EPCOR Distribution & Transmission Inc. 2017 Performance-Based Regulation Capital Tracker True-Up Application – Module Two (AUC Decision 23571-D02-2019)

Link to decision summarized

Application - Capital Tracker True-Up - Module Two


In this decision (the “Module Two Decision”), the AUC considered an application (the “Application”) filed by EPCOR Distribution & Transmission Inc. (“EPCOR”) on May 17, 2018, requesting approval of its 2017 capital tracker true-up amount and associated K factor adjustment to be reflected in its distribution rates under performance-based regulation (“PBR”). Specifically, as part of the Module Two Decision, the AUC considered the METSCO Energy Solutions Inc. (“METSCO”) related aspects of the Application. Non-METSCO-related matters of the Application were considered by the AUC in Decision 23571-D01-2019 (the “Module One Decision”).

The AUC approved the METSCO-related matters of the Application, subject to some adjustments and directions.

Background

On September 12, 2012, the AUC issued Decision 2012-237, which set out the PBR framework for the distribution utility services of certain Alberta electric and gas companies, including EPCOR. Within these PBR plans, the AUC approved a rate adjustment mechanism to fund certain capital-related costs, referred to as a “capital tracker”. The revenue requirement associated with approved amounts was to be collected from ratepayers by way of a “K factor” adjustment to the annual PBR rate-setting formula.

The three criteria that must be satisfied for each project or program to receive capital tracker treatment are:

Criterion 1 – The project must be outside the normal course of the company’s ongoing operations;

Criterion 2 – Ordinarily the project must be for replacement of existing capital assets or undertaking the project must be required by an external party; and

Criterion 3 – The project must have a material effect on the company’s finances.

In Decision 20407-D01-2016, the AUC found that for forecast capital projects or programs for 2016 and 2017, when a company is seeking capital tracker treatment, the AUC would generally undertake assessments with respect to all three criteria. However, in instances where a project or program is part of an ongoing multi-year program, or if a project or program is of an annual recurring nature for which the need has been previously approved by the AUC, the AUC would not undertake a reassessment under all aspects of each criterion.

Summary of Projects Included in the Application

As part of the 2017 capital tracker true-up, EPCOR applied for the true-up of twenty-seven programs or projects. The AUC addressed twenty-one out of twenty-seven programs or projects regarding the non-METSCO-related matters in the Module One Decision. In this decision, the AUC examined the remaining METSCO-related programs or projects. They were:

(a) Life Cycle Replacement and Extension of Underground Distribution Cable;

(b) Distribution Pole and Aerial Line Life Cycle Replacements;

(c) Aerial and Underground Distribution Transformers – New Services and Life Cycle Replacement;

(d) Life Cycle Replacement of Paper-Insulated, Lead-Covered Cable Systems;

(e) Switching Cubicle Life Cycle Replacement; and

(f)    Network Transformer Life Cycle Replacement.

The AUC also examined the Cable Test Lab Project. In the Module One Decision, the AUC determined that because the Cable Test Lab Project was related to EPCOR’s contract with METSCO, it should be examined in this proceeding.

Project Assessment under Criterion 1

The AUC assessed EPCOR’s METSCO-related programs or projects against the second part of the project assessment requirements of Criterion 1. The second part of Criterion 1 considers whether the actual scope, level, timing and costs of the project are prudent.

METSCO Framework and Models

In 2015, EPCOR selected METSCO to complete a detailed engineering review and assessment of its distribution asset maintenance and replacement strategies and planning criteria. After its review, METSCO prepared two reports collectively referred to as the “METSCO Framework and Models”.

In the Application, EPCOR requested AUC approval of the costs associated with developing the METSCO Framework and Models, which for the capital tracker programs or projects would be used as a key component of its asset management and capital planning process. The total cost incurred was $550,000. The AUC approved this cost.

METSCO-Related Capital Tracker Projects or Programs for Which No Issues Were Raised

The AUC had previously determined that each of the programs or projects satisfied the project assessment requirement of capital tracker Criterion 1. There was nothing to indicate any of the programs or projects addressed in this section were not required in 2017.

The AUC reviewed EPCOR’s 2017 actual capital additions associated with each of METSCO-related capital tracker projects or programs and found that the capital additions were generally consistent with the scope, level and timing of the work outlined in the business cases for these capital trackers and approved in Decision 20407-D01-2016. The AUC also found the actual costs for the METSCO Framework and Models associated with certain projects, namely, the Distribution Pole and Aerial Line Life Cycle Replacements Project, Life Cycle Replacement of Network Transformers Project and the Switching Cubicle Life Cycle Replacement Project, to be prudent.

Life Cycle Replacement of PILC Cable Systems

The need for this project in 2017 was approved in Decision 20407-D01-2016. The AUC found no evidence on the record of this proceeding to indicate that the Life Cycle Replacement of PILC Cable Systems Project was not required in 2017.

The AUC reviewed EPCOR’s 2017 actual capital additions and found that the capital additions were generally consistent with the scope, level and timing of the work outlined in the business case for this capital tracker. The AUC indicated that EPCOR’s use of the METSCO Framework and Models was a reasonable course of action. For these reasons, the AUC found the actual costs for this project to be prudent.

Life Cycle Replacement and Extension of Underground Distribution Cable

The need for this project in 2017 was approved in Decision 20407-D01-2016. The AUC found no evidence on the record of this proceeding to indicate that the Life Cycle Replacement and Extension of the Underground Distribution Cable Project was not required in 2017.

The AUC reviewed EPCOR’s 2017 actual capital additions and found that the capital additions were generally consistent with the scope, level and timing of the work outlined in the business case for this capital tracker. EPCOR provided evidence explaining the differences between approved forecast and actual costs, and the AUC accepted those explanations. Therefore, the AUC found the actual costs for this project, subject to the removal of the capital additions associated with the development of the METSCO Framework and Models for this project, to be prudent.

Aerial and Underground Distribution Transformers - New Services and Life Cycle Replacement

The need for this project and forecast cost in 2017 were approved in Decision 20407-D01-2016. The AUC found no evidence on the record of this proceeding to indicate that the Aerial and Underground Distribution Transformers – New Services and Life Cycle Replacement Project was not required in 2017.

The AUC reviewed EPCOR’s 2017 actual capital additions and found that the capital additions were generally consistent with the scope, level and timing of the work outlined in the business case for this capital tracker and approved in Decision 20407-D01-2016. EPCOR explained the differences between approved forecast and actual costs, and the AUC accepted EPCOR’s explanation that more aerial transformers were required for EPCOR’s circuit reconfiguration work and for utility pole replacements associated with the TELUS Fibre Project than forecast.

Medium Voltage Cable Test Lab

The AUC was satisfied with EPCOR’s explanation that the construction of the Cable Test Lab would help improve cable reliability over the long term due to the data that would be obtained from the lab. The AUC therefore found the construction of the Cable Test Lab to be reasonable and the associated $0.5 million in capital additions for 2017 to be prudent.

Commission Conclusion on Criterion 1

The AUC approved the need, scope, level, timing and the prudence of actual capital additions for each of the METSCO-related programs or projects that EPCOR included in the 2017 true-up, subject to some adjustments and directions provided in this and the Module One Decision.

Order

The AUC directed EPCOR to file one compliance filing application in accordance with the directions in this decision and the Module One Decision within 45 days of the date of this decision.