated that its workflow system tracks the status of construction and maintenance work from the initial request, either from a customer or an internal maintenance request, through to the final completion of the request. FAI has found that use of OID expanded its original design capability and as a result it is no longer meeting increasing business needs for data validation, process controls, and information reporting. In addition, FAI stated that "the underlying OID software is dated, no longer conforms to FortisAlberta's application architectural standards, and has put upward pressure on IT support costs." 18 33. FAI submitted that it has found the replacement of the OID should not be delayed beyond the 2010/2011 test years, therefore it expects to replace the OID within the 2010/2011 test years but will not reforecast its capital expenditures in this compliance filing. FAI indicated that actual

16 17 18

UCA Reply Argument, page 3, paragraph 12. Decision 2010-309, page 28, paragraph 144. Exhibit 4, Compliance Filing, pages 17 and 18, paragraphs 97-99.

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capital expenditures will be submitted to the Commission for true-up in its next tariff application. 19 34. The UCA submitted that it is uncertain whether FAI is actually requesting a true-up and submitted that if FAI means that the additional expenditures will be included in the opening balance of the next GTA and subject to a prudence review, the UCA has no objection. However UCA submitted that if FAI is requesting to collect return and depreciation for the test years included in Decision 2010-309, this is contrary to practice and should be denied. The UCA requested clarification of this proposed true up. 20 Commission Findings 35. The Commission notes FAI's updated information on this project and also notes that the amount of increased spending was not specifically identified in FAI's Compliance Application. The Commission expects that, in keeping with normal regulatory practice, FAI will apply for the inclusion of this project in its 2012 opening rate base amount. The Commission does not expect that FAI will apply for any additional 2010 and 2011 return and depreciation associated with this project because it was not included in the forecast revenue requirement approved in Decision2010-309. 2.4 Other Matters ­ Transmission Revenue Requirement

36. FAI noted in its compliance filing that Decision 2010-309 made no changes to the transmission revenue requirements from those filed as part of the 2010/2011 GTA. FAI indicated that in the Phase II proceeding, updates were provided to the Commission and parties and these updates were reflected in the Compliance Application. 21 37. FAI further indicated that since the time of the Phase II proceeding, a further AESO Rider F change to $2.00 per MWh effective July 1, 2010 which was approved in Decision 2010-285, 22 and was also reflected in the Compliance Application. 23 Commission Findings 38. The Commission has reviewed the schedules attached to FAI`s Compliance Application and accepts them as filed. The Commission notes that no party took issue with FAI's transmission revenue requirements. Accordingly, the Commission accepts FAI's transmission revenue requirements for the test years 2010-2011. 2.5 Other Matters ­ International Financial Reporting Standards (IFRS)-Related Impacts

39. In accordance with AUC Rule 026: Rule Regarding Regulatory Account Procedures Pertaining to the Implementation of the International Financial Reporting Standards (Rule 026), FAI has continued to utilize the cash method for determining amounts to be included in rates for income taxes, other post-employment benefits and pension. The cash method is not acceptable for these items under IFRS. As a result, there are differences between the assets or liabilities

19 20 21 22

23

Exhibit 4, Compliance Filing, page 18, paragraph 99. UCA Reply, page 4, paragraphs 14 and 15. Exhibit 4, Compliance Filing, page 2, paragraph 11. Decision 2010-285: FortisAlberta Inc. 2010 Revised Balancing Pool Allocation Rider (Application No. 1606258, Proceeding ID 665) (Released June 23, 2010). Exhibit 4, Compliance Filing, page 2, paragraph 12.

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calculated for these items in accordance with IFRS and the assets or liabilities calculated for regulatory rate-setting purposes. FAI has defined these differences as a regulatory asset or liability that will be collected from or refunded to customers in the future. 40. FAI requested acknowledgement from the Commission that these regulatory assets and liabilities for income taxes, other post-employment benefits and pension be recognized for ratesetting purposes. 24 FAI submitted that this acknowledgement will have no impact on its revenue requirement but would assist FAI in supporting the continued recognition of these regulatory assets and liabilities under IFRS. In addition, FAI stated that the Commission's acknowledgement of amounts collected for future cost of removal and site restoration, which are currently included in accumulated depreciation for regulatory rate-setting purposes, as a regulatory liability will assist FAI in supporting the continued recognition of this regulatory liability under IFRS. Commission Findings 41. The Commission acknowledges that FAI's approved use of the cash method for regulatory purposes for income taxes, pension and other post-employment benefits, as well as its approved collection of amounts for future cost of removal and site restoration, does result in differences between the regulatory amounts for these items and the amounts recognized under current accounting rules and under IFRS. The Commission is uncertain of exactly what FAI is intending when it stated in paragraph 101 of its Application:

In respect of Decision 2010-309, paragraph 526, FortisAlberta requests that the Commission acknowledge that the asset or liability recognized in accordance with IFRS for income taxes, other post-employment benefits and pension, along with the offsetting future income tax deferral account, other post-employment benefit deferral account and pension deferral, will be recognized for rate-setting purposes.

42. The Commission is not prepared to pre-approve any differences for collection or refund since no specific amounts have been applied for. 43. The Commission acknowledges that the differences referred to by FAI as regulatory assets and liabilities arise because of the cash method used for regulatory purposes and the differing methodology used under financial accounting including IFRS. The Commission further considers these differences to be essentially timing differences and not differences in the ultimate amounts to be included in the regulated rates. In accordance with section 122(1)(h) of the Electric Utilities Act, S.A. 2003, c.E-5.1 the Commission must have regard for the principle that a tariff approved by it must provide the owner of an electric utility with a reasonable opportunity to recover any other prudent costs and expenses that the Commission considers appropriate. The Commission considers that prudently incurred costs for income taxes, pension and other postemployment benefits, and future costs of removal and site restoration are eligible for inclusion in regulated rates. In accordance with Rule 026, FAI will continue to apply for income taxes, pension and other post-employment benefits using the cash method. 2.6 Conclusion

44. In the sections above, the Commission has approved all aspects of FAI's Compliance Filing with the exception that it has disallowed the use of the two placeholder amounts from

24

Exhibit 4, Compliance Filing, page 18, paragraph 101.

8 · AUC Decision 2010-560 (December 6, 2010)

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FortisAlberta Inc.

FAI's Review and Variance Application as discussed in section 2.1.2 of this Decision. The 2010 and 2011 revenue requirement amounts are approved by the Commission as follows: Table 2. Summary of 2010/2011 Revenue Requirement with the Review and Variance Placeholders Removed

Summary of Changes Revenue Requirements filed December 11, 2009 Impact of Decision 2010-309 Revenue Requirement per Decision 2010-309 and this Compliance Decision Rate Change filed December 11, 2009 Rate Change per Decision 2010-309 and this Compliance 2010 336.2 9.8 346.0 16.7% 20.2% 2011 385.3 -17.0 368.3 12.7% 4.6%

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3 45.

ORDER IT IS HEREBY ORDERED THAT: (1) The 2010 and 2011 Distribution Revenue Requirement amounts of $346.0 million and $368.3 million respectively, associated with the Commission approvals of FortisAlberta Inc's refiling of Decision 2010-309 and as shown in Table 2 of this Decision, are approved. FortisAlberta Inc's 2010 Transmission revenue requirement of $220.2 million for distribution-connected load and $102.2 million for transmission-connected load and its 2011 Transmission revenue requirement of $223.8 million for distributionconnected load and $102.2 for transmission-connected load are approved as applied for.

(2)

Dated on December 6, 2010. ALBERTA UTILITIES COMMISSION

(original signed by)

Carolyn Dahl Rees Vice-Chair

(original signed by)

Mark Kolesar Commissioner

(original signed by)

Moin A. Yahya Commissioner

10 · AUC Decision 2010-560 (December 6, 2010)

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FortisAlberta Inc.

APPENDIX 1 ­ PROCEEDING PARTICIPANTS

Name of Organization (Abbreviation) Counsel or Representative ENMAX Power Corporation (EPC) K. Hildebrandt Office of the Utilities Consumer Advocate (UCA) T. D Mariott

Alberta Utilities Commission Commission Panel C. Dahl Rees, Vice-Chair M. Kolesar, Commissioner M. A. Yahya, Commissioner Commission Staff S. Ramdin (Commission Counsel) S. Allen U. Pillai

AUC Decision 2010-560 (December 6, 2010) · 11

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