decision 3100-d01-2015 epcor distribution & transmission inc. · 2018. 2. 23. · alberta...

Decision 3100-D01-2015

EPCOR Distribution & Transmission Inc. 2013 PBR Capital Tracker True-up and 2014-2015 PBR Capital Tracker Forecast January 25, 2015

Alberta Utilities Commission

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 and 1610362

January 25, 2015

Published by the:


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

http://www.auc.ab.ca/

Decision 3100-D01-2015 (January 25, 2015) • i

Contents

1 Introduction ........................................................................................................................... 1

2 Background ........................................................................................................................... 3

3 Commission process for reviewing 2013 true-up and 2014-2015 forecast capital tracker

applications ............................................................................................................................ 6

4 Summary of projects included in the 2013 capital tracker true-up application and the

2014-2015 capital tracker forecast application .................................................................. 8

5 Grouping of projects for capital tracker purposes .......................................................... 11 5.1 Project grouping and incentives ................................................................................... 11

5.2 EDTI’s proposed grouping of projects ......................................................................... 16

6 Deferral of capital expenditures planned in 2013 ............................................................ 21

7 Project assessment under Criterion 1 – the project must be outside of the normal

course of the company’s ongoing operations .................................................................... 32 7.1 Common issues ............................................................................................................ 33

7.1.1 Common assumptions in EDTI’s capital expenditure forecasts ..................... 33 7.1.2 Controls and accountability ............................................................................ 37

7.1.3 Requirement that in the absence of the proposed capital expenditures,

deterioration in service quality and safety would result ................................. 38

7.2 Previously approved capital tracker projects or programs ........................................... 40 7.2.1 Third-party Driven Relocations ...................................................................... 41

7.2.2 IT-related projects ........................................................................................... 46 7.2.3 Distribution Contributions to Transmission Assets ........................................ 48

7.2.4 Life Cycle Replacement and Extension of Underground Distribution Cable. 50 7.2.5 New 15-kV and 25-kV Circuit Additions ....................................................... 54 7.2.6 New Underground Cable and Aerial Line Reconfigurations and Extensions to

Meet Customer Growth................................................................................... 58 7.2.7 Distribution Pole and Aerial Line Life Cycle Replacements .......................... 62 7.2.8 Aerial and Underground Distribution Transformers – New Services and Life

Cycle Replacement ......................................................................................... 65 7.2.9 Capitalized Underground System Damage ..................................................... 69 7.2.10 Vehicles – Growth and Life Cycle Replacements .......................................... 71 7.2.11 New Underground and Aerial Service Connections for Commercial,

Industrial, Multi-family and Miscellaneous Customers .................................. 75 7.2.12 Underground Residential Distribution (URD) Servicing – Rebates,

Acceptance Inspections & Terminations ........................................................ 78

7.2.13 Capital Tools and Instrument Purchases ......................................................... 82 7.2.14 Poundmaker Feeders ....................................................................................... 87

7.3 New capital trackers ..................................................................................................... 93 7.3.1 OMS/DMS Life Cycle Replacement .............................................................. 93 7.3.2 Capitalized Aerial System Damage ................................................................ 96 7.3.3 Underground Industrial Distribution (UID) Servicing – Rebates, Acceptance

Inspections & Terminations ............................................................................ 98 7.3.4 Replacement of Faulted Distribution PILC Cables ...................................... 101

ii • Decision 3100-D01-2015 (January 25, 2015)

7.3.5 Neighbourhood Renewal program ................................................................ 104 7.3.6 Customer Revenue Metering – Growth & Life Cycle Replacements ........... 107

7.3.7 Life Cycle Replacement of Network Transformers ...................................... 111 7.3.8 Street Light Service Connections and Security Lighting Addition and Capital

Replacement .................................................................................................. 114 7.3.9 Life Cycle Replacement of PILC Cable Systems ......................................... 116

8 Accounting test under Criterion 1 – the project must be outside of the normal course

of the company’s ongoing operations and Commission conclusion on Criterion 1 .... 118 8.1 EDTI’s accounting test model .................................................................................... 118 8.2 I-X index and Q factor used in the accounting test .................................................... 120 8.3 WACC rate ................................................................................................................. 122 8.4 Asset service lives ...................................................................................................... 123

8.5 Commission’s conclusions on Criterion 1 ................................................................. 127

9 Criterion 2 – ordinarily the project must be for replacement of existing capital assets

or undertaking the project must be required by an external party ............................. 127

10 Criterion 3 – the project must have a material effect on the company’s finances ...... 131

11 Advanced Metering Infrastructure project .................................................................... 134 11.1 AMI as the solution for customer revenue metering .................................................. 134

11.2 Utility asset disposition implications on the retirement of existing meters ............... 139 11.3 Capital tracker treatment for the AMI project............................................................ 147

12 Other matters raised by the CCA .................................................................................... 151 12.1 Reporting capital tracker and non-capital tracker capital costs separately ................ 151

12.2 Changes to the efficiency carry-over mechanism ...................................................... 152

13 K factor calculation ........................................................................................................... 153 13.1 2013 K factor true-up ................................................................................................. 153

13.2 2014-2015 K factor forecast....................................................................................... 156

14 Order .................................................................................................................................. 158

Appendix 1 – Proceeding participants .................................................................................... 159

Appendix 2 – Oral hearing – registered appearances ........................................................... 160

Appendix 3 – Summary of Commission directions ................................................................ 161

List of tables

Table 1. 2013 K factor true-up adjustments ($ million) ......................................................... 8

Table 2. Applied-for 2014 and 2015 capital tracker projects ($ million) ........................... 10

Table 3. 2013 capital additions deferred due to capital tracker mechanism uncertainty

($ million) ................................................................................................................... 23

Decision 3100-D01-2015 (January 25, 2015) • iii

Table 4. Actual and approved capital additions for Third-party Driven Relocations

projects ($ million) .................................................................................................... 41

Table 5. 2014-2015 forecast capital additions for Third-party Driven Relocations projects

($ million) ................................................................................................................... 43

Table 6. New 15-kV and 25-kV Circuit Additions forecast capital expenditures 2014-2015

..................................................................................................................................... 56

Table 7. 2013 actuals for new underground cable and aerial line reconfigurations and

extensions to meet customer growth ....................................................................... 60

Table 8. Variance between forecasts and actuals on capital tool and instrument purchases

2008-2013 ($ million)................................................................................................. 84

Table 9. Variance between forecasts and actuals on Replacement of Faulted Distribution

PILC Cables 2008-2013 ($ million) ....................................................................... 103

Table 10. Applied-for 2013-2015 capital tracker projects or programs and Criterion 2

requirements ............................................................................................................ 129

Table 11. Net present value analysis of alternatives to AMI($ million) .............................. 137

Decision 3100-D01-2015 (January 25, 2015) • 1


Calgary, Alberta

EPCOR Distribution & Transmission Inc. Decision 3100-D01-2015

2013 PBR Capital Tracker True-up and Proceedings 3216 and 3100

2014-2015 PBR Capital Tracker Forecast Applications 1610565 and 1610362

1 Introduction

1. On February 28, 2014, EPCOR Distribution & Transmission Inc. (EPCOR or EDTI) filed

an application with the Alberta Utilities Commission (the AUC or the Commission) requesting

approval of certain capital projects for capital tracker treatment in 2014 and 2015. EDTI further

requested that the associated revenue requirement for the capital tracker projects would be

included, in the applicable year, in the K factor component of the performance-based regulation

(PBR) rate formula approved in Decision 2012-237.1 This application, herein referred to as the

“2014-2015 capital tracker forecast application,” was assigned Proceeding 3100.

2. On March 4, 2014, the Commission issued a notice of application that required interested

parties to submit a statement of intent to participate (SIP) by 2 p.m., March 18, 2014. In their

SIPs, parties were to indicate whether they supported or objected to the application, reasons for

their positions, and the need for further process and the supporting rationale. The Commission

received SIPs from FortisAlberta Inc. (Fortis), AltaLink Management Ltd. (AltaLink),

ATCO Gas, a division of ATCO Gas and Pipelines Ltd. (ATCO Gas), ATCO Electric Ltd.

(ATCO Electric), the Consumers’ Coalition of Alberta (CCA) and the Office of the Utilities

Consumer Advocate (UCA).

3. On May 15, 2014, EDTI filed an application with the Commission requesting approval of

its 2013 capital tracker true-up application. EDTI further requested that the resulting

2013 K factor true-up adjustment and associated Rider DJ be reflected in its 2015 PBR rates.

This application, herein referred to as the “2013 capital tracker true-up application,” was

assigned Proceeding 3216.

4. On May 16, 2014, the Commission issued a notice of application that required interested

parties to submit a SIP by 2 p.m., May 22, 2014. The Commission received SIPs from Fortis,

AltaLink, AltaGas Utilities Inc. (AltaGas), ATCO Electric, the CCA and the UCA.

5. After reviewing the two applications and the SIPs, the Commission determined that the

applications would be considered by way of a full process proceeding. Additionally, given that

many of EDTI’s approved 2013 capital tracker projects were also proposed for 2014 and 2015,

the Commission anticipated that many of the relevant issues in the 2014-2015 capital tracker

forecast application and in the 2013 capital tracker true-up application would be similar in

nature. The Commission anticipated that this commonality of relevant issues provided an

opportunity to achieve efficiencies and cost savings in processing the applications. Therefore, the

Commission issued a process letter,2 with subsequent revisions,3 which staggered the written

1 Decision 2012-237: Rate Regulation Initiative, Distribution Performance-Based Regulation, Application

No. 1606029, Proceeding ID No. 566, September 12, 2012. 2 Proceeding 3100, Exhibit 89 and Proceeding 3216, Exhibit 48.

3 Proceeding 3100, Exhibit 103 and Proceeding 3216, Exhibit 56.

http://www.auc.ab.ca/applications/decisions/Decisions/2012/2012-237.pdf

2013 PBR Capital Tracker True-up and 2014-2015 PBR Capital Tracker Forecast EPCOR Distribution & Transmission Inc.

2 • Decision 3100-D01-2015 (January 25, 2015)

evidentiary portion of the two proceedings, combined the proceeding records and convened a

joint oral hearing.

6. During the hearing, the Commission requested EDTI to direct certain supplemental

information requests (IRs) to Mr. Kennedy of Gannett Fleming Inc., depreciation consultants to

EDTI, and provided for an additional round of IRs to EDTI, following receipt of Mr. Kennedy’s

responses. The Commission also revised dates for argument and reply argument.4 The resulting

schedule for the two proceedings is set out in the table below.

Process step for the 2014-2015 capital tracker

forecast application Proceeding 3100

Deadline

Process step for the 2013 capital tracker true-up

application Proceeding 3216

Deadline

IRs to EDTI April 11, 2014

EDTI IR responses May 2, 2014

Application is filed May 15, 2014

Intervener evidence May 22, 2014 SIPs are due May 22, 2014

IRs to EDTI June 5, 2014

IRs to interveners June 12, 2014

EDTI IR responses June 20, 2014

Intervener IR responses July 11, 2014

Rebuttal evidence July 31, 2014

Combined oral hearing September 8, 2014 to September 19, 2014

Combined oral hearing

September 8, 2014 to September 19, 2014

EDTI responses to Commission’s supplemental IRs

September 24, 2014 EDTI responses to Commission’s supplemental IRs

September 24, 2014

Round 2 IRs to EDTI October 1, 2014 Round 2 IRs to EDTI October 1, 2014

Round 2 EDTI IR responses October 8, 2014 Round 2 EDTI IR responses October 8, 2014

Argument October 15, 2014 Argument October 15, 2014

Reply argument October 27, 2014 Reply argument October 27, 2014

7. The Commission considers the record for the two proceedings to have closed on October

27, 2014, 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

proceedings 3100 and 3216, as well as findings in Decision 2012-237 and Decision 2013-435.5

Accordingly, reference 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 Transcript, Volume 6, pages 898-899.

5 Decision 2013-435: Distribution Performance-Based Regulation 2013 Capital Tracker Applications,

Application No. 1608827, Proceeding ID No. 2131, December 6, 2013.




2 Background

8. On September 12, 2012, the Commission issued Decision 2012-237, approving PBR

plans for the distribution utility services of certain Alberta electric and gas companies, including

EDTI. The PBR plans were approved for a five-year term commencing January 1, 2013. PBR

replaces traditional cost of service regulation as the annual rate-setting mechanism for

distribution utility rates.

9. As set out in Decision 2012-237, the PBR framework provides a formula mechanism for

the annual adjustment of rates for those companies under an approved PBR plan. In general, the

rates are adjusted annually by means of an indexing mechanism that tracks the rate of inflation

(I) relevant to the prices of inputs the companies use less an offset (X) to reflect the productivity

improvements the company can be expected to achieve during the PBR plan period. As a result,

with the exception of specifically approved adjustments, a utility’s revenues are no longer linked

to its costs. Companies subject to a PBR regime must manage their businesses and service

obligations with the revenues derived under the PBR indexing mechanism and adjustments

provided for in the formula. The PBR framework is intended to provide incentives for

productivity increases and cost savings similar to those operating in competitive markets.

10. A company may apply for approval for certain rate adjustments to enable the recovery of

specific costs where it can be demonstrated that the costs cannot be recovered under the I-X

mechanism and where certain other criteria have been satisfied. These possible adjustments

include an adjustment to fund necessary capital expenditures (a K factor), an adjustment for

certain flow-through costs that should be recovered from, or refunded to, customers directly (a

Y factor), or an adjustment to account for the effect of material exogenous events for which the

company has no other reasonable cost recovery or refund mechanism within the PBR plan

(a Z factor).

11. In Decision 2012-237, the Commission determined that a mechanism to fund certain

capital-related costs may be required under the approved PBR plans.6 This supplemental funding

mechanism was referred to in Decision 2012-237 as a “capital tracker” with the revenue

requirement associated with approved amounts to be collected from ratepayers by way of a

“K factor” adjustment to the annual PBR rate setting formula.

12. At paragraph 592 of Decision 2012-237, the Commission set out three criteria that any

capital project or program would have to satisfy in order to receive 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.

13. Further, at paragraph 593 of Decision 2012-237, the Commission indicated that the party

recommending the capital tracker must demonstrate that all of the criteria have been satisfied in

order for a capital project or program to receive consideration as a capital tracker.

6 Decision 2012-237, paragraph 586.



14. The implementation and application of the above capital tracker criteria was considered

as part of the 2013 capital trackers Proceeding 2131, leading to Decision 2013-435. The

Commission indicated that the implementation methodology established in that decision will be

used not only to evaluate the capital tracker projects or programs proposed by the parties for

2013, but also for subsequent capital tracker applications throughout the PBR term.7

15. With respect to the first capital tracker criterion, the Commission concluded that, in

general, in order for a capital project or program 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 would not be sufficient to recover the entire revenue requirement associated with the

prudent capital expenditures for this project or program. Accordingly, the Commission found

that the concept of normal course is mainly a financial and accounting consideration, rather than

strictly an engineering consideration. The Commission referred to this comparison of revenues as

the “accounting test” under Criterion 1. At the same time, the Commission indicated an

engineering study and a business case will aid the Commission in assessing whether a project

proposed for capital tracker treatment is (i) required to provide utility service at adequate levels

and, if so, (ii) that the scope, level and timing of the project are prudent, and the forecast or

actual costs of the project are reasonable. The Commission referred to this assessment as the

“project assessment” under Criterion 1. Therefore, the applicant must satisfy the Commission’s

requirements for both the accounting test and the project assessment in order to satisfy the

requirements of Criterion 1.8

16. Regarding the accounting test component of Criterion 1, the Commission determined that

this test should be based on the project net cost approach, under which the revenue generated

under the I-X mechanism for each capital project (or capital program or project category) is

compared to the forecast revenue requirement associated with that capital project (or capital

program or project category) in a PBR year. No consideration of operating and maintenance

costs or savings and potential productivity offsets above those implied by the approved X factor

is required for the accounting test.

17. For purposes of the project assessment, the Commission determined that each project or

program proposed for capital tracker treatment must generally be supported by a business case

and an engineering study. However, the Commission recognized that in some circumstances an

engineering study may not be required. In Section 10.2 of Decision 2013-435, the Commission

found that for the purpose of the project assessment, a project or program proposed for capital

tracker treatment typically should address the following:

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.


8 Decision 2013-435, paragraphs 149-150.



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.9

18. At paragraph 615 of Decision 2012-237, the Commission indicated that a company may

choose to undertake a capital investment prior to applying for capital tracker treatment in the

subsequent annual capital tracker filing. The Commission further clarified at paragraph 48 of

Decision 2013-435:

48. It was acknowledged by the Commission that superior incentives for capital

trackers would result if the companies were required to spend money on capital

expenditures prior to receiving approval for capital tracker recovery of the expenditures.

However, given the lack of experience with the capital tracker mechanism, for the first

generation PBR plans, it was determined that the companies will be permitted to apply

for capital trackers on a forecast basis. The approved forecast cost of a capital tracker

project will be included in rates on an interim basis and will be subject to a true-up to

prudently incurred actual expenditures, after the project is completed. The true-up

process will test the prudence of the actual capital expenditures and imprudent

expenditures will be subject to disallowance. As a result, the capital tracker mechanism

retains some efficiency incentives due to the risk of regulatory disallowances in the true-

up process if expenditures are not prudently incurred. The true-up mechanism with a

prudence review also mitigates somewhat the incentive for companies to overstate the

initial capital tracker forecasts. Nonetheless, the companies remained free to incur

expenditures prior to applying for capital tracker approval. [footnotes removed]

19. With respect to Criterion 2, in Decision 2013-435, the Commission clarified that, in

addition to asset replacement projects and projects required by an external party, in principle, a

growth-related project will satisfy the requirements of Criterion 2 where it can be demonstrated

that customer contributions, together with incremental revenues allocated to the project on some

reasonable basis, when added to the revenue provided under the I-X mechanism, are insufficient

to offset the revenue requirement associated with the project in a PBR year.10 Criterion 2 also

permits consideration of certain projects for capital tracker treatment that do not fall into any of

the growth-related, asset replacement or external party related categories.





20. Under Criterion 3, the Commission determined that applying the materiality threshold to

that portion of the revenue requirement for a project that is not funded under the I-X mechanism

is warranted. The Commission established a two-tier materiality threshold. The first tier of the

materiality threshold, a “four basis point threshold,” is to be applied at a project level (grouped in

the manner approved by the Commission). The second tier of the materiality threshold, a

“40 basis point threshold,” is to be applied to the aggregate revenue requirement proposed to be

recovered by way of all capital trackers.

21. Additionally, the Commission recognized the significance of the grouping of projects

proposed for capital tracker treatment when it stated in paragraph 601 of Decision 2012-237:

601. … The Commission also considers that it would not be suitable to group together

several dissimilar projects into a single large project to give the appearance of materiality.

However, a number of smaller related items required as part of a larger project might

qualify for capital tracker treatment.

22. In Decision 2013-435, the Commission further elaborated that grouping of projects will

require close scrutiny, since it will have a direct effect on the results of the accounting test and

the project assessment under Criterion 1, as well as the assessment of materiality under

Criterion 3. The Commission determined that the reasonableness of the grouping of capital

projects is best assessed on a case-by-case basis for each individual company. The Commission

indicated that it will require each company to provide a justification for its proposed grouping of

projects for capital tracker treatment.11

23. Finally, in Section 4.4 of Decision 2013-435, the Commission set out the K factor

calculation methodology. The Commission determined that basing the K factor calculations on

the incremental revenue requirement amounts (i.e., above the amounts provided under the

I-X mechanism) for each project or program proposed for capital tracker treatment, as is done

under the project net cost approach, is commensurate with the Commission’s definition of

outside the normal course of the company’s ongoing operations. Specific elements of the

approved K factor calculation methodology are further discussed in Section 13 of this decision,

which deals with EDTI’s 2013, 2014 and 2015 K factor calculations.

3 Commission process for reviewing 2013 true-up and 2014-2015 forecast capital

tracker applications

24. In the remainder of this decision, the Commission assesses the company’s 2013 true-up

and 2014-2015 forecast capital tracker requests. With respect to the 2013 true-up of capital

tracker projects previously approved, the Commission stated the following:

975. … the March 1st capital tracker application shall true-up the costs of projects that

have been completed since the prior year‘s capital tracker filing together with sufficient

information to permit a prudence review of these completed projects. To facilitate a

prudence review of a project, the company must submit information showing that it has

completed the project in the most cost effective manner possible. This information will

include the results of competitive bidding processes, comparisons of in-house resources

11

Decision 2013-435, paragraphs 403 and 406.



to external resources, and any other evidence that may be of assistance in demonstrating

the prudence of the expenditures.12

25. Consistent with these determinations, the Commission considers that for the purposes of

the true-up of capital tracker projects previously approved for 2013, if there is no evidence on the

record of the true-up proceeding demonstrating that a project is not required, then there is no

need to demonstrate that a project is needed in order to provide utility service at adequate levels,

which constitutes the assessment of need under Criterion 1. However, the second part of the

project assessment under Criterion 1 is still required so that the Commission can be satisfied that

the scope, level and timing of each project is prudent, and the actual costs of the project were

prudently incurred.

26. The Commission also considers that for the purposes of the true-up of capital tracker

projects or programs previously approved, unless the driver for the project or program has

changed, there is no need to undertake a reassessment against the Criterion 2 requirements.

However, the Commission will undertake an assessment with respect to Criterion 3.

27. For any new projects in 2013 not previously approved, the Commission will undertake

assessments with respect to all three criteria for capital tracker treatment.

28. With respect to forecast capital projects for 2014 and 2015 for which the company is

seeking capital tracker treatment, the Commission will generally undertake assessments with

respect to all three criteria for capital tracker treatment. However, in those 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 (e.g., relocations) that has been previously approved by the Commission

for capital tracker treatment, in the absence of evidence that the ongoing or recurring project or

program is no longer required, the Commission will not undertake a reassessment of need under

Criterion 1. However, the Commission will undertake assessments with respect to all remaining

aspects of the three criteria for capital tracker treatment.

29. Section 4 of this decision provides an overview of the projects or programs for which

EDTI is seeking capital tracker treatment in 2013, 2014 and 2015. The evaluation of EDTI’s

proposed capital project groupings is set out in Section 5. Section 6 deals with EDTI’s decision

to defer some expenditures on capital tracker projects planned in 2013. The assessment of how

EDTI’s projects or programs proposed for capital tracker treatment satisfy Criterion 1 is set out

in sections 7 and 8 dealing with the project assessment and the accounting test, respectively. The

assessment under Criterion 2 is undertaken in Section 9 and the assessment under Criterion 3 is

set out in Section 10. Given the complexity of issues related to the Advanced Metering

Infrastructure (AMI) project, the Commission has considered all aspects of the project in a

separate section, Section 11. Section 12 deals with other matters raised throughout the

proceedings. Finally, Section 13 deals with the K factor calculation methodology and the

K factor true-up for 2013, as well as K factor forecasts for 2014 and 2015.

12

Decision 2012-237, paragraph 975.



4 Summary of projects included in the 2013 capital tracker true-up application and

the 2014-2015 capital tracker forecast application

30. In the 2013 capital tracker true-up application, EDTI applied for the K factor true-up of

14 projects or programs approved by the Commission for capital tracker treatment on a forecast

basis in Decision 2013-435. In addition, EDTI applied for capital tracker treatment and the

resulting K factor true-up for three projects that were not previously approved by the

Commission. The projects and programs included in the 2013 capital tracker true-up application

and the resulting variance from approved forecast resulting in a K factor true-up for 2013, as

proposed by EDTI, are presented in the table below.

Table 1. 2013 K factor true-up adjustments ($ million)13

No. Project name 2013 decision

K factor 2013 actual

K factor Variance

Applied-for projects or programs approved for capital tracker treatment in Decision 2013-435

1 Third-party Driven Relocations 0.37 0.59 0.22

2 Information Technology (IT)-related projects 0.14 (0.08) (0.14)

3 Distribution Contributions 0.64 0.34 (0.30)

4 Life Cycle Replacement and Extension of Underground Distribution Cable 0.76 0.41 (0.35)

5 New 15-kilovolt (kV) and 25-kV Circuit Additions 0.23 0.11 (0.12)

6 New Underground Cable and Aerial Line Reconfigurations and Extensions to Meet Customer Growth 0.44 0.46 0.02

7 Distribution Pole and Aerial Line Life Cycle Replacements 0.32 (0.03) (0.32)

8 Aerial and Underground Distribution Transformers – New Services and Life Cycle Replacement 0.22 0.31 0.09

9 Capitalized Underground System Damage 0.15 0.29 0.14

10 Vehicles – Growth and Life Cycle Replacements 0.23 0.06 (0.17)

11 New Underground and Aerial Service Connections for Commercial, Industrial, Multi-family and Misc. Customers 0.37 0.69 0.32

12 Underground Residential Distribution (URD) Servicing – Rebates, Acceptance Inspections & Terminations 0.60 1.52 0.92

13 Capital Tools and Instrument Purchases 0.11 0.07 (0.04)

14 Poundmaker Feeders 0.29 0.65 0.36

Total capital tracker approved in Decision 2013-435 4.87 5.39 0.63

Applied-for projects that have not been previously approved for capital tracker treatment

15 Underground Industrial Distribution (UID) Servicing – Rebates, Acceptance Inspections & Terminations 0.18 0.18

16 Neighbourhood Renewal Program 0.13 0.13

17 Customer Revenue Metering – Growth & Life Cycle Replacements 0.26 0.26

Total not previously approved capital trackers 0.57 0.57

2013 K factor total 4.87 5.96 1.20

13

Proceeding 3216, Exhibit 1, 2013 true-up application, Table 1.0-1 on page 1.



31. In its 2014-2015 capital tracker forecast application, EDTI applied for capital tracker

treatment for 23 of its capital projects or programs in either or both of the years 2014 and 2015.

Of these, 13 projects or programs were previously approved for capital tracker treatment in 2013

on a forecast basis in Decision 2013-435. The remaining 10 projects or programs have not been

previously approved for capital tracker treatment.

32. In response to the Commission’s IR AUC-EDTI-1, EDTI provided updated information,

correcting for errors and typos in the K factor calculation model that EDTI included in its

application. This updated data is reflected in the following table, which summarizes EDTI’s

applied-for 2014 and 2015 capital trackers, the portion of the K factor adjustments related to

each capital tracker project, and the total applied-for K factor adjustment for each of 2014 and

2015.



Table 2. Applied-for 2014 and 2015 capital tracker projects ($ million)14

Applied-for K factor

No. Project name 2014 2015


1 Third-party Driven Relocations 1.83 3.81

2 IT-Related Capital Trackers [Note 1] - -

3 Life Cycle Replacement and Extension of Underground Distribution Cable 0.96 2.06

4 New 15-kV and 25-kV Circuit Additions 0.27 0.75

5 New Underground Cable and Aerial Line Reconfigurations and Extensions to Meet Customer Growth 0.89 1.45

6 Distribution Pole and Aerial Line Life Cycle Replacements - 0.34

7 Aerial and Underground Distribution Transformers – New Services and Life Cycle Replacement 0.50 0.75

8 Capitalized Underground System Damage 0.48 0.72

9 Vehicles – Growth and Life Cycle Replacements 0.15 0.41

10 New Underground and Aerial Service Connections for Commercial, Industrial, Multi-family and Misc. Customers 1.10 1.58

11 Underground Residential Distribution (URD) Servicing – Rebates, Acceptance Inspections & Terminations 2.66 3.83

12 Capital Tools and Instrument Purchases 0.11 0.16

13 Poundmaker Feeders 0.60 0.55

Total trackers approved in Decision 2013-435 9.54 16.41

Applied-for projects or programs that have not been previously approved for capital tracker treatment

14 OMS/DMS Life Cycle Replacement - 0.74

15 Capitalized Aerial System Damage 0.14 0.22

16 Underground Industrial Distribution (UID) Servicing – Rebates, Acceptance Inspections & Terminations 0.22 0.28

17 Replacement of Faulted Distribution PILC Cables 0.10 0.16

18 Neighbourhood Renewal Program 0.16 0.24

19 Customer Revenue Metering – Growth & Life Cycle Replacements 0.59 0.94

20 Advanced Metering Infrastructure - 0.69

21 Life Cycle Replacement of Network Transformers - 0.20

22 Street Light Service Connections and Security Lighting Addition and Capital Replacement - 0.12

23 Life Cycle Replacement of PILC Cable Systems - 0.12

Total not previously approved trackers 1.22 3.70

2014-2015 K factor total 10.76 20.12

Note 1: In the 2014-2015 capital tracker forecast application, EDTI applied for capital tracker treatment of the IT-related program, consisting of several projects. As a result of corrections, EDTI determined that the IT-related program no longer meets the first tier materiality threshold in 2014 or 2015. Therefore, EDTI is no longer requesting capital tracker treatment for this program.

14

Exhibit 93.02, AUC-EDTI-1, Attachment 1, Table 1.0-1.



5 Grouping of projects for capital tracker purposes

33. In Decision 2013-435, the Commission determined that the accounting test and the first

tier of the materiality test will be applied to the approved groupings (i.e., either at a project or at

a program level). The Commission also indicated that while the project assessment will generally

be applied at the level of an approved grouping of projects, the Commission will, where

necessary, consider the individual component projects comprising the approved groupings in

order to assess the need for the capital expenditures and the reasonableness of the forecast costs.

The second tier of the materiality test will be applied at the level of all capital tracker projects, in

the aggregate.15 The Commission also determined that the reasonableness of the grouping of

capital projects is best assessed on a case-by-case basis for each individual company.16

34. In these proceedings, the discussion on EDTI’s proposed grouping of projects for capital

tracker purposes was centered on two issues. The first issue, discussed in Section 5.1 below,

relates to the relationship between the grouping of projects and a company’s earnings under the

approved PBR plans and the resulting incentives. The second issue, discussed in Section 5.2,

focused on the organization of EDTI’s proposed groupings.

5.1 Project grouping and incentives

35. In its argument, the CCA discussed at length the issue of project grouping for capital

tracker purposes and how grouping of trackers, fluctuations in expenditure levels and delaying

capital expenditures can affect incentives and a company’s net income and return on equity

(ROE).

36. The CCA presented a number of conclusions on the incentives that a company may have

with respect to project grouping in order to maximize the amount of revenue provided under the

capital tracker mechanism. According to the CCA, the first incentive is that a company may

propose to group together, as an applied-for capital tracker, projects that would otherwise not

satisfy the accounting test in order to exceed the accounting test threshold or, alternatively, group

a project that is below the threshold with other projects that exceed the threshold.17

37. The CCA further argued that a company may isolate projects for which the accounting

test is negative, rather than group them with like projects in order to increase the K factor

amount. If projects for which the accounting test is negative are grouped with projects for which

the accounting test is positive, they decrease the amount to be funded by way of a K factor for

the resulting capital tracker group. The CCA concluded “the incentive is clearly to keep negative

trackers to themselves and not group them with anything else.”18

38. Finally, the CCA argued that a company has an incentive to create “non-smooth, erratic,

chunky capital addition expenditure patterns above and below the accounting test threshold to

increase capital tracker revenue.”19 In the CCA’s view, this incentive may manifest itself by way

of a deferral of capital expenditures to a re-basing year to increase going-in rates in the next PBR

15

Decision 2013-435, paragraph 407. 16


Proceeding 3100, Exhibit 136.01, CCA argument, paragraph 27. 18


Proceeding 3100, Exhibit 136.01, CCA argument, paragraph 36.



term. The CCA pointed out that, in an exchange with the EDTI panel, the Commission referred

to these incentive as a “strategic substitution or strategic delay of projects.”20

39. The CCA proposed that delays in capital expenditure or uneven expenditure patterns can

have a significant impact on the outcome of the accounting test. Using numerical examples, the

CCA demonstrated that by engaging in patterns of high expenditure followed by low expenditure

or vice versa, a “stop and go” expenditure pattern, a company’s net income “can be clearly

influenced […] without spending a penny more than it had originally intended to spend.”21

Therefore, the CCA submitted it is important to disclose the accounting tests for all projects, in

order to detect the “stop and go” expenditure patterns.

40. Nonetheless, the CCA acknowledged that patterns of high expenditure followed by low

expenditure or vice versa can occur naturally with short-lived assets, depending upon the

replacement cycle, without any strategic motive to benefit from tracker timing. The CCA

maintained that the “same net income effects will hold whether the pattern is strategic or not.

The utility will benefit at the expense of ratepayers. The risk is all one way.” The CCA urged the

Commission to address this skewing of risk.22

41. The CCA submitted that in addressing the concerns of strategic substitution or strategic

delay of projects, the Commission “should be reviewing those situations where negative

accounting tests result and determine whether they arose from strategic substitution or delay, or

from other factors.”23 Specifically, the CCA recommended that

… some retrospective mechanism would be useful to review the circumstances of asset

expenditure deferral and strategic shifting. This could be thought of as the logical

equivalent or mirror image to the denial power which the Commission has for capital

trackers. In other words the Commission can deny a tracker … if the company cannot

show why the expenditure was not done earlier.24

42. In Section 8.1.5 of its argument, the CCA outlined changes to the PBR design of the

capital tracker mechanism to “help rebalance the incentives of capital trackers back towards

neutrality for customers and utilities.”25

43. In reply, EDTI expressed its view that the CCA’s submissions on its grouping of projects

are “an improper attempt to proffer new evidence in argument.”26 EDTI also stated that the

numeric examples on which the CCA relied to support its views are “far too simplistic and

unrealistic to demonstrate anything”27 since they use a depreciation rate of 100 per cent, ignore

the half year rule for new additions and fail to reflect the time value of money, among other

simplifying assumptions.

44. With respect to the incentives identified by the CCA concerning delays or uneven capital

expenditure patterns, EDTI highlighted the fact that, in accordance with the filing requirements

20

Transcript, Volume 5, page 731, lines 13-14. 21


Proceeding 3100 Exhibit 136.01, CCA argument, paragraph 64. 23




Proceeding 3100, Exhibit 138, EDTI reply argument, paragraph 51. 27

Proceeding 3100, Exhibit 138, EDTI reply argument, paragraph 56.



set out by the Commission, it provides a detailed explanation of variances between historical and

forecast capital expenditures and additions for the five-year period preceding the application.

EDTI submitted that “the filing of this information provides more than adequate data upon which

the Commission can identify, review and scrutinize what might appear to be year-over-year

capital spending anomalies.”28

45. On the same issue, EDTI pointed out that the Commission’s capital tracker criteria

require that the company demonstrate that the project could not have been undertaken previously

as part of a prudent capital maintenance program. EDTI stated it complied with this requirement

in its business cases and engineering studies filed in support of each capital tracker and provided

detailed explanations as to why a project is required now and could not have been undertaken as

part of a program in the past. Therefore, EDTI argued the Commission is provided with ample

evidence to ensure that strategic substitution or delay of projects has not occurred.29

46. EDTI did not agree with the CCA’s proposal to implement a “retrospective mechanism”30

to the Commission’s capital tracker review process. In EDTI’s view, a retrospective ROE review

“is nonsensical in the context of a Capital Tracker project, as one would have to consider

operating costs and their effect on ROE, what is happening with all capital projects (Tracker and

non-Tracker) and their effect on ROE, and the results of the Tracker true-up process and its

effect on ROE.”31

47. Finally, with respect to the CCA’s proposals in Section 8.1.5 of its argument to change

the design of the PBR plans and capital tracker mechanism EDTI argued:

These submissions have no bearing on this proceeding. The PBR regime was established

in Decision 2012-237 and the Capital Tracker mechanism was further clarified in

Decision 2013-435. The purpose of this proceeding is to test EDTI’s Capital Tracker

Applications pursuant to the framework established by the Commission in those

decisions. This is not the forum for the CCA to lobby for wholesale changes to the

Capital Tracker mechanism or to attempt to launch a review and variance of the

Commission’s previous decisions. The submissions of the CCA at section 8.1.5 of its

argument should be disregarded.32

Commission findings

48. In its argument, the CCA elaborated on the incentives a company has to manipulate the

grouping of capital trackers or the timing of capital expenditures to increase its net income and

ROE.

49. In Decision 2012-237, the Commission recognized the significance of the grouping of

projects proposed for capital tracker treatment when it stated:

601. … The Commission also considers that it would not be suitable to group together

several dissimilar projects into a single large project to give the appearance of materiality.

28








However, a number of smaller related items required as part of a larger project might

qualify for capital tracker treatment.33

50. Consistent with these determinations, it is the Commission’s view that grouping projects

for the sole purpose to either minimize or maximize the capital tracker revenue, is contrary to the

PBR decision. Projects are to be grouped together to reflect the requirement referenced above

that they be “a number of smaller related items required as part of a larger project” or program.

Any challenge to the company’s groupings must be made because the groupings do not comply

with this requirement. Once the proposed groupings are approved, the accounting test and the

first tier of the materiality test will be applied to that level of grouping (i.e., either at a project or

at a program level). The resulting K factor revenue is a result of this process.

51. The Commission generally agrees with the CCA’s view that the grouping of projects

affects a company’s earnings and its incentives related to capital expenditures. The Commission

recognizes that a company has an incentive to group projects resulting in a positive accounting

test result but below the first tier of the materiality threshold together as an applied-for tracker in

order to exceed the materiality threshold or group a project that is below the first tier of the

materiality threshold with another group that exceeds the threshold. The Commission also

recognizes that a company has an incentive to isolate projects for which the accounting test is

negative to avoid providing any offset to the K factor calculation in the accounting test.34

52. However, the Commission recognized these incentives in Decision 2013-435, where it

stated in paragraphs 403 and 404:

403. At the same time, the Commission shares the UCA’s view that, given the

importance of project grouping, “the method of aggregating projects into a program-level

will require close scrutiny.” This is because grouping of projects will have a direct impact

on the results of the accounting test and the project assessment under Criterion 1, as well

as the assessment of materiality under Criterion 3.

404. Specifically, with respect to the accounting test under Criterion 1, it would be

possible for a company to group projects together for the sole purpose of ensuring that

the revenue from the I-X mechanism is insufficient to fund a portion of the revenue

requirement associated with capital expenditures for the proposed projects, as grouped.

The UCA reached a similar conclusion when it stated that “it would be possible for

Utilities to group projects together in such a way as to artificially inflate the numbers in a

single program to fall outside historic levels of spending.” Likewise, with respect to

Criterion 3 dealing with materiality, the UCA noted that the companies may attempt “to

roll projects together to meet the materiality criterion.” The Commission agrees and finds

that this is a relevant consideration for the four basis point threshold under the first tier of

the materiality test set out in Section 3.3. [footnotes omitted]

53. A company’s proposed grouping of capital tracker projects must conform with 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 ...”35 in order to determine the extent to which a project or program is underfunded

by the I-X mechanism. The resulting project grouping is usually consistent with the historical

33


Proceeding 3100, Exhibit 136.01, CCA argument, paragraphs 27 and 29. 35




grouping of projects for accounting and regulatory reporting purposes under cost of service

regulation, prior to the implementation of PBR. Where this is the case, there is little reason to

suspect the company has manipulated the grouping of projects. However, where the 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, taking 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.”36

54. With respect to the timing of capital expenditures, as EDTI pointed out, the

Commission’s implemented review process under the project assessment as part of Criterion 1

allows it to deal sufficiently with the strategic substitution or strategic delay of projects.

55. Specifically, in accordance with the filing requirements set out by the Commission for

capital tracker projects, for the purpose of the project assessment, a program or project proposed

for capital tracker treatment typically should address the following, among other requirements:

…

e. Evidence that the capital project could not have been undertaken in the past as part of a

prudent capital maintenance and replacement program.

…

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.37

56. The Commission agrees with EDTI that the filing of this information provides necessary

data upon which the Commission and interested parties can identify, review and scrutinize any

irregular expenditure patterns, which may be an indication of the strategic substitution or

strategic delay of projects.38 Therefore, the Commission does not accept the CCA’s proposal to

implement an additional retrospective review mechanism.39 Nor does the Commission accept the

CCA’s proposal to review “those situations where negative accounting tests result and determine

whether they arose from strategic substitution or delay, or from other factors.”40 If accepted, this

method would in effect require the Commission and interested parties to examine and verify the

entirety of the company’s capital forecasts. As explained in Decision 2013-435, only those

36








projects proposed for capital tracker treatment shall be scrutinized.41 The CCA also proposed to

make changes to the design of the capital tracker mechanism to “help rebalance the incentives of

capital trackers back towards neutrality for customers and utilities.”42 The Commission agrees

with EDTI’s view that these CCA submissions are outside the scope of the present proceedings.43

57. However, the Commission also notes that in Proceeding 3558 the Commission will be

considering possible changes to the minimum filing requirements for capital trackers. In that

proceeding, the Commission will examine, among other matters, whether the companies should

be required to list all projects, including projects with negative accounting test results, in the

accounting test model to facilitate the Commission’s examination of the reasonableness of the

company’s proposed grouping.

5.2 EDTI’s proposed grouping of projects

58. As observed in Decision 2013-435, EDTI’s approach to grouping is generally based on

the approximately 60 relatively granular capital project categories that EDTI used for purposes

of its last three general tariff applications (GTAs) under cost of service regulation.44 In that

decision, the Commission has generally approved EDTI’s proposed grouping of projects, with

three exceptions. Specifically, the Commission directed EDTI to group three types of projects

included in its 2013 capital tracker forecast, including Third-party Driven Relocations projects,

IT-related projects and projects related to Distribution Contributions for Transmission Assets.45

59. EDTI indicated that in the 2013 capital tracker true-up application and in the 2014-2015

capital tracker forecast application, it has grouped its applied-for projects consistent with the

findings and directions of the Commission in Decision 2013-435. EDTI further clarified that

while it has grouped its Third-party Driven Relocations, IT-related projects and Distribution

Contributions for Transmission Assets projects, it has maintained separate business cases and

engineering studies for each applied-for project within a group to facilitate project assessment

under Criterion 1.

60. When questioned by Commission counsel on why the Neighbourhood Renewal program

was not included in other asset lifecycle replacement projects, EDTI explained that since it was a

new program in 2010, it made more sense to separate it from other projects, rather than trying to

explain its grouping with other projects. Further, the Neighbourhood Renewal program

represented the replacement of cables, transformers and switching cubicles rather than just a

single type of asset.46

61. In his evidence, Mr. Shymanski for the UCA observed that EDTI included, as part of the

2014-2015 capital tracker forecast application, the North Light Rail Transit (LRT) project, with a

negative K factor value. Mr. Shymanski referred to paragraphs 964 to 967 of Decision 2013-435,

where the Commission determined that negative K factor amounts are not to be included in the

41





Decision 2013-435, paragraphs 837-841. 46

Transcript, Volume 2, page 493, lines 3-17 (Mr. Elford).



calculation of the K factor, and recommended that the North LRT project be removed from

EDTI’s K factor calculations.47 The UCA supported this recommendation.48

62. In reply, EDTI pointed out that it has not included the North LRT project as a capital

tracker in this proceeding. Rather, EDTI complied with the Commission’s explicit direction in

Decision 2013-435 to group together all of its Third-party Driven Relocations capital projects

into a single capital tracker program for purposes of applying the accounting test and the first tier

of the materiality test at the program level.49

63. In its argument, the CCA submitted that EDTI’s “groupings are confusing.”50 The CCA

pointed out that EDTI has 75 asset categories or projects for which it performed the accounting

test. Out of these resulting 75 asset categories or projects, EDTI requested capital tracker

treatment for over 20 projects with K factors ranging from $60,000 to $3.8 million.

64. The CCA observed that EDTI has a capital tracker for an IT-related group of projects, but

it does not include all IT projects within the capital tracker. In addition, EDTI has a contribution

account which does not include all contributions. The CCA also observed that there are three

separate service centre accounts and separate accounts for different pole categories and other

aerial groupings.51 The CCA also noted that during the hearing, when questioned by Commission

counsel, EDTI acknowledged that many of its capital tracker projects involve the same asset

types that are grouped into different projects. For example, underground cables are dealt with in

11 different projects or subprojects.52 On the other hand, with respect to EDTI’s New

Underground Cable and Aerial Line Reconfigurations and Extensions to Meet Customer Growth

project, the CCA submitted that “[h]ere we have underground and aerial mixed together with a

second variable tossed in, that being reconfigurations or extensions. This is not an intuitive

grouping.”53

65. After analyzing EDTI’s grouping and reviewing the individual projects, the CCA

concluded that “one does not appear to be any further ahead than if the grouping step was

skipped.”54 The CCA prepared an alternative grouping that it believed to be simple to understand

and provided it in its argument. The changes proposed by the CCA resulted in aggregating

capital tracker projects into several higher level groupings based mostly on asset types (e.g.,

grouping together all IT projects, all contributions, all feeders, all aerial and all meters).55

66. As a result of these considerations, the CCA suggested a move to fewer capital trackers

and more high level groupings for EDTI. According to the CCA, this should reduce the impact of

year-over-year changes in expenditures on the accounting test results for individual capital

trackers. The CCA further stated that fewer capital trackers would reduce the “erratic nature of

47

Proceeding 3100, Exhibit 97.02, Evidence of Mr. Shymanski, paragraphs 58-65. 48

Proceeding 3100, Exhibit 137.02, UCA argument, paragraph 53. 49




Transcript, Volume 2, pages 331-332 (Mr. Elford). 53



Proceeding 3100, Exhibit 136.01, CCA argument, pages 32-36.



[EDTI’s] applied for trackers,” which “complicates the Commission’s ability to monitor future

attempts to strategically group capital trackers or strategically time capital additions.”56

67. The CCA clarified it is not recommending that its proposed groupings be applied to the

2014-2015 forecast years. However, it did recommend that EDTI’s groupings “be cleaned up and

aggregated such that EPCOR reduces the number of ungrouped projects.” Therefore, the CCA

recommended that for future capital tracker applications, EDTI substantially revise and regroup

its trackers so that:

Like assets and projects are together in an applied-for tracker.

The accounting test compares “apples to apples” and does not include the

revenue requirement from some assets that are in a different tracker and

exclude others that are picked up in a different tracker.

There are a reduced number of trackers.57

68. In the CCA’s view, these steps would reduce the regulatory burden, increase the clarity of

capital tracker applications and allow parties to focus on prudence issues rather than

classification of projects. The CCA stated that these steps would also reduce the ability to “shift

things around and group them together or mash a couple together or split some apart”58 and

reduce the ability to group trackers strategically or time capital additions strategically to increase

the K factor artificially.59

69. In reply, EDTI explained that the work and assets included in each grouping category

reflect the drivers of capital work, and the manner in which EDTI budgets for, carries out that

work and tracks its costs on a project-by-project basis. It is not built to align with specific asset

types. EDTI expressed its view that using the same capital project categories as it has done

historically, facilitates transparent comparisons of forecast and actual costs to its historical costs.

70. EDTI acknowledged that many of its project categories cross a number of asset types.

However, it did not agree with the CCA’s recommended approach to grouping. EDTI indicated

that “re-bucketing” its capital work into different categories to reflect asset type would take a

considerable amount of time. It would also create administrative issues with EDTI’s budgeting

processes, and with its field staff who would be required to change significantly the way they

record their work in the field on a project-by-project basis.60

71. Further, EDTI submitted that:

… [T]he CCA’s suggestion would do anything but reduce regulatory burden and increase

clarity. Disintegrating and re-bucketing EDTI’s project categories would not only take

considerable work on EDTI’s part, but would create substantial regulatory burden for the

Commission and interveners who would be faced with information in a form they had

never seen before. Rather than simplifying matters, the Business Cases and Engineering

Studies would have to be re-vamped considerably, and would be far more complex as

they would have to include explanations of various types of work and related forecasts,

56



Transcript, Volume 3, page 525, lines 13-14 (Mr. Baraniecki). 59





justifications, and forecast to actual variances, irrespective of the fact that all the work

would be related to a specific asset type.61

72. In a similar vein, Mr. Elford for EDTI testified that “[a]lthough you would have fewer –

maybe fewer trackers by title, you’d have much longer and more confusing trackers.”62 In an

exchange with Commission counsel, Mr. Elford expressed his view that a major change to

EDTI’s approach to grouping (such as basing project grouping on asset type) is best considered

in conjunction with the review of the capital tracker mechanism as a whole:

However, if we could -- and we would have to do some more thinking about this, but if

we could look at those asset categories and determine ways to -- to get more efficient

through the use of, you know, something maybe akin to the K-bar mechanism that we

talked about in the previous capital tracker application applied at that level, or something

like that, there may be a way to do that. But it would have to be something more different

than just saying repackage the trackers into this function because I think we would just

create more confusion, at least from my perspective.63

73. Finally, EDTI submitted that in proposing its suggested groupings, the CCA has not

provided any analysis or other justification for why its alternative groupings make sense and why

the projects it has put in those groupings are appropriately grouped together. According to EDTI,

the CCA proposed groupings “are arbitrary and make little practical sense” and would create

significant and unnecessary administrative issues for EDTI’s personnel and regulatory burden for

all parties.64

Commission findings

74. In Decision 2013-435, the Commission highlighted the importance of project grouping

because it has a direct effect on the results of the accounting test and the project assessment

under Criterion 1, as well as the assessment of materiality under Criterion 3. The Commission

also stated that projects are to be grouped together to reflect the requirement in Decision

2012-237 that groupings include “a number of smaller related items required as part of a larger

project”65 or program. Any challenge to the company’s groupings must be made because the

groupings do not comply with this requirement.

75. In the 2013 capital tracker true-up application and in the 2014-2015 capital tracker

forecast application, EDTI used the same approach to project grouping, as approved in

Decision 2013-435. Nevertheless, with 60 relatively granular capital project categories, EDTI’s

approach to project grouping raises the prospect that it is overly refined for purposes of a capital

tracker proceeding where the objective is to ascertain logical groupings of capital. Further, it is

not based on asset type and, as such, many capital tracker projects involve the same asset types.

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-by-project basis, EDTI’s grouping of projects

61


Transcript, Volume 2, page 335, lines 17-18 (Mr. Elford). 63

Transcript, Volume 2, page 335, line 19 to page 336, line 4 (Mr. Elford). 64



Transcript, Volume 2, pages 331-334 (Mr. Elford).



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.”67

76. In addition, the Commission observes that the historical categorization and tracking of

capital additions highlights that much of the capital cannot be categorized into specific unique,

stand-alone projects. Rather, the capital is associated with a type of recurring activity generated

by a common or overlapping set of causes or events. In these circumstances, consolidating

capital project categories into a higher level of capital spending may serve to blur the rationale

for the particular spending under review.

77. Nevertheless, given that EDTI’s grouping uses the same capital project categories as it

has used historically, the Commission finds no evidence that the company has manipulated the

groupings in the capital tracker application. The Commission agrees with Mr. Elford that a major

change to EDTI’s approach to grouping (such as basing project grouping on asset type) is best

considered together with the review of the capital tracker mechanism as a whole,68 in a future

proceeding dealing with the second generation of a PBR plan for EDTI.

78. At the same time, the Commission considers that it may be warranted to group all of

EDTI’s life cycle replacement and like projects together with the Neighbourhood Renewal

program for the purposes of the accounting test, given that it appears these projects are all

intended to replace or renew aging assets. Accordingly, EDTI is directed to explain, in its next

capital tracker application, whether it is possible to do so and whether such grouping is

warranted.

79. The CCA proposed an alternative grouping of EDTI’s projects for capital tracker

purposes in Appendix A of its argument; however, the CCA clarified it is not recommending that

its proposed groupings be applied to the 2014-2015 capital tracker forecast application. The CCA

did not file evidence in either of the two proceedings with respect to grouping. Filing of the

CCA’s alternative grouping approach in argument did not allow the Commission and interested

parties to test the reasonableness of the CCA’s suggested groupings, and whether the projects in

the five aggregate categories proposed by the CCA are reasonably grouped.69 For these reasons,

the Commission will not consider the alternative approach to grouping of EDTI’s projects, as

proposed by the CCA for the purposes of this decision.

80. Mr. Shymanski for the UCA recommended that EDTI’s North LRT project, included as

part of the Third-party Driven Relocations group, be removed from K factor calculations.70 In

support of his view, Mr. Shymanski referred to paragraphs 964 to 967 of Decision 2013-435,

where the Commission determined that negative K factor amounts are not to be included in the

calculation of the K factor. In this regard, as EDTI pointed out, it has not included the North

LRT project as a capital tracker in this proceeding. Rather, EDTI complied with the

Commission’s explicit direction in Decision 2013-435 to group together all of its Third-party

67




Proceeding 3100, Exhibit 97.02, UCA evidence of Mr. Shymanski, paragraphs 58-65.



Driven Relocations projects into a single capital tracker program for purposes of applying the

accounting test and the first tier of the materiality test at the program level.71

81. While capital tracker projects resulting in a negative accounting test result should not be

included in the calculation of the K factor on a stand-alone basis for the sole purpose of reducing

the K factor amount, the Commission will accept all such projects as part of a capital tracker

program or group, where it is reasonable to do so, because the projects are of a similar nature.

This approach is consistent with the Commission’s determinations in Section 5.1 of this decision

that a company’s proposed grouping of capital tracker projects must conform with 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….”72

82. In this particular case, the cost of new and ongoing Third-party Driven Relocations

projects is partially offset by the amount of the I-X revenue provided for the completed North

LRT project, a historically similar capital expenditure. By the same token, the costs of new

projects in the IT-related group and Distribution Contributions to Transmission Assets group are

partially offset by I-X revenue provided for completed projects of a similar nature, as discussed

in Section 7 below.

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.

84. For the purpose of this decision, the Commission accepts EDTI’s grouping of projects, as

proposed in the 2013 capital tracker true-up application and the 2014-2015 capital tracker

forecast application. Accordingly, the Commission’s accounting test and the first tier of its

materiality test will be applied to EDTI’s projects and programs proposed for capital tracker

treatment as filed. With respect to the project assessment component of Criterion 1, the

Commission will, consistent with paragraph 841 of Decision 2013-435, “assess the component

projects of EPCOR’s programs because, even though individual projects within a program

address similar issues, each project requires individual justification.”

6 Deferral of capital expenditures planned in 2013

85. In 2013, EDTI made a decision to delay expenditures on several 2013 capital tracker

projects due to what it referred to as “uncertainty respecting the capital tracker mechanism.”

EDTI elaborated on this issue in the 2014-2015 capital tracker forecast application as follows:

During the 2013 Capital Tracker [forecast] proceeding, EDTI noted that due to the

substantial capital funding shortfall under the I-X mechanism and the uncertainty

respecting the capital tracker mechanism (including the manner in which the Commission

would interpret and apply the three criteria for approval from Decision 2012-237), EDTI

71





had made the decision to temporarily delay certain projects and components of projects

for a short time, pending the Commission issuing a decision in that proceeding. EDTI’s

witnesses made it clear that this applied to a small number of projects, and that the delays

would be targeted and of short duration, chosen with a view to minimizing the risk of

immediate and short term adverse effects on safety, service quality and reliability.

EDTI’s witnesses also noted that once certainty was provided by the Commission

respecting the capital tracker mechanism, EDTI would assess its circumstances and,

assuming that the Commission appropriately addressed the capital funding shortfall under

the PBR Plan, would move ahead with any temporarily delayed projects as quickly as it

could. EDTI noted that depending on the timing of the Commission’s Decision, some of

this work might not be completed by the end of 2013, but would carry over into

subsequent years.

With the issuance of Decision 2013-435 in early December, 2013, EDTI was not able to

complete all of its originally planned work for 2013. Consistent with its evidence in the

2013 Capital Tracker proceeding, however, EDTI will generally complete this work in

early 2014. In those limited cases where EDTI will not have the resources (internal as

well as external) to handle significant levels of carry over work, EDTI will spread the

outstanding work and the work required in 2014 and 2015 over both years. In doing so

and where appropriate, EDTI will prioritize the total amount of work to be done over

2014 and 2015 to ensure that the most critical work is completed earlier over the two year

period.

…In all cases, EDTI will schedule the completion of this outstanding work having regard

for potential impacts on safety and reliability, and the resources it will have available to

complete not only the outstanding work from 2013, but also the level of required capital

work specific to 2014 and 2015.73

86. Table 3 summarizes EDTI’s initial estimates for completing work on capital tracker

projects or programs that EDTI temporarily deferred in 2013 for the reasons outlined above.

73

Proceeding 3100, Exhibit 80, 2014-2015 forecast application, paragraphs 22-24.



Table 3. 2013 capital additions deferred due to capital tracker mechanism uncertainty ($ million)74

Project description 2013

decision 2013

actual

2013 work to be completed in 2014 work displaced from 2014 to 2015?

2014 2015 2016 and

future

The Interval Meter Data Collection and Processing System project

1.85 - 1.85 - - No

Life Cycle Replacement and Extension of Underground Distribution Cable

10.20 3.21 3.59 3.71 - Yes

Distribution Pole and Aerial Line Life Cycle Replacements

5.60 1.44 1.42 2.06 - Yes

Vehicle and Fleet Equipment Purchases

2.90 1.36 0.35 0.15 - No

New Underground Cable and Aerial Line Reconfigurations and Extensions to Meet Customer Growth

8.08 6.70 1.31 - - No

Neighbourhood Renewal Program [Note 1]

1.31 1.17 0.28 - - No

Life Cycle Replacement of PILC Cable Systems [Note 1]

1.04 - 0.42 0.62 - No

New 15-kV and 25-kV Circuit Additions

4.61 1.55 2.99 - - No

Total 35.59 15.43 12.21 6.54 -

Note 1: During the hearing, Mr. Elford for EDTI clarified that the life cycle replacement of PILC cable systems was not approved for capital tracker treatment in 2013 and, therefore, cannot be considered a capital tracker project that was temporarily deferred.75 The same reasoning applies to the Neighbourhood Renewal Program.

87. In his written evidence, Mr. Shymanski, acting on behalf of the UCA, indicated that

EDTI was able to defer some expenditures for the Life Cycle Replacement and Extension of

Underground Distribution Cable project and the Distribution Pole and Aerial Line Life Cycle

Replacement project for two years, from 2013 to 2015, without adverse impacts to customer

service. Therefore, Mr. Shymanski expressed his view that the capital additions deferred from

2013 to 2015 do not meet the requirements of Criterion 1 that projects proposed for capital

tracker treatment must be “of sufficient importance that the company’s ability to provide utility

service at adequate levels would be compromised if these expenditures were not undertaken” and

that projects “are required to prevent deterioration in service quality and safety.”76

Mr. Shymanski recommended that 2015 forecast capital additions for these two projects be

excluded from the K factor calculation.77

88. In rebuttal evidence, EDTI clarified that it did not delay the work on the two projects

referenced by Mr. Shymanski from 2013 to 2015. Instead, EDTI clarified that it expected to

complete, and place into service, all of the underground distribution cable work, as well as the

distribution pole and aerial line work, deferred from 2013, by the end of 2014.78 In turn, as EDTI

explained in response to a Commission information request, for some projects, “this essentially

results in 2013 carry over work ultimately displacing some 2014 work into 2015 to ensure that

74

Proceeding 3100, Exhibit 135, EDTI argument, paragraph 17, Table CCA-EDTI-02-1 (Corrected). 75



Proceeding 3100, Exhibit 97.02, UCA evidence of Mr. Shymanski, pages 4-6. 78

Proceeding 3100, Exhibit 107, EDTI rebuttal evidence, pages 13-20.



the 2013 work is addressed as soon as reasonably possible.”79 During the hearing, Mr. Elford

provided further explanation on this matter:

… this bumping of work would take place because we're not going to take work

identified in '13 and simply drop it into '15 by spreading it that way. We're going to deal

with the highest priority work first, which involves taking the '13 work, doing it in '14,

put that in some '14 work will unfortunately cascade into '15.80

89. In response to an undertaking given at the hearing to the UCA, EDTI confirmed its

expectation that all of the 2013 deferred work, with the exception of the Cube Van vehicle as

part of the vehicles capital tracker project, will be completed by the end of 2014 despite the

indication in the above table that some 2013 work would be deferred into 2015.81 EDTI

submitted that these efforts confirm that it was acting in a manner that is consistent with the need

to complete the displaced work as soon as reasonably possible.82

90. In light of this clarification, during the hearing, Mr. Shymanski made the following

comment regarding his evidence on this matter:

If, in fact, this work is completed in 2014, as is now expected, there will be no 2015

capital additions for the 2013 carryover work and, thus, my recommendations on these

two projects [the Lifecycle Replacement and Extension of Underground Distribution

Cable and the Distribution Pole and Aerial Line Lifecycle Replacement projects] for

2015 would be rendered moot.83

91. In argument, the UCA submitted that, for the reasons set out in Mr. Shymanski’s

evidence, “if, despite EDTI’s intention, as stated in its rebuttal evidence, to complete the 2013

carry over work in 2014, EDTI does not in fact complete the work in 2014, it should not be

approved for Capital Tracker treatment in 2015.”84

92. In response to a Commission information request regarding any consequences for EDTI

or its customers of the decision to defer work on certain projects in 2013, EDTI indicated that:

On December 22nd, 2013, EDTI experienced one cable failure on a section of cable

which EDTI had planned to replace in 2013, but which, as a result of EDTI’s decision to

temporarily delay a portion of its planned cable replacement work (due to uncertainty

relating to the Capital Tracker mechanism), EDTI did not replace in 2013 as originally

planned. The outage relating to this cable failure resulted in 6,934 customer hours of

interruptions and the associated distribution feeder being one of EDTI’s worst performing

distribution feeders in 2013 as reported in EDTI’s 2013 AUC Rule 002 submission

(Service Quality and Reliability Performance Monitoring Plan for Owners of Electric

Distribution Systems).85

79

Proceeding 3100, Exhibit 93.01, AUC-EDTI-6(d). 80


Proceeding 3100, Exhibit 118. 82

Proceeding 3100, Exhibit 135, EDTI argument, paragraph 22. 83

Transcript, Volume 5, page 750, lines 8-11 (Mr. Shymanski). 84


Proceeding 3100, Exhibit 93.01, AUC-EDTI-10(c).



93. During the hearing, Ms. Hull elaborated further on the underground cable failures

experienced by EDTI as a result of deferring 2013 planned work and the resulting service

interruptions:

MS. HULL: On the 2013 deferred work we've had four cable failures: the one that we

had referenced in December of 2013, and then we've had three cable failures in August

[of 2014] for a total of 25,000 customer hours of interruption on those three alone. So

year to date on the system, we've had 51 cable faults over a system of 2,919 kilometres.

So the fault per kilometre for the whole system is 0.017 faults per kilometre. If you look

at just the deferred work, we've had four faults over the 12.27 kilometres of deferred

cable; therefore, we have a 19 times higher fault rate on just the deferred work from

2013.86

94. In response to a CCA information request, EDTI indicated that there was an outage in the

two areas served by circuit N13, which was identified for reconfiguration in 2013 as part of the

new underground cable and aerial line reconfigurations and extensions to meet customer growth

project, but deferred in 2013. EDTI stated:

While no outage occurred on this circuit in 2013, EDTI’s assessment of that risk was

validated in April, 2014 when an outage did occur on the N13 circuit resulting in a

13 hour service disruption. 12 hours of this outage could have been prevented had this

project’s loop feed been installed as originally planned.87

95. In its argument, the CCA expressed its concern that there do not appear to be any

consequences to EDTI for the failure to provide reliable utility service. The CCA noted that

EDTI, in its professional judgment, determined that certain underground cable needed to be

replaced and identified a capital tracker for this type of expenditure, but yet did not replace the

cable because of uncertainty with respect to its 2013 capital tracker application. As a result,

customers experienced 6,900 hours of interruption. In the CCA’s view, “there should be some

consequence to EPCOR for putting budgetary concerns ahead of reliability concerns.”88

96. In response, EDTI explained that its decision to delay certain projects, including the Life

Cycle Replacement and Extension of Underground Distribution Cable project, was in response to

the “substantial uncertainty that EDTI found itself facing pending the Commission’s decision on

EDTI’s first Capital Tracker Application in terms of the capital funding shortfall under PBR,”

rather than “budgetary constraints,” as characterized by the CCA.89 EDTI pointed to the fact that

in the 2013 capital tracker proceeding, Proceeding 2131, the CCA argued that EDTI should not

be allowed to recover its capital funding shortfall under the PBR plan through the capital tracker

mechanism, adding to the uncertainty with respect to the ability of EDTI to recover capital

expenditures.90

86

Transcript, Volume 2, page 304 line 18 to page 305 line 5 (Ms. Hull). 87

Proceeding 3100, Exhibit 94.01, CCA-EDTI-25(c). 88






97. The UCA noted that regulatory uncertainty is not an adequate reason to delay a project

that is necessary for continued safety and reliability on the system. In its argument, the UCA

stated:

The UCA is also strongly of the view that whether or not a utility receives approval for a

project as a capital tracker should not be the determining factor in its decision to proceed

with the project or to not proceed. A utility has an overriding obligation to provide safe

and reliable service, and to take prudent measures in achieving that goal. Capital trackers

were not intended to provide funding for every prudent capital project, just those that met

each of the Commission’s criteria.91

98. EDTI submitted that the reliability impacts resulting from delaying some of the deferred

projects for even a short period (as described earlier in this section), as well as EDTI’s evidence

that all delayed 2013 work will be completed in 2014, confirm EDTI’s evidence that the delays

were of very short duration. According to EDTI, this information also confirms the need for the

work and the appropriateness of the original timing of the work.

99. In its response to AUC-EDTI-6(d), EDTI explained the approach it took to prioritize its

work in 2014 and 2015 to ensure that its delayed 2013 work and its 2014 and 2015 work were

completed prudently. EDTI went on in its response to provide a detailed explanation of the

specific steps taken to prioritize its work in 2014 and 2015 for each project that had delayed

work from 2013.92

100. Overall, EDTI maintained that its actions in delaying capital expenditures for certain

capital tracker projects in 2013 were reasonable; that EDTI acted prudently in determining which

portions of which projects to delay and, further, in prioritizing its overall work requirements in

2014 and 2015 to complete the 2013 delayed work along with the work required to be completed

in 2014 and 2015 (with some 2014 work cascading into 2015). EDTI further stated the delays

were of very short duration and do not form any reasonable basis for arguing that EDTI can

similarly and as a matter of course delay portions of these or any other projects. EDTI further

submitted that the evidence demonstrates that its planned projects for 2014 and 2015 are required

to be completed on the timelines described in the business cases and engineering studies

provided for each project.93

101. In its reply argument, the CCA took issue with EDTI’s conclusion that the delay of

projects in 2013 cannot be used as “any reasonable basis for arguing that EDTI can similarly and

as a matter of course prudently delay portions of these or any other projects.” According to the

CCA, if EDTI could defer projects “due to financial concerns over regulatory uncertainty,” then

“it is not clear why capital expenditure cannot be cut back to reduce impact on customers.”94

102. The CCA submitted that EDTI has not demonstrated that there was anything unique

about the deferred 2013 work that makes it different from work scheduled for 2014 and 2015 or

subsequent years. According to the CCA, EDTI has made no case that the same activities could

not be deferred in 2014 or 2015, as was done in 2013, given that it was able to defer projects in

2013 without a significant increase in risks as a result of most of the delayed projects.

91




Proceeding 3100, Exhibit 139.01, CCA reply argument, paragraph 6.



103. The CCA further pointed out that in the 2013 capital tracker forecast proceeding, EDTI

argued that all its recommended projects were required for utility service but then it did not

proceed with some of the work. According to the CCA, because EDTI delayed the forecast work

in 2013, it “certainly reduces the weight which the Commission should attach to similar evidence

in this proceeding for 2014 and 2015.”95 The CCA concluded by indicating that it does not have

recommendations for areas to cut back in capital additions for 2014, but given this history of

delayed projects, it will be reviewing them closely in subsequent applications.96

Commission findings

104. Table 3 in this section sets out the planned work on certain capital tracker projects or

programs that EDTI deferred, in whole or in part, in 2013 due to the “substantial capital funding

shortfall under the I-X mechanism and the uncertainty respecting the capital tracker

mechanism.”97 Of the eight projects or programs presented in Table 3, the Life Cycle

Replacement of PILC Cable Systems project and the Neighbourhood Renewal program were not

approved for capital tracker treatment in 2013 and, therefore, cannot be considered as capital

tracker projects that were temporarily deferred. Also, as discussed in Section 7 below, the

Commission accepts EDTI’s withdrawal of the IT-related program from capital tracker treatment

in EDTI’s 2013 capital tracker true-up and 2014-2015 capital tracker forecast applications. The

interval meter data collection and processing system project included in Table 3 is a part of the

IT-related program.

105. Accordingly, findings in this section apply to the five capital tracker projects approved

for 2013 for which EDTI deferred the planned work as a result of a perceived capital funding

shortfall under the I-X mechanism and uncertainty respecting approval of EDTI’s 2013 capital

tracker application:

New 15-kV and 25-kV Circuit Additions

Life Cycle Replacement and Extension of Underground Distribution Cable

Distribution Pole and Aerial Line Life Cycle Replacements

Vehicles – Growth and Life Cycle Replacements

New Underground Cable and Aerial Line Reconfigurations and Extensions to Meet

Customer Growth

106. In Decision 2013-435, the Commission assessed each of the above projects against the

project assessment requirements of Criterion 1 and determined based on the evidence, that each

of the projects was required to maintain service reliability and safety at adequate levels in 2013.

Further, the Commission determined that the scope, level, timing and forecast costs for each of

the projects referenced above were reasonable as proposed for 2013. Following the issuance of

Decision 2013-435 in early December 2013, EDTI indicated it was not able to complete all of its

originally planned work for 2013.

95

Proceeding 3100, Exhibit 139.01, CCA reply argument, paragraph 10. 96

Proceeding 3100, Exhibit 139.01, CCA reply argument, paragraph 12. 97

Proceeding 3100, Exhibit 80, 2014-2015 forecast application, paragraph 22.



107. In Decision 2014-37398 dealing with AltaGas’ 2013 true-up and 2014-2015 forecast

capital tracker applications, the Commission stated the following with respect to the deferral of

projects previously approved on a forecast basis for capital tracker treatment:

96. The Commission does not consider that a project proposed for capital tracker

treatment in the current year should be denied simply because it was approved in a prior

year and deferred. It may be the case that the project was determined to be no longer

necessary in a prior period, or there may have been a valid business reason to defer the

project, even though it was required. In general, a previously approved project that has

been deferred may qualify for capital tracker treatment if there is sufficient evidence that

the deferral was a prudent decision at the time and given evidence of the continuing

necessity to complete the proposed project to maintain service quality and safety.99

108. EDTI maintained that these delayed projects were required and in the absence of the

uncertainty surrounding approval of its 2013 capital tracker application, these projects would

have proceeded as planned in 2013. However, given the uncertainty with respect to approval of

its 2013 capital tracker application, EDTI delayed certain projects, indicating that this decision

“applied to a small number of projects, and that the delays would be targeted and of short

duration, chosen with a view to minimizing the risk of immediate and short term adverse effects

on safety, service quality and reliability.”100

109. The Commission agrees with the UCA101 that the “substantial capital funding shortfall

under the I-X mechanism and the uncertainty respecting the capital tracker mechanism” does not

constitute a valid business reason for deferring work planned for 2013 that was required and

approved by the Commission for reasons of service reliability or safety. Indeed, at paragraph 615

of Decision 2012-237, which was issued prior to Decision 2013-435, the Commission indicated

that a company may choose to undertake a capital investment prior to applying for capital tracker

treatment in a subsequent annual capital tracker filing. In other words, a company does not have

to wait for the Commission’s approval of its forecast for capital tracker treatment to proceed with

projects required to maintain service reliability and safety at adequate levels.

110. The Commission further observed in Decision 2014-373 at paragraph 176:

176. AltaGas has an obligation to provide safe and reliable service. The PBR regime

does not alter this fundamental obligation of the company, and the deferral of the

Athabasca project due, in part, to a funding constraint is of concern. The Commission

expects that AltaGas will efficiently manage its system and acquire the funding necessary

to satisfy its obligation to provide safe and reliable service. As noted by the Alberta

Energy and Utilities Board in Decision 2005-019:

The Board is concerned with the position taken by AltaLink. AltaLink

appears to acknowledge that it has a responsibility to provide safe and

reliable service, however, it also chose to defer activities that it

considered necessary once the allowed revenue requirement could no

98

Decision 2014-373: AltaGas Utilities Inc. 2014-2015 Capital Tracker Application and 2013 Capital Tracker

True-up Application, Application nos.1610446 and 1610600, Proceeding nos. 3152 and 3244, December 24,

2014. 99


Proceeding 3100, Exhibit 80, 2014-2015 forecast application, paragraphs 22-24. 101

Proceeding 3100, Exhibit 137.02, UCA argument, paragraph 9.





longer fund them. AltaLink itself has used the words “These were not

easy decisions to essentially place the transmission system at increased

risk because of lack of required resources”. The Board does not consider

this approach to be correct or acceptable.

…

In Decision 2003-061,[102] the Board agreed with AltaLink that certain

activities were necessary however, it did not agree with the revenue

requirement requested by AltaLink to perform these activities. It

determined, based on the evidence before it, that a different revenue

requirement was appropriate. AltaLink, in turn, was obligated to conduct

its affairs in a manner to ensure that it did not compromise service and

reliability, seeking efficiencies as means to achieve any perceived extra

resources, and to better present its case in future test periods. This was

not an invitation to AltaLink to deliberately reduce the level of service it

provided, particularly if the deferred activities involved actions which

could affect reliability and safety. (footnotes omitted)

111. The Commission cannot countenance the delay of capital tracker projects that have been

demonstrated and approved as necessary to maintain service reliability and safety within a given

period where the delay arises because of uncertainty over approval of a capital tracker

application. Nevertheless, the Commission recognizes that for the companies under PBR,

including EDTI, 2013 was a transition year as the companies moved from cost of service

regulation to PBR. Additionally, the Commission notes that during this transition, EDTI held

back its expenditures on a number of capital projects for which it did not expect to receive

capital tracker treatment, not just those considered and subsequently approved for capital tracker

treatment.

112. In response to a Commission information request, EDTI confirmed that it deferred a total

of approximately $44 million of capital expenditures in 2013 due to uncertainties surrounding

the treatment of capital under PBR.103 Of this $44 million, Table 3 above demonstrates that EDTI

deferred approximately $17 million in capital additions associated with the five projects

subsequently approved for capital tracker treatment in 2013. Mr. Elford provided further

confirmation on this matter when questioned by Commission counsel.

Q. So what I'm trying to understand, sir, is in making your capital allocation decisions,

did you make a distinction between non-capital tracker work and capital tracker work and

deciding what was to be delayed and then what was to be completed in '14?

A. MR. ELFORD: For the 2013 capital?

Q. Yes.

A. MR. ELFORD: No, we were holding back in areas where we thought we could hold

back temporarily for -- the same criteria were applying. Whether it's a tracker or not,

there's things you have to do because you're required to service customers. There's things

you have to do because it's immediate safety risk. There's things that you think you can

wait on for a short period of time.104

102

Decision 2003-061: AltaLink Management Ltd. and TransAlta Utilities Corporation, Transmission Tariff for

May 1, 2002 – April 30, 2004, TransAlta Utilities Corporation, Transmission Tariff for January 1, 2002 –

April 30, 2002, Application Nos. 1279345, 1279347, and 1287507, August 3, 2003. 103

Proceeding 3100, Exhibit 93.01, AUC-EDTI-6(a). 104

Transcript, Volume 2, page 278, line 17 to page 279, line 5 (Mr. Elford).




113. In addition to considering the reasons for why a project has been delayed, paragraph 96

of Decision 2014-373 also indicated that the Commission must consider whether there is a

continuing necessity to complete the proposed project to maintain service quality and safety. As

discussed in the respective parts of Section 7 of this decision, for each of the five projects

deferred in 2013, other than the fact that certain aspects of these projects were delayed from

2013 and then completed in 2014, the Commission finds no evidence on the record of

Proceeding 3216 to indicate that these projects were not required in 2013. In addition, the

Commission finds no evidence on the record of Proceeding 3100 to indicate that each of these

projects is not required to continue in 2014 and 2015.

114. In his evidence, Mr. Shymanski initially recommended that the Commission should not

afford capital tracker treatment to the Life Cycle Replacement and Extension of Underground

Distribution Cable Project and the Distribution Pole and Aerial Line Life Cycle Replacement

project, since EDTI deferred the expenditures on these projects for two years, from 2013 to 2015,

without adverse impacts on customer service.105 However, when EDTI clarified that it will

complete all the 2013 deferred work by the end of 2014, with some 2014 work being displaced

into 2015,106 Mr. Shymanski indicated that his recommendations on these two projects “would be

rendered moot.”107 Mr. Shymanski did not object to capital tracker treatment in 2014 for work

delayed from 2013.

115. Ms. Hull, for EDTI, provided evidence that there were four underground cable failures

associated with the 2013 deferred work resulting in approximately 32,000 customer hours of

service interruption. Ms. Hull also indicated that EDTI had a 19 times higher fault rate on the

deferred underground cable work from 2013 as compared to the rest of EDTI’s system.108 EDTI

also noted that there was a 12-hour service disruption in the two areas served by circuit N13,

which was identified for reconfiguration in 2013 as part of the New Underground Cable and

Aerial Line Reconfigurations and Extensions to Meet Customer Growth project, but deferred

from 2013 to 2014.109 EDTI did not identify any incidents of service interruption associated with

other deferred projects. However, this may be due to the fact that EDTI had prioritized its work

to deal with imminent failures:

But we picked places where we could defer some work for a short period without

substantially increasing the risk. And we set out how we did that throughout the

application. But, for example, with critical poles, or lifecycle replacement of poles, we

made sure we went out and got all the poles that were in a state of imminent failure,

where we knew these poles had to be addressed. Those poles that were in poor condition

but, from our analysis, we believed we could wait a short period of time and still get to

them prior to failure, we deferred those and are getting to them now. So that was the

approach we took across those programs. And now we're working hard to get that work

done because it is needed and there have been places, as we indicated in some of IRs,

where we had a failure of a cable that was planned for replacement in 2013 or we had a

failure on a circuit where we had intended to install a loop feed to address a radial feed

issue that resulted in a longer duration outage for customers. So there were a few places

where, because it took us longer than we anticipated to get back on the work, we saw the

impacts of that decision, but we're working to catch up on that, and then also, you know,

105

Proceeding 3100, Exhibit 97.02, UCA evidence of Mr. Shymanski, pages 4-6. 106



Transcript, Volume 2, page 304, line 18 to page 305, line 5 (Ms. Hull). 109

Proceeding 3100, Exhibit 94.01, CCA-EDTI-25(c).



provide -- shows that these -- these -- this work is needed to be completed in order to

maintain the safety and reliability of the system.110

116. Overall, the Commission finds that the “substantial capital funding shortfall under the

I-X mechanism and the uncertainty respecting the capital tracker mechanism” is not a valid

business reason for EDTI to have delayed the work planned for 2013. However, given the above

considerations, the Commission will not disqualify from capital tracker treatment the five 2013

capital tracker projects delayed, in whole or in part, because of the “substantial capital funding

shortfall under the I-X mechanism and the uncertainty respecting the capital tracker mechanism.”

With respect to the portion of these five projects completed in 2013, the Commission will

consider the prudence of the actual 2013 capital additions in the 2013 capital tracker true-up

application. In addition, the Commission will consider, for capital tracker treatment in 2014, the

portions of the five projects approved for capital tracker treatment in 2013 deferred from 2013

into 2014. The Commission will also consider the portions of the 2014 work deferred to 2015,

due to the “cascading effect” described by EDTI.111

117. When questioned by the Commission during the hearing, EDTI could not identify any

specific cost increases resulting from its decision to defer some work from 2013 into 2014 and to

defer some of the 2014 work into 2015.112 However, EDTI acknowledged that there may be such

costs:

A. MR. ELFORD: So speaking on the capital costs side, I mean, obviously there's going

to be inflation. Hourly rates for unionized workers increase year over year, but that's

offset by the fact that these capital adds are being placed into service one year later.113

118. At the time of EDTI’s 2014 and 2015 capital tracker true-up applications, the

Commission will consider the prudence of the actual costs for the five projects deferred in 2013,

including any additional net costs that could have been avoided had the projects proceeded in

2013, as planned.

119. In argument, the UCA submitted that, “if, despite EDTI’s intention, as stated in its

rebuttal evidence, to complete the 2013 carry over work in 2014, EDTI does not in fact complete

the work in 2014, it should not be approved for Capital Tracker treatment in 2015.”114 In a similar

vein, when assessing the prudency of EDTI’s future forecast and actual expenditures on

proposed capital tracker projects, the CCA proposed the Commission take into account the fact

that EDTI was able to defer some projects in 2013, albeit for a short time and “with a view to

minimizing the risk of immediate and short term adverse effects on safety, service quality and

reliability.”115 In a number of IRs dealing with the projects deferred in 2013, the Commission

queried whether a similar amount of work could also be deferred in 2014 and 2015.116

120. The Commission will examine the prudence of EDTI’s capital additions associated with

the 2014 and 2015 capital tracker projects at the time of the 2014 and 2015 capital tracker true-

110






Proceeding 3100, Exhibit 80, 2014-2015 forecast application, paragraph 22. 116

See, for example, Proceeding 3100, Exhibit 93.01, AUC-EDTI-6(c).



up application. In assessing the prudency of the 2014 and 2015 capital additions, the

Commission will consider all relevant factors, including any impact arising as a result of the

deferral of 2013 capital tracker projects. The Commission will also consider the fact that EDTI

was able to defer some projects in 2013 when assessing the forecast need and costs for capital

projects proposed for capital tracker treatment in both Proceeding 3100 and future EDTI capital

tracker forecast applications.

7 Project assessment under Criterion 1 – the project must be outside of the normal

course of the company’s ongoing operations

121. As discussed in Section 3 of this decision, consistent with paragraph 841 of Decision

2013-435, each of EDTI’s projects or programs proposed for capital tracker treatment will be

evaluated against the project assessment requirements of Criterion 1. The purpose of the project

assessment is to demonstrate that a project proposed for capital tracker treatment is (i) required

to provide utility service at adequate levels and, if so, (ii) the scope, level and timing of the

project are prudent, and the forecast or actual costs of the project are reasonable.117

122. EDTI’s applied-for capital trackers, in both the 2013 capital tracker true-up application

and the 2014-2015 capital tracker forecast application, can be broadly divided into two

categories. The first category consists of applied-for projects or programs approved for capital

tracker treatment in Decision 2013-435 for implementation in 2013. The second category

consists of projects or programs implemented in 2013, or to be implemented in 2014 or 2015 that

have not been previously approved for capital tracker treatment in Decision 2013-435

123. As also noted in Section 3, in assessing the prudence of a capital tracker program or

project that has been previously approved on a forecast basis for capital tracker treatment in 2013

and is now put forward for a true-up to actual 2013 costs, if there is no evidence on the record of

the true-up proceeding demonstrating that a project is not required, then there is no need to

demonstrate that a project is needed in order to provide utility service at adequate levels, which

constitutes the assessment of need under Criterion 1. However, the second part of the project

assessment under Criterion 1 is still required so that the Commission can be satisfied that the

scope, level and timing of each project is prudent, and the actual costs of the project were

prudently incurred.

124. With respect to projects or programs proposed for capital tracker treatment in 2014 or

2015 on a forecast basis, the applicant must satisfy all of the Commission’s requirements for the

project assessment under Criterion 1. To that end, a business case and an engineering study will

generally aid the Commission in conducting project assessments under Criterion 1. However, as

discussed in Section 3, in those 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 (e.g., relocations) that

has been previously approved by the Commission for capital tracker treatment, in the absence of

evidence that the ongoing or recurring project or program is no longer required, the Commission

will not undertake a reassessment of need under Criterion 1.

125. EDTI provided a business case together with an engineering study (where EDTI

considered either document to be applicable) for each of its projects or programs proposed for

117




capital tracker treatment in 2014 or 2015. In its business cases, as supplemented by other

evidence filed in the proceeding, EDTI has generally provided an assessment of proposed capital

tracker projects consistent with the minimum filing requirement guidelines set out in

Section 10.2 of Decision 2013-435.118

126. The Commission has evaluated the EDTI business cases, engineering studies, cost related

information, and related evidence and argument against each of the project assessment minimum

filing requirements. However, for the purposes of this decision, the Commission has commented

only on those aspects of the minimum filing requirements that the Commission considers are

insufficiently addressed by EDTI’s evidence or were otherwise raised as an issue in the

proceedings. In future capital tracker applications, EDTI should continue to provide similar

information with respect to each of the minimum filing requirements, including business cases,

engineering studies and cost related information, including costs by cost category, unit costs and

historical cost comparators, in sufficient detail to allow an evaluation of the reasonableness of its

forecasts and the prudence of its incurred costs.

127. The balance of this section is organized as follows: Section 7.1 deals with common issues

related to the project assessment of EDTI’s projects, such as assumptions in developing EDTI’s

capital expenditure forecasts; the company’s internal cost controls and accountability

mechanisms with respect to quality, safety and cost for capital projects approved for capital

tracker treatment; and the UCA’s comments on the Criterion 1 requirement that, in the absence

of the proposed capital expenditures, deterioration in service quality and safety would result. The

Commission’s project assessment under Criterion 1 of EDTI’s projects or programs previously

approved for capital tracker treatment in Decision 2013-435 is set out in Section 7.2. The project

assessment of EDTI’s projects or programs that have not been previously approved for capital

tracker treatment is set out in Section 7.3.

7.1 Common issues

7.1.1 Common assumptions in EDTI’s capital expenditure forecasts

128. In the 2014-2015 capital tracker forecast application, project estimates were generally

prepared by internal engineering and management personnel, and in some cases by external

consulting engineers with direct involvement in certain projects.

129. For labour cost forecasts, EDTI used a man-hours by employee classification basis and

applied standard rates based on available collective bargaining agreements. The 2014 and 2015

labour rates for members of the International Brotherhood of Electrical Workers (IBEW) were

derived from the collective bargaining agreement currently in place. For members of the Civic

Service Union (CSU), labour rates were estimated by applying an escalation factor to the 2013

rates because the previous collective bargaining agreement had expired and a new collective

bargaining agreement had not been finalized when EDTI submitted its application.119

130. Engineering salary costs were estimated on a man-hour basis by resource type using

standard engineering rates based on actual payroll costs. The 2014 salary costs were based on

2013 actual payroll costs and the 2015 salary costs were based on 2014 payroll costs. EDTI

explained that its 2014 salary costs were prepared in a detailed forecast in 2013. However, EDTI

118


Proceeding 3100, Exhibit 93.01, AUC-EDTI-4(a).



did not update this forecast in early 2014 given it would have required a significant amount of

time and yield little benefit. The 2015 salary cost forecast was updated in early 2014, because a

detailed forecast for 2015 had not yet been prepared.120

131. Material and contractor resources were estimated using current costs based on the scope

of work identified by the group initiating the work. EDTI also used cost information from similar

previously constructed projects, where available, in its estimates. EDTI used external resources,

such as suppliers of materials and construction contractors, to assist in developing expenditure

forecasts. For special order material not maintained in stock by EDTI, it consulted suppliers for

forecast estimates of the required materials. Construction contractors were also consulted for

forecast estimates for specialized construction services normally not carried out by EDTI’s

internal labour force.

132. EDTI indicated that its 2014 and 2015 capital expenditures were forecast in 2013 dollars

and 2014 dollars, by expense type such as union labour, engineering, materials, contractors and

vehicles. All costs were then inflated using escalation factors for 2014 and 2015. EDTI stated

that it did not engage external consultants to provide forecasts and reports in support of EDTI’s

chosen escalation factors, as was EDTI’s practice under cost-of-service regulation.

133. EDTI used the following inflation factors for its 2014 and 2015 capital tracker forecasts:

A four per cent salary escalation factor was applied for non-union staff.

A 3.2 per cent and 3.4 per cent salary escalation was applied for unionized CSU staff for

2014 and 2015, respectively. A 3.5 per cent salary escalation factor was applied for

unionized IBEW staff for both 2014 and 2015.

Employee fringe benefit rates of 42.3 per cent and 43.69 per cent were applied to all

salary and labour costs, for 2014 and 2015, respectively.

For 2014 and 2015, contractor cost inflators were 3.2 per cent and 3.4 per cent, material

cost inflators were 1.8 per cent for both years, and inflators for other costs were

2.2 per cent and 2.1 per cent, respectively.121

134. EDTI confirmed that its 2014 forecast escalation factor for non-union (salary) staff was

based on advice provided by Towers Watson in respect of the level of escalation applicable to

non-union salaries for 2014 and was consistent with the escalation factors used in its 2013-2014

transmission facility owner (TFO) tariff application, reviewed in Proceeding 2758.122 For 2015,

EDTI used the same escalation factor and the same inflation rate that it applied in its 2014

forecast. EDTI further confirmed that the labour rates for the unionized IBEW staff were subject

to a collective bargaining agreement for 2014 and 2015. EDTI also provided, for each proposed

capital tracker, the proportion of capital additions associated with CSU, IBEW and non-union

labour costs. In regard to non-union labour costs, the highest proportion of costs for a proposed

capital tracker in either 2014 or 2015 was three per cent.123

120


Proceeding 3100, Exhibit 80, application, paragraph 39. 122

Proceeding 2758, EPCOR Distribution & Transmission Inc., 2013-2014 Transmission Facility Owner Tariff

Application, Application 1609817. 123

Proceeding 3100, Exhibit 95.01, UCA-EDTI-7, Attachment 2.



135. In an IR response to the UCA, EDTI performed a sensitivity analysis, applying a

0.5 per cent reduction in all its escalation factors to calculate the applied-for 2014 and 2015

K factor amounts. EDTI explained that a 0.5 per cent reduction in all its escalation factors in

2014 would lower the K factor from $3.80 million to $3.78 million and in 2015 the K factor

would decrease from $9.43 million to $9.40 million. EDTI also confirmed that the 0.5 per cent

escalation factor reduction would not result in any of its applied-for capital tracker projects

failing to meet Criterion 3.124

136. After inflating all costs, EDTI applied employee fringe benefits to all salary and labour

costs using the fringe benefit rates of 42.3 per cent and 43.69 per cent for 2014 and 2015. EDTI

also noted that the 2012 actual and 2013 preliminary actual fringe benefit rates were 41.3 and

41.1 per cent, respectively. EDTI explained that the increase in employee benefit costs, as a

percentage of base compensation, from the 2011 actual amount of 37.8 per cent to the 2014 and

2015 forecast amounts was primarily due to an increase in contribution rates for the Local

Authorities Pension Plan (LAPP). Contribution rates for the LAPP are determined by the LAPP

administrator and not under EDTI’s control.125 EDTI based its 2015 forecast LAPP contribution

rate on an average of the 2011 to 2013 annual contribution rate increase. EDTI provided a table

comparing the historical actual and forecast fringe benefit rates from 2008 to 2015.126

137. Further contributing to the increase in fringe benefit rates is the change to the EDTI

Management Savings Plan (MSP). EDTI indicated that as of July 2012, the maximum amount of

employer matching under the MSP increased from three per cent to five per cent.127

138. EDTI used a capital overhead rate forecast of six per cent for both 2014 and 2015. The

same overheard rate was used for both 2014 and 2015 because EDTI had not completed its

operating budget for 2015 at the time of this application.128

139. In certain cases, EDTI relied on its computerized Work Management System (WMS) to

develop capital project forecasts by breaking down the forecast work into its basic construction

components. The basic construction components include defining the capital project design,

reviewing the practicality of the proposed capital or maintenance work and the various work

components (labour, materials, vehicles, contractors). The WMS then produces cost expenditure

forecasts and man-hour forecasts by the labour class required to carry out the work. EDTI’s

operations, engineering and management personnel also review standard tasks and estimates of

man hours by task type to ensure the reasonableness of the forecast and to reflect any changes in

resource requirements resulting from changes in safety or construction standards, changes to

crew complements or other factors impacting the estimates.

140. For other types of work that could not be broken down into construction components

because of insufficient information, EDTI provided the other forecasting methods used, such as a

three-year normalized average. EDTI also applied a project-specific estimation process for

known tasks that were not easily broken down into standard tasks, and for tasks that are not

considered standard due to the uniqueness or specificity of the work. EDTI stated that for

projects not easily broken down into standard tasks for processing through the WMS, estimates

124

Proceeding 3100, Exhibit 95.01, UCA-EDTI-7(d). 125

Proceeding 3100, Exhibit 93.01, AUC-EDTI-04(b). 126



Proceeding 3100, Exhibit 80, application, paragraph 39.



were based on preliminary engineering designs and the project scope described in the business

cases. Cost data from previous jobs of a similar nature was also used to validate any forecast

estimates.

141. In an IR response to the Commission, EDTI explained that under PBR, there exists an

incentive for EDTI to minimize these costs regardless of the fact that capitalized expenditures

associated with approved capital trackers are trued-up. Specifically, EDTI stated the assumptions

for inflation, fringe and overhead costs are applied to both capital tracker forecast costs and

operating costs, the latter of which are subject to the I-X mechanism. EDTI explained that it,

therefore, has an incentive to minimize these costs so the operating costs are fully recovered

under the I-X mechanism and so that potential cost savings are realized under PBR.129

142. EDTI also acknowledged that the true-up of approved capital tracker costs are subject to

a prudency review by the Commission. EDTI submitted that it expects “rigorous scrutiny” of its

costs and the prudency review further provides an incentive for EDTI to minimize its standard

costs as much as possible.130

Commission findings

143. The Commission recognizes that a portion of EDTI’s labour and salary costs are based on

the negotiated results of collective bargaining agreements between EDTI and employee unions.

Furthermore, where no collective bargaining agreement was in place for 2014 and 2015, EDTI

indicated that it used previous agreement amounts to determine its forecasts. The Commission

notes that the unionized CSU staff escalation rates of 3.2 and 3.4 per cent for 2014 and 2015,

respectively, are consistent with the 3.5 per cent escalator in 2013 and 3.2 per cent escalator in

2014 approved by the Commission in EDTI’s 2013 and 2014 TFO tariff Decision 2014-269.131

Furthermore, the 2014 and 2015 unionized IBEW staff escalation rate of 3.5 per cent is

consistent with the 3.5 per cent rate approved by the Commission in Decision 2014-269 for

2014.132

144. Accordingly, the Commission finds the IBEW union escalation rates established through

the collective bargaining processes to be reasonable for the purposes of determining the labour

cost associated with proposed capital tracker expenditures. The Commission finds the escalation

rates used by EDTI in relation to the CSU, in the absence of a finalized collective bargaining

agreement, to be consistent with past agreements and Commission decisions. Accordingly the

Commission finds these escalation rates to be reasonable.

145. EDTI applied for a 4.0 per cent escalation factor for the non-union (salary) employees for

2014 and 2015. The Commission notes that this is the same escalation factor EDTI proposed in

its 2013-2014 TFO Tariff application for 2014. In Decision 2014-269, the Commission found

that a 2014 escalation factor of 3.5 per cent for non-union employees would allow EDTI to

remain market competitive.133

129

Proceeding 3100, Exhibit 93.01, AUC-EDTI-4(c). 130


Decision 2014-269: EPCOR Distribution & Transmission Inc., 2013 and 2014 Transmission Facility Owner

Tariff, Application No. 1609817, Proceeding No. 2758, September 18, 2014, paragraph 160. 132


Decision 2014-269, paragraphs 169 and 170.




146. The Commission notes that under PBR, the non-union salary costs are common to

forecasting both O&M salary expenses and capital expenditures for projects that are fully funded

under the I-X mechanism and those that require incremental funding through capital trackers.

Given that these salary costs are common costs, the Commission recognizes there remains an

incentive for EDTI to minimize these costs in order to realize potential cost savings under PBR.

147. The Commission further acknowledges that the impact of the difference in non-union

salary cost escalators between the 4.0 per cent applied for in this application and the 3.5 per cent

approved in Decision 2014-269 is likely not significant on a forecast basis for capital tracker

expenditures, given the sensitivity analysis performed by EDTI on all its escalation factors in

UCA-EDTI-7(d).134 In addition, the Commission notes that there would likely be substantial time

and effort involved in EDTI recalculating all its 2014-2015 forecast capital tracker expenditures

to account for the 0.5 per cent difference in non-union salary escalators. The Commission finds

that regulatory efficiency is best served in this case, recognizing there is a true-up mechanism

and considering the likely minimal impact of the 0.5 per cent change in salary escalation, by not

requiring EDTI to recalculate all the capital tracker costs with a reduced salary escalator. Neither

the UCA nor the CCA objected to EDTI’s salary escalators for 2014 or 2015.

148. The Commission does recognize that Decision 2014-269 reduced EDTI’s salary

escalation factor from 4.0 per cent to 3.5 per cent. However, the Commission is cognizant of the

differences in purpose between this decision and Decision 2014-269. The purpose of

Decision 2014-269 was to set rates for the transmission function of EDTI on a forecast basis,

whereas the purpose of this decision is to establish forecast capital tracker amounts as part of a

PBR plan for EDTI’s distribution function. Unlike EDTI’s TFO tariff approved revenue

requirement, the 2014-2015 capital tracker forecasts approved in this application are subject to a

full true-up following a prudency review of actual capital expenditures. Given the different

purposes between the two applications, for the purposes of this decision, the Commission finds

that it is not necessary to ensure that all factors used by EDTI in forecasting capital expenditures

are the same for both the transmission and distribution functions.

7.1.2 Controls and accountability

149. During the hearing, EDTI was questioned by Commission counsel on its internal controls

and accountability mechanisms with respect to quality, safety and cost for capital projects

approved for capital tracker treatment, and whether these controls and mechanisms were any

different than the measures put in place for capital projects that have not been extended capital

tracker treatment. EDTI reviewed its internal control procedures and confirmed that there are no

differences in how these procedures are applied among its capital project, apart from the

difference in the process of filing capital trackers. EDTI also discussed its cost overrun review

process and confirmed that the review of cost overruns is not treated any differently among its

capital projects as between capital tracker projects and capital projects that have not been

extended capital tracker treatment.135

150. With respect to the accountability of project managers, directors and related EDTI

executives, EDTI confirmed that the performance and compensation of such individuals is, in

134

Proceeding 3100, Exhibit 95.01, UCA-EDTI-7(d). 135




part, measured against the capital program plan and the cost control performance objectives for

the capital projects they manage directly or indirectly.136

Commission findings

151. PBR encourages a company to seek out and realize cost reductions continually with

respect to those functions and activities funded under the I-X mechanism in order to enhance

overall profitability. These activities will in turn benefit ratepayers immediately through the X

factor and over the longer term through lower costs than might otherwise be the case thereby

keeping rates lower than they might be otherwise. Capital projects funded through capital tracker

treatment with a true-up to actual costs are not, however, subject to these same, high powered,

incentives. Accordingly, the Commission requires sufficient information in capital tracker

forecast and true-up applications on the proposed capital tracker projects themselves, as well as

the processes in place to manage those projects, in order to confirm the need for the project in the

manner that is proposed, and to ensure the prudence of the costs incurred.

152. The Commission considers that formal project management policies and procedures are

necessary to ensure the Commission understands that the scope, level, timing and costs of

forecast capital projects are reasonable and actual costs are prudently incurred. The Commission

directs EDTI to describe fully its formal project management policies and procedures in its next

capital tracker application.

7.1.3 Requirement that in the absence of the proposed capital expenditures,

deterioration in service quality and safety would result

153. In Decision 2012-237, the Commission stated the following regarding the first capital

tracker criterion:

594. … This criterion is also required to ensure that capital tracker projects are of

sufficient importance that the company’s ability to provide utility service at adequate

levels would be compromised if the expenditures are not undertaken. Projects that do not

carry this level of importance are likely subject to a reasonable level of management

discretion, therefore allowing special treatment for this type of capital would eliminate

the incentive for the company to examine all alternatives. Therefore, this criterion would

require that an engineering study be filed to justify the level of capital expenditures being

proposed. That is, the company must demonstrate that the capital expenditures are

required to prevent deterioration in service quality and safety, and that service quality and

safety cannot be maintained by continuing with O&M and capital spending at levels that

are not substantially different from historical levels...137 [footnote omitted]

154. In Decision 2013-435, the Commission further elaborated on Criterion 1 requirements

and determined that for the purpose of the project assessment, in support of a project or program

proposed for capital tracker treatment, a company should provide, among other requirements:

1092. …

c. Evidence demonstrating that in the absence of the proposed capital expenditures,

deterioration in service quality and safety would result.138

136



Decision 2013-435, paragraph 1092 c.



155. In its argument, the UCA explained its interpretation of this requirement as:

Evidence demonstrating that in absence of the capital expenditures associated with a

proposed capital tracker project for a given year, deterioration in service quality and

safety would result in that year.139 [emphasis added]

156. According to the UCA, the fact that service quality may be impacted at some

indeterminate time in the future does not constitute a basis for affording capital tracker treatment.

Therefore, the UCA argued:

In the UCA’s view, if the projects are of a sufficient level of importance to satisfy the

capital tracker criteria, they are truly required in the year applied for, and must be

completed in that year absent some extraordinary event. Capital Tracker Applications are

made for particular years, and in the UCA’s view, it is logical that the Commission

intended that the criteria must be met with respect to the years for which Capital Tracker

treatment is sought.140

157. In its argument, EDTI explained that “the relationship between undertaking the capital

program and the impact to service quality is broader than the direct and immediate impact of the

program.”141 During the hearing, Mr. Elford explained:

In the case of other capital trackers, the impact can show over time. And so things like

lifecycle replacement of underground cables. We've studied it and we know that if we

don't deal with a certain amount of cable on average on a year-over-year basis, our

reliability will deteriorate over time.

And to hold off on that and simply run things to failure is going to degrade reliability and

make the problem worse and worse over time. And we don't have just-in-time

replacement. We select the worst assets on our systems to deal with on a year-over-year

basis to maintain reliability, but we can't -- we can't always say this cable will fail on

September 5th of 2014 so we should change it on September 4th of 2014 in order to

maintain reliability. These are ongoing programs based on the age and the condition of

our system that we have to continue to do or reliability will degrade.142

158. EDTI further explained its aversion to the “just in time” approach to life-cycle

replacements and noted that as a company falls further behind on a replacement program, it

becomes more difficult to catch up and replace the aged assets. EDTI stated that the “just in

time” approach “would result in the deterioration of its service reliability and safety in both a

gradual degradation of its reliability statistics, as well as the possibility for sudden drops.”143 As

an example of these “sudden drops,” EDTI highlighted that a temporary delay in Life-Cycle

Replacement programs in 2013 resulted in 32,000 hours of customer interruption due to

underground cable failures and another 12 hours of customer interruption due to an outage on the

N13 circuit.144

139






Proceeding 3100, Exhibit 93.01, AUC-EDTI-10(c). Transcript, Volume 2, page 304, line 18 to page 305, line 5

(Ms. Hull). Proceeding 3100, Exhibit 94.01, CCA-EDTI-25(c).



159. In its reply argument, EDTI further elaborated on the UCA’s proposal:

EDTI also submits that whether measurable deterioration in safety and reliability would

occur within the particular year is not meaningful. EDTI’s evidence demonstrates that

failure to do the work will inevitably result in deterioration in safety and reliability, and

dealing with the problem at a later time (e.g., using a “just in time” or “run to failure”

approach) will simply place EDTI and customers at substantially increased ongoing risk

from a safety and reliability perspective, and it will cost customers more in the end than

dealing with the problem on a sensible, prudent, proactive basis as EDTI has done in the

past and proposes to continue to do under PBR.145

Commission findings

160. The Commission does not agree that the requirement under Criterion 1 specified in

paragraph 1092 c. of Decision 2013-435 should be interpreted so as to require the company to

provide evidence demonstrating that, in absence of the capital expenditures associated with a

proposed capital tracker project “for a given year,” deterioration in service quality and safety

would result “in that year,” as recommended by the UCA.146 For the reasons below, the

Commission considers that the UCA’s interpretation is too restrictive in the circumstances of

most capital replacement and upgrade programs intended to maintain system reliability and

safety.

161. EDTI submitted “the relationship between undertaking the capital program and the

impact to service quality is broader than the direct and immediate impact of the program.”147

Capital projects typically involve the construction of long-lived assets, which provide service to

customers for many years. As such, requiring the company to demonstrate that, in absence of the

capital expenditures for a capital tracker project, deterioration in service quality and safety would

result “in that year” does not comport, in most instances, with the long-lived nature of capital

assets. The Commission agrees with Mr. Elford that, while there might not be a direct and

immediate impact to not completing the project in a specific year, not proceeding with the

project will result in a deterioration in reliability over time.148

162. Furthermore, a requirement that deterioration in service quality and safety would result

“in that year” may prevent the company from selecting the best course of action, including the

best timing, to achieve the least cost alternative for a particular capital tracker project. As a

result, the company is charged with presenting compelling evidence that the scope, level, and

timing of the proposed capital tracker program is prudent and that the forecast costs are

reasonable in that year to maintain system reliability and safety to prevent deterioration in system

reliability and safety, either in that year or over time.

7.2 Previously approved capital tracker projects or programs

163. This section deals with EDTI’s projects or programs that were approved for capital

tracker treatment on a forecast basis in Decision 2013-435. It considers these projects or

programs in the context of the true-up of 2013 actual expenditures and, if they are proposed to

continue in 2014 and 2015, this section also considers the 2014 and 2015 forecasts.

145







7.2.1 Third-party Driven Relocations

164. EDTI explained that this capital tracker program is composed of individual projects that

involve the relocation of existing distribution facilities as required by third parties, such as the

City of Edmonton (City) under the terms of EDTI’s franchise agreement with the City. The

grouping of Third-party Driven Relocations under a single program was directed and approved

by the Commission in Decision 2013-435.149

165. The four Third-party Driven Relocation projects included in the 2013 capital tracker true-

up application consist of the Southeast and West LRT Distribution System Relocations,

Franchise Agreement Driven Relocations and Conversions, the Queen Elizabeth II (QEII) and 41

Avenue Interchange Distribution System Relocations, and the North LRT Distribution System

Relocations. In the 2014-2015 capital tracker forecast application, a fifth project was added to

this program, the Walterdale Bridge Replacement Distribution System Franchise Relocation.

166. EDTI explained that all projects within this program are required to meet the terms of its

franchise agreement with the City of Edmonton and to comply with its obligations under

sections 105 and 127 of the Electric Utilities Act.150 EDTI indicated that the franchise agreement

provides that EDTI must relocate its distribution facilities and perform any other work respecting

its distribution facilities as may be required by the City to accommodate any relocation,

installation, modification, repair, construction, upgrading or removal of City facilities.

167. Table 4 below shows EDTI’s approved forecast and actual costs of the four projects

comprising this program in 2013.

Table 4. Actual and approved capital additions for Third-party Driven Relocations projects ($ million)151

Project 2013

approved 2013

actual Variance

Southeast and West LRT Distribution System Relocation 3.99 5.22 1.23

Franchise Agreement Driven Relocations and Conversions 5.04 3.25 (1.79)

QEII and 41 Avenue Interchange Distribution System Relocations 2.00 2.50 0.50

North LRT Distribution System Relocations -- -- --

Program Total 11.03 10.97 (0.06)

168. The Southeast and West LRT Distribution System Relocation project involved the

relocation of EDTI’s distribution infrastructure at the direction of the City of Edmonton, in

connection with the City’s transportation plan to extend the LRT route from southeast to west

Edmonton via downtown. EDTI explained that its 2013 forecast was based on the City’s

preliminary design for this project. Throughout 2013, the City continued to refine the LRT

extension design and progressed to the 90 per cent design stage. This refinement resulted in

several changes to the LRT route alignment, for example, the location of the downtown

terminus, 75 Street route alignment changes, and changes to the elevated LRT structure crossing

Argyll Road, Coronet Road and the CPR tracks along 75 Street. These changes to the LRT route

149



Proceeding 3216, Exhibit 1, 2013 true-up application, paragraphs 50, 91, 124 and 154.



alignment resulted in EDTI’s 2013 actual capital additions for this project being $1.23 million

higher than the 2013 approved amount, as shown in Table 4.152

169. Under the Franchise Agreement Driven Relocations and Conversions project, EDTI

removes and relocates its distribution facilities that are in conflict with the City’s road-widening

or other types of construction, and development or municipal infrastructure improvement plans,

not included in any other major projects of the Third-party Driven Relocations program. The

level of capital expenditures for the Franchise Agreement Driven Relocations and Conversions

project is driven by the number and complexity of relocations and conversions required by the

City.

170. EDTI explained that its 2013 forecast capital additions for this project were based on the

City of Edmonton’s Implementation Plan of the Transportation Master Plan, which identified the

major roadway widening and relocation projects the City expected to proceed with in 2013

through 2014. EDTI indicated that its 2013 actual capital additions for this project were

$1.79 million lower than the 2013 approved amount due to a lower number of City-mandated

franchise projects than was contemplated in EDTI’s 2013 forecast.153

171. The QEII and 41 Avenue Interchange Distribution System Relocations project consisted

of the relocation of EDTI’s distribution infrastructure that was in conflict with the City’s

construction plans for a partial cloverleaf interchange at QE II Highway and 41 Avenue SW in

Edmonton. The City directed EDTI to complete its distribution infrastructure relocations in 2013

to facilitate the planned timing of the construction of the interchange. In 2013, EDTI completed

the vast majority of the work associated with this project and placed it into service. The project

continued into 2014.

172. As shown in Table 4, EDTI’s 2013 actual capital additions for this project were

$0.50 million higher than the 2013 approved amount. The $0.50 million increase was primarily

driven by revisions to the project scope with respect to the crossing of the railway and pipeline

corridor adjacent to the highway:

EDTI’s 2013 PBR Capital Tracker Application for this project was based on EDTI’s

expectation that EDTI would be able to directionally drill from the west side of the QEII

Highway in order to relocate its distribution feeder under the QEII Highway interchange,

and then connect the new cable to an existing cable on the east side of the highway at a

point before that cable ran under an adjacent railway and pipeline corridor. On December

14, 2012, subsequent to EDTI submitting its 2013 PBR Capital Tracker Application,

CH2M Hill, Alberta Transportation’s engineering and project management consultant,

informed EDTI that EDTI could not use the existing cable crossing under the railway and

pipeline corridor as the pipelines within the corridor were not deep enough based on the

most up to date interchange design and needed to be lowered. As such, EDTI’s existing

cable crossing location was in conflict with the newly proposed pipeline depths and

therefore could not be used as originally contemplated. EDTI was required to complete

two separate directional drills and install a longer length of cable.154

152

Proceeding 3216, Exhibit 1, 2013 true-up application, paragraphs 85-87. 153


Proceeding 3216, Exhibit 1, 2013 true-up application, paragraph 122.



173. The North LRT Distribution System Relocations project was completed in 2011 and

involved the relocation of both aerial and underground power facilities that were in conflict with

the planned route for North LRT extension. This project was included in the Third-party Driven

Relocations program as a negative K factor project, pursuant to the Commission’s direction in

Decision 2013-435. As such, there were no forecast capital additions associated with this project

in 2013 and, therefore, EDTI did not provide a business case for this project.

174. In the 2014-2015 capital tracker forecast application, EDTI applied for continuation of

capital tracker treatment for the Third-party Driven Relocations program. As noted earlier in this

section, in addition to the four projects continued from 2013, EDTI applied for capital tracker

treatment for the Walterdale Bridge Replacement Distribution System Franchise Relocation

project. Table 5 below presents forecast capital additions associated with this program in 2014

and 2015.

Table 5. 2014-2015 forecast capital additions for Third-party Driven Relocations projects ($ million)155

Project name Business case

(Proceeding 3100) 2014

forecast 2015

forecast

Southeast LRT Distribution System Relocation Appendix A-1-1 21.58 18.02

Franchise Agreement Driven Relocations and Conversions Appendix A-1-2 3.64 3.77

Walterdale Bridge Replacement Distribution System Franchise Appendix A-1-3 0.45 4.22

QEII and 41 Avenue Interchange Distribution System Relocations -- 0.13 0.00

North LRT Distribution System Relocations -- -- --

Program Total 25.80 26.01

175. EDTI indicated that its forecast for the Southeast LRT Distribution System Relocation

project is based on the City’s 90 per cent preliminary design package issued to EDTI in

January 2013, extensive dialogue with the City and the City’s LRT design and utility relocations

consultant, Connect Ed Transit Partnership (CETP), and EDTI’s ongoing review of design and

scope changes and related project updates provided by the City and CETP. On January 22, 2014,

EDTI was advised at a utility coordination meeting with CETP that it has until the end of 2015 to

complete its distribution infrastructure relocations for the Southeast LRT route. This work was

previously scheduled for the end of 2014.

176. Also, at the January 22, 2014 utility coordination meeting, EDTI was advised that the

City will not require utility companies to begin any relocations for the West LRT expansion

route at this time. As such, EDTI does not plan to carry out any preliminary engineering work on

the West LRT extension in 2014 and 2015 as previously planned, and has removed the work

relating to the West LRT system expansion from the scope of work originally included in the

2013 forecast application. Further work will be required by 2016 to accommodate the West route

and by 2017 to accommodate construction in the downtown core.

177. Finally, because the Southeast LRT design has not been finalized, EDTI noted that as the

City of Edmonton plans continue to evolve, additional utility work can be expected to be

identified and, as a result, the 2014-2015 forecast costs shown in Table 5 are likely conservative.

EDTI indicated it continues to work closely with the City and its design and utility relocation

consultant to minimize the number and extent of the distribution facility relocations where

155

Proceeding 3100, Exhibit 93.02, AUC-EDTI-01 Attachment 1, revised Table 2.3-1.



possible, and to identify and implement the least cost alternative for addressing each conflict that

cannot be avoided.156

178. With respect to the Franchise Agreement Driven Relocations and Conversions project

forecast expenditures, EDTI advised that its forecast is composed of both specific, known

projects that the City has identified at the time and other relatively small, and recurring capital

projects that EDTI must undertake each year under the terms of its Franchise Agreement with the

City. At the time of filing the 2014-2015 capital tracker forecast application, the City did not

forecast any major projects for 2015. Therefore, EDTI’s forecast capital additions for 2015 for

this project were based on an expectation, informed by its ongoing discussions with the City, of a

similar overall volume of franchise work in 2015 compared to the forecast total demand for

franchise work in 2014 and the preliminary actual demand in 2013.157

179. The Walterdale Bridge Replacement Distribution System Franchise project is the result

of the City’s plan to replace the old bridge with a new one. The City of Edmonton has directed

that EDTI’s distribution infrastructure relocations be completed for the new bridge alignment by

the end of 2015 to facilitate the removal of the old Walterdale Bridge.158 Originally, the City had

stated its preference that no utilities would be located on the new Walterdale bridge, but EDTI

advised the City that if it were not allowed to relocate its existing infrastructure to the new

bridge, the cost of running distribution across the river would be “far higher.”159 The City agreed

to allow EDTI to use the bridge for the relocation of its facilities, allowing EDTI to select the

least cost alternative.

180. As noted earlier in this section, EDTI completed the vast majority of the work associated

with the QEII and 41 Avenue Interchange Distribution System Relocations project and placed it

into service in 2013. However, EDTI was not able to complete the removal of a portion of its

aerial pole and line distribution infrastructure and associated landscape restoration work by the

end of 2013. EDTI now plans to complete the remaining work in 2014 at a forecast cost of $0.13

million.160

181. As also explained earlier in this section, the North LRT Distribution System Relocations

project was completed in 2011 and was included in the Third-party Driven Relocations program

as a negative K factor project, pursuant to the Commission’s direction in Decision 2013-435. As

such, there are no forecast capital additions associated with this project in 2014-2015. In his

evidence, Mr. Shymanski, for the UCA, indicated that he did not agree with EDTI’s proposed

treatment of the North LRT project.161 The Commission considered Mr. Shymanski’s concern in

Section 5 of this decision dealing with project grouping.

182. EDTI indicated that none of the capital projects included in the third party driven

relocations program could have been undertaken in the past as part of a prudent capital

maintenance and replacement program. This is because the need to relocate EDTI’s distribution

system arises as City infrastructure must be expanded, moved or otherwise modified. As such, by

156

Proceeding 3100, Exhibit 1, Appendix A-1-1, paragraphs 10-11. 157



Proceeding 3100, Exhibit 17, Appendix A-1-3, paragraph 15. 160


Proceeding 3100, Exhibit 97.02, UCA evidence of Mr. Shymanski, paragraphs 58-65.



their nature, these projects are not associated with activities that could have been included in any

reasonable or prudent way in a capital maintenance program implemented in previous years.

183. In its business cases, EDTI explained that it takes a number of specific steps to minimize

project costs, including coordination with other projects, purchases of materials and hiring of

contractors based on competitive bids, limiting inventory variations in materials, and project

assessment to determine the minimum level of equipment required.162

Commission findings

184. In Decision 2013-435, the Commission determined that each of the projects comprising

the Third-party Driven Relocations program was required to maintain service reliability and

safety at adequate levels in 2013. Further, the Commission determined that the scope, level,

timing and forecast costs for each of the projects comprising this program were reasonable as

proposed for 2013. Accordingly, the Commission found that this program satisfied the project

assessment requirement of Criterion 1.163

185. With respect to the true-up of 2013 actual costs, as noted in Section 3, if there is no

evidence on the record of the true-up proceeding demonstrating that a project is not required,

then there is no need to demonstrate that a project is needed in order to provide utility service at

adequate levels, which constitutes the assessment of need under Criterion 1. The Commission

finds no evidence on the record of Proceeding 3216 to indicate that the Third-party Driven

Relocations program was not required in 2013.

186. Regarding the scope, level and timing of the Third-party Driven Relocations program

carried out in 2013, the Commission has reviewed EDTI’s aggregate 2013 actual capital

additions of $3.17 million associated with this program and finds that they are generally

consistent with the scope, level and timing of the work outlined in the business case for this

capital tracker and approved in Decision 2013-435. Where actual project costs significantly

differ from the approved forecast (as in the case of Southeast and West LRT Distribution System

Relocation project and the Franchise Agreement Driven Relocations and Conversions project),

the Commission accepts EDTI’s explanations that these differences were primarily driven by the

changes to the scope, level and timing of the work, reflecting the evolution and refinement of the

City of Edmonton’s infrastructure improvement plans. The Commission has also reviewed the

costs of the actual capital additions for each project comprising this capital tracker program in

light of the evidence supporting these costs, the associated procurement and construction

practices and the evidence explaining the differences between approved forecast and actual costs,

and finds the actual costs to be prudent.

187. EDTI requested to continue capital tracker treatment for the Third-party Driven

Relocations program in 2014 and 2015, including continuation of the four projects approved for

2013. As noted in Section 3, 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 that has been previously

approved by the Commission for capital tracker treatment, in the absence of evidence that the

ongoing or recurring project or program is no longer required, the Commission will not

162

Proceeding 3100, Exhibit 17, Appendix A-1-3, paragraph 32. Proceeding 3100, Exhibit 16, Appendix A-1-2,

paragraph 29. Proceeding 3100, Exhibit 1, Appendix A-1-1, paragraph 100. Proceeding 3100, Exhibit 71,

Appendix H, paragraph 32. 163

Decision 2013-435, pages 176-178 and 186.



undertake a reassessment of need under Criterion 1. However, the second part of the project

assessment under Criterion 1 is still required so that the Commission can be satisfied that the

scope, level and timing of each project are prudent, and the forecast costs of the project are

reasonable.

188. The Commission finds no evidence on the record of Proceeding 3100 to indicate that the

four continuing Third-party Driven Relocations projects are not required to continue in 2014 or

2015. In this regard, the Commission notes that during the hearing, Mr. Shymanski supported

capital tracker treatment for this project “because if we don't do those projects there will be a

deterioration of service.”164

189. In addition to the four projects continued from 2013, EDTI applied for capital tracker

treatment for the new Walterdale Bridge Replacement Distribution System Franchise Relocation

project. The Commission has reviewed the business case and engineering study for the

Walterdale Bridge Replacement Distribution System Franchise Relocation project and accepts

the evidence of EDTI that this project is required to satisfy EDTI’s franchise agreement with the

City of Edmonton and, accordingly, the engineering need for this project has been justified. In

addition, the Commission finds this project to be of a similar nature to other projects comprising

EDTI’s Third-party Driven Relocations program, previously approved by the Commission for

capital tracker treatment.

190. With respect to the scope, level and timing of this program for 2014 and 2015, the

Commission has reviewed the business case and the relevant portions of the record for each

project comprising this program and finds the forecast scope, level and timing of the project for

2014 and 2015 to be reasonable. The Commission is satisfied that EDTI’s forecasts for the

Third-party Driven Relocations program are based on a discussion with the City of Edmonton

and its engineering consultants and EDTI’s ongoing review of design and scope changes and

related project updates provided by the City.

191. EDTI’s forecast capital additions associated with this program are $25.80 million in 2014

and $26.01 million in 2015. The Commission has reviewed the cost calculations provided in

Section 3.3 of the business cases, and acknowledges that in its business cases, EDTI identified

the steps that it will take to minimize the costs for the project and, accordingly, finds the costs

proposed by EDTI to be reasonable. The Commission has reviewed the information supporting

EDTI’s forecasts for each project comprising this program and finds the total annual cost

forecast to be reasonable.

192. Given the above, the Commission finds that the information provided by EDTI supports a

finding that the scope, level, timing and forecast costs for the Third-party Driven Relocations

program are reasonable as proposed for 2014 and 2015. Accordingly, the Commission finds that

this program satisfies the project assessment requirement of Criterion 1 for 2014 and 2015.

7.2.2 IT-related projects

193. This program consists of three IT-related projects: Work Management System (WMS)

Upgrades project, Interval Meter Data Collection and Processing System Replacement (MDCPS)

164

Transcript, Volume 5, page 797, lines 11-14 (Mr. Shymanski).



project, and Regulated Default Supply (RDS) project. The grouping of IT-related projects under

a single program was directed and approved by the Commission in Decision 2013-435.165

194. The purpose of the WMS upgrades project is to upgrade EDTI’s WMS, referred to as

“IVARA,” to a vendor-supported and Windows 7 compatible version, and to address certain

limitations present in EDTI’s IVARA system. The IVARA system enhancements life cycle

replacement project was expected to be completed in 2014.166

195. The MDCPS project consists of replacing EDTI’s current MDCPS with a new data

collection engine that will comply with pending revisions to Measurement Canada’s

requirements. Measurement Canada has announced that it intends to implement new

specifications for the installation and utilization of electricity meters and their use in establishing

“processed legal units of measurement.”167

196. The RDS project was approved in Decision 2006-054, and consisted of the development

of a meter data management, load settlement, distribution tariff billing and invoicing system to

enable EDTI to comply with the requirements of Section 9(1)(a) of the Regulated Default Supply

Regulation and the Commission’s AUC Rule 004: Alberta Tariff Billing Code Rules. This project

was included in the IT-related capital tracker program as a negative K factor project, pursuant to

the Commission’s direction in Decision 2013-435.168

197. In Decision 2013-435, the Commission approved forecast capital additions for this

project in the amount of $2.23 million for 2013.169 EDTI’s actual 2013 capital additions for this

project were $0.41 million, a variance of negative $1.82 million.170 As a result, the IT-related

program was fully funded under the I-X mechanism in 2013. Therefore, consistent with the

Commission’s direction in paragraph 506 of Decision 2013-435, as part of the 2013 capital

tracker true-up, EDTI proposed to refund the entire portion of the K factor adjustment approved

by the Commission in Decision 2013-435 in respect of this project.171

198. EDTI explained that this decrease was primarily due to EDTI’s decision to delay the

MDCPS Replacement project, given the uncertainty surrounding the capital tracker mechanism

in 2013. EDTI further stated that although the project “was necessary and urgently required,

Measurement Canada’s delay in finalizing a timeline for this project enabled EDTI to delay the

project for a short period without jeopardizing EDTI’s ability to comply with Measurement

Canada’s requirements.”172 EDTI expected to complete this project in 2014.

199. In the 2014-2015 capital tracker forecast application, EDTI had originally requested to

continue capital tracker treatment for this project in 2014 and 2015. However, EDTI indicated in

response to AUC-EDTI-1 that, as a result of corrections made to the application, the IT-related

165





Decision 2013-435, Table 21 on page 174. 170


Proceeding 3216, Exhibit 1, 2013 true-up application, paragraph 160. 172


http://www.auc.ab.ca/acts-regulations-and-auc-rules/rules/Documents/Rule004.pdf



program no longer met the Commission’s first tier materiality threshold in 2014 or 2015. As

such, EDTI is no longer requesting capital tracker treatment for this program.173

Commission findings

200. The Commission accepts EDTI’s withdrawal of this program from capital tracker

treatment in EDTI’s 2013 capital tracker true-up and 2014-2015 capital tracker forecast

applications.

201. As a result of delaying the MDCPS project, the group of IT-related projects was fully

funded under the I-X mechanism in 2013, with the result that EDTI proposed to refund the entire

portion of the K factor adjustment approved by the Commission in Decision 2013-435 for this

program on a forecast basis. The Commission agrees that this proposal is consistent with its

determinations at paragraph 506 of Decision 2013-435. Capital tracker treatment for this

program is discontinued.

202. In order to receive capital tracker treatment for this program in subsequent PBR years,

the company will be required to reapply for capital tracker treatment, demonstrating that all three

capital tracker criteria have been met.

7.2.3 Distribution Contributions to Transmission Assets

203. This program is composed of contributions made by EDTI’s distribution function to its

transmission function for the construction of new transmission facilities, pursuant to the Alberta

Electric System Operator’s (AESO’s) customer contribution policies, as approved from time-to-

time by the Commission.174 This program is made up of four individual projects: Poundmaker

Contributions (East Industrial 2007-2008), Summerside Substation Contribution, Clover Bar

New Point of Delivery (POD) addition contribution, and East Industrial Contribution. The

grouping of distribution contributions to transmission assets projects under a single program was

directed and approved by the Commission in Decision 2013-435.175

204. The Poundmaker Contributions project was completed and is composed of EDTI’s

distribution function’s customer contribution to its transmission function in respect of a new

POD at EDTI’s Poundmaker transmission substation in south Edmonton.

205. As explained in Decision 2013-435, the Poundmaker Contributions project is an example

of EDTI’s “Category 3 projects” that require capital tracker treatment because the application of

the mid-year convention in the calculation of the company’s 2012 going-in year return and

depreciation is one of the factors that causes the shortfall in capital funding under the PBR

formula. As such, even though there were no capital additions forecast for the Poundmaker

Contributions project in 2013, the Commission afforded capital tracker treatment for this project

in 2013 because of the shortfall in capital funding under the PBR formula.176

206. The Poundmaker Contributions project was approved by the Commission in Decision

2012-272, with the customer contribution amount of $16.36 million based on the AESO’s

Customer Contribution Decision (CCD) issued May 26, 2010, and on the contribution policy in

173

Proceeding 3100, Exhibit 93.01, AUC-EDTI-1(a), page 9. 174



Decision 2013-435, paragraphs 928, 931 and 934.



the AESO’s 2007 ISO tariff application. On August 14, 2012, the AESO issued a new CCD for

this project and revised the customer contribution amount to $14.17 million, which was

calculated using the contribution policy in the AESO’s 2010 ISO tariff application. EDTI’s 2012

actual Poundmaker customer contribution reflected the $14.17 million amount.

207. On June 6, 2013, EDTI received a third CCD from the AESO that reflected a further

revised customer contribution amount of $11.99 million, which was calculated using EDTI’s

actual costs to complete the new POD and the contribution policy in the AESO’s 2010 ISO tariff

application. As a result of this CCD, EDTI removed in the true-up proceeding $2.17 million from

its rate base, which was related to the Poundmaker customer contribution in 2013 and was

calculated as the difference between the updated contribution amount of $11.99 million and the

earlier estimate of $14.17 million. As a result, the total actual capital addition for this project

(i.e., the customer contribution) was $4.36 million less than the original amount approved in

Decision 2012-272.177 As shown in Table 1 in Section 4, based on actual capital additions, EDTI

calculated the 2013 actual K factor for this program to be $0.34 million, as compared to the

$0.64 million approved in Decision 2013-435.

208. With respect to the remaining three projects comprising this program, Summerside

Substation Contribution, Clover Bar POD Addition Contribution, and East Industrial

Contribution, EDTI explained that these projects were put into service and included in its

distribution function rate base prior to the onset of the PBR regime.178 As such, there were no

forecast capital additions associated with either of these projects in 2013. Therefore, EDTI did

not provide business cases or engineering studies for the distribution contributions to

transmission assets projects.

209. EDTI further explained that these projects were included in EDTI’s 2013 capital tracker

application as “negative K factor” trackers. In Decision 2013-435, the Commission directed that

these historical distribution to transmission contribution projects be grouped with the

Poundmaker Contributions project.179 Accordingly, EDTI included them in the 2013 capital

tracker true-up application for purposes of calculating the K factor true-up amount for the

contribution group of projects.

210. EDTI did not apply for capital tracker treatment for this program in 2014 or 2015.

Commission findings

211. In Decision 2013-435, the Commission determined that the distribution contributions to

transmission assets program was required to maintain service reliability and safety at adequate

levels in 2013. Further, the Commission determined that the scope, level, timing and forecast

costs for this program were reasonable as proposed for 2013. Accordingly, the Commission

found that this program satisfied the project assessment requirement of Criterion 1.180




177


Proceeding 3216, Exhibit 1, 2013 true-up application, paragraphs 175, 181 and187. 179


Decision 2013-435, paragraphs 934-935.




finds no evidence on the record of Proceeding 3216 to indicate that the distribution contributions

to transmission assets program was not required in 2013.

213. Regarding the scope, level and timing of this program carried out in 2013, the

Commission observes that the Poundmaker contributions project is an example of EDTI’s

Category 3 projects. As explained in Decision 2013-435, capital additions were forecast to be $0

in 2013 because the capital additions requiring capital tracker treatment were made in 2012.181

214. EDTI explained that, based on the AESO CCD dated June 6, 2013, the amount of EDTI’s

contribution for this project was reassessed at $11.99 million, based on EDTI’s actual costs to

complete the new POD and the contribution policy in the AESO’s 2010 ISO tariff application.

As a result of this CCD, EDTI removed $2.17 million from its rate base related to the

Poundmaker Customer Contribution in 2013 and calculated as the difference between the

updated contribution amount of $11.99 million and the earlier estimate of $14.17 million from

the AESO’s CCD dated August 14, 2012. The effect of reducing the required Poundmaker

Contribution and reducing rate base amounts to a negative $2.17 million capital addition

adjustment.182 Because this variance is driven by the AESO CCD, the Commission finds the

actual capital additions of $11.99 million for this project, representing the contribution of EDTI’s

distribution function to its transmission, to be prudent.

215. The remaining three projects comprising this program, Summerside Substation

Contribution, Clover Bar POD Addition Contribution, and East Industrial Contribution, were put

into service and included in EDTI’s distribution function rate base prior to 2013.183 As such, there

were no forecast capital additions associated with any of these projects in 2013. There were no

changes to the contribution amounts associated with these projects. Therefore, there is no need to

re-assess these previously approved contribution amounts, included in EDTI’s going-in rate base,

for prudency.

216. As shown in Table 1 in Section 4, based on actual capital additions, EDTI calculated the

2013 actual K factor for this program to be $0.34 million, as compared to the $0.64 million

approved in Decision 2013-435. EDTI did not apply for capital tracker treatment for the

distribution contributions to transmission assets program in 2014 or 2015.

7.2.4 Life Cycle Replacement and Extension of Underground Distribution Cable

217. This ongoing life cycle replacement project consists of refurbishing and replacing aged

underground cables to maintain reliability.184 EDTI noted that this project was approved as a

capital tracker in Decision 2013-435.185 EDTI provided business cases and engineering studies

for the Life Cycle Replacement and Extension of Underground Distribution Cable project in

Appendix A-12 of the 2013 capital tracker true-up application and in Appendix A-3 of the

2014-2015 capital tracker forecast application.

181



Proceeding 3216, Exhibit 1, 2013 true-up application, paragraphs 175, 181 and187. 184

Proceeding 3100, Exhibit 20, Appendix A-3, paragraph 3. 185

Proceeding 3100, Exhibit 80, 2014-2015 forecast application, paragraph 178



218. EDTI stated that under sections 105 and 127 of the Electric Utilities Act, EDTI, as the

owner of an electric distribution system, is obligated to operate and maintain its system in a safe

and reliable manner.186 Given these statutory responsibilities, EDTI is obligated to repair or

replace failed or damaged underground distribution cable in a timely manner to maintain the

safety and reliability of its system. EDTI further noted that cable failures are a leading cause of

outages on EDTI’s distribution system and have accounted for an average of 18 per cent of

EDTI’s customer hours of interruption from 2007-2013.187

219. EDTI applied in its 2013 capital tracker forecast application and again in the 2014-2015

capital tracker forecast application to replace, on average, approximately 16 km of cable and

refurbish an additional 25 km of cable each year. In the 2006 study appended to the project,

KEMA recommended that EDTI annually replace 25 km of 350 MCM or larger cable and inject

16 km of 1/0 or smaller cable.188 EDTI reversed the ratio to reduce the financial impact. In

response to Commission counsel questioning, Ms. Hull explained that EDTI originally replaced

15 to 17 km per year and has continued to hold at that amount because it is not seeing any

degradation in reliability, even though the KEMA report identifies the larger cable as the bigger

concern. When EDTI does see this degradation, it will start to replace more as necessary.

Ms. Hull further explained that the smaller cable which EDTI is refurbishing is the pre-1987

vintage and that, at this point, EDTI has injected most of those cables. As a result, EDTI will

start to reduce the size of the refurbishment program as the replacement program ramps up.189


project in 2013 in the amount of $10.20 million. EDTI’s actual capital additions for this project

were $3.21 million, a variance of negative $6.99 million.190 This variance was composed of two

components. In the 2013 capital tracker true-up application, EDTI explained that time domain

reflectometry (TDR) testing results showed that it would not be economic for it to inject cables

in the areas that had been identified for 2013. As a result, it decreased its capital expenditure by

$0.62 million when it only completed 0.6 km of cable injection compared to the 25 km that were

originally planned.191 The second component of the variance was a $6.37 million decrease in

capital expenditures due to a decision to defer 12.27 km of planned cable replacement work

because of uncertainty relating to the capital tracker mechanism.192 In 2013, EDTI completed the

engineering design for the replacement of 17 km and procured the associated equipment required

for the project.193 However, as a result of a decision to defer some cable replacement pending the

release of the capital tracker decision, EDTI was only able to complete 5 km of replacement.194

221. Regarding the prudence of its actual 2013 capital additions, EDTI explained its primary

focus is to replace those cable segments most prone to failure, as well as those segments that

impact the greatest number of customers when failure occurs, thereby reducing the risk of

deterioration of overall distribution system reliability.195 EDTI confirmed that “nothing occurred

186

Proceeding 3100, Exhibit 80, 2014-2015 forecast application, Paragraph 183. 187



Transcript, Volume 2, page 343, line 23 to page 346 line 16 (Ms. Hull). 190

Proceeding 3216, Exhibit 1, 2013 true-up application, paragraph 361,Ttable 3.1.14-1. 191





Proceeding 3216, Exhibit 27, Appendix A-12, paragraph 15.



between the date of EDTI’s 2013 Tracker Application and the work completed in 2013 that

obviated the need for this project, or that would have materially impacted the conclusions

reached in EDTI’s analysis of alternatives.”196

222. Further, EDTI explained that expenditures that extend a service life are capitalized and

expenditures that are intended to preserve a service life are expensed to O&M. EDTI stated that

“the injection of underground distribution cables is intended to extend the service life of the

cable beyond its original life by approximately 20 years and, therefore, the cable injection costs

are appropriately capitalized.”197

223. In the 2014-2015 capital tracker forecast application, EDTI forecast capital additions

associated with this project to be $14.05 million in 2014 and $14.50 million in 2015.198 As a

consequence of the delay in 2013, EDTI plans to replace 22 km per year in 2014 and 2015, for a

total of 49 km replaced over the three-year period, in order to return to an average of 16 km of

cable replacement per year for the period 2013-2015.199

224. In addition to this replacement, EDTI will refurbish approximately 25 km of cable per

year.200 EDTI stated that the majority of cables targeted for refurbishment and replacement was

installed between 1970 and 1977 and these cables are at, or very near, the end of their 40 year

design life.201 EDTI explained that refurbishing a cable involves injecting fluid into the cable to

rejuvenate the insulation and that this injection typically extends the service life by 20 years or

more.202

225. EDTI indicated that this capital project could not have been undertaken in the past as part

of a prudent capital maintenance and replacement program. This is because the need for

refurbishment or replacement arises when the condition of a cable deteriorates to the point where

there is a significant risk to the reliability of EDTI’s distribution system.203

Commission findings

226. In Decision 2013-435, the Commission determined that the Life Cycle Replacement and

Extension of Underground Distribution Cable project was required to maintain service reliability

and safety at adequate levels in 2013. Further, the Commission determined that the scope, level,

timing and forecast costs for this project were reasonable as proposed for 2013. Accordingly, the

Commission found that this project satisfied the project assessment requirement of Criterion 1.204




adequate levels, which constitutes the assessment of need under Criterion 1. During the hearing,

Mr. Shymanski expressed his view that this project should be denied capital tracker treatment

196


Proceeding 3216, Exhibit 54.01, CCA-EDTI-17(h). 198


Proceeding 3100, Exhibit 20, Appendix A-3, paragraphs 6. 200








based on his statement that “there's been no demonstration that there's a deterioration in

service.”205 However, as discussed in Section 6, after EDTI clarified that it will complete all the

2013 deferred work by the end of 2014, with some 2014 work being displaced into 2015,206 Mr.

Shymanski indicated that his recommendations for this project “would be rendered moot.”207

228. In Section 6, the Commission determined it will not disqualify from capital tracker

treatment the five 2013 capital tracker projects delayed, in whole or in part, because of the

“substantial capital funding shortfall under the I-X mechanism and the uncertainty respecting the

capital tracker mechanism.” The Commission finds no evidence on the record of Proceeding

3216 to indicate that the Life Cycle Replacement and Extension of Underground Distribution

Cable project was not required in 2013.

229. EDTI’s 2013 actual capital additions of $3.21 million for the life cycle replacement and

extension of underground distribution cable project were $6.99 million lower than the

$10.20 million forecast approved in Decision 2013-435208 primarily because of EDTI’s decision

to delay planned cable replacement work because of uncertainty relating to the capital tracker

mechanism.209 The Commission stated in Section 6, that with respect to the portion of the five

projects completed in 2013, the Commission will consider the prudence of the actual 2013

capital additions in the 2013 capital tracker true-up application. The Commission has reviewed

the costs of the actual capital additions for this capital tracker project in light of the evidence

supporting these costs, the associated procurement and construction practices and the evidence

explaining the differences between approved forecast and actual costs, and finds the actual costs

to be prudent.

230. EDTI requested to continue capital tracker treatment for this project in 2014 and 2015. In

Section 6, the Commission indicated it will consider, for capital tracker treatment in 2014, the


into 2014.The Commission will also consider the portions of the 2014 work deferred to 2015,


231. As noted in Section 3, where a forecast program or project is part of a multi-year ongoing

program or project, or if the program or project is of an annual recurring nature, that has

previously been approved for capital tracker treatment, in the absence of evidence that the on-

going or recurring project or program is no longer required, the Commission will not undertake a

reassessment of need under Criterion 1. The Commission finds no evidence on the record of

Proceeding 3100 to indicate that the life cycle replacement and extension of underground

distribution cable project is not required to continue in 2014 or 2015.

232. With respect to the scope, level and timing of this project for 2014 and 2015, the

Commission has reviewed the business case and the relevant portions of the record for this

project and finds the forecast scope, level and timing of the project for 2014 and 2015 to be

reasonable. EDTI’s forecast capital additions associated with this project are $14.05 million in

205




Proceeding 3216, Exhibit 1, 2013 true-up application, paragraph 361,T table 3.1.14-1. 209





2014 and $14.50 million in 2015. The Commission has reviewed the information supporting

EDTI’s forecasts and finds the total annual cost forecast to be reasonable based on the evidence.


finding that the scope, level, timing and forecast costs for the Life Cycle Replacement and

Extension of Underground Distribution Cable project are reasonable as proposed for 2014 and

2015. Accordingly, the Commission finds that this project satisfies the project assessment

requirement of Criterion 1.

7.2.5 New 15-kV and 25-kV Circuit Additions

234. This ongoing project consists of constructing new distribution circuits required to

maintain the reliability of EDTI’s system and to ensure capacity to service customer growth in

EDTI’s service area. EDTI provided business cases and engineering studies for the New 15-kV

and 25-kV Circuit Additions project in Appendix A-2 of the 2013 capital tracker true-up

application and in Appendix A-4 of the 2014-2015 capital tracker application.

235. EDTI explained that this project was needed as the load grows in a region over time and

the existing circuits exceed their design loads. EDTI confirmed that new circuits are only

installed when it is no longer possible or practical to transfer loads among existing circuits within

a local area to keep circuit loads within their design limits.211 In evaluating the need for the new

circuits, EDTI follows the process outlined in the AESO Distribution Point of Delivery

Interconnection Process Guideline – Distribution Circuit Breaker Addition, Revision 0 (March

22, 2005).212


owner of an electric distribution system is obligated to operate and maintain its system in a safe

and reliable manner. Given these statutory responsibilities, EDTI maintains that this project is

required to provide service to customers at adequate levels. Further, EDTI is obligated under the

terms of its franchise agreement with the City of Edmonton to provide service to sites within the

City of Edmonton.213 As such, EDTI is obligated to construct new distribution circuits, required

to maintain the reliability of its system as necessary to provide safe and reliable service to each

site in its service area.

237. In 2013, this project involved construction of three distribution circuits: 23C, 13SU, and

22 SU. Circuits 23C and 13SU were expected to be installed in 2013 and 2014, and circuit 22SU

had been expected to be completed in 2012. However, it was delayed and completed in 2013.214

According to EDTI, the 2013 forecast capital additions for the work included in the New 15-kV

and 25-kV Circuit Additions Project were based on management’s estimate of engineering,

materials and construction costs to complete each project, and the scope of work, having regard

for EDTI’s historical cost information for similar projects completed in previous years.215

211

Proceeding 3216, Exhibit 11, Appendix A-2, paragraphs 2-3. 212



Proceeding 3216, Exhibit 11, Appendix A-2, paragraph 1, and Exhibit 1, 2013 true-up application,

paragraph 215. 215

Proceeding 3216, Exhibit 11, appendix A-2, paragraph 36.




project in the amount of $4.61 million. EDTI’s actual capital additions for this project were

$1.55 million, a variance of negative $3.06 million. In the 2013 capital tracker true-up

application, EDTI explained that the $3.06 million decrease in capital additions from 2013

approved to 2013 actual amounts, was primarily due to the delay in the commencement of the

13SU circuit, which resulted in a decrease of capital additions in the amount of $2.99 million.

EDTI further explained that in “2013, EDTI expected to install two new cubicles, replace an

existing cubicle and direct bury 6.3 km of 500 MCM aluminum XLPE cable. However, EDTI

was only able to install one new cubicle and direct bury approximately 1.0 km of 500 MCM

aluminum XLPE cable. EDTI intends to complete this project in 2014.”216

239. In an IR response to the Commission, EDTI explained that the delay in constructing the

13SU circuit was the result of “uncertainty surrounding the Capital Tracker mechanism in

2013.”217 Furthermore, EDTI indicated that the delay did not impact the company’s ability to

provide and maintain safe and reliable service.218 In response to an undertaking given by EDTI to

the UCA, regarding the status of the completion of the 2013 deferred work in 2014 and beyond,

EDTI explained that all civil work and the majority of other work on the project associated with

13SU circuit has been completed. EDTI noted that the project will be completed and placed into

service at the end of September, 2014.219

240. A further $0.42 million decrease related to the 23C circuit, which was expected to be

completed in 2013. This turned out to be infeasible when one cubicle could not be installed

because there were no cubicles of the correct configuration available in stock. EDTI noted that

the majority of the work associated with this circuit was completed in 2013, and EDTI expected

to complete the work in 2014. These decreases were partially offset by a $0.35 million increase

due to the completion of the 22SU circuit in 2013 instead of 2012.220

241. Regarding the prudence of its actual 2013 capital additions, EDTI confirmed that the

work performed in 2013, in respect of this project, related only to the construction of the three

distribution circuits, 23C, 13SU, and 22 SU. EDTI confirmed that “nothing occurred between the

date of EDTI’s 2013 Tracker Application and the work completed in 2013 that obviated the need

for this project, or that would have materially impacted the conclusions reached in EDTI’s

analysis of alternatives.”221

242. Specifically, EDTI explained that in 2013, the materials cost for the project was

37 per cent of the total capital additions. EDTI further explained that the conductors, cables,

poles, transformers, and switching cubicles, were purchased in a cost effective manner including

requests for proposals (RFP) and selecting the lowest cost providers that could meet EDTI’s

specifications. Furthermore, EDTI uses industry standards when selecting the materials required

for the new circuit additions.222 Construction costs accounted for 60 per cent of the total capital

additions for this project in 2013 and 65 per cent of the construction work was completed using

EDTI’s internal resources. The external contractors used to complete the remainder of the work

216

Proceeding 3100, Exhibit 21, appendix A-4, paragraph 83. 217






Proceeding 3216, Exhibit 1, 2013 true-up application, paragraphs 207-209.



were obtained primarily using competitive bidding processes.223 In addition, EDTI, whenever

possible, coordinated the 2013 circuit additions with other projects and used engineering designs

to achieve compliance with standards at a minimum cost.224 In response to AUC-EDTI-7(a),

EDTI confirmed that its construction standards used for the engineering designs completed in

2013 were consistent with standard industry practices.225


associated with this project to be $4.46 million in 2014 and $8.43 million in 2015. Consistent

with past applications, EDTI based its 2014 and 2015 forecast capital expenditures on

management’s estimate of engineering, materials, construction costs to complete each project,

and the scope of work, having regard for EDTI’s historical cost information for similar projects

completed in previous years.226

244. In 2014, EDTI’s capital additions are composed of completing the work on the 13SU

circuit and the 23C circuit, which both began in 2013. In 2015, EDTI plans to construct the

23SU, 33PM, R19 and V25 circuits. EDTI explained that all the circuits are required to

accommodate load growth on its system and ensure that current circuits are not operating above

their design loads.227

Table 6. New 15-kV and 25-kV Circuit Additions forecast capital expenditures 2014-2015

Circuit 2014 forecast ($ million)

2015 forecast ($ million)

Circuit 13SU 4.23 -

Circuit 23C 0.23 -

Circuit 23SU - 0.51

Circuit 33PM - 5.82

Circuits R19 and V25 - 2.10

Total 4.46 8.43

245. In response to the Commission’s IR AUC-EDTI-11(g),228 and in subsequent undertakings

given by EDTI to the Commission, regarding the 23SU circuit, EDTI provided tables with the

actual historical peak load to date, as well as forecast annual peak loads in each of 2014 to 2017,

with and without installing the proposed 23SU circuit. Based on these tables, EDTI concluded

that the Summerside circuits would be forced to operate beyond their design loads if the

construction of circuit 23SU was delayed.229

246. EDTI provided alternatives for the designs of each circuit addition; however, EDTI

maintained that no alternatives are available for adding new circuits to the system. EDTI also

223





Proceeding 3100, Exhibit 21, appendix A-4, paragraphs 23-36. 228

Proceeding 3100, Exhibit 93.01, AUC-EDTI-11(g). 229

Proceeding 3100, Exhibit 124 and Exhibit 135, EDTI argument, paragraph 69.



maintained that a prudent capital maintenance program could not have been undertaken in the

past for this project because this project constructs new distribution circuits.230

Commission findings

247. In Decision 2013-435, the Commission determined that the New 15-kV and 25-kV

Circuit Additions project was required to maintain service reliability and safety at adequate


costs for this project were reasonable as proposed for 2013. Accordingly, the Commission found

that this project satisfied the project assessment requirement of Criterion 1.231




adequate levels, which constitutes the assessment of need under Criterion 1. In Section 6, the

Commission determined it will not disqualify from capital tracker treatment the five 2013 capital

tracker projects delayed, in whole or in part, because of the “substantial capital funding shortfall

under the I-X mechanism and the uncertainty respecting the capital tracker mechanism.” The

Commission finds no evidence on the record of Proceeding 3216 to indicate that the New 15-kV

and 25-kV Circuit Additions project was not required in 2013.

249. EDTI’s 2013 actual capital additions of $1.55 million for the New 15-kV and 25-kV

Circuit Additions project were $3.06 million lower than the $4.61 million forecast approved in

Decision 2013-435232 primarily because of EDTI’s decision to delay planned cable replacement

work because of uncertainty relating to the capital tracker mechanism.233 The Commission stated

in Section 6, with respect to the portion of the five projects completed in 2013, it will consider

the prudence of the actual 2013 capital additions in the 2013 capital tracker true-up application.

The Commission has reviewed the costs of the actual capital additions for this capital tracker

project in light of the evidence supporting these costs, the associated procurement and

construction practices and the evidence explaining the differences between approved forecast

and actual costs, and finds the actual costs to be prudent.




into 2014. The Commission will also consider the portions of the 2014 work deferred to 2015,







Proceeding 3100 to indicate that the New 15-kV and 25-kV Circuit Additions project is not

230



Proceeding 3216, Exhibit 1, 2013 true-up application, paragraph 361, Table 3.1.14-1. 233





required to continue in 2014 or 2015. In this regard, the Commission notes that, during the

hearing, Mr. Shymanski supported capital tracker treatment for this project.235






EDTI’s forecasts and finds the total annual cost forecast to be reasonable based on the methods

outlined in the business case.236


finding that the scope, level, timing and forecast costs for the New 15-kV and 25-kV Circuit

Additions project are reasonable as proposed for 2014 and 2015. Accordingly, the Commission

finds that this project satisfies the project assessment requirement of Criterion 1.

7.2.6 New Underground Cable and Aerial Line Reconfigurations and Extensions to Meet

Customer Growth

254. This ongoing project consists of expansions and modifications to EDTI’s distribution

system to meet load growth and maintain reliability in EDTI’s service area.237 EDTI provided

business cases and engineering studies for the New Underground Cable and Aerial Line

Reconfigurations and Extensions to Meet Customer Growth project in Appendix A-8 of the 2013

capital tracker true-up application and in Appendix A-10 of the 2014-2015 capital tracker

application.




required to provide service to customers at adequate levels.238

256. EDTI explained that for forecast purposes, it identified the projects based on the best

available information at the time the forecast was prepared, including such information as the

City of Edmonton’s growth projections and new residential and industrial developments. This

project consists of both known and recurring projects. In some cases, EDTI was able to identify

specific reconfigurations and extensions that are required on its system at the time it prepared its

forecast. However, there are types of projects that consistently occur every year and, therefore,

EDTI was unable to identify their location at the time it prepared its forecast.239 The forecast

project costs were based on EDTI’s estimate of engineering, material and construction costs,

having regard to EDTI’s historical cost experience for similar projects completed in previous

years.240

235

Transcript, Volume 5, pages 796-797 (Mr. Shymanski). 236




Proceeding 3216, Exhibit 23, appendix A-8, paragraphs 2-3. 240

Proceeding 3216, Exhibit 1, 2013 true-up application, paragraphs 284- 297, and Exhibit 23, appendix A-8,

paragraph 159.





$6.70 million, a negative variance of $1.38 million. In the 2013 capital tracker true-up

application, EDTI explained that the $1.38 million decrease in capital additions in 2013 for this

project was primarily made up of a $1.31 million decrease reflecting deferred work of five sub-

projects that were carried over into 2014, due to uncertainty surrounding the capital tracker

mechanism in 2013; a $0.87 million decrease was associated with the Edmonton Centre and

Oxford Tower project, due to timing with the new Oxford Tower owner, who requested a

separate primary service from EDTI; a $0.18 million decrease was due to the customer

requesting EDTI to cancel the R17 & R25 primary service to the Empire Building project; and a

$0.10 million decrease related to the 452 Circuit Conversion project, as EDTI determined that it

could use single phase instead of two phase wire on portions of the 452 circuit.

258. The decreases were partially offset by the following increases: a $0.06 million increase

was primarily due to the more complex than expected directional drill across 87 Avenue and

changes to the original design alignment directed by Alberta Infrastructure, related to the J61 to

M35 Feeder Tie project; and a $1.05 million increase was due to completion spending and

additions to rate base through construction work in progress (CWIP) associated with the V15

Circuit & 290 S/S Feeder Changes project, CWIP associated with the L23 & L43 Circuit

Reconfigurations project, and CWIP associated with the V44 Backup to NAIT project.241

259. In an IR response to the Commission, EDTI indicated that in deferring the five projects in

the face of uncertainty surrounding capital tracker funding, there was “a risk of adverse effects

on EDTI’s ability to maintain safe and reliable service.”242 EDTI pointed to the examples of the

25L feeder extension project, where there was the possibility that EDTI would not be able to

provide service to its customers in two areas of Edmonton without overloading circuits, and the

N13 Radial Tie project, where EDTI experienced a failure that resulted in a 13-hour outage.

EDTI explained that 12 hours of this outage could have been prevented had EDTI completed the

project as originally planned.243

260. Regarding the prudence of its actual 2013 capital additions, EDTI provided the following

Table 7 to show the work performed in 2013 and the associated capital additions.

241


Proceeding 3100, Exhibit 93.01, AUC-EDTI-12 (b). 243

Proceeding 3100, Exhibit 93.01, AUC-EDTI-12 (b).



Table 7. 2013 actuals for new underground cable and aerial line reconfigurations and extensions to meet customer growth

Description 2013 capital additions

Known projects J62 Transfer to J84 0.29 J61 to M35 Feeder Tie 0.56

V15 Circuit & 290 S/S Feeder Changes 0.22

L23 & L43 Circuit Reconfigurations 0.55

V44 Backup to NAIT 0.28

Primary Service Reconfiguration for Edmonton Centre & Oxford Tower 0.58

Reoccurring projects

Removal of Redundant Aerial Lines – Poles 0.04

Removal of Redundant Aerial Lines – Lines 0.05

Aerial Line Reconfigurations – Poles 0.31

Aerial Line Reconfigurations – Lines 0.86

Aerial Line Reconfigurations- Communications– Poles 0.65

Aerial Line Reconfigurations- Communications– Lines 0.85

5kV Upgrades 0.04 Underground (URD) Cable Reconfigurations 1.42

Total 6.70

261. Specifically, EDTI explained that in 2013, the engineering components of the project

were completed using internal resources alongside seven external consultants whose rates were

compared to those of a 2012 RFP for engineering design work. EDTI stated that all engineering

designs completed were in accordance with their standards. The cables and conductors required

for this project were obtained through a 2011 RFP where EDTI selected the lowest bids that

could meet their requirements. For wood poles, EDTI uses a single supplier on a fixed contract,

which EDTI submits reduces the risk of price increases. Furthermore, EDTI primarily used

internal resources to complete the aerial construction work and 5-kV to 15-kV upgrades.

However, external contractors were required to supplement EDTI’s resources in order to

complete the underground cable reconfigurations. The contractors were obtained through a

competitive process. In addition, EDTI, whenever possible, coordinated the project work with

other projects and used engineering designs to achieve compliance with standards at a minimum

cost.244


associated with this project to be $9.54 million in 2014 and $8.33 million in 2015.

263. EDTI provided the capital additions forecast methodology for each of the 19 specific

projects proposed in 2014 and 2015.245 EDTI maintained that in 2014 and 2015 this project

consists of “known” projects as well as “recurring” projects, which it is unable to identify at the

time of forecast.246 The recurring projects are forecast based on historical and forecast load

growth trends and locations, anticipated changes in code requirements and EDTI’s experience

and judgement. The recurring project costs for 2014 and 2015 were forecast based on estimates

244

Proceeding 3216, Exhibit 1, 2013 true-up application, paragraphs 285- 297. 245

Proceeding 3100, Exhibit 21, Appendix A-4. 246




of the engineering, materials, and construction costs required, as well as the historical costs in

previous years.247

264. EDTI maintained that a prudent capital maintenance program could not have been

undertaken in the past for this project because this project undertakes reconfigurations and

extensions due to growth.248

Commission findings

265. In Decision 2013-435, the Commission determined that New Underground Cable and

Aerial Line Reconfigurations and Extensions to Meet Customer Growth project was required to

maintain service reliability and safety at adequate levels in 2013. Further, the Commission

determined that the scope, level, timing and forecast costs for this project were reasonable as

proposed for 2013. Accordingly, the Commission found that this project satisfied the project









Commission finds no evidence on the record of Proceeding 3216 to indicate that the New

Underground Cable and Aerial Line Reconfigurations and Extensions to Meet Customer Growth

project was not required in 2013.

267. EDTI’s 2013 actual capital additions of $6.70 million for the New Underground Cable

and Aerial Line Reconfigurations and Extensions to Meet Customer Growth project were $1.38

million lower than the $8.08 million forecast approved in Decision 2013-435250 in part because of

EDTI’s decision to delay planned work because of uncertainty relating to the capital tracker

mechanism.251 The Commission stated in Section 6, that with respect to the portion of the five

projects completed in 2013, the Commission will consider the prudence of the actual 2013

capital additions in the 2013 capital tracker true-up application. The Commission has reviewed

the costs of the actual capital additions for this capital tracker project in light of the evidence



to be prudent.




247




Proceeding 3216, Exhibit 1, 2013 true-up application, paragraph 361, Table 3.1.14-1 251




into 2014.The Commission will also consider the portions of the 2014 work deferred to 2015,







Proceeding 3100 to indicate that the New Underground Cable and Aerial Line Reconfigurations

and Extensions to Meet Customer Growth project is not required to continue in 2014 or 2015. In

this regard, the Commission notes that during the hearing, Mr. Shymanski supported capital

tracker treatment for this project.253









finding that the scope, level, timing and forecast costs for the New Underground Cable and

Aerial Line Reconfigurations and Extensions to Meet Customer Growth project are reasonable as

proposed for 2014 and 2015. Accordingly, the Commission finds that this project satisfies the

project assessment requirement of Criterion 1.

7.2.7 Distribution Pole and Aerial Line Life Cycle Replacements

272. This ongoing project consists of the replacement of distribution poles, conductors and

associated assets and the conversion of 5-kV distribution circuits to 15 kV when a significant

number of distribution poles on a particular 5-kV circuit are being replaced.255 EDTI noted that

its staff use their professional judgment and experience to select poles and conductors for

replacement when they no longer meet safety, structural and/or clearance requirements.256 EDTI

noted that this project was approved as a capital tracker in Decision 2013-435.257 EDTI provided

business cases and engineering studies for the Distribution Pole and Aerial Line Life Cycle

Replacements project in Appendix A-4 of the 2013 capital tracker true-up application and in

Appendix A-6 of the 2014-2015 capital tracker forecast application.



and reliable manner. Given these statutory responsibilities, EDTI is obligated to complete pole

252









and aerial line life cycle replacements in a timely manner to maintain the safety and reliability of

its system.258

274. EDTI explained that poles, conductors and associated equipment are replaced when they

no longer meet safety, structural and/or clearance requirements.259 This program meets that need

by life cycle replacement and when a significant number of distribution poles on a particular 5-

kV circuit are being replaced, EDTI converts the distribution circuit to 15 kV.260 EDTI further

explained that in order to replace a pole, all existing attachments must be removed; therefore,

EDTI’s normal practice is to replace these attachments with new attachments.261 As such, once a

decision is made to replace a pole, the other assets on the pole are replaced as well.



$1.44 million, a variance of negative $4.16 million.262 In the 2013 capital tracker true-up

application, EDTI explained that this variance was caused by uncertainty respecting the capital

tracker mechanism that resulted in projects being carried forward into 2014 and 2015 for

completion.263

276. According to Mr. Shymanski, $5.60 million of capital expenditures which were delayed

during 2013 are now proposed to be carried over as $1.44 million in 2014 and $2.35 million in

2015.264 He explained that delaying putting in facilities that were required to maintain adequate

levels of service in 2013 until 2015 suggests the project does not satisfy Criterion 1 and suggests

denying the $2.35 million that is proposed to be carried over into 2015.265

277. In response, EDTI explained that it used its inspection programs to identify and replace

the poles that were in a state of imminent failure, while allowing others to be considered for a

short-term delay. The result was 378 poles carried forward from 2013 to 2014 and, in turn, some

poles forecast for replacement in 2014 were delayed to 2015. As such, no poles were delayed by

two years from 2013 to 2015, as suggested by Mr. Shymanski.266

278. In its argument, EDTI noted that “temporarily deferring the work does not indicate that

EDTI has deviated from its typical replacement practices.”267 The work originally planned for

2013-2015 will all be completed by 2015.268


work performed in 2013 in respect of this project related only to the replacement of damaged or

deteriorated assets that were either causing an outage, posed an immediate safety hazard, or were

likely to cause an outage or pose a significant safety hazard in the near term. EDTI noted that

258







Proceeding 3100, Exhibit 97.02, UCA evidence of Mr. Shymanski, paragraph 44. 265


Proceeding 3100, Exhibit 107.01, EDTI rebuttal evidence, page 18. 267


Proceeding 3100, Exhibit 135, EDTI argument, paragraph 94.



“the evidence that the work planned under this project must be done is uncontroverted. No issue

has been raised with the scope of that work (i.e., the length of line and number of poles).”269


associated with this project to be $4.63 million in 2014 and $5.48 million in 2015.270 The number

of poles forecast for replacement in 2014 and 2015 is based on current and historical inspection

results.271 EDTI noted that it uses an average unit pole cost to forecast its costs, which takes into

consideration the complete cost of pole replacements, transformer replacements and line

hardware replacements.272


of a prudent capital maintenance and replacement program. This is because need for replacement

arises when the condition of a pole deteriorates to the point where there is a significant risk to the

reliability of EDTI’s distribution system and public safety. Once the condition of a pole reaches

this point, it is uneconomical to undertake higher levels of regular or capital maintenance or

repair on the pole.273

Commission findings

282. In Decision 2013-435, the Commission determined that the Distribution Pole and Aerial

Line Life Cycle Replacement project was required to maintain service reliability and safety at

adequate levels in 2013. Further, the Commission determined that the scope, level, timing and

forecast costs for this program were reasonable as proposed for 2013. Accordingly, the

Commission found that this program satisfied the project assessment requirement of Criterion

1.274

283. With respect to the true-up of 2013 actual costs, as noted in Section 3, in the absence of

evidence on the record that the project was not required, the Commission will not reconsider the

need for approved capital tracker programs or projects in a true-up application.

284. In Section 6, the Commission determined it will not disqualify from capital tracker

treatment the five 2013 capital tracker projects delayed, in whole or in part, because of the

“substantial capital funding shortfall under the I-X mechanism and the uncertainty respecting the

capital tracker mechanism.” The Commission finds no evidence on the record of Proceeding

3216 to indicate that the Distribution Pole and Aerial Line Life Cycle Replacement project was

not required in 2013.

285. EDTI’s 2013 actual capital additions of $1.44 million for the Distribution Pole and Aerial

Line Life Cycle Replacements project was $4.16 million lower than the $5.60 million forecast

approved in Decision 2013-435275 primarily because of EDTI’s decision to delay planned

replacement work because of uncertainty relating to the capital tracker mechanism.276 The

Commission stated in Section 6, that with respect to the portion of the five projects completed in

269







Proceeding 3216, Exhibit 1, 2013 true-up application, paragraph 361, table 3.1.14-1. 276




2013, the Commission will consider the prudence of the actual 2013 capital additions in the 2013

capital tracker true-up application. The Commission has reviewed the costs of the actual capital

additions for this capital tracker project in light of the evidence supporting these costs, the

associated procurement and construction practices and the evidence explaining the differences

between approved forecast and actual costs, and finds the actual costs to be prudent.

286. EDTI has not requested capital tracker treatment for this project in 2014, because the

project does not meet the first tier of the materiality threshold for 2014. EDTI has requested

capital tracker treatment for 2015. In Section 6, the Commission indicated it will consider, for

capital tracker treatment in 2014, the portions of the five projects approved for capital tracker

treatment in 2013 deferred from 2013 into 2014.The Commission will also consider the portions

of the 2014 work deferred to 2015, due to the “cascading effect” described by EDTI.277





reassessment of need under Criterion 1. During the hearing, Mr. Shymanski expressed his view

that this project should be denied capital tracker treatment.278 However, as discussed in Section 6,

after EDTI clarified that it will complete all the 2013 deferred work by the end of 2014, with

some 2014 work being displaced into 2015,279 Mr. Shymanski indicated that his

recommendations for this project “would be rendered moot.”280 The Commission finds no further

evidence on the record of Proceeding 3100 to indicate that the Distribution Pole and Aerial Line

Life Cycle Replacement project is not required to continue in 2014 or 2015.

288. With respect to the scope, level and timing of this project for 2015, the Commission has

reviewed the business case and the relevant portions of the record for this project and finds the

forecast scope, level and timing of the project for 2015 to be reasonable. EDTI’s forecast capital

additions associated with this project are $5.48 million in 2015. The Commission has reviewed

the information supporting EDTI’s forecasts and finds the total annual cost forecast to be

reasonable based on current and historical inspection results.


finding that the scope, level, timing and forecast costs for the Distribution Pole and Aerial Line

Life Cycle Replacement project are reasonable as proposed for 2015. Accordingly, the

Commission finds that this project satisfies the project assessment requirement of Criterion 1.

7.2.8 Aerial and Underground Distribution Transformers – New Services and Life

Cycle Replacement

290. This ongoing project consists of providing new aerial and underground distribution

transformers for distribution service. EDTI stated the transformer used is determined by the site

load characteristics and only the costs of the transformers are included in this project. The

installation costs associated with the transformer work are included in the specific capital project

277







for which the work is being done.281 EDTI provided a business case and engineering study for the

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

project in Appendix A-2 of the 2013 capital tracker true-up application, and Appendix A-7 of the

2014-2015 capital tracker application.



and reliable manner, and to provide and maintain service that is safe, adequate and proper.

Further, EDTI is obligated under the terms of its franchise agreement with the City of Edmonton

to provide service to sites within the City. As such, EDTI is obligated to install aerial and

underground distribution transformers on EDTI’s system as necessary to provide safe and

reliable service to each site in EDTI’s service area at adequate levels.282

292. EDTI noted that every service connection to a site on the distribution system requires a

transformer to step down the voltage of power coming from the system so that the power for a

particular site is correct. EDTI also stated that new transformers are needed to replace failed

transformers currently in the field or for new installations to serve customer growth.283

293. According to EDTI, the forecast of new transformers required in 2013, 2014 and 2015

was based on two factors: the number of transformers that EDTI would require in those years for

life cycle replacement and growth, and the types of transformers that would be required (aerial

versus underground).

294. Consistent with its past approach, EDTI forecast the number of transformers by type

required in 2013, 2014 and 2015 based on the following:

for 2013 the forecast was based on the historical trending of the actual number of

transformers installed over the 2009 to 2011 period, adjusted to reflect EDTI’s 2013

forecast of specific capital projects that will require transformers

for 2014 to 2015, the forecast was based on the historical trending of the actual number

of transformers used over the 2011 to 2013 period, adjusted to reflect EDTI’s 2014 and

2015 forecast of specific capital projects that will require transformers.284

295. To forecast the costs of this project, EDTI first forecast the number of new transformers

to be installed in 2013, 2014 and 2015 and then forecast the costs of the new transformers, based

on historical costs.285



$5.19 million, a variance of $0.43 million. In the 2013 capital tracker true-up application, EDTI

explained that the $0.43 million increase in capital additions in 2013 for this project was

primarily due to a higher than forecast use of new underground transformers that resulted in a

281

Proceeding 3100, Exhibit 80, 2014-2015 forecast application, paragraphs 242 to 245. 282




Proceeding 3216, Exhibit 20, Appendix A-5, paragraphs 13-22, and Proceeding 3100, Exhibit 24,

Appendix A-7, paragraphs 14-21.



$0.79 million increase, which was partially offset by a $0.39 million decrease reflecting a lower

than forecast unit cost per transformer. EDTI identified that it has installed 538286 transformers in

2013 as part of this project rather than the 506 transformers forecast for that year.287

297. Regarding the prudence of its actual 2013 capital additions, EDTI submitted that, when

possible, used transformers, rather than new ones, were used and inventory costs were minimized

by using standard transformers in limited sizes and types.288 EDTI also explained that its

transformer suppliers are the same ones used in previous years and for three types of

transformers, the cost has decreased as compared to previous years.289


associated with this project to be $5.08 million in 2014 and $5.18 million in 2015. The increase

in forecast capital additions from 2014 to 2015 is due to inflation.290 EDTI’s forecast capital

additions for aerial and underground distribution transformers are based on the approach

described above. EDTI forecast that it would install 544 transformers in both 2014 and 2015.291

299. During the hearing, EDTI explained that it would be using the same two transformer

suppliers as it had in the past and stated:

The primary reason that we're limited to suppliers is if you go back to when we did our

last RFP in 2006 and we tested the marketplace, at that time, we had experience with

suppliers around the quality of the product that they were providing. And that experience

manifests itself when the transformer is in service over a period of time. And most

frequently it relates to the quality of the exterior finishing. So products that either rust

prematurely or the specs don't allow readily -- us to readily replace certain parts on them.

And so if you look at the technical specs, yeah, there are differences, but the primary

difference is in the quality of the product that we actually put into service. And based on

our history at that time, we did not want to pursue purchasing from certain suppliers for

that reason.292

300. EDTI maintained that a prudent capital maintenance program could not have been

undertaken in the past for this project. This is because a portion of the project consists of

replacing transformers that have failed, need to be relocated due to City of Edmonton work, or

are in areas where the primary voltage is being converted. Furthermore, the remainder of the

project consists of transformers that are installed to provide service to new customers.293

Commission findings

301. In Decision 2013-435, the Commission determined that for 2013, the Aerial and

Underground Distribution Transformers – New Services and Life Cycle Replacement project

was required to maintain service reliability and safety at adequate levels. Further, the

Commission determined that the scope, level, timing and forecast costs for this project were

286

Proceeding 3216, Exhibit 53.01, AUC-EDTI-09, page 4. 287

Proceeding 3216, Exhibit 1, 2013 true-up application, paragraph 248-249. 288




Proceeding 3100, Exhibit 24, appendix A-7, Table 3.2-3. 292

Transcript, Volume 3, pages 380-381 (Mr. Middleton). 293

Proceeding 3100, Exhibit 24, appendix A-7, paragraph 7.



reasonable as proposed for 2013. Accordingly, the Commission found that this project satisfied

the project assessment requirement of Criterion 1.294





finds no evidence on the record of Proceeding 3216 to indicate that the Aerial and Underground

Distribution Transformers – New Services and Life Cycle Replacement project was not required

in 2013.

303. With respect to the scope, level and timing of the Aerial and Underground Distribution

Transformers project carried out in 2013, the Commission has reviewed EDTI’s 2013 actual

capital additions of $5.19 million associated with this project and finds that the scope, level and

timing are generally consistent with the scope, level and timing outlined in the business case for

this capital tracker and approved in Decision 2013-435. The Commission has also reviewed the

costs of the actual capital additions for this capital tracker project in light of the evidence



to be prudent.

304. EDTI requested capital tracker treatment for this project in 2014 and 2015. As noted in

Section 3, where a forecast program or project is part of a multi-year ongoing program or project,

or if the program or project is of an annual recurring nature, that has previously been approved

for capital tracker treatment, in the absence of evidence that the on-going or recurring project or


Criterion 1. The Commission finds no evidence on the record of Proceeding 3100 to indicate that

the Aerial and Underground Distribution Transformers project is not required to continue in

2014 or 2015. In this regard, the Commission notes that during the hearing, Mr. Shymanski

supported capital tracker treatment for this project.295









finding that the scope, level, timing and forecast costs for the Aerial and Underground

Distribution Transformers project are reasonable as proposed for 2014 and 2015. Accordingly,

the Commission finds that this project satisfies the project assessment requirement of Criterion 1.

294






7.2.9 Capitalized Underground System Damage

307. This ongoing project consists of the replacement of underground distribution

infrastructure, such as switching cubicles, faulted underground cables, transformers and

manholes, that has been damaged or that has failed or are about to fail. EDTI maintained that this

project is necessary to maintain system reliability. EDTI provided business cases and

engineering studies for the Capitalized Underground System Damage project in Appendix A-6 of

the 2013 capital tracker true-up application and in Appendix A-8 of the 2014-2015 capital

tracker forecast application.



and reliable manner. Given these statutory responsibilities, EDTI is obligated to repair or replace

failed or damaged underground facilities in a timely manner to maintain the safety and reliability

of its system. Failure to replace such facilities can lead to power outages for customers, and can

create safety hazards for both EDTI’s personnel and the general public.

309. EDTI further explained the need for replacement is identified through its underground

inspection program and damage reports from other parties. The primary drivers behind the need

to replace failed or damaged underground distribution facilities, and the resulting capital

expenditures, include such causes as third party damage, weather events, vehicle collisions,

vandalism, wildlife contacts, and deterioration from environmental factors and aging.

310. According to EDTI, the volume of capitalized underground system damage replacements

is related to factors beyond its control and, therefore, varies from year to year. As such,

consistent with past GTAs, EDTI’s 2013 forecast capital expenditures for this project were based

on a normalized three-year average of 2009 to 2011 historical annual costs.




explained that the $0.20 million increase in capital additions from the approved 2013 forecast to

2013 actual amounts reflects the difference between the results of its normalized three-year

historical average forecasting methodology for this project and actual capital additions. In other

words, the underground system damage capital repair and replacement costs required in 2013

proved to be higher than reflected in the normalized three-year historical average.


work performed as part of this project in 2013 related only to the replacement of damaged or

deteriorated assets that were either causing an outage, posed an immediate safety hazard, or were

likely to cause an outage or pose a significant safety hazard in the near term. EDTI confirmed

that “nothing occurred between the date of EDTI’s 2013 Tracker Application and the work

completed in 2013 that obviated the need for this project, or that would have materially impacted

the conclusions reached in EDTI’s analysis of alternatives.”297

313. Specifically, EDTI identified that in 2013, it replaced or repaired 20 switching cubicles,

69 faulted underground cables, 137 transformers, and 23 manholes as part of this project. This

work represented approximately 88 per cent of the total capital additions related to this project in

297




2013. The remaining work involved replacing numerous vault skirts, hot elbows, pedestals and

powerbases.298 EDTI indicated that the costs of completing the project primarily included

material (25 per cent) and construction (75 per cent) costs. EDTI described the steps it took to

ensure that the work was completed in a cost effective manner.299



with past applications, EDTI based its 2014 forecast capital expenditures for this project on a

normalized three-year average of 2011 to 2013 historical actual annual costs. EDTI provided

details of its normalized three-year average forecasting methodology for this project in response

to AUC-EDTI-17.300 The $0.08 million increase in capital additions from 2014 forecast to 2015

forecast is due to inflation.301


of a prudent capital maintenance and replacement program as a result of the need for repairs

arising as damage and system failures occur on EDTI’s system. As such, by their nature, capital

additions for this project are not associated with activities that could have been included in a

prudent capital maintenance program in the past.302 Mr. Elford, for EDTI, further explained that

the activities under this project are “all reactive repairs, either due to failures or third-party

damage.”303

Commission findings

316. In Decision 2013-435, the Commission determined that the Capitalized Underground

System Damage project was required to maintain service reliability and safety at adequate levels

in 2013. Further, the Commission determined that the scope, level, timing and forecast costs for

this project were reasonable as proposed for 2013. Accordingly, the Commission found that this

project satisfied the project assessment requirement of Criterion 1.304





finds no evidence on the record of Proceeding 3216 to indicate that the Capitalized Underground

System Damage project was not required in 2013.

318. With respect to the scope, level and timing of the Capitalized Underground System

Damage project carried out in 2013, the Commission has reviewed EDTI’s 2013 actual capital

additions of $3.17 million associated with this project and finds that they are generally consistent

with the scope, level and timing of the work outlined in the business case for this capital tracker

and approved in Decision 2013-435. The Commission has also reviewed the costs of the actual

capital additions for this capital tracker project in light of the evidence supporting these costs, the

298


Proceeding 3216, Exhibit 1, 2013 true-up application , paragraphs 257-258. 300

Proceeding 3100, Exhibit 93.01, AUC-EDTI-17. 301










Section 3, 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 that has been previously approved by the Commission




the Capitalized Underground System Damage project is not required to continue in 2014 or

2015. In this regard, the Commission notes that during the hearing, Mr. Shymanski supported

capital tracker treatment for this project.305






EDTI’s forecasts and finds the total annual cost forecast to be reasonable based on the

normalized three-year average of 2011 to 2013 historical actual annual costs. The Commission

found EDTI’s normalized three-year average forecasting methodology to be reasonable in

Decision 2012-272.306


finding that the scope, level, timing and forecast costs for the Capitalized Underground System

Damage project are reasonable as proposed for 2014 and 2015. Accordingly, the Commission


7.2.10 Vehicles – Growth and Life Cycle Replacements

322. EDTI explained in its application that this project consists of the purchase of new

distribution vehicles and fleet equipment required for growth, the replacement of existing

distribution vehicles and fleet equipment beyond their service lives.307 EDTI noted that this

project was approved as a capital tracker in Decision 2013-435.308 EDTI provided business cases

and engineering studies for the Vehicles – Growth and Life Cycle Replacements project in

Appendix A-7 of the 2013 capital tracker true-up application and in Appendix A-9 of the 2014-

2015 capital tracker forecast application.

323. EDTI explained that it relies on its distribution fleet of vehicles and related equipment to

build, operate, maintain and repair its distribution system. As a result, failure to replace vehicles

at the end of their useful lives will result in EDTI failing to meet the requirements of EDTI’s safe

work policies and, ultimately, failing to meet its obligations under sections 105 and 127 of the

305



Proceeding 3216, Exhibit 1, paragraph 264. 308




Electric Utilities Act to operate and maintain its distribution system in a safe and reliable manner,

and to provide and maintain service that is safe, adequate and proper.309

324. In 2013, this project consisted of the purchase of four new distribution function vehicles

and related fleet equipment, the replacement of fourteen existing vehicles and fleet equipment

that were at the end of their useful lives, and the replacement of two single reel trailers prior to

the end of their service lives due to damage.310




application, EDTI explained that this variance was composed of the following factors:

A carry forward of $1.64 million in vehicles into 2014. EDTI is currently forecasting that

it will cost $1.52 million to bring these vehicles into service in 2014.

the replacement of two vans was transferred to the transmission division, lowering

program costs by $0.32 million

lower than anticipated costs for new trailers lowering the program costs by $0.09 million

the decision not to replace a minivan as it will no longer be required, lowering the

program costs by $0.03 million

lower than anticipated costs for an underground cube van, lowering the program costs by

$0.01 million

a carry forward of a crane truck and 14’ truck originally planned for 2012 into 2013,

increasing program costs by $0.33 million and $0.16 million, respectively

higher than anticipated costs for the fault location van, increasing the program costs by

$0.04 million

higher than anticipated costs for the crew tool crib trailer, increasing the program costs by

$0.02 million312

326. As discussed in Section 6, EDTI confirmed its expectation that all of the 2013 deferred

work will be completed by the end of 2014, with the exception of the cube van vehicle as part of

this project. EDTI delayed the purchase of one 12’ cube van and two backhoes from 2013 to

2014 due to capital tracker uncertainty. EDTI provided the following update on the status of

those three vehicles:

To date, the chassis for the Cube Van has been ordered and will be delivered prior to the

end of 2014. However, EDTI anticipates that the completion of the construction of the

body for the Cube Van will carry into 2015 based on current delivery times from

fabricators. As a result, $0.04 million for the chassis will be in CWIP at the end of 2014,

with approximately $0.11 million of costs anticipated to be incurred to complete the body

in 2015 resulting in a 2015 capital addition of $0.15 million for this 2013 replacement

vehicle in 2015. In the interim, EDTI continues to lease a substitute vehicle as described

in AUC-EDTI-18 (ID 3100, Exhibit 93.01).

309







For the 2 Backhoe units, EDTI is currently completing specifications for the units and

will order and receive the units in Q4 of 2014. One of the existing units remains in

service and the other unit has been taken out of service and replaced with a rental unit.313

327. In regards to the $1.64 million carry-forward of vehicles, Mr. Elford explained that

approximately a million dollars of the carry-forward was due to a manufacturer delay and the

late delivery of two hydro-vacs. These vehicles were planned for 2013, but did not arrive until

early 2014.314 This delay in spending was not due to a discretionary management decision

because of the uncertainty surrounding the capital tracker mechanism.

328. Regarding the prudence of its actual 2013 capital additions, EDTI noted that these

distribution fleet additions were required to support the increasing construction and operating

work demands of EDTI’s distribution system, which continues to grow in response to growth in

the population of the City of Edmonton.315 EDTI confirmed that “nothing occurred between the

date of EDTI’s 2013 Tracker Application and the work completed in 2013 that obviated the need

for this project, or that would have materially impacted the conclusions reached in EDTI’s

analysis of alternatives.”316

329. With respect to the prudence of vehicle purchase costs, in response to AUC-EDTI-11,

EDTI described the purchasing process used to acquire the 25-ton crane truck in 2013. EDTI

explained that the vehicle chassis was purchased through the City of Edmonton’s vehicle volume

purchasing contract. EDTI procured the vehicle body and crane assembly requirements through a

competitive request for quotations (RFQ) process using the Alberta Purchasing Connection, an

electronic purchasing tool administered by the province of Alberta that enables public and

private sector users to manage, advertise, distribute, and download public purchasing

opportunities for goods, services, and construction in Alberta. Proposals were received from

three vendors. EDTI selected the vendor with the lowest quoted price.317

330. In general, regarding the pricing of vehicles in EDTI’s fleet, Mr. Middleton explained

that EDTI would typically issue an RFP for light vehicles. However, EDTI has typically found

that the suppliers who win the bids are also the suppliers with the City of Edmonton contracts.

As a result, EDTI will purchase the vehicles through the City of Edmonton contract to attain the

City pricing, which is lower because of the purchasing power of the City. In the case of heavy

vehicles, EDTI purchases through the City of Edmonton because of the City’s purchasing power

and its heavy equipment expertise. In addition to the beneficial pricing, EDTI also gains access

to the City’s expertise in terms of outfitting those vehicles at negotiated market prices.318


associated with this project to be $4.27 million in 2014 and $2.60 million in 2015.319 Consistent

with past applications, EDTI splits the total project cost into two categories: additions to EDTI’s

fleet, and life cycle replacement of vehicles. In 2014, EDTI proposed to purchase one new

313

Exhibit 118, Table UT-3, line 4. 314

Transcript, Volume 2, page 281 line 17 to page 282 line 6 (Mr. Elford). 315




Transcript, Volume 2, page 390, line 12 to page 394, line 22 (Mr. Middleton). 319




vehicle; a one-ton cube van. EDTI did not propose to add any new vehicles in 2015.320 The

remaining expenditures on this project are for the life cycle replacement of vehicles.


of a prudent capital maintenance and replacement program. This is because the replacement of

these particular vehicles and fleet equipment that will reach the end of their useful lives in 2014

and 2015 is not an activity that could have been completed in previous years.321

Commission findings

333. In Decision 2013-435, the Commission determined that the Vehicles – Growth and Life

Cycle Replacements project was required to maintain service reliability and safety at adequate


costs for this project were reasonable as proposed for 2013. Accordingly, the Commission found

that this project satisfied the project assessment requirement of Criterion 1.322








Commission finds no evidence on the record of Proceeding 3216 to indicate that the Vehicles –

Growth and Life Cycle Replacements project was not required in 2013.

335. Regarding vehicle pricing, EDTI’s purchasing prices are either determined on a

competitive basis through an PRP/RFQ process or are bought through the City of Edmonton

contract to attain the City’s pricing, which is lower because of the purchasing power of the City.

Accordingly, the Commission finds that EDTI’s purchasing prices for its vehicles are likely to be

reflective of market prices and, therefore, are reasonable.

336. EDTI’s 2013 actual capital additions of $1.36 million for the Vehicles – Growth and Life

Cycle Replacement project were $1.54 million lower than the $2.90 million forecast approved in

Decision 2013-435323 primarily due to EDTI’s decision to delay replacement of vehicles because

of uncertainty relating to the capital tracker mechanism.324 The Commission stated in Section 6

that with respect to the portion of the five projects completed in 2013, the Commission will

consider the prudence of the actual 2013 capital additions in the 2013 capital tracker true-up

application. The Commission has reviewed the costs of the actual capital additions for this

capital tracker project in light of the evidence supporting these costs, the associated procurement

and construction practices and the evidence explaining the differences between approved

forecast and actual costs, and finds the actual costs to be prudent.

320








337. EDTI requested capital tracker treatment for this project in 2014 and 2015. In Section 6,

the Commission stated it will consider, for capital tracker treatment in 2014, the portions of the

five projects approved for capital tracker treatment in 2013 deferred from 2013 into 2014.The

Commission will also consider the portions of the 2014 work deferred to 2015, due to the

“cascading effect” described by EDTI.325

338. As noted in Section 3, where a forecasted program or project is part of a multi-year

ongoing program or project, or if the program or project is of an annual recurring nature, that has



reassessment of need under Criterion 1. During the hearing, Mr. Shymanski expressed his view

that this project should be denied capital tracker treatment.326 However, Mr. Shymanski did not

provide any support for his position. The Commission finds no further evidence on the record of

Proceeding 3100 to indicate that the vehicles and fleet equipment purchases project is not

required to continue in 2014 or 2015.






EDTI’s forecasts and finds the total annual cost forecast to be reasonable based on the list of

specific vehicles to be replaced as set out in Appendix A-7 of the 2013 capital tracker true-up

application and in Appendix A-9 of the 2014-2015 capital tracker forecast application and given

that EDTI’s purchasing prices of its vehicles are likely to be reflective of market prices, as

discussed earlier in this section.


finding that the scope, level, timing and forecast costs for the Vehicles – Growth and Life Cycle

Replacements project are reasonable as proposed for 2014 and 2015. Accordingly, the


7.2.11 New Underground and Aerial Service Connections for Commercial, Industrial,

Multi-family and Miscellaneous Customers

341. This ongoing growth project consists of the engineering and installation of distribution

facilities to connect new industrial, commercial, multi-family, unmetered secondary and rural

customers to EDTI’s distribution system, and to increase capacity and upgrade existing service

connections when requested by these types of customers.327 EDTI provided a business case and

engineering study for this project in Appendix A-3 of the 2013 capital tracker true-up

application, and in Appendix A-5 of the 2014-2015 capital tracker forecast application.

342. EDTI indicated that service connections are installed in accordance with its Customer

Connection Guide, and the choice of aerial versus underground services is determined on a site-

by-site basis. The appropriate service type is dictated by City of Edmonton bylaws, policies and

325






land use planning requirements, the customer’s requirements and the site specific conditions, and

any other applicable regulations, standards or codes.328



and reliable manner, and to provide and maintain service that is safe, adequate and proper.

Further, EDTI is obligated, under the terms of its franchise agreement with the City of

Edmonton, to provide service to sites within the City. Accordingly, the purpose of this project is

to ensure that customers in EDTI’s service area are provided with safe and reliable service

connections that are of sufficient capacity to meet their load requirements.329

344. EDTI further commented on the need for this project as follows:

To summarize, this project is not subject to management discretion. It is required to

enable EDTI to meet its obligations to provide distribution service to sites within EDTI’s

service area. If EDTI does not install appropriate service connections at each site in its

service area, EDTI will fail to comply with its obligations under sections 105 and 127 of

the Electric Utilities Act and Franchise Agreement with the City of Edmonton. The

purpose of the project, by its nature, cannot be accomplished through an O&M solution,

nor can EDTI meet its obligations to provide service without providing service

connections for each site. Further, this project could not have been undertaken in the past

as part of a prudent capital maintenance and replacement program. Providing service

connections to new customer sites, by its nature, is not an activity that could have been

included in such a program in the past.330

345. EDTI explained that capital expenditures for this project are primarily driven by the

number and type of customer service connections installed in a given year. EDTI observed that

the average cost per connection increased over the 2010 to 2013 period and expected that the

trend will continue in 2014 and 2015, largely due to the following key factors: an increase in the

capacity, size and number of services for industrial customers, an increase in the number of big

box store complexes developed in EDTI’s service area, and an increase in the size and

complexity of service connections in the downtown core of Edmonton.

346. The forecast for this project for 2013 was developed based on EDTI’s forecast number of

service connections and on EDTI’s cost experience with the types and volumes of service

connections in the past, including the upward trend in cost per service connection for both aerial

and underground services. To forecast the number of service connections, EDTI relied on a

three-year annual average of the number of customer services over 2009 to 2011, consistent with

the approach used in its 2012 GTA.

347. In Decision 2013-435, the Commission approved 2013 forecast capital additions for this

project in the amount of $8.73 million.331 EDTI’s actual capital additions for this project were

$10.00 million, for a variance of $1.27 million.332 EDTI explained that the $1.27 million increase

in capital additions in 2013 was primarily related to a higher than forecast volume of customer

service connections being installed in 2013. Specifically, EDTI indicated that it was required to

328








install 584 customer service connections in 2013, rather than 473 customer service connections

forecast for that year. Also, included in EDTI’s 2013 capital additions was $1.09 million added

through CWIP for customer service work that was started in 2012 and completed in 2013.333

348. Regarding the prudence of its actual 2013 capital additions, EDTI indicated the costs

included in this project consisted of engineering (25 per cent), material (24 per cent) and

construction (51 per cent) costs. EDTI described the steps it took to ensure that the work was

completed in a cost effective manner.334 EDTI confirmed that “nothing occurred between the date

of EDTI’s 2013 Tracker Application and the work completed in 2013 that obviated the need for

this project, or that would have materially impacted the conclusions reached in EDTI’s analysis

of alternatives.”335


associated with this project to be $9.00 million in 2014 and $9.41 million in 2015.336 EDTI based

its 2014 forecast capital expenditures for this project on a normalized three-year average of the

total actual costs included in this project category from 2011 to 2013.337 EDTI provided details of

its normalized three-year average forecasting methodology for this project in response to AUC-

EDTI-19.338 The $0.41 million increase in capital additions from 2014 forecast to 2015 forecast is

primarily due to inflation.339

350. EDTI explained that the use of the normalized three-year average allows the forecast to

reflect the trend of increasing cost per service connection in the 2014 and 2015 forecast capital

additions for this project. As a further check, EDTI compared its forecast average costs per

service connection with its historical average costs per service connection and concluded that the

forecast costs per underground and aerial service connection are consistent with the three-year

historical average costs per underground and aerial service connection.340

Commission findings

351. In Decision 2013-435, the Commission determined that EDTI’s New Underground and

Aerial Service Connections for Commercial, Industrial, Multi-family and Miscellaneous

Customers project was required to maintain service reliability and safety at adequate levels in

2013. Further, the Commission determined that the scope, level, timing and forecast costs for this

project were reasonable as proposed for 2013. Accordingly, the Commission found that this






333

Proceeding 3216, Exhibit 1, 2013 true-up application, paragraph 221, 235. 334




Proceeding 3216, Exhibit 12, Appendix A-3, paragraphs 28-31, Proceeding 3100, Exhibit 22, appendix A-5,

paragraphs 28-31. 338







finds no evidence on the record of Proceeding 3216 to indicate that the New Underground and

Aerial Service Connections for Commercial, Industrial, Multi-family and Miscellaneous

Customers project was not required in 2013.

353. With respect to the scope, level and timing of the New Underground and Aerial Service

Connections for Commercial, Industrial, Multi-family and Miscellaneous Customers project

carried out in 2013, the Commission has reviewed EDTI’s 2013 actual capital additions of $10.0

million associated with this project and finds that they are generally consistent with the scope,

level and timing of the work outlined in the business case for this capital tracker and approved in

Decision 2013-435. The Commission has also reviewed the costs of the actual capital additions

for this capital tracker project in light of the evidence supporting these costs, the associated

procurement and construction practices and the evidence explaining the differences between

approved forecast and actual costs, and finds the actual costs to be prudent.







the New Underground and Aerial Service Connections for Commercial, Industrial, Multi-family

and Miscellaneous Customers project is not required to continue in 2014 or 2015. In this regard,

the Commission notes that during the hearing, Mr. Shymanski supported capital tracker

treatment for this project.342






EDTI’s forecasts and finds the total annual cost forecast to be reasonable based on the

normalized three-year average of 2011 to 2013 historical actual annual costs. The Commission

found EDTI’s normalized three-year average forecasting methodology to be reasonable in

Decision 2012-272.343 The Commission also finds the forecast costs to be reasonable when

compared to the actual costs in prior years.344


finding that the scope, level, timing and forecast costs for the capitalized underground system

damage project are reasonable as proposed for 2014 and 2015. Accordingly, the Commission


7.2.12 Underground Residential Distribution (URD) Servicing – Rebates, Acceptance

Inspections & Terminations

357. This ongoing project consists of development rebates, acceptance inspections,

terminations, and distribution work performed by EDTI with respect to URD servicing. EDTI

342



Proceeding 3100, Exhibit 22, Appendix A-5, Table 3.2-2 on page 9.



provided business cases and engineering studies for the URD servicing project in Appendix A-9

of the 2013 capital tracker true-up application and in Appendix A-11 of the 2014-2015 capital


358. EDTI explained that development rebates are paid when developers build underground

primary and secondary distribution infrastructure as part of new residential lot developments

within EDTI’s service area. URD infrastructure consists of primary and secondary distribution

cables, transformers and switch cubicles. Acceptance inspections occur when a developer has

installed URD infrastructure on a new lot and EDTI inspects the physical installation and assets,

as well as the developer’s engineering design, for compliance with the City of Edmonton

Servicing Standards Manual.345 The project includes instances where EDTI ties-in, energizes, and

terminates the URD facilities. Also included in this project is URD work done by EDTI, which

includes modifications, extensions, load balancing, and ties between developments on the

existing underground distribution system; and the cost of equipment and other assets including

cables, transformers, and switching cubicles.




required to provide service to customers at adequate levels. EDTI stated that it is also obligated

to provide the distribution infrastructure necessary to connect new customer sites to EDTI’s

system within the City of Edmonton under its Franchise Agreement.346

360. EDTI characterized the drivers of this project as the requirement to connect new

customers due to growth and requests by external developers for service.347 EDTI further

explained that the need for URD servicing is not subject to management discretion and given that

these are service connections to new customers, the project could not have been undertaken in

the past.

361. According to EDTI, the volume of URD servicing work is related to factors beyond its

control and, therefore, varies from year to year. As such, consistent with past GTAs, EDTI’s

2013 forecast number of lots requiring service was based on a three-year average of the 2009-

2011 actual annual lots serviced, where EDTI paid contributions. To forecast the capital

expenditures for the URD rebates portion of this project, EDTI multiplied the forecast number of

lots by $2,530, the rebate amount per lot that was approved by the Commission in Decision

2013-435.348 The URD inspection and termination expenditures were forecast using management

judgment and the 2009-2011 average cost per lot to complete this type of work. The capital

expenditures relating to URD work to be completed by EDTI were forecast based on

management judgement and the 2009-2011 average cost per lot to complete this type of work.




explained that the $7.40 million increase in capital additions from the approved 2013 forecast to

345



Transcript, Volume 3, pages 438-439 ( Mr. Sorenson). 348




2013 actual amounts reflects a higher number of actual lots serviced in 2013. EDTI had forecast

3,716 lots to which a rebate to developers would be provided, whereas the actual number of lots

rebated was 5,816.


work performed in 2013 in respect of this project related only to rebates paid to developers,

acceptance inspections of URD infrastructure, terminating and tying-in URD infrastructure to the

distribution system and URD work done by EDTI. EDTI confirmed that “nothing occurred

between the date of EDTI’s 2013 Tracker Application and the work completed in 2013 that

obviated the need for this project, or that would have materially impacted the conclusions

reached in EDTI’s analysis of alternatives.”349

364. The URD rebate of $2,530 per lot service remained unchanged from EDTI’s 2013

forecast capital tracker application. EDTI explained that 82 per cent of the 2013 actual capital

additions were associated with the rebates paid to developers. EDTI described the steps it took to

ensure that the work associated with each component of this project was completed in a cost

effective manner.350

365. With respect to acceptance inspections, which account for the remaining 18 per cent of

costs for this project, EDTI indicated it used both internal engineers and external consultants to

complete the work. External consultants are used when EDTI’s internal staff does not have the

required expertise. In 2013, EDTI used a single external engineering consultant whose rates were

consistent with a 2012 RFP for engineering design work. EDTI also explained inspections are

only done when the developer has issued notice of the work being completed. For the

terminations and tie-ins, EDTI uses internal staff and the required work is carried out only after

EDTI’s engineers approve the installation. The cables, transformers and switching cubicles used

in the URD project were all purchased through RFP processes. In 2011, a cable provider was

selected as the lowest cost provider who could meet the necessary requirements and was signed

to a five-year contract. A switching cubicle provider was chosen in 2007 as the lowest cost

provider for the majority of cubicles used. EDTI noted that for a number of cubicle types, the

costs have decreased between 2007 and 2013.351



with past applications, EDTI based its 2014 and 2015 forecast number of lots requiring service

on the historical average of actual lots serviced from 2011 to 2013. The rebate amount per lot

was determined by taking the 2013 rebate amount per lot of $2,530 and escalating it by I-X for

2014 and 2015. EDTI’s 2014 rebate amount is $2,570 per lot and the 2015 rebate amount is

$2,610 per lot.352 EDTI indicated it escalated the rebate amounts by I-X in accordance with

Decision 2012-237.353 The forecast expenditures for URD inspections and terminations, as well

as URD work completed by EDTI, were determined using the respective normalized three-year

349








average of actual costs from 2011-2013. The $0.38 million increase in capital additions from

2014 forecast to 2015 forecast is due to inflation.354

367. During the hearing, EDTI’s witness, Mr. Sorenson, indicated that for 2014 EDTI is

expecting to be over the original forecast of $17.72 million by $3.7 million at the end of the

year.355

368. EDTI indicated that this project cannot be deferred and no alternatives are available for

EDTI to meet its obligations to provide service. EDTI also maintained that a prudent capital

maintenance project could not have been undertaken in the past for this project because this

project provides service to new residential customers.356

Commission findings

369. In Decision 2013-435, the Commission determined that in 2013, the Underground

Residential Distribution Servicing project was required to maintain service reliability and safety

at adequate levels. Further, the Commission determined that for 2013, the scope, level, timing

and forecast costs for this project were reasonable as proposed. Accordingly, the Commission

found that this project satisfied the project assessment requirement of Criterion 1.357





finds no evidence on the record of Proceeding 3216 to indicate that the URD project was not

required in 2013.

371. With respect to the scope and timing of the URD project carried out in 2013, the

Commission has reviewed EDTI’s 2013 actual capital additions of $19.53 million associated

with this project and finds that the scope and timing are generally consistent with the scope and

timing outlined in the business case for this capital tracker and approved in Decision 2013-435.

372. With respect to the level of the URD project in 2013 and the resulting project costs of

$19.53 million, the Commission does not consider them to be consistent with the level outlined

in the business case for this capital tracker and approved in Decision 2013-435. Consistent with

its past practices, EDTI uses a three-year historical average approach to forecast capital additions

for this project. During the hearing, Mr. Elford confirmed that EDTI had relied on the three-year

average to forecast the expenditures on this project under cost of service regulation as well, prior

to advent of PBR.358

373. The Commission is of the view that this approach is reasonable given the extra

complexity and resources that would be required to forecast using another methodology and

would not necessarily be justified, as it is unlikely the results would provide a significantly more

accurate forecast of the capital additions for this project in the long run. The three-year historical

354


Transcript, Volume 2, page 254, lines 5-7 (Mr. Sorenson). 356






average methodology provides a reasonable forecast of the level of the project; however, given

the numerous factors that govern the actual level of URD installations or associated work, it is

recognized that there may be instances where the historical average methodology under or over

estimates the level of the project for a given year.

374. The Commission recognizes that the 2013 forecast provided using the three-year

historical average methodology under-forecast the capital additions for this project by

$7.4 million. The Commission is cognizant of the fact that capital additions under this project are

not within the control of EDTI and that the work must be completed as requested by new

customers. As such, although the level of the URD project in 2013 is not consistent with the

level approved in Decision 2013-435, the Commission finds that the actual level of capital

additions is prudent based on the actual number of lots connected.

375. The Commission has also reviewed the costs of the actual capital additions for this


and construction practices and the evidence explaining the differences between approved

forecast and actual costs, and finds the actual costs to be prudent.







the URD project is not required to continue in 2014 or 2015. In this regard, the Commission

notes that during the hearing, Mr. Shymanski supported capital tracker treatment for this

project.359









finding that the scope, level, timing and forecast costs for the URD project are reasonable as

proposed for 2014 and 2015. Accordingly, the Commission finds that this project satisfies the


7.2.13 Capital Tools and Instrument Purchases

379. This ongoing project consists of refurbishing, replacing and upgrading EDTI’s

distribution function tools and instruments that are required by EDTI personnel for their ongoing

safe construction, operation, inspection, maintenance and repair of EDTI’s distribution aerial and

359


Proceeding 3100, Exhibit 48, appendix A-11, paragraphs 19-21.



underground facilities.361 The majority of expenditures for this project are related to life cycle

replacement and a small portion of this project is necessary to meet new requirements based on

new testing standards specified for distribution equipment or for performance enhancement

purposes and allow EDTI field staff to complete their work in a safer or more efficient manner.362

EDTI explained that it capitalizes the costs associated with these projects consistent with its

Capitalization Policy and Property Unit Catalogue.363 EDTI noted that this project was approved

as a capital tracker in Decision 2013-435.364 EDTI provided business cases and engineering

studies for the Capital Tools and Instrument Purchases project in Appendix A-10 of the 2013


forecast application.



and reliable manner. Given these statutory responsibilities, EDTI is obligated to inspect, test, and

maintain in good order all installed electrical equipment.




application, EDTI explained that the fault locating and cable testing equipment was originally

planned to be placed in service for 2013; however, EDTI was able to place this equipment into

service by the end of 2012 resulting in 2013 costs being $0.29 million lower than forecast.

EDTI’s decision to engage a specialized contractor to carry out the condition testing and

engineering analysis of its underground cable sections obviated the need to purchase a cable test

set resulting in a $0.05 million decrease in costs. EDTI’s decision not to retrofit the components

in one of its meter shop test consoles resulted in a $0.05 million decrease in costs. EDTI

determined that the test console needs to be replaced and it will do so in 2015. These decreases

were partially offset by a $0.01 million increase relating to small increases in a number of capital

tool purchase categories.366

382. Regarding the prudence of its actual 2013 capital additions, EDTI confirmed that

“nothing occurred between the date of EDTI’s 2013 Tracker Application and the work

completed in 2013 that obviated the need for this project, or that would have materially impacted

the conclusions reached in EDTI’s analysis of alternatives.”367

383. In his evidence, Mr. Shymanski, for the UCA, indicated the following with respect to

EDTI’s Capital Tools and Instrument Purchases project and the Replacement of Faulted PILC

Cables project:

I have examined a number of EDTI’s proposed CT projects and have determined that at

least two of them, while slightly above the Tier 1 materiality, should not qualify for CT

status and thus K Factor calculation because EDTI’s forecasts are optimistic. A more

361

Proceeding 3216, Exhibit 1, Paragraph 329; Proceeding 3100, Exhibit 49, paragraph 1. 362

Proceeding 3100, Exhibit 80, 2014-2015 forecast application, paragraph 315, page 104 363




Proceeding 3216, Exhibit 1, 2013 true-up application, paragraph 337-338. 367




reasonable forecast, based on EDTI’s track record for that project in 2013, would result in

a slightly lower forecast capital addition that would not allow it to qualify for CT status

and thus K Factor inclusion.368

384. The first part of Mr. Shymanski’s recommendation, that this project should not qualify

for capital tracker treatment because it is “slightly above the Tier 1 materiality,” is dealt with in

Section 10 on Criterion 3 assessment. Regarding the second part of Mr. Shymanski’s

recommendation, that EDTI’s forecasts are optimistic, Mr. Shymanski acknowledged during the

hearing that, when looking at the actual historical expenditures from 2008 to 2013,369 EDTI does

not seem to have a consistent history of over-forecasting on capital tool and instrument

purchases.370

Table 8. Variance between forecasts and actuals on capital tool and instrument purchases 2008-2013 ($ million)371

2008 D

2008 A

2009 A

2009 A

2010 D

2010 A

2011 D

2011A 2012 D

2012 A

2013 D

2013 A

Capital Additions

0.47 0.57 0.62 0.44 0.96 1.19 0.63 0.86 1.17 1.12 1.36 0.98

Variance 0.10 (0.17) 0.23 0.23 (0.05) (0.38)

385. However, Mr. Shymanski maintained that the actual historical expenditures on this

project prior to PBR and associated variances between the actual and forecast numbers should

carry less weight when informing the Commission’s judgement than the 2013 variance:

Q. Why […] should we reduce the 2014 forecast based solely on the 2013 variance?

A. MR. SHYMANSKI: I would say in my view, that was the first -- well, is the first year

of the PBR, the capital tracker, and from my perspective that was the most relevant.

Q. And why is that?

A. MR. SHYMANSKI: It's a new type of regulation, PBR versus cost of service.

Q. But isn't capital trackers based on cost-of-service regulation?

A. MR. SHYMANSKI: The calculations in part are, but there's a more rigorous

requirement under PBR capital tracker to provide business case, to provide explanations

that didn't exist to that extent under cost of service.

Q. So in your view, then, basically what's gone before PBR should not be relevant in

determining whether the forecasts under PBR are relevant for capital tracker purposes?

A. MR. SHYMANSKI: It would have less weight. I wouldn't say it's irrelevant, but less

weight.372

386. Mr. Shymanski further explained that the 2013 forecast would have resulted in a capital

tracker; however, the actual spending is an amount that falls below the materiality threshold. In

this regard, Mr. Shymanski argued that because the 2014 forecast is “just so close to the

materiality limit, that it's likely they would do the same thing in the year 2014.”373

368



Transcript, Volume 5, page 805 line 23 to page 806 line 2. (Mr. Shymanski). 371

Proceeding 3100, Exhibit 49, Appendix A-12, paragraph 49, Table 5.0-1. 372







with past applications, EDTI indicated there are no changes in the scope of this project, and

referred again to its previous approval as a capital tracker in Decision 2013-435. In 2014, EDTI

plans to add new tools for growth vehicles, replace one of its portable fault locating test units,

complete the replacement of its atmospheric test equipment, which has reached the end of its

useful life and must be replaced for safety reasons, and equip all of its aerial linemen with arc

flash rated fall arrest harnesses.375 In 2015, EDTI plans to add one additional infrared camera for

use by an inspection crew carrying out thermal inspections and replace one meter test console.376


of a prudent capital maintenance and replacement program. This is because the replacement of

the particular tools and instruments that will reach the end of their useful lives in 2014 and 2015

is not an activity that could have been completed in previous years.377

Commission findings

389. In Decision 2013-435, the Commission determined that the Capital Tool and Instrument

Purchases project was required to maintain service reliability and safety at adequate levels in

2013. Further, the Commission determined that the scope, level, timing and forecast costs for this

project were reasonable as proposed for 2013. Accordingly, the Commission found that this


390. With respect to the true-up of 2013 actual costs, as noted in Section 3, in the absence of

evidence on the record that the project was not required, the Commission will not reconsider the

need for approved capital tracker programs or projects in a true-up application. The Commission

finds no evidence on the record of Proceeding 3216 to indicate that the Capital Tool and

Instrument Purchases project was not required in 2013.

391. With respect to the scope, level and timing of the Capital Tools and Instrument Purchases

project carried out in 2013, the Commission has reviewed EDTI’s 2013 actual capital additions

of $0.98 million associated with this project and finds that they are generally consistent with the

scope, level and timing of the work outlined in the business case for this capital tracker and

approved in Decision 2013-435. The Commission has also reviewed the costs of the actual

capital additions for this capital tracker project in light of the evidence supporting these costs, the








Criterion 1.

374


Proceeding 3100, Exhibit 49, Appendix A-12, paragraphs 20, 24, 30 and 33. 376

Proceeding 3100, Exhibit 49, Appendix A-12, paragraphs 10 and 19. 377





393. During the hearing, Mr. Shymanski expressed his view that this project should be denied

capital tracker treatment379 for the reasons set out earlier in this section. The Commission finds

no further evidence on the record of Proceeding 3100 to indicate that the Capital Tool and

Instrument Purchases project is not required to continue in 2014 or 2015.


Commission does not agree with Mr. Shymanski’s view that the 2013 variance should take

priority over the preceding five years when considering the validity of the 2014-2015 forecasts.

Although 2013 was the first year of the PBR regime, the treatment of capital expenditure

forecasts for capital tracker projects has generally remained the same as under the cost of service

regulation, albeit with more defined filing requirements to support the reasonableness forecast, as

set out in Section 10.2 of Decision 2013-435. As the Commission observed in that decision,

“[a]lthough the intent of the PBR plan was to break the link between revenues and costs, capital

trackers would be regulated on a cost-of-service basis, thereby linking revenues and costs for

these expenditures.”380

395. During the hearing, Mr. Shymanski acknowledged that when looking at the actual

historical expenditures from 2008 to 2013,381 EDTI does not seem to have a consistent history of

over-forecasting on capital tool and instrument purchases.382 The Commission agrees. As shown

in Table 8 above, over the 2008 to 2013 period, EDTI’s forecasts exceeded actual expenditures

in some years and were less than actuals in other years, with an overall variance netting to

approximately zero over this period. Therefore, the Commission does not agree with Mr.

Shymanski’s conclusion that “EDTI’s forecasts are optimistic” and does not accept his

recommendation to adjust downwards EDTI’s forecast capital additions on the capital tools and

instrument purchases project.383 In the event that EDTI’s actual capital additions on this project

are less than forecast, any necessary adjustments to the K factor amount recovered from EDTI’s

customers on a forecast basis will be made at the time of the true-up application.

396. EDTI’s forecast capital additions associated with this project are $0.76 million in 2014

and $0.87 million in 2015. The Commission has reviewed the business case and the relevant

portions of the record for this project and finds the forecast scope, level and timing of the project

for 2014 and 2015 to be prudent.

397. The Commission finds the total annual cost forecast to be reasonable based on the

specific activities that EDTI forecast for this project contained in Appendix A-10 of the 2013


forecast application. These activities include adding new tools for growth vehicles, replacing one

of its portable fault locating test units, completing the replacement of its atmospheric test

equipment, which has reached the end of its useful life and must be replaced for safety reasons,

and equipping all of its aerial linemen with arc flash rated fall arrest harnesses.384 In 2015, EDTI

379




Transcript, Volume 5, page 805 line 23 to page 806 line 2. (Mr. Shymanski). 383


Proceeding 3100, Exhibit 49, Appendix A-12, paragraphs 20, 24, 30 and 33.



plans to add one additional infrared camera for use by an inspection crew carrying out thermal

inspections and replace one meter test console.385


finding that the scope, level, timing and forecast costs for the Capital Tool and Instrument

Purchases project are reasonable as proposed for 2014 and 2015. Accordingly, the Commission


7.2.14 Poundmaker Feeders

399. The Poundmaker Feeders project involves the construction of four feeders from EDTI’s

new point of delivery at its Poundmaker substation located in west Edmonton. EDTI explained

that this project was necessary to maintain system reliability and provide the capacity to

accommodate customer growth in the area. Since this project was initially expected to be

completed in 2012, EDTI provided a copy of the Poundmaker Feeders project business case from

its 2012 GTA in Appendix A-11 of the 2013 capital tracker true-up application and in

Appendix C of the 2014-2015 capital tracker forecast application.



and reliable manner. Given these statutory responsibilities, EDTI explained that the work

completed under the Poundmaker Feeders project was necessary to maintain the safety and

reliability of its system. Construction of the new feeders was necessary to meet the capacity

needs related to the load growth on its system.

401. As explained in Decision 2013-435, the Poundmaker Feeders project is an example of

EDTI’s “Category 3” projects that require capital tracker treatment because of the application of

the mid-year convention. The mid-year convention calculation of the company’s going-in year

return and depreciation is one of the factors that may cause a shortfall in capital funding under

the PBR formula. As such, even though there were no capital additions forecast for the

Poundmaker Feeders project in 2013, the Commission afforded capital tracker treatment for this

project because of the shortfall in capital funding under the PBR formula.386

402. EDTI planned to complete all of the work associated with this project in 2012. However,

in 2011, EDTI was able to complete and put into service some aerial line reconfiguration work

that was required for this project resulting in capital additions of $0.15 million. This aerial work

was completed and put into service early to accommodate the installation of a new pipeline

through the Transportation Utility Corridor that required the relocation of EDTI facilities

associated with the Poundmaker Feeder project.387

403. EDTI indicated it completed the vast majority of the work in 2012, with capital additions

of $11.09 million, and was able to put this project into service in that year. In an IR, the

Commission asked EDTI why its 2013 capital tracker forecast application did not include

updated 2012 capital additions amounts for the Poundmaker Feeders project. EDTI responded

that it did not have sufficient time or resources to provide the updated information between the

385






time Decision 2012-237 was released and the time its 2013 capital tracker applications were

due.388

404. Due to abnormally cold weather in October 2012, EDTI could not complete all of the

required site restoration work and the permanent site access road by year end. EDTI completed

this remaining work in 2013 at a cost of $0.14 million. In addition, EDTI noted it was not able to

complete a small amount of the aerial work associated with this project in 2012 as initially

expected. This work was completed in 2013 at a cost of $0.01 million. Further, in 2013 EDTI

discovered that it had included an incorrect amount in rate base for certain cable assets related to

the project in 2012. The amount included was $0.08 million lower than the correct amount, and

EDTI corrected this error in 2013.389 EDTI’s actual capital additions for this project in 2013

totalled $0.23 million.

405. Overall, EDTI indicated that the total actual capital additions associated with the

Poundmaker Feeders project were $11.47 million. This actual cost is $4.24 million higher than

the forecast amount of $7.23 million approved in EDTI’s 2012 GTA, Decision 2012-272. EDTI

explained that this increase was primarily driven by higher than forecast costs for the

construction of the ductline component of the project resulting from poorer than expected soil

conditions in the area where the ductline was constructed. In the 2013 capital tracker true-up

application, EDTI outlined the specific factors that contributed to the increase in actual costs.390

During the hearing, Ms. Hull, for EDTI, provided further engineering insight on how poor soil

conditions contributed to a higher than forecast cost of the Poundmaker Feeders project.391

Combined, the increase in costs related to poor soil conditions totalled $1.0 million.

406. An additional $1.72 million increase was due to higher than expected costs related to

civil contractors. EDTI indicated it competitively procured contracted services for the ductline

construction and horizontal directional drilling required for the project. EDTI further stated that

market conditions in 2012 resulted in higher pricing to complete this work than forecast. EDTI’s

original forecast for this work was prepared in early 2011 when the market for civil construction

contracts was more favorable.392 In response to the CCA’s request, EDTI demonstrated that,

given the specialized and sporadic nature of the type of civil construction work required for the

Poundmaker Feeders project that led to the increased costs, such as construction of long length

distribution feeder duct lines, including horizontal directional drilling sections, there is no merit

in it developing these skills and acquiring the specialized equipment in-house.393

407. Several other factors resulted in increased costs for this project. One such factor was that

the ductline feeder capacity increased from six to eight feeders. The ductline configuration was

changed from a nine-way (six feeders total) to a 12-way (eight feeders total) to allow for two

additional feeders to be routed south from the substation to support projected growth in West and

Southwest Edmonton. EDTI indicated that the 2012 capital additions associated with the

increased capacity for future growth were $0.23 million. EDTI further elaborated on this issue:

388




Transcript, Volume 3, pages 463-464 and pages 468-469 (Ms. Hull). 392


Proceeding 3216, Exhibit 54.01, CCA-EDTI-13(d).



This additional capacity will allow EDTI to respond to changing load growth patterns

more efficiently and in a more timely manner, by reducing the construction requirements,

cost and time required to energize new distribution circuits from the Poundmaker

Substation (currently expected to be required in or about late 2015 based on EDTI’s

System Planning forecasts. There is limited unencumbered land within the 240kV

transmission line right of way where the feeders originate and EDTI is typically unable to

secure alignments from The City of Edmonton, for installation within City Road Right of

Way and Alberta Infrastructure, for installation within the TUC for these future

additional feeders until they must be installed. Additionally, as the project developed

EDTI concluded that the construction of a single 12 way ductline and access road could

be achieved at a significantly lower incremental cost than constructing a second ductline

for the two additional feeders in the future, in particular when the extra measures required

to address the poor soil conditions were considered. The cost to add the additional duct

space at this time was estimated to be approximately $180 per metre, or 83% cheaper

than if EDTI had to design and construct an additional ductline in the future. As a result

EDTI determined that the incremental cost of $0.23 million for increasing the capacity of

the duct bank was prudent.394

408. In response to a Commission IR, EDTI indicated that the full capacity of the ductline

would not be in use until 2025.395 During the hearing, Mr. Elford, for EDTI, further commented

on EDTI’s decision to expand the ductline feeder capacity:

And in this case, looking at the information in front of them and the fact that the

incremental cost was only $230,000, substantially less than what it would be if we had to

go back and build it ten years later, we determined that not to deviate from the alternative

we recommended, but to expand the scope a little bit in the interests of good planning.396

[…]

It's no different than when we build a new feeder in the conversation I had with Mr.

McNulty this morning. As feeders go in at a proper size and the capacity is not

immediately used up, customers connect to that feeder over time, and it rebalances the

load to allow us to run our system. If we constantly just built to exactly what was needed,

we would constantly be building in small pieces at a far higher cost. And so that's why

we are saying this is just some excess capacity in a duct line that will be used in the

future, and it will be far cheaper. And that's the prudent decision to make. If we're told

not to do that, we'll be coming back with future projects at a far higher cost, for example,

in this case.397

409. An additional factor leading to a $0.38 million increase in project costs resulted from a

design change of a project component involving intercepting two existing West Edmonton

substation feeders and re-routing them to the Poundmaker substation via the ductline. In the 2013

capital tracker true-up application, EDTI explained that these design changes resulted from

consultation with Alberta Infrastructure, where EDTI was required to ensure the installations

would not interfere with the proposed long term plan for expansion of Anthony Henday Drive in

394


Proceeding 3100, Exhibit 53.01, AUC-EDTI-13(a) and (b). 396





this area.398 During the hearing, Ms. Hull provided further engineering insight on the scope

changes related to this component of the Poundmaker Feeders project.399

410. During the hearing, Ms. Hull also clarified that the actual design of the constructed

Poundmaker feeders project, that includes the larger ductline feeder capacity and changes to the

two existing feeders, was not “Alternative 2” from the 2012 business case for this project that

EDTI had rejected as being too risky in its 2012 GTA.400

411. Finally, EDTI pointed out that the 2012 approved forecast capital additions amounts for

this project reflected the 2012 compliance filing amount rather than the originally filed 2012

forecast amount. EDTI indicated that the 2012 decision amount was $0.91 million lower than the

forecast for this project included in EDTI’s 2012 application.

412. Because the Poundmaker Feeders project was completed and put into service in 2013,

there are no capital additions associated with this project in either 2014 or 2015. In the 2014-

2015 capital tracker forecast application, EDTI indicated that it applied for capital tracker

treatment for this project because in 2014 and 2015, the revenue provided under the I-X

mechanism is not sufficient to recover the entire revenue requirement associated with the prudent

capital expenditures for this project.

413. EDTI maintained that this project is required to provide utility service at adequate levels.

EDTI further submitted that this capital project could not have been undertaken in the past as

part of a prudent capital maintenance and replacement program. Constructing new feeders as

required to meet load growth on EDTI’s system is not an activity that could have been included

in a prudent capital maintenance program in the past.401

Commission findings

414. The Poundmaker Feeders project was approved by the Commission in Decision 2012-

272. In Decision 2013-435, the Commission determined that this project was required to

maintain service reliability and safety at adequate levels in 2013. Further, the Commission

determined that the scope, level, timing and forecast costs for this project were reasonable as

proposed for 2013. Accordingly, the Commission found that this project satisfied the project






finds no evidence on the record of Proceeding 3216 to indicate that the Poundmaker Feeders

project was not required in 2013.

416. Regarding the scope, level and timing of this project carried out in 2013, the Commission

observes that the Poundmaker Feeders project is an example of EDTI’s Category 3 projects. As

398



Transcript, Volume 4, pages 558-559 (Ms. Hull). 401





explained in Decision 2013-435, capital additions were forecast to be $0 in 2013 because the

capital additions requiring capital tracker treatment were expected to be made in 2012.403

However, EDTI indicated that while the majority of this project was completed and put into

service in 2012, some small capital additions were also made in 2011 and in 2013.404

417. The total actual capital addition for this project was $11.47 million, which is $4.24

million higher than the forecast amount of $7.23 million approved in Decision 2012-272, with

respect to EDTI’s 2012 GTA. Because the 2011 and 2012 actual capital additions for the project

should be used in the determination of the revenue requirement component of the accounting test

for 2013 and subsequent years, for purposes of the K factor calculations,405 the Commission

needs to assess the prudency of EDTI’s total capital additions of $11.47 million for this project,

spanning the years 2011, 2012 and 2013.

418. EDTI explained that the majority of the $4.24 million increase was primarily made up of

higher than forecast costs associated with the construction of the ductline component of the

project. In this regard, the Commission accepts EDTI’s explanations,406 supplemented with Ms.

Hull’s oral testimony,407 on how poor soil conditions resulted in significant design modifications

being made to ensure the structural integrity of the ductline, leading to the actual construction

costs being $1.0 million higher than forecast.

419. The Commission also accepts EDTI’s explanation that construction complexities related

to the Poundmaker site, such as poor soil conditions, more difficult construction site access, and

special site safety requirements associated with carrying out ductline construction directly

underneath energized transmission lines, resulted in actual costs related to civil contractors being

$1.72 million higher than forecast. The Commission agrees with EDTI’s explanations that,

because of the specialized and sporadic nature of the type of civil construction work required for

the Poundmaker Feeders project that led to the increased costs, such as construction of long

length distribution feeder duct lines, including horizontal directional drilling sections, developing

these skills and acquiring the specialized equipment in-house is likely to be more expensive than

using available external contractors that complete this work on a regular basis and have the

necessary equipment.408 Because EDTI had competitively procured contracted services for the

ductline construction and horizontal directional drilling required for the project, the resulting

contractor costs are likely to be reflective of the market rate at the time and, therefore, are

reasonable.

420. For similar reasons, the Commission finds EDTI’s 2013 actual capital additions for this

project to be reasonable. EDTI indicated that it issued an RFP that included the site restoration,

civil works and road construction work required to complete this project in 2013. EDTI chose the

contractor with the lowest bid that could meet the project schedule and who had significant

experience completing similar work.409

403


Proceeding 3216, Exhibit 1, 2013 true-up application, Table 3.1.13-3 on page 111. 405

Proceeding 2131, Exhibit 284.01, paragraphs 13-14. AUC letter in response to the ATCO companies request for

clarification on matters related to Decision 2013-435, December 23, 2013. 406



Proceeding 3216, Exhibit 54.01, CCA-EDTI-13(d). 409




421. Another component that led to a $0.23 million increase in actual project costs was

EDTI’s decision to increase the ductline feeder capacity from six to eight feeders. EDTI

explained this decision was guided by two considerations:

MR. ELFORD: So there's two factors. The first, of course, is cost. It's substantially

cheaper to add the incremental capacity of that duct line while you're building it, because

you only have to open up roadways and excavate and all these things one time instead of

coming back later to do it again. So the incremental costs of adding it is cheaper.

The other thing with duct lines is there's not always a lot of space in these right-of-ways.

And so when you get -- when you build in these areas, getting that space and having it

there is far better than if you have to come back later and try and build another duct line

adjacent to what you have only to realize there's no space left in the alignment and

suddenly you're going blocks over and around to get to the destination that you ultimately

wanted to get to.410

422. The Commission accepts this explanation. EDTI estimated the cost to add the additional

duct space to be approximately 83 per cent less than if EDTI had to design and construct an

additional ductline in the future.411 Further, during the hearing, Ms. Hull confirmed that there are

no increased operations and maintenance costs associated with installing a 12-way rather than

nine-way ductline.412 Mr. Elford indicated that the ductline itself is presently being used to

provide utility service413 and that the average service life for a ductline for depreciation purposes

is 50 years, allowing it to serve future customers as load grows in the area.414

423. In light of these considerations and given that the resulting incremental costs of $0.23

million represent approximately two per cent of the total project cost, the Commission finds

EDTI’s decision to increase the capacity of the duct bank to be prudent and the resulting cost to

be reasonable.

424. An additional factor leading to a $0.38 million increase in project costs resulted from a

design change of a project component involving intercepting two existing West Edmonton

substation feeders and re-routing them to the Poundmaker substation via the ductline. As EDTI

explained, these design changes resulted from consultation with Alberta Infrastructure, where

EDTI was required to ensure the installations would not interfere with the proposed long term

plan for expansion of Anthony Henday Drive in this area.415 The Commission finds the design

modification for this component of the project and the resulting cost to be reasonable.

425. For the reasons above, the Commission finds that the actual scope, level and timing of the

work in 2011-2013 for the Poundmaker Feeders project is prudent. The Commission has also

reviewed the costs of the actual capital additions for this capital tracker project in light of the

evidence supporting these costs, the associated procurement and construction practices and the

evidence explaining the differences between approved forecast and actual costs, and finds the

actual costs in each of 2011, 2012 and 2013 to be prudent.

410



Transcript, Volume 3, page 452, lines 5-6 (Ms. Hull). 413



Proceeding 3216, Exhibit 1, 2013 true-up application, paragraph 357 and Transcript, Volume 3, pages 463-464

and pages 467-468 (Ms. Hull).









the Poundmaker Feeders project is not required to maintain service reliability and safety at

adequate levels. In this regard, the Commission notes that during the hearing, Mr. Shymanski

supported capital tracker treatment for this project.416


Commission observes that the Poundmaker feeders project is an example of EDTI’s

“Category 3” projects. As such, capital additions were forecast to be $0 in 2014 and 2015

because the capital additions requiring capital tracker treatment were made in 2011-2013.

428. Category 3 projects would receive capital tracker treatment when the revenue provided

under the I-X mechanism is not sufficient to recover the entire revenue requirement associated

with the prudent capital expenditures for this project. EDTI’s calculated revenue shortfall for the

Poundmaker Feeders project in 2014 and 2015 is based on the 2011-2013 actual capital additions

for this project, which the Commission found to be prudent earlier in this section. Accordingly,


7.3 New capital trackers

429. This section deals with EDTI’s projects or programs that have not been previously

approved for capital tracker treatment. For such projects, the Commission determined that, as

part of project assessment, the applicant must demonstrate that a project proposed for capital

tracker treatment is (i) required to provide utility service at adequate levels and, if so, (ii) the

scope, level and timing of the project are prudent, and the forecast or actual costs of the project

are reasonable.417

7.3.1 OMS/DMS Life Cycle Replacement

430. This ongoing project consists of replacing the entirety of EDTI’s obsolete systems and

technology used in its Control Operations Centre.418 EDTI explained that its staff currently uses

an obsolete outage tracking system and “mimic board.” EDTI submitted that a new industry-

standard electronic Outage Management System (OMS) and Distribution Management System

(DMS) are necessary to ensure that it is able to operate its systems in a safe, reliable and efficient

manner. EDTI added that “the capital expenditures associated with this project are required to

prevent deterioration in service quality and safety, and service quality and safety cannot be

maintained by continuing with O&M and capital spending levels that are not substantially

different from historic levels.”419

431. EDTI noted that this project was included in its 2013 capital tracker forecast application

as a zero K factor and the scope has not changed since that time.420 EDTI provided a business

416








case and an engineering study for the OMS/DMS Life Cycle Replacement project in




and reliable manner.421 EDTI maintained that this project is required for EDTI to meet its

obligations to provide safe and reliable service.

433. EDTI further explained that the need for replacement of its OMS/DMS is driven by the

existing system becoming obsolete and reaching the end of its useful life.422 EDTI added that not

proceeding with this project would result in a risk of data loss, a decrease in efficiency and safety

in managing its electrical network, and the inability to maintain current system reliability as the

network and system complexity grow.423

434. In the 2014-2015 capital tracker forecast application, EDTI is only seeking capital tracker

treatment for 2015 and has forecast capital additions associated with this project of $9.09 million

in 2015. The OMS/DMS Life Cycle Replacement project began in 2011. However, 2015 is the

first year for which there are capital additions. The total forecast capital additions for this project

are $12.1 million. EDTI explained that the remaining $3.01 million in capital additions for this

project will be incurred in 2016.

435. EDTI’s total forecast capital additions for this project were based on a 2012 RFP, where

EDTI chose three vendors that met its functional, technical, cost, and experience requirements.

EDTI then chose a single vendor after reviewing similar systems the vendor had installed and

considering all the relevant technical and cost factors. In analysing the costs, EDTI examined the

total cost of ownership, including implementation, software purchase and ongoing

maintenance.424

436. When EDTI brought the OMS/DMS project forward as a “zero K factor” capital tracker

in its 2013 forecast application, the project’s total forecast capital additions were $10.22 million.

The increase in forecast capital additions between the 2013 forecast application of $10.22 million

and forecast capital additions in the 2014-2015 capital tracker forecast application of $12.1

million is due to changes required by EDTI to update its data maintenance business processes so

they are compatible with its new OMS/DMS system.425 The forecast capital additions required to

complete these changes are $1.90 million.426 EDTI outlined the steps it has taken, or will take, to

minimize project costs.427

437. The 2015 forecast capital additions for this project represent the portion of total forecast

capital expenditures being added to rate base in 2015. This $9.09 million in forecast capital

additions for 2015 reflects actual annual capital expenditures of $0.09 million in 2011,

$0.65 million in 2012, $0.09 million in 2013, and forecast annual capital expenditures of

421






Proceeding 3100, Exhibit 50, Appendix A-13, Table 3.2-1. 427




$5.31 million in 2014 and $2.95 million in 2015.428 Capital expenditures in the years 2015 have

not been reflected in EDTI’s rate base prior to 2015 because the capital was not yet required for

the provision of utility service and was recorded as construction work in progress (CWIP).


of a prudent capital maintenance and replacement program. This is because the project is

replacing an old technology that is obsolete and the “evolving technology” was not previously

available.429

439. In an IR response to the Commission, EDTI explained the term “evolving technology”

and why it was not previously available:

The evolving technology that makes this project possible is the development and

availability of commercial, industry proven OMS/DMS software systems that fully

integrate with EDTI’s existing GIS [Geographic Information System] and SCADA

[supervisory control and data acquisition] systems. The OMS/DMS system will allow for

complete system visibility across EDTI’s service area and will automate EDTI’s

switching order creation process. As well, it will automate much of EDTI’s existing

manually driven emergency preparedness and response systems and provide information

to support more efficient crew dispatch. This system will serve as a scalable foundation

for intelligent device (automated switch) management in the future.430

440. During the hearing, Mr. Elford further discussed the timing of the OMS/DMS project

with Commission counsel:

Q. Can you advise when this evolving technology became available?

A. MR. ELFORD: Not specifically. These systems have evolved over time, and part of it

is we are now a place where the technology is -- it's fairly mature. We have the necessary

GIS system in place now that will allow us implement a system like this, and the current

systems we were using are well past the end of their lives. This is the right time to do it,

and the technology is available in the market to purchase a vendor-supplied system.

There's are always been vendor-supplied systems. This is the right time for us to do it.

Q. So if I can just clarify, sir. The reason for moving to this technology now, is the right

time for EDTI, or was it in fact available earlier to you?

A. MR. ELFORD: Different versions would have been available to us earlier. So OMS

systems have been around for a number of years, but systems like the OMS/DMS that

will integrate with our GIS, which we had to get in place prior to making this

implementation to give us what we needed. I've just -- sort of the integrated systems have

only come out in the last several years at a mature level.431

Commission findings

441. EDTI requested capital tracker treatment for the OMS/DMS project in 2015. EDTI did

apply for capital tracker treatment for this project in 2013 as a zero K factor, given there were no

capital additions in 2013 associated with this project. In Decision 2013-435, the Commission

found the following with respect to EDTI’s zero K factor projects:

428







Accordingly, EPCOR’s proposed zero K factors are denied. However, the Commission is

making no ruling on EPCOR’s business cases associated with zero K factors. EPCOR is

not precluded from applying for capital tracker treatment for these projects in the year

when the capital additions are expected to occur.

442. The Commission has reviewed the business case and engineering study provided by

EDTI and the evidence on the record of Proceeding 3100 with respect to EDTI’s OMS/DMS life

and finds that the information provided by EDTI supports a finding that the project is required

during the 2015 forecast period to maintain service reliability and safety at adequate levels.





the information supporting EDTI’s forecasts and finds the total annual cost forecast to be

reasonable on the basis of the forecast methodology described in the business case for this

project.432


finding that the scope, level, timing and forecast costs for the OMS/DMS project are reasonable

as proposed for 2014 and 2015. Accordingly, the Commission finds that this project satisfies the


7.3.2 Capitalized Aerial System Damage

445. This ongoing project consists of repairs to EDTI’s aerial distribution facilities that have

been damaged or that have failed or are about to fail.433 EDTI explained that this project is

required to maintain the safety and reliability of its distribution system. EDTI pointed out that

this project was previously approved in Decision 2010-505434 and Decision 2012-272 dealing

with its 2010-2011 and 2012 GTAs, respectively.435 EDTI provided a business case and an

engineering study for the Capitalized Aerial System Damage project in Appendix A-14 of the


446. EDTI stated that under sections 105 and 127 of the Electric Utilities Act, EDTI as the



replace failed or damaged aerial facilities in a timely manner to maintain the safety and

reliability of its system. Failure to replace such facilities can lead to power outages for

customers, and can create safety hazards for both EDTI’s personnel and the general public.

447. EDTI further explained that the need for replacement is identified through its

underground inspection program and damage reports from other parties. The primary drivers

behind the need to replace failed or damaged aerial distribution facilities and the resulting capital

432

Proceeding 3100, Exhibit 50, Appendix A-13, paragraphs 5-13 and 25-27. 433


Decision 2010-505: EPCOR Distribution & Transmission Inc., 2010-2011 Phase I Distribution Tariff,

2010-2011 Transmission Facility Owner Tariff, Application No. 1605759, Proceeding ID. 437, October 28,

2010. 435






expenditures include such causes as weather-related forces, vehicle collisions, vandalism,

wildlife contacts, and deterioration caused by aging.437


associated with this project to be $1.41 million in 2014 and $1.50 million in 2015. According to

EDTI, the volume of capitalized aerial system damage replacements is related to factors beyond

its control and, therefore, varies from year to year.438 As such, EDTI’s 2014 and 2015 forecast

capital expenditures for this project were based on a normalized three-year average (2011-2013)

of historical actual annual costs.439

449. EDTI provided details of its normalized three-year average forecasting methodology for

this project in response to AUC-EDTI-23.440 The $0.09 million increase in capital additions from

2014 forecast to 2015 forecast is due to expected inflation of the project’s cost components, as

reflected in the 2011 to 2013 normalized average method used to develop the forecast.441


of a prudent capital maintenance and replacement program. This is because the need for repair

arises as damage and system failures occur on EDTI’s system. As such, by their nature, capital

additions for this project are not associated with activities that could have been included in a

prudent capital maintenance program in the past.442

Commission findings

451. EDTI requested capital tracker treatment for the Capitalized Aerial System Damage

project for 2014 and 2015. EDTI did not apply for capital tracker treatment for this project in

2013. However, EDTI continued with this activity in that year.443 Further, the project was

previously approved by the Commission in Decision 2010-505 and Decision 2012-272, dealing

with EDTI’s 2010-2011 and 2012 GTAs, respectively.


EDTI and the evidence on the record of Proceeding 3100 with respect to EDTI’s Capitalized

Aerial System Damage project and finds that the information provided by EDTI supports a

finding that the project is required during the 2014-2015 forecast period to maintain service

reliability and safety at adequate levels. In this regard, the Commission notes that during the

hearing, Mr. Shymanski supported capital tracker treatment for this project “because it’s related

to damage.”444



project and finds the forecast scope, level and timing of the project for 2014 and 2015 are


2014 and $1.50 million in 2015. The Commission found EDTI’s normalized three-year average

437







Proceeding 3100, Exhibit 51, Appendix A-14, Table 6.0-1 on page 5. 444




forecasting methodology to be reasonable in Decision 2012-272.445 The Commission has

reviewed the information supporting EDTI’s forecasts and finds the total annual cost forecast for

this project to be reasonable based on the normalized three-year average of 2011 to 2013

historical actual annual costs.


finding that the scope, level, timing and forecast costs for the Capitalized Aerial System Damage

project are reasonable as proposed for 2014 and 2015. Accordingly, the Commission finds that

this project satisfies the project assessment requirement of Criterion 1.

7.3.3 Underground Industrial Distribution (UID) Servicing – Rebates, Acceptance

Inspections & Terminations

455. This ongoing project consists of building new underground 15- and 25-kV primary

cables, switching cubicles, and ancillary equipment in order to connect new industrial lots in

EDTI’s service area to the distribution system. Also included in the UID Servicing project is

work to carry out modifications to correct for double lugging, which EDTI explains consists of

“switching cubicles with two terminations of feeder cables connected to one set of switches.”446

Double lugging configurations no longer meet EDTI’s standards for reliability levels and safe

work practices and, accordingly, EDTI is modifying these configurations. Work to correct

double lugging is carried out by EDTI, when possible, alongside new UID construction.447

456. EDTI submitted that this project is necessary to connect new industrial customers to its

distribution system. EDTI noted that this project was previously approved in Decision

2008125,448 Decision 2010-505, and Decision 2012-272 dealing with its 2007-2009, 2010-2011,

and 2012 GTAs, respectively.449 EDTI provided business cases and engineering studies for the

UID Servicing project in Appendix A-13 of the 2013 capital tracker true-up application and in



owner of an electric distribution system, is obligated to provide and maintain safe, adequate, and

proper service. Furthermore, under its franchise agreement with the City of Edmonton (City),

EDTI is obligated to provide service to sites within the City. Given these statutory

responsibilities, EDTI is obligated to carry out UID servicing within its service area to facilitate

the supply of electricity to new industrial customers.450

458. The work done on UID servicing is shared between EDTI and the land developer. The

land developer prepares the design for the UID infrastructure, according to EDTI and City of

Edmonton standards, and completes the installation work, while EDTI performs design

oversight, site inspections, and the installation of switching cubicles to connect new subdivisions

445

Decision 2012-272, paragraphs 232-233 446



Decision 2008-125: EPCOR Distribution & Transmission Inc., 2007-2009 Distribution Tariff, 2007-2009

Transmission Facility Owners Tariff, Code of Conduct Exemption, Application No. 1558686, Proceeding

ID. 14, December 3, 2008. 449






to the distribution system. EDTI submitted that design alternatives are put forth, when possible,

to ensure a cost effective design choice.451

459. A rebate is paid by EDTI to the land developer based on 80 per cent of the cost of the

installed underground system. The costs for the cables, switching cubicles, cable terminations,

road crossings and trenching used to calculate the rebate are prepared and published by EDTI

annually. The remaining 20 per cent of the UID servicing cost is the developer’s contribution.452

460. This project was not included in EDTI’s 2013 capital tracker application because it did

not meet the materiality threshold. EDTI did, however, state that UID Servicing projects have

previously been approved by the Commission in decisions prior to the implementation of capital

trackers.453 The 2013 forecast costs for the UID Servicing project were based on a three-year

historical average of the number of hectares of UID Servicing completed from 2010 to 2012 and

EDTI’s historical UID project costs and current year cost estimates for engineering, materials,

testing, and commissioning.454

461. EDTI did not apply for capital tracker treatment for the UID Servicing project in 2013 on

a forecast basis. However, in the 2013 capital tracker true-up application, EDTI applied for

capital tracker treatment for this project based on 2013 actual capital additions of $1.40 million.

EDTI explained that the revenue requirement associated with these 2013 capital additions is not

fully funded under the I-X mechanism and passes the materiality threshold. The 2013 forecast

capital additions associated with the UID Servicing project were $1.59 million.455 EDTI

explained the decrease in capital additions from forecast to actuals was the result of fewer

hectares of land being serviced and the installation of fewer switching cubicles and cables.456

462. In an IR response to the Commission, EDTI explained that the UID Servicing project

now exceeds the materiality threshold for capital trackers, despite the fact that actual capital

additions are lower than forecast, as a result of the 2012 total capital additions of $2.65 million

being higher than the $1.47 million approved in Decision 2012-272. EDTI further explained that

the 2012 actual capital additions were $1.18 million higher than forecast due to a higher than

forecasted number of hectares being serviced. In 2012, 56 hectares were forecast to be serviced,

as compared to the 112 hectares that were actually serviced.457 In an IR response to the

Commission, EDTI explained that the large number of hectares serviced in 2012 was driven by

three UID developments whose average size was 27 hectares.458

463. Regarding the prudence of its actual 2013 capital additions, EDTI explained that the

80 per cent rebate of developers’ costs is based on 80 per cent of the costs EDTI would have

incurred had it completed the work itself, not the developers’ actual cost of completing the

451





Proceeding 3216, Exhibit 28, Appendix A-13, Table 5.0. 456



Proceeding 3100, Exhibit 93, AUC-EDTI-24(c).



work.459 EDTI submitted that this treatment for the UID rebates aids in controlling costs and was

approved in Decision 2012-272.460

464. With respect to acceptance inspections, EDTI uses both internal engineers and external

consultants to complete the work. External consultants are used when EDTI’s internal staff does

not have the required expertise. In 2013, EDTI used a single external engineering consultant

whose rates were consistent with a 2012 RFP for engineering design work. EDTI also explained

that inspections are only done when the developer has issued notice of the work being

completed. For the terminations and tie-ins, EDTI uses internal staff and the required work is

carried out only after EDTI’s engineers have approved the installation. The cables, transformers

and switching cubicles used in the UID servicing project were all purchased through RFP

processes. In 2011, a cable provider was selected as the lowest cost provider who could meet the

necessary requirements and was signed to a five-year contract. The switching cubicle provider

was chosen in 2007 as the lowest cost provider for the majority of cubicles used. EDTI noted that

for a number of cubicle types, the costs have decreased between 2007 and 2013.461



with past applications, EDTI based its 2014 forecast capital expenditures for this project on a

three-year historical average of the number of hectares of UID servicing from 2011 to 2013, in

addition to EDTI’s historical UID project costs and current year cost estimates for engineering,

materials, testing, and commissioning.462 The $0.03 million increase in capital additions from

2014 forecast to 2015 forecast is primarily due to inflation.463

466. At the time of its IR responses to the Commission, EDTI indicated that in 2014 it had

already serviced 57 hectares of land under the UID Servicing project, and was expecting to

service more than 100 hectares throughout 2014.464

467. EDTI explained that there are no feasible alternatives to either the installation of UID

service connections or the correction of double lugging configurations and that the project cannot

be deferred and still allow EDTI to meet its obligations to provide service.465 EDTI also

maintained that a prudent capital maintenance program could not have been undertaken in the

past for this project because the purpose of this this project is to provide service to new industrial

customers.466

Commission findings

468. EDTI requested capital tracker treatment for the UID Servicing project in 2014 and 2015.

EDTI did not apply for capital tracker treatment for this project in its 2013 forecast application.

However, EDTI continued with this activity for that year and is now applying for capital tracker

treatment in 2013 in its true-up application based on the actual capital additions. The project was

459

Proceeding 3100, Exhibit 135.01, EDTI argument, paragraph 164. 460





Proceeding 3100, Exhibit 93, AUC-EDTI-24(c). 465





previously approved by the Commission in Decision 2010-505 and Decision 2012-272, dealing

with EDTI’s 2010-2011 and 2012 GTAs, respectively.


EDTI and the evidence on the record of Proceeding 3216 with respect to EDTI’s UID Servicing

project and finds that the information provided by EDTI supports a finding that the project was

required to maintain service reliability and safety at adequate levels during 2013, while

connecting new industrial customers to its distribution system.

470. With respect to EDTI’s request for capital tracker treatment for 2013 based on 2013

actual capital additions, the Commission has reviewed the scope, level, and timing of the UID

Servicing project carried out in 2013 and the 2013 actual capital additions of $1.40 million.

Further, the Commission has reviewed the costs of the actual capital additions for this proposed


and construction practices and the evidence explaining the difference between forecast and actual

costs. The Commission finds the actual costs for this project in 2013 to be prudent.

471. EDTI also requested capital tracker treatment for this project in 2014 and 2015. The

Commission finds no evidence on the record of Proceeding 3100 to indicate that the UID

Servicing project is not required for 2014 or 2015. With respect to the scope, level, and timing of

this project for 2014 and 2015, the Commission has reviewed the business case and the relevant

portions of the record for this project and finds the forecast scope, level, and timing of the project

for 2014 and 2015 to be reasonable. EDTI’s forecast capital additions associated with this project

are $1.30 million in 2014 and $1.33 million in 2015. The Commission has reviewed the

information supporting EDTI’s forecasts and finds the total annual forecast to be reasonable

based on the forecast methodology outlined in its business case.467


finding that the scope, level, timing and forecast costs for EDTI’s UID servicing project are

reasonable as proposed for 2014 and 2015. Accordingly, the Commission finds that this project

satisfies the project assessment requirement of Criterion 1.

7.3.4 Replacement of Faulted Distribution PILC Cables

473. This project is a new proposed capital tracker, as it did not previously meet the

materiality threshold for purposes of previous capital tracker applications. However, EDTI noted

that the project has been previously approved in Decision 2008-125, Decision 2010-505 and

Decision 2012-272.468 EDTI provided business cases and engineering studies for the

Replacement of Faulted Distribution Paper Insulated Led Covered (PILC) Cable project in




and reliable manner. Given these statutory responsibilities, EDTI is obligated to repair failed

PILC cable in a timely manner to maintain the safety and reliability of its system.469

467






475. EDTI explained in its application that this project consists of the replacement of faulted

distribution PILC cable and cable accessories as cable faults occur.470 EDTI confirmed that its

practices for the replacement of faulted distribution PILC cable in this project are consistent with

standard industry practice, as demonstrated through participation in the Centre for Energy

Advancement through Technical Innovation (CEATI) International Inc., Distribution Assets Life

Cycle Management (DALCM) interest group and discussions with other participating utility

members.471

476. In his evidence, Mr. Shymanski for the UCA indicated the following with respect to

EDTI’s Capital Tools and Instrument Purchases project and the Replacement of Faulted

Distribution PILC Cables project:







477. The Commission addresses the first part of Mr. Shymanski’s recommendation, that these

projects should not qualify for capital tracker treatment because they are “slightly above the

Tier 1 materiality,” in Section 10 dealing with the Criterion 3 assessment.

478. With respect to forecasting, Mr. Shymanski maintained that the actual historical

expenditures on this project prior to PBR and associated variances between the actual and

forecast numbers should carry less weight when informing the Commission’s judgment than the

2013 variance:

Q. Why [… ] should we reduce the 2014 forecast based solely on the 2013 variance?

A. MR. SHYMANSKI: I would say in my view, that was the first -- well, is the first year

of the PBR, the capital tracker, and from my perspective that was the most relevant.

Q. And why is that?

A. MR. SHYMANSKI: It's a new type of regulation, PBR versus cost of service.

Q. But isn't capital trackers based on cost-of-service regulation?

A. MR. SHYMANSKI: The calculations in part are, but there's a more rigorous

requirement under PBR capital tracker to provide business case, to provide explanations

that didn't exist to that extent under cost of service.

Q. So in your view, then, basically what's gone before PBR should not be relevant in

determining whether the forecasts under PBR are relevant for capital tracker purposes?

A. MR. SHYMANSKI: It would have less weight. I wouldn't say it's irrelevant, but less

weight.473

479. Mr. Shymanski explained that “where you don't have previous capital tracker experience,

you need to look at the prior years to give you some guidance.”474 In the case of the Replacement

of Faulted Distribution PILC Cables project, EDTI did not apply for capital tracker treatment in

470








2013 on a forecast basis. Looking at 2008 through 2012, Mr. Shymanski noted that all the

numbers are close to zero in variance, but a variance as small as $40,000 will put this project

below the materiality threshold.475

Table 9. Variance between forecasts and actuals on Replacement of Faulted Distribution PILC Cables 2008-2013 ($ million)476

2008 D

2008 A

2009 A

2009 A

2010 D

2010 A

2011 D

2011 A

2012 D

2012 A

2013 D

2013 A

Capital Additions

0.48 0.33 0.52 0.58 0.29 0.31 0.31 1.30 0.41 0.71 - 0.88

Variance (0.15) 0.06 0.02 0.99 0.30 -

Note: EDTI did not apply for capital tracker treatment of this project in 2013 on a forecast basis. As such, there is no available decision value or variance for 2013.



with past applications, EDTI based its 2014 forecast number of failures for this project on a

three-year historical average.478 EDTI explained that the forecast capital expenditures are based

on the forecast number of failures multiplied by the average cost of replacements and adjusted

for inflation.479

481. EDTI provided details of its three-year historical average forecasting methodology for

this project in response to AUC-EDTI-25. The number of PILC cable failures can vary

significantly from year to year, generally due to non-predictable deterioration in the cable

insulation systems and the lead sheath of the PILC cable, and uncontrollable environmental

conditions such as moisture and temperature. To account for the effects of the year-over-year

fluctuations, the forecast is based on the three-year historical average of failures multiplied by

the three-year average cost of replacement, adjusted for inflation.480


of a prudent capital maintenance and replacement program as the need for this project arises as

cable failures occur on EDTI’s existing PILC cable system.481

Commission findings

483. EDTI requested capital tracker treatment for the Replacement of Faulted Distribution

PILC Cables project in 2014 and 2015. EDTI did not apply for capital tracker treatment for this

project in 2013. However, EDTI continued with this activity in that year. Further, the project was

previously approved by the Commission in Decision 2008-125, Decision 2010-505 and

Decision 2012-272.

475


Proceeding 3100, Exhibit 49, Appendix A-12, paragraph 49, Table 5.0-1. 477









EDTI and the evidence on the record of Proceeding 3100 with respect to EDTI’s Replacement of

Faulted Distribution PILC Cables project and finds that the information provided by EDTI

supports a finding that the project is required during the 2014-2015 forecast period to maintain

service reliability and safety at adequate levels.

485. Mr. Shymanski expressed his view that this project should be denied capital tracker

treatment482 for the reasons discussed earlier in this section. The Commission finds no further

evidence on the record of Proceeding 3100 to indicate that the Replacement of Faulted

Distribution PILC Cable project is not required to continue in 2014 or 2015.


Commission does not agree with Mr. Shymanski’s view that the 2013 variance should take

priority over the preceding five years when considering the validity of the 2014 and 2015

forecasts. Although 2013 was the first year of the PBR regime, the treatment of capital

expenditure forecasts for capital tracker projects has generally remained the same as under cost

of service regulation, albeit with more defined filing requirements to support the reasonableness

of the forecast, as set out in Section 10.2 of Decision 2013-435. As the Commission observed in

that decision, “[a]lthough the intent of the PBR plan was to break the link between revenues and

costs, capital trackers would be regulated on a cost-of-service basis, thereby linking revenues and

costs for these expenditures.”483

487. As Table 9 shows, for the period 2008 to 2012, EDTI’s actual capital additions on this

project exceeded the forecasts in three years out of four. Given this history of under-forecasting,

the Commission does not agree with Mr. Shymanski’s concern that EDTI’s forecasts on this

project are optimistic. Further, in the event that EDTI’s actual capital additions on this project

are less than forecast, any necessary adjustments to the K factor amount will be made at the time

of the true-up application.

488. EDTI’s forecast capital additions associated with this project are $0.98 million in 2014

and $1.01 million in 2015. The Commission has reviewed the information supporting EDTI’s

forecasts and finds the total annual cost forecast to be reasonable based on the three-year

historical average.


finding that the scope, level, timing and forecast costs for the Replacement of Faulted

Distribution PILC Cables project are reasonable as proposed for 2014 and 2015. Accordingly,


7.3.5 Neighbourhood Renewal program

490. This ongoing program is a continuation of a number of life cycle replacement projects

that contemplate the replacement of a large portion of the electric distribution infrastructure

within identified aging neighbourhoods. This is the first time this program is proposed for capital

tracker treatment. EDTI explained that the program did not previously meet the materiality

threshold for inclusion as a capital tracker.484 EDTI pointed out that this program was approved

482

Transcript, Volume 5, page 798, line 10 (Mr. Shymanski). 483





in the past in Decision 2010-505 and Decision 2012-272, dealing with its 2010-2011 and

2012 GTAs, respectively.485 EDTI provided business cases and engineering studies for the

neighbourhood renewal program in Appendix A-17 of the 2014-2015 capital tracker forecast

application.




failed or damaged facilities on its distribution system in a timely manner to maintain the safety

and reliability of its system.

492. EDTI explained in its application that this program consists of rebuilding aging EDTI

distribution facilities in specific neighbourhoods to maintain the reliability of its system and to

protect the public and EDTI workers. Neighbourhoods are reviewed on a case-by-case basis to

determine the scope of work required.


associated with this program to be $0.28 million in 2014 and $2.29 million in 2015.486 EDTI

explained that costs are forecast based on EDTI’s experience in completing similar work of this

type in the past.487 The 2014 forecast included completing work related to its Landsdowne

neighbourhood renewal project, which originally began in 2012.488 Continued scope refinements

allowed EDTI to replace less than what was originally planned for. The remaining work to be

completed in 2014 consists of replacing one cubicle, five padmount transformers with associated

bases and three km of cable.489 This work was originally planned to be completed in 2013, but

EDTI postponed the work in light of the uncertainty related to the approval of its 2013 capital

tracker forecast application.490 “Based upon the asset degradation level of the equipment,

including the level of rust, condition of the deteriorating concrete bases, condition of the locks

and hinges, et cetera,” EDTI decided to delay the replacement of one 200 amp live-front cubicle,

five Type PS live-front padmount transformers with associated concrete bases, and three km of

aged #2 copper primary cable and #4/0 aluminum secondary cable because it expected that it

could delay this work for a short period of time without significantly increasing the risk of

adverse effects on its ability to maintain safe and reliable service.

494. In 2014 and 2015, EDTI explained that it will also complete the initial phases of a

six-year Duggan neighbourhood renewal project. In early 2012, EDTI reviewed the condition of

the underground distribution assets in the Duggan neighbourhood and concluded that it was

“necessary and prudent” to complete a rehabilitation of EDTI facilities in the area. EDTI will

begin the engineering design in 2014.491

495. The 2014 and 2015 program estimates were developed based on the scope of work and

the cost experience from the Lansdowne project. As life cycle replacements are broadly required

485










across entire neighborhoods, EDTI has identified significant benefits associated with the

concurrent replacement of assets.492

496. EDTI indicated that it cannot maintain the service quality and safety of EDTI’s system by

continuing with O&M and capital spending levels that are not substantially different from

historic levels and that the capital expenditures associated with this program are required to

prevent increasing numbers of power failures and avoid deterioration in service quality and

safety.493

497. EDTI explained that prior to 2010, it replaced facilities intermittently and infrequently for

reasons unrelated to the long-term life expectancy of assets. Now EDTI is faced with a

substantial portion of the facilities serving a number of older neighborhoods that are at or past

their anticipated design lives, and are beginning to fail or reach the point of imminent failure.494

Commission findings

498. EDTI requested capital tracker treatment for the Neighbourhood Renewal program in

2014 and 2015. EDTI did not apply for capital tracker treatment for this program in 2013.

However, EDTI continued with this activity in that year.495 Further, the program was previously

approved by the Commission in Decision 2010-505 and Decision 2012-272.


EDTI and the evidence on the record of Proceeding 3100 with respect to EDTI’s Neighbourhood

Renewal program and finds that the information provided by EDTI supports a finding that the

program is required during the 2014-2015 forecast period to maintain service reliability and

safety at adequate levels. In this regard, the Commission notes that during the hearing,

Mr. Shymanski supported capital tracker treatment for this program.496

500. With respect to the scope, level and timing of this program for 2014 and 2015, the


program and finds the forecast scope, level and timing of the program for 2014 and 2015 to be

reasonable. EDTI’s forecast capital additions associated with this program are $0.28 million in


EDTI’s forecasts and finds the total annual cost forecast to be reasonable based on forecasts

derived from EDTI’s experience in completing similar work of this type in the past.


finding that the scope, level, timing and forecast costs for the Neighbourhood Renewal program

are reasonable as proposed for 2014 and 2015. Accordingly, the Commission finds that this

program satisfies the project assessment requirement of Criterion 1.

492








7.3.6 Customer Revenue Metering – Growth & Life Cycle Replacements

502. This ongoing project consists of installing revenue meters at new sites and replacing

meters at existing sites that are no longer compliant with Measurement Canada requirements.497

503. EDTI explained that this project is required to ensure that each site in EDTI’s service

area has an accurate, functional meter that meets the requirements of the Electricity and Gas

Inspection Act and Regulations.498 EDTI noted that this project was not applied for in its 2013

capital tracker forecast application because it did not meet the materiality threshold at that time.

However, EDTI is now applying for capital tracker treatment in the 2013 true-up application.

EDTI pointed out that this project was approved in past Commission Decision 2008-125,

Decision 2010-505 and Decision 2012-272 dealing with its 2007-2009, 2010-2011 and 2012

GTAs, respectively.499 EDTI provided a business case and an engineering study for the Customer

Revenue Metering – Growth & Life Cycle Replacements project in Appendix A-15 of the 2013

capital tracker true-up application and Appendix A-18 of the 2014-2015 capital tracker forecast

application.

504. EDTI explained that from 1988 until 2011, Measurement Canada specification LMB-EG-

04 governed compliance sample testing. In 2011, Measurement Canada introduced a new

compliance specification, S-S-06, which became effective for electronic meters in that year.

Effective in 2014, Measurement Canada specification S-S-06 applies to all electricity meters,

including the older-technology electro-mechanical meters which make up the bulk of EDTI’s

meter population. EDTI submitted that because of the Measurement Canada specification S-S-06

and Bill C-14, the Fairness at the Pumps Act, it expects to replace significantly more meters than

historical levels beginning in 2014. EDTI explained that the Measurement Canada specification

S-S-06 and Bill C-14 increased the number of sample meters pulled for testing, reduced the time

that meters can be left in service for a particular meter group that passed testing, and introduced

financial penalties and sanctions for failed meter groups.500

505. EDTI also stated that under sections 105 and 127 of the Electric Utilities Act, EDTI, as

the owner of an electric distribution system, is obligated to operate and maintain its system in a

safe and reliable manner, and to provide and maintain service that is safe, adequate and proper.

Further, EDTI is obligated to provide service to sites within the City of Edmonton under the

terms of its franchise agreement with the City of Edmonton. EDTI further explained that meters

must be installed at sites to provide distribution service and that failure to do so would mean

EDTI is not compliant with these obligations.501

506. Specifically, under Measurement Canada specification S-S-06, EDTI is now required to

test 80 meters for meter lots of up to 500 meters, whereas previously it was required to test only

28 meters. EDTI explained that when a meter is removed for testing, it must be replaced at the

site with a meter from its inventory. EDTI also explained that the new specification resulted in a

larger number of sampling lots due to more stringent grouping criteria, the effect of which is that

EDTI must test more meter lots and replace a greater number of meters. Measurement Canada

specification S-S-06 also contains more stringent evaluating criteria for testing sample meters,

497








which EDTI submitted can result in a meter lot that would have previously passed a test now

failing the compliance testing. By way of example, EDTI stated that in 2012, in a sample of 55

meters, two meters found to have an error greater than 2.9 per cent would have resulted in that

meter lot receiving a two year seal extension where it could remain in use before requiring

another sample test. Under Measurement Canada specification S-S-06, that lot would have failed

and would need to be replaced with new meters.502

507. Bill C-14, the Fairness at the Pumps Act, came into force on August 1, 2014. EDTI

explained the Fairness at the Pumps Act introduces financial penalties for inaccurate measuring

devices and allows Measurement Canada to impose penalties based on a number of factors,

including assessing the likelihood that meters fail testing under Measurement Canada

specification S-S-06. EDTI stated that:

As a result, prior to deciding to sample test a meter lot in a given year, EDTI must now

carefully assess whether the lot should, in fact, be sample tested, or should instead be (1)

replaced based on the likelihood that it will fail sample testing and EDTI will be exposed

to the above-mentioned consequences or (2) individually tested (which would require

replacing all of the meters for testing purposes in any event). This increased risk will

result in EDTI being forced to replace a higher number of meters than under the prior

regulatory scheme.503

508. In the 2013 capital tracker true-up application, EDTI applied for capital tracker treatment

for the Customer Revenue Metering – Growth & Life Cycle Replacements project based on 2013

actual capital additions of $4.63 million. EDTI’s 2013 forecast capital additions associated with

this project were $2.15 million. This forecast was not approved by the Commission, as EDTI did

not apply for the capital tracker treatment of this project on a forecast basis in 2013. The variance

between 2013 forecast capital additions and actual capital additions is an increase of

$2.48 million.

509. EDTI explained that the variance was due in part to a $0.95 million increase resulting

from EDTI capitalizing inspection expenses related to new service installations, which EDTI

submitted is “in accordance with the capitalization of such expenses by other electric distribution

utilities in Alberta.”504 EDTI further explained that these inspection costs had been previously

charged to operating accounts. However, new City of Edmonton invoicing practices have made it

possible for EDTI to directly attribute the inspections costs associated with installing meters at

new service locations.505 Further contributing to the variance between 2013 actuals and the

forecast capital additions is $0.74 million increase due to the installation of an additional 1,784

single-phase meters, 1,120 network meters, and 33 new commercial meters, resulting from

stronger than forecast economic growth in Edmonton. EDTI also explained that there was a

$0.78 million increase resulting from the replacement of an additional 3,823 meters, of which

3,615 meters had to be replaced given an unanticipated failure in compliance sample test

results.506

502





Proceeding 3216, Exhibit 53.01, AUC-EDTI-18(b).



510. In 2013, EDTI replaced a total of 8,159 meters at a cost of $1.28 million and installed a

total of 8,804 new meters due to growth at a cost of $2.40 million. The remainder of EDTI’s total

2013 actual capital additions is made up of $0.95 million for the capitalization of inspections.507

EDTI explained that the supplier of its meters was originally designated through a request for

quotations (RFQ) in 2009 for two years, which was later extended until the end of 2014, given

that the supplier has Measurement Canada approved meters and could supply them at a lower

cost than other competitors.508


associated with this project to be $4.79 million in 2014 and $4.19 million in 2015.509 EDTI’s

2014 and 2015 forecast capital expenditures for this project were based on the forecast number

of meters to be installed multiplied by the forecast installation cost per meter , which includes the

engineering, labour, materials, and vehicle costs associated with the installation. In 2014, EDTI

forecast the installation of 6,400 new single-phase meters, 6,030 single-phase meter

replacements, 2,100 new network meters, 3,953 network meter replacements, 482 new

commercial meters, and 1,882 commercial meter replacements. In 2015, EDTI forecast the

installation of 6,500 new single-phase meters, 360 single-phase meter replacements, 2,140 new

network meters, 40 network meter replacements, 482 new commercial meters, and 2,363

commercial meter replacements.

512. EDTI explained that its 2015 forecasts assume approval of the AMI project.510 In 2014,

the forecast total capital additions for the Customer Revenue Metering – Growth & Life Cycle

Replacements project are $4.79 million, regardless of whether the AMI project is approved. In

2015, however, if the AMI project is approved, the forecast capital additions for customer

revenue metering are $4.19 million. If the AMI project is not approved, EDTI forecast the 2015

capital additions to be $5.85 million.511

513. The difference arises because, if the AMI project is approved, EDTI will be able to apply

for dispensation from the new Measurement Canada specification S-S-06, given that it would be

replacing existing meters that would otherwise require testing, with new meters as part of the

AMI project. Approval of the AMI project would result in the number of meters that require

testing, as part of the Customer Revenue Metering– Growth & Life Cycle Replacements project,

to be limited to meters that are tested individually and not as part of a larger group, or are

damaged and suspected of failure. If the AMI project is not approved, more meters will require

replacement as a result of sample testing under Measurement Canada specification S-S-06,

which will result in a higher cost.512

514. EDTI provided a further description of its 2014 and 2015 forecast methodology for the

Customer Revenue Metering – Growth & Life Cycle Replacements project in the business case

for this project.513 EDTI indicated that this capital project is not subject to management

507


Proceeding 3216, Exhibit 33, Appendix A-15, section 3.4. 509



Proceeding 3100, Exhibit 80, 2014-2015 forecast application, paragraph 423 and Proceeding 3100, Exhibit

93.01, AUC-EDTI-1(a). 512


Proceeding 3100, Exhibit 55, Appendix A-18, paragraphs 21-25.



discretion, cannot be deferred, and is required to be undertaken so that EDTI is in compliance

with Measurement Canada’s requirements.514

Commission findings

515. EDTI requested capital tracker treatment for the Customer Revenue Metering – Growth

& Life Cycle Replacements project in 2014 and 2015. EDTI did not apply for capital tracker

treatment for this project in its 2013 forecast application. However, EDTI continued with this

activity for that year and is now applying for capital tracker treatment in 2013 in its true-up

application based on the actual capital additions. Further, the project was previously approved by

the Commission in Decision 2008-125, Decision 2010-505 and Decision 2012-272, dealing with

EDTI’s 2007-2009, 2010-2011 and 2012 GTAs, respectively.

516. With respect to EDTI’s request in the 2013 capital tracker true-up application for capital

tracker treatment in 2013 for this project on an actual basis, the Commission has reviewed the

business case and engineering study provided by EDTI and the evidence on the record of

Proceeding 3216 and finds that the information provided by EDTI supports a finding that the

project was required in 2013 to maintain service reliability and safety at adequate levels. In this

regard, the Commission notes that during the hearing, Mr. Shymanski supported capital tracker

treatment for this project “because it’s a growth component project.”515

517. The Commission has reviewed the scope, level, and timing of the Customer Revenue

Metering – Growth & Life Cycle Replacements project carried out in 2013 and finds the scope,

level and timing of the work carried out in 2013 to be prudent. Further, the Commission has

reviewed the costs of the actual capital additions for this proposed capital tracker project in light

of the evidence supporting these costs, the associated procurement and construction practices and

the evidence explaining the difference between forecast and actual costs for the 2008 to 2013

period, and finds the actual costs of capital additions of $4.63 million to be prudent.

Accordingly, the Commission finds that this project satisfies the project assessment requirement

of Criterion 1 for 2013.

518. EDTI also requested capital tracker treatment for this project in 2014 and 2015. The

Commission has reviewed the business case and engineering study provided by EDTI and the

evidence on the record and finds that the information provided by EDTI supports a finding that

the project is required during the 2014-2015 period to maintain service reliability and safety at

adequate levels.

519. With respect to the scope, level, and timing of this project for 2014, the Commission has


forecast scope, level, and timing of the project for 2014 to be reasonable. EDTI’s forecast capital


the information supporting EDTI’s forecasts and finds the total annual forecast to be reasonable

based on the forecast number of new meters and meter replacements to be installed in 2014, as

outlined its forecast methodology.516

514


Transcript, Volume 5, page 799, lines 15 to 18 (Mr. Shymanski). 516




520. EDTI explained that, unlike in 2014, the forecast scope, level, and timing of the

Customer Revenue Metering – Growth & Life Cycle Replacements project, and the resulting

capital additions in 2015 are dependent on whether EDTI proceeds with the AMI project.517

Specifically, EDTI indicated that, because of the new Measurement Canada specification S-S-06,

if the AMI project is implemented, the forecast capital additions for the Customer Revenue

Metering – Growth & Life Cycle Replacements project are $4.19 million. If the AMI project is

not implemented, EDTI forecast the 2015 capital additions to be $5.85 million.518

521. As set out in Section 11.2, the Commission is making no determination in this decision as

to whether the AMI project qualifies for capital tracker treatment on a forecast basis. The

Commission also states that any requests associated with the customer revenue metering function

as part of a Y, Z or K factor application must be considered in light of its finding that based on

the evidence in the present proceedings, the AMI project represents the least cost alternative for

performing the customer revenue metering function for EDTI.

522. Given EDTI’s evidence that if the AMI project was implemented, the forecast capital

additions for the Customer Revenue Metering – Growth & Life Cycle Replacements project are

$4.19 million for 2015, the Commission is only prepared to approve on a forecast basis, EDTI’s

lower forecast of the 2015 capital additions of $4.19 million associated with this project.


finding that the scope, level, timing and forecast costs for the EDTI’s Customer Revenue

Metering – Growth & Life Cycle Replacements project, as approved by the Commission, are

reasonable as proposed for 2014 and 2015. Accordingly, the Commission finds that this project

satisfies the project assessment requirement of Criterion 1 for 2014 and 2015.

7.3.7 Life Cycle Replacement of Network Transformers

524. This ongoing project consists of replacing aging network transformers installed in

sidewalk vaults on EDTI’s downtown Edmonton secondary network system. EDTI is requesting

capital tracker treatment for this project in 2015. EDTI did not request capital tracker treatment

of this continuing project in 2013 or 2014.

525. EDTI pointed out that this project was previously approved in Decision 2010-505 and

Decision 2012-272 dealing with its 2010-2011 and 2012 GTAs, respectively.519 EDTI provided

a business and engineering study for the network transformer life cycle replacement project in

Appendix A-20 in the 2014-2015 capital tracker forecast application.




replace failed or damaged aerial facilities in a timely manner to maintain the safety and

reliability of its system.

517


Proceeding 3100, Exhibit 80, 2014-2015 forecast application, paragraph 423, and Exhibit 93.01, AUC-EDTI-

1(a). 519





527. EDTI further explained that the need for replacement arises when the condition of the

transformer deteriorates to the point where there is a significant risk of the transformer failing.521

The primary drivers of this project are reducing public safety hazards, mitigating the possible

rupture of a tank and release of transformer oil into the environment, and minimizing the

increased potential for prolonged customer outages.522


associated with this project to be $0.99 million in 2014 and $3.96 million in 2015. EDTI is only

requesting capital tracker treatment for 2015 because in 2014 the project does not meet the first

tier materiality threshold. In 2015, EDTI is forecasting to replace 10 network transformers at an

average installed unit cost of $0.40 million.523 When asked in an information request whether

EDTI would have been able to replace a more uniform number of transformers in each of 2014

and 2015, rather than the proposed three in 2014 and 10 in 2015, EDTI responded that it did not

forecast having the internal resources to complete more than three replacements in 2014 and that

it was unaware of any contractors that could complete this work.524

529. During the hearing, EDTI explained that the internal resources required to install its

network transformers are split between this project and the LRT relocation projects:

Q. Here EDTI indicated that it would not have the resources in '14 to replace more than

three transformers, but it would have sufficient resources to replace ten in '15. Can you

explain this when you're annually replacing four to six transformers?

A. MS. HULL: Mr. McNulty, it's due to our bottom-up budgeting and our resource

loading. We have significant resources pointed towards the LRT relocations, which are

also working within the network system, and there will be some network transformers

that will be taken care of as part of that project that are being relocated. So due to the

resource loading of those constrained resources, which, more specifically, are network

trades resources, that's why there's three in 2014 and ten in 2015.

…

This project is three transformers, and the forecast for LRT is six transformers in 2014.

For 2015, this project is ten transformers and one transformer for the LRT project in

2015.

Q. So a total of nine in '14 and 11 in '15; is that right?

A. MS. HULL: Yes, for a total of 20 across both projects.525

530. EDTI also indicated that, if it replaced six transformers in 2014 and seven in 2015 as part

of this project, the 2014 K factor amount for this project would still not reach the materiality

threshold and the 2015 K factor amount would still reach the materiality threshold.526

521






Transcript, Volume 3, page 407-408 (Ms. Hull).



531. The average cost per installed unit in 2013 was $0.06 million, and EDTI explained that

the increase from 2013 to 2015 was because different and new types of equipment need to be

installed to comply with the Institute of Electrical and Electronics Engineers (IEEE) guidelines:

EDTI will replace the existing oil switch network transformers and their live

front protectors with a vacuum switch elbow type transformer that has a remote

monitoring device and a dead front protector. The existing transformers have high

voltage oil switches mounted on them, whereas the new transformers will have an elbow

connection and are connected to a vacuum switch by an XLPE cable. In addition a remote

monitoring control panel will be installed above ground outside the vault to allow

operation of the vacuum switch from a safe location. This approach is consistent with the

IEEE C57.108 Guideline for the Protection of Network Transformers.527

532. In an IR response to the Commission, EDTI confirmed that IEEE guidelines C57.104 and

C37.108 are industry standards for the replacement practices of network transformers. When

asked whether the changes in equipment and additional equipment required were driven by IEEE

guidelines, EDTI responded that:

Replacing existing oil switch network transformers with vacuum switch elbow type

network transformers is consistent with IEEE C37.108. However, the use of a dead front

protector, the addition of a remote monitoring device and the secondary disconnect

switch are not discussed in IEEE C37.108 or IEEE C57.104.528

533. EDTI explained that the consequence of not adopting the changes consistent with IEEE

Guidelines is there would be a safety risk associated with completing protector maintenance in

EDTI’s vaults.529

534. EDTI submitted that this capital project could not have been undertaken as part of a

prudent capital maintenance and replacement program. This is because while EDTI does regular

inspections and maintenance, the need for replacement arises when the condition of the

transformer deteriorates to the point where there is a significant risk of failure. EDTI also

explained that it may be uneconomical to complete more maintenance and repair on these

transformers as compared to replacing them.530

Commission findings

535. EDTI requested capital tracker treatment for the Life Cycle Replacement of Network

Transformers project in 2015. EDTI did not apply for capital tracker treatment for this

continuing project in 2013 because it failed to meet the materiality threshold in that

application.531 EDTI is continuing this project in 2014. However, it did not meet the first tier

capital tracker materiality threshold in 2014.

536. The project was previously approved by the Commission in Decision 2010-505 and

Decision 2012-272, dealing with EDTI’s 2010-2011 and 2012 GTAs, respectively. The

Commission has reviewed the business case and engineering study provided by EDTI and the

527








evidence on the record of Proceeding 3100 with respect to EDTI’s Life Cycle Replacement of

Network Transformers project and finds that the information provided by EDTI supports a

finding that the project is required to maintain service reliability and safety at adequate levels

during 2015. During the hearing, Mr. Shymanski expressed his view that this project should be

denied capital tracker treatment.532 However, Mr. Shymanski did not provide any support for his

position. The Commission finds no further evidence on the record of Proceeding 3100 to indicate

that the Life Cycle Replacement of Network Transformers project is not required in 2015.


reviewed the business case and the relevant portions of record for this project. The Commission

observes that when the total number of network transformers installed between the Life Cycle

Replacement of Network Transformers project and the LRT Relocations project is considered,

the level and timing of the Life Cycle Replacement of Network Transformers project is similar

for 2014 and 2015. The Commission further notes EDTI’s explanation that if it replaced six

transformers in 2014 and seven in 2015 as part of this project, there would be no effect on the

2014 and 2015 K factor results with respect to satisfying the materiality threshold.533 The

Commission finds the forecast scope, level and timing of the project for 2015 to be prudent.

EDTI’s forecast capital additions associated with this project is $3.96 million in 2015. The

Commission has reviewed the information supporting EDTI’s forecast and notes EDTI’s

explanation that the forecast average cost increase from 2013 to 2015 is based on the forecast

cost for the different and new types of equipment needed to meet Institute of Electrical and

Electronics Engineers (IEEE) guidelines. The Commission finds the total annual cost forecast to

be reasonable.


finding that the scope, level, timing and forecast costs for the Life Cycle Replacement of

Network Transformers project are reasonable as proposed for 2015. Accordingly, the


7.3.8 Street Light Service Connections and Security Lighting Addition and Capital

Replacement

539. EDTI explained that this project is a new proposed capital tracker because it did not

previously meet the materiality threshold for purposes of capital tracker applications. However,

EDTI noted that the project has been previously approved in Decision 2008-125, Decision

2010 505 and Decision 2012-272.534 EDTI provided business cases and engineering studies for

the Street Light Service Connections and Security Lighting Additions and Capital Replacements

project in Appendix A-21 of the 2014-2015 capital tracker forecast application.



and reliable manner. Given these statutory responsibilities, EDTI is obligated to install necessary

service connections at each site and repair or replace failed assets that are required to supply

electricity to sites in EDTI’s service area.535

532

Transcript, Volume 5, pages 798-799 (Mr. Shymanski). 533






541. EDTI explained in its application that this project consists of ensuring that EDTI’s street

lighting, signal and security lighting customers were provided with adequate, safe and reliable

service connections. Costs included in completing capitalized repairs or additions to EDTI-

owned security lighting systems are also included in this capital tracker.536

542. In its argument, EDTI noted that “neither the UCA nor CCA sought any additional

information with respect to this project in the information request process and neither filed any

written evidence suggesting that this project was inappropriate for capital tracker treatment.”537


associated with this project to be $0.68 million in 2014 and $0.69 million in 2015.538 EDTI

explained that the forecast is based on the normalized three-year average of the actual costs

associated with this project from 2011 to 2013 and that the primary costs included in the 2014

and 2015 forecast for this project are costs associated with engineering, construction and the

preparation of as-built drawings of new unmetered service connections or replacement assets.539


of a prudent capital maintenance and replacement program.540 In response to AUC-EDTI-35,

EDTI confirmed that all operation and maintenance costs associated with the lighting project

have been removed from the calculation of the forecast capital tracker amount for this project.541

Commission findings

545. EDTI requested capital tracker treatment for the Street Light Service Connections and

Security Lighting Addition and Capital Replacement project in 2015. EDTI did not apply for

capital tracker treatment for this project in 2013. However, EDTI continued with this activity in

that year.542 EDTI continued this project in 2014. However, it did not meet the first tier capital

tracker materiality threshold for 2014.

546. The project has been previously approved by the Commission in Decision 2008-125,

Decision 2010-505 and Decision 2012-272. The Commission has reviewed the business case and

engineering study provided by EDTI and the evidence on the record of Proceeding 3100 with

respect to EDTI’s Street Light Service Connections and Security Lighting Addition and Capital

Replacement project and finds that the information provided by EDTI supports a finding that the

project is required during the 2014 and 2015 forecast period to maintain service reliability and

safety at adequate levels.

547. The Commission notes that during the hearing, Mr. Shymanski expressed his view that

this project should be denied capital tracker treatment “because it’s a lifecycle replacement.”543

The Commission finds no further evidence on the record of Proceeding 3100 to indicate that the

Street Light Service Connection and Security Lighting Addition and Capital Replacement project

is not required to continue in 2014 or 2015.

536














reasonable. EDTI’s forecast capital additions associated with this project are 0.68 million in

2014 and $0.69 million in 2015. The Commission found EDTI’s normalized three-year average

methodology to be reasonable in Decision 2012-272.544 The Commission has reviewed the

information supporting EDTI’s forecasts and finds the total annual cost forecast to be reasonable

based on the normalized three-year average of the actual costs associated with this project from

2011 to 2013.


finding that the scope, level, timing and forecast costs for the Street Light Service Connections

and Security Lighting Addition and Capital Replacement project are reasonable as proposed for

2014 and 2015. Accordingly, the Commission finds that this project satisfies the project

assessment requirement of Criterion 1.

7.3.9 Life Cycle Replacement of PILC Cable Systems

550. This project is a new proposed capital tracker for 2015 related to the life cycle

replacement of underground PILC cable systems on EDTI’s system that have reached the end of

their useful lives. EDTI noted that the Commission reviewed the project as part of the 2013

capital tracker application and found that the project satisfied Criterion 1.545 The project did not,

however, meet the first tier capital tracker materiality threshold.546 The project also fails to meet

the materiality threshold in 2014.




failed or damaged PILC cables in a timely manner to maintain the safety and reliability of its

system.547

552. EDTI explained in its application that this project and capital tracker consists of the life

cycle replacement of PILC cable systems on EDTI’s system that have reached the end of their

useful lives.548 EDTI provided business cases and engineering studies for the Life Cycle

Replacement of PILC Cable Systems project in Appendix A-16-1 of the 2014-2015 capital


553. This project was initiated following EDTI’s review of the significant increase it

experienced in 2011 in the number of customer hours of interruption due to PILC cable system

failures.549 Selection of cables for replacement is based on EDTI’s selection of its worst

performing PILC cables based on cable condition assessments, including cable insulation voltage

withstand testing.550

544










554. Mr. Elford supported the need for this new capital program by pointing out the increase

in the failure rate:

We’ve seen -- this year we've seen the highest level of PILC cable failures we’ve seen in

recent history. Pointing to the fact that yes, we were right, we need to do something about

those cables. And we’re doing it as a result, but those are the sorts of things we see. And

so that validates that if we -- here's a segment we said we’d replace and it’s failed.551

555. At the time of the 2013 capital tracker application, EDTI proposed to replace 20 km of

PILC cable between 2013 and 2017. EDTI noted that its assessment of need has not changed and

it still plans to replace 20 km of cable before 2017.552


associated with this project to be $0.42 million in 2014 and $1.70 million in 2015.553 EDTI

explained that 1.6 km, 6.1 km, and 12.3 km of PILC cables are planned for replacement in 2014,

2015, and 2016-2017, respectively, to reach a total of 20 km of PILC cable by 2017.554 Over the

long term, EDTI anticipates that this proactive life cycle replacement program will result in

fewer failures of PILC cables, which EDTI expects will result in lower capital expenditures in

the replacement of faulted distribution PILC cables.555

557. EDTI provided details of its forecasting methodology for this project in response to

AUC-EDTI-25. The Life Cycle Replacement of PILC Cable Systems is a proactive project that

replaces aging PILC cables with poor performance. EDTI forecasts the quantum of customer

hours of interruption with respect to the quantum of PILC cable proposed for replacement each

year, consistent with the method KEMA used to forecast the quantities of XLPE underground

cable.556


of a prudent capital maintenance and replacement program. This is because once the insulation

of the PILC cable has deteriorated, there is no amount of maintenance that can be carried out to

restore the condition of the insulation.557

Commission findings

559. EDTI requested capital tracker treatment for the Life Cycle Replacement of PILC Cable

Systems project in 2015. This project was reviewed in Decision 2013-435 and found to satisfy

capital tracker Criterion 1.558 However, it did not meet the first tier capital tracker materiality

threshold.559 EDTI continued this project in 2014. However, it did not meet the first tier capital

tracker materiality threshold in 2014.

551












560. In Decision 2013-435, the Commission determined that the Life Cycle Replacement of

PILC Cable Systems project was required to maintain service reliability and safety at adequate


costs for this project were reasonable as proposed for 2013. The Commission has reviewed the

business case and engineering study provided by EDTI and the evidence on the record of

Proceeding 3100 with respect to EDTI’s Life Cycle Replacement of PILC Cable Systems project

and finds that the information provided by EDTI supports a finding that the project is required in

2015 to maintain service reliability and safety at adequate levels.

561. The Commission notes that during the hearing, Mr. Shymanski expressed his view that

this project should be denied capital tracker treatment.560 However, Mr. Shymanski did not

provide any support for his position. The Commission finds no further evidence on the record of

Proceeding 3100 to indicate that the life cycle replacement of PILC cable systems project is not

required in 2015.





the information supporting EDTI’s forecast and finds the total annual cost forecast to be

reasonable based on the evidence provided.

563. Given the above, the Commission finds that the information provided by EDTI supports

a finding that the scope, level, timing and forecast costs for the Life Cycle Replacement of PILC

Cable Systems project are reasonable as proposed for 2015. Accordingly, the Commission finds

that this project satisfies the project assessment requirement of Criterion 1.

8 Accounting test under Criterion 1 – the project must be outside of the normal

course of the company’s ongoing operations and Commission conclusion on

Criterion 1

8.1 EDTI’s accounting test model

564. As explained in Decision 2013-435, the purpose of the accounting test is to determine

whether a project or program (depending on the approved level of grouping) proposed for capital

tracker treatment is outside the normal course of the company’s ongoing operations. This is

achieved by demonstrating that the associated revenue provided under the I-X mechanism would

not be sufficient to recover the entire revenue requirement associated with the prudent capital

expenditures for the program or project.561

565. In Decision 2013-435, the Commission determined that the accounting test should be

based on a “project net cost approach,” which is sufficient to satisfy the Commission that all of

the forecast or actual expenditures for a capital project are, or a portion is, outside the normal

course of the company’s ongoing operations, as required to satisfy Criterion 1. Under this

approach, the extent to which a project is underfunded by the I-X mechanism is calculated by

comparing the forecast or actual revenue requirement for that project to the going-in revenue

560





historically associated with a similar type of capital expenditures escalated by I-X and including

the effect on revenue of any changes in billing determinants.562 The Commission referred to the

latter component, the impact on revenue of any changes in billing determinants, which is

calculated as the forecast percentage change in billing determinants in any given PBR year,

as “Q.”563

566. EDTI submitted that, in both the 2013 capital tracker true-up application and the 2014-

2015 capital tracker forecast application, it has performed the accounting test in accordance with

the methodology set out in Decision 2013-435, which generally involved the following steps:564

Calculate the revenue requirement associated with the forecast capital additions net of

customer contributions for each project or program proposed for capital tracker treatment

in the coming PBR year. The revenue requirement calculations use the mid-year

convention and include the cost of service components set out in paragraph 977 of

Decision 2012-237.

Identify the portion of rate base associated with the going-in rates, for each capital

expenditure category that is similar to a project or program proposed for capital tracker

treatment based on the company’s proposed grouping of projects, and calculate the

amount of the going-in revenue requirement associated with each capital expenditure

category.

Determine the amount of revenue that the I-X mechanism will provide in a PBR year for

a project or program proposed for capital tracker treatment by escalating the calculated

going-in revenue requirement associated with the capital expenditure category similar to

that project or program by the I-X index times Q.

Calculate the portion of the revenue requirement for a project or program proposed for

capital tracker treatment that is not funded under the I-X mechanism in a PBR year by

subtracting the amount provided under the I-X mechanism for that project or program

from the forecast revenue requirement for that project or program for the PBR year.

567. EDTI’s accounting test model for the 2013 capital tracker true-up application was

provided in Schedule 1565 and Schedule 2.566 EDTI’s accounting test model for the 2014-2015

capital tracker forecast application was provided in corrected and revised Schedule 1,567

Schedule 2568 and Schedule 3.569

Commission findings

568. The Commission has reviewed EDTI’s schedules that make up its accounting test

analysis in the 2013 capital tracker true-up application and in the 2014-2015 capital tracker

forecast application and finds these schedules to be reasonable and generally consistent with the

accounting test methodology approved in Decision 2013-435. Subject to the determination of

certain issues discussed in sections 8.2 to 8.4, the Commission is satisfied, in general, that

562






Proceeding 3100, Exhibit 93.02, AUC-EDTI-01 Attachment 2. 568

Proceeding 3100, Exhibit 93.03, AUC-EDTI-01 Attachment 3. 569

Proceeding 3100, Exhibit 93.04, AUC-EDTI-01 Attachment 4.



EDTI’s accounting test model can be used to demonstrate that all of the forecast or actual

expenditures for a capital project are, or a portion is, outside the normal course of the company’s

ongoing operations, as required to satisfy the accounting test component of Criterion 1.

569. Sections 8.2 to 8.4 deal with issues concerning certain inputs into EDTI’s accounting test;

specifically, the I-X index and Q factor, the weighted average cost of capital (WACC) rate, and

asset service lives. The Commission’s determinations on whether EDTI’s projects or programs

proposed for capital tracker treatment in 2013-2015 satisfy the accounting test and the project

assessment requirement under Criterion 1, are set out in Section 8.5.

8.2 I-X index and Q factor used in the accounting test

570. In the accounting test for the 2013 capital tracker true-up, EDTI used the 2013 I-X index

of 1.71 per cent approved in Decision 2013-072.570 The 2013 Q factor value was 0.54 per cent,

the same value used in EDTI’s 2013 capital tracker forecast application and approved in

Decision 2013-435.571

571. In response to AUC-EDTI-5(a),572 EDTI explained that the 2013 Q factor of 0.54 per cent

was based on the approved 2012 billing determinants and a preliminary forecast of 2013 billing

determinants. The preliminary forecast of the 2013 billing determinants was approved in

Decision 2013-072. In response to AUC-EDTI-5(a), EDTI also indicated that the preliminary

forecast of the 2013 billing determinants exhibited lower site counts than the final 2013 billing

determinants forecast approved in Decision 2013-270.573 According to EDTI’s calculations, the

2013 Q factor would have been 1.46 per cent if the final forecast billing determinants approved

in Decision 2013-270 were used.574

572. In the accounting test for 2014, EDTI used the 2014 I-X index of 1.59 per cent approved

in Decision 2013-462.575 In the accounting test for 2015, EDTI used an I factor value of

2.70 per cent. This value was calculated using the method approved in Decision 2012-237, and

based on Dr. David Ryan’s 2014 to 2015 inflation forecasts.576

573. The 2014 Q factor of 1.96 per cent was based on EDTI’s final forecast of 2013 billing

determinants and final forecast of 2014 billing determinants. The 2014 billing determinants

forecast was approved in Decision 2013-462. The 2015 Q factor of 0.64 per cent was based on

the final forecast of the 2014 billing determinants and a preliminary forecast of the 2015 billing

determinants.577

570

Decision 2013-072: 2012 Performance-Based Regulation Compliance Filings AltaGas Utilities Inc., ATCO

Electric Ltd., ATCO Gas and Pipelines Ltd., EPCOR Distribution & Transmission Inc. and FortisAlberta Inc.,

Application No. 1608826, Proceeding ID No. 2130, March 4, 2013, paragraph 28. 571



Decision 2013-270: 2012 Performance-Based Regulation Second Compliance Filings AltaGas Utilities Inc.,

ATCO Electric Ltd., ATCO Gas and Pipelines Ltd., EPCOR Distribution & Transmission Inc. and

FortisAlberta Inc., Application No. 1609367, Proceeding ID No. 2477, July 19, 2013. 574


Decision 2013-462: EPCOR Distribution & Transmission Inc. 2014 Annual PBR Rate Adjustment Filing,

Application No. 1609912, Proceeding ID No. 2823, December 20, 2013, paragraph 40. 576

Proceeding 3100, Exhibit 68, Appendix E. 577







574. In AUC-EDTI-5(d), the Commission inquired whether, given that EDTI was required to

estimate the 2015 I factor and Q factor, EDTI would be using the updated I factor and Q factor,

based on the approved 2015 I factor and approved forecast of billing determinants for 2015, in its

2015 capital tracker true-up filing. EDTI responded that, for purposes of regulatory efficiency, it

will not update either the I factor or the Q factor in its 2015 capital tracker true-up filing.578

However, during the hearing, Mr. Baraniecki stated that EDTI would have no objection in

principle to using approved 2015 I factor and Q factor values for purposes of the 2015 capital

tracker true-up application.579

Commission findings

575. Because the 2014-2015 capital tracker forecast application was filed much in advance of

its 2015 annual PBR rate adjustment filing, EDTI did not have the approved I factor nor the

approved forecast of billing determinants, on which the Q factor is based, for 2015. EDTI had to

estimate these values based on its preliminary forecasts for 2015. EDTI was of the view that for

purposes of regulatory efficiency, there is no need to update either the I factor nor the Q factor to

reflect the approved values in its 2015 capital tracker true-up filing.580

576. In support of its view that the preliminary estimate of the 2015 Q factor and, for

consistency, the 2015 I factor should not be updated in the 2015 capital tracker true-up

application to reflect the final approved numbers. EDTI referred to paragraph 477 of Decision

2013-435 where the Commission stated:

477. … the Commission agrees with EPCOR’s view that, given the relatively small

expected impact of the annual change in billing determinants on a company’s revenue,

the revenue offset should be performed on the basis of the forecast, rather than the actual,

change in billing determinants. In Decision 2013-270, the Commission determined that

“any future true-up of base PBR rates and any K, Y and Z factors that do not have a

separate collection rider or mechanism should be dealt with on the basis of forecast rather

than actual usage-per-customer and billing determinants.” As EPCOR pointed out, using

forecast billing determinants will simplify the capital tracker true-up applications.581

[footnotes removed]

577. However, during the hearing, Mr. Baraniecki acknowledged that while the above passage

states that the Q factor should be based on a forecast, rather than the actual, change in billing

determinants, it does not mean that a preliminary forecast can be used in place of a final

approved forecast.582 In the Commission’s view, EDTI’s accounting test for its capital tracker

true-up application for a given year should utilize the approved I-X index and the Q factor based

on the final approved forecast of billing determinants for that year. This is because, unlike

preliminary forecast numbers that are often interim, the final approved forecast numbers are

subject to greater rigour, more fully tested by parties and are used in all of a company’s

applications throughout the year, and not just the capital tracker applications. EDTI did not

object to this approach.583

578






Transcript, Volume 2, page 267, lines 15-22 (Mr. Baraniecki).



578. EDTI calculated the 2013 Q factor of 0.54 per cent based on the preliminary forecast of

2013 billing determinants approved in Decision 2013-072.584 In its compliance filing to this

decision, the Commission directs EDTI to use the 2013 Q factor of 1.46 per cent585 based on the

final forecast billing determinants approved in Decision 2013-270, for the 2013 capital tracker

true-up accounting test. Similarly, in its future capital tracker true-up applications, the

Commission directs EDTI, to utilize the approved I-X index and the Q factor based on a final

approved billing determinants forecast for that year in the accounting test.

579. Regarding the I-X index and Q factor values used for purposes of capital tracker forecast

applications, the Commission acknowledges that, because these applications are typically filed

before the September 10 date of the annual PBR rate adjustment filing, a company may be

required to estimate the I factor and Q factor for the coming year. In the accounting test for the

2014 capital tracker forecast, EDTI used the approved 2014 I-X index and Q factor values, as

they were known at the time of the application. However, there were no approved values for

2015. Therefore, in the accounting test for 2015, EDTI used the I factor value of 2.70 per cent,

based on Dr. Ryan’s 2014 to 2015 inflation forecasts.586 EDTI’s 2015 Q factor of 0.64 per cent

was based on the final forecast of the 2014 billing determinants and a preliminary forecast of the

2015 billing determinants.587 The Commission accepts, in principle, the use of such forecasting

methods when the final approved numbers are not available.

580. Nevertheless, the Commission observes that, since the filing of EDTI’s 2014-2015 capital

tracker forecast application, the 2015 I-X index and billing determinants forecast have been

approved in Decision 2014-346,588 which deals with EDTI’s 2015 annual PBR rate adjustment

filing. To minimize future true-ups, the Commission directs EDTI, in its compliance filing to this

decision, to use the 2015 I-X index value and the Q factor based on the forecast billing

determinants approved in Decision 2014-346 for purposes of its 2015 capital tracker forecast

accounting test.

8.3 WACC rate

581. As set out in Section 4.4 of Decision 2013-435, the accounting test, as it relates to

revenue calculations, consists of two components. The first component is the revenue provided

under the I-X mechanism for a project or program proposed for capital tracker treatment. The

second component is the revenue requirement calculations based on the forecast or actual capital

additions for that project or program for a given PBR year.

582. In both the 2013 capital tracker true-up application and the 2014-2015 capital tracker

forecast application, EDTI used the WACC rate of 6.96 per cent from its going-in rates in the

first component of the accounting test.589

583. For the second component of the accounting test, in the 2014-2015 capital tracker

forecast application, EDTI used a WACC rate of 6.99 per cent. This rate was based on EDTI’s

584





Decision 2014-346: EPCOR Distribution & Transmission Inc. 2015 Annual PBR Rate Adjustment Filing,

Application No. 1610834, Proceeding 3403 December 15, 2014. 589

Transcript, Volume 2, page 267, line 23 to page 268, lines 6-10 (Mr. Baraniecki).




forecast cost of debt at the end of December 2013 of 5.77 per cent, the 2013 ROE placeholder of

8.75 per cent and the 2013 placeholder equity thickness of 41 per cent.590

584. For the purposes of the 2013 capital tracker true-up application, EDTI used the same

6.99 per cent WACC rate. However, EDTI determined that its actual 2013 WACC rate is

6.98 per cent, based on the actual cost of debt of 5.70 per cent, the actual equity thickness of

approximately 42 per cent and an ROE placeholder of 8.75 per cent.591

585. EDTI explained that the 2013 actual WACC rate was determined in April 2014 and EDTI

did not have sufficient time to incorporate the 2013 actual WACC rate into its 2013 capital

tracker true-up application. EDTI proposed to update its 2013 capital tracker true-up accounting

test model to reflect the actual 2013 WACC rate in its compliance filing.

586. In its argument, the CCA observed that EDTI, in its accounting test model, appeared to

use the 2012 WACC to determine the revenue requirement. The CCA also pointed out that the

companies’ WACC assumptions are subject to an ongoing Proceeding 3434592 and stated it will

be arguing in that proceeding that actual debt costs should be utilized for determining the

revenue requirement component of the accounting test.593

587. In a similar vein, EDTI submitted it will put forward its position on WACC assumptions

used in the accounting test and respond to other parties, including the CCA, as necessary in

Proceeding 3434.594

Commission findings

588. As the CCA and EDTI pointed out, the Commission has initiated Proceeding 3434 to

examine the possible use of a consistent set of assumptions with respect to the values comprising

the companies’ respective WACC rates; specifically, debt rates, ROE rates and capital structure,

both on a forecast and actual basis. As part of that proceeding, the Commission will examine

EDTI’s WACC assumptions used in both the 2013 capital tracker true-up and the 2014-2015

capital tracker forecast applications.

589. Accordingly, in its decision in Proceeding 3434, the Commission will assess the

reasonableness of, and the need for any changes to, EDTI’s WACC rates used for its 2013 true-

up and 2014-2015 forecast accounting tests. The Commission expects that a decision in

Proceeding 3434 will be issued in time to allow EDTI to reflect any directed changes to WACC

rates used in the accounting test in its compliance filing to this decision. EDTI is directed to

incorporate into its compliance filing to this decision any changes to 2013, 2014 and 2015

WACC rates directed by the Commission’s decision in Proceeding 3434.

8.4 Asset service lives

590. As explained in paragraph 977 of Decision 2012-237, revenue requirement calculations

under the capital tracker mechanism “will be similar to revenue requirement calculations under

590

Proceeding 3100, Exhibit 123, Table UT-1. 591

Proceeding 3100, Exhibit 123, Table UT-2. 592

Proceeding 3434, Commission-initiated review of assumptions used in the accounting test for capital trackers. 593

Exhibit 136.01, CCA argument, paragraph 2. 594




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.”

591. In his evidence for the UCA, Mr. Shymanski took issue with the depreciation component

of EDTI’s return calculations, performed as part of the accounting test. Mr. Shymanski explained

that in calculating the depreciation amount, EDTI uses indicative service lives, whether a

specific account service life or an average of several service lives, when more than one asset

account is used in the calculation.

592. Mr. Shymanski pointed out that in Decision 2012-272, EDTI applied for and received

Commission approval for a change in average service lives for a number of its asset accounts.

These changes were approved on a prospective basis only, with pre-2012 assets retaining the

previously approved average service lives.595 However, in its accounting test, EDTI uses the

same indicative service life for all calculations, whether the assets are pre-2012 or for 2013, 2014

and 2015.

593. In Mr. Shymanski’s view, the service lives used prior to 2012 should be retained for

depreciation expense purposes in determining pre-2012 revenue requirement for capital tracker

purposes, while the revenue requirement calculations for 2013 to 2015 inclusive should use the

new service lives approved in Decision 2012-272.596

594. Regarding the effect of this proposed change, Mr. Shymanski stated he did not prepare a

detailed calculation of the effect because that would require a full scale re-building of EDTI’s

accounting test model. However, Mr. Shymanski did indicate that “a quick calculation shows

that there would be little impact on the resulting K Factor calculations (likely less than

$100,000).”597 Mr. Shymanski did not recommend that EDTI change the calculation for this

application but, rather, he recommended that EDTI be directed to correct the calculations for the

next capital tracker application “to ensure the appropriate Indicative Service Lives are used

(i.e., pre and post 2012) for the calculation of the K factor.”598 The UCA supported this

recommendation in its argument.599

595. In its rebuttal evidence, EDTI did not agree that it should be required to use different

service lives for assets installed pre-2012 as compared to assets installed in 2012 and beyond.

EDTI explained that it calculates the depreciation related to investments in each year using its

approved direct life method (DLM) model. EDTI indicated that Mr. Shymanski’s

recommendation will increase the complexity of EDTI’s accounting test model, which is

inconsistent with PBR Principle 3 that “[a] PBR plan should be easy to understand, implement

and administer and should reduce the regulatory burden over time.” EDTI explained that this

recommendation would make the return calculation under both the first and second components

of the accounting test more complicated.

596. Further, EDTI noted it expects to continue to update its service lives from time to time as

required. As such, over time there will be multiple service lives for each project included in the

595


Proceeding 3100, Exhibit 97.02, evidence of Mr. Shymanski, paragraphs 91-92. 597

Proceeding 3100, Exhibit 97.02, evidence of Mr. Shymanski, paragraph 94. 598





accounting test model if Mr. Shymanski’s recommendation was to be adopted, further increasing

the complexity of EDTI’s model.

597. Finally, EDTI compared the difference in service lives for each of its projects between

2011 and 2012 and concluded that there are no significant difference between the service lives in

2011 and 2012 for the vast majority of its projects. Therefore, EDTI speculated that

Mr. Shymanski’s recommendation will have little effect on the K factor amount for the vast

majority of EDTI’s projects.600 During the hearing, Mr. Baraniecki acknowledged that EDTI did

not calculate the actual effect because of the complexity associated with such calculations.

Mr. Baraniecki further elaborated on this issue:

And the reason why we don't think it's going to be a significant difference, or at least an

immaterial difference, is given the […] normalization step that we take in our capital

tracker model where we compare the DLM model, which does use the historical service

lives and the future service lives, based on whatever assets were put in place at that time.

So previous stuff, and then, on a go-forward basis, the new service lives.

And when we compare and adjust the capital tracker funding shortfall model to -- so that

they balance, it's basically caught up there. It's not perfect. We'll admit that that's not a

perfect calculation, but it is -- I guess the Commission termed it last proceeding in the

decision on capital trackers, it was a reasonable approach for determining what the capital

cost was going in as compared to what we'll be receiving through the I minus X

memorandum.601

598. In oral examination, Mr. Shymanski addressed these points. With respect to the alleged

complexity associated with using different service lives for assets installed pre-2012, as

compared to assets installed in 2012 and beyond, Mr. Shymanski stated “I think it’s relatively

easy to do. It’s a creation of one other cell in their spreadsheet, which is pretty large as it sits

right now.”602

599. With respect to the likelihood of using multiple depreciable life changes in EDTI’s

accounting test if new service lives are approved in the future, Mr. Shymanski surmised that the

risk of such an outcome appears to be small given that there has been only one change in EDTI’s

depreciation lives since 2004.603 Mr. Shymanski also referred to EDTI’s testimony that there

were no current plans to commission a new depreciation study.604 Mr. Shymanski agreed,

however, that if there were several instances of service life changes, the administration of his

proposed method would become onerous, because EDTI will have to use multiple service lives

for a given asset class in its accounting test. Mr. Shymanski acknowledged that in a circumstance

of “three or four or five different changes, it does become more complicated …”605

600

Proceeding 3100, Exhibit 107, EDTI rebuttal evidence, pages 26-29. 601

Transcript, Volume 2, pages 194-195 (Mr. Baraniecki). 602



Transcript, Volume 2, page 196, line 20 to page 197, line 2 (Mr. Baraniecki). 605




600. During the hearing, Mr. Shymanski also appeared to suggest an alternative methodology

to account for asset service lives:

I would hope that with the next -- with the rebasing, that there would be either a form of

the depreciation study or possibly a view that they can have the service lives for DLM

purposes, have the service lives the same for all of the vintages of assets, in which case

they'd match up.606

601. Based on Mr. Shymanski’s oral testimony, the UCA submitted in its argument that “it

would be appropriate and more in keeping with standard depreciation practice in Alberta, if at

the time of the next depreciation study, EDTI moved to having the service lives the same for all

of the vintages of assets within an asset class, thus eliminating this issue [of having to use

multiple service lives] altogether.”607

Commission findings

602. The Commission has considered the evidence of both Mr. Shymanski and EDTI on this

issue and rejects Mr. Shymanski’s recommendation to use different service lives for assets

installed pre-2012 as compared to assets installed in 2012 and beyond in EDTI’s accounting test,

for the following reasons.

603. First, the Commission agrees with EDTI’s view that Mr. Shymanski’s recommendation

will increase the complexity of EDTI’s accounting test model with little overall effect.

Mr. Shymanski expressed his view that it is “relatively easy to do.”608 However, as EDTI pointed

out, implementing this change would bring additional complexity to both components of the

accounting test for each project (i.e., when calculating revenue provided under the

I-X mechanism and for revenue requirement calculations based on the forecast or actual capital

additions for a project or program proposed for capital tracker treatment in a given PBR year).

The Commission is not persuaded that a resulting impact of “likely less than $100,000”609 on the

K factor calculation justifies the additional complexity.

604. Second, Mr. Shymanski agreed that if there were several instances of service life

changes, the administration of his proposed method could become onerous, because EDTI would

have to use multiple sets of service lives for a given asset class in its accounting test.610

605. Finally, as Mr. Baraniecki explained during the hearing, EDTI’s accounting test model

involves a normalization step that aligns the sum of individual projects’ return and depreciation

with the total return and depreciation calculated under its DLM model for depreciation. Because

EDTI’s DLM model incorporates multiple vintages of assets within an asset class, this

normalization step effectively results in the same outcome as Mr. Shymanski’s recommendation,

although less precisely.611 In an undertaking to the UCA, EDTI confirmed that when more assets

606




Proceeding 3100, Exhibit 97.02, Evidence of Mr. Shymanski, paragraph 94. 610


Transcript, Volume 2, pages 194-195 (Mr. Baraniecki).



or capital additions at the new service lives are included in the DLM model, this will not increase

the difference between the results from the two approaches.612

606. The UCA recommended that “at the time of the next depreciation study, EDTI move to

having the service lives the same for all of the vintages of assets within an asset class.”613

Although the Commission sees merit in considering this recommendation in principle, it is

outside the scope of the present proceedings but would be relevant in EDTI’s next application

that includes a depreciation study.

8.5 Commission’s conclusions on Criterion 1

607. In Section 7 of this decision, based on the project assessment under Criterion 1, the

Commission approved the need for each project or program that EDTI proposed for capital

tracker treatment either on an actual basis (for 2013) or on a forecast basis (for 2014 or 2015),

with the exception of the AMI project. The Commission also confirmed the prudency of actual

capital additions for the true up of each of the capital tracker projects or programs in 2013. As

well, the Commission determined that EDTI’s forecast capital expenditures for the proposed

2014-2015 capital tracker projects (with the exception of the AMI project) are reasonable. The

AMI project is discussed in Section 11.

608. In Section 8.1 of this decision, the Commission found the form of EDTI’s accounting test

model to be reasonable and generally consistent with the accounting test methodology approved

in Decision 2013-435. In Section 8.3, the Commission did not accept Mr. Shymanski’s proposal

for EDTI to revise its accounting test model to reflect different service lives for assets installed

pre-2012 as compared to assets installed in 2012 and beyond. However, in Section 8.2, the

Commission directed some changes with respect to EDTI’s accounting test assumptions related

to the I-X index and Q factor values for 2013 and 2015. Also, as noted in Section 8.3, there may

be changes to EDTI’s WACC rate assumptions resulting from Proceeding 3434.

609. Accordingly, although the Commission finds the general form of EDTI’s accounting test

model to be reasonable and consistent with the methodology approved in Decision 2013-435, the

Commission cannot make a determination in this decision as to whether any of EDTI’s projects

or programs proposed for capital tracker treatment in 2013-2015 satisfies the accounting test

requirement of Criterion 1 and accordingly, whether any of EDTI’s projects or programs satisfy

Criterion 1 in its entirety. The Commission directs EDTI, in its compliance filing to this decision,

to revise its accounting test for 2013, as well as for 2014-2015, based on approved final forecast

or actual capital additions and model assumptions and other directions as set out in the previous

sections of this decision.

9 Criterion 2 – ordinarily the project must be for replacement of existing capital

assets or undertaking the project must be required by an external party

610. With respect to Criterion 2, the Commission clarified in Decision 2013-435 that, in

addition to asset replacement projects and projects required by an external party, in principle, a

growth-related project will satisfy the requirements of Criterion 2 where it can be demonstrated

that customer contributions, together with incremental revenues allocated to the project on some

612





reasonable basis, when added to the revenue provided under the I-X mechanism, are insufficient

to offset the revenue requirement associated with the project in a PBR year.614 Certain projects

for capital tracker treatment that do not fall into any of the growth-related, asset replacement or

external party related categories might also satisfy Criterion 2 in certain circumstances as

discussed in Section 3.2.4 of Decision 2013-435.615

611. In the 2013 capital tracker true-up application, EDTI expressed its view that the purpose

of the true-up process is to review the prudence of actual capital additions associated with capital

tracker projects completed in a given PBR year and to confirm that these projects were executed

in the most effective manner. According to EDTI, the true-up process for previously approved

capital tracker projects is not intended to be a reassessment of each project under the capital

tracker criteria.616 Therefore, EDTI did not provide any additional evidence on how the 2013

capital tracker projects or programs approved in Decision 2013-435 satisfy the requirements of

Criterion 2.

612. However, EDTI did provide information in support of its proposal that three new projects

proposed for capital tracker treatment in 2013, which were not previously approved by the

Commission, satisfy the requirements of Criterion 2. These projects are the UID Servicing -

Rebates, Acceptance Inspections and Terminations project, Neighbourhood Renewal program

and Customer Revenue Metering – Growth and Life Cycle Replacements project. EDTI also

provided evidence in support of its proposal that its proposed 2014-2015 capital tracker projects

or programs satisfy the requirements of Criterion 2. EDTI assessed each capital tracker project or

program and identified the reasons it considered the project or program satisfied the second

capital tracker criterion.

613. Table 10 below provides a summary of the EDTI evidence with respect to Criterion 2 set

out in the 2014-2015 capital tracker forecast application. For the three capital trackers proposed

for 2013 on an actual basis that have not been previously approved by the Commission,

references to the 2013 capital tracker true-up application were also included.

614






Table 10. Applied-for 2013-2015 capital tracker projects or programs and Criterion 2 requirements

Project name Criterion 2

project type

Application paragraph (Proceeding 3100,

Exhibit 80)


Third-party Driven Relocations External party driven/ replacement 96, 110, 123, 138,

Life Cycle Replacement and Extension of Underground Distribution Cable Replacement 191

New 15-kV and 25-kV Circuit Additions Growth/external party driven 207

New Underground Cable and Aerial Line Reconfigurations and Extensions to Meet Customer Growth

Growth/external party driven 221

Distribution Pole and Aerial Line Life Cycle Replacements Replacement 239

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


Capitalized Underground System Damage Replacement 267

Vehicles – Growth and Life Cycle Replacements Replacement 282

New Underground and Aerial Service Connections for Commercial, Industrial, Multi-family and Misc. Customers


URD Servicing – Rebates, Acceptance Inspections & Terminations


Capital Tools and Instrument Purchases Replacement 327

Poundmaker Feeders Growth 343

Applied-for projects or programs that have not been previously approved for capital tracker treatment

OMS/DMS Life Cycle Replacement Replacement 360

Capitalized Aerial System Damage Replacement 374

UID Servicing – Rebates, Acceptance Inspections & Terminations


Replacement of Faulted Distribution PILC Cables Replacement 402

Neighbourhood Renewal Program Replacement 418618

Customer Revenue Metering – Growth & Life Cycle Replacements

Replacement, also a portion of growth/external party driven 433619

Life Cycle Replacement of Network Transformers Replacement 459

Street Light Service Connections and Security Lighting Addition and Capital Replacement


Life Cycle Replacement of PILC Cable Systems Replacement 489

Commission findings

614. As set out in Section 3 of this decision, the Commission determined that for purposes of

the true-up of capital tracker projects or programs previously approved, unless the driver

(replacement of existing assets, external party, growth, other) for the project or program has

changed, there is no need to undertake a reassessment against the Criterion 2 requirements.

615. In the 2013 capital tracker true-up application, EDTI did not provide any additional

evidence on how the 2013 project or programs approved for capital tracker treatment in

617

Proceeding 3216, Exhibit1, 2013 true-up application, paragraph 412. 618

Proceeding 3216, Exhibit1, 2013 true-up application, paragraph 449. 619

Proceeding 3216, Exhibit1, 2013 true-up application, paragraph 478.



Decision 2013-435 satisfy the requirements of Criterion 2. Upon review of the 2013 actual cost

information and variance explanations, the Commission concludes that the drivers have not

changed for any of EDTI’s projects or programs approved for capital tracker treatment in

Decision 2013-435, so as to warrant a reassessment under Criterion 2. The Commission finds

that these 2013 projects or programs continue to satisfy the requirements of Criterion 2.

616. In subsequent capital tracker true-up applications, the Commission directs EDTI to

address whether the driver for any of the previously approved forecast projects or programs has

changed, so as to warrant a reassessment under Criterion 2. In the event that the driver of the

project or program has changed since the forecast project or program was approved, EDTI is

directed to identify such projects and programs and to provide evidentiary support that each

project or program continues to satisfy the requirements of Criterion 2.

617. The Commission has reviewed the evidence and the reasons provided by EDTI for any

new projects in 2013 not previously approved and for the forecast capital projects for 2014 and

2015 proposed for capital tracker treatment, as summarized in Table 10 above. The Commission

finds that the driver for each of EDTI’s proposed capital tracker projects and programs falls into

one of the following Criterion 2 categories: asset replacement or refurbishment; required by an

external party or growth related. Accordingly, the Commission finds that EDTI’s projects or

programs presented in Table 10 satisfy the requirements of Criterion 2.

618. The Commission requires clarification regarding the Aerial and Underground

Distribution Transformers – New Services and Life Cycle Replacement project. At

paragraph 253 of the 2014-2015 capital tracker forecast application, EDTI indicated that this

project satisfies the Criterion 2 requirements because it is a growth-related project, but also a

project that is required by an external party.620 In the business case for this project, in

Appendix A-7, EDTI indicated that, as part of this project, some of the new transformers are

used for replacement purposes as well:

This project is comprised of the costs associated with new aerial and underground

transformers that are brought into service from EDTI’s inventory. These transformers are

utilized for the replacement of failed transformers or for new installations to service new

sites on EDTI’s system.621

619. Further, in an updated table in response to AUC-EDTI-1(b), EDTI labelled this project as

“Replacement/Growth.”622 The Commission directs EDTI, in its compliance filing to this

decision, to explain whether any part of the Aerial and Underground Distribution Transformers –

New Services and Life Cycle Replacement project, deals with the replacement of existing

transformers and how this may affect the assessment under Criterion 2. In addition, if there are

different drivers for different aspects of this project, EDTI is directed to explain why these assets

have been grouped into a single capital tracker project category.

620



Proceeding 3100, Exhibit 93.02, AUC-EDTI-01 Attachment 1, Table 1.0-1.



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

620. Section 8 of this decision addressed EDTI’s accounting test, which determines whether

all of the forecast or actual expenditures for a capital project are, or a portion is, outside the

normal course of the company’s ongoing operations, as required to satisfy Criterion 1. This is

established by demonstrating that the associated revenue provided under the I-X mechanism

would not be sufficient to recover the entire revenue requirement associated with the prudent

capital expenditures for the program or project proposed for capital tracker treatment.

621. In accordance with the Commission determinations in Decision 2013-435, the portion of

the revenue requirement for a project or program proposed for capital tracker treatment that is

not funded under the I-X mechanism in a PBR year, calculated as part of the accounting test, is

then assessed against the two-tiered materiality test under Criterion 3. The first tier of the

materiality threshold, a “four basis point threshold,” is applied at a project level (grouped in the

manner approved by the Commission). The second tier of the materiality threshold, a “40 basis

point threshold,” is applied to the aggregate revenue requirement proposed to be recovered by

way of all capital trackers.623

622. In Decision 2013-435, the Commission calculated the four basis point threshold and the

40 basis point threshold based on a respective dollar value of EDTI’s ROE in 2012. The

Commission indicated that in subsequent PBR years, the four basis point threshold and the

40 basis point threshold are to be calculated by escalating the dollar value of a respective amount

in 2012 by I-X.624

623. For 2013, the Commission approved a four basis point threshold of $102,000 and a

40 basis point threshold of $1.017 million for EDTI.625 EDTI used these approved materiality

threshold values in the 2013 capital tracker true-up application to establish that the 2013 capital

tracker projects satisfy the requirements of Criterion 3.626

624. In the 2014-2015 capital tracker forecast application, EDTI calculated the 2014 and 2015

materiality thresholds, following the methodology set out in Decision 2013-435. Specifically,

EDTI calculated the 2014 four basis point threshold of $103,237 by escalating the 2012 amount

by the approved 2013 and 2014 I-X index values. Using the same methodology, EDTI calculated

the 40 basis point threshold to be $1.033 million for 2014.

625. As discussed in Section 8.2, at the time of the 2014-2015 capital tracker forecast

application, EDTI did not have the approved I factor for 2015. As such, EDTI used the I factor

value of 2.70 per cent, based on Dr. Ryan’s 2014 and 2015 inflation forecasts.627 Accordingly,

EDTI’s 2015 four basis point threshold and 40 basis point threshold of $104,918 and $1.049

million, respectively, were based on this I factor estimate.628 EDTI assessed each of its projects or

623


Decision 2013-435, paragraphs 378 and 384. 625

Decision 2013-435, paragraph 385 and Table 8 on page 88. 626

Proceeding 3216, Exhibit 38, Schedule 2, Tab “3. 2013 K.” 627





programs proposed for capital tracker treatment in 2014 or 2015 against the respective two-tiered

thresholds for those years and determined it meets the Criterion 3 requirements.629

626. In his evidence, Mr. Shymanski for the UCA indicated the following with respect to

EDTI’s Capital Tools and Instrument Purchases project and the Replacement of Faulted PILC

Cables project:







627. During the hearing, Mr. Shymanski further explained that his proposal effectively results

in a “buffer zone” around the first tier of the materiality threshold:

But if we look at now a buffer zone, perhaps 5 or 10 percent, that kind of buffer zone,

around the forecast numbers. So if it's $100,000, if it's between 95 and 105, it doesn't get

capital tracker treatment.631

628. In its argument, the UCA interpreted Mr. Shymanski’s position with regards to EDTI’s

Capital Tools and Instrument Purchases project and the Replacement of Faulted PILC Cables

project as follows:

To be clear, the point of Mr. Shymanski’s evidence about these two projects is not that

they should be rejected because they are just over the materiality threshold, but that they

should be rejected because their forecast costs are too high, and if the forecasts costs are

adjusted for reasonableness, the projects will in fact fall below the materiality standard.632

629. EDTI, in its argument, took issue with Mr. Shymanski’s interpretation of the tier one

materiality threshold. According to EDTI, “there is nothing in the Commission’s previous

guidance to remotely support the contention that being slightly above the Tier 1 materiality

threshold is a basis on which a project could be denied Capital Tracker treatment.”633 Further,

EDTI submitted that “Mr. Shymanski’s position in this regard is little more than an inappropriate

attempt to arbitrarily increase the Tier 1 materiality threshold above that conclusively set by the

Commission, so as to exclude Capital Tracker projects that clearly meet the Commission’s

criteria.”634 Therefore, EDTI argued that Mr. Shymanski’s proposal should be rejected.

Commission findings

630. In the 2013 capital tracker true-up application, EDTI used the materiality threshold

values approved in Decision 2013-435. For 2014, EDTI calculated the first and second tier

materiality thresholds by escalating the respective 2012 values by the approved 2013 and 2014

629

Proceeding 3100, Exhibit 80, 2014-2015 forecast application, paragraph 70; Exhibit 93.03, AUC-EDTI-01

Attachment 3; Exhibit 93.04, AUC-EDTI-01 Attachment 4. 630





Proceeding 3100, Exhibit 135, EDTI argument, paragraph 131.



I-X index values. The Commission has reviewed EDTI’s calculations and finds the resulting

2014 four basis point threshold of $103,237 and the 40 basis point threshold of $1.033 million to

be reasonable.

631. For 2015, EDTI calculated the first and second tier materiality thresholds by escalating

the respective 2012 values by the approved 2013 and 2014 I-X indexes, and then the estimated

2015 I-X index value. As discussed in Section 8.2, given that EDTI did not have an approved

I factor for 2015 when it filed its 2014-2015 capital tracker forecast application, it used a 2015

I factor estimate based on Dr. Ryan’s forecasts. The Commission accepts, in principle, the use of

such forecasting methods when the final approved numbers are not available.

632. At the same time, consistent with the findings in Section 8.2, the Commission considers

that the calculation of the first and second tier materiality thresholds for purposes of the capital

tracker true-up application for a given year should be based on the approved I-X index for that

year. The Commission directs EDTI to follow this approach in future capital tracker true-up

applications.

633. The Commission observes that, since the filing of EDTI’s 2014-2015 capital tracker

forecast application, the 2015 I-X index had been approved in Decision 2014-136. To minimize

future true-ups, the Commission directs EDTI, in its compliance filing to this decision, to use the

2015 I-X index value of 1.49 per cent approved in Decision 2014-346 to calculate the first and

second tier materiality thresholds for 2015.

634. In his evidence, Mr. Shymanski proposed to deny capital tracker treatment for EDTI’s

Capital Tools and Instrument Purchases project and the Replacement of Faulted PILC Cables

project as being “slightly above the Tier 1 materiality” threshold, effectively advocating to

implement a buffer zone around the established threshold values.635 During the hearing,

Mr. Shymanski recognized that in Decision 2013-435, the Commission approved the two-tier

materiality test under Criterion 3 with no buffer around the established threshold amounts.

Mr. Shymanski suggested consideration of “a buffer zone, perhaps 5 or 10 percent, that kind of

buffer zone, around the forecast numbers.”636

635. The Commission observes that in its argument, the UCA submitted that “the point of

Mr. Shymanski’s evidence about these two projects is not that they should be rejected because

they are just over the materiality threshold, but that they should be rejected because their forecast

costs are too high, and if the forecasts costs are adjusted for reasonableness, the projects will in

fact fall below the materiality standard.”637

636. Consistent with its determinations in Decision 2013-435, the Commission will not

implement a buffer zone around the established threshold amounts for EDTI. With respect to the

UCA’s position that the Capital Tools and Instrument Purchases project and the Replacement of

Faulted PILC Cables project should be rejected because their forecast costs are too high and the

projects will fall below the materiality standard,638 the Commission has addressed the

reasonableness of EDTI’s forecasts for these two projects in 2014 and 2015 as part of the project

assessment under Criterion 1 and found them to be reasonable.

635







637. The Commission has reviewed EDTI’s calculations, and is generally satisfied that EDTI

has interpreted the Criterion 3 test properly and has applied the test properly. However, as

discussed earlier in this section, the two-tiered materiality test under Criterion 3 is applied to the

portion of the revenue requirement for a project or program proposed for capital tracker

treatment that is not funded under the I-X mechanism in a PBR year, calculated as part of the

accounting test. In Section 8.5, the Commission directed EDTI, in its compliance filing to this

decision, to revise its accounting test based on approved actual or forecast capital additions and

model assumptions. Accordingly, because EDTI’s accounting test for each of 2013, 2014 and

2015 needs to be revised, the Commission cannot determine in this decision whether any of

EDTI’s projects or programs proposed for capital tracker treatment in the periods from 2013 to

2015 satisfy the materiality test requirement of Criterion 3.

638. Given these findings, the Commission directs EDTI, in its compliance filing to this

decision, to reassess whether each of its projects or programs proposed for capital tracker

treatment in 2013 to 2015, satisfies the two-tiered materiality test requirement of Criterion 3. For

this reassessment, EDTI will use the approved 2013 and 2014 threshold amounts, as well as

revised 2015 threshold amounts, as directed above.

11 Advanced Metering Infrastructure project

11.1 AMI as the solution for customer revenue metering

639. This multi-year project consists of the installation of an Advanced Metering

Infrastructure (AMI) system. EDTI explained that AMI technology will replace currently used

manual processes for reading and energizing or de-energizing meters, enabling more efficient

access to end-user information such as usage, voltage, tamper detection and service

interruption/restoration indication, coupled with the ability to manage remotely such functions as

service connections, service disconnections, load limiting and firmware upgrades.639 EDTI

provided a business case and an engineering study for the AMI project in Appendix A-19 of the


640. EDTI proposed to implement this program from 2014 to 2017 in two phases. Phase 1 will

consist of constructing and testing the AMI network infrastructure, including collectors and all

computer hardware and software, and installing approximately 10,000 meters to test the system.

Following the conclusion of phase 1, where EDTI will confirm the successful deployment of the

AMI infrastructure and seamless integration with existing applications, phase 2 will begin. Phase

2 will occur over 2016 and 2017 and will involve replacing the majority of EDTI’s

approximately 360,000 existing meters (composed of a mix of electro-mechanical meters and

electronic automated meter reading (AMR) meters) with AMI meters.640

641. EDTI applied for approval of a similar AMI project as part of its 2010-2011 GTA. In

Decision 2010-505, the Commission did not approve capital expenditures for EDTI’s AMI

project for two reasons: the business case for the project was not well founded641 and the absence

639


Proceeding 3100, Exhibit 80, 2014-2015 forecast application, paragraph 437. Proceeding 3100, Exhibit 56,

Appendix A-19, paragraph 21. 641




of a provincial smart grid policy.642 EDTI indicated that it has carefully considered both the AUC

Smart Grid Inquiry Report643 published in June 2011, and Decision 2010-505 as it related to

EDTI’s previously proposed AMI project, to ensure its current proposal aligns with the Smart

Grid Report findings and the relevant findings of the Commission in Decision 2010-505.644

642. Specifically, with respect to a provincial smart grid policy, EDTI pointed out that since

the time of Decision 2010-505, the Alberta Department of Energy released the AUC Smart Grid

Inquiry Report on June 1, 2011. In the announcement letter dated June 1, 2011, from the Minster

of Energy to EDTI, the Minister indicated that “the Government of Alberta does not intend to

implement mandatory requirements for smart meters” and that “this does not preclude utilities

from implementing smart meters on their own initiative.” The letter adds that the “Government

will continue to promote improvements in electricity consumption measurement and the

modernization of Alberta’s electricity grid.”645 In response to a Commission IR, EDTI further

indicated that:

Senior representatives of the [Department of Energy] and EPCOR meet regularly on a

monthly basis to discuss relevant industry topics and to date these discussions have not

resulted in any changes in direction as communicated in the June 1, 2011 letter.646

643. As a result of these developments, EDTI indicated that the Department of Energy has

provided clarity with respect to its policy on mandating smart meter deployment in Alberta and

has reaffirmed its support for improvements in electricity consumption measurement and the

modernization of Alberta’s electricity grid. According to EDTI, its decision to acquire an AMI

system to automate meter reading and associated meter processes is consistent with Government

policy in relation to smart meters.647

644. In addition, EDTI indicated that it has considered the Commission’s findings on the

deficiencies of its 2010 AMI business case set out in Decision 2010-505 and incorporated

changes to its current business case to address the concerns identified in that decision. Among

others, EDTI has included an analysis of the project’s costs and benefits from a revenue

requirement perspective, as well as from a cash flow perspective. EDTI also retained Dr. Ryan to

analyze the project structure, and costs and benefits; and to provide EDTI with his opinion as to a

reasonable inflation escalator. The analysis of the costs and benefits of the AMI project was

limited to those that have a direct effect on EDTI’s revenue requirement, and did not include

effects on other entities affiliated with EDTI. Finally, EDTI compared the life cycle of both

conventional meters and AMI meters within the 20-year analysis period.648

645. In performing the cost-benefit analysis for the AMI project and other alternatives to

perform the customer revenue metering function, EDTI considered the new Measurement

Canada specification S-S-06 that introduces more stringent regulations regarding meter

compliance sample testing and meter replacements, which came into effect January 1, 2014.

As discussed in Section 7.3.6, this new specification increases the number of sample meters to be

642

Decision 2010-505, paragraphs 355-359. 643 Alberta Smart Grid Inquiry, Proceeding ID No. 598, January 31, 2011. 644






http://www.auc.ab.ca/items-of-interest/special-inquiries/Documents/smart_grid/Alberta_Smart_Grid_Inquiry_final_report.pdf



pulled for testing, reduces the time that meters may be left in service for meter groups that pass

testing and introduces provisions for financial penalties for failed meter groups.

646. EDTI indicated that Measurement Canada specification S-S-06 will result in significant

increases in compliance sampling and meter replacement costs for EDTI’s existing meter

population over the next 20 years as the remaining inventory of electromechanical meters

approach the end of their operating lives. EDTI explained that without any measures to mitigate

the impact of Measurement Canada specification S-S-06, the company will incur higher

operating costs (e.g., costs to read meters) and capital costs (e.g., costs to replace meters), all of

which will ultimately be borne by customers through higher rates.649

647. In order to address the impact of Measurement Canada specification S-S-06, EDTI

considered four possible alternatives. The first alternative considered was the status quo, which

would involve the current practice of installing AMR meters to support new growth and

replacement meter needs and which would replace all analog meters over a 20-year period.

Based on EDTI’s analysis, this approach would result in increased costs of compliance with

Measurement Canada specification S-S-06 and customers would not benefit from the automation

of meter reading until all meters have been replaced.650

648. The second alternative was the implementation of an AMR solution using drive-by

technology. This alternative would supplant walking meter readers with vehicles driving through

neighbourhoods. EDTI indicated that under this approach, it would avoid a significant portion of

the meter compliance sampling, testing, and replacement costs that would otherwise be required

during the 20-year analysis period, and customers would benefit from the automation of meter

reading much sooner than under the status quo approach. However, as compared to the AMI

project, there are still a number of drawbacks to this method. For example, customers would not

benefit from cost reductions from automated meter energize and de-energize processes as AMR

meters do not have remote connect/disconnect functionality.651

649. The third alternative was the implementation of AMI. Under this approach, customers

would benefit from the elimination of meter reading costs, a reduction in energization costs, and

a reduction in testing, sampling and replacement costs over 20 years as compared to the status

quo alternative. The drawback to this alternative is that it requires the largest capital investment

of all four options in the near term.652

650. The fourth alternative was the implementation of an AMR solution using a fixed network.

This alternative would replace the majority of EDTI’s current meters. Under this approach,

customers would benefit from the elimination of meter reading costs and a reduction in testing,

sampling and replacement costs over 20 years as compared to the status quo alternative.

However, as compared to the AMI project, there are a number of drawbacks to this alternative.

For example, because the AMR meters only support basic energy measurement, this platform

cannot enable benefits from other smart grid initiatives such as outage management, asset

management, integration to home area networks, and theft management.653

649








651. Consistent with the recommendations in Decision 2010-505, EDTI performed a net

present value (NPV) analysis of the four alternatives from a revenue requirement perspective, as

well as from a cash flow perspective over a 20-year period from 2014 to 2034. Under EDTI’s

NPV net cash flow analysis, the present value of project costs is deducted from the present value

of the expected benefits. Under this analysis, a project with the highest NPV would be selected.

Alternatively, EDTI’s NPV of revenue requirement analysis reflects a reduction in the revenue

requirement and, therefore, the largest negative value would normally be chosen.654 Table 11

below presents the results of EDTI’s NPV project analyses.

Table 11. Net present value analysis of alternatives to AMI ($ million)655

Alternative Net cash flow NPV Revenue requirement reduction NPV

Alternative 1 - Status Quo (26.36) 21.85

Alternative 2 - AMR Drive-by 30.01 (26.88)

Alternative 3 - AMI 36.11 (33.67)

Alternative 4 - AMR Network 32.50 (28.50)

652. With reference to the results reproduced in Table 11, EDTI indicated that the AMI

alternative provides the highest financial benefits and the greatest reduction in revenue

requirement for customers. The status quo (Alternative 1) reflects the capital and operating cost

increases that customers will incur should EDTI continue with its current practice of installing

AMR meters to support growth and replacement needs. Based on the results of this analysis,

EDTI concluded that the implementation of AMI (Alternative 3) is “clearly the superior option

that provides the greatest financial benefit to customers and the best technology platform choice

for the years ahead.”656 In argument, EDTI reiterated that the AMI project “is the best (i.e., most

cost effective) alternative to dealing with the changes in Measurement Canada requirements.”657

653. Specifically, as part of the NPV net cash flow analysis, EDTI indicated that the AMI

project will result in significant long-term capital and operating cost savings (in each of three

operating categories: meter reading, meter operations, and distribution operations) for

customers.658 The bulk of the quantifiable benefits from the AMI project are from operating

savings.659 EDTI’s NPV analysis showed that, after the initial capital investment of $72.9 million,

the AMI has negative net cash flow from 2014-2017. In 2018, the net cash flow becomes

positive in the amount of approximately $10 million annually, until 2034.660 Based on the NPV

of revenue requirement analysis, EDTI indicated that the AMI project will result in small annual

increases to EDTI’s revenue requirement in 2016-2019 (with the maximum annual increase to its

revenue requirement occurring in 2017), after which customers will enjoy substantial and

growing reductions in the revenue requirement each year thereafter.661

654. The interveners asked a number of IRs regarding the assumptions of EDTI’s NPV

analyses; however, they did not argue with EDTI’s conclusion that the AMI project is the least

654


Proceeding 3100, Exhibit 93.01, AUC-EDTI-30(a), Table AUC-EDTI-30-1. 656





Proceeding 3100, Exhibit 56, Appendix A-19, Table 4.3.1-1 on page 20. 661




cost alternative to customer revenue metering in the long term, given among others, the impact

of the new Measurement Canada specification S-S-06.

655. Specifically, in its IRs, the CCA asked questions of EDTI on certain inputs and

assumptions of its models, such as meter prices, installation costs, selection of the 20-year

analysis period, depreciation rates and assumptions as to volumes of meters required.662 In its

argument, when describing the AMI project, the CCA provided highlights of EDTI’s cost-benefit

analysis of the AMI project.663 The CCA concluded that “… on a forecast basis it appears the

project should be approved and all parties, subject to various caveats and levels of enthusiasm

appear to agree.”664

656. In response to a UCA IR, EDTI provided a sensitivity analysis for the AMI project for

such factors as a two per cent escalation rate (rather than 2.9 per cent used by EDTI), cost of

implementation (±10 and 20 per cent), and benefits (±10 and 20 per cent). EDTI maintained that

the AMI project remains of substantial benefit to customers under each scenario postulated by

the UCA.665 The UCA, in its argument, observed that “EDTI has presented evidence that

demonstrates that the AMI project results in the least cost alternative, when the long-term view is

considered.”666

Commission findings

657. EDTI is required to meter the energy it delivers to customers. The federal Electricity and

Gas Inspection Act requires that Measurement Canada approve the meters to be installed for

customer billing. The Act also mandates that meters be tested and maintained in accordance with

regulations.

658. The Commission has considered the evidence of EDTI and other parties and finds that the

current AMI proposal does not suffer from the same drawbacks as the earlier AMI proposal,

which was rejected by the Commission in Decision 2010-505. Specifically, the Commission has

reviewed EDTI’s business case and finds that EDTI has sufficiently addressed the deficiencies

identified by the Commission in Decision 2010-505 and has demonstrated an improved cost-

benefit analysis result for the project.667 Regarding the clarity of a provincial smart grid policy,

the Alberta Department of Energy released the AUC Smart Grid Inquiry Report on June 1, 2011.

Therefore, the Commission agrees with EDTI’s conclusion that its currently “proposed AMI

project is consistent with the findings of the Commission’s Smart Grid Report and the relevant

findings of the Commission in Decision 2010-505.”668

659. While the issue of whether the AMI project qualifies for capital tracker treatment

generated much discussion in the present proceedings, the CCA and the UCA did not object to

the results of EDTI’s cost-benefit analyses (NPV net cash flow analysis and NPV of revenue

requirement analysis). In their respective arguments, the UCA669 and the CCA670 appeared to

662

Proceeding 3100, Exhibit 94.01, CCA-EDTI-32, CCA-EDTI-37, CCA-EDTI-42, CCA-EDTI-44,

CCA-EDTI-48. 663

Proceeding 3100, Exhibit 136.01, CCA argument, paragraphs 65-67. 664


Proceeding 3100, Exhibit 95.01, UCA-EDTI-26. 666



Proceeding 3100, Exhibit 107, EDTI rebuttal evidence, page 6. 669




accept that the AMI project is the least cost alternative for performing the customer revenue

metering function in the long term.

660. In numerous information requests, the Commission and interested parties explored the

assumptions and inputs to EDTI’s cost-benefit analyses. For example, in response to UCA-

EDTI-26, EDTI provided a sensitivity analysis for the AMI project for such factors as a

two per cent escalation rate (rather than 2.9 per cent used by EDTI), cost of implementation (±10

and 20 per cent), and benefits (±10 and 20 per cent).671 In response to a Commission IR, EDTI

provided a sensitivity analysis with respect to the projected AMI meter failure and out-of-

tolerance rates (±10 per cent), as well as AMI meter purchasing price (in the range

commensurate with the range of obtained meter price quotes).672

661. The Commission has reviewed EDTI’s business case for the AMI project, including the

two NPV analyses, and finds EDTI’s cost-benefit analysis for the AMI project to be reasonable.

Based on the evidence in the present proceedings, the Commission finds that, over the 20-year

period presented in the business case, the AMI project represents the least cost alternative for

performing the customer revenue metering function for EDTI, at this time.

11.2 Utility asset disposition implications on the retirement of existing meters

662. The implementation of the AMI project will result in the wholesale retirement of the

majority of existing electro-mechanical and AMR meters on EDTI’s system. The Commission

queried the company through information requests and at the oral hearing on the implications of

proceeding with the AMI project as proposed in light of Decision 2013-417,673 the Utility Asset

Disposition (UAD) decision. In particular, the Commission identified the issue of whether the

rate base associated with the existing meters should be removed from EDTI’s utility rate base

upon implementation of the AMI program, and moved to a non-utility account for the account of

the company’s shareholder. EDTI estimated the outstanding net book value of the existing meter

assets that would need to be retired, as of the end of 2013, to be approximately $10 million to

$12 million.674

663. At paragraph 327 of the UAD decision, the Commission made the following statement

regarding situations where a utility’s shareholder would be responsible for undepreciated rate

base associated with retired assets:

In order to give effect to the court’s guidance that the “rate-regulation process allows and

compels the Commission to decide what is in the rate base, i.e. what assets (still) are

relevant utility investment on which the rates should give the company a return,” the

Commission directs each of the utilities to review its rate base and confirm in its next

revenue requirement filing that all assets in rate base continue to be used or required to be

used (presently used, reasonably used or likely to be used in the future) to provide utility

services. Accordingly, the utilities are required to confirm that there is no surplus land in

rate base and that there are no depreciable assets in rate base which should be treated as

extraordinary retirements and removed because they are obsolete property, property to be

670


Proceeding 3100, Exhibit 95.01, UCA-EDTI-26. 672


Decision 2013-417: Utility Asset Disposition, Application No. 1566373, Proceeding ID No. 20,

November 26, 2013. 674

Transcript, Volume 4, page 664 (Mr. Baraniecki).




abandoned, overdeveloped property and more facilities than necessary for future needs,

property used for non-utility purposes, property that should be removed because of

circumstances including unusual casualties (fire, storm, flood, etc.), sudden and complete

obsolescence, or un-expected and permanent shutdown of an entire operating assembly or

plant. As stated above, these types of assets must be retired (removed from rate base) and

moved to a non-utility account because they have become no longer used or required to

be used as the result of causes that were not reasonably assumed to have been anticipated

or contemplated in prior depreciation or amortization provisions. Each utility will also

describe those assets that have been removed from rate base as a result of this exercise.

At this time, the Commission will not require the utilities to make additional filings to

verify the continued operational purpose of utility assets.675 [footnotes removed]

664. The Commission asked EDTI an information request regarding whether the

circumstances of the paragraph above should apply to the circumstances of the wholesale

retirement of EDTI’s existing meters as part of the AMI project and, in particular, whether the

retirement of the existing meters would constitute “sudden and complete obsolescence.” EDTI

responded that it does not consider that the retirement would constitute sudden and complete

obsolescence within the meaning of the UAD decision. EDTI does not consider that the existing

meters should be considered obsolete because they still operate today and remain capable of

operating into the foreseeable future to provide safe and reliable utility service.676

665. In paragraph 327 of Decision 2013-417, the Commission indicated that a relevant

consideration in determining whether a retirement is to be deemed extraordinary and, therefore,

for the account of the utility shareholders, is whether the retirement occurred as a “result of

causes that were not reasonably assumed to have been anticipated or contemplated in prior

depreciation or amortization provisions.” Accordingly, the Commission inquired as to whether

the wholesale retirement of EDTI’s meters was contemplated in EDTI’s last depreciation study.

666. Mr. Kennedy of Gannett Fleming, who performed the depreciation study in EDTI’s last

GTA,677 responded in writing to a series of requests made by the Commission at the oral hearing

regarding the parameters that were considered in determining the depreciation rate that is

currently being used for meters. Mr. Kennedy, acting on behalf of EDTI, responded that “in the

review of EDTI’s average service life estimates Mr. Kennedy did consider a number of factors,

and did recommend changes to the average service life estimates where the current life estimates

were not considered to be indicative of the manner in which the assets would be retired.”678 The

factors considered by Mr. Kennedy included the changes to the Measurement Canada meter

testing standards and requirements, the corresponding response by numerous regulated utilities in

Canada, which were considered to be the peer group in EDTI’s last depreciation study, to the

changes in the new Measurement Canada specification S-S-06, and the announcement by the

AUC of an inquiry into SMART metering and AMI programs.679 In considering depreciation

studies for peer utilities, many of which included short-term, large-scale, retirements of analog

meters, the IR response stated: “Mr. Kennedy, in making his recommendations for the EDTI

metering account, considered that a large scale retirement program was probable.”680 As a result,

675



Proceeding 1596, Exhibit 77, Appendix G-1, EDTI Average Service Life Review Gannett Fleming. 678

Proceeding 3100, Exhibit 130.01, Mr. Kennedy response to AUC(a). 679

Alberta Smart Grid Inquiry, Proceeding ID No. 598, January 31, 2011. 680

Proceeding 3100, Exhibit 130.01, Mr. Kennedy response to AUC(a).



Mr. Kennedy recommended that EDTI reduce its 25-year average service life for analog meters

to 20 years, considering the potential for a large-scale analog meter retirement program.

667. Mr. Kennedy provided numerous examples of peer companies that had been faced with

large-scale replacements of meters, and explained the actions that he has taken in the past in

similar circumstances to reduce the service lives of the existing meters using the knowledge that

a large-scale replacement was forecast to occur. However, Mr. Kennedy did not introduce a

specific life span over which all of the remaining unrecovered investment would be amortized

because EDTI had not identified a specific replacement program at the time of the last

depreciation study.681

668. The Commission also asked the UCA’s witness, Mr. Shymanski, for his understanding of

how wholesale retirements of a particular group of assets should be handled in a depreciation

study. Mr. Shymanski recognized that Mr. Kennedy had reduced the service lives for analog

meters from 25 years to 20 years as a result of comparisons to peer utilities, which had

experience with large-scale replacement of meters, and not necessarily because of any specific

information that EDTI had with respect to a forecast replacement program.682 Mr. Shymanski

explained that a preferable method for an asset category where an accelerated retirement pattern

is known would be:

So if you had perfect information and it was, say, this proceeding and you have -- doing a

depreciation study and you knew the end date for the analogue meters, you'd say, "Okay,

analogue meters are going to be out by the year 2017," or whatever date it is. You would

take the – if you like, the remaining balance for the analogue meters, and you would

depreciate them over that reduced period. It might be a significant number, and you might

have to do some buffering in terms of a rate impact, but you would take into account a

specific reduction in the life.683

669. Mr. Shymanski noted that Mr. Kennedy did not have the information necessary to utilize

this preferred method, and used a more general reduction in service lives from 25 years to

20 years based on the knowledge he had when his analysis was performed.684

670. EDTI clarified that the primary reason the existing meter assets are being replaced is to

“substantially reduce the overall cost to customers that is associated with meters on its system.”

EDTI considered that “concluding that the retirement of EDTI’s existing meters constitutes an

‘extra-ordinary retirement’ as contemplated in the UAD Decision (thereby forcing EDTI and its

shareholder to bear the capital costs associated with those assets) would create a positive

incentive for EDTI to actively avoid these types of projects.” EDTI considered that such an

outcome would be contrary to the fundamental premise of PBR, and would undermine the

incentives for innovation and discovery that PBR is intended to create.685

671. The UCA concluded that in EDTI’s last depreciation study, Mr. Kennedy did not fully

reflect the shortened life of existing meters to three to five years to reflect a short-term, large-

scale, retirement of the meters because no specific replacement program had been identified at

681

Proceeding 3100, Exhibit 130.01, Mr. Kennedy response to AUC(a). 682


Transcript, Volume 6, page 895 (Mr. Shymanski). 684

Transcript, Volume 6, page 895 (Mr. Shymanski). 685




the time the last depreciation study was done and, therefore, the retirements would be considered

extraordinary.686 The UCA agreed with EDTI’s position that holding EDTI’s shareholder

accountable for all remaining costs associated with the meters replaced and taken out of service

would undermine any incentive a utility owner like EDTI has to seek out and implement such

projects for the benefit of customers.687 The UCA submitted that for such circumstances, such as

when there are competing principles between the PBR Decision 2012-237 and the UAD

Decision 2013-417, that were not contemplated when PBR was implemented, “the guiding

principle must be to look for an approach that is in the over-all public interest.”688

672. The UCA considered that one possible solution may be for the Commission to deny

K factor treatment for the AMI project, but encourage EDTI to apply for approval for Z factor

treatment for the project. The UCA expected that as part of the Z factor application, EDTI would

request an approval of an accelerated capital cost recovery program for its analog meters.689

673. In its argument, EDTI requested an “explicit determination as to whether or not the

Commission finds that the retirement of EDTI’s existing meters constitutes an extraordinary

retirement within the meaning of the UADR Decision.”690 EDTI considered that the Z factor

treatment for the project proposed by the UCA would generally accomplish the same outcome as

a K factor, but would prefer not to rely on the Z factor treatment for recovery because it would

need to wait until after the project had been completed before applying for Z factor treatment.

Accordingly, EDTI requested the same explicit determination from the Commission in respect of

the UCA’s suggestion regarding the potential use of an accelerated cost recovery approach, if the

Commission were to see merit in such an approach.691 EDTI indicated that if the retirements of

the existing meters were determined to be extraordinary, and substantial additional costs were,

therefore, imposed on EDTI, it would not be in a position to proceed with the project.692

Commission findings

674. The Commission must determine if the retirement of existing meters and the replacement

of those meters with AMI meters, as proposed by EDTI in its business case, engage the

fundamental corporate and property law principles addressed in the Supreme Court of Canada’s

decision in ATCO Gas & Pipelines Ltd. v. Alberta (Energy & Utilities Board), 2006 SCC 4,

[2006] 1 S.C.R. 140 (Stores Block), as further considered by the Alberta Court of Appeal and

which were subsequently examined in the Commission’s UAD decision.

675. In Decision 2014-297,693 the Commission considered the implications of these

fundamental principles of corporate and property law given the fires that destroyed the electric

distribution assets of ATCO Electric in the Town of Slave Lake. The Commission referred to the

Stores Block line of decisions and to the Commission’s UAD decision and stated:

686






Proceeding 3100, Exhibit 138.01, EDTI reply argument, paragraph 27. 692


Decision 2014-297: ATCO Electric 2012 Distribution Deferral Accounts and Annual Filing for Adjustment

Balances, Application No. 1609719, Proceeding No. 2682, October 29, 2014.

http://www.auc.ab.ca/applications/decisions/Decisions/2014/2014-297_Errata.pdf



52. The Commission recognizes that the Stores Block decision and the series of

Alberta Court of Appeal decisions that followed are all cases dealing with the disposition

of assets of gas utilities under the provisions of the Gas Utilities Act, RSA 2000, G-5.

However, the specific words of the Gas Utilities Act do not establish the relevant

foundational principles upon which the cases were decided. It is the fundamental

principles of corporate law and private property law that the Supreme Court of Canada

used in assessing the facts, interpreting the Gas Utilities Act and in determining

entitlements, risks and burdens in the Stores Block decision. The principles that informed

the court were, first, that the assets used for utility service are the property of the

company. Customers do not acquire an interest in the property merely by paying for the

services provided through the assets. And second, along with property ownership comes

the right to any gain and the risk of any loss.

…

56. The Commission found in the UAD decision that where the Electric Utilities Act

defines an “electric utility” in part, as an “electric distribution system” that is “used” to

provide utility services and an electric distribution system as the “plant, works,

equipment, systems and services necessary to distribute electricity in a service area,” the

words are to the same effect as the words “used or required to be used” employed in the

Gas Utilities Act to define facilities to be included in rate base. Application of these

fundamental principles requires that the costs associated with assets that are sold or lost

due to any cause (and therefore no longer necessary to provide service) be removed from

the calculation of rates and the risk of the loss (or the benefit of any gain) be for the

account of the owner of the property. The application of the principles is unrelated to the

accounting construct of rate base or whether the legislation requires that assets be placed

in a rate base for purposes of determining a tariff. As the Supreme Court of Canada stated

in Stores Block: “The argument that assets purchased are reflected in rate base should not

cloud the issue of determining who is the appropriate owner and risk bearer.”

57. The Commission has considered whether there are express terms of the Electric

Utilities Act that override the fundamental corporate and property law principles

expressed in the Stores Block decision. Those principles embody a symmetrical allocation

of risk and reward. The owners of the utility have the benefit of any gains on assets and

have the risk of losses. Customers pay for the service delivered through or across those

assets as they use them. Customers are not residual claimants to the property – either

gains or losses. In the Commission’s view, only the clearest of language in the Electric

Utilities Act could overturn the corporate and property law principles to achieve an

asymmetrical result where customers are responsible for all losses and the company is the

claimant of all gains. In the absence of such express language, statutory provisions

relating to the recovery from customers of costs considered prudent when incurred by the

utility do not change the fundamental nature of the property and corporate law principles

which dictate the entitlement to, or burden of, associated gains and losses.

58. Applying these fundamental principles to the present case leads the Commission

to conclude that any losses and any gains in notional value of utility assets arising from

the destruction of those assets should be treated no differently than if the assets were

removed from rate base or disposed of by the utility either voluntarily or otherwise.

Those assets are no longer providing service and, in the words of the Electric Utilities

Act, no longer “used directly or indirectly for the public” or “necessary to distribute

electricity.” Therefore, any losses and any gains are for the account of the owners of the

assets – the shareholders – not the customers. In general terms, if gains in value belong to

the company, rates to customers would be higher than they would otherwise be, and vice



versa. If losses in value are the responsibility of the company, rates to customers would

be lower than they would otherwise be, and vice versa. [footnotes omitted]

676. The Commission concluded from the above analysis at paragraph 59 of Decision 2014-

297:

Since Stores Block, it can no longer simply be assumed that the costs of assets, once

found by the regulator to be prudently acquired, will be recoverable under all

circumstances (unless the actions of the utility justified different treatment). The owners

of the property bear the benefits of gains on the assets and the risk of losses when those

assets are no longer required for utility service.

677. EDTI is contemplating the replacement of assets with other assets that will render the

existing meters no longer “used directly or indirectly for the public” or “necessary to distribute

electricity” prior to the point in time where their full capital costs have been recovered through

rates. The fundamental principles of corporate and property law apply as outlined in Stores

Block. That is, the responsibilities and detriments of property ownership are the inextricable

corollary to the rights and entitlements of property ownership. The Commission considers that

the principles espoused in the Stores Block line of decisions, as reviewed in the Commission’s

UAD decision and in Decision 2014-297, must be applied to the circumstances in the present

proceeding.

678. In Decision 2014-297, the Commission applied the corporate and property law principles

that were set out in the Stores Block line of decisions, as discussed in the UAD decision, to the

record in that proceeding. The Commission determined that the responsibility for the

undepreciated capital costs for the destroyed assets flowed from a consideration of whether the

Slave Lake fires event was an “ordinary retirement” or an “extraordinary retirement” as those

terms were considered in the UAD decision. The Commission stated at paragraph 66 of Decision

2014-297:

The UAD decision recognized the concepts underlying the currently-used depreciation

methods as being consistent with the Stores Block principles because they are intended to

recover the costs of assets used in utility service over their service lives in ordinary

circumstances, recognizing that retirements outside of the relevant scope of considered

retirement events, regardless of the effect on depreciation parameters, would be classified

as extraordinary retirements and, in accordance with the Stores Block principles, would

be for the shareholder’s account. In the Commission’s view it is the characteristics of the

event that are relevant to the determination of whether the event had been contemplated

or anticipated by a prior depreciation study. If the characteristics of the Slave Lake fires

event are sufficiently different to distinguish the Slave Lake fires from the events

considered in the previous depreciation study such that the characteristics of the Slave

Lake fires cannot be said to have been reasonably contemplated or anticipated in the

determination of the depreciation parameters in that study, then the Commission would

consider the event to give rise to an extraordinary retirement and the $400,000 notional

net book value of the destroyed assets would be for the account of the shareholders.

679. In Decision 2014-297, the Commission determined that the characteristics of the Slave

Lake fires were sufficiently different from the characteristics of the fires and natural disaster

events that have occurred in the past such that it was not reasonable to assume that an event with



the characteristics of the Slave Lake fires could have been anticipated or contemplated in the last

depreciation study. The Commission stated at paragraph 69 of Decision 2014-297:

Relying on its review of this history of losses and of the entire record of this proceeding,

the Commission makes a finding of fact that the characteristics of the Slave Lake fires

which destroyed the ATCO Electric assets are sufficiently different from the

characteristics of the fires and natural disaster events that have occurred over the past ten

years and the events upon which the Board made its RID [reserve for injuries and

damages] account assessments in Decision 2007-071 Consequently, the Commission also

finds that these fires could not reasonably have been anticipated or contemplated in the

determination of the parameters used in the previous depreciation study dated as at

December 31, 2008. Accordingly, for regulatory purposes the Slave Lake fires give rise

to an extraordinary retirement of the destroyed assets. As a result of this finding of fact,

the principles established by Stores Block and the related Court of Appeal decisions

dictate that the $400,000 notional net book value of the destroyed assets must be for the

account of the ATCO Electric shareholders. The Commission has no discretion to do

otherwise.694

[footnotes removed]

680. In the present proceeding, the Commission must conduct an analysis of whether a

retirement of the existing meters resulting from their replacement with AMI meters constitutes

an “ordinary retirement” or an “extraordinary retirement.” Accordingly, the Commission will

consider whether it is reasonable to find that the characteristics of the proposed retirement of

EDTI’s existing meters over a forecast three year period were anticipated or contemplated in the

determination of the parameters used in the preparation of EDTI’s most recent depreciation

review.

681. The Commission notes the position of EDTI that the UAD decision does not apply

because the retirement of the existing meters would not trigger issues of sudden and complete

obsolescence or extraordinary retirement as contemplated in the UAD decision. Further, even if

it did, EDTI stated the wholesale retirement of meters was contemplated in the last depreciation

review prepared for the company and reflected in the reduction in EDTI’s meter service lives

from 25 to 20 years.695 EDTI also stated that the existing meters should not be considered

obsolete because they still operate and remain capable of operating in the future to provide safe

and reliable utility service.696

682. EDTI’s position, however, fails to address the question of whether the meters are “used

directly or indirectly for the public” or “necessary to distribute electricity” after they are replaced

by AMI meters and taken out of service, irrespective of whether they remain capable of

operating in the future. The record does not provide any evidence that the replaced meters would

continue to have an operational purpose in providing utility service. The Commission finds that

the existing electro-mechanical and AMR meters would be rendered obsolete as they are

replaced by new AMI meters. Accordingly, the Commission finds that the existing meters would

no longer be “used directly or indirectly for the public” or “necessary to distribute electricity.”

683. Having found that the existing electro-mechanical and AMR meters would be rendered

obsolete and no longer “used directly or indirectly for the public” or “necessary to distribute

694


Exhibit 135.01. EDTI argument, paragraph 219. 696




electricity,” the Commission must now determine whether it is reasonable to find that the

characteristics of the proposed retirement of EDTI’s existing meters over a forecast three year

period were anticipated or contemplated in the determination of the parameters used in the

preparation of EDTI’s most recent depreciation review.

684. Mr. Kennedy stated he was aware of the possibility of the wholesale retirement of the

majority of existing meters at the time he completed EDTI’s last depreciation review, dated

October 11, 2011.697 The depreciation review was reflected in the rates approved for EDTI in

Decision 2012-272, which were used to establish the going-in rates for EDTI’s PBR plan in

Decision 2012-237. According to Mr. Kennedy, the Gannett Fleming study made an adjustment

to the depreciation rates to shorten the lives of the existing meters to reflect changes to

Measurement Canada specifications and the possibility of the implementation of AMI, which

would wholly supplant the existing meters.

685. The response to a Commission’s request at the hearing with respect to how the

recommended service life for meters was determined in the depreciation review stated:

Giving consideration to all of the above information related to the wide spread

implementation of digital meters to meet the Measurement Canada testing guidelines, and

the implementation of AMI and AMR programs that were being considered by many

in the peer group, Mr. Kennedy recommended that EDTI reduce its 25 year average

service life estimate to 20 years, considering the potential for a large scale analog meter

retirement program. However, without a specific program identified by EDTI at that

time, the introduction of a specific life span date over which all remaining

unrecovered investment would be amortized was not yet considered appropriate.698

686. In assessing the characteristics of the retirements of EDTI’s existing meters that would

result from the implementation of AMI, the Commission notes that, at the time Mr. Kennedy

prepared his depreciation review for EDTI, he was aware that an event of this type may occur

because the implementation of AMI and AMR programs were being considered by many in the

peer group. The Commission also notes that Mr. Kennedy recognized that an event of this type

would result in a large-scale, retirement of the existing meters.699

687. The response to a Commission’s request at the hearing with respect to how the

recommended service life for meters was determined in the depreciation review also stated:

As such, Mr. Kennedy, in making his recommendations for the EDTI metering account,

considered that a large scale retirement program was probable.700

688. Although Mr. Kennedy considered that a large scale retirement was probable, he also

indicated that:

… without a specific program identified by EDTI at that time, the introduction of a

specific life span date over which all remaining unrecovered investment would be

amortized was not yet considered appropriate.701

697

Proceeding 1596, Exhibit 77, Appendix G-1, EDTI Average Service Life Review Gannett Fleming. 698

Proceeding 3100, Exhibit 130.01, Mr. Kennedy’s response to AUC(a). 699

Proceeding 3100, Exhibit 130.01, Mr. Kennedy’s response to AUC(a), page 2. 700

Proceeding 3100, Exhibit 130.01, Mr. Kennedy’s response to AUC(a).



689. Having considered all of the above, “Mr. Kennedy recommended that EDTI reduce its

25 year average service life estimate to 20 years, considering the potential for a large scale

analog meter retirement program.”702

690. Given the record in the present proceedings, the Commission finds it is not reasonable to

conclude that the characteristics of the proposed retirement of EDTI’s existing meters over a

forecast three-year period were anticipated or contemplated in the determination of the

parameters used in the preparation of EDTI’s most recent depreciation review, and subsequently

reflected in EDTI’s rates. Although Mr. Kennedy considered that a large-scale replacement was

probable, he only adjusted the service life from 25 to 20 years, in the absence a specific

replacement program by EDTI. The resulting depreciation amounts were reflected in the rates

approved for EDTI in Decision 2012-272, which were used to establish the going-in rates for

EDTI’s PBR plan. As a result, the rates established for EDTI in Decision 2012-272 could not

have accounted for the now proposed large-scale retirement of existing meters, given the

adjusted average service life of 20 years and the now proposed three-year retirement period.

691. The AMI business case proposes the wholesale retirement of all existing meters using a

two-stage process starting in 2014, to be completed in 2017. This implementation of AMI by the

end of 2017 would result in undepreciated existing meters. EDTI estimated that the net book

value of the undepreciated meters would be some $10 to $12 million.703 Given the Commission’s

finding that it is not reasonable to conclude that the characteristics of the proposed retirement of

EDTI’s existing meters over a forecast three-year period were anticipated or contemplated in the

determination of the parameters used in the preparation of EDTI’s most recent depreciation

review and reflected in EDTI’s rates, the book value of the undepreciated meters is to the

account of EDTI’s shareholder.

11.3 Capital tracker treatment for the AMI project

692. EDTI applied for capital tracker treatment of the AMI project in 2015, when the first

capital additions of $10.39 million associated with phase one of this project are scheduled to take

place. EDTI did not forecast any capital additions in 2014 and, as such, capital tracker treatment

was not requested for 2014.704

693. In the 2014-2015 capital tracker forecast application, EDTI provided its view on how the

AMI project meets the Commission’s capital tracker criteria. In reply argument, EDTI clarified

that it applied, and continues to apply, for K factor treatment for this project. EDTI’s position

was that, consistent with the Commission’s determinations in Decision 2012-237 and Decision

2013-435, any operating cost savings resulting from the AMI project during the PBR term will

accrue to EDTI as the utility owner. At the end of the PBR term, those savings will accrue to

customers through rebasing.705

694. However, during the hearing, EDTI indicated that because the AMI project would be

largely undertaken to mitigate the impact of changes to Measurement Canada rules that can be

701



Transcript, Volume 4, page 664 (Mr. Baraniecki). 704





considered a change in law, EDTI would consider refunding tangible (“hard”706) operating cost

savings to customers through a Y factor, should the AMI project be implemented.707 Mr. Elford

elaborated on this proposal:

A. MR. ELFORD: Okay. At the highest level, it's not necessarily the operating and

maintenance costs associated with AMI per se; it's the operating and maintenance costs

associated with changes in Measurement Canada rules and/or legislation that is a change

of law that has put us at a crossroads, if you will.

We have two choices: One is status quo, which will increase capital costs for meter

replacements, based on more stringent standards, and will also increase our operating

costs associated with such things as meter testing. We have to do that. Change in law,

change in rule.

So we would propose that those operating costs, we would apply for a Y factor to recover

those as long as they're in excess of the Commission's Y factor threshold.

Now, conversely, we've offered up another alternative to that same issue, and that's a

wholesale meter replacement, which will relieve us of the increased testing costs because

essentially all the meters will be new and will relieve customers of the accelerated capital

costs of the lifecycle replacement of conventional meters because they won't be there to

replace, will all have been replaced.

So what we're saying is, in that case, there is actually going to be net operating benefits

when -- after the project is implemented. And our view is, again it's being driven, the case

is being driven by these change in rules, Measurement Canada law if you will. And as a

result if we're going to apply for cost increases, if we stay on the status quo, it's only

equitable that if we are able to implement AMI as the solution to this issue, those cost

decreases should be refunded through some mechanism, and we believe that would be the

Y factor because the Commission was very, very clear that there's no netting of benefits

against the K factor for projects just because they generate benefits. Those are captured

by the X factor.

In this case, the benefits are being generated based on a solution we're proposing to a

change in law. So we don't think we can have it one way and not the other. It's an

equitable approach to this issue.708

695. Further, as mentioned in the reference above, EDTI was of the view that if the AMI

project is not implemented, the company would apply for a Y factor to recover increases in

operating costs resulting from the changes to Measurement Canada rules. In its rebuttal evidence,

EDTI stated:

In the absence of an AMI project that mitigates the impact of these changes in regulatory

requirements, Alternative 1 (Status Quo) of the AMI Business Case (Appendix A-19,

Table 4.1.1-1) demonstrates that EDTI will incur an additional approximately

$1.13 million in meter-related operating costs in 2016 alone. EDTI believes that the

increase in operating costs, being driven by a change in law and the associated changes in

the requirements of a regulatory body, would qualify for Y factor treatment under the

PBR Plan, and EDTI would apply for recovery of these incremental costs as such at the

appropriate time.709

706




Proceeding 3100, Exhibit 107, EDTI rebuttal evidence, page 10.



696. Parties to the proceedings queried whether capital costs and operating costs (including

any savings offsets) associated with the AMI project should be combined and dealt with together

by way of a Z factor application. When questioned by the Commission, EDTI expressed its view

that the Z factor mechanism does not appear to be an appropriate approach to dealing with this

project.710 However, Mr. Elford indicated that “if the Commission determines that the Z factor

seems to make more sense despite our interpretation of how these things work, it still would

probably generally accomplish the same thing.”711

697. Based on the evidence of its witness, Mr. Bell, the UCA argued that the AMI project

should not be approved for capital tracker treatment as it does not meet the requirements of

Criterion 1 as they relate to the need for the project.712 During the hearing, Mr. Bell indicated he

was not in favour of EDTI’s proposal to have a K factor for the capital costs and a Y factor for

the operating costs of the project.713 However, Mr. Bell did not object to EDTI’s proposal to

refund to customers the O&M savings arising from the AMI project as demonstrated by his

statement that if the AMI project is approved for capital tracker treatment, “all operating cost

benefits must be included in the CT [capital tracker] calculation.”714 Mr. Bell expressed his view

that Z factor treatment for the AMI project is best aligned with the principles of PBR.715

698. In a similar vein, the CCA generally agreed with EDTI’s proposal to refund to customers

some of the operating cost savings associated with the AMI project. While the CCA believed a

Z factor treatment to be more appropriate, it indicated that refunding O&M savings through a

Y factor or Z factor appropriately structured to ensure fairness “would probably accomplish the

same thing.”716

699. In response to the Commission’s IR, EDTI confirmed that if the Commission were to

deny capital tracker treatment for the AMI project, then it would continue with the status quo

option, as the costs incurred by EDTI on the AMI project could not be fully offset by the realized

benefits within the term of the PBR. In addition, EDTI stated that “the substantial level of capital

investment required for the AMI project is too large for EDTI to pursue the project without prior

Commission approval.”717

700. During the hearing EDTI indicated that it is the company’s position that, should the

Commission make a determination that the early retirement of the meters to be replaced with

AMI meters would constitute “sudden and complete obsolescence” as contemplated in Decision

2013-417, EDTI would choose not to implement the AMI project.

A. MR. BARANIECKI: Yes. As outlined in the response to AUC-EDTI-33(b), if the

Commission determined that the replaced meters constituted an extraordinary retirement,

as set out in the utility asset disposition review decision, that the foregone amount of

capital that we have or that we would have to expense doesn't -- it just doesn't make sense

for the company to do that.

710



Proceeding 3100, Exhibit 137.02, UCA argument, paragraphs 12-15. 713

Transcript, Volume 6, pages 859-861 (Mr. Bell). 714

Proceeding 3100, Exhibit 97.03, UCA evidence of Mr. Bell, page 14. 715

Transcript, Volume 6, pages 890-891 (Mr. Bell). 716





And, further, we don't view that as in any way consistent with -- a determination of that

sort is in any way consistent with the spirit and intent of PBR, nor sound business

practice; and that making a determination of that form would disincent companies from

pursuing any type of process improvement that had the potential to -- I'll use the word

"strand assets" that can no longer be put into rate base and earn on.718

701. In this regard, the UCA expressed its concern with EDTI’s assertion that it will only

proceed with the AMI project if the project is approved for capital tracker treatment. The UCA

observed that, according to EDTI’s evidence, the AMI project results in the least cost alternative

for customer revenue metering, when the long-term view is considered. On this issue, Mr. Bell

stated in his evidence:

… utility management is obliged to provide safe and reliable service at the lowers cost

possible. It is incumbent for utility management to select the least cost alternative. As

such, if EDTI chooses a higher cost alternative, it should be at risk for a finding of

imprudent action.719

702. In a similar vein, the UCA submitted:

A utility has an obligation to pursue the least cost option to providing utility service. This

obligation does not depend on the Commission approving a particular means by which

the utility must recover its prudent costs. In this case, even if Capital Tracker treatment is

not approved for the AMI project, EDTI will still have a reasonable opportunity to

recover its reasonable costs of the project, during the PBR term through the mechanism

of a Z Factor application. Following the PBR term of course, EDTI would earn a return

and charge depreciation on the capital assets.720

703. In its argument, the CCA generally supported this position of the UCA.721

704. In its rebuttal evidence, EDTI commented on this matter as follows:

Mr. Bell’s position is tantamount to asserting that the Commission should, in an indirect

and backhanded way, force EDTI to proceed with the AMI project in the absence of

Capital Tracker approval, through the threat of penalizing EDTI for not proceeding.

Contrary to Mr. Bell’s musings, there is absolutely nothing in the PBR and Capital

Tracker decisions to date, nor in the Commission’s objectives and principles of PBR, that

would suggest that the Commission intended anything of the sort. EDTI has proposed a

project that, following substantial capital expenditures on EDTI’s part, offers huge

financial benefits for customers over the long term. There is nothing in the Commission’s

decisions or inherently in PBR that would suggest that EDTI should be forced to incur

such substantial capital expenditures prior to having certainty that the project will be

approved by the Commission, or prior to having significant comfort that the Commission

will find the level of costs required to undertake the project to be reasonable (both of

which are inherent in a Capital Tracker approval). If the AMI project is not approved by

the Commission, then that project would clearly become irrelevant for purposes of

considering the prudence of any other related capital project.722

718




Proceeding 3100, Exhibit 136.01, CCA argument, paragraphs 87-89. 722

Proceeding 3100, Exhibit 107, EDTI rebuttal evidence, page 9.



Commission findings

705. In Section 11.2 of this decision, the Commission determined that the early retirement of

the meters to be replaced with AMI meters would constitute “sudden and complete

obsolescence” as contemplated in the UAD decision, Decision 2013-417. EDTI’s position is that

it will not implement the AMI project if its shareholders will be responsible for the remaining net

book value of the existing electro-mechanical and AMR meters when they are retired. Given

EDTI’s position, the Commission is making no determination in this decision as to whether the

AMI project qualifies for capital tracker treatment on a forecast basis as the issue is moot. The

Commission directs EDTI to remove the 2015 forecast capital additions of $10.39 million

associated with the AMI project from the 2015 forecast K factor calculation.

706. EDTI also indicated that if capital tracker treatment is not extended to the AMI project on

a forecast basis, EDTI will proceed with the status quo meter replacement project, rather than

undertake the AMI project.723 In this regard, at paragraph 615 of Decision 2012-237, the

Commission indicated that a company may choose to undertake a capital investment prior to

applying for capital tracker treatment in a subsequent annual capital tracker filing. In other

words, a company does not have to wait for the Commission’s approval of its forecast for capital

tracker treatment to proceed with projects required to maintain service reliability and safety at

adequate levels.

707. In Section 11.1, the Commission found that based on the evidence in the present

proceedings, the AMI project represents the least cost alternative for performing the customer

revenue metering function for EDTI. The Commission agrees with Mr. Bell’s view724 that any

requests associated with the customer revenue metering function as part of a Y, Z or K factor

application must be considered in light of this finding.

708. The Commission will consider applications for Y or Z factor adjustments associated with

the customer revenue metering function, including any refunds of O&M cost savings or

collection of higher O&M costs, when they are received.

12 Other matters raised by the CCA

12.1 Reporting capital tracker and non-capital tracker capital costs separately

709. During the hearing, the CCA proposed segregating the reporting of capital tracker and

non-capital tracker additions in EDTI’s financial reporting filed annually pursuant to AUC

Rule 005.725 726 In argument, the CCA summarized the issue, stating “it is important to note that

the CCA is not talking about testing I-X capital and O&M expenses, but simply proposing that

Rule 5 segregate capital tracker from non-capital trackers as well as its consequential impacts.”727

710. In reply, EDTI pointed out that AUC Rule 005 does not require the level of reporting

sought by the CCA. EDTI expressed its view that the additional reporting suggested by the CCA

is unnecessary since the information is already provided in detail in EDTI’s capital tracker

723



AUC Rule 005: Annual Reporting Requirements of Financial and Operational Results (AUC Rule 005). 726

Transcript, Volume 1, page 65, lines 16-18 (Mr. Wachowich). 727




applications, including detailed variance explanations, and would create a needless additional

administrative burden. Additionally, EDTI pointed out that there is an established process

pursuant to which the Commission develops its rules, whereby it considers stakeholder feedback

and enacts or modifies its proposed rules. EDTI argued it is within that process that the CCA’s

proposal should be addressed. EDTI submitted that the current proceedings are to assess its

capital tracker applications, and are not an appropriate forum for addressing potential changes to

AUC Rule 005.728

Commission findings

711. The Commission considers that the CCA’s proposal to segregate the reporting of capital

tracker and non-capital tracker additions in EDTI’s financial reporting filed in accordance with

AUC Rule 005 is outside the scope of the present proceedings. As EDTI pointed out, there is an

established process pursuant to which the Commission develops its rules, whereby it considers

stakeholder feedback and enacts or modifies its proposed rules. The Commission agrees with

EDTI’s view that it is within that process that changes to AUC Rule 005 should be considered.

712. Further, the Commission has established Proceeding 3558,729 that will address the

minimum filing requirements for capital tracker applications, including how actual capital

additions should be reflected in future capital tracker applications and true-up applications.

12.2 Changes to the efficiency carry-over mechanism

713. In Decision 2012-237, the Commission approved the inclusion of an efficiency carry-

over mechanism (ECM) in the companies’ PBR plans. As explained in that decision, a

company’s incentive to find efficiencies weakens as the end of the PBR term approaches,

because there is less time remaining for the company to benefit from any efficiency gains. The

purpose of an ECM is to address this problem by permitting the company to continue to benefit

from any efficiency gains after the end of the PBR term.730

714. During the hearing, Mr. Bell for the UCA discussed a potential for changes to the ECM

to deal with recovery of capital costs that the Commission could consider for the next PBR term.

However, Mr. Bell did not recommend making any changes to the structure of currently

approved PBR plans:

… I'm not saying that to try and change this one, but my suggestion is at the end of this

term it might be wise given the issues we've had with capital and capital trackers to look

around and see what else is out there that might be working and put a different structure

in place.731

715. The CCA expressed its view that the ECM should only apply to the I-X component of the

PBR plan and that it “does not belong in capital tracker cost-of-service world.”732 However, the

CCA agreed with Mr. Bell’s view that no changes to the ECM should be made in the current

PBR term. Additionally, the CCA pointed out that because EDTI is only one of five companies

728


Proceeding 3558, Commission-initiated Proceeding to Consider Modifications to the Minimum Filing

Requirements for Capital Tracker Applications. 730


Transcript, Volume 6, pages 865, line 21 to page 866, line 1 (Mr. Bell). 732




under PBR, changes to the structure of PBR plans established in a generic proceeding should not

be made in a proceeding dealing with only one company.733

Commission findings

716. Given that the present proceedings are dealing with the true-up of the 2013 capital tracker

costs and the approval of forecast 2014-2015 capital tracker costs under an existing PBR plan in

place until December 31, 2017, the Commission considers the issue of potential changes to the

ECM to be outside the scope of these proceedings. Both Mr. Bell and the CCA expressed their

views that no changes to the ECM should be made in the current term of PBR.

13 K factor calculation

13.1 2013 K factor true-up

717. In Decision 2013-435, the Commission approved the 2013 forecast K factor of

$4.87 million to be recovered from EDTI’s customers on an interim basis.734 In the 2013 capital

tracker true-up application, EDTI calculated an actual 2013 K factor to be $5.96 million,

resulting in a proposed 2013 K factor true-up adjustment of $1.20 million, as shown in Table 1

from Section 4 of this decision.

718. EDTI indicated that it calculated the proposed 2013 K factor true-up adjustment in

accordance with the provisions set out in Decision 2012-237 and Decision 2013-435.735

Specifically, at paragraph 976 of Decision 2012-237, the Commission stated:

976. The results of the prudence review and cost true-up will be an adjustment to the

K factor included in the following year’s rates. The companies will calculate the revenue

requirements resulting from the actual capital tracker expenditures, and compare those to

the forecast amounts that were collected on an interim basis in the prior year. The

difference between the approved revenue requirements and the forecast revenue

requirements for the prior year will form the basis for the K factor true-up rate

adjustment. In addition, because the capital expenditures will remain in the tracker for the

duration of the PBR term, the amounts to include in the capital tracker revenue

requirement calculations in subsequent years during the PBR term will be based on the

actual approved expenditures rather than the initial forecasts.

719. The Commission provided further guidance on the K factor true-up at paragraphs 503 to

506 of Decision 2013-435:

503. At the time of the true-up applications, the above calculations will be repeated

using the actual, rather than the forecast, capital additions for the previous PBR year. If

the actual capital additions for a project or program approved for capital tracker treatment

in the previous year are lower than the forecast, but still exceed the four basis point

threshold, that project will continue to receive capital tracker treatment. This means that

in subsequent years a revised, lower portion of the revenue requirement not funded under

the I-X mechanism in the previous year shall be included in the K factor calculation. The

difference between the lower portion of the revenue requirement not funded under the

733

Proceeding 3100, Exhibit 136.01, CCA argument, paragraphs 9 and 18. 734





I-X mechanism in the previous year and the amounts collected by way of a capital tracker

in the previous year for that project, or program, will be refunded to customers.

504. If the actual capital additions for a project or program approved for capital

tracker treatment in a previous year are lower than forecast and do not exceed the four

basis point threshold, on true-up, the K factor will be adjusted in respect of the previous

year based on the actual dollars spent on that project or program. The difference between

the forecast portion of the revenue requirement not funded under the I-X mechanism and

the actual portion not funded under the I-X mechanism for that project, or program, will

be refunded to customers. However, capital tracker treatment for the previous year’s

project or program will be discontinued for subsequent PBR years. This means that in

subsequent years none of the revenue requirement for this project or program shall be

included in the K factor calculation. If the project or program extends into a subsequent

PBR year, in order to receive capital tracker treatment for that project or program in the

subsequent PBR year, the company will be required to reapply for capital tracker

treatment.

505. Consistent with this approach, in the event that the actual K factor (i.e., the sum

of all portions of the revenue requirements not funded under the I-X mechanism for all

capital trackers), based on the company’s actual additions in the previous year, does not

satisfy the 40 basis point threshold, on true-up, the findings in the preceding paragraph

will apply to all of the projects approved for capital tracker treatment in the previous

year.

506. Finally, if the actual capital additions for a project or program approved for

capital tracker treatment in a previous PBR year are lower than forecast to the extent that

a project or a program was, in effect, fully funded under the I-X mechanism in the

previous year, the K factor will be adjusted in respect of the previous year so that no

portion of the revenue requirement for that project will be included in the K factor

calculation in that year. The portion of the revenue requirement collected by way of a

capital tracker on a forecast basis, in the previous year, will be refunded to customers.

Capital tracker treatment for the previous year’s project or program will be discontinued

for subsequent PBR years. If the project or program extends into a subsequent PBR year,

in order to receive capital tracker treatment for that project or program in the subsequent

PBR year, the company will be required to reapply for capital tracker treatment.

720. EDTI noted that in Decision 2013-435, the Commission directed EDTI to recover the

difference between the 2013 K factor placeholder amount and the approved 2013 K factor

forecast amount using Rider DJ.736 To be consistent with this direction, EDTI proposed to use

Rider DJ to collect the applied-for 2013 K factor true-up adjustment of $1.20 million. This rider

is proposed to be in effect over the two-month period from March 1, 2015 to April 30, 2015.

721. EDTI indicated it used the same approach to calculate Rider DJ in the 2013 capital

tracker true-up application, as it did in its 2013 capital tracker true-up rider application, approved

in Decision 2014-174.737 Specifically, EDTI first allocated the $1.2 million 2013 K factor true-up

adjustment to customer rate classes using the simplified approach approved by the Commission

736


Decision 2014-174: EPCOR Distribution & Transmission Inc., 2013 K Factor True-up Rider, Application

No. 1610244, Proceeding No. 3026, June 17, 2014.




in Decision 2013-072. EDTI then calculated Rider DJ for each rate class by dividing the

allocated rate class amount by the relevant billing determinants for that rate class.738

722. EDTI further explained that since its final approved 2015 billing determinants were not

available at the time of filing the 2013 capital tracker true-up application, it used preliminary

2015 distribution access service (DAS) billing determinants to calculate Rider DJ. EDTI

indicated it will update the Rider DJ calculation if the 2015 DAS billing determinants approved

by the Commission, as part of the 2015 annual PBR rate adjustment filing, differ from the

preliminary determinants used in its 2013 capital tracker true-up application.739

Commission findings

723. In Section 7, the Commission confirmed the prudency of actual capital additions

associated with each of EDTI’s capital tracker projects or programs in 2013. However, as set out

in sections 8.5 and 10 of this decision, the Commission directed EDTI, in its compliance filing to

this decision, to revise its accounting test assessment under Criterion 1 and the two-tiered

materiality test assessment under Criterion 3. Because these revisions will result in changes to

the 2013 actual K factor amount, the Commission cannot approve any 2013 K factor true-up

adjustment for EDTI in this decision.

724. Nevertheless, the Commission has reviewed EDTI’s calculations and finds that EDTI’s

K factor true-up methodology is generally consistent with the requirements set out in Decision

2012-237 and Decision 2013-435. Further, the Commission agrees in principle with EDTI’s

proposal to use Rider DJ to collect the 2013 K factor true-up adjustment upon approval by the

Commission. The Commission also agrees with EDTI’s methodology to calculate the Rider DJ

rate by first allocating the true-up adjustment amount to rate classes using the simplified

approach and then calculating Rider DJ rate for each rate class by dividing the allocated rate

class amount by the relevant billing determinants. This methodology has been previously

approved for EDTI in Decision 2014-174.

725. EDTI proposed to update the Rider DJ calculation if the 2015 DAS billing determinants

approved by the Commission as part of the 2015 annual PBR rate adjustment filing differ from

the preliminary determinants used in its 2013 capital tracker true-up application.740 The

Commission agrees with this proposal and directs EDTI, in calculating the Rider DJ rate for each

rate class, to use the 2015 final billing determinants approved in Decision 2014-346.

726. In Section 14 of this decision, the Commission directs EDTI to file a compliance filing

application in accordance with the directions set out in this decision on March 3, 2015. Given

this refiling date, EDTI’s proposed collection period for Rider DJ from March 1, 2015 to April

30, 2015 is no longer feasible.

727. As discussed in Section 13.2 below, in addition to collecting the 2013 K factor true-up

amount, the Commission considers that EDTI should also collect the difference between the

respective 2014 and 2015 K factor placeholder amounts and the approved 2014 and 2015 K

factor forecast amounts using the same Rider DJ. Therefore, rather than including the Rider DJ

rate in its compliance filing to this decision, the Commission directs EDTI to file a separate

738






application for the combined Rider DJ rate, following approval of the 2013 true-up actual

K factor amounts and 2014-2015 forecast K factor amounts in the compliance filing decision.

The effective date and the duration of the new collection period for the combined Rider DJ

should be commensurate with the Commission’s process timelines set out in Bulletin 2010-16

and take into account the impact on customer bills.

13.2 2014-2015 K factor forecast

728. As summarized in Table 2 from Section 4 of this decision, in the 2014-2015 capital

tracker forecast application, EDTI calculated the 2014 and 2015 forecast K factors to be

$10.76 million and $20.12 million, respectively.741 EDTI indicated that it calculated the proposed

2014 and 2015 K factors in accordance with the provisions of Decision 2013-435.742

729. To calculate the K factor adjustment in its 2014 PBR rates, EDTI first allocated the

$10.76 million proposed 2014 K factor to rate components within customer rate classes using the

simplified approach approved by the Commission in Decision 2013-072. EDTI then calculated

the 2014 K factor rate adjustment for each rate component within rate classes by dividing the

allocated amount by the relevant billing determinants for that rate component.743

730. Regarding the 2015 K factor of $20.12 million, EDTI indicated it will provide the 2015

K factor rate adjustments in its 2015 annual PBR rate adjustment filing on September 10, 2015.744

Commission findings

731. In Section 7, the Commission determined that EDTI’s forecast capital expenditures for

the proposed 2014-2015 capital tracker projects (with the exception of the AMI project) were

reasonable. As set out in Section 11, Commission is making no determination in this decision as

to whether the AMI project qualifies for capital tracker treatment on a forecast basis. The

Commission directed EDTI to remove $10.39 million in capital additions associated with the

AMI project from the 2015 forecast K factor calculation. As set out in sections 8.5 and 10 of this

decision, the Commission directed EDTI, in its compliance filing to this decision, to revise its

accounting test assessment under Criterion 1 and the two-tiered materiality test assessment under

Criterion 3. Because these revisions will result in changes to the 2014 and 2015 forecast K factor

amounts, the Commission cannot approve any 2014 or 2015 K factor adjustments for EDTI, on a

forecast basis, in this decision.

732. Nevertheless, the Commission has reviewed EDTI’s calculations and finds that EDTI’s

K factor calculation methodology is generally consistent with the requirements set out in

Section 4.4 of Decision 2013-435. Further, the Commission agrees in principle with EDTI’s

proposal to calculate the 2014 and 2015 forecast K factor rate adjustments by first allocating the

forecast amount to rate classes using the simplified approach and then calculating the K factor

adjustment rate for each rate class by dividing the allocated amount by the relevant billing

determinants. The Commission has approved this approach to the K factor rate calculation for

EDTI in a number of decisions, most recently in Decision 2014-346, dealing with EDTI’s 2015

annual PBR rate adjustment filing.

741

Exhibit 93.02, AUC-EDTI-1, Attachment 1, Table 1.0-1. 742






733. In Decision 2013-462, the Commission approved a K factor placeholder of $6.08 million,

representing some 60 per cent of the applied-for amount, to be included in EDTI’s 2014 PBR

rates.745 In Decision 2014-346, the Commission approved a K factor placeholder of $18.108

million, equal to 90 per cent of the proposed 2015 K factor, to be included in EDTI’s 2015 PBR

rates.746

734. Consistent with the findings in Section 13.1 of this decision, and consistent with EDTI’s

past practices, the Commission considers that EDTI should collect the difference between the

respective 2014 and 2015 K factor placeholder amounts and the approved 2014 and 2015

K factors forecast amounts using its existing Rider DJ mechanism. In Section 13.1, the

Commission directed EDTI, following the approval of the 2013 true-up actual K factor amounts

and 2014-2015 forecast K factor amounts in the compliance filing decision, to file a separate

application for the combined Rider DJ rate, which includes the 2013 true-up adjustment, and the

difference between the respective 2014 and 2015 K factor placeholder amounts and the approved

2014 and 2015 K factor forecast amounts.

745

Decision 2013-462, paragraphs 47, 57 and 58. 746




14 Order

735. It is hereby ordered that:

(1) EPCOR Distribution & Transmission Inc. is directed to file a compliance filing

application in accordance with the directions contained within this decision on

March 3, 2015.

Dated on January 25, 2015.


M. Kolesar

Vice-Chair

H. van Egteren

Commission Member

N. Jamieson

Commission Member



Appendix 1 – Proceeding participants

Name of organization (abbreviation) counsel or representative

EPCOR Distribution & Transmission Inc. (EPCOR or EDTI)

Fasken Martineau Dumoulin LLP

ATCO Electric Ltd. (ATCO Electric)

AltaLink Management Ltd. (AltaLink)

ATCO Gas, a division of ATCO Gas and Pipelines Ltd. (ATCO Gas) Bennett Jones LLP

Consumers’ Coalition of Alberta (CCA)

FortisAlberta Inc. (Fortis)

Office of the Utilities Consumer Advocate (UCA) Brownlee LLP

The Alberta Utilities Commission Commission Panel M. Kolesar, Vice-Chair H. van Egteren, Commission Member N. Jamieson, Commission Member Commission Staff

B. McNulty (Associate general counsel) S. Boyd (Commission counsel) O. Vasetsky E. Deryabina C. Runge J. Work S. Levin



Appendix 2 – Oral hearing – registered appearances

Name of organization (abbreviation) counsel or representative

Witnesses

EPCOR Distribution & Transmission Inc. (EPCOR or EDTI)

J. Liteplo D. Both

K. Sorenson K. Hull J. Elford J. MIddleton J. Baraniecki R. Reimer

Office of the Utilities Consumer Advocate (UCA) T. D. Marriott K. Kellgren

R. Bell B. Shymanski

Consumers’ Coalition of Alberta (CCA)

J. A. Wachowich J. Thygesen

The Alberta Utilities Commission Commission Panel M. Kolesar, Vice-Chair H. van Egteren, Commission Member N. Jamieson, Commission Member Commission Staff

B. McNulty (Associate general counsel) S. Boyd (Commission counsel) D. Jagdev O. Vasetsky E. Deryabina R. Lee S. Levin



Appendix 3 – 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. At the same time, the Commission considers that it may be warranted to group all of

EDTI’s life cycle replacement and like projects together with the Neighbourhood

Renewal program for the purposes of the accounting test, given that it appears these

projects are all intended to replace or renew aging assets. Accordingly, EDTI is directed

to explain, in its next capital tracker application, whether it is possible to do so and

whether such grouping is warranted. ............................................................... Paragraph 78

2. The Commission considers that formal project management policies and procedures are

necessary to ensure the Commission understands that the scope, level, timing and costs of

forecast capital projects are reasonable and actual costs are prudently incurred. The

Commission directs EDTI to describe fully its formal project management policies and

procedures in its next capital tracker application. ......................................... Paragraph 152

3. EDTI calculated the 2013 Q factor of 0.54 per cent based on the preliminary forecast of

2013 billing determinants approved in Decision 2013-072. In its compliance filing to this

decision, the Commission directs EDTI to use the 2013 Q factor of 1.46 per cent based on

the final forecast billing determinants approved in Decision 2013-270, for the 2013

capital tracker true-up accounting test. Similarly, in its future capital tracker true-up

applications, the Commission directs EDTI, to utilize the approved I-X index and the Q

factor based on a final approved billing determinants forecast for that year in the

accounting test. ............................................................................................. Paragraph 578

4. Nevertheless, the Commission observes that, since the filing of EDTI’s 2014-2015 capital

tracker forecast application, the 2015 I-X index and billing determinants forecast have

been approved in Decision 2014-346, which deals with EDTI’s 2015 annual PBR rate

adjustment filing. To minimize future true-ups, the Commission directs EDTI, in its

compliance filing to this decision, to use the 2015 I-X index value and the Q factor based

on the forecast billing determinants approved in Decision 2014-346 for purposes of its

2015 capital tracker forecast accounting test. ................................................ Paragraph 580

5. Accordingly, in its decision in Proceeding 3434, the Commission will assess the

reasonableness of, and the need for any changes to, EDTI’s WACC rates used for its

2013 true-up and 2014-2015 forecast accounting tests. The Commission expects that a

decision in Proceeding 3434 will be issued in time to allow EDTI to reflect any directed

changes to WACC rates used in the accounting test in its compliance filing to this

decision. EDTI is directed to incorporate into its compliance filing to this decision any

changes to 2013, 2014 and 2015 WACC rates directed by the Commission’s decision in

Proceeding 3434. ........................................................................................... Paragraph 589

6. Accordingly, although the Commission finds the general form of EDTI’s accounting test

model to be reasonable and consistent with the methodology approved in Decision 2013-

435, the Commission cannot make a determination in this decision as to whether any of

EDTI’s projects or programs proposed for capital tracker treatment in 2013-2015 satisfies

the accounting test requirement of Criterion 1 and accordingly, whether any of EDTI’s




projects or programs satisfy Criterion 1 in its entirety. The Commission directs EDTI, in

its compliance filing to this decision, to revise its accounting test for 2013, as well as for

2014-2015, based on approved final forecast or actual capital additions and model

assumptions and other directions as set out in the previous sections of this decision.

........................................................................................................................ Paragraph 609

7. In subsequent capital tracker true-up applications, the Commission directs EDTI to

address whether the driver for any of the previously approved forecast projects or

programs has changed, so as to warrant a reassessment under Criterion 2. In the event

that the driver of the project or program has changed since the forecast project or

program was approved, EDTI is directed to identify such projects and programs and to

provide evidentiary support that each project or program continues to satisfy the

requirements of Criterion 2. .......................................................................... Paragraph 616

8. Further, in an updated table in response to AUC-EDTI-1(b), EDTI labelled this project as

“Replacement/Growth.” The Commission directs EDTI, in its compliance filing to this

decision, to explain whether any part of the Aerial and Underground Distribution

Transformers – New Services and Life Cycle Replacement project, deals with the

replacement of existing transformers and how this may affect the assessment under

Criterion 2. In addition, if there are different drivers for different aspects of this project,

EDTI is directed to explain why these assets have been grouped into a single capital

tracker project category. ................................................................................ Paragraph 619

9. At the same time, consistent with the findings in Section 8.2, the Commission considers

that the calculation of the first and second tier materiality thresholds for purposes of the

capital tracker true-up application for a given year should be based on the approved I-X

index for that year. The Commission directs EDTI to follow this approach in future

capital tracker true-up applications. ............................................................... Paragraph 632

10. The Commission observes that, since the filing of EDTI’s 2014-2015 capital tracker

forecast application, the 2015 I-X index had been approved in Decision 2014-136. To

minimize future true-ups, the Commission directs EDTI, in its compliance filing to this

decision, to use the 2015 I-X index value of 1.49 per cent approved in Decision 2014-346

to calculate the first and second tier materiality thresholds for 2015. ........... Paragraph 633

11. Given these findings, the Commission directs EDTI, in its compliance filing to this

decision, to reassess whether each of its projects or programs proposed for capital tracker

treatment in 2013 to 2015, satisfies the two-tiered materiality test requirement of

Criterion 3. For this reassessment, EDTI will use the approved 2013 and 2014 threshold

amounts, as well as revised 2015 threshold amounts, as directed above. ..... Paragraph 638

12. In Section 11.2 of this decision, the Commission determined that the early retirement of

the meters to be replaced with AMI meters would constitute “sudden and complete

obsolescence” as contemplated in the UAD decision, Decision 2013-417. EDTI’s

position is that it will not implement the AMI project if its shareholders will be

responsible for the remaining net book value of the existing electro-mechanical and AMR

meters when they are retired. Given EDTI’s position, the Commission is making no

determination in this decision as to whether the AMI project qualifies for capital tracker

treatment on a forecast basis as the issue is moot. The Commission directs EDTI to

remove the 2015 forecast capital additions of $10.39 million associated with the AMI

project from the 2015 forecast K factor calculation. .................................... Paragraph 705



13. EDTI proposed to update the Rider DJ calculation if the 2015 DAS billing determinants

approved by the Commission as part of the 2015 annual PBR rate adjustment filing differ

from the preliminary determinants used in its 2013 capital tracker true-up application.747

The Commission agrees with this proposal and directs EDTI, in calculating the Rider DJ

rate for each rate class, to use the 2015 final billing determinants approved in Decision

2014-346. ....................................................................................................... Paragraph 725

14. As discussed in Section 13.2 below, in addition to collecting the 2013 K factor true-up

amount, the Commission considers that EDTI should also collect the difference between

the respective 2014 and 2015 K factor placeholder amounts and the approved 2014 and

2015 K factor forecast amounts using the same Rider DJ. Therefore, rather than including

the Rider DJ rate in its compliance filing to this decision, the Commission directs EDTI

to file a separate application for the combined Rider DJ rate, following approval of the

2013 true-up actual K factor amounts and 2014-2015 forecast K factor amounts in the

compliance filing decision. The effective date and the duration of the new collection

period for the combined Rider DJ should be commensurate with the Commission’s

process timelines set out in Bulletin 2010-16 and take into account the impact on

customer bills. ................................................................................................ Paragraph 727

15. It is hereby ordered that: (1) EPCOR Distribution & Transmission Inc. is directed to file a

compliance filing application in accordance with the directions contained within this

decision on March 3, 2015. . .......................................................................... Paragraph 735

747
