Decision 23793-D01-2019 ATCO Pipelines 2019-2020 General Rate Application June 25, 2019
Decision 23793-D01-2019
ATCO Pipelines 2019-2020 General Rate Application June 25, 2019
Alberta Utilities Commission
Decision 23793-D01-2019
ATCO Pipelines
2019-2020 General Rate Application
Proceeding 23793
June 25, 2019
Published by the:
Alberta Utilities Commission
Eau Claire Tower
1400, 600 Third Avenue S.W.
Calgary, Alberta T2P 0G5
Telephone: 310-4AUC (310-4282 in Alberta)
1-833-511-4AUC (1-833-511-4282 outside Alberta)
Email: [email protected]
Website: www.auc.ab.ca
The Commission may, within 30 days of the date of this decision and without notice, correct
typographical, spelling and calculation errors and other similar types of errors and post the
corrected decision on its website.
Decision 23793-D01-2019 (June 25, 2019) • i
Contents
1 Decision summary ................................................................................................................. 1
2 Introduction ........................................................................................................................... 1
3 Previous and concurrent applications ................................................................................. 3
4 Summary of revenue requirement....................................................................................... 3
5 Rate base ................................................................................................................................ 5
6 Capital expenditures ............................................................................................................. 6 6.1 Pembina-Keephills Transmission Pipeline Project ........................................................ 8
6.2 Weld Assessment and Repair Program .......................................................................... 9 6.3 Remote Operated Valves Program ............................................................................... 10
6.4 Pembina 8 Receipt Station - upgrade ........................................................................... 13 6.5 Quality Control Initiatives ............................................................................................ 14 6.6 General improvements and replacements ..................................................................... 18
6.7 Other capital projects not specifically addressed ......................................................... 21
7 Depreciation ......................................................................................................................... 21 7.1 UCA recommendation 6 – Depreciation expense workbook ....................................... 22 7.2 UCA recommendations 12 and 14 – Procedures for insurance, customer or third-party
contributions ................................................................................................................. 24
7.3 UCA recommendation 16 – Account 496-05 SCADA adjustment .............................. 26
8 Operating costs .................................................................................................................... 28 8.1 Forecasting accuracy .................................................................................................... 29 8.2 Material, known variances ........................................................................................... 33
8.3 Direct operation and maintenance expenses ................................................................ 34 8.4 Quality control initiatives ............................................................................................. 35
8.5 Compliance initiatives .................................................................................................. 36 8.5.1 Methane reduction compliance ....................................................................... 36 8.5.2 Pressure vessel inspection compliance ........................................................... 38 8.5.3 Greenhouse gas compliance ............................................................................ 40
8.6 Reliability and security ................................................................................................. 41 8.6.1 Facility assessments ........................................................................................ 41 8.6.2 Cyber security ................................................................................................. 42
8.7 O&M labour costs ........................................................................................................ 43 8.7.1 Salary escalators.............................................................................................. 44
8.7.1.1 In-scope employees ........................................................................... 44 8.7.1.2 Out-of-scope employees .................................................................... 46
8.7.2 FTE forecasts .................................................................................................. 48 8.7.2.1 Consolidation of management between ATCO Pipelines and ATCO
Gas ...................................................................................................... 51 8.7.3 Variable pay program ..................................................................................... 52
8.7.3.1 Variable pay program deferral account ............................................. 53 8.7.4 Pension costs ................................................................................................... 55 8.7.5 Vacancy rates .................................................................................................. 55
8.8 O&M supplies expenses ............................................................................................... 57
ii • Decision 23793-D01-2019 (June 25, 2019)
8.9 Administrative and general expenses ........................................................................... 60 8.10 Shared services initiative .............................................................................................. 61
8.11 IT costs ......................................................................................................................... 68
9 Return on rate base ............................................................................................................. 71 9.1 Return on equity and capital structure .......................................................................... 71 9.2 Costs associated with long-term debt ........................................................................... 72
10 Deferral accounts ................................................................................................................ 74 10.1 Discontinuation of deferral accounts ............................................................................ 75
10.1.1 Debenture rate deferral account .................................................................... 75 10.1.2 Defined benefit pension deferral account...................................................... 77 10.1.3 NGTL directed growth deferral account ....................................................... 80
11 Responses to previous Commission directions ................................................................. 82 11.1 ATCO Pipelines response to Direction 4 ..................................................................... 83
11.2 ATCO Pipelines’ response to Direction 22 .................................................................. 86 11.3 ATCO Pipelines’ response to Direction 23 .................................................................. 86
12 Other matters ...................................................................................................................... 87 12.1 Corporate costs (head office rent) ................................................................................ 87
13 Order .................................................................................................................................... 88
Appendix 1 – Proceeding participants ...................................................................................... 89
Appendix 2 – Summary of Commission directions .................................................................. 90
Appendix 3 – Detailed breakdown of capital expenditures .................................................... 97
List of figures
Figure 1. Operating costs – test year forecast, approved and actual by GRA ($000) ......... 29
Figure 2. Operating costs – test year forecast excluding VPP and pension deferral
amounts, approved and actual by GRA ($000) ...................................................... 30
List of tables
Table 1. ATCO Pipelines’ revenue requirement changes ...................................................... 4
Table 2. ATCO Pipelines’ summary of placeholders, deferral accounts and reserve
accounts ........................................................................................................................ 5
Table 3. ATCO Pipelines’ historical and forecast rate base .................................................. 5
Table 4. ATCO Pipelines’ capital expenditures and capital additions ................................. 6
Table 5. ATCO Pipelines’ capital expenditures by project category .................................... 6
Table 6. ATCO Pipelines’ ROV program forecast capital expenditures ........................... 10
Decision 23793-D01-2019 (June 25, 2019) • iii
Table 7. Incidences of H2S levels exceeding NGTL’s gas specification .............................. 14
Table 8. ATCO Pipelines’ estimate of annual capital costs ................................................. 15
Table 9. ATCO Pipelines’ estimate of annual operational expenses................................... 15
Table 10. ATCO Pipelines’ net depreciation expense for years, by year, ending
December 31 .............................................................................................................. 21
Table 11. ATCO Pipelines’ total operating expenses ............................................................. 28
Table 12. Actual versus approved ROE 2012-2018 ................................................................ 31
Table 13. Property tax actual versus approved ...................................................................... 33
Table 14. ATCO Pipelines’ operating expense breakdown ................................................... 35
Table 15. ATCO Pipelines’ O&M labour costs....................................................................... 43
Table 16. External wage settlements ........................................................................................ 45
Table 17. ATCO Pipelines’ forecast and actual out-of-scope increases from 2014 to 2018 47
Table 18. ATCO Pipelines’ permanent FTE positions ........................................................... 48
Table 19. ATCO Pipelines’ forecast additional labour positions, by labour activity
category ...................................................................................................................... 49
Table 20. Consolidated management FTEs ............................................................................. 52
Table 21. ATCO Pipelines’ vacancy rate calculations ........................................................... 56
Table 22. ATCO Pipelines’ operations and maintenance supplies ....................................... 57
Table 23. ATCO Pipelines’ administration and general expenses ........................................ 60
Table 24. ATCO Pipelines’ shared services forecast .............................................................. 62
Table 25. ATCO Pipelines’ IT services charged to operations .............................................. 68
Table 26. ATCO Pipelines’ average annual cost per IT user ................................................ 69
Table 27. ATCO Pipelines’ 2019 debt rate forecast ............................................................... 72
Table 28. ATCO Pipelines’ 2020 debt rate forecast ............................................................... 72
Table 29. ATCO Pipelines’ proposed and existing deferral accounts .................................. 74
Table 30. ATCO Pipelines’ 2018 debenture rate deferral ..................................................... 76
Table 31. ATCO Pipelines’ 2014 to 2018 debenture rate variances and deferral account
recoveries ................................................................................................................... 77
iv • Decision 23793-D01-2019 (June 25, 2019)
Table 32. ATCO Pipelines’ 2018 pension funding deferral account ..................................... 78
Table 33. ATCO Pipelines’ 2014 to 2018 defined benefit pension variances and deferral
account recoveries ..................................................................................................... 78
Table 34. Market value of ATCO Pipelines defined benefit pension fund ........................... 79
Table 35. NGTL directed growth deferral account ................................................................ 81
Table 36. NGTL directed growth deferral account materiality ............................................ 81
Table 37. ATCO Pipelines’ forecast UPR expenditures......................................................... 97
Table 38. ATCO Pipelines’ forecast growth expenditures..................................................... 97
Table 39. ATCO Pipelines’ forecast improvement and replacement expenditures ............ 98
Table 40. ATCO Pipelines’ forecast relocation expenditures ................................................ 99
Table 41. ATCO Pipelines’ IT expenditures ........................................................................... 99
Decision 23793-D01-2019 (June 25, 2019) • 1
Alberta Utilities Commission
Calgary, Alberta
ATCO Pipelines Decision 23793-D01-2019
2019-2020 General Rate Application Proceeding 23793
1 Decision summary
1. This decision provides the Alberta Utilities Commission’s determinations on ATCO
Pipelines’ general rate application for the 2019-2020 test years.
2. For the reasons set out in this decision, the Commission denies the requested revenue
requirement of ATCO Pipelines for the 2019-2010 test years because certain revenue
requirement amounts require adjustment. The Commission has ordered ATCO Pipelines to
respond to the directions in this decision in a compliance filing to be filed no later than August 8,
2019.
2 Introduction
3. On July 30, 2018, ATCO Pipelines, a division of ATCO Gas and Pipelines Ltd., (ATCO
Pipelines or AP) filed a general rate application (GRA) with the Commission requesting
approval of its revenue requirements of $288,412,000 and $313,238,000 for 2019 and 2020,
respectively. ATCO Pipelines is seeking Commission approval of:
its forecast opening balances for plant, property & equipment (PP&E) as at January 1,
2019;
the continued use of certain deferral accounts and placeholders and the proposed
discontinuation of specific deferral accounts;
its proposed depreciation rate changes resulting from its 2017 Depreciation Technical
Update1 conducted by Mr. Earl Robinson of AUS Consultants as of December 31, 2017;
its proposed settlement of certain regulatory deferral accounts.
4. The Commission issued notice of the application on July 31, 2018, with statements of
intent to participate (SIPs) due on August 10, 2018. In response to the notice, SIPs were filed by
the Consumers’ Coalition of Alberta (CCA) and the Office of the Utilities Consumer Advocate
(UCA).
5. The Commission determined that the application would be reviewed by way of a full
written process. As outlined in Commission Bulletin 2015-09,2 the record development phase of
a full written process is expected to take no more than 172 calendar days from the receipt of
application, assuming a complete application is received, and there are no procedural delays. The
Commission’s process ultimately included two rounds of information requests (IRs) and
1 Exhibit 23793-X0007.01, Section 4.4, Attachment 1, Depreciation Study Technical Update as at December 31,
2017. 2 Bulletin 2015-09, Performance standards for processing rate-related applications, March 26, 2015.
2019-2020 General Rate Application ATCO Pipelines
2 • Decision 23793-D01-2019 (June 25, 2019)
responses to IRs from ATCO Pipelines, intervener evidence, IRs and responses to IRs from
interveners, rebuttal evidence and argument and reply argument.
6. Through a series of letters,3 the Commission established the following schedule:
Process step Deadline
Information requests (IRs) to ATCO Pipelines – round 1 September 6, 2018
IR responses from ATCO Pipelines – round 1 September 21, 2018
Submission by ATCO Pipelines of the reconciliation of
Account 496-05 – SCADA accumulated information as
directed in Decision 23539-D01-2018
October 24, 2018
Submission by ATCO Pipelines to file on the record of
Proceeding 23799 all IR responses filed in Proceeding 23793
and related to the Pembina-Keephills Transmission Line
Project as directed in the Commission ruling dated
November 14, 2018
November 20, 2018
IRs to ATCO Pipelines – round 2
November 23, 2018
IR responses from ATCO Pipelines – round 2 December 5, 2018
Submission by ATCO Pipelines as directed in the
Commission ruling dated November 14, 2018 with respect to
the October 9, 2018 motion of the CCA for ATCO Pipelines
to file further and better responses to IR AP-CCA-
2018SEP06-004(d), (e) and (f)
December 5, 2018
Submission by ATCO Pipelines as directed in the
Commission ruling dated December 19, 2018 with respect to
the December 11, 2018 motion of the CCA for ATCO
Pipelines to fully comply with the Commissions ruling of
November 14, 2018 regarding IR AP-CCA-2018SEP06-
004(d), (e) and (f)
December 21, 2018
Intervener evidence January 11, 2019
IRs to interveners February 1, 2019
IR responses from interveners February 15, 2019
Rebuttal evidence February 27, 2019
Argument March 13, 2019
Reply argument March 27, 2019
7. The Commission considers the close of record for this proceeding to be March 27, 2019.
8. In reaching the determinations throughout this decision, the Commission has considered
all relevant materials comprising the record of this proceeding, including the evidence and
arguments provided by each party. Accordingly, references in this decision to specific parts of
the record are intended to assist the reader in understanding the Commission’s reasoning relating
to a particular matter and should not be taken as an indication that the Commission did not
consider all relevant portions of the record with respect to a particular matter.
3 Exhibits 23793-X0017, 23793-X0039, 23793-X0056, 23793-X0071.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 3
9. This decision addresses the contentious cost items forecast in the application, updates and
any matters that the Commission has otherwise determined are required to be specifically
addressed. If a matter or request for approval included in ATCO Pipelines’ application is not
addressed in the findings, that matter or request is approved for the purposes of this GRA
decision.
3 Previous and concurrent applications
10. In an August 29, 2017 decision, Decision 22011-D01-2017,4 the Commission issued its
findings and directions on ATCO Pipelines 2017-2018 GRA. A compliance filing decision,
Decision 22986-D01-20185 was issued on March 13, 2018. The compliance filing decision
included further compliance directions and ATCO Pipelines was directed to file a compliance
application to Decision 22986-D01-2018.
11. On May 15, 2018, ATCO Pipelines filed an application with the Commission requesting
approval of its compliance filing to Decision 22986-D01-2018. Specifically, ATCO Pipelines
requested the Commission’s confirmation or approval of:
ATCO Pipelines’ compliance with directions 1 and 4 from Decision 22986-D01-2018
and
ATCO Pipelines’ 2017-2018 forecast revenue requirements of $248,266,000 and
$268,535,000, respectively, as final.
12. In Decision 23537-D01-2018,6 the Commission approved ATCO Pipelines’ 2017 and
2018 revenue requirements of $248,016,000 and $268,226,000, respectively, subject to any
placeholders.
13. In this decision, the Commission considers any outstanding placeholders that can now be
finalized and any findings from the following proceedings that directly affect ATCO Pipelines’
updated revenue requirements for 2019-2020: the ATCO Utilities IT common matters
application in Proceeding 20514; ATCO Pipelines’ Pembina-Keephills Transmission Pipeline
application in Proceeding 23799; the 2018 Generic Cost of Capital (GCOC) in Proceeding
22570; ATCO Pipelines’ variance application related to Decision 22986-D01-2018 and Decision
23537-D01-2018 (Errata) in Proceeding 24176; and the Commission’s denial of weld assessment
and repair costs to address deficient welds in Decision 22986-D01-2018 and Decision 23537-
D01-2018 (Errata).
4 Summary of revenue requirement
14. In this application, ATCO Pipelines initially requested approval of revenue requirement
amounts of $288,412,000 for 2019 and $313,238,000 for 2020. In its application, ATCO
4 Decision 22011-D01-2017: ATCO Pipelines 2017-2018 General Rate Application Proceeding 22011,
August 29, 2017. 5 Decision 22986-D01-2018: ATCO Pipelines, Compliance Application to Decision 22011-D01-2017, 2017-2018
General Rate Application, Proceeding 22986, March 13, 2018. 6 Decision 23537-D01-2018 (Errata): Compliance Application II to Decision 22986-D01-2018, 2017-2018
General Rate Application Compliance Application, Proceeding 23537, August 29, 2018.
2019-2020 General Rate Application ATCO Pipelines
4 • Decision 23793-D01-2019 (June 25, 2019)
Pipelines provided an overview of the main contributors to the year-over-year changes in its
revenue requirement from 2018 to 2020:
Table 1. ATCO Pipelines’ revenue requirement changes
($000)
Approved 2018 revenue requirement(1) 268,535
Impact of rate base growth 16,631
Change in depreciation rates – technical update (247)
Operations and maintenance 3,600
Other (107)
Forecast 2019 revenue requirement 288,412
Impact of rate base growth 21,156
Change in depreciation rates – technical update (222)
Operations and maintenance 3,826
Other 66
Forecast 2020 revenue requirement 313,238
(1)Per ATCO Pipelines’ 2017-2018 compliance II filing (Proceeding 23537).
15. On December 5, 2018, ATCO Pipelines updated its revenue requirement and schedules to
include all errors or corrections identified to date for its 2019 and 2020 forecasts.7 This resulted
in updated revenue requirement forecasts of $289,678,000 for 2019 and $314,533,000 for 2020.
16. As mentioned in Section 3 of this decision, there are a number of proceedings currently
before the Commission that may affect ATCO Pipelines forecast costs of in this application, the
most noteworthy of which are Proceeding 22570 and Proceeding 20514.
17. In GCOC decisions, the Commission rules on the authorized equity thickness and return
on equity (ROE) of affected Alberta utilities. ATCO Pipelines included in its initial application,
the equity thickness and ROE approved in the 2016 Generic Cost of Capital (2016 GCOC
decision) proceeding8 as a placeholder for each of 2019 and 2020 because the 2018 GCOC
decision9 had not yet been issued. ATCO Pipelines proposed that the placeholders be updated to
reflect the 2018 GCOC decision in its compliance filing to this GRA. A discussion of return on
rate base and the impact of the 2018 GCOC decision is provided in Section 9 of this decision.
18. The Commission initiated Proceeding 20514 to examine IT rates related to the master
service agreements (MSAs) between the ATCO Utilities and Wipro. In its 2019-2020 GRA,
ATCO Pipelines requested approval of forecast IT volumes for 2019 and 2020 with the IT rates
to be treated as placeholders pending the outcome of the IT Common Matters proceeding.
19. A summary of placeholders and reserves included in this application is provided in
Table 2:
7 Exhibit 23793-X0062, AP-AUC-2018NOV23-001 and Exhibit 23793-X0063, AP-AUC-2018NOV23-001
Attachment. 8 Decision 20622-D01-2016: 2016 Generic Cost of Capital, Proceeding 20622, October 7, 2016, tables 1 and 26. 9 Decision 22570-D01-2018: 2018 Generic Cost of Capital, Proceeding 22570, August 2, 2018.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 5
Table 2. ATCO Pipelines’ summary of placeholders, deferral accounts and reserve accounts
2019 2020
Placeholder
2018 GCOC
Equity thickness 37% 37%
Return on equity 8.50% 8.50%
IT Common Matters IT Rates/Costs IT Rates/Costs
Deferrals and reserve accounts ($000)
VPP 3,074 3,177
Regulatory expenses 3,717 3,717
Injuries & damages (67) (67)
Source: Exhibit 23793-X0001, Table 1.2-1 Summary of Placeholder and Reserve Requests, PDF page 9.
5 Rate base
20. ATCO Pipelines’ rate base consists of its mid-year plant in service plus necessary
working capital as set out in the following table:
Table 3. ATCO Pipelines’ historical and forecast rate base10
2017 Approved 2017 Actual 2018 Approved 2018 Estimate 2019 Forecast 2020 Forecast
($000)
Mid-year plant in service 1,473,992 1,455,215 1,673,722 1,676,975 1,861,153 2,045,056
Necessary working capital 30,826 35,281 29,878 33,719 32,160 33,964
Rate base 1,504,818 1,490,496 1,703,600 1,710,694 1,893,313 2,079,020
Source: Exhibit 23793-X0001, Table 2.1-1, PDF page 22; Exhibit 23793-X0026, AP-AUC-2018SEP06-001, Schedule 2.1-1.
21. Variances between the 2017-2018 approved amounts, 2017 actuals and 2018 estimated
rate base amounts consisted primarily of decreases to rate base due to the urban pipeline
replacement (UPR) re-scoping of projects, construction scheduling of capital projects, and
increases in contribution amounts from the South West Calgary Ring Road project.11 These
decreases were partially offset by higher than approved necessary working capital requirements
in both 2017 and 2018.
22. ATCO Pipelines also explained that the year-over-year increases in both 2019 and 2020
rate base in the table were driven by capital expenditures associated with the Pembina-Keephills
Transmission Pipeline Project, ongoing pipeline and facility integrity initiatives such as the
In-Line Inspection (ILI) Program, the Lethbridge Urban Pipeline Upgrade, and the continued
capital expenditures associated with the UPR Program.12
10 As noted in Section 4 above, in Exhibit 23793-X0062, AP-AUC-2018NOV23-001 and Exhibit 23793-X0063,
AP-AUC-2018NOV23-001 Attachment, ATCO Pipelines provided an update of its revenue requirement and
schedules to include all errors or corrections identified to date regarding its 2019 and 2020 forecasts, the values
in this table do not include those updates. 11 Exhibit 23793-X0025, AP-AUC-2018SEP06-001(c), PDF page 8. 12 Exhibit 23793-X0001, application, PDF pages 4-5.
2019-2020 General Rate Application ATCO Pipelines
6 • Decision 23793-D01-2019 (June 25, 2019)
Commission findings
23. The Commission has reviewed the variance between approved and estimated rate base for
2018 and is satisfied with the explanations provided by ATCO Pipelines in its application and in
responses to IRs. For this reason, the Commission approves ATCO Pipelines’ 2018 opening rate
base on an actual basis. However, as ATCO Pipelines’ actual closing 2018 rate base information
is not available, the Commission makes no finding with respect to 2019 opening rate base.
ATCO Pipelines’ 2019 opening rate base amounts will also be affected by the findings in other
areas of this decision. ATCO Pipelines is directed to provide its 2018 rate base actuals in the
compliance filing to this decision.
6 Capital expenditures
24. ATCO Pipelines provided its capital expenditures and capital additions on a project-by-
project basis for capital projects and for contributions, as shown in its detailed construction work
in progress (CWIP) continuity schedules. This information was provided for 2017 and 2018 on
an approved or actual basis, for 2018 on an estimated basis and for 2019 and 2020 on a forecast
basis, as set out in the following table:
Table 4. ATCO Pipelines’ capital expenditures and capital additions
2017 Approved 2017 Actual 2018 Approved 2018 Estimate 2019 Forecast 2020 Forecast
($000)
Capital expenditures 324,344 290,423 263,515 245,007 313,732 190,190
Contributions (7,789) (14,868) (7,789) (15,967) (6,861) (6,388)
Capital additions 350,920 356,252 196,120 243,077 296,538 253,032
Contributions (5,978) (3,273) (7,649) (23,350) (9,722) (6,716)
Source: Exhibit 23793-X0062, AP-AUC-2018NOV23-018, PDF pages 107, 109, 111, 113, 115, and 117.
25. ATCO Pipelines also provided a summary of its capital expenditures on a category basis,
as set out in the table below:
Table 5. ATCO Pipelines’ capital expenditures by project category
2017 Actual 2018 Estimate 2019 Forecast 2020 Forecast
($000)
UPR 145,232 72,994 63,262 37,818
Growth 50,610 56,413 119,100 14,960
Improvements and replacements 83,656 91,846 122,434 129,077
Relocations 8,548 18,190 6,388 6,646
IT projects 2,378 5,565 2,549 1,690
Total 290,424 245,008 313,733 190,191
Contributions (14,867) (15,968) (6,861) (6,388)
Source: Exhibit 23793-X0001, application, Table 2.3-1, PDF page 25.
26. ATCO Pipelines explained that the key drivers of the capital expenditures during the test
period are:
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 7
UPR projects in Edmonton and Calgary, the need for which was approved in
Decision 2014-010.13
Improvement and replacement projects focused on pipeline and facility integrity
initiatives, including the ILI program and other system upgrades, as well as additional
verification activities.
Relocation projects driven by municipal, provincial and private developments that result
in requests for ATCO Pipelines to relocate its existing facilities.14 There is often a
contribution in aid of construction (contribution) towards the cost of these relocations by
the third party requesting the relocation, depending upon applicable agreements in effect.
For the 2019 and 2020 test years, forecast contributions were $6,388,000 and $6,646,000,
respectively.15
27. A detailed breakdown of ATCO Pipelines’ forecast capital expenditures is provided in
Appendix 3 of this decision.
Commission findings
28. The Commission notes that there are several business cases that address capital
expenditures that are of a longer-term nature. For example, ATCO Pipelines’ forecast capital
expenditures of $63,300,000 in 2019 and $37,800,000 in 2020 for the UPR program. The
Commission will specifically address the three capital projects that were the major drivers of
capital expenditures in the test period and in the subsections that follow, the Commission will
address specific capital projects that were contentious or otherwise require specific findings of
the Commission.
29. With respect to UPR, on January 17, 2014, the Commission issued Decision 2014-010
that approved the proposal related to the need for ATCO Pipelines’ UPR pipelines. The UPR
proposal was comprised of 12 individual pipeline projects, four in Edmonton and eight in
Calgary, all of which included construction of new high-pressure pipelines within transportation
utility corridors to replace aging infrastructure and to meet the 20-year demand for natural gas.
While individual project forecasts have changed since Decision 2014-010 was issued, the overall
forecast of the UPR Project remains within one per cent of the previous 2017-2018 GRA
forecast. The Commission considers that the forecasts are supported by the information on the
record and the overall variance in the forecast has not significantly changed from the last GRA.
The Commission therefore accepts ATCO Pipelines’ forecast UPR costs for the 2019-2020 test
period.
30. ATCO Pipelines is continuing with its multi-year program ILI and depth of cover
programs that were approved by the Commission in Decision 22011-D01-D017. ATCO
Pipelines stated that ILI is a key component of its integrity program and is required to comply
with Canadian Standards Association (CSA) Z662-15, Section 3.2 and Annex N.16 From 2015 to
2022, ATCO Pipelines has forecast total capital costs of $244,161,000 plus removal costs of
13 Decision 2014-010: ATCO Pipelines, a division of ATCO Gas and Pipelines Ltd., Urban Pipeline Replacement
Project, Proceeding 1995, Application 1608617-1, January 17, 2014. 14 Exhibit 23793-X0001, application, PDF pages 24-26. 15 Exhibit 23793-X0001, application, PDF page 46. 16 Exhibit 23793-X0010, 7.2 Attachment, PDF page 67.
2019-2020 General Rate Application ATCO Pipelines
8 • Decision 23793-D01-2019 (June 25, 2019)
$21,000,775 for this program. ATCO Pipelines’ forecasts $50,620,000 in 2019 and $47,895,000
in 2020 for its ILI program.
31. In its application, ATCO Pipelines states that the depth of cover program replaces or
removes sections of pipeline that do not have sufficient depth of cover as required under CSA
Z662-15 and Alberta Pipeline Rules.17 ATCO Pipelines has forecast depth of cover capital
expenditures of $6,374,000 in 2019 and $6,502,000 in 2020. These amounts represent a portion
of the $25,988,000 plus $4,352,000 in removal costs of the overall forecast expenditures for the
program.
32. The Commission has reviewed the forecast costs associated with the ILI and depth of
cover programs and is satisfied that ATCO Pipelines has adequately explained the need for the
expenditures to ensure pipeline integrity. These costs have been reasonably supported on the
record and are approved for inclusion in the improvement and replacement capital expenditures
for 2019 and 2020.
33. In compliance with Decision 22011-D01-2017, ATCO Pipelines explained that the
retirement of the original assets from Account 465.00 transmission plant – Mains,18 associated
with the replacement and removal programs are ordinary retirements. The Commission considers
that these retirements are properly recorded as ordinary retirements as proposed by ATCO
Pipelines. The Commission approves ATCO Pipelines’ forecast capital expenditures for the ILI
and depth of cover programs, as filed. In the sections that follow, the Commission includes a
discussion of specific, applied-for capital projects.
6.1 Pembina-Keephills Transmission Pipeline Project
34. ATCO Pipelines applied to construct a new high-pressure natural gas pipeline to provide
natural gas transportation service to meet the incremental demand of electric power generation in
the Wabamun area, which is the Pembina-Keephills Transmission Pipeline Project (Pembina
Keephills). ATCO Pipelines originally forecast the cost of the project at $157,000,000 in this
GRA, with the majority of the costs of the project, (approximately $108,600,000) incurred in
2019. The forecast was revised to $230,000,000 in the concurrent facilities proceeding,
Proceeding 23799.19
35. The CCA argued that the costs of the project should be excluded from the 2019 and 2020
test years until the Commission renders its determination of the Pembina-Keephills project in
Proceeding 23799.
36. The UCA argued that the project should be treated as no cost capital until it is both
approved and in-service.
37. In reply argument, ATCO Pipelines stated, “to the extent the Commission adjusts costs or
revenues for the Project in the Facilities proceeding, ATCO Pipelines will reflect any such
adjustments in a compliance filing to the GRA.”20
17 Canadian Standards Association (CSA) Z662-15, Section 4.11 and Table 4.9. 18 Exhibit 23793-X0010, 7.2 Attachment, PDF pages 72 and 151. 19 Proceeding 23799, Exhibit 23799-X0055, PDF page 2. 20 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 75.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 9
Commission findings
38. The Commission determined, in a letter dated November 14, 2018, that due to the
potential overlap between this GRA and the facilities proceeding on the proposed Pembina-
Keephills project, it was more efficient to address the rates and facilities matters for the project
in Proceeding 23799.21 Given that the need and costs related to the project are being determined
in Proceeding 23799, the Commission approves placeholder treatment for the project until a
determination is made in Proceeding 23799. ATCO Pipelines is directed to revise its revenue
requirement and capital expenditures forecasts in its compliance filing to this decision to reflect
any findings arising from Proceeding 23799.
6.2 Weld Assessment and Repair Program
39. ATCO Pipelines’ application included costs associated with its Weld Assessment and
Repair Program (WARP) initiated to assess and, where necessary, replace all in-service pre-
fabrication welds identified to have the potential to contain deficiencies as a result of insufficient
radiographic inspections. According to ATCO Pipelines, the inspection and assessment of welds
identified under this program are required to ensure continued safe and reliable service and to
maintain code compliance with applicable standards, i.e., CSA Z662-15, ASME B31.3, and
ASME BPV (Section V) and legal requirements (including the Pipeline Act).22
40. While the WARP business case presented the full program forecast, including both
reinspection and repair, the amounts included in revenue requirement for the test years excluded
reinspection costs, pursuant to Commission Decision 22986-D01-2018.23 ATCO Pipelines stated
it has forecast capital expenditures of $5,972,000 in 2019 and $6,091,000 in 2020,24 which is
only a portion of the estimated total project cost of approximately $67,133,000. The total project
cost includes $36,800,000 in reinspection costs, $28,980,000 in repairs, and $1,345,000 in
removal costs.25
Commission findings
41. On March 18, 2018, the Commission issued Decision 22986-D01-2018,26 the first
compliance decision to ATCO Pipelines’ 2017-2018 GRA denying 100 per cent of reinspection
costs of WARP and directing ATCO Pipelines to remove both the 2016 reinspection costs from
its 2017 opening rate base and from its 2017-2018 capital expenditures and revenue
requirements.
42. On May 7, 2018, ATCO Pipelines requested an R&V of the Commission’s disallowance
of the WARP reinspection costs in the first compliance decision. On September 27, 2018, the
Commission issued Decision 23539-D01-201827 granting a review of the WARP reinspection
costs.
21 Exhibit 23793-X0056, AUC letter – Ruling on UCA request for a second round of information requests and a
CCA motion for further and better responses to information requests. 22 Exhibit 23793-X0010, 7.2 Attachment, PDF page 141. 23 Exhibit 23793-X0001 application, PDF page 42. 24 Exhibit 23793-X0001 application, PDF page 40. 25 Exhibit 23793-X0010, 7.2 Attachment, PDF page 143. 26 Decision 22986-D01-2018: ATCO Pipelines, a division of ATCO Gas and Pipelines Ltd., Compliance
Application to Decision 22011-D01-20178, 2017-2018 General Rate Application, March 13, 2018. 27 Decision 23539-D01-2018: ATCO Pipelines, Office of the Utilities Consumer Advocate, Decision on
Preliminary Question Applications for Review of Decision 22986-D01-2018 Compliance Application to
2019-2020 General Rate Application ATCO Pipelines
10 • Decision 23793-D01-2019 (June 25, 2019)
43. In Decision 23537-D01-2018 (Errata), related to the second compliance decision,28 the
Commission denied 100 per cent of the incremental repair costs arising from improper
radiographic inspections. ATCO Pipelines filed an application on October 18, 2018, which was
assigned Proceeding 23953, for review of the Commission’s disallowance of incremental repair
costs.
44. On December 13, 2018, the Commission issued Decision 23953-D01-2018,29 wherein the
review panel found that findings related to WARP repair costs should be reviewed. The review
panel concluded that the review process should consider both WARP reinspection and repair
costs. On December 21, 2018, the Commission issued a notice of hearing for the review
proceeding to consider the merits of ATCO Pipelines’ application to vary Decision 22986-D01-
2018 and Decision 23537-D01-2018 (Errata) with respect to both the reinspection and repair
costs. The Commission assigned Proceeding 24176 to the review.
45. Given that WARP is currently under consideration in Proceeding 24176, any
determination in that proceeding may affect the consideration of the forecast WARP costs in this
proceeding. As a result, the Commission considers that placeholder treatment of the WARP
forecast is reasonable. Consistent with the denial of WARP reinspection and repairs costs in
Decision 22986-D01-2018 and Decision 23537-D01-2018 (Errata), the Commission directs that
the WARP placeholder amount be set at $0.
6.3 Remote Operated Valves Program
46. ATCO Pipelines proposed to initiate a multi-year program to incorporate remote operated
valves (ROVs) into its transmission system. The program includes the installation of ROVs on
31 pipeline segments in urban locations over a five-year period concluding in 2023. ATCO
Pipelines proposes to install ROVs on nine rural segments during the 2019-2020 period at
strategic locations that ATCO Pipelines submits would enhance its ability to respond to pipeline
failures and natural disasters. ATCO Pipelines noted that CSA Z662-15 in Section 4.4.1 states,
“Isolating valves shall be installed for the purpose of isolating the pipeline for maintenance and
for response to operating emergencies.”30
47. The forecast costs of the ROV program are provided in the table below:31
Table 6. ATCO Pipelines’ ROV program forecast capital expenditures
Engineering Materials Land Construction AFUDC* Total
($)
2019 383,000 2,300,000 0 1,150,000 0 3,833,000
2020 391,000 2,345,000 0 1,173,000 0 3,909,000
2021 266,000 1,595,000 0 797,000 0 2,658,000
Decision 22011-D01-2017: ATCO Pipelines 2017-2018 General Rate Application, Proceeding 23539,
September 27, 2018. 28 Decision 23537-D01-2018 (Errata): ATCO Pipelines, a division of ATCO Gas and Pipelines Ltd., Compliance
Application II to Decision 22986-D01-2018, 2017-2018 General Rate Application Compliance Application,
August 29, 2018. 29 Decision 23953-D01-2018 ATCO Pipelines Decision on Preliminary Question Application for Review of
Decision 23537-D01-2018 (Errata) Compliance Application to Decision 22986-D01-2018, Proceeding 23953,
December 13, 2018. 30 Exhibit 23793-X0010, 7.2 Attachment, PDF page 175. 31 Exhibit 23793-X0010, 7.2 Attachment, PDF page 179.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 11
Engineering Materials Land Construction AFUDC* Total
2022 271,000 1,627,000 0 813,000 0 2,711,000
2023 277,000 1,659,000 0 830,000 0 2,766,000
Total 1,588,000 9,526,000 0 4,763,000 0 15,877,000
*Allowance for funds used during construction
CCA
48. The CCA argued that there is no requirement for the proposed valves either legislatively
or through mandated standards, nor is there industry consensus on the need to install these types
of shutdown valves. In response to IRs, ATCO Pipelines confirmed that it:
is not aware of any regulating body in Canada, or any other jurisdiction, that has
mandated the use of remote emergency valves for a natural gas system.
has not completed an impact analysis for each pipeline segment in the proposed ROV
business case.
has not consulted with any municipalities, industrial customers or other operators of
critical facilities regarding the proposed ROV program.
has not consulted with emergency responders regarding the response time for firefighters
for each of the proposed systems.32
49. The CCA submitted that ATCO Pipelines has not completed risk assessments that
support the necessity of the proposed valves and that ATCO Pipelines is relying on a single
directive from another jurisdiction that has received no follow-up since 2012. The CCA further
argued that ATCO Pipelines has relied on a 2012 research study based entirely on United States
standards that includes extensive discussion of hazardous liquid pipelines and high consequence
areas, neither of which are applicable to ATCO Pipelines’ business or its operating jurisdiction.33
The CCA submitted that ATCO Pipelines failed to address portions of the American Gas
Association (AGA) White Paper on ROVs with respect to unintended consequences of false
valve closures.34
50. The CCA asserted that ATCO Pipelines’ average estimate of $250,000 per site is
inadequate for inclusion into the revenue requirements of this proceeding because the estimate is
not based on any specific site evaluation and ATCO Pipelines has not provided for any site
acquisition or power and telecommunication access.35
51. The CCA recommended that ATCO Pipelines be directed to remove the costs related to
this project of $3,833,000 in 2019 and $3,909,000 in 2020 from the forecast revenue
requirements.
32 Exhibit 23793-X0091, CCA argument, paragraph 16. 33 Exhibit 23793-X0091, CCA argument, paragraphs 7-8. 34 Exhibit 23793-X0091, CCA argument, paragraph 11. 35 Exhibit 23793-X0091, CCA argument, paragraphs 12 and 17.
2019-2020 General Rate Application ATCO Pipelines
12 • Decision 23793-D01-2019 (June 25, 2019)
ATCO Pipelines
52. ATCO Pipelines confirmed that, although it had not completed a third-party risk analysis,
it did complete a “risk analysis to determine which systems are greatest risk,” which supported
the need for the program. Further, ATCO Pipelines detailed the consequences or probability of
false shutdowns. 36
53. ATCO Pipelines argued that ROVs are common within industry and that other Canadian
pipeline operators, including Manitoba Hydro, SaskEnergy, FortisBC and Energir (formerly Gaz
Metro) utilize ROVs. ATCO Pipelines also stated that it believes there is growing and
widespread industry consensus on the necessity and value of ROVs in both Canada and the
United States and that it “believes that ROVs would enhance its capabilities to respond to
operating emergencies.”37
54. ATCO Pipelines confirmed that in developing the $250,000 average cost per site, it relied
on “historical project installation costs” and that the estimate is consistent with the estimated cost
to retrofit an existing line in the AGA’s White Paper.38
Commission findings
55. The Commission is supportive of efforts by utilities to enhance response time in
situations that have the potential to threaten public safety or pipeline integrity. The Commission
considers that the evidence has reasonably demonstrated that ROVs would reduce response time
and therefore mitigate against potential consequences that could affect public safety or pipeline
integrity. Currently, utility staff are required to travel to locations to shut-off the flow of natural
gas, which could have consequences such as endangerment to utility staff or to the general
public.
56. The Commission notes, however, that ATCO Pipelines confirmed that it is not aware of
any regulating body in Canada or any other jurisdiction that has mandated the use of ROVs for
natural gas systems.39 Before the Commission determines whether ROVs and the associated costs
are reasonably required for public safety or pipeline integrity, ATCO Pipelines is directed to
provide the following information in its compliance filing to this decision:
Provide a detailed explanation of the advantages and disadvantages of the installation of
ROVs (and include any comments on the conclusions found in the AGA White Paper);
File a copy of the AGA White Paper;
Provide a risk assessment, impact analysis and detailed cost estimates for each of the
proposed ROV locations;
Explain how it proposes to prioritize its ROV installations; and
36 Exhibit 23793-X0033, AP-CCA-2018SEP06-024(f) and (g), PDF pages 126-127. 37 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 82. 38 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 88. 39 Exhibit 23793-X0033, AP-CCA-2018SEP06-23, PDF page 126.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 13
Confirm the process and costs that would be required for any consultation with
municipalities, industrial customers, other operators of critical facilities and emergency
responders regarding the proposed ROV program.
6.4 Pembina 8 Receipt Station - upgrade
57. ATCO Pipelines proposed to upgrade the existing Pembina 8 Receipt Station (Pembina 8
upgrade), including upgrading the automated hydrogen sulfide (H2S) shutdown valve and
custody transfer metering and adding functionality at the current facility by installing a buy-back
run, an H2S containment vessel and a filter separator. ATCO Pipelines indicated that this station
was installed in 1958 and that the equipment has degraded over the past 60 years of operation
such that it is no longer adequate to protect the pipeline system from higher H2S levels. It
explained that the level of H2S contamination from the upstream producers at the Pembina 8
Receipt Station has the potential to exceed the Nova Gas Transmission Ltd. (NGTL) gas
specifications. This necessitates reliable H2S monitoring and automated shutdown equipment.
Incidents of the H2S limit exceeding NGTL’s gas specification have occurred at an increased rate
over the last three years, including five shutdowns in the last six months of 2017. ATCO
Pipelines stated that upgrades to the H2S shutdown system are necessary to ensure that H2S
levels do not exceed NGTL limits.40 ATCO Pipelines forecast capital expenditures for the project
of $1,001,000 with removal costs of $30,000 in 2019. The project is forecast to be in service in
2019.41
CCA
58. The CCA argued that despite the project being solely required to bring producer gas at a
single receipt point onto the Alberta system, there is no customer contribution for this project nor
has ATCO Pipelines verified contractual backstopping for the required expenditures. The CCA
noted that in two previous instances where similar upgrades took place, the projects were either
underpinned by existing contracts or required a contribution when existing contractual revenue
underpinning the project was insufficient.42
59. The CCA argued that it is inappropriate to permit the Pembina 8 upgrade to proceed as a
minor modification supported by the Alberta system ratepayer without evidence of a contractual
commitment. The CCA considers this lack of verification of contractual support to be untenable
and contends that investments of the magnitude of the Pembina 8 upgrade must be of direct
benefit to Alberta system customers as a whole and must not result in the subsidization of a
single customer. The CCA recommended that the costs of this project be disallowed from the
revenue requirements until ATCO Pipelines can demonstrate in the compliance filing the
contractual support necessary from the specific customers at this site to prevent subsidization by
the general ratepayer for these upgrades.43
ATCO Pipelines
60. ATCO Pipelines asserted that the Pembina 8 upgrade is not providing benefit to only one
customer but to multiple customers downstream of the receipt station. As stated in the business
case, “Upgrades to the H2S shutdown system are necessary to ensure that H2S levels do not
40 Exhibit 23793-X0010, 7.2 Attachment, PDF pages 191-192. 41 Exhibit 23793-X0010, 7.2 Attachment, PDF page 193. 42 Exhibit 23793-X0091, CCA argument, paragraphs 39-41. 43 Exhibit 23793-X0091, CCA argument, paragraphs 45-47.
2019-2020 General Rate Application ATCO Pipelines
14 • Decision 23793-D01-2019 (June 25, 2019)
exceed NGTL limits. The close proximity (2.5 km [kilometres]) of local distribution company
taps downstream of the receipt station reinforces the requirement for complete containment to
prevent the receipt of H2S contaminated gas onto the AP system.”44
61. In reply argument, ATCO Pipelines re-iterated that “there are firm service receipt
contracts held for this station. Gas delivered downstream of the station would also generate
delivery revenue.”45 ATCO Pipelines submitted that it clearly demonstrated that it has the
contractual support necessary for the project and that on this basis, the Pembina 8 upgrade should
be approved as filed.
Commission findings
62. The Commission finds that that the Pembina 8 upgrade is required to address the H2S
levels exceeding NGTL’s gas specification. The Commission notes that incidents of H2S levels
exceeding NGTL’s gas specification have occurred at an increasing rate since 2014:
Table 7. Incidences of H2S levels exceeding NGTL’s gas specification
Year Exceedances
2014 2
2015 3
2016 4
2017 7
2018 (to September 1) 6
Source: Exhibit 23793-X0025, AP-AUC-20-18SEP06-43(c), PDF page 228.
63. The Commission is persuaded that the project will benefit not only the one producer at
the receipt point, but also downstream customers, as supported by the information supplied by
ATCO Pipelines on the record. The project does not require NGTL approval as it is considered a
minor modification under the AP-NGTL Integration Agreement.46 There is sufficient evidence to
include the cost for the Pembina 8 upgrade in customer rates because this project is related to the
integrated system rather than specifically in relation to the contractual obligation for one
customer. The Commission is also satisfied that the upgrade is reasonably required in 2019.
Accordingly, the Commission approves the forecast costs for the Pembina 8 upgrade, as filed.
6.5 Quality Control Initiatives
64. ATCO Pipelines indicated that in light of the Commission decision on the 2017-2018
GRA compliance application in Decision 22986-D01-2018 and on its own initiative, it reviewed
its inspection and monitoring procedures across its pipeline system. Following this review, it
concluded that the quality control processes currently in place are not adequate to ensure the
absence of negligence or fraud. ATCO Pipelines noted that in Decision 22986-D01-2018 the
Commission stated:
… [AP] should have established some quality control measures to ensure that the work
performed by its contractors … was being properly completed in accordance with all
applicable standards[.] …[G]reater oversight … could have ensured a more reliable
44 Exhibit 23793-X0010, 7.2 Attachment, PDF page 192. 45 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 107; Exhibit 23793-X0033, AP-CCA-
2018SEP06-021(g), PDF pages 109-110. 46 Exhibit 23793-X0025, AP-AUC-2018SEP06-043(a), PDF page 228.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 15
process and mitigated the risk[.] … [P]eriodic review and monitoring should be
expected.47
65. ATCO Pipelines proposes to implement several new quality control initiatives to reduce
the risk of negligent or fraudulent actions. The breakdown of test year forecast costs on an
annual basis for the proposed quality control initiatives by capital and operating and maintenance
(O&M) costs is provided below:48
Table 8. ATCO Pipelines’ estimate of annual capital costs
Category Annual cost
($000)
Increased construction inspection 6,355
Material verification 1,330
Radiography verification 835
Quality program administration 785
Engineering design 625
Survey 565
Environment 415
ILI verification 325
ECEA inspections 80
Watercourse survey 35
Total 11,350
Note: Programs to commence in 2019.
Table 9. ATCO Pipelines’ estimate of annual operational expenses
Category Annual cost
($000)
Measurement verification 1,000
Reinspection Program 620
Third-party activity verification 300
Critical equipment verification 205
Quality program coordinator 120
Critical facility assessment 100
Cathodic protection readings 50
Aerial survey 25
Total 2,420
66. The approximate effect of capital and operating spending activities for the quality control
initiatives on the revenue requirements is $2,830,000 in 2019 and $3,672,000 in 2020.49
67. ATCO Pipelines stated that the Commission’s disallowance in Decision 22986-D01-2018
and Decision 23537-D01-2018 of all reinspection and repair costs for all years implies that the
Commission has determined that no period of time is reasonable to discover deficiencies and that
47 Decision 22986-D01-2018, paragraph 47. 48 Exhibit 23793-X0010, 7.2 Attachment, PDF page 216. 49 Exhibit 23793-X0029, AP-UCA-2018SEP06-018(d), PDF page 53.
2019-2020 General Rate Application ATCO Pipelines
16 • Decision 23793-D01-2019 (June 25, 2019)
an increased level of quality control is therefore required.50 ATCO Pipelines argued that it
required higher levels of quality control to provide safe and reliable utility service. In Decision
22986-D01-2018, the Commission stated:
The Commission finds that ATCO Pipelines should have established some quality control
measures to ensure that the work performed by its contractors, such as radiographic
inspection companies and technicians, was being properly completed in accordance with
all applicable standards. The Commission recognizes that the welds went through visual,
radiography and hydrostatic testing, but greater oversight of the radiographic
inspections/inspectors could have ensured a more reliable process and mitigated the risk
of seven years of deficient inspections and welds being placed in service. The
Commission does not find it is reasonable that this type of deficient work continued for
seven years or more without being discovered. As submitted by the UCA, ATCO
Pipelines need not be expected to ‘audit the auditors,’ but periodic review and monitoring
should be expected. The fact that ATCO Pipelines explained that it is ‘Engaging in a
third-party review of weld inspection’ as well as ‘Providing leading indicator feedback to
welders’ and ‘Enhancing the weld quality process and documentation’ demonstrates that
better processes could have been and should have been in place.51
68. ATCO Pipelines submitted that the need for and scope of the quality control initiatives
are reasonable, and that the forecast costs included in its revenue requirements for the test period
are required to comply with the standards that the Commission stated in Decision 22986-D01-
2018. ATCO Pipelines added that if the Commission’s direction changed, ATCO Pipelines
would re-evaluate the proposed quality control initiative to align with any new Commission
direction.52
69. ATCO Pipelines explained that “The increased activities are not being proposed to
address a new risk; they apply the same reasoning that Decisions 22986-D01-2018 and 23537-
D01-2018 applied to radiography to other aspects of AP’s system construction and operations in
order to comply with the AUC’s decisions.”53
70. ATCO Pipelines submitted that it was, and remains, reasonable and necessary for it to
rely on the Commission’s findings in Decision 22986-D01-2018 to request the inclusion in
revenue requirement for 2019 and 2020 of the costs for the quality control initiatives.54
50 Exhibit 23793-X0025, AP-AUC-2018SEP06-045(a), PDF page 240. 51 Decision 22986-D01-2018, paragraph 47. 52 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 9. 53 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 49; Exhibit 23793-X0025, AP-AUC-
2018SEP06-045(g), PDF page 243. 54 Exhibit 237993-X0097, ATCO Pipelines reply argument, paragraphs 30-32.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 17
UCA
71. The UCA noted that ATCO Pipelines stated that the proposed quality control initiatives
are generally above and beyond those instituted by other pipeline operators but are required to
comply with the Commission’s decisions.55
72. The UCA argued that ATCO Pipelines explicitly ignores the conclusions of the
Commission from the last GRA that ATCO Pipelines’ weld inspection procedures in place at that
time were operating at appropriate levels.56
73. The UCA argued that ATCO Pipelines has not appropriately investigated alternatives in
the event such standards were required to be met, nor did it complete a formal cost/benefit
analysis for each quality control initiative.57
74. Considering the ongoing review and vary process at the Commission and the court
process where ATCO Pipelines is seeking redress from the responsible parties for the deficient
radiographic inspections on prefabricated welds,58 the UCA argued that the quality control
initiatives are premature. The UCA further submitted that the Commission should reject the
quality control initiative project and remove the costs from the operating and capital expenditure
forecasts for the 2019 and 2020 revenue requirements.59
CCA
75. The CCA submitted that the proposal to implement 18 new quality control initiatives
appears to be a reaction to Decision 22986-D01-2018 and ATCO Pipelines’ lack of confidence in
its current quality assurance programs. The CCA argued that ATCO Pipelines’ quality control
initiative project is excessive and unwarranted.60
76. The CCA noted that Decision 22986-D01-2018 is currently being reviewed and that if
the Commission’s direction is changed, ATCO Pipelines would re-evaluate its proposed quality
control initiative project. The CCA argued that the quality control initiative is unreasonable, not
adequately supported and premature and that it should therefore be rejected entirely.61
Commission findings
77. The Commission finds that ATCO Pipelines has not adequately justified its quality
control initiatives project.
78. The determinations made in decisions 22986-D01-2018 and 23537-D01-2018 were
specific to the circumstances related to the deficient radiographic inspections and welds and the
disallowances in decisions 22986-D01-2018 and 23537-D01-2018 relate to a past event.
Although ATCO Pipelines argued that the additional quality control initiatives proposed in this
application are required to comply with Decision 22986-D01-2018 and Decision 23537-D01-
2018, it conceded that these proposed quality control initiatives are generally above and beyond
55 Exhibit 23793-X0029, AP-UCA-2018SEP06-045(l-m) 56 Decision 22986-D01-2018, paragraph 44. 57 Exhibit 23793-X0093, UCA argument, paragraph 50. 58 Exhibit 23793-X0074, UCA evidence, PDF page 43. 59 Exhibit 23793-X0093, UCA argument, paragraph 57. 60 Exhibit 23793-X0091, CCA argument, paragraph 117. 61 Exhibit 23793-X0091, CCA argument, paragraphs 118-119.
2019-2020 General Rate Application ATCO Pipelines
18 • Decision 23793-D01-2019 (June 25, 2019)
those instituted by other pipeline operators.62 Moreover, in Decision 22986-D01-2018, the
Commission commented on the revised procedures and controls that were put in place following
the discovery of the deficient welds in 2015. It stated:
44. … The Commission also agrees with the revised procedures and controls that ATCO
Pipelines has implemented to ensure that future radiographic inspections of prefabricated
piping assembled in the ATCO welding shop meet all applicable standards.
79. It is ATCO Pipelines’ onus to justify the need for and forecast costs of the quality control
initiatives. ATCO Pipelines has provided insufficient evidence to support the benefits that it says
could be realized by implementing the proposed additional quality control initiatives. Further,
ATCO Pipelines has not demonstrated to the Commission that the applied-for costs to implement
the initiatives, which would be funded by ratepayers through the revenue requirement, are
justified.
80. In particular, the Commission notes that ATCO Pipelines has not completed a formal cost
benefit analysis to support its expenditures, nor has it provided persuasive evidence that its
proposed quality control initiatives will actually and directly mitigate the unforeseen risks of
fraud or negligence. The absence of a detailed cost benefit analysis hinders the Commission’s
ability to determine whether separate quality control initiatives are required above and beyond
existing measures required by industry standards or by legislative requirements to ensure that
ATCO Pipelines is able to provide safe and reliable utility service to customers. Further, ATCO
Pipelines did not provide any evidence to demonstrate that these quality control initiatives are in
line with industry norms or best practices.
81. Based on the above determinations, ATCO Pipelines’ request for a quality control
initiative project is denied and it is directed to remove all O&M and capital costs related to the
project from its forecast 2019-2020 revenue requirements.
82. The Commission notes that it is always incumbent upon utilities to adopt prudent utility
practices that ensure the safe and reliable delivery of utility service. Nothing in this decision
obviates or reduces ATCO Pipelines’ obligation to provide safe and reliable service at just and
reasonable rates for its capital projects.
6.6 General improvements and replacements
83. ATCO Pipelines forecast general improvement and replacement capital expenditures of
$23,254,000 in 2019 and $22,840,000 in 2020. The forecast was derived using a three-year
rolling average of actual data.
84. ATCO Pipelines argued that it has provided a significant amount of information
regarding its general improvement and replacement projects, justifying the reasonableness of its
forecast and that the forecast costs for the unspecified category is consistent with its past
forecasts. In response to AP-CCA-2018NOV23-042(b), ATCO Pipelines stated, “while
individual unspecified or identified program categories may vary by more than 10%, the overall
forecast for the general improvements is within 10%.”63 ATCO Pipelines stated that the variance
from the three-year average to actual costs on a total basis was two per cent for 2016 and five per
62 Exhibit 23793-X0025, AP-AUC-2018SEP06-045(g), PDF page 243. 63 Exhibit 23793-X0066, AP-CCA-2018NOV23-042(b), PDF page 123.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 19
cent for 2017.64 As such, the three-year average is an accurate method to forecast costs for
General Improvement and Replacement projects.
CCA
85. The CCA submitted that using a rolling average for improvement projects is entirely
inappropriate as there is no check on whether improvements are required.65
86. The CCA argued that it is not credible that ATCO Pipelines would have the number of
unspecified projects at the cost levels it has projected without having specific sites or activities
identified, based on its history in at least the last two proceedings. The CCA pointed to the
magnitude of capital work and replacements that ATCO Pipelines has undertaken in recent years
shown by a 27 per cent increase in its forecast revenue requirement between 2017 and 2020. The
CCA said it was inappropriate to forecast increased unspecified annual capital improvements on
a system that had already seen significant new assets, upgrades and improvement work.66
87. Further, the CCA argued that there are wide variances in each category in the 2013-2017
“forecast versus actuals” of the general - improvements and replacements and ATCO Pipelines is
not reliable in forecasting expenditures in these categories. The CCA provide the example that
ATCO Pipelines is basing its unspecified budgets for measurement and regulating compressor
stations on 2017 expenditures. The expenditures were 69 per cent and 40 per cent higher than
forecast in 2017.67
88. The CCA asserted that ATCO Pipelines must be required to return to an appropriate level
of accountability in identifying and forecasting general improvements.68
89. The CCA recommended that the Commission require or direct ATCO Pipelines to:69
(i) Reduce the unspecified component of general improvement and replacement work
to the historical average of the last three filings, excluding outliers with a variance
greater than 30 per cent and excluding the pipelines category. The CCA says this is
required to offset the reduction in forecasts in Pipeline Improvements that have
taken place between the 2017-2018 GRA and the current test period, and the
subsequent unsupported rise in unspecified forecasts in the other categories.
(ii) Provide, for the last two GRAs, the complete list of forecast and completed projects
with detailed costs in the general improvement and replacement category, including
business cases for all projects that exceed the Commission’s $500,000 business case
requirement threshold.
(iii) Provide in the compliance filing the complete 2019-2020 known projects to date in
the “General” category and the associated forecast annual costs.
64 Exhibit 23793-X0066, AP-CCA-2018NOV23-042(b) Attachment, PDF page 127. 65 Exhibit 23793-X0091, CCA argument, paragraph 20. 66 Exhibit 23793-X0091, CCA argument, paragraph 21. 67 Exhibit 23793-X0091, CCA argument, paragraph 30. 68 Exhibit 23793-X0091, CCA argument, paragraph 34. 69 Exhibit 23793-X0091, CCA argument, paragraphs 35-36; Exhibit 23793-0094, CCA reply argument,
paragraph 14.
2019-2020 General Rate Application ATCO Pipelines
20 • Decision 23793-D01-2019 (June 25, 2019)
(iv) Develop, at the compliance filing of this proceeding, a documented investment
policy whereby in all future applications, contractual support must be confirmed in
consultation with NGTL, for any proposed improvements on facilities for specific
customers (either receipt or delivery).
ATCO Pipelines
90. ATCO Pipelines submitted that there is no evidence to support the CCA’s assertion that
there are inadequate cost controls or that ATCO Pipelines is deliberately inflating project
expenditures.70
91. ATCO Pipelines argued that the CCA founded its recommendations that the unspecified
component of general improvement and replacement work be reduced to the historical average of
the last three filings, excluding outliers with a variance greater than 30 per cent and excluding
the pipelines category on Table 11 filed by the CCA in argument. ATCO Pipelines argued that
this table was error-filled and comprised of new evidence from proceedings 22011 and 3577 that
was improperly introduced in argument. For these reasons, ATCO Pipelines submitted that the
Commission should afford no weight to the data contained in the table and should reject the
recommendations of the CCA.71
92. With respect to the CCA’s request for business cases, ATCO Pipelines explained that it
provides business cases for all specific projects and that should any unspecified projects exceed
that $500,000 threshold, a business case would be provided in the subsequent GRA.”72
Commission findings
93. The Commission considers that ATCO Pipelines’ use of a three-year rolling average of
actual data to forecast general improvement and replacement costs is reasonable. In a response to
AP-CCA-2018NOV23-042(b), ATCO Pipelines explained that it utilizes a “three year
methodology for unspecified categories along with limited known required project work for the
general improvements and replacements category to forecast costs associated with improvement
or replacement work.”73 Based on the information provided on the record, the three-year average
is a reasonable method to forecast costs for general improvement and replacement capital
expenditures. In an attachment to AP CCA-2018NOV23-042(b), the variance between the three-
year average to actual costs on a total basis was two per cent for 2016 and five per cent for 2017.
94. The Commission agrees with ATCO Pipelines that there is no evidentiary support for the
CCA’s assertion that ATCO Pipelines is inflating project expenditures, and as such, the CCA’s
recommended adjustment to general improvement and replacement expenditures is denied.
95. With respect to the CCA’s request for business cases, the Commission is satisfied with
ATCO Pipelines’ explanation that a business case would be filed for all unspecified projects that
exceed $500,000 in the next GRA, consistent with the minimum cost threshold requirement for
business cases established in Decision 2003-100.74
70 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 93. 71 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 94. 72 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 100. 73 Exhibit 23793-X0061, AP-CCA-2018NOV23-042(b). 74 Decision 2003-100: ATCO Pipelines, 2003/2004 General Rate Application – Phase I, Application 1292783-1,
December 2, 2003, page 13.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 21
96. The Commission approves ATCO Pipelines’ forecast general improvement and
replacement capital expenditures as filed.
6.7 Other capital projects not specifically addressed
97. The Commission has reviewed the information on the record with respect to the capital
projects not specifically addressed in this decision, and is satisfied that ATCO Pipelines has
justified the need for these projects. A detailed breakdown of capital expenditures and projects is
provided in Appendix 3 of this decision. The capital projects for the 2019-2020 test years that are
not subject to specific findings and directions in this decision are approved as filed.
7 Depreciation
98. ATCO Pipelines forecast net depreciation expense amounts of $84,163,000 and
$91,564,000 for 2019 and 2020, respectively. These amounts reflect a year-over-year increase of
$7,327,000 in 2019 and of $7,401,000 in 2020, due primarily to forecast increases in rate base
amounts.
99. The depreciation expense calculation provided by ATCO Pipelines reflected the
continued use of the depreciation parameters approved in Decision 22011-D01-2017. In the
current proceeding, ATCO Pipelines submitted a technical update75 conducted by Mr. Earl
Robinson of AUS Consultants, which updated ATCO Pipelines’ depreciation rates and annual
reserve for differences amounts by applying the approved depreciation parameters to actual plant
balances, as of December 31, 2017. Table 10 shows ATCO Pipelines’ net depreciation expense
for 2017 actuals, 2018 estimates, and the forecasts and revised forecasts for each of the 2019 and
2020 test years:
Table 10. ATCO Pipelines’ net depreciation expense for years, by year, ending December 31
2017 Actual 2018 Estimate 2019 Forecast Applied-for
2020 Forecast Applied-for
2019 Forecast Revised*
2020 Forecast Revised*
($000)
Depreciation expense:
Straight-line equal life group 68,885 76,921 83,714 90,919 83,397 90,602
Contract life 1,357 1,254 1,221 1,227 1,221 1,227
Straight-line fixed rate 2,232 2,145 2,886 3,227 2,886 3,227
Subtotal 72,474 80,320 87,821 95,373 87,504 95,056
Amortization of contributions
Straight-line equal life group 3,210 3,457 3,639 3,791 3,639 3,791
Contract life 47 27 19 18 19 18
Straight-line fixed rate - - - - - -
Sub-total 3,257 3,484 3,658 3,809 3,658 3,809
Net depreciation expense 69,217 76,836 84,163 91,564 83,846 91,247
Source: Exhibit 23793-X0002, GRA Schedule 4.4-1, applied for; Exhibit 23793-X0063, AP-AUC-2018NOV23-001, Attachment Schedule 4.4-1, revised. *Revised forecast numbers include ATCO Pipelines proposed correction to Account 496-05 – SCADA.
75 Exhibit 23793-X0007.01, Section 4.4, Attachment 1, Depreciation Study Technical Update as at December 31,
2017.
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22 • Decision 23793-D01-2019 (June 25, 2019)
100. With the exception of issues related to Account 496-05 – SCADA, the UCA
recommended in its recommendation 1176 that the Commission approve ATCO Pipelines’
depreciation rates consistent with the technical update. However, in his evidence on behalf of the
UCA, Mr. Patrick Bowman, made a further six recommendations with respect to specific
depreciation practices. Recommendations 13 and 15 were subsequently withdrawn by the UCA
in its argument,77 and Recommendations 6, 12, 14 and 16 are addressed in the sections that
follow.
101. No concerns were identified by the CCA with respect to ATCO Pipelines’ technical
update or the issues identified by the UCA.
Commission findings
102. The Commission has examined ATCO Pipelines’ technical update. The Commission
finds the depreciation rates, amortization of reserve differences amounts and depreciation
expense calculations were determined by applying approved parameters to more recent plant-in-
service balances and that the results of the technical update are therefore reasonable. ATCO
Pipelines’ depreciation expense is approved, subject to any applicable findings and directions of
the Commission in the sections that follow, which address the UCA recommendations regarding
depreciation, and subject to any of the Commission’s findings and directions made elsewhere in
this decision.
7.1 UCA recommendation 6 – Depreciation expense workbook
103. In Section 3.5.2 of his evidence, Mr. Bowman provided the following recommendation:
Recommendation 6: AP should ensure that the Test Year forecasts accurately model
known disposals for Fixed Rate assets.78
104. Mr. Bowman examined plant activity within Account 453-01 – Well Inspections and
Account 499 – Software, including capital addition and retirement transactions, over the period
2016-2018. He noted that effective 2017, the Commission had approved a “fixed rate
depreciation,” or square curve depreciation methodology for this group of assets79 wherein any
retirement activity, for accounting purposes, is based on a vintage group of assets reaching the
average service life assigned to that account. Mr. Bowman indicated that, given these facts and
that retirements are known in advance, forecast retirement activity for any account using a square
curve methodology should be included in ATCO Pipelines detailed depreciation expense
calculations.80
105. ATCO Pipelines acknowledged that it had omitted recording two years of retirements in
Account 453.01 – Well Inspection, but that the oversight did not have a material impact on
revenue requirement. With respect to the Account 499 – Software retirements, ATCO Pipelines
76 Exhibit 23793-X0074, UCA evidence, Section 5.1 - Technical update, PDF pages 56-57. 77 Exhibit 23793-X0093, UCA argument, paragraphs 107 and 112. 78 Exhibit 23793-X0074, UCA evidence, Section 3.5.2 - Software (Account 499), PDF pages 45-48. 79 In Decision 22011-D01-2017, paragraph 514, the Commission approved SQ service lives of three years for
desktop type software, seven years for business specific software and 10 years for enterprise type software. 80 Exhibit 23793-X0008, Section 6.1, Attachment 2, PDF pages 5-13.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 23
argued that it had accurately modelled its test year forecast depreciation expense for fixed rate
assets and no further action was required.81
Commission findings
106. The Commission agrees with the UCA that ATCO Pipelines’ test year depreciation
expense calculations should represent, to the greatest extent possible, all forecast capital activity,
including capital additions and retirements. In the case of ATCO Pipelines’ accounts approved
for depreciation under a square curve methodology,82 retirement transactions are predictable
because they are not dependent on the physical retirement of the assets. It is not apparent to the
Commission that there is a compelling reason why this forecast information should be omitted by
ATCO Pipelines from either its depreciation expense calculations or its GRA schedules. For
these reasons, the Commission directs ATCO Pipelines to include square curve asset retirements
in its detailed depreciation expense calculations and GRA schedules and to provide revised
schedules in its compliance filing to this decision. ATCO Pipelines is further directed in its
compliance filing to reflect the correction in Account 453.01 – Well Inspections for 2016 and
2017 retirements in Account 454 – Well Equipment by way of a revision to its technical update.
107. The Commission observes that for accounts 453.01 and 466.03 and 466.04, which are
depreciation study accounts using a square curve methodology, detailed vintage information is
available within sections 3, 4 and 5 of ATCO Pipelines’ technical update that directly supports
the forecast retirements directed in the previous paragraph of this decision. The Commission
considers that similar detailed vintage information is required for ATCO Pipelines’ remaining
accounts 483, 486, 489, 491 and 499 (three, seven and 10 years), which are also depreciated
under a square curve methodology but are non-depreciation study accounts. For this reason,
ATCO Pipelines is directed, for these five accounts, to file supplementary information similar to
that provided in ATCO Pipelines’ technical update in Section 483 on an ongoing basis,
commencing with the compliance filing to this decision. This information would provide a
measure of transparency as to the vintage composition of these accounts and a means to confirm
the forecast plant retirement activity within ATCO Pipelines’ detailed depreciation expense
calculations. With respect to the series of Account 499 sub-account categories, ATCO Pipelines
is directed to file its Section 4 information for each of the 12 Account 499 – Software sub-
account categories shown in the detailed depreciation expense calculation workbook.84
108. With respect to ATCO Pipelines’ detailed depreciation expense calculations, the
Commission observes there is no “rate” information provided for Account 499 - Software
identified by sub-category; nor for any account on these schedules were there are columns
indicating opening or closing accumulated depreciation balances. The Commission considers
that this information is required to efficiently examine and confirm ATCO Pipelines’ underlying
depreciation expense calculations, particularly given that ATCO Pipelines has been unable to
provide parties with working copies of these schedules. The Commission directs ATCO
Pipelines to include the applicable depreciation rate and opening and closing accumulated
81 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraphs 41-44 and 51. 82 Decision 22011-D01-2017, tables 44 and 46 - Accounts depreciated under a square curve methodology:
Underground storage - Account 453.01, Transmission - Account 466.03, Account 466.04 and General -
Account 483, Account 486, Account 489, 489.11, Account 491, Account 499 (three, seven and 10 years). 83 For example refer to: Exhibit 23793-X0007.01, Technical Update, Account 453.01, Section 4, PDF page 82. 84 Exhibit 23793-X0008, Section 6.1, Attachment 2, PDF page 6. For example: 499 Software – General; 499.02
Software – Oracle; 499.10 Software – MARS … 499.22 Software – Dynamic Risk.
2019-2020 General Rate Application ATCO Pipelines
24 • Decision 23793-D01-2019 (June 25, 2019)
depreciation balances in its detailed depreciation expense calculations commencing with a
revision to its detailed depreciation expense workbook in its compliance filing to this decision.
7.2 UCA recommendations 12 and 14 – Procedures for insurance, customer or
third-party contributions
UCA
109. In Section 5.2 of his evidence, Mr. Bowman recommended that:
Recommendation 12: AP should exclude retirement events that were funded by
insurance, customers or third parties in conducting life analysis in future depreciation
studies.85
…
Recommendation 14: AP should implement improved record keeping for retirements,
which allows ready identification of asset retirements that occur based on insurance, or
on customer or third-party funding.86
110. In response to Direction 21 of Decision 22011-D01-2017, ATCO Pipelines submitted its
plant procedures, which document its “Accounting for Customer Contributions.”87 ATCO
Pipelines outlined both its accounting and depreciation study treatment for contributions under
the following circumstances: contributions for newly constructed assets; asset removals where
assets were fully funded (or contributed); and, asset removals where assets were partially-funded
(or contributed).
111. Under a fully-contributed removal scenario, where the customer is required to contribute
the total removal costs plus the total replacement cost of the equivalent asset, Mr. Bowman
claimed that ATCO Pipelines’ inclusion of asset retirement and replacement events funded by
insurance, customers or third parties was resulting in shortened average service lives in
depreciation study analyses, and was leading to higher depreciation rates. For this reason,
Mr. Bowman submitted that retirement events leading to the replacement of assets funded by a
third party should not be included in the actuarial database relied upon in a depreciation study
when evaluating the service life characteristics of an asset class.
112. Mr. Bowman cited depreciation literature indicating that:
A reimbursed retirement is one for which the company is fully compensated at the time
of retirement, usually because the retirement occurred earlier than normal as the result of
an unusual event. Compensation may be from insurance, from the party who damaged the
utility by causing the retirement, or from an individual or public authority who desired or
required the relocation or abandonment of the retired property.88
85 Exhibit 23793-X0074, UCA evidence, Section 5.2 - Procedures for customer/third-party contributions,
PDF page 62. 86 Exhibit 23793-X0074, UCA evidence, Section 5.2 - Procedures for customer/third-party contributions,
PDF page 63. 87 Exhibit 23793-X0008, Section 6.1, Attachment 1, PDF pages 1-4. 88 Exhibit 23793-X0074, UCA evidence, PDF pages 61-62 referencing: Depreciation Systems, Frank K. Wolf and
W. Chester Fitch, Iowa State University Press, Ames, Iowa, 1994, page 16.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 25
Usually reimbursed retirements should not be included in analysis to estimate the life and
salvage of property whose original investment is recovered through depreciation
accruals.89
113. Mr. Bowman criticized ATCO Pipelines’ failure to classify certain retirement events or
causes of retirements, referencing again, the depreciation literature that outlines common
practices for coding of actuarial data and allows for “data to be checked for consistency and
allow[s] the analysis to include or exclude a specific category of transactions from an analysis.”90
114. He stated it was “clear that ATCO Pipelines does not at present apply quality-control
adjustments to its depreciation study input data to remove retirements driven by customer or
third-party funded contributions.”91 Mr. Bowman indicated that this was problematic in terms of
the ability to denote this type of retirement event in order to remove such data for depreciation
study purposes. Thus, he said that ATCO Pipelines should be directed to exclude these
reimbursed types of retirements from data used to determine both service life and salvage
estimates, and should be directed to implement improved record keeping for retirements to allow
for the identification of third party type asset retirements.
ATCO Pipelines
115. ATCO Pipelines did not specifically refute the UCA’s claim that it did not apply a coding
system to its actuarial data, but it pointed to other depreciation literature that states the following
with respect to insured losses:
In the case of insured losses, the payment received may be different from the original cost
of the equipment. Thus, treating the reimbursement as normal gross salvage data in
studies may give results that are not typical of the account as a whole because the
insurance payment is not characteristic of the account in general. Therefore, such
retirements and the corresponding salvage should either both be included or excluded
from the depreciation study.
Retirements may be subject to reimbursement from various sources.… Depending on the
accounting treatment for reimbursements related to retired property, the analyst may need
to remove such plant from the database. If the reimbursement is recorded as salvage, no
adjustment of retirement data would be necessary, assuming that such salvage is also
considered in establishing future depreciation rates. Consistent treatment is the rule.92
116. ATCO Pipelines stated that it has consistently included retirement events related to
insurable losses and third-party funded relocations, and the recommendation of the UCA should
be rejected. ATCO Pipelines proposed to continue its historic approach to including retirement
events in its depreciation study database.93 94
89 Exhibit 23793-X0074, UCA evidence, PDF pages 61-62 referencing: Depreciation Systems, 1994, pages 16-17. 90 Exhibit 23793-X0074, UCA evidence, PDF page 63 referencing: Depreciation Systems, Iowa, 1994, page 15. 91 Exhibit 23793-X0074, UCA evidence, PDF page 61. 92 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraph 57, referencing: Public Utility
Depreciation Practices, Compiled and Edited by Staff Subcommittee on Depreciation of The NARUC Finance
and Technology Committee of the National Association of Regulatory Utility Commissioners, Published by
National Association of Regulatory Utility Commissioners, Washington, D.C., August 1996, pages 31 and 113. 93 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraphs 58-59. 94 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 66.
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26 • Decision 23793-D01-2019 (June 25, 2019)
Commission findings
117. There appear to be opposing opinions in the depreciation literature presented by the UCA
and ATCO Pipelines with respect to the inclusion of retirement events that were funded by
insurance, customers or third parties in conducting life analysis.
118. The Commission accepts as valid ATCO Pipelines’ argument for maintaining consistency
in its approach to establishing depreciation parameters. Considering that depreciation studies are
examined at regular intervals, the Commission finds comparability to be important and for this
reason denies UCA recommendation 12.
119. With respect to UCA recommendation 14, the Commission considers that the detailed
review of an actuarial database is a matter better suited to occur simultaneously with the
examination of a depreciation study. However, the Commission notes that it was not clear
whether ATCO Pipelines’ actuarial database contains transactional coding. In its compliance
filing to this decision, ATCO Pipelines is directed to clarify whether its actuarial database
contains transactional codes for the purposes of identifying any of the following: regular
retirements, reimbursed retirements, sales, end of period transfers, beginning of period transfers,
acquisitions, adjustments, outlier retirements, survivor account balances and gross additions.
7.3 UCA recommendation 16 – Account 496-05 SCADA adjustment
120. In Section 5.4 of his evidence, Mr. Bowman recommended that:
Recommendation 16: The SCADA depreciation for 2019 and 2020 should be adjusted
as proposed by AP to remove the $1.584 million shortfall from 2012 (a reduction to
depreciation expense of $0.317 million/year). AP should also adjust the accumulated
depreciation balance permanently, starting with the opening 2019 balance, by
$1.584 million.95
121. The Commission is mindful that the issue, details and understanding of the over-
depreciation of certain SCADA assets has evolved and expanded over several proceedings before
the Commission.96 The Commission has summarized the relevant details, which are not disputed
by parties, and has included references to documents on the record in support of the history of
the retirement of the SCADA assets, as follows:
In 2001, certain SCADA assets were physically retired, which cost $3,743,000;
however, the retirement event was not reflected in ATCO Pipelines’ accounting records
until 2006.97
As a result, ATCO Pipelines continued to depreciate the physically retired assets
between 2001 and 2006, resulting in over-depreciation of $1,584,000. This amount was
included in ATCO Pipelines’ revenue requirement.98
95 Exhibit 23793-X0074, UCA evidence, Section 5.4 – Account 496.05 SCADA adjustment, PDF pages 65-67. 96 Proceeding 22011 – ATCO Pipelines 2017-2018 GRA, Proceeding 22986 – ATCO Pipelines Compliance
Application to Decision 22011-D01-2017, Proceeding 23539 – Application to Review and Vary Decision
22986-D01-2018, Proceeding 23793 – ATCO Pipelines 2019-2020 GRA. 97 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraph 61. 98 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraph 61.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 27
The over-depreciation of $1,584,000 was discovered by ATCO Pipelines in 2012. The
accounting correction was made by way of a 2012 prior period adjustment (PPA) in the
amount of $1,584,000 where the accumulated depreciation account was relieved of the
excess depreciation (debit to accumulated depreciation) and shareholders were credited
(credit to retained earnings).99
ATCO Pipelines acknowledged that the PPA brought the accumulated depreciation
account back into balance with a net book value of zero dollars for the related assets.100
In the current proceeding, ATCO Pipelines acknowledged that the $1,584,000 over-
depreciation should be refunded to ratepayers through revenue requirement, and
proposed to transact the refund annually through the amortization of reserve differences
mechanism over a period of five years.101
The proposed annual refund through the amortization of reserve differences mechanism
was calculated by ATCO Pipelines as follows: $1,584,000 / five years = $317,000 per
year. The corresponding accounting entry is proposed to be a debit to accumulated
depreciation and a credit to depreciation expense (or a reduction to revenue
requirement).102
122. The UCA agreed with the overall refund of $1,584,000 to ratepayers proposed by ATCO
Pipelines, but argued that using the amortization of reserve differences mechanism will result, at
the end of five years, in ratepayers having to again pay for the $1,584,000. To counter this, the
UCA recommended a permanent adjustment to the accumulated depreciation account by the
same $1,584,000 amount.103
123. ATCO Pipelines stated that the adjustments proposed by the UCA in “… 2019 would
essentially double up on the incorrect ARD [amortization of reserve differences] adjustment
approved in 2015 (thereby negating the agreed to AP proposed ARD adjustment for the
$1.584 million PPA) and would not appropriately adjust the accumulated depreciation balance
for the SCADA account.”104
Commission findings
124. The Commission accepts ATCO Pipelines’ acknowledgement that ratepayers are entitled
to a refund of the over-depreciation during the years 2001-2006 of the SCADA asset in the
amount of $1,584,000.
125. Further, the Commission acknowledges that under normal regulatory practice, a utility is
entitled to recover, by way of a charge for depreciation, its investment in assets used for utility
service. This is the case with the SCADA assets where ATCO Pipelines was entitled to recover
no more and no less than its original $3,743,000 investment. This concept applies irrespective of
whether the asset account in question is treated as a depreciation study asset or not. Based on the
99 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraph 63. 100 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraph 63. 101 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 69. 102 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 69. 103 Exhibit 23793-X0074, UCA evidence, PDF pages 65-68. 104 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 55.
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28 • Decision 23793-D01-2019 (June 25, 2019)
evidence provided by ATCO Pipelines, the Commission accepts ATCO Pipelines’ statement that
as a result of the debit side of the PPA entry in 2012, the accumulated depreciation account for
that SCADA asset, was brought back into balance with a net book value of zero. This means that
because of the 2012 PPA, ATCO Pipelines had fully recovered its $3,743,000 investment at this
point in time. However, the Commission considers that the credit side of the 2012 PPA entry was
made in error as it was to the account of shareholder and should have been to the benefit of
ratepayers given that the over depreciation from 2001-2006 was originally charged through
revenue requirement and thus, should have been refunded.
126. The Commission therefore finds that the effect of the adjustment proposed by ATCO
Pipelines, when examined in its entirety, is at odds with the conclusion reached above. The credit
side of ATCO Pipelines’ proposed entry would correctly refund the $1,584,000 over-
depreciation to ratepayers through depreciation expense over five years, but the debit side of the
entry, as currently proposed by ATCO Pipelines will in essence, create an additional $1,584,000
in rate base for the SCADA assets, to which ATCO Pipelines is not entitled. The Commission
notes that its interpretation of the outcome of ATCO Pipelines’ proposed adjustment aligns with
the submissions of the UCA.
127. For these reasons, the Commission accepts ATCO Pipelines’ proposal to credit
depreciation expense in the amount of $1,584,000. ATCO Pipelines is directed to record the
credit entry to depreciation expense as a one-time adjustment in the 2019 test year in its
compliance filing to this decision. However, ATCO Pipelines is directed to record the debit side
of the entry to the account of the shareholder because the shareholders were originally the
beneficiaries of the PPA in 2012 and that accounting was in error. ATCO Pipelines shall
therefore not recover the debit side of the directed accounting entry through rate base or through
revenue requirement.
128. Given the above direction to ATCO Pipelines, the Commission makes no finding with
respect to the recommendation of the UCA.
8 Operating costs
129. ATCO Pipelines’ revenue requirement includes operating costs, which are composed of
O&M costs and administration and general (A&G) costs. ATCO Pipelines forecast total
operating costs of $73,522,000 in 2019 and $77,348,000 in 2020.105 The total forecast operating
expenses represent approximately 25 per cent of ATCO Pipelines’ forecast revenue requirement
in each of 2019 and 2020. The total operating expenses are shown in the following table:
Table 11. ATCO Pipelines’ total operating expenses
2017 Actual 2018 Estimate 2019 Forecast 2020 Forecast
($000)
O&M 35,406 38,256 46,135 49,437
A&G 27,748 29,461 29,379 30,566
Operating costs – corporate (subtotal) 63,154 67,717 75,514 80,003
Less disallowed operating costs 2,421 2,978 1,992 2,655
Total operating costs – utility 60,733 64,739 73,522 77,348
Source: Exhibit 23973-X0001, application, Table 4.2-1, PDF page 78.
105 Exhibit 23793-X0001, application, PDF page 76.
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Decision 23793-D01-2019 (June 25, 2019) • 29
130. ATCO Pipelines stated that the key drivers for increases in forecast operating costs from
2018 estimates are: quality control initiatives, compliance programs, initiatives related to the
provision of safe, reliable and secure service and an increase to labour.106
131. Certain components of the total operating costs that were at issue in this proceeding are
discussed further in the sections below. However, the Commission will address some of the
recommendations of the UCA with respect to forecasting accuracy and variances before
addressing the components of the total operating costs included in the application.
8.1 Forecasting accuracy
UCA
132. In its evidence, Mr. Bowman recommended reductions to total operating costs of
$10,105,000 in 2019 and $12,545,000 in 2020 due to ATCO Pipelines’ history of over-
forecasting.107 Mr. Bowman’s evidence included a review of ATCO Pipelines’ last three GRAs
noting material variances in total operating costs. He provided the figure below that shows the
trend of test year forecast, approved and actuals by GRA:
Figure 1. Operating costs – test year forecast, approved and actual by GRA ($000)
Source: Exhibit 23793-X0074, UCA evidence, PDF page 18.
106 Exhibit 23793-X0001, application, PDF pages 76-77. 107 Exhibit 23793-X0074, UCA evidence, PDF page 6. Mr. Bowman’s recommendation was based on taking the
percentage average increase in actual total operating costs over 2012 to 2017 (2.19 per cent) and then escalating
actual 2017 total operating costs 2.19 per cent each year to obtain revised 2019 and 2020 forecast values. See
Exhibit 23793-X0074, PDF pages 24-27.
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30 • Decision 23793-D01-2019 (June 25, 2019)
133. The UCA had presented similar evidence in ATCO Pipelines’ last GRA but in reply
argument ATCO Pipelines took issue with the fact that the UCA’s analysis had not considered
the effect on cost levels of the variable pay program (VPP) and the pension deferral account.108 In
this proceeding, Mr. Bowman also provided the following analysis that excludes VPP and
pension costs entirely from each category, including test year forecasts, approved amounts and
actuals, as follows:
Figure 2. Operating costs – test year forecast excluding VPP and pension deferral amounts, approved and actual by GRA ($000)
Source: Exhibit 23793-X0074, UCA evidence, PDF page 20.
134. Mr. Bowman stated that removing the VPP and pension deferral accounts made little
difference to the pattern of over-forecasting.
135. In argument, the UCA submitted that although the Commission’s general approach is to
assess revenue requirement by a line-item analysis, it has in some circumstances made top-down
adjustments as it did in Decision 20633-D01-2016109 for EPCOR Energy Alberta GP Inc. and in
Decision 3577-D01-2016110 for ATCO Pipelines.111
108 Exhibit 23793-X0074, UCA evidence, PDF page 19. 109 Decision 20633-D01-2016: EPCOR Energy Alberta GP Inc., 2016-2017 Regulated Rate Tariff Application,
Proceeding 20633, December 20, 2016, Section 4.6. 110 Decision 3577-D01-2016: ATCO Pipelines, 2015-2016 General Rate Application, Proceeding 3577,
February 29, 2016, Section 4.4. 111 Exhibit 23793-X0093, UCA argument, paragraphs 6-8.
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Decision 23793-D01-2019 (June 25, 2019) • 31
136. In addition, the UCA provided the table below showing ATCO Pipelines’ ROE and noted
that ATCO Pipelines’ actual ROE has consistently been higher than approved levels.
Table 12. Actual versus approved ROE 2012-2018
2012
Actual 2013
Actual 2014
Actual 2015
Actual 2016
Actual 2017
Actual 2018
Estimate
Common equity return (%)
11.16 10.14 10.31 9.80 11.39 10.99 9.47
Common equity return ($000)
35,103 33,560 36,495 39,255 52,786 60,605 59,944
2012
Approved 2013
Approved 2014
Approved 2015
Approved 2016
Approved 2017
Approved 2018
Approved
Common equity return (%)
8.75 8.30 8.30 8.30 8.30 8.50 8.50
Common equity return ($000)
28,166 27,718 30,060 35,016 42,615 47,327 53,578
2012
Variance 2013
Variance 2014
Variance 2015
Variance 2016
Variance 2017
Variance 2018
Variance
Higher (lower) than approved (%)
2.41 1.86 2.01 1.50 3.09 2.49 0.97
Higher (lower) than approved ($000)
6,937 5,842 6,435 4,239 10,171 13,278 6,366
Source: Exhibit 23793-X0074, UCA evidence, PDF page 13.
137. Mr. Bowman submitted that this pattern has been sustained and persistent since at least
2012, and has grown in recent years through 2017 when actual returns were 28.1 per cent
higher112 than the approved level.113 In argument, the UCA submitted that the fact that the actual
ROE was consistently higher than the approved ROE was largely due to ATCO Pipelines’
operating costs forecasts.
ATCO Pipelines
138. ATCO Pipelines stated that its O&M forecast is based on 2017 actual and 2018 estimated
costs, including efficiencies achieved during that period.114 ATCO Pipelines submitted that the
UCA’s recommendation to apply a reduction to total operating costs based on the trend of
historical data from 2012 to 2017 is flawed and should be rejected by the Commission.
139. ATCO Pipelines commented that for the years 2015-2018, if deferred capital related costs
are included in the variance (between approved rate base and the actuals), then the values range
from -0.95 per cent to 0.78 per cent for the years 2017 and 2018, and the variances are less than
+/- one per cent. Therefore, ATCO Pipelines argued that material variances between approved
rate base and actuals do not exist for 2015-2018, after adjusting for deferred capital.115
140. ATCO Pipelines submitted that the primary reason that actuals were lower than forecast
for the years 2014-2016 was because of the UPR program. In Decision 3577-D01-2016, a UPR
deferral account was established due to the timing of the tendering and re-tendering of work, as a
112 $13,278,000 excess on an approved level of $47,327,000. 113 Exhibit 23793-X0074, UCA evidence, PDF page 13. 114 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 15. 115 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 23.
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32 • Decision 23793-D01-2019 (June 25, 2019)
result of the economic downturn. For the 2017-2018 GRA, ATCO Pipelines did not apply for a
UPR deferral account because its forecasts were in-line with actual contractor pricing.
141. ATCO Pipelines mentioned that the Commission approved the discontinuation of the
UPR deferral account in Decision 22011-D01-2017.116 117
142. In response to the analysis provided on behalf of the UCA, ATCO Pipelines submitted
that using historical trends for the purpose of forecasting costs is problematic for the following
reasons:
Trends lack specific context such as how they relate to system growth, system
complexity, changing regulatory compliance requirements and inflationary factors.
Trends can be skewed based on the period chosen, for example, ATCO Pipelines showed
that if a three-year average of its actual operating costs is used in place of a five-year
average, the average increase in actual operating costs would be 6.24 per cent as opposed
to 2.19 per cent.
Trends ignore specific, one-time factors that may have occurred that may not be
repeatable in subsequent years.
Many cost increases or reductions cannot be accurately trended into the future, i.e., costs
of new programs.118
143. ATCO Pipelines stated that the forecasting methodology suggested by the UCA gives no
regard to known or anticipated cost increases and to efficiencies. ATCO Pipelines therefore
concluded that the forecasting methodology is unreasonable and cannot be considered a valid
means to develop a cost of service forecast.119 ATCO Pipelines argued that the UCA has not
presented any evidence that would warrant a departure from the Commission’s findings in
Decision 22011-D01-2017, where the Commission rejected a similar proposal.120
Commission findings
144. The Commission is required to approve forecast costs for the safe and reliable operation
of the system while ensuring just and reasonable rates for the service received by ratepayers.
145. The Commission has reviewed the evidence submitted by the UCA, and by ATCO
Pipelines in response, along with the argument and reply argument submitted by the UCA and
ATCO Pipelines. The evidence filed by Mr. Bowman for the UCA represents a high-level review
of ATCO Pipelines’ last three GRAs showing test year forecasts, approved and actual returns.
The Commission found Mr. Bowman’s evidence to be helpful, as it provided a compelling and
thorough analysis. However, the Commission continues to consider that a high-level analysis of
forecasting accuracy has value only to the extent that it shows a consistent trend of over-
forecasting and where the over-forecasting cannot be otherwise reasonably explained by specific
cost drivers. The Commission has determined that, in this case, it will evaluate forecast accuracy
116 Decision 22011-D01-2017, paragraph 82. 117 Exhibit 23793-X0062, AP-AUC-2018NOV23-020(a). 118 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraphs 4-13. 119 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraph 11. 120 Exhibit 23793-X0090, ATCO Pipelines argument, paragraphs 24-25
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 33
for each of the specific cost categories to determine the reasonableness of the applied-for
amounts.
146. The Commission observes that historical total O&M forecasts are greater than the actuals
for the five years used in the UCA comparison. The Commission accepts that some portion of
these variances may be due to efficiencies gained by ATCO Pipelines. The Commission also
observes, as noted by ATCO Pipelines, that when deferred capital related costs are included in
the variance between approved rate base and the actuals, the variances, especially for the years
2015-2018, are immaterial.
147. Further, the UCA recommended a high-level cost reduction to total operating costs of
$10,105,000 in 2019 and $12,545,000 in 2020, which was calculated based on escalating 2017
actual results by the five-year average increase of actual results. The Commission considers that
escalating actual O&M results by an average does not reflect the specific drivers of the
underlying costs. The Commission therefore denies the UCA’s proposal for an overall reduction
to ATCO Pipelines’ total operating costs due to concerns with forecasting accuracy. Further, a
five-year average will not take into account more recent trends or efficiencies achieved in
operating costs.
148. Specific concerns raised by parties with regard to certain cost category forecasts are
discussed in sections of this decision that follow.
8.2 Material, known variances
UCA
149. In his evidence, Mr. Bowman recommended that ATCO Pipelines should be required to
update certain operating cost forecasts for material, known variances in the test year arising
before the time of final GRA submissions.121 He used the example of property taxes that he said
have been six million dollars higher than actuals cumulatively from 2014 to 2018. Mr. Bowman
submitted property tax forecasts should show relatively little or no persistent variance over
time.122 Mr. Bowman provided the following table in his evidence to show the difference in
approved and actuals or estimated property taxes:
Table 13. Property tax actual versus approved
Property tax 2014 2015 2016 2017 2018
($000)
Originally proposed 12,230 12,518 13,352 15,140 15,566
Approved 12,230 12,518 13,352 15,140 15,566
Actual/estimate 11,872 11,910 12,623 12,905 13,611
Difference 358 608 729 2,235 1,955
Source: Exhibit 23793-X0074 UCA evidence, PDF page 14.
150. The UCA submitted that there were other categories of known, material variances in
previous proceedings, which would have reduced ATCO Pipelines’ revenue requirement, and
121 Exhibit 23793-X0074, UCA evidence, PDF page 27. 122 Exhibit 23793-X0093, UCA evidence, PDF page 14.
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34 • Decision 23793-D01-2019 (June 25, 2019)
submitted that where ATCO Pipelines knows that such variances exist and are in favour of
customers, the items should be identified as part of the compliance filing.123
ATCO Pipelines
151. ATCO Pipelines responded that it had explained that its 2017 and 2018 actual property
taxes were below the forecasts because the updated pipeline assessment year modifier rate used
in the calculation of property taxes was not available at the time of filing its 2017-2018 GRA.
ATCO Pipelines stated that excluding the years 2017 and 2018, for which it had provided
variance explanations, the average variance in its property tax forecasts between 2014 and 2016
has been less than five per cent.124 ATCO Pipelines submitted that the Commission should only
consider application updates in exceptional circumstances and that any update would need to
consider both cost increases and cost decreases.125
Commission findings
152. The Commission has reviewed the UCA’s and ATCO Pipelines’ submissions with
respect to changes in material, known variances. The Commission process for an application is
intended to obtain the best available information by the time of the close of record. Parties are
given an opportunity to provide submissions on the best available information in a proceeding
and the Commission assesses further information required to be supplied in the compliance
filing. Provision of actual information is generally compelled when further information on
actuals is required for a utility to comply with specific directions; when actual results are or will
be available for a test year by the time the compliance filing is submitted and the actuals can be
reasonably incorporated into the compliance filing; and, when errors and omissions are identified
that require correction in the compliance filing.
153. The Commission finds that it is not reasonable to require ATCO Pipelines to update its
application for material downward variances, but not for upward variances. The Commission
therefore denies the UCA’s proposal for downward adjustments due to material, known
variances.
8.3 Direct operation and maintenance expenses
154. O&M costs include labour and supplies costs related to the operation and maintenance of
ATCO Pipelines’ transmission lines, compressors, measurement and regulating facilities, as well
as its control and communication systems.126
155. O&M costs are forecast to be $45,944,000 in 2019 and $49,296,000 in 2020. ATCO
Pipelines explained that the increase in O&M costs over the duration of the test period is largely
due to the quality control initiatives proposed as a result of Decision 22986-D01-2018, increased
environmental regulatory requirements for greenhouse gas and methane emissions, other
inspections, reliability and security initiatives and inflation affecting labour and supply costs.127
123 Exhibit 23793-X0093, UCA argument, paragraph 18. 124 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraphs 21-22. 125 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraph 23. 126 Exhibit 23793-X0001, application, PDF page 79. 127 Exhibit 23793-X0001, application, PDF page 79.
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Decision 23793-D01-2019 (June 25, 2019) • 35
156. ATCO Pipelines grouped its O&M expenses into the cost categories, as shown in the
table below:
Table 14. ATCO Pipelines’ operating expense breakdown
2017 Actual
2018 Estimate
2019 Forecast
2020 Forecast
($000)
Fringe benefit transmission labour 3,271 3,705 4,061 4,231
Salt cavern operation 1,055 945 972 1,000
Underground storage - compressors 119 200 205 210
Transmission operations 8,785 9,114 11,920 13,881
Pipeline operations 14,771 16,299 19,365 20,124
Compressor operations 1,817 1,968 2,130 2,186
Measurement and regulating 6,725 7,228 8,718 9,174
Transmission other 1,885 1,223 1,255 1,287
Cost of providing service 5,120 6,885 7,065 7,669
Recovery of costs (8,142) (9,311) (9,556) (10,325)
Sub-Total 35,406 38,256 46,135 49,437
Less: Disallowed costs 190 141 141 141
Total 35,216 38,115 45,994 49,296
Source: Exhibit 23793-X0001, application, Table 4.2.1-2, PDF page 84
157. Transmission function costs are further split between internal labour costs and external
supply costs. ATCO Pipelines’ forecast total transmission labour expenses were $19,808,000 and
$20,641,000 in 2019 and 2020, respectively, and were compared against 2018 estimates of
$18,077,000. O&M supplies were forecast to be $29,529,000 and $32,595,000 in 2019 and 2020,
respectively, as compared against the 2018 estimate of $23,304,000.128
158. Labour cost components of O&M will be discussed further in Section 8.7 and O&M
supplies expenses will be discussed further in Section 8.8.
Commission findings
159. Having examined ATCO Pipelines’ forecast O&M costs in the application, relevant
responses to IRs, argument, reply argument and other information submitted by all parties, the
Commission approves ATCO Pipelines’ forecast O&M costs for the years 2019 and 2020,
subject to the adjustments arising from the findings on O&M costs components specifically
identified in the sections below.
8.4 Quality control initiatives
160. The Commission addressed ATCO Pipelines’ quality control initiatives program in
Section 6.5 of this decision. In accordance with that section, the Commission directs that all
O&M forecast costs associated with the quality control initiatives programs be removed from
ATCO Pipelines’ forecasts in its compliance filing application.
128 Exhibit 23793-X0001, application, Table 4.2.1-1, PDF page 83.
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36 • Decision 23793-D01-2019 (June 25, 2019)
8.5 Compliance initiatives
161. ATCO Pipelines is initiating a number of programs to ensure continued compliance with
various directives and operating expectations.129 These compliance initiatives are addressed
individually in the sections below.
8.5.1 Methane reduction compliance
ATCO Pipelines
162. ATCO Pipelines submitted that its methane reduction compliance program was created in
response to the federal methane regulations130 enacted by the Government of Canada. The
regulations require that ATCO Pipelines have a methane program in place by January 1, 2020, to
measure and report methane emissions and to detect and repair methane leaks three times a
year.131 ATCO Pipelines submitted that the O&M forecast expense associated with methane
reduction compliance is $1,650,000 in 2019 and $3,008,000 in 2020.132
163. ATCO Pipelines submitted that its methane reduction compliance program commenced
in 2018. There was an increase in O&M costs of $150,000 from 2017 to 2018 to comply with the
program at ATCO Pipelines’ compressor stations. ATCO Pipelines forecast an increase of
$1,500,000 in O&M costs from 2018 to 2019 to implement the full program using a staged
approach, by including approximately half of its receipt, industrial delivery, commercial
delivery, and control facilities in the program. The forecast $1,358,000 increase in O&M costs
from 2019 to 2020 will allow ATCO Pipelines to include all of its receipt, industrial delivery,
commercial delivery, control and compressor facilities.133
164. ATCO Pipelines forecast 160 person-days from March to December to complete this
program in 2019 and indicated that it had not yet completed the job scope definition and draft
contract for these services.134
165. In addition to contract services, ATCO Pipelines indicated that it requires two full-time
environmental advisors, one each in 2019 and 2020 to complete scheduling, analysis and record
keeping of compliance with the federal methane regulations.135
CCA
166. The CCA noted that ATCO Pipelines confirmed that it did not have the internal qualified
resources and experienced external resources to develop the programs required to comply with
the federal methane regulations and therefore would require the engagement of contractors to
develop the program. The CCA further noted that as of September 6, 2018, ATCO Pipelines had
not completed the job scope definition and draft contract for each service as part of the contract
engagement process. The CCA stated that subsequent to the development of the programs, bid
documents, prequalification of contractors, invitation to bid, bid analysis, contractor selection
129 Exhibit 23793-X0001, application, PDF pages 81-82. 130 Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds,
SOR/2018-66. 131 Exhibit 23793-X0065, AP-UCA-2018NOV23-003(e). 132 Exhibit 23793-X0001, application, PDF page 81. 133 Exhibit 23793-X0025, AP-AUC-2018SEP06-049. 134 Exhibit 23793-X0033, AP-CCA-2018SEP06-019(b-d). 135 Exhibit 23793-X0025, AP-AUC-2018SEP06-086(d-e).
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Decision 23793-D01-2019 (June 25, 2019) • 37
and engagement activities would be required before the successful contractor could commence
work in March 2019.136
167. The CCA argued that ATCO Pipelines had over-stated its ability to complete the
activities for the first half of its staged approach by 2019 year-end. The CCA recommended that
the entire amount of $4,658,000 for the methane reduction compliance program be denied and
that ATCO Pipelines should refile its revenue requirement for this program, update its program
development and revise its revenue requirement forecasts in its compliance filing to this
proceeding.137
UCA
168. The UCA submitted that in the event that a top down adjustment to total O&M costs is a
concern to the Commission, the UCA recommended a line item decrease to the costs of the
methane reduction compliance program of $1,650,000 in 2019 and of $3,008,000 in 2020,
essentially all costs for this program.138 The UCA argued that a third-party letter of support for
this program filed on the record did not comment on whether the proposed size or scope of the
program is reasonable, nor whether the level of forecast spending could be supported.139
Commission findings
169. In Section 8.1 of this decision, the Commission denied a top-down approach to
forecasting and found that it would evaluate the reasons for increases in forecasts for specific
cost categories to determine the reasonableness of applied-for amounts. Consistent with this
approach, the Commission has evaluated the specific reasons for ATCO Pipelines’ methane
reduction compliance program and related forecast costs.
170. The Commission notes that ATCO Pipelines is required to comply with the following
activities by January 1, 2020, as mandated by the federal methane regulations:
Inspect leaks at meter, control and compressor stations three times per year140
Repair leaks within 30 days or by the next planned shutdown141
Measure emissions of natural gas from compressor vents annually142
Take corrective action when emissions are higher than the applicable limit143
171. The Commission has reviewed ATCO Pipelines’ response to AP-AUC-2018SEP06-
056(b)144 and considers that the current methane reduction practices undertaken by ATCO
Pipelines do not fulfill all of the obligations required by the regulations to be fulfilled by 2020.
The federal methane regulations necessitate increased activities by ATCO Pipelines that must be
in place by January 1, 2020, and the Commission agrees with ATCO Pipelines that a staged
136 Exhibit 23793-X0091, CCA argument, paragraphs 101-102. 137 Exhibit 23793-X0091, CCA argument, paragraphs 103 and 106. 138 Exhibit 23793-X0081, UCA-AUC-2019FEB15-001(a). 139 Exhibit 23793-X0093, UCA argument, paragraph 40. 140 Exhibit 23793-X0088, Section 30(3)(b), PDF pages 23-25. 141 Exhibit 23793-X0088, Section 32(1)(a) and Section 31(1)(b), PDF pages 25-26. 142 Exhibit 23793-X0088, Section 16(3), PDF page 10. 143 Exhibit 23793-X0088, Section 18(1), PDF page 12. 144 Exhibit 23793-X0025.
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38 • Decision 23793-D01-2019 (June 25, 2019)
approach for compliance is required in 2019 and 2020. For these reasons, the Commission finds
that the forecast costs for the methane reduction compliance program are reasonable given the
activities required to be completed in 2019 and 2020. The Commission approves the forecast
costs in 2019 and 2020, as filed.
8.5.2 Pressure vessel inspection compliance
ATCO Pipelines
172. ATCO Pipelines submitted that through internal reviews of the American Petroleum
Institute (API) Recommended Practice (RP) 510, it has identified that its current inspection
program for pressure vessels should be expanded. ATCO Pipelines stated that it conducts
periodic reviews of applicable codes and regulations to ensure compliance. API RP 510 is
referenced in CSA Z662-15 (Clause 10.9.2.8) as a requirement to follow for inspections of
pressure vessels. ATCO Pipelines had previously interpreted API RP 510 to only require visual
inspection of pressure vessels, but following its most recent review, ATCO Pipelines’ current
interpretation is that a more thorough inspection of pressure vessels is required, which includes a
Non-Destructive Examination (NDE) completed by a third-party NDE contractor. The frequency
of inspections, including NDE completed by third-party contractors, is prescribed in API RP 510
and requires an inspection frequency of no more than 10 years.145 ATCO Pipelines provided a
letter from Acuren Group Inc. as third-party support for its pressure vessel inspection compliance
program.146
173. ATCO Pipelines plans to implement a program based on API RP 510 consisting of a
third-party inspection of all 758 of its pressure vessels, including 192 filter separators, 156 dump
tanks, 11 knockouts, 377 odorant tanks, and 22 air cushion tanks, during the test period. The
associated O&M forecast expense is $702,000 in 2019 and $782,000 in 2020.147
174. ATCO Pipelines submitted that pressure vessel inspection compliance is a program to
expand the inspections of pressure vessels beginning in 2018. ATCO Pipelines said that the
increase in O&M costs of $78,000 from 2017 to 2018 was to scope and plan the inspection
program. The forecast increase of $622,000 in O&M costs from 2018 to 2019 is for inspections
of approximately half of the 758 vessels included in the program. The $80,000 increase in O&M
costs from 2019 to 2020 allows for inspections of the remaining pressure vessels.148 ATCO
Pipelines noted that the O&M forecast expense is based on an estimated cost of $2,000 per
vessel inspection.149
175. ATCO Pipelines stated that 170 person-days from January to October are forecast to
complete five per cent of ATCO Pipelines’ 758 pressure vessel inspections in 2019. ATCO
Pipelines confirmed that it had not yet completed the job scope definition and draft contract for
this service.150 ATCO Pipelines stated that all of its 758 pressure vessels are subject to the
inspection frequencies outlined in API RP 510 and that the proposed program will result in the
145 Exhibit 23793-X0025, AP-AUC-2018SEP06-057(b-d). 146 Exhibit 23793-X0089. 147 Exhibit 23793-X0001, ATCO Pipelines application, PDF pages 81-82. 148 Exhibit 23793-X0025, AP-AUC-2018SEP06-049. 149 Exhibit 23793-X0025, AP-AUC-2018SEP06-057(g). 150 Exhibit 23793-X0033, AP-CCA-2018SEP06-019(b-d).
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 39
inspection of all vessels by 2020, at which point inspection frequency will be scaled back to
maintain the inspection frequency requirements outlined in API RP 510.151
CCA
176. The CCA submitted that the API 510 third-party support document confirms ATCO
Pipelines’ assertion that the catch-up inspections are necessary was in fact based on an ATCO
Pipelines’ reinterpretation of API 510 and not driven by any change in legislation. The CCA
argued that the proposal to inspect all assets in the test years of this application results in an
improper allocation of intergenerational costs and that current customers should not be expected
to pay for catch-up inspections. The CCA further argued that ATCO Pipelines had an obligation
to have reviewed and conformed to these requirements since the early 1990s and that the
inspections should have been completed on a six-to-10 year rolling basis (based on the asset
description) since the early 1990s.152
177. The CCA stated that while it does not object to the pressure vessel inspection initiative, it
does not agree that the program should be completed within the test period. The CCA further
stated that since ATCO Pipelines has an existing pressure vessel inspection program within its
current inspection protocol, there should be no urgency to complete this program in two years.153
The CCA recommended that ATCO Pipelines restructure the duration of the program to 10 years
commencing in 2020 and charge one tenth of its inventory inspection costs per annum until the
inspections are complete, to avoid prejudice to current ratepayers. The CCA submitted that this
would give ATCO Pipelines time to complete its job scope definition and engage a contractor for
the service. The CCA submitted that ATCO Pipelines did not provide third-party support
regarding the $2,000 forecast cost to inspect each vessel.154 The CCA recommended that ATCO
Pipelines be directed to reflect reduced inspection costs in its compliance filing for this
proceeding.155
UCA
178. The UCA submitted that in the event that a top down adjustment to total O&M costs is
not adopted by the Commission then a reduction should be made to the costs of the pressure
vessel inspection program of $702,000 in 2019 and $782,000 in 2020, essentially all costs for
this program. The UCA noted that ATCO Pipelines should pursue these initiatives but work
within existing budgets or demonstrate the need for new budgets at the time of ATCO Pipelines’
2021 GRA.156
ATCO Pipelines
179. ATCO Pipelines noted that the CCA’s evidence does not reference or address any of
ATCO Pipelines’ O&M activities or forecast costs. ATCO Pipelines submitted that no party
challenged any specific aspects of its interpretation of API RP 510 or put forward expert
evidence supporting an alternative interpretation to this mandatory requirement under CSA
Z662-15. ATCO Pipelines argued that it had provided third-party support for its interpretation of
151 Exhibit 23793-X0025, AP-AUC-2018SEP06-057(e). 152 Exhibit 23793-X0091, CCA argument, paragraph 111. 153 Exhibit 23793-X0091, CCA argument, paragraph 113. 154 Exhibit 23793-X0091, CCA argument, paragraphs 112-113. 155 Exhibit 23793-X0091, CCA argument, paragraphs 111 and 114. 156 Exhibit 23793-X0081, UCA-AUC-2019FEB15-001(a).
2019-2020 General Rate Application ATCO Pipelines
40 • Decision 23793-D01-2019 (June 25, 2019)
API RP 510 in rebuttal evidence and stated that the applied-for costs are reasonable and
necessary.157
Commission findings
180. In Section 8.1 of this decision, the Commission denied a top-down approach to
forecasting and found that it would evaluate the reasons for increases in forecasts for specific
cost categories to determine the reasonableness of applied-for amounts. Consistent with this
approach, the Commission has evaluated the specific reasons for ATCO Pipelines’ pressure
vessel inspection compliance program and the related forecast costs.
181. The Commission agrees that more thorough inspection of pressure vessels is required and
that ATCO Pipelines requires a program to complete the inspections to ensure compliance with
the codes and regulations. The Commission has reviewed a letter from Acuren Group Inc. filed
by ATCO Pipelines that provides support for the inspections required under its pressure vessel
inspection program. 158
182. The Commission finds that although the letter provides general support for increased
inspections and for ATCO Pipelines’ pressure vessel inspection program, the letter provides no
guidance on a timeline to inspect all of ATCO Pipelines’ 758 pressure vessels. ATCO Pipelines
submitted that API RP 510, referenced in CSA Z662-15, requires an inspection frequency of no
more than 10 years, for this reason the Commission agrees with the CCA that there is no
requirement for ATCO Pipelines to complete this program over a two-year period.
183. The Commission directs ATCO Pipelines, in its compliance filing, to provide a revised
timeline to complete this program that includes a risk assessment analysis (for example, if ATCO
Pipelines completed its pressure vessel inspection compliance program over a longer timeframe,
such as five or 10 years), including a prioritization of its pressure vessels and risk analysis based
on vessel vintage, date of last inspection and any other relevant metrics.
184. The Commission also directs ATCO Pipelines, in its compliance filing, to provide a
status update on its pressure vessel inspection compliance program, including information on the
description of the required work, the details of the contract for inspection, and the status of and
timeline for the process to engage a contractor has been engaged. ATCO Pipelines is also
directed to include an update of forecast costs for the test period for this program and an update
of the cost required to inspect each pressure vessel that reflects the findings and directions of the
Commission in this decision.
8.5.3 Greenhouse gas compliance
185. ATCO Pipelines stated that in January 2018, Alberta transitioned from the Specified Gas
Emitters Regulation (SGER) to an Output Based Allocation (OBA) model to manage greenhouse
gas emissions. Based on its forecast of greenhouse gas emissions and its new greenhouse gas
compliance targets, ATCO Pipelines expects its emissions to exceed greenhouse gas compliance
targets from 2018 onward. ATCO Pipelines submitted that it will be required to purchase
157 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraphs 21-22. 158 Exhibit 23793-X0089, letter from Acuren Group Inc.
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Decision 23793-D01-2019 (June 25, 2019) • 41
emission performance credits from the government in each of 2019 and 2020 at a forecast O&M
expense of $377,000 in 2019 and of $569,000 in 2020.159
186. In response to IRs, ATCO Pipelines stated that it forecasts emissions by trending its
historical emissions inventories with adjustments based on recent system changes and planned
improvement activities. It noted that its historical emissions inventories are verified by an
accredited third party and approved by the Government of Canada.160
187. No interveners commented on ATCO Pipelines’ greenhouse gas compliance initiative.
Commission findings
188. The Commission has examined the evidence respecting greenhouse gas emissions,
ATCO Pipelines’ forecast compliance costs in the test period relating to greenhouse gas
emissions and the reasons for these costs and finds them to be reasonable. The Commission
approves ATCO Pipelines’ greenhouse gas compliance costs for 2019 and 2020, as filed.
8.6 Reliability and security
189. ATCO Pipelines stated it has launched certain initiatives and programs consistent with its
obligation to ensure a safe, reliable, and secure pipeline system.161 These reliability and security
initiatives are addressed individually in the sections below.
8.6.1 Facility assessments
190. ATCO Pipelines submitted that it intends to implement a program to perform third-party
hazard operability assessments on its critical facilities. These assessments will identify
opportunities for capital investment in ATCO Pipelines’ facilities to reduce O&M expenses,
confirm that the appropriate level of equipment redundancy is present to maximize the reliability
of its operations, and identify potential process hazards that could increase the risk of incidents
impacting health and safety, asset integrity, or customer service. The associated O&M forecast
expense is $500,000 in each of 2019 and 2020.162
191. In response to IRs, ATCO Pipelines stated that 200 person-days from January to
December are forecast to complete this program in 2019 and that it had not yet completed the job
scope definition and draft contract for this service.163
192. ATCO Pipelines submitted that it intends to complete a hazard and operability study at
each of its critical facilities to identify any potential hazards that may result from operations
outside of each facility’s original design or through the malfunction of individual pieces of
equipment. Once these studies are complete, ATCO Pipelines would then initiate capital
projects, if necessary, to address the findings. ATCO Pipelines planned to complete 10 studies in
each of 2019 and 2020 with an O&M forecast expense of $50,000 per study.164
159 Exhibit 23793-X0001, application, PDF page 82. 160 Exhibit 23793-X0025, AP-AUC-2018SEP06-058(b). 161 Exhibit 23793-X0001, application, PDF pages 82-83. 162 Exhibit 23793-X0001, application, PDF page 82. 163 Exhibit 23793-X0033, AP-CCA-2018SEP06-019(b-d). 164 Exhibit 23793-X0025, AP-AUC-2018SEP06-059(b-d).
2019-2020 General Rate Application ATCO Pipelines
42 • Decision 23793-D01-2019 (June 25, 2019)
193. The UCA argued that costs for this program should be denied in the test period and that if
ATCO Pipelines wants to undertake this initiative it can do so within existing budgets. The UCA
added that the program can be re-examined at the next GRA when actual expenditures,
benchmarking and study outcomes can provide more justification for inclusion of these costs in
revenue requirement.165
194. ATCO Pipelines responded that the UCA did not address this program in its evidence and
its recommendation that the forecast should be disallowed is without merit and should be
disregarded.166
Commission findings
195. The Commission finds that ATCO Pipelines’ has not justified the costs for this program.
Based on the evidence, the Commission is unable to assess how this program is different from
other asset management programs or the specific benefits that may result from the third-party
hazard operability assessments. The Commission directs ATCO Pipelines to remove all forecast
costs associated with this initiative for 2019 and 2020 in its compliance filing to this decision.
196. If ATCO Pipelines sees merit in conducting third-party hazard operability assessments,
the Commission considers that ATCO Pipelines could conduct one or more of these studies on
own initiative and within existing budgets to demonstrate the benefits, costs and result of the
assessments. This would allow ATCO Pipelines to support any future business case put before
the Commission with actual experience and costs incurred from an assessment.
8.6.2 Cyber security
197. In response to an increase in the number of cyber security attacks reported globally,
ATCO Pipelines submitted that it must continue to focus on initiatives that protect its
infrastructure and pipeline control network from being compromised. ATCO Pipelines’ capital
program includes projects to address potential cyber security deficiencies related to its SCADA
system. These projects will include security appliances that monitor the pipeline control network
and identify potential threats. These appliances require ongoing support and attract licence costs.
The associated O&M forecast expense is $290,000 in 2019 and $295,000 in 2020.167
198. In response to IRs, ATCO Pipelines stated that 180 person-days from January to
December are forecast to complete this program in 2019 and that this service will be provided
based on ongoing analysis of SCADA network traffic reports and investigation of abnormal
activities discovered. ATCO Pipelines noted that it had not yet completed the job scope
definition and draft contract for this service.168
199. The UCA argued that costs for this program should be denied in the test period and that if
ATCO Pipelines wants to undertake this initiative it can do so within existing budgets. The UCA
stated that the program can be re-examined at the next GRA when actual expenditures,
165 Exhibit 23793-X0093, UCA argument, paragraphs 44-45. 166 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 25. 167 Exhibit 23793-X0001, application, PDF pages 82-83. 168 Exhibit 23793-X0033, AP-CCA-2018SEP06-019(b-d).
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 43
benchmarking and study outcomes can provide more justification for inclusion of these costs in
revenue requirement.169
200. ATCO Pipelines responded that the UCA did not address this program in its evidence and
that its recommendation that the forecast should be disallowed is without merit and should be
disregarded.170
Commission findings
201. The Commission has examined the evidence respecting ATCO Pipelines’ forecast cyber
security costs and finds it to be reasonable. The Commission notes that costs for this category
include network monitoring, industry best practices for cyber security and securing
communication infrastructure.171 The Commission does not agree with the UCA that costs should
be denied in this test period because the Commission finds that these are activities that ATCO
Pipelines must undertake to ensure the security of its system. The Commission has reviewed the
forecast costs for the activities to be undertaken in the test years and approves ATCO Pipelines’
forecast cyber security costs for each of 2019 and 2020, as filed.
8.7 O&M labour costs
202. ATCO Pipelines is forecasting that O&M labour costs will be higher in 2019 and 2020
primarily due to annual labour inflation and new positions associated with the Quality Control
Initiatives. O&M labour is classified by activity, namely salt cavern operation, gas control,
customer and pipeline system support, engineering and planning, pipeline operations, safety and
training, compressor operations, and measurement and regulating operations, as shown in the
table below.172
203. ATCO Pipelines grouped its O&M labour costs into these activities, as shown in the table
below:
Table 15. ATCO Pipelines’ O&M labour costs
2017 Actual 2018 Estimate 2019 Forecast 2020 Forecast
($000)
Salt cavern operation 457 467 483 498
Gas control 4,016 4,611 5,121 5,295
Engineering and planning 808 835 863 889
Pipeline operations 4,795 5,461 6,172 6,432
Safety and training 886 885 965 1,088
Compressor operations 673 695 715 735
Measurement and regulating operations 4,412 5,123 5,489 5,704
Total 16,047 18,077 19,808 20,641
Source: Exhibit 23793-X0001, application, Table 4.2.1-3, PDF page 85.
204. ATCO Pipelines provided explanations for the differences in forecast costs for each of
the O&M activities in 2019 and 2020. For example, forecast labour costs for the operation and
169 Exhibit 23793-X0093, UCA argument, paragraphs 44-45. 170 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 25. 171 Exhibit 23793-X0025, AP-AUC-2018SEP06-060. 172 Exhibit 23793-X0001, application, PDF pages 84-87.
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44 • Decision 23793-D01-2019 (June 25, 2019)
maintenance of ATCO Pipelines’ salt cavern gas storage facility increased in 2019 and 2020 due
to inflation.173
205. For gas control, forecast labour costs increased in 2019 to reflect inflation and the
planned enhancement of ATCO Pipelines’ Cyber Security and Control Room Management
programs. Forecast labour costs for the programs also increased in 2020 to reflect inflation.174
206. The forecast labour costs for engineering and planning also increased due to inflation.175
207. For pipeline operations, the forecast increase in 2019 reflects inflation and additional
resources required to implement ATCO Pipelines’ proposed quality control initiatives for the
third-party activity verification program.176
208. The forecast increases for safety and training labour costs in 2019 and 2020 reflect
inflation and the addition of one Environmental Advisor to administer new provincial and federal
environmental regulations.177
209. The forecast increases for compressor stations reflect inflation for the test period.
Similarly, the forecast increase in 2019 for measurement and regulating operation reflect
inflation and the additional resources required to implement ATCO Pipelines’ proposed quality
control initiatives in the Critical Equipment and Measurement Verification programs, as well as a
quality program coordinator position.178
210. ATCO Pipelines explained that increases in labour costs are due to wage inflation, which
is discussed in Section 8.7.1, the addition of five full-time staff in 2019 and of one full-time
employee in 2020. The O&M FTE positions are discussed in Section 8.7.2.
8.7.1 Salary escalators
8.7.1.1 In-scope employees
211. ATCO Pipelines, and the Natural Gas Employees Association, which represents ATCO
Pipelines’ association members (in-scope employees), negotiated a one-year collective
agreement for the period January 1, 2018, to December 31, 2018. The agreement provided for a
salary increase of 2.0 per cent for in-scope employees. In the application, ATCO Pipelines
forecast an in-scope salary escalation of 2.5 per cent for 2019 and 2.8 per cent for 2020. 179
ATCO Pipelines submitted that the increases for 2019 and 2020 are consistent with recent
Alberta union wage settlements, as shown in the table below: 180
173 Exhibit 23793-X0001, application, PDF page 85. 174 Exhibit 23793-X0001, application, PDF page 85. 175 Exhibit 23793-X0001, application, PDF pages 86-87. 176 Exhibit 23793-X0001, application, PDF page 87. 177 Exhibit 23793-X0001, application, PDF pages 86-87. 178 Exhibit 23793-X0001, application, PDF page 88. 179 Exhibit 23793-X0001, application, Table 1.3-1, PDF pages 14-15. 180 Exhibit 23793-X0001, application, Table 1.3-2, PDF page 15 and Exhibit 23793-X00025, AP-AUC-
2018SEP06-005(a).
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Decision 23793-D01-2019 (June 25, 2019) • 45
Table 16. External wage settlements
Company Union 2014 2015 2016 2017 2018 2019 2020
(%)
ATCO Gas Natural Gas Employees’ Association (NGEA)
3.5 3.5 3.75 1.96 1.75
ATCO Pipelines NGEA 3.5 3.5 2.75 2.67 2
ATCO Electric Canadian Energy Workers’ Association (CEWA)
3.5 3.5 3.75 1.75 2
ATCO Electric Yukon
CEWA 3.5 3.5 3.25 1.75 2
ATCO Power CEWA 3.5 3.5 3.75 1.5 1.75
Northland (NWT) CEWA 3.5 3.5 2.5 1.5 2
Northland (YK) CEWA 3.5 3 3 1.75 2
AltaGas
CEP(Communications, Energy and Paperworkers Union of Canada) 1947
3 3 2 2 2
AltaLink United Utilities Workers’ Association (UUWA)
3.5 4 2.5 2.5 2.35 3
AltaLink International Brotherhood of Electric Workers (IBEW)
3.5 4 3.5 2.35 2.35
Capital Power IBEW 3.5 3.5 2.5 2 2
Capital Power CEP 3.5 3.75 3.75 2 2
Capital Power Civil Service Union (CSU)
3.5 2.5 2 2 2.5
Medicine Hat Power
IBEW 3.5 3.5 3 0 2 2
ENMAX Canadian Union of Public Employees (CUPE) 38
3.5 3.5 3.5 1.25 2.25 3
ENMAX IBEW 4 3.5 3.5 3.75
EPCOR IBEW 3.5 3.5 2.5 2.5 2.35
EPCOR CSU52 3.5 3 2.25 2.15 2.35 2.75 2.75
Fortis Alberta UUWA 3.25 3.5 3.5 3.75 1.5 2.25 2.75
Milner Power CEWA 3.5 3.75 4 0 0
TransAlta IBEW254 3.5 3.5 3.75 0 1.5 1.75
TransAlta UUWA100 3 3 3 0
Average, Including ATCO 3.5 3.4 3.1 1.8 1.9 2.5 2.8
Average, Excluding ATCO 3.5 3.4 3.0 1.7 1.9 2.5 2.8
212. No issues were raised by interveners with respect to in-scope employee salary
escalations.
Commission findings
213. The Commission has reviewed ATCO Pipelines’ proposal for an in-scope employee
salary escalation of 2.5 per cent in 2019 and of 2.8 per cent in 2020, and the data on comparable
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46 • Decision 23793-D01-2019 (June 25, 2019)
wage settlement agreement provided by ATCO Pipelines in Table 16.181 Given the limited
amount of comparable wage settlement agreement data for 2019 and 2020, as shown in Table 16,
the Commission finds that a 2.0 per cent increase for in-scope employees, consistent with its
2018 collective bargaining agreement, is more reasonable. In addition, the Commission also
finds that a 2.0 per cent increase is consistent with the findings of the Mercer Canada Limited
(Mercer) that the Alberta economy is forecasted to grow at 2.0 per cent annually from 2019
through 2020, as discussed in more detail in Section 8.7.1.2 below. Accordingly, the
Commission approves a 2.0 per cent increase for each of 2019 and 2020. ATCO Pipelines is
directed to revise its in-scope employee salary escalator to 2.0 per cent in its compliance filing to
this decision.
8.7.1.2 Out-of-scope employees
214. ATCO Pipelines retained Mercer to provide advice with respect to the level of salary
escalation applicable to non-union (out-of-scope) employees. ATCO Pipelines is forecasting
salary escalators of 3.0 per cent for out-of-scope employees for each of 2019 and 2020,
consistent with the salary increase projections provided by Mercer.182
215. In the 2018 Total Remuneration Report provided as an attachment to the application
(Mercer report),183 ATCO Pipelines’ 2018 remuneration was compared to 2017 actual
remuneration in 39 peer companies to reflect the competitiveness of ATCO Pipelines’ total
remuneration. The Mercer report and responses to IRs on the Mercer report184 noted that ATCO
Pipelines’ base salary and total cash compensation185 are five per cent and eight per cent,
respectively, below the market median at 50th percentile, total direct compensation186 is 11
per cent below the market median, and total remuneration187 is 14 per cent below the market
median.
216. In the Mercer report, Mr. Yung made the following statement with respect to its 2019-
2020 salary escalation projections:
Based on the results to-date, we expect the median aggregate salary increase budget in
2018 for ATCO Pipelines’ Peer Group to fall near 2.3%. The Alberta economy is
forecasted to grow at 2.0% annually from 2019 through 2020 after rebounding from the
recession with rapid growth in 2016 and 2017. As this growth rate exceeds projections
for Canada, and the unemployment rate is forecasted to be better than the national
average in 2020, overall expectations for Alberta are for stronger growth than the long-
term national trend. Given the economic context, we expect that salary increase budgets
from 2019 to 2020 will revert back to the historical mean of around 2.8% – 3.0% per
year, inclusive of promotional budgets, for an approximate total increase of 5.6% – 6.0%
for the two-year period.188
181 Exhibit 23793-X0001, application, PDF page 15. 182 Exhibit 23793-X0001, application, PDF pages 15-16. 183 Exhibit 23793-X0003, Section 1.3 Attachment 1. 184 Exhibit 23793-X0003, Section 1.3 Attachment 1, PDF page 19 and Exhibit 23793-X00025, AP-AUC-
2018SEP06-008(a). 185 Target total cash compensation = base salary + target short-term incentives 186 Target total direct compensation = target total cash compensation + perquisites + long-term incentives. 187 Target total remuneration = target total direct compensation + pension and savings + health and group benefits. 188 Exhibit 23793-X0003, Section 1.3 Attachment 1, PDF page 14.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 47
217. ATCO Pipelines submitted that it targets the 50th percentile of the market for its total
employee compensation. ATCO Pipelines stated that its use of a higher end of the range of
Mercer’s recommendations is supported by the total direct compensation being 11 per cent
below market.189 ATCO Pipelines submitted that this target will allow ATCO Pipelines to
continue to monitor and respond to the market accordingly and to ensure that it is able to attract
and retain experienced employees.190
218. ATCO Pipelines’ forecast and actual salary increases for out-of-scope employees from
2014 to 2018 were provided in the table below.
Table 17. ATCO Pipelines’ forecast and actual out-of-scope increases from 2014 to 2018
2014 2015 2016 2017 2018
(%)
Actual 3.3 0.9 0.0 2.8 2.5
Forecast 5.5 3.0 3.0 3.0 2.5
Source: Exhibit 23793-X00025, AP-AUC-2018SEP06-007(d).
219. ATCO Pipelines stated that Mercer’s salary escalation projections are market focused
where the market range for promotional increase budgets in Alberta was 0.2 to 1.0 cent in 2017.
ATCO Pipelines’ forecast labour costs are inclusive of promotional and incremental adjustments
for employee progression.191
220. No issues were raised by interveners with respect to out-of-scope employee salary
escalations.
Commission findings
221. The Commission has reviewed the Mercer report and finds that it is only one factor in
assessing the level of required wage increases. The Mercer report does not supplant management
judgement and other economic factors that must be considered before determining the salary
level required to attract and retain talent. The Commission considers that it is very difficult for
any study to incorporate intangible factors such as the economic climate in Alberta, risk of job
loss, labour productivity and the unemployment rate.
222. Target total compensation includes items such as variable pay, perquisites, long-term
incentive pay, pension and savings, and health and group benefits.192 Although some of these
items are not included for recovery in ATCO Pipelines’ revenue requirement, the Commission
considers that it is incumbent upon ATCO Pipelines’ management to review whether these forms
of compensation are required to retain and attract employees. ATCO Pipelines can and should
vary these items to meet its objectives with respect to total compensation. The target total
compensation data from Mercer is only one measure that the Commission uses in approving out-
of-scope labour forecasts.
223. The Commission has reviewed the record and is not persuaded that the current economic
climate supports an out-of-scope labour escalation of 3.0 per cent in each of 2019 and 2020.
Rather, the Commission finds that an out-of-scope labour escalation rate of 2.0 per cent for each
189 Exhibit 23793-X0025, AP-AUC-2018SEP06-007(b). 190 Exhibit 23793-X0001, application, PDF page 16 and Exhibit 23793-X00025, AP-AUC-2018SEP06-007(b). 191 Exhibit 23793-X0025, AP-AUC-2018SEP06-007(e-f). 192 Exhibit 23793-X0003, Section 1.3 Attachment 1.
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48 • Decision 23793-D01-2019 (June 25, 2019)
of 2019 and 2020 is more reflective of the current market based on the best information available
on the record of this proceeding.
224. Accordingly, the Commission approves a 2.0 per cent out-of-scope salary escalation
factor for each of 2019 and 2020. The Commission directs ATCO Pipelines to reflect these
findings in its compliance filing to this decision.
8.7.2 FTE forecasts
225. ATCO Pipelines forecast eight additional full-time equivalents (FTEs) from 2019 to 2020
to support the resource requirements of its quality control initiatives and compliance activities.193
226. ATCO Pipelines also forecast a decrease of 4.5 FTEs in the test period and stated that this
decrease resulted from the consolidation of management that has occurred between it and ATCO
Gas.194 The consolidation of management initiative is discussed in more detail in Section 8.7.2.1
below.
227. ATCO Pipelines also forecast a decrease of three FTEs as a result of the shared services
initiative with the ATCO companies as discussed in more detail in Section 8.10 below. 195
228. ATCO Pipelines stated that in the case of the eight FTEs to be added in the test period,
the utilization of temporary resources is not a consideration due to the company-specific nature
of the work and the requirement to develop and retain long-term knowledge.196 ATCO Pipelines
provided the following table quantifying the total permanent employee complement during the
test period:
Table 18. ATCO Pipelines’ permanent FTE positions
Permanent FTEs 2014 Actual
2015 Actual
2016 Actual
2017 Actual
2018 Estimate
2019 Forecast
2020 Forecast
At January 1 412 434 446 415 416 414 421 Net Growth 22 12 (31) 1 (2) 7 1 Total Added Positions 22 19 19 16 5 7 1
Total Eliminated Positions - (7) (50) (15) (7) - -
Shared Services Reductions - - - - (3) - -
AP/AG Consolidation - - - - (4) - -
At December 31 434 446 415 416 414 421 422
Vacancies at December 31 31 46 19 12 11 11 11
Filled Positions 403 400 396 404 403 410 411
Approved Year End Forecast from Prior GRA Filings
415 470 416 422 425 N/A N/A
Source: Exhibit 23793-X0062, AP-AUC-2018NOV23-012(b).
229. ATCO Pipelines stated that throughout the 2018 estimate year and the 2019 to 2020
forecast test years, it has focused on managing FTE counts by addressing resource requirements
193 Exhibit 23793-X0001, application, PDF page 103. 194 Exhibit 23793-X0001, application, PDF page 105. 195 Exhibit 23793-X0062, AP-AUC-2018NOV23-007-1, Attachment 196 Exhibit 23793-X0001, application, PDF page 107.
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Decision 23793-D01-2019 (June 25, 2019) • 49
through temporary and seasonal resources. ATCO Pipelines forecast 65 temporary/seasonal
employee positions in each of 2019 and 2020, which is based on the positions required in
2017.197 ATCO Pipelines stated that it will continue to use temporary and seasonal employees
where required during the test period.198
230. The additional positions proposed in the test period are discussed individually in the table
below by labour activity category:
Table 19. ATCO Pipelines’ forecast additional labour positions, by labour activity category
Labour activity group
Proposed additional position
Reason for additional position
Process Control Technologist
1
To complete the incremental workload introduced by the Quality Control Initiatives Business Case. The Process Control Technologist will join ATCO Pipelines’ existing group of Technologists and will be responsible for completing portions of the Critical Equipment Verification (fire detection, gas detection and H2S analyzers), Measurement Verification (gas chromatograph and meter verification), and Reinspection (instrumentation work) programs as part of the quality control initiatives
Land agents 2
Due to the recent changes in the AUC’s Rule 020199 regarding the participant involvement program, ATCO Pipelines will require two new Land Agent positions to accommodate additional consultation requirements on pipeline projects. The changes to Rule 020 came into effect on December 1, 2017 and have expanded the scope of personal consultation and notification requirements for all projects, with the exception of small diameter pipelines in rural settings. This increase in consultation and the follow-up that is required with landowners, residents, and occupants is the driver for these additional land agents
Field Quality Coordinator
2
As part of the Quality Control Initiatives, ATCO Pipelines will require two full-time employees to oversee the activity of all crossing and locate inspectors working on behalf of ATCO Pipelines. These inspectors monitor third-party activity around ATCO Pipelines’ pipeline assets to ensure that there is no damage to these assets during third-party construction activities. The Field Quality Coordinators will ensure that the inspectors are following regulatory requirements and ATCO Pipelines’ specifications.
Quality Program Coordinator
1
The coordination and administration of the quality control initiatives for operational expenditures and the Quality Control Initiatives will require one full-time employee. The Quality Program Coordinator will be responsible for the planning and successful completion of the Critical Equipment, Critical Facility, Measurement, and Third Party Activity Verification programs, and the Reinspection programs. The Quality Program Coordinator will also coordinate all of the in-house and contractor resources associated with the previously mentioned programs.
Environment Advisor
2
Many additional environmental requirements have been developed or are in development by provincial and federal regulators, which will increase environmental management and reporting for ATCO Pipelines. Two additional full-time Environment Advisors are needed due to new requirements, including the Greenhouse Gas Output Based Allocation System and the Methane Reduction Regulations, as well as the Multi-Sector Air Pollutants Regulations, Bill C68 (Fisheries Act) and Bill C69 (specifically, changes to implement the Canadian Navigable Waters Act). The Environment Advisors are required to set up the systems, tools, and records necessary to maintain compliance with expanded requirements.
Source: Exhibit 23793-X0001, application, PDF pages 108-110.
231. ATCO Pipelines anticipated that approximately 23 per cent of its employees in leadership
positions will retire during the test period and nearly all employees in the defined benefit pension
plan will retire within the next 10 years. It indicated that 10 per cent of its workforce is eligible
197 Exhibit 23793-X0025, AP-AUC-2018SEP06-085(g). 198 Exhibit 23793-X0001, application, PDF pages 107-108. 199 Rule 020: Rules Respecting Gas Utility Pipelines.
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50 • Decision 23793-D01-2019 (June 25, 2019)
to retire in the next five years, with an additional five per cent currently eligible to retire. ATCO
Pipelines stated that these retirements will result in a loss of knowledge and experience and will
result in declining average years of service, which will in turn increase the need to train and
develop successors to address the gap.200
UCA
232. The UCA recommended that ATCO Pipelines’ forecast growth in O&M labour costs
should be rejected and a material downward revision should be included. The UCA argued that
O&M labour costs are forecast to increase from $16,050,000 in 2017 to $20,640,000 in 2020 and
this results in a cumulative increase of 28.6 per cent in three years.201
233. The UCA argued that actuals show stable levels of FTEs with 2018 total FTEs of 414,
which is only two FTEs higher than the 2013 total FTE count of 412, before vacancies. Further,
the UCA argued that its is difficult to pinpoint the specific areas of labour costs where downward
revisions should be made. Actual labour costs are lower in almost all subcategories compared to
approved amounts from 2016 to 2018 and therefore it is appropriate for the Commission to direct
a top-down adjustment to labour costs, in the order of half the growth in O&M labour costs,
approximately $1,600,000 in 2019 and $2,300,000 in 2020. The UCA stated that previous ATCO
Pipelines GRAs have overstated labour costs in forecast years compared to what is later
presented in actuals, which informs its recommendation in the current GTA.202
ATCO Pipelines
234. ATCO Pipelines submitted that its 2017 workforce was larger than forecast and that its
forecast for 2019-2020 continues to incorporate a higher level of temporary and seasonal
employees, which the UCA ignores in its interpretation of ATCO Pipelines’ FTE growth. ATCO
Pipelines argued it continues to manage both its capital and O&M workload using a combination
of permanent, temporary and contract resources. The UCA’s limited focus on FTE growth
ignores the important role that temporary and contract resources contribute to completing ATCO
Pipelines’ annual workload.203
235. ATCO Pipelines submitted that the UCA’s recommendation with respect to O&M labour
costs is arbitrary and unsupported as the tables presented in the UCA’s evidence and argument
do not support a 50 per cent reduction to the growth in ATCO Pipelines’ O&M labour costs.
ATCO Pipelines submitted that the UCA’s recommendation with respect to O&M labour costs
should be dismissed.204
Commission findings
236. In Section 8.1 of this decision, the Commission denied a top-down approach to
forecasting and found that it would evaluate the reasons for increases in forecasts for specific
cost categories to determine the reasonableness of applied-for amounts. Consistent with this
approach, the Commission has evaluated the specific reasons for ATCO Pipelines’ proposals
with respect to FTEs and labour cost forecasts.
200 Exhibit 23793-X0001, application, PDF pages 103-104. 201 Exhibit 23793-X0093, UCA argument, paragraphs 20-21. 202 Exhibit 23793-X0093, UCA argument, paragraphs 26 and 34. 203 Exhibit 23793-X0090, ATCO Pipelines argument, paragraphs 37-38. 204 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 18.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 51
237. The Commission has reviewed Table 9 of Mr. Bowman’s evidence205 and Table 3 of the
UCA’s argument206 and notes these tables show a significantly lower variance in labour costs
of -2.3 per cent for 2018 when compared to the variances of -10.8 per cent and -10.3 per cent in
each of 2016 and 2017, respectively. The Commission finds that the 2018 variance is reasonable.
238. The Commission notes that ATCO Pipelines has justified four of the eight new proposed
FTEs based on its proposed Quality Control Initiatives program, the costs of which the
Commission denied in Section 6.5 of this decision.
239. For the remaining four applied-for FTEs in the test period, ATCO Pipelines provided an
explanation of the responsibilities of and justification for each, which is summarized in Table 19
above. The Commission has examined ATCO Pipelines’ explanations for these remaining four
incremental FTEs and finds them to be reasonable. ATCO Pipelines is directed to revise its FTE
forecast in its compliance filing to reflect the denial of four FTEs by the Commission, as
discussed in paragraph 238 above.
8.7.2.1 Consolidation of management between ATCO Pipelines and ATCO Gas
240. ATCO Pipelines has proposed to consolidate the management of specific divisions with
ATCO Gas. The consolidation of management relates to the Corporate Services and Engineering
departments in 2017 and to the Operations and Construction departments in 2018. ATCO
Pipelines explained that both it and ATCO Gas provide regulated natural gas services and
overlapping geography, and therefore have similar business requirements. This has enabled both
ATCO Pipelines and ATCO Gas to improve customer interactions and provide broad
management oversight.207
241. Due to the consolidation of management between ATCO Pipelines and ATCO Gas,
ATCO Pipelines incorporated a reduction of 4.5 management FTEs into its 2019-2020 revenue
requirement forecast.208 The reductions were composed of 1.5 FTEs for Engineering, 1.5 FTEs
for Senior Leadership and 1.5 FTEs for Operations.209
242. In response to a Commission IR, ATCO Pipelines provided the following table to show
the 2018 integration of its consolidated management.
205 Exhibit 23793-X0074, UCA evidence, Table 9, PDF page 32. 206 Exhibit 23793-X0093, UCA argument, Table 3, PDF page 12. 207 Exhibit 23793-X0025, AP-AUC-2018SEP06-084(a-b). 208 Exhibit 23793-X0001, application, PDF page 105. 209 Exhibit 23793-X0062, AP-AUC-2018NOV23-011(a) and (c).
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52 • Decision 23793-D01-2019 (June 25, 2019)
Table 20. Consolidated management FTEs
2017 Add. Red. Adj. 2018
Management team 3.7 (1.5) 0.7 2.9
Engineering 131.3 (1.5) 11.2 141.0
Construction 45.2 (2.0) 43.2
Operations* 173.0 3.0 (1.5) (6.9) 167.6
Health, safety, environment and quality
13.9 (2.6) 11.3
Administrative and general 18.4 (0.9) 17.5
Shared services 30.8 3.0 (3.0) 30.8
Ending FTEs 416.3 6.0 (7.5) (0.5) (414.3)
*Operations include District Operations, Calgary & Edmonton Region Operations, and Customer Experience & Innovation. Source: Exhibit 23793-X0062, AP-AUC-2018NOV23-011(d) Attachment, PDF page 43.
243. ATCO Pipelines identified O&M savings of approximately $500,000 that have been
incorporated into the 2019-2020 forecast. Other benefits, while not quantifiable, also include the
implementation of best practices across the divisions, and the ability to more effectively plan for
succession, provide more cross-functional support and carry out consistent business processes.210
244. No issues were raised by the CCA apart from the CCA’s concern that ATCO Pipelines
did not respond to requested information regarding leader salaries, burden and benefits.211
Commission findings
245. The Commission has reviewed the evidence with respect to ATCO Pipelines’ initiative
for consolidating its management with ATCO Gas. The Commission approves the consolidation
of management for the Corporate Services and Engineering departments in 2017 and for the
Operations and Construction departments in 2018, as this provides benefits, including
consistency of management between departments for both utilities and annualized savings of
$500,000. However, the Commission observes that in Table 18 of this decision, the consolidation
of management shows a reduction of 4.0 FTE positions. Accordingly, in its compliance filing to
this proceeding, ATCO Pipelines is directed to update Table 18 of this decision to clarify
whether the number of FTE positions eliminated as a result of consolidation of management was
4.0 or 4.5.
8.7.3 Variable pay program
246. In 2013, ATCO Pipelines implemented a new variable pay program (VPP) that was
approved by the Commission in Decision 2013-430. The VPP is an important part of ATCO
Pipelines’ compensation to attract and retain qualified and motivated employees.212
247. As outlined in Decision 22011-D01-2017, VPP is a variable pay-at-risk program that
rewards eligible employees for helping the organization achieve a high level of performance,
with the amount of the award aligned to company and individual performance. Payments under
its VPP are based on three criteria: achievement of employees’ individual performance goals,
achievement of department metrics, and achievement of company goals.
210 Exhibit 23793-X0001, application, PDF page 105 and Exhibit 23793-X0062, AP-AUC-2018NOV23-011(e). 211 Exhibit 23793-X0091, CCA argument, paragraphs 195-196. 212 Decision 22011-D01-2017, paragraph 244 and Exhibit 23793-X0025, AP-AUC-2018SEP06-092(f).
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 53
248. Variances can exist if these goals are not met, if there are fewer employees eligible for
VPP than originally forecast or if there are extraordinary market conditions. ATCO Pipelines
currently has a VPP deferral account and any amounts under the approved forecast will be trued
up in the next GRA.
249. In the test period, ATCO Pipelines forecast expenses of $3,074,000 in 2019 and
$3,177,000 in 2020 for VPP.213
250. In Decision 3577-D01-2016, the Commission approved ATCO Pipelines’ continued use
of a VPP deferral account. ATCO Pipelines is requesting continuation of its VPP deferral
account but is proposing changes to the VPP deferral account, which are discussed in
Section 8.7.3.1.
Commission findings
251. The Commission has examined the evidence on the record for the continuation of the
VPP and the associated forecast VPP costs of $3,074,000 in 2019 and $3,177,000 in 2020. The
Commission finds that the forecast VPP amounts are reasonable because the VPP gives ATCO
Pipelines the ability to react to the market conditions and manage its employee retention.
Accordingly, the Commission approves the forecast VPP costs, as filed. Additionally, the
Commission directs that any forecast VPP amounts not paid out during the test period be
refunded to customers through the VPP deferral account in the next GRA.
8.7.3.1 Variable pay program deferral account
ATCO Pipelines
252. ATCO Pipelines was directed to establish a variable pay deferral account to capture the
differences between the actual and approved VPP payouts in the 2013 and 2014 test years. 214
ATCO Pipelines explained that the VPP deferral account was established to reconcile the
approved with the actual VPP payouts for the test years. As this deferral account is asymmetrical
in nature, ATCO Pipelines stated that if actual VPP costs are less than the approved VPP costs,
then amounts are refunded to customers, but if actual VPP costs are greater than the
Commission-approved VPP costs those amounts are to the account of the shareholders and are
not recovered from customers.215
253. In the application, ATCO Pipelines requested symmetrical treatment for its VPP deferral
account, such that costs in excess of the approved forecast for a given year could be recovered as
part of a future deferral account settlement. Amounts in excess of the approved forecast that are
proposed for recovery would be subject to a prudence test, similar to that of ATCO Pipelines’
Reserve for Injuries and Damages. ATCO Pipelines submitted that symmetrical treatment would
ensure that ATCO Pipelines is able to react to changes in the marketplace in the test period,
recognizing that VPP is part of the compensation mix in the market in which ATCO Pipelines
competes for employees. In addition, it plays a factor in the attraction and retention of qualified
and motivated employees.216
213 Exhibit 23793-X0001, application, Table 4.2.9-1, PDF page 117. 214 Approved in Decision 2013-430, paragraph 321. 215 Exhibit 23793-X0001, application, PDF page 11. 216 Exhibit 23793-X0001, application, PDF page 12.
2019-2020 General Rate Application ATCO Pipelines
54 • Decision 23793-D01-2019 (June 25, 2019)
254. In argument, ATCO Pipelines stated that it addressed the Commission’s concerns
regarding the need to protect customers in Decision 2013-430, and regarding the need for
historical data to allow for symmetrical treatment of the VPP deferral account in Decision 3577-
D01-2016. As a result, ATCO Pipelines stated that it has demonstrated in recent years its prudent
decision making with respect to the payout of VPP, and in some years choosing to make no VPP
payouts.217
UCA
255. The UCA recommended that the Commission deny ATCO Pipelines’ request for
symmetrical treatment as a similar request was denied by the Commission in Decision 3577-
D01-2016.218 219
256. As indicated by Mr. Bowman in evidence, “there is no indication AP has ever been
negatively impacted by the design of this account, with AP never paying VPP above GRA
approved levels since its implementation in Decision 2013-430, and there is no evidence of
material risk to AP for this to occur. Importantly, it is not apparent that payments above AUC
approved [amounts] would be of value to customers.”220
ATCO Pipelines
257. In reply to the UCA, ATCO Pipelines stated that its proposal for symmetrical treatment
does not harm customers, and in fact, the prudency review prior to recovery of such amounts
from customers would protect customers from the perceived risk, even though the evidence
demonstrates ATCO Pipelines’ prudent decision making and responsible VPP payouts in past
periods. It further stated that the applied-for symmetrical treatment of the VPP deferral account
is justified and should be granted.221
Commission findings
258. In Decision 2013-430, the Commission directed ATCO Pipelines to establish a variable
pay deferral account and stated as follows:
The VPP is controlled by the utility and employee eligibility and any payments made on
VPP objectives are solely at the discretion of ATCO Pipelines. If the utility has the
discretion to increase the VPP costs and participants, customers would be exposed to a
significant risk of additional costs. The Commission considers that an asymmetrical
deferral account protects customers from variances between forecast and actual costs of
the VPP which is solely under management control …222
259. The Commission reaffirms its finding from Decision 2013-430 and finds that there has
been no material change to ATCO Pipelines’ VPP since it last made its decision on this issue.
The VPP is controlled and managed by ATCO Pipelines, and any payments made are at the sole
discretion of ATCO Pipelines. The Commission is not convinced that a symmetrical VPP will
provide an incentive for ATCO Pipelines to manage its VPP more prudently in reacting to
217 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 108. 218 Decision 3577-D01-2016, paragraph 324. 219 Exhibit 23793-X0093, UCA argument, paragraph 91. 220 Exhibit 23793-X0093, UCA argument, paragraph 92. 221 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 47. 222 Decision 2013-430, paragraph 321.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 55
changes in the marketplace. The Commission finds that, to date, ATCO Pipelines has been able
to manage the risk of VPP payouts within the operation of the current VPP deferral account. It
should continue to be incented to do so. The Commission maintains, and reaffirms its findings
regarding the VPP deferral account in Decision 2013-430 and Decision 3577-D01-2016.
260. The Commission finds that there is insufficient information to support the benefits of
symmetrical treatment of the VPP deferral account and that the asymmetrical variable pay
deferral account continues to be reasonable for ATCO Pipelines’ VPP costs. Accordingly, no
change to the operation of the currently-approved VPP deferral account is required. ATCO
Pipelines is directed to confirm that its 2019-2020 revenue requirement is not affected by the
Commission’s denial of symmetrical treatment associated with the VPP deferral account, in a
compliance filing to this decision.
8.7.4 Pension costs
261. ATCO Pipelines has applied for defined benefit pension costs in the amount of
$1,544,000 in each of 2019 and 2020. ATCO Pipelines stated that its defined benefit pension
costs are consistent with a recent 2018-2019 actuarial valuation, to be filed in the coming months
with the Alberta Superintendent of Pensions. In the application, ATCO Pipelines has included
50 per cent pension cost of living allowance (COLA) as per its compliance with Decision 21831-
D01-2017.223 224
Commission findings
262. The Commission has reviewed ATCO Pipelines’ defined benefit pension costs forecast of
$1,544,000 in each of 2019 and 2020 and finds that the forecast amounts are reasonable and
consistent with the actuals of $2,074,000 for 2017 and the estimate of $1,544,000 for 2018. The
Commission approves ATCO Pipelines’ defined benefit pension costs, subject to any other
findings in this decision, as filed.
8.7.5 Vacancy rates
263. The vacancy rate is used to approximate the time lag between a position becoming vacant
and the position being filled. The vacancy rate was previously determined using a five-year
average. In the current application, ATCO Pipelines based its vacancy rate on an analysis of
vacant O&M positions in 2016 and 2017.225 ATCO Pipelines forecast an overall vacancy rate of
2.6 per cent for each of 2019 and 2020. The vacancy rate for O&M is also forecast at 2.6 per
cent, while the vacancy rate for capital is forecast at 2.5 per cent in each of the test years.226
264. ATCO Pipelines provided the following vacancy rate calculations for capital, O&M and
total using a five-year and a two-year average, as shown in the tables below:
223 Decision 21831-D01-2017: ATCO Utilities (ATCO Gas and Pipelines Ltd., and ATCO Electric Ltd.), 2017-
2018 Pension Application, Proceeding 21831, July 12, 2017. 224 Exhibit 23793-X0001, application, PDF page 118. 225 Exhibit 23793-X0001, application, PDF pages 16-17. 226 Exhibit 23793-X0001, application, Table 1.3-1, PDF page 14.
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56 • Decision 23793-D01-2019 (June 25, 2019)
Table 21. ATCO Pipelines’ vacancy rate calculations
Capital 2013 2014 2015 2016 2017 5-Year
average 2-Year
average Vacant weeks 570 678 1,020 321 258 Position weeks 8,825 9,479 11,058 11,257 11,493 Vacancy rate 6.5% 7.1% 9.2% 2.9% 2.2% 5.6% 2.5%
Operations 2013 2014 2015 2016 2017 5-Year
average 2-Year
average Vacant weeks 501 669 1,115 295 252 Position weeks 12,186 13,089 11,510 10,947 10,192 Vacancy rate 4.1% 5.1% 9.7% 2.7% 2.5% 4.8% 2.6%
Total 2013 2014 2015 2016 2017 5-Year
average 2-Year
average Vacant weeks 1,071 1,346 2,134 616 510 Position weeks 21,011 22,568 22,568 22,204 21,684 Vacancy rate 5.1% 6.0% 9.5% 2.8% 2.3% 5.1% 2.6%
Source: Exhibit 23793-X0025, AP-AUC-2018SEP06-010(a-b).
265. ATCO Pipelines stated that it generally agrees with the five-year average approach for
the purpose of calculating vacancy rates, however, the years 2013-2015 years have a statistically
higher vacancy rate of 6.3 per cent due to economic conditions.227 Accordingly, ATCO Pipelines
stated that that a five-year average vacancy rate is not a valid methodology for calculating its
vacancy rate in the test years.228
Commission findings
266. In Decision 22011-D01-2017, the Commission stated that:
283. In Decision 3577-D01-2016, the Commission found that adjustments to the vacancy
rate calculation methodology could be required to account for anomalies in the economic
environment. In this application, ATCO Pipelines has deviated from its past practice of
determining its vacancy rate using a five-year average of historical rates, to account for
the current high unemployment and lower economic growth conditions in Alberta. In
recognition of the Commission’s finding in the last GRA and in light of the continuing
decline in the Alberta economic environment, the Commission accepts ATCO Pipelines’
proposed methodology to determine its vacancy rate in this application.
284. However, the Commission continues to consider that, given the difficulty in
forecasting vacancies due to uncertainties in ATCO Pipelines’ operating environment,
using a five-year average of historical rates is a reasonable methodology to estimate
vacancy rates, and directs ATCO Pipelines to use this methodology in its next GRA, or to
provide an explanation of why this methodology is not appropriate for the test period.
(footnote removed)
227 Exhibit 23793-X0025, AP-AUC-2018SEP06-011(a-c). 228 Exhibit 23793-X0001, application, PDF page 17.
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Decision 23793-D01-2019 (June 25, 2019) • 57
267. The Commission continues to be of the view that, in general, using a five-year average to
calculate the forecast vacancy rate is acceptable for the purpose of reflecting the vacancy rate in
revenue requirement.
268. In this application, ATCO Pipelines has proposed to deviate from its past practice of
determining its vacancy rate using a five-year average of historical rates as based on its view that
2013-2015 represent anomalous years that had a statistically higher vacancy rate due to
economic conditions. The Commission has reviewed ATCO Pipelines’ evidence and is not
persuaded that a change in the methodology for calculating its vacancy rates is warranted at this
time.
269. The Commission considers that, given the difficulty in forecasting vacancies due to
uncertainties in ATCO Pipelines’ operating environment, a five-year average of historical rates is
a reasonable methodology to estimate vacancy rates. This methodology is reflective of past
experience and should account for variability in vacancy rates due to those fluctuations in ATCO
Pipelines’ operating environment. A five-year average better addresses longer-term trends. The
Commission is not persuaded that a change in the methodology for calculating of its vacancy
rates is warranted at this time.
270. Accordingly, the Commission approves ATCO Pipelines’ forecast vacancy rate of
4.8 per cent for O&M and 5.6 per cent for capital for both 2019 and 2020. Consistent with this
determination, ATCO Pipelines is directed to revise its forecast vacancy rates in its compliance
filing to this decision.
8.8 O&M supplies expenses
271. In the application, ATCO Pipelines provided a breakdown of the components of O&M
supplies expenses, in the table below:
Table 22. ATCO Pipelines’ operations and maintenance supplies
2017 Actual
2018 Estimate
2019 Forecast
2020 Forecast
Supplies ($000)
Contract services 6,691 6,911 11,899 13,441
Utilities 1,690 1,818 1,863 1,910
Company vehicles 920 942 997 1,022
Fringe benefits 3,271 3,705 4,061 4,231
Travel, accommodations and meals 428 448 499 460
Materials, equipment and tools 6,359 6,355 7,008 7,732
Total 19,359 20,179 26,327 28,796
Source: Exhibit 23793-X0001, application, Table 4.2.1-4, PDF page 89.
272. Contract services includes costs that ATCO Pipelines incurs through contractors, such as
locates, measurement verification and regulatory compliance initiatives, right-of-way brushing,
cathodic protection, SCADA maintenance, aerial surveys, gas composition analysis, leak
detection surveys, third-party crossing inspections and vegetation control. Generally, contract
services are seasonal in nature, have specialized requirements or relate to the manufacturer’s
support of equipment.229
229 Exhibit 23793-X0001, application, PDF page 89.
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58 • Decision 23793-D01-2019 (June 25, 2019)
273. Contract services are forecast to increase in 2019 due to inflation and for the increased
usage of contractors for compliance initiatives, which include the new methane reduction
regulations, pressure vessel inspections, facility assessment, cyber security and Quality Control
Initiatives. The forecast increases in 2020 reflect inflation and a continuation of the foregoing
services, as well as the increasing scope of the Methane Reduction Compliance program. ATCO
Pipelines explained that it does not have the internal resources with the right qualifications, and
therefore, experienced external resources will be used for these programs.230
274. Utilities include costs incurred for electric power and other utility service for its office
buildings and its metering, regulating and compressor stations. The forecast increases in 2019
and 2020 reflect inflation.231
275. ATCO Pipelines indicated that company vehicles, travel, accommodation, and meals
costs under the O&M supplies expenses category are forecast to increase due to inflation in both
2019 and 2020. In addition, ATCO Pipelines is also forecasting an increase to its company
vehicles associated with new positions. In 2019, ATCO Pipelines intends to expand its
emergency response training to include exercises coordinated by third parties within Alberta and
throughout the country, to broaden operator training and solicit third-party feedback on its
Emergency Management program and staff preparedness. The enhanced emergency response
training will be held bi-annually. The forecast increase for the category of travel, accommodation
and meals also reflects costs associated with enhanced emergency response training.232
276. Fringe benefit costs include costs such as employment insurance, Workers’
Compensation Board costs, Canada Pension Plan costs, company pension costs, employee health
and dental plans, group life insurance and post-employment benefits. The forecast increases in
both 2019 and 2020 reflect inflation and include fringe benefits for new positions.233
277. Lastly, the category of materials, equipment, and tools includes expenses required in the
operation and maintenance of ATCO Pipelines’ facilities, i.e., separator filters, batteries, pipe
and fittings, flange gaskets, regulator and meter parts, compressor oil and coolant, small tools,
valve grease, nitrogen, circuit boards, sensor heads for safety devices, process control computers
and man-machine interface screens, land rights payments, gravel, sand, asphalt and concrete. The
forecast increase reflects inflation, current market pricing for items that are affected by
commodities pricing such as nitrogen and compressor oil, an increase in surface lease expenses,
and the purchase of fund credits from the government for emissions above Greenhouse Gas
(GHG) compliance targets.234
278. ATCO Pipelines assumed inflation rates of 1.8 per cent in 2019 and 2.0 per cent in 2020.
The forecast inflation rate was based on the Alberta Consumer Price Index (CPI) published in
June 2018 by the Conference Board of Canada.235 CPI is commonly used to forecast supplies
inflation and is consistent with the direction provided by the Commission in Decision 3577-D01-
2016. In response to a Commission IR, ATCO Pipelines provided an updated Alberta CPI of
1.9 per cent in both 2019 and 2020 from the Summer 2018 Conference Board of Canada outlook.
230 Exhibit 23793-X0001, application, PDF pages 89-90. 231 Exhibit 23793-X0001, application, PDF page 90. 232 Exhibit 23793-X0001, application, PDF page 91. 233 Exhibit 23793-X0001, application, PDF page 91. 234 Exhibit 23793-X0001, application, PDF page 92. 235 Exhibit 23793-X0001, application, PDF page 17.
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Decision 23793-D01-2019 (June 25, 2019) • 59
However, ATCO Pipelines submitted that this change was not significant from its forecast and
therefore no updates to the application were necessary.236
279. Both the UCA and the CCA raised issues with respect to contract services costs for
ATCO Pipelines’ proposed Quality Control Initiatives, compliance programs and reliability and
security services that affect O&M supply expenses.
Commission findings
280. Where possible, the Commission relies on the best available information when rendering
a decision. As the board stated in Decision in 2006-004,237 the best available information includes
information which has been updated after the preparation of the initial application, including
actuals:
In recent years, when confronted with the question of whether or not to consider events
that have occurred after the preparation of revenue requirement forecasts, the Board has
usually taken the position that such information will be used in assessing the
reasonableness and accuracy of the forecasts and the methodology utilized in preparing
the forecasts. The Board has not, however, substituted the forecasts with the updated
information, except with respect to certain specific forecast items. For example, the
Board has updated interest rate forecasts in determining the cost of capital, income tax
rates, opening balances for plant property and equipment and has excluded amounts
forecast for capital projects that did not proceed. The Board has determined that the use
of updated information in these particular types of categories was in the overall public
interest and had as its objective an appropriate revenue stream without undue benefit or
detriment to the regulated utility. The utility has also always been able to update its
application and its forecasts to reflect any unforeseen increases in costs. The Board
continues to be of the view that this is the appropriate use of information that becomes
available subsequent to the preparation of the forecasts underpinning an application.
On the basis that the Board should have the best available information, the Board has
expressed a preference in having actuals for the full year prior to the test year where
possible. Providing the Board with the best available information at the time it must make
its decision, will assist the Board in determining a revenue requirement for the utility that
most closely matches current expectations and conditions. Properly considered, this
should reduce the initial forecasting risk to the utility and reduce the possibility of
overpayment by ratepayers.238
281. The Commission considers that the updated CPI for 2019 and 2020, provided in response
to IRs, is a more reasonable forecast of inflation for O&M supplies because it reflects more
accurate information on the current inflation rate. Accordingly, the Commission directs ATCO
Pipelines, in the compliance filing, to update the approved O&M supplies forecasts in Table 22
to use an inflation factor of 1.9 per cent for both 2019 and 2020.
282. The Commission notes that the issues raised by the UCA and the CCA regarding contract
services costs were specifically related to Quality Control Initiatives, compliance programs and
236 Exhibit 23793-X0025, AP-AUC-2018SEP06-005(b-c). 237 Decision 2006-004: ATCO Gas, 2005-2007 General Rate Application, Phase I, Application 1400690-1,
January 27, 2006. 238 Decision in 2006-004, PDF pages 5-6
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60 • Decision 23793-D01-2019 (June 25, 2019)
the provision of reliable and secure services. The Commission’s determinations regarding these
programs and their related costs are found in the following sections:
Quality Control Initiatives – Section 6.5
Compliance programs – Section 8.5
Reliability and security – Section 8.6
283. In its compliance filing, ATCO Pipelines is directed to revise its forecast revenue
requirements for 2019 and 2020 to reflect the Commission’s findings on the cost categories
noted above.
8.9 Administrative and general expenses
284. Administrative and general (A&G) expenses include labour and supplies costs for the
general, financial, human resources, corporate communication, regulatory and information
management functions of ATCO Pipelines. A&G expenses also include legal costs, audit and
consulting services costs, the costs for insurance, injuries and damages, hearing costs and
employee benefits.239
285. A&G expenses are forecast to be $27,528,000 in 2019 and $28,052,000 in 2020,
respectively. The increase in A&G expenses are primarily due to inflation. Table 23 shows the
2017 actual, 2018 estimate and 2019-2020 forecast for A&G expenses:
Table 23. ATCO Pipelines’ administration and general expenses
2017
Actual 2018
Estimate 2019
Forecast 2020
Forecast
($000)
Labour 3,427 3,270 3,235 3,335
Supplies 13,563 14,247 13,124 13,944
Net affiliate services 7,353 8,538 9,370 9,637
Regulatory accounts 3,405 3,406 3,650 3,650
Less: disallowed costs 2,231 2,837 1,851 2,514
Total 25,517 26,624 27,528 28,052
Source: Exhibit 23793-X001, application, Table 4.2.2-1, PDF page 95.
286. As with O&M supplies discussed above, A&G supplies were inflated by 1.8 per cent and
2.0 per cent in 2019 and 2020, respectively.
287. For administration labour, ATCO Pipelines stated that this is separate from the amounts
now reported under shared services. ATCO Pipelines stated that the A&G expenses for
administration labour costs that remain embedded in ATCO Pipelines’ expenses are forecast to
decrease by $35,000 in 2019 because of the annualized savings of consolidated management
offset partially by inflation. The increase in 2020 reflects inflation.240
239 Exhibit 23793-X0001, application, PDF page 76. 240 Exhibit 23793-X0001, application, PDF page 95.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 61
288. Labour supplies are forecast to decrease by $1,123,000 in 2019 and increase by $820,000
in 2020, which is primarily due to the uneven occurrence of legal and consulting fees related to
regulatory proceedings and inflation.241
289. The affiliate services cost categories are forecast to remain constant from 2018 to 2020.242
Commission findings
290. The Commission has reviewed the forecast A&G costs outlined in Table 23 and
associated calculations and finds that the forecasts are reasonable given the information provided
in Table 23. Accordingly, the Commission approves the forecast A&G costs, subject to the
Commission findings on the O&M supplies expense inflation adjustment and shared services.
Consistent with the direction on O&M supplies expense inflation in Section 8.8, the Commission
directs ATCO Pipelines to revise its forecast A&G costs using the approved inflation adjustment
of 1.9 per cent for both 2019 and 2020, for the O&M supplies expense. The Commission further
directs ATCO Pipelines to provide a revised table in its compliance filing to this decision
incorporating the changes directed to be made herein.
8.10 Shared services initiative
ATCO Pipelines
291. ATCO Pipelines proposed to implement a shared services initiative (shared services)
pursuant to which ATCO Pipelines and several other ATCO companies have identified common
shared services functions that provide standardized internal services to all of the ATCO group of
companies on a cost recovery basis.243 These newly formed shared services functions consist of
groups or a sub-set of groups, which were previously embedded in regulated or non-regulated
entities of each of the ATCO Group of companies that now perform these functions as a shared
service.
292. ATCO Pipelines indicated that the following eight shared services functions had been
created:
Supply Chain - inventory management and enterprise sourcing
Financial Services - general accounting, accounts payable, project accounting and fixed
asset accounting
Human Resources - employee resource centers, and the pension, benefits and disability
areas
Regulatory
Project Management Office
Facilities Management
Fleet Services
241 Exhibit 23793-X0001, application, PDF page 96. 242 Exhibit 23793-X0001, application, PDF page 96. 243 Exhibit 23793-X0001, application, PDF page 98.
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62 • Decision 23793-D01-2019 (June 25, 2019)
Information Technology Services.244
293. Under shared services, ATCO Pipelines is requesting that $2,711,000 and $2,776,000 be
included in its 2019 and 2020 revenue requirements, respectively. ATCO Pipelines stated that
overall, the costs of the shared services initiative represent less than 1 per cent of revenue
requirements for 2019 and 2020.245
294. ATCO Pipelines provided the following tables to support its 2019-2020 forecast for
shared services:
Table 24. ATCO Pipelines’ shared services forecast
Functions 2015 Comparable
2016 Comparable
2017 Comparable
2018 Estimate
2019 Forecast
2020 Forecast
($000)
Financial services 1,483 1,417 1,048 726 1,099 1,125
Human resources 375 290 199 260 248 254
Regulatory 1,105 701 750 838 990 1,014
Information technology services
314
393
397
239
259
265
Supply chain 57 57 57 367 57 59
Facilities management 63 63 63 56 58 59
Total A&G 3,397 2,921 2,514 2,486 2,711 2,776
Function 2015 Comparable
2016 Comparable
2017 Comparable
2018 Estimate
2019 Forecast
2020 Forecast
($000)
Fleet services 63 63 63 87 50 51
Source: Exhibit 23793-X0001, application, Table 4.2.3-3, PDF page 101.
295. As shown in Table 24 above, ATCO Pipelines identified an anomalous reduction for the
Financial Services function in 2017 and 2018 caused by employees in the financial services and
human resources functions being temporarily assigned to work on the Oracle E-Business
Upgrade Project. ATCO Pipelines stated that these employees coded their time to capital during
this period, resulting in a temporary reduction in operating costs for that period. Knowing that
this was temporary, ATCO Pipelines decided to fill only a limited number of positions with
temporary staff. This decision resulted in reallocating work and adding additional duties to the
existing staff. This model was not sustainable, as it resulted in additional hours worked and
limited vacations.246 The cost increases for the remaining functions in Table 24 are mainly due to
inflation.247
296. ATCO Pipelines explained that the objective of shared services is to capture efficiencies
by leveraging economies of scale and best practices in the safe and reliable operation of the
244 Exhibit 23793-X0004, Section 4.2.3 Attachment 1 and Exhibit 23793-X0025, AP-AUC-2018SEP06-068(c). 245 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 109. 246 Exhibit 23793-X0025, AP-AUC-2018SEP06-074(e). 247 Exhibit 23793-X0001, application, PDF page 101.
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Decision 23793-D01-2019 (June 25, 2019) • 63
ATCO Pipelines system.248 By bringing these functions together, this will allow ATCO Pipelines
and the ATCO companies to take advantage of common leadership, leverage economies of scale,
identify best practices, standardize processes, share expertise and consolidate institutional
knowledge.249 The activities that form part of shared services are required regardless of whether
they are directly embedded in ATCO Pipelines or, allocated through shared services.250
297. ATCO Pipelines stated that by virtue of the shared services functions, the services
provided are common in nature and, therefore, cannot be attributed to a specific company. 251
Given that shared services perform functions for multiple ATCO companies, allocation
methodologies were utilized to allocate costs to ATCO Pipelines.252 Thus, costs and the shared
services FTEs are allocated based on either a causal allocator that is typically based on some
volumetric measure or a general corporate allocator (GCA) that is based on an equal weighting
of net revenues, total assets, and labour expenses.253
298. In its application, ATCO Pipelines provided a description of the various methods used to
allocate the costs of the functional groups to the eight shared services functions:
Fleet Services: “number of vehicles”
Facilities Management: “square footage”
Human Resources: “headcount”
Financial Services: “number of invoices for accounts payables and GCA for general
accounting/ fixed asset and project accounting.”
IT: “50 per cent operating and 50 per cent net book values of IT assets”
Regulatory: “GCA”
Project Management Office: “GCA”
Supply Chain: “GCA” 254
299. ATCO Pipelines asserted that all of the ATCO companies receiving shared services use
the allocators.255 A third-party analysis provided by KPMG concluded that the allocators used
were appropriate and fair to all ATCO companies. 256 ATCO Pipelines also provided a breakdown
of the allocation percentages, total allocation, allocation for O&M and GCA calculations for
each of ATCO Pipelines, ATCO Group, ATCO Electric – Transmission, ATCO Electric –
248 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 111. 249 Exhibit 23793-X0001, application, PDF page 98. 250 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 110. 251 Exhibit 23793-X0025, AP-AUC-2018SEP06-069(c-d). 252 Exhibit 23793-X0001, application, PDF page 101. 253 The GCA was approved by the AEUB in Decision 2002-069, which focused on ATCO Groups’ affiliate code of
conduct. In Decision 2013-111, the Commission directed ATCO to remove the capital expenditures from the
GCA and replace it with labour expenses. See KPMG report in Exhibit 23793-X0005, Section 4.2.3
Attachment 2, PDF pages 8-9. 254 Exhibit 23793-X0004, Attachment 4.2.3 and Exhibit 23793-X0064, AP-AUC-2018NOV23-005 Attachment. 255 Exhibit 23793-X0025, AP-AUC-2018SEP06-081. 256 Exhibit 23793-X0005, Section 4.2.3 Attachment 2.
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64 • Decision 23793-D01-2019 (June 25, 2019)
Distribution, ATCO Gas and other non-regulated companies of ATCO Power Canada Ltd. and
ATCO Energy Ltd.257
300. In response to a Commission IR, ATCO Pipelines provided a list of reduced positions
that relate to the functions that have become a shared service.258 The total costs of the functions
performed by shared services resulted in a reduction of approximately 18 per cent between 2015
and 2020, before normalizing for inflation. For the current test years, efficiencies and benefits
have been incorporated and ATCO Pipelines indicated that its customers are receiving the
benefits of the workforce reductions that took place in 2018, without bearing the associated
severance costs in the test period.259 ATCO Pipelines stated that workforce reductions have been
the most significant savings from shared services to date. In addition to workforce reductions, the
shared services functions have been able to execute standalone initiatives successfully that have
resulted in savings, such as restructuring mobility plans and securing a number of enterprise
wide contracts that provide greater value at lower costs to ATCO Pipelines.260
301. ATCO Pipelines stated that it has implemented the shared services initiative and is
focused on streamlining the people and processes related to the shared services functions. ATCO
Pipelines noted that streamlining people and processes is more complex in some areas as
compared to others.261 262
302. ATCO Pipelines stated it would not fully know the long-term savings outside of the test
period until the shared services functions are mature in their operations.263 ATCO Pipelines stated
that shared services will continue to evolve over time as ATCO Pipelines and the ATCO
companies continue to assess and implement continual improvements in delivering the services
required.264
303. ATCO Pipelines clarified that shared services was formed through the amalgamation of
activities and tasks, not necessarily by moving specific positions. However, ATCO Pipelines
identified a reduction of three FTEs in 2018 as a result of this initiative.265 It did not eliminate
any positions in 2017.266 ATCO Pipelines did not include FTE positions that were directly
charged to capital in shared services.267 ATCO Pipelines stated that all functions that can be
directly assigned to a specific company would continue to be embedded in that company,
consistent with how it has treated these costs in the past.268
257 Exhibit 23793-X0064, AP-AUC-2018NOV23-005 Attachment. 258 Exhibit 23793-X0062, AP-AUC-2018NOV23-006(a) Attachment and AP-AUC-2018NOV23-007-1. 259 Exhibit 23793-X0025, AP-AUC-2018SEP06-070(c). 260 Exhibit 23793-X0062, AP-AUC-2018NOV23-008(a). 261 As an example, a longer transition is anticipated where IT solutions would be required to standardize and
implement best practices. 262 Exhibit 23793-X0025, AP-AUC-2018SEP06-070(b). 263 Exhibit 23793-X0025, AP-AUC-2018SEP06-072(a-b). 264 Exhibit 23793-X0025, AP-AUC-2018SEP06-070(b). 265 Exhibit 23793-X0062, AP-AUC-2018NOV23-007-1 Attachment. 266 Exhibit 23793-X0062, AP-AUC-2018NOV23-007-1(a). 267 Exhibit 23793-X0062, AP-AUC-2018NOV23-007-1(a). 268 Exhibit 23793-X0062, AP-AUC-2018NOV23-006(c).
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Decision 23793-D01-2019 (June 25, 2019) • 65
304. ATCO Pipelines explained that it must adhere to the ATCO Group Inter-Affiliate Code
of Conduct before, during, and after the transition to the shared services model and that steps
have been undertaken to ensure that appropriate controls are in place to ensure such adherence.269
CCA
305. The CCA identified a number of outstanding concerns and procedural issues with the
proposed shared services initiative in this proceeding and as also filed in the ATCO Electric
Transmission 2018-2019 GTA (Proceeding 22742). For example, the CCA stated that it found
the allocation of capital costs and the split between capital and operating costs unclear.270 The
CCA stated that ATCO Pipelines did not adequately support its shared services costs and they
should not be approved.271
306. The CCA also identified that ATCO Pipelines applied a two-year rule from Decision
2013-111, and that ATCO Pipelines was unclear when it stated that “consistent with a two-year
rule, the 2018 estimate is based on the 2016 actual costs for the allocation and the 2019-2020 test
years are based on the 2017 actual costs for the allocation, and therefore a change in allocation
percentage year-after-year is not abnormal.”272 The CCA stated that this decision referenced the
requirement to update allocators every two years for the ATCO utilities corporate costs, and not
for shared services.273
307. In addition, the CCA recommended that all direct third-party costs such as legal, audit
and other, should be included in the analysis of the shared services forecast, and not only the
costs that are deemed to be relevant by ATCO Pipelines.274
308. The CCA also stated that the allocations were unclear, as there was limited to no testing
of the allocators.275 The CCA indicated that it raised a number of questions with respect to the
allocators in its evidence in Proceeding 22742, arguing that these types of questions would need
to be addressed before analyzing the allocator values in this proceeding .276
309. The CCA further requested a detailed analysis respecting the 50 per cent increase in the
Financial Services function from the 2018 estimate to 2019. Specifically, the CCA identified
discrepancies in the data that ATCO Pipelines used to explain these increases and requested
clarification of this data and associated variances.277 Accordingly, the CCA proposed that the
2019 forecast be limited to 2018 plus inflation.278
310. Due to a multitude of outstanding issues, the CCA recommended a generic proceeding to
consider shared services, arguing that it is opaque, confusing and was not justified. The CCA
269 Exhibit 23793-X0025, AP-AUC-2018SEP06-073. 270 Exhibit 23793-X0091, CCA argument, paragraph 135. 271 Exhibit 23793-X0091, CCA argument, paragraph 138. 272 Exhibit 23793-X0091, CCA argument, paragraph 130. 273 Exhibit 23793-X0091, CCA argument, paragraph 130. 274 Exhibit 23793-X0091, CCA argument, paragraph 165. 275 Exhibit 23793-X0091, CCA argument, paragraph 167. 276 Exhibit 23793-X0091, CCA argument, paragraph 131. 277 Exhibit 23793-X0091, CCA argument, paragraphs 148-153 and Exhibit 23793-X0097, CCA reply argument,
paragraph 42. 278 Exhibit 23793-X0075, CCA evidence, paragraph 73
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66 • Decision 23793-D01-2019 (June 25, 2019)
recommended a placeholder of either zero per cent or 75 per cent of the applied for amount until
the outstanding issues are dealt with.279
ATCO Pipelines
311. In response to the CCA’s concern surrounding the split between capital and O&M,
ATCO Pipelines reiterated that the shared services costs are pooled by function, and then
allocated to each business. ATCO Pipelines indicated that a shared services lead personnel works
with each business to determine the portion of the costs that support each of the operation and
capital functions of the business and allocates accordingly. ATCO Pipelines stated that the
resulting costs are in accordance with its capitalization policy.280
312. ATCO Pipelines responded that the CCA had ample opportunity to test the allocators and
that sufficient evidence was provided on inputs to the allocators; allocation methodologies; total
costs pooled by function and allocated to ATCO Pipelines and the other ATCO companies; and,
information included in the KPMG report filed to support and justify approval of the initiative.281
313. With respect to the two-year rule for the allocator inputs, ATCO Pipelines stated that the
application of a two-year rule has been consistently applied in past decisions such as Decision
2013-111282 (ATCO Utilities corporate costs) and Decision 21701-D01-2017283 (transmission
common group).284
314. ATCO Pipelines challenged the CCA’s recommendations on direct costs stating that they
are not included in the shared services allocations because these costs would continue to be
directly charged to ATCO Pipelines, just as they were prior to implementing shared services.285
315. ATCO Pipelines argued that the Commission should dismiss the CCA’s recommendation
that the 2019 forecast for Financial Services be limited to 2018 plus inflation. ATCO Pipelines
provided further analysis showing that it committed 20 staff (or 14 per cent) to the Oracle
project, and reiterated that this was an anomalous and temporary situation as employees returned
to their duties in 2019.286
316. ATCO Pipelines argued that the record on shared services is comprehensive, clear and
supports the requested costs.287 ATCO Pipelines indicated that ATCO Electric Transmission did
not support a separate proceeding for shared services288 in Proceeding 22742. ATCO Pipelines
concluded that the CCA’s issues have been adequately addressed, and placeholder treatment is
not required.
279 Exhibit 23793-X0091, CCA argument, paragraph 192 280 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 137. 281 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraphs 128-129, 138 and 144. 282 Decision 2013-111: The ATCO Utilities Corporate Costs, Application 1608510, Proceeding 1920, March 21,
2013. 283 Decision 21701-D01-2017: ATCO Electric Ltd. Transmission Common Group Application, Proceeding 21701,
July 4, 2017. 284 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 135. 285 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 141. 286 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 139. 287 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 128. 288 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 146.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 67
Commission findings:
317. This is the first proceeding for which shared services is being proposed by an ATCO
company. Shared services is before the Commission in the current proceeding and was
introduced in Proceeding 22742, ATCO Electric Transmission’s 2018-2019 GTA, though
approval of costs associated with shared services is not sought in that case.289 As two ATCO
entities have introduced shared services in two separate proceedings, the Commission agrees
with the CCA that a full understanding of shared services is required. The Commission is not
persuaded, however, that a generic proceeding is the most effective process to test the proposed
shared services.
318. The Commission directs ATCO Pipelines to coordinate with ATCO Electric
Transmission to ensure that both utilities provide the same or substantially similar information in
the same format in support of the shared services in their next respective GRA/GTA, preferably
filing common documents wherever possible. The information should include evidence
supporting the functions created, justifying total FTEs and costs before allocation to the
participating ATCO companies (ATCO Pipelines and all other regulated and non-regulated
ATCO entities), and include any analysis, studies and calculations that explain and support the
reasonableness and accuracy of the allocation methodologies. The Commission finds that it also
would be beneficial to show all calculations that demonstrate the split between O&M and capital
under the shared services initiative in the next GRA/GTA. This common information will allow
for a proper testing of the shared services and for the provision of company specific information
to support shared services costs included in the proposed revenue requirements.. Accordingly,
the Commission directs ATCO Pipelines to provide the evidence, analyses, studies calculations
noted above as well as any underlying assumptions for the split between O&M and capital in its
next GRA.
319. The Commission acknowledges that of the ATCO companies, ATCO Electric
Distribution and ATCO Gas are under performance-based regulation and are subject only to
minimum filing requirement schedules. However, further information about common costs are
required to support the costs allocated to ATCO Pipelines. As such, ATCO Pipelines is directed,
on a go-forward basis, to provide all cost-information for every ATCO affiliate, comprising the
total costs and supporting detail that substantiate and justify the costs allocated to ATCO
Pipelines as compared to the other regulated and non-regulated ATCO companies under the
shared services initiative.
320. The Commission considers the difference in the amount of forecast costs related to
shared services to be immaterial compared to the previously embedded comparable costs in prior
test periods, as shown in Table 24. The forecast amount of $2,711,000 and $2,776,000 included
in ATCO Pipelines’ 2019 and 2020 revenue requirement, respectively are less than one per cent
of the total revenue requirement in each of the test years. The Commission therefore approves
the 2019 and 2020 forecast shared services costs as final. The Commission approves the
allocations and supporting methodologies on an interim basis only pending full testing of shared
services and associated allocation methodology as contemplated in paragraphs 318 and 319
herein.
289 Shared services was filed for only information purposes in Proceeding 22742.
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68 • Decision 23793-D01-2019 (June 25, 2019)
8.11 IT costs
321. On June 4, 2015, the Commission issued Bulletin 2015-11,290 which initiated the ATCO
Utilities291 IT common matters proceeding in Proceeding 20514 to examine IT costs related to the
IT services Master Service Agreements (MSAs). The IT common matters decision, Decision
20514-D02-2019292 issued on June 5, 2019, set the IT pricing for ATCO Pipelines, ATCO Gas,
ATCO Electric Transmission and ATCO Electric Distribution. Accordingly, the remaining IT
issue to be examined in this proceeding is ATCO Pipelines’ IT volumes.
322. In Decision 22011-D01-2017, the Commission determined that the total IT costs were to
be treated as placeholders, pending a determination in Proceeding 20514. Therefore, this
decision examines only IT volumes, which will affect the placeholders for IT costs.
323. IT services charged to operating costs include costs to operate, maintain, and distribute
existing and new IT applications required by ATCO Pipelines to manage its financial, human
resources and operational activities. These services include the provision of hardware (e.g., PCs,
laptops, and monitors), network, voice (telecommunications), data storage, printing management,
infrastructure and ad hoc employee service requests. Wipro Solutions Canada Limited provides
these services to the ATCO Utilities.293
324. ATCO Pipelines provided its actual IT costs in 2017, estimated actual IT costs in 2018,
and the forecast costs for 2019 and 2020, charged to operations. The IT costs were derived using
the Wipro MSA rate and glide path as shown in the table below:
Table 25. ATCO Pipelines’ IT services charged to operations
2017 Actual
2018 Estimate
2019 Forecast
2020 Forecast
($000)
Total 4,344 4,186 3,995 3,996
Source: Exhibit 23793-X0001, application, Table 4.2.6-1, PDF page 111.
325. ATCO Pipelines forecast a decrease in IT operating costs from 2019 to 2020 primarily as
a result of reduced licensing and support costs due to the implementation of Enterprise Planning
and Budgeting Cloud Service (EPBCS), and to a downward rate glide path under the Wipro
MSA.294 In response to an IR, ATCO Pipelines identified a reduction of $87,000 in O&M costs
in 2019 and $84,600 in 2020 that are directly attributable to the implementation of EPBCS.295
326. ATCO Pipelines stated that its forecast IT volumes, provided as an attachment in the
application,296 were developed using actual volumes from 2017 and estimated actual volumes
from 2018, and adjusting for known changes.297 Because 2017 actuals and 2018 forecast volumes
290 Bulletin 2015-11, Initiating the ATCO Utilities information technology common matters proceeding to examine
IT costs related to the master services agreements between the ATCO Utilities and Wipro Solutions Canada
Limited, June 4, 2015. 291 ATCO Pipelines, ATCO Gas, ATCO Electric Transmission and ATCO Electric Distribution. 292 Decision 20514-D02-2019: The ATCO Utilities (ATCO Gas and Pipelines Ltd. and ATCO Electric Ltd.)
Information Technology Common Matters Proceeding, June 5, 2019. 293 Exhibit 23793-X0001, application, PDF page 111. 294 Exhibit 23793-X0001, application, PDF page 111. 295 Exhibit 23793-X0025, AP-AUC-2018SEP06-088(b). 296 Exhibit 23793-X0006, 4.2.6 Attachment. 297 Exhibit 23793-X0001, application, PDF page 111.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 69
are relatively stable throughout the year, ATCO Pipelines considered these years were the best
starting point to apply known changes such as FTE fluctuations identified in the 2019-2020 FTE
forecast and cost reductions directly attributable to the implementation of EPBCS, to determine
forecast volumes and units for the test period. 298
327. In response to an IR, ATCO Pipelines provided variance explanations at the category
level for any variance greater than + or -10 per cent.299
328. ATCO Pipelines proposed to use an average annual cost per IT user calculation to
determine its IT costs as this is a more appropriate metric than IT volumes. ATCO Pipelines
submitted that the average annual cost per IT user should be used in future GRAs after the
expiration of the applicable period of IT pricing resulting from the ATCO Utilities IT common
matters proceeding in Proceeding 20514.300 ATCO Pipelines provided the following average
annual cost per IT user calculations:
Table 26. ATCO Pipelines’ average annual cost per IT user
Year Total User Driven IT Charges Mid-year User Count Average Annual Cost per user
2017 $3,165,000 481 $6,580
2018 $3,207,000 480 $6,682
2019 $3,197,000 483 $6,620
2020 $3,170,000 487 $6,510
Source: Exhibit 23793-X0062, AP-AUC-2018NOV23-014(k-l).
329. To calculate the average annual cost per IT user, ATCO Pipelines characterized each
individual IT service as either an application-driven or a user-driven cost. ATCO Pipelines stated
that it included only user-driven costs in the average annual cost per IT user calculations, as
these are controllable costs that can be directly attributed to a user’s day-to-day IT support
requirements.301 ATCO Pipelines then calculated the yearly actual or forecast IT charges
incurred, allocated all of the user-driven costs to O&M, and divided the resulting sum by the
forecast, mid-year user count of permanent and temporary employees.302 303
330. ATCO Pipelines explained that the average annual cost per IT user is a practical and
efficient forecasting tool that provides business managers with an easy to understand IT user cost
projection that they use to forecast their IT user costs. ATCO Pipelines submitted that
forecasting each individual Wipro service by month and year is a lengthy, complex, detailed and
labour intensive exercise to produce that provides no measurable benefit, other than to comply
298 Exhibit 23793-X0025, AP-AUC-2018SEP06-088(b). 299 Exhibit 23793-X0062, AP-AUC-2018NOV23-014(a) Attachment. 300 Exhibit 23793-X0001, application, PDF page 113. 301 ATCO Pipelines stated that “the services related to Application costs and are not included in the Average Cost
per User calculation are support or storage charges that would be incurred by AP regardless of the number of
users, such as Server Hosting, Application Managed Services, Distributed Application Storage, Web Hosting,
and the remaining Pass Through Charges. These services were deemed to not be directly related to a user’s IT
requirements because the monthly charge would not be directly affected by an increase or decrease of the
number of users.” The calculation steps are shown in response to Exhibit 23793-X0025, AP-AUC-2018SEP06-
089(a). 302 The average annual cost per IT user is calculated using the user count calculated as: (the beginning of year FTE
count + end of year FTE count)/2 + monthly average temporary employees. This is shown in response to
Exhibit 23793-X0062, AP-AUC-2018NOV23-014(m). 303 Exhibit 23793-X0025, AP-AUC-2018SEP06-089(a-b) and (i).
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70 • Decision 23793-D01-2019 (June 25, 2019)
with the Commission’s directions set out in Decision 3577-D01-2016.304 Specifically, ATCO
Pipelines stated that comparing each IT service on an individual level does not add value and
does not reflect ATCO Pipelines’ IT landscape. Instead, the average annual cost per IT user that
is used to budget, measure, and identify trends related to IT user costs and assists ATCO
Pipelines in making effective IT decisions, reduce unnecessary expenditures and reallocate IT
resources.305
331. ATCO Pipelines explained that if the Commission were to approve the average annual
cost per IT user metric to forecast IT volumes, then ATCO Pipelines would use the yearly
calculated average cost per IT user for 2020 and apply necessary adjustments in future years to
reflect reduction targets and adjust for known changes to IT services. The mid-year IT user
count, multiplied by the average cost per IT user would determine IT forecast in future test
years.306
332. No intervener addressed IT volumes in evidence, argument or reply argument.
Commission findings
333. The Commission is cognizant that the ATCO Utilities IT common matters proceeding,
Proceeding 20514, addressed the MSA pricing. The total forecast IT costs are calculated from
the forecast IT volumes and the negotiated IT pricing, the latter of which was determined in
Decision 20514-D02-2019.
334. As discussed in Decision 22011-D01-2017,307 the Commission continues to consider that
the GRA proceeding is the appropriate forum in which to examine IT volumes. This is consistent
with past determinations in Decision 2014-169, where the Commission found, “The pricing for
ATCO Electric and ATCO Gas, as determined in accordance with this decision, shall be applied
to forecasted volumes through each respective utility’s GRA/GTA process.”308
335. The Commission finds that to evaluate the forecast IT volumes, to which pricing has been
applied as determined in Decision 20514-D02-2019, it is necessary for all IT-related volume data
to be filed and evaluated in the GRA. The Commission also notes that its direction in
Decision 3577-D01-2016 was for ATCO Pipelines to file forecast IT volumes for the test period
and actual volumes from the previous test period in all future GRA proceedings.309 It did so in
this proceeding. The Commission finds this direction to be on-going for the next GRA
proceeding.
336. As set out by the Commission in Decision 20514-D02-2019 and reproduced below,
ATCO Pipelines is directed to incorporate the adjustments to the IT disallowances on an annual
basis by capital, indirect capital and O&M, resulting from the MSA in a compliance filing to this
decision:
Similar to the IT and CC&B [customer care and billing] disallowance determined in the
Evergreen II decision and related compliance filings, ATCO Pipelines and ATCO
304 Exhibit 23793-X0025, AP-AUC-2018SEP06-089(g). 305 Exhibit 23793-X0001, application, PDF pages 112-113. 306 Exhibit 23793-X0025, AP-AUC-2018SEP06-089(g). 307 Decision 22011-D01-2017, paragraph 321. 308 Decision 2014-169 (Errata), paragraph 468. 309 Decision 3577-D01-2016, paragraph 452.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 71
Electric Transmission will apply a first-year disallowance for 2015 and a glide path
reduction as set out in Section 6. ATCO Pipelines and ATCO Electric Transmission are
directed to file their compliance applications to this decision in the compliance filings to
their ongoing GRA/GTAs, clearly showing the directed IT disallowance on an annual
basis by capital, indirect capital and O&M.310
337. Upon receipt of the compliance filing to this decision, the Commission will evaluate the
approved rates multiplied by forecast IT volumes to determine the costs that will be approved for
inclusion in ATCO Pipelines’ revenue requirement. The IT costs for ATCO Pipelines will then
be finalized and included in the revenue requirement and rates.311 ATCO Pipelines is directed to
file Excel spreadsheets, with workable formulas, to support the true-up of IT placeholder
amounts arising from the calculation of forecast IT volumes multiplied by the approved IT rates
from Decision 20514-D02-2019.
338. The Commission denies ATCO Pipelines’ request to use the average annual cost per IT
user instead of the current methodology for calculating IT costs because the Commission finds
that both volume information and rates are required to calculate IT costs properly. However, the
Commission sees some value in exploring a supporting metric in combination with the existing
practice requiring ATCO Pipelines’ to file schedules of IT volumes. The Commission directs
ATCO Pipelines to provide average annual cost per IT user calculations as a metric to support
forecast IT costs in its next GRA.
9 Return on rate base
339. Return on rate base is calculated after determining the utility’s capital structure, and is
comprised of long-term debt, preferred shares, and common equity components. ATCO Pipelines
noted that it is not forecasting the issuance of any preferred shares in the test period.312
340. On August 2, 2018, the Commission issued Decision 22570-D01-2018,313 the 2018
GCOC decision. In its decision, the Commission approved a rate of ROE for ATCO Pipelines of
8.5 per cent for 2019 and 2020. The Commission also approved ATCO Pipelines’ capital
structure of 37 per cent equity and 63 per cent debt for 2019 and 2020.314
9.1 Return on equity and capital structure
341. ATCO Pipelines indicated that in the schedules to its application it had included a
placeholder of 8.5 per cent for its ROE for 2019 and 2020 and a common equity ratio
placeholder of 37 per cent for 2019 and 2020.
Commission findings
342. The Commission finds there is no change required to ATCO Pipelines’ ROE and capital
structure placeholders as the amounts approved in Decision 22570-D01-2018 are the same as
those applied-for by ATCO Pipelines in the current proceeding. The Commission approves
310 Decision 20514-D01-2019, paragraph 398. 311 See Decision 20514-D02-2019, paragraph 19. 312 Exhibit 23793-X0001, application, PDF page 66. 313 Decision 22570-D01-2018: 2018 Generic Cost of Capital, Proceeding 22570, August 2, 2018. 314 Decision 22570-D01-2018: paragraph 4, Table 1.
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72 • Decision 23793-D01-2019 (June 25, 2019)
ATCO Pipelines’ ROE of 8.5 per cent and its capital structure of 37 per cent equity and 63 per
cent debt on a final basis for both 2019 and 2020.
9.2 Costs associated with long-term debt
343. ATCO Pipelines forecast a 2019 long-term debt issuance of $215,000,000 at 4.34 per
cent and a 2020 long-term debt issue of $90,000,000 at 4.74 per cent. ATCO Pipelines noted that
its forecast cost of new debt was derived using the methodology approved in Decision 3577-
D01-2016 whereby the Consensus Forecast is used.315
344. The tables below show ATCO Pipelines’ debt rate forecast:
Table 27. ATCO Pipelines’ 2019 debt rate forecast
2019 Forecast debt rates (%)
Consensus forecast, 10-year GOC
April 2018 2.40
April 2019 2.70
2019 mid-year 10-year GOC proxy (A) 2.55 2.55
10- to 30-year GOC bond yield differential (B) 0.34
30-year credit spread (C) 1.45
2019 forecast 30-year debt rate (A+B+C) 4.34
Source: Exhibit 23793-X0029, AP-UCA-2018SEP06-021(a).
Table 28. ATCO Pipelines’ 2020 debt rate forecast
2020 Forecast debt rates (%)
Consensus forecast, 10-year GOC
April 2019 2.70
April 2020 3.20
2020 mid-year 10-year GOC proxy (A) 2.95 2.95
10- to 30-year GOC bond yield differential (B) 0.34
30-year credit spread (C) 1.45
2020 forecast 30-year debt rate (A+B+C) 4.74
Source: Exhibit 23793-X0029, AP-UCA-2018SEP06-021(a).
345. ATCO Pipelines submitted that the most recent Consensus Forecast, published in April
2018, did not provide a December 2018 or a December 2019 forecast and as such, a mid-year
calculation for 2019 was not possible. Instead, ATCO Pipelines used the April 2018 and April
2019 as a proxy for the mid-year forecast. The 10-year to 30-year bond differential was
calculated as the average of the observed differential between the 10-year and 30-year
Government of Canada bond yield between April 17, 2017, and April 17, 2018. The credit
spread was an average of data points of CU Inc.’s316 actual and indicative spreads from 2017 to
2018.317
315 Exhibit 23793-X0001, application, PDF page 65. 316 ATCO Pipelines is a division of ATCO Gas and Pipelines Ltd., which is a wholly owned subsidiary of CU Inc.
CU Inc. is the entity that goes to market to raise debt for ATCO Gas and Pipelines Ltd. 317 Exhibit 23793-X0029, AP-UCA-2018SEP06-021(a).
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 73
346. In IRs the Commission asked ATCO Pipelines to update its debt rate forecast using the
most current rates and assumptions available. In its September 2018 responses to IRs, ATCO
Pipelines did not provide an update as a new Consensus Forecast was not yet available.318
347. On November 21, 2018, CU Inc. on behalf of ATCO Pipelines issued a 2018 debenture at
a rate of 3.95 per cent, which was nine basis points below its forecast rate of 4.04 per cent.
ATCO Pipelines noted that the CU Inc. 30-year credit spread was 152 basis points at the time of
this debenture issue.319
348. The CCA recommended that, should the Commission agree to eliminate the debt
debenture deferral account, then the approved debt rate for ATCO Pipelines should be no higher
than 3.75 per cent, which was based on using the 30-year risk free rate and CU Inc. credit
spreads to calculate a debt rate forecast.320
349. The UCA recommended that the debt rate forecast should incorporate updated yield
curve information to reflect recent flattening of the yield curve. The UCA argued that the spread
between the 10-year and 30-year bond yields had narrowed from the 0.34 per cent used by
ATCO Pipelines initially in the application, to 0.08 per cent observed over the period from
November 2017 to November 2018.
350. ATCO Pipelines submitted that the drop in the 10-year to 30-year yield differential
during 2017 and 2018 was abnormal and that the spread has begun to increase in recent months.
As of February 21, 2019, the spread was 26 basis points. Additionally, ATCO Pipelines argued
that the forecast 30-year CU Inc. credit spread has increased from 145 basis points to 150 basis
points in February 2019. ATCO Pipelines argued that this increase is reflective of the credit
spread achieved on CU Inc.’s most recent 30-year debenture issue in November 2018 that was
issued at a 30-year credit spread of 152 basis points.321
Commission findings
351. In Section 10.1.1 of this decision, the Commission denied ATCO Pipelines’ request to
discontinue its debt rate deferral account.
352. The Commission finds that ATCO Pipelines has prepared its debt rate forecasts using a
method consistent with what was approved in Decision 3577-D01-2016. The Commission fully
tested and approved this methodology in ATCO Pipelines’ 2015-2016 GRA. Consistent with the
Commission’s general practice, the Commission would normally direct ATCO Pipelines to
incorporate the most current yield curve information on the record of this proceeding when
determining what debt rate to use, as recommended by the UCA. In this case, the decrease of the
10-year to 30-year bond yield curve from 34 basis points,322 to 26 basis points323 is a decrease of
eight basis points, which is effectively offset by the increase in CU Inc.’s 30-year credit spread
318 Exhibit 23793-X0025, AP-AUC-2018SEP06-005(a). 319 Exhibit 23793-X0087, ATCO Pipelines evidence, paragraphs 80, 81 and 87. 320 Exhibit 23793-X0075, CCA evidence, paragraphs 29-31, and Exhibit 23793-X0091, CCA argument,
paragraph 86. 321 Exhibit 23793-X0090, ATCO Pipelines argument, paragraphs 87-88. 322 ATCO Pipelines initially applied for 34 basis points, calculated as the average of the observed differential
between the 10-year and 30-year Government of Canada bond yield between April 17, 2017, and April 17,
2018. 323 Spread as of February 21, 2019, as submitted by ATCO Pipelines in Exhibit 23793-X0090, paragraph 80.
2019-2020 General Rate Application ATCO Pipelines
74 • Decision 23793-D01-2019 (June 25, 2019)
of five basis points. The net change does not result in a substantive change to the debt rate
forecasts and therefore, the Commission approves ATCO Pipelines’ debt rate forecasts as filed.
10 Deferral accounts
353. ATCO Pipelines requested the continuation and settlement of reserve accounts and
deferral accounts and recommended that certain accounts be discontinued. ATCO Pipelines
provided a table of its deferral accounts, reproduced below:
Table 29. ATCO Pipelines’ proposed and existing deferral accounts
Deferral account Description Estimate to
December 2018 Requested settlement
($000)
Salt cavern working gas deferral
To collect the difference between the average cost of the salt cavern working gas inventory and the market price received when gas is sold for withdrawal purposes plus any related transaction costs.
1,013
Pension funding deferral
To collect the difference between actual pension payments made for the defined benefits pension plan including special payments, and the pension funding placeholder amounts approved in ATCO Pipelines’ 2017-2018 GRA. ATCO Pipelines is seeking to discontinue this deferral account, effective January 1, 2019, as it no longer meets the criteria for deferral account treatment.
(269) (269)
Variable pay program deferral
To collect the difference between actual and approved VPP charged to operations plus the net revenue requirement impact on the variance between actual and approved VPP charges to capital accounts. ATCO Pipelines is seeking symmetrical treatment of this deferral account, to be effective January 1, 2019.
(1,176) (1,176)
Debenture rate deferral
To capture the difference between actual and approved financing costs, resulting from actual interest rates that were different from those approved. ATCO Pipelines is seeking to discontinue this deferral account, effective January 1, 2019, as it no longer meets the criteria for deferral account treatment.
(1,833) (1,833)
NGTL directed growth deferral
To capture revenue requirement impacts of variance between approved forecast and actual major growth capital projects directed by NGTL. ATCO Pipelines is seeking to discontinue this deferral account, effective January 1, 2019, as it no longer meets the criteria for deferral account treatment.
46 46
Reserve for regulatory costs To capture the difference between actual and forecast AUC operating fees and to recover Commission approved hearing costs.
(66)
Reserve for injuries and damages
To fund injuries and damages expenses. (422)
Total recovery (2,707) (3,232)
Source: Assembled from Exhibit 23793-X001, application, Section 5.1, Table 5.1-1, PDF pages 124-131.
354. ATCO Pipelines proposed to settle the cumulative net deferral refund of $3,232,000 as a
one-time adjustment to ATCO Pipelines’ monthly revenue requirement immediately after the
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Decision 23793-D01-2019 (June 25, 2019) • 75
Commission approves ATCO Pipelines’ compliance filing. ATCO Pipelines noted that any
differences in the deferral balances arising from December 31, 2018 actual amounts would be
addressed at the time of the compliance filing for this application.324
355. No interveners addressed the deferral account settlement in evidence, argument or reply.
Commission findings
356. The Commission has reviewed ATCO Pipelines’ calculations of its deferral amounts and
approves the values listed in Table 29 above. The Commission accepts ATCO Pipelines’
proposal to include any differences in the deferral balances arising from December 31, 2018
actual amounts in its compliance filing. ATCO Pipelines is directed to provide a table similar to
Table 5.1-1 in its compliance filing showing any adjustment, if necessary, to its deferral
amounts.
357. The Commission finds that ATCO Pipelines’ proposal to settle deferral account balances
as a one-time adjustment to be reasonable and consistent with past treatment for the deferral
accounts approved by the Commission.
10.1 Discontinuation of deferral accounts
358. ATCO Pipelines requested the removal of the following three deferral accounts stating
that they no longer meet the criteria for deferral account treatment established by the
Commission in Decision 2003-100:
Debenture rate deferral
Defined benefit pension deferral
NGTL directed growth deferral
359. ATCO Pipelines’ requests to remove these deferral accounts are discussed in sections
10.1.1 to 10.1.3 below.
10.1.1 Debenture rate deferral account
360. In Decision 2013-430, the Commission directed ATCO Pipelines to establish a deferral
account for the settlement of differences between approved and actual long-term debenture rates.
The rationale at that time, as stated by the Commission in its decision, was that “The evidence on
the record regarding 2009-2012 demonstrates that ATCO Pipelines’ forecast debt rates have been
above actual debt rates by a material amount. This indicates an ongoing tendency to err on the
side of overestimation to protect the utility and customers from likely interest rate forecast errors
and uncontrollable risk, the Commission finds that a deferral account for debenture rates should
be established for the test period, consistent with Decision 2013-358.”325
361. In its application, ATCO Pipelines requested the discontinuation of this deferral account
effective January 1, 2019, because in ATCO Pipelines’ view, it no longer meets the criteria for
deferral account treatment. ATCO Pipelines stated that the variances between approved and
324 Exhibit 23793-X0001, application, PDF pages 125-126. 325 Decision 2013-430: ATCO Pipelines, 2013-2014 General Rate Application, Proceeding 2322,
Application 1609158, December 4, 2013, paragraph 220.
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actual debenture rates are not material for the test period. ATCO Pipelines provided the
following table showing the estimated over recovery of 2017 and 2018 debenture costs:
Table 30. ATCO Pipelines’ 2018 debenture rate deferral
2017 Actuals
2018 Estimate
Balance to settle
Approved embedded cost of debt 4.91% 4.82%
Actual embedded cost of debt 4.85% 4.70%
Approved mid-year debt balances $961,194 $1,102,537
Difference (549) (1,251)
Carrying costs (6) (27)
Net (over)/under recovery (555) (1,278)
Cumulative (over)/under recovery (555) (1,833) (1,833)
Source: Exhibit 23793-X0001, application, Table 5.1-5, PDF page 130.
362. In Decision 3577-D01-2016, the Commission directed a revised methodology for
developing forecast long-term debenture rates. ATCO Pipelines explained that the currently
approved methodology results in forecasts that are not materially different from actual debenture
rates.326
363. In support of this position, ATCO Pipelines stated that since the establishment of the
debenture rate deferral account, the materiality of differences between forecast and actual debt
rates has declined. The variance between forecast and actual debt rates during the years 2009-
2012, which prompted the Commission to establish the deferral account, ranged from 241 to 319
basis points.327 The debt rate forecasting methodology approved in Decision 3577-D01-2016,
relies upon third-party outputs, such as the Consensus Forecast report. This methodology has
resulted in improved forecasting of debt rates. The average variance since the adoption of the
methodology has been 39 basis points, which is significantly less than the variance identified for
the 2009-2012 period, and results in variances that are no longer material.328
364. ATCO Pipelines explained that while there are some factors that are beyond the utility’s
control, such as market conditions, there are other factors that ATCO can control to manage its
debt costs. Specifically, ATCO Pipelines notes that it has ability to control the timing of when it
goes to market to secure debt at optimal rates. In this regard, the discontinuance of the deferral
account will appropriately place forecast risk for long-term debt rates on the utility and incent it
to manage these costs.329
365. In argument, the UCA stated that the debenture rate deferral account should be
maintained.330 In his evidence Mr. Bowman commented, that while forecasting has improved
since the adoption of the new methodology of using a Consensus Forecast, both forecast basis
points for actual debt rates and debt cost variances between approved and actual remain material.
In addition, if the deferral account had not been in place, then ATCO Pipelines would have
earned an additional $2,257,000 cumulatively in the years 2016-2018. Mr. Bowman added that
326 Exhibit 23793-X0001, application, PDF page 12. 327 Exhibit 23793-X0090, ATCO Pipelines reply argument, paragraph 99. 328 Exhibit 23793-X0090, ATCO Pipelines reply argument, paragraph 100. 329 Exhibit 23793-X0025, AP-AUC-2018SEP06-004(a-b). 330 Exhibit 23793-X0093, UCA argument, paragraph 86.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 77
ATCO Pipelines is undertaking significant debenture issues ($215,000,000 in 2019) and any
variance differences will have larger ramifications.331
Commission findings
366. In response to IRs, ATCO Pipelines provided the following table showing approved
amounts, actual amounts and any over-recovery or under-recovery in its debt deferral account for
the years from 2014 to 2018:
Table 31. ATCO Pipelines’ 2014 to 2018 debenture rate variances and deferral account recoveries
Debenture rate DA 2011 2012 2013 2014 2015 2016 2017 2018
Forecast debt rate (%)
7.00 7.00 4.30 5.00 5.00 5.75 4.02 4.62
Approved debt rate (%)
7.00 7.00 4.30 5.00 3.96 4.21
4.29 4.16 4.46
Actual/projected debt rate (%)
4.54 4.59
3.81 3.83 3.86
4.72 4.09 3.96 4.21
3.76 3.54 4.04
(Over)/under recovery ($000)
N/A N/A 140 (120) - (424) (555) (1,278)
Debt rate variance (%) (actual – approved)
(2.46) (2.41)
(3.19) (3.17) (3.14)
0.42 (0.91) 0.00 (0.53) (0.62) (0.42)
Source: Exhibit 23793-X0025, AP-AUC-2018SEP06-004.
367. The Commission agrees with ATCO Pipelines that since the establishment of the debt
rate forecasting methodology approved in Decision 3577-D01-2016, the differences between its
forecast and actual debt rates has declined. The Commission finds, however, that ATCO
Pipelines’ debt rate forecasts continue to overestimate debt rates as shown in Table 31 above,
and finds this overestimation to be material for the test years. Accordingly, the Commission
denies ATCO Pipelines’ request to discontinue its debt rate deferral account.
10.1.2 Defined benefit pension deferral account
368. Consistent with Decision 22986-D01-2018332, ATCO Pipelines has maintained the
defined benefit pension costs deferral account to collect the difference between actual pension
payments made for the defined benefits pension plan, including special payments, as well as the
pension funding placeholder amounts approved in ATCO Pipelines’ 2017-2018 GRA.333 In a
compliance filing to Decision 22011-D01-2017, the Commission directed the continuation of the
deferral account for the 2017-2018 test period.
369. ATCO Pipelines requested approval to discontinue this deferral account effective
January 1, 2019, as it no longer meets the criteria for deferral account treatment.334 ATCO
Pipelines stated that its GRA forecast is based upon the most recent pension funding evaluation
331 Exhibit 23793-X0074, evidence of Mr. Bowman on behalf of the UCA, PDF page 53. 332 Decision 22986-D01-2018, paragraph 98. 333 Exhibit 23793-X0001, application, PDF page 128. 334 Exhibit 23793-X0001, application, PDF page 128.
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78 • Decision 23793-D01-2019 (June 25, 2019)
filed in June 2018,335 and therefore it is able to forecast future amounts accurately during the test
period.336
370. ATCO Pipelines provided the following table showing the estimated over recovery of
pension costs:
Table 32. ATCO Pipelines’ 2018 pension funding deferral account
2017 actuals 2018 estimate Balance to settle
($000)
Charging to Operating Costs
Actual/estimate 973 725
Approved placeholder 975 975
(2) (250)
Charging to capital
Actual/estimate 1,101 819
Approved 1,099 1,099
2 (280)
Revenue requirement impact 0 (13)
Carrying charges (0) (4)
Net (over)/under recovery (2) (267)
Cumulative (over)/under recovery (2) (269) (269)
Source: Exhibit 23793-X0001, application, Table 5.1-3, PDF page 128.
371. In response to a Commission IR, ATCO Pipelines stated that the materiality of
settlements for this deferral account has declined because entry into ATCO Pipelines’ defined
benefit pension plan ended in 1997, the number of active participants in the plan is declining and
will continue to do so, and given the stability of pension fund performance. Table 33 below
shows the variances and deferral account recoveries:337
Table 33. ATCO Pipelines’ 2014 to 2018 defined benefit pension variances and deferral account recoveries
Defined benefit pension DA
2014 2015 2016 2017 2018
($000)
Forecast (per respective GRA)
2,192 1,412 1,412 975 975
Approved funding (operating costs)
2,192 1,298 1,244 975 975
Actual funding (operating costs)
1,596 1,298 1008 973 725
(596) - (236) (2) (250)
Rev req impact of capital (37) - (10) - (13)
Carrying charges - (15) (17) - (4)
(Over)/under recovery (633) (15) (263) (2) (267)
Cumulative settlement (911) (269)
Source: Exhibit 23793-X0025, AP-AUC-2018SEP06-004(a-b).
335 See AP-CCA-2018SEP06-012(a) Attachment for the most recent pension valuation. 336 Exhibit 23793-X0001, application, PDF page 13. 337 Exhibit 23793-X0025, AP-AUC-2018SEP06-004(a-b).
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Decision 23793-D01-2019 (June 25, 2019) • 79
372. ATCO Pipelines submitted that the stability of the pension fund performance in recent
years is further demonstrated by the following table:
Table 34. Market value of ATCO Pipelines defined benefit pension fund
2014 2015 2016 2017
January 1 $2,158,418 $2,445,615 $2,573,672 $2,595,864
December 31 $2,445,615 $2,573,672 $2,595,864 $2,695,206
Rate of return net of expenses
15.00% 7.35% 4.55% 6.65%
Source: Exhibit 23793-X0025, AP-AUC-2018SEP06-004(a-b).
373. ATCO Pipelines stated that its methodology for forecasting pension funding relies on
pension funding actuarial valuations. In accordance with pension legislation, ATCO is required
to undertake periodic pension evaluations and file with the appropriate regulatory body. ATCO
Pipelines further noted that the forecast risk for pension funding should be borne by the utility in
order to provide incentives for the utility to best manage these costs as it would any other cost
that is not subject to a deferral account.338
374. In its evidence, the CCA stated that when a deferral account is discontinued it creates
incentives around forecasting including an incentive to game the forecast. The CCA stated that
ATCO Pipelines is forecasting flat pension expenditures despite five years of falling costs and it
appears that ATCO Pipelines may be incented to overstate costs. The CCA indicated that if
ATCO Pipelines’ request is granted, there should be symmetrical treatment through a
Commission direction that (a) ATCO be responsible for any deficit at the end of the test period
or (b) ATCO Pipelines’ decision to abandon the deferral account be considered permanent.339
375. In argument, the CCA recommended that if the Commission approves ATCO Pipelines’
request to remove the pension deferral account, then ATCO Pipelines should be responsible for
any gains or losses in the test period.340
376. ATCO Pipelines responded that the CCA provided no arguments suggesting that ATCO
Pipelines should not be permitted to discontinue the deferral account, other than to assert that “it
appears that ATCO may be acting upon the incentive to overstate costs.” ATCO Pipelines
asserted that this statement is “unsubstantiated” and the CCA’s assertions to the contrary should
be disregarded.341
377. With respect to ATCO Pipelines being “responsible for any gains or losses which are
attributable to the test period,” if the deferral account were to be discontinued, ATCO Pipelines
responded by stating that:
… The Pension Funding valuations are conducted with the purpose of determining future
funding requirements as required by prevailing pension legislation given the financial
position of the plan at that time. For example, the valuation conducted as of
December 31, 2017 determines the contribution requirements for 2018, 2019 and 2020
and has no impact on contributions prior to the valuation date. Plan experience prior to
the valuation date will have an impact on future funding requirements however
338 Exhibit 23793-X0025, AP-AUC-2018SEP06-004(a-b) 339 Exhibit 23793-X0075, CCA evidence, paragraphs 40-57. 340 Exhibit 23793-X0091, CCA argument, paragraph 200. 341 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraphs 154-155.
2019-2020 General Rate Application ATCO Pipelines
80 • Decision 23793-D01-2019 (June 25, 2019)
attempting to calculate the impact on future years’ funding requirements is not
appropriate. For example, if actual performance of the pension fund during the test period
was favorable with the result that future funding was reduced, it would not be appropriate
to expect customers to pay for higher pension funding as if that actual favorable
performance did not occur. AP would be responsible for providing funding forecasts in
subsequent GRAs, which will be tested and approved by the Commission. [emphasis in
original]342
378. ATCO Pipelines argued that the Commission should dismiss the CCA’s request and with
the discontinuance of its deferral account, should treat forecast defined benefit pension funding
as any other forecast included in ATCO Pipelines’ applications.343
Commission findings
379. The Commission has reviewed the evidence regarding defined benefit pension costs
including Table 33 above. The Commission continues to find defined benefit pension over-
recoveries to be significant. Table 33 confirms an over-recovery of $1,180,000 over the period
from 2016 to 2018. The Commission finds that ATCO Pipelines’ defined benefit pension GRA
placeholder amounts continue to overestimate actual defined benefit pension costs. Accordingly,
the Commission is persuaded that ATCO Pipelines’ defined benefit pension deferral account
continues to be required. The Commission denies ATCO Pipelines’ request to discontinue this
deferral account.
10.1.3 NGTL directed growth deferral account
380. In Decision 2013-430,344 the Commission approved the NGTL directed growth deferral
account to capture the revenue requirement impact of major growth capital projects directed by
NGTL and requiring NGTL authorization in the test year of the forecast at the time of the
application.345 At the time that the deferral account was approved, ATCO Pipelines maintained
that the deferral account was appropriate as ATCO Pipelines was unable to reasonably forecast
the need for NGTL-directed capital expenditures, in advance of receiving a decision summary
from NGTL. In addition, outside of a forecast test year period, ATCO Pipelines stated that it had
no ability to collect revenue to recover the costs of both constructing and operating the
facilities.346
381. ATCO Pipelines indicated that over the past six years leading up to this application, it has
worked closely with NGTL in the development of directed growth projects within ATCO
Pipelines’ footprint. As such, ATCO Pipelines explained that it is now able to forecast NGTL-
directed growth projects to a higher degree of accuracy. Furthermore, ATCO Pipelines has found
that projects that unexpectedly arise and are completed within a two-year test period are not
generally material in nature. Therefore, ATCO Pipelines stated that expenditures no longer meet
the criteria for deferral account treatment.
342 Exhibit 23793-X0033, AP-CCA-2018SEP06-012(d). 343 Exhibit 23793-X0097, ATCO Pipelines reply argument, PDF pages 51-52. 344 Decision 2013-430: ATCO Pipelines, 2013-2014 General Rate Application, Application 1609158,
Proceeding 2322 December 4, 2013; 345 Exhibit 23793-X0001, application, PDF page 131. 346 Exhibit 23793-X0001, application, PDF page 12.
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Decision 23793-D01-2019 (June 25, 2019) • 81
382. In the application, ATCO Pipelines has requested to discontinue the NGTL directed
growth deferral account, effective January 1, 2019. ATCO Pipelines provided the following table
to show the proposed settlement of the NGTL directed growth deferral account.347
Table 35. NGTL directed growth deferral account
2017 Actuals
2018 Estimate
Balance to settle
($000)
Revenue requirement impacts
Redwater cogen delivery #2 0 1,065
Revenue requirement impacts 0 45
Carrying costs 0 1
Net (over)/under recovery 0 46
Cumulative (over)/under recovery 0 46 46
Source: Exhibit 23793-X0003, application, Table 5.1-6, PDF page 131.
383. The following table was provided by ATCO Pipelines to demonstrate that variances have
not been material:
Table 36. NGTL directed growth deferral account materiality
NGTL Directed Growth DA 2014 2015 2016 2017 2018
($000)
Approved forecast capital 3,105 3,099 42,917 - -
Actual capital 14,375 3,506 28,297 - 1,065
Capital variance 11,270 407 (14,620) - 1,065
Revenue requirement impact 293 17 (851) - 45
Carrying charges - - (9) - 1
(Over)/under recovery 293 17 (861) - 46
Cumulative deferral account settlement 249 (844) 46
Source: Exhibit 23793-X0025, AP-AUC-2018SEP06-004(a-b).
384. With respect to uncertainty regarding the accuracy and ability to forecast the deferral
account amount, ATCO Pipelines stated that at the outset of integration with NGTL,348 it was
unclear how frequently and to what extent projects unknown to ATCO Pipelines at the time of a
GRA submission would subsequently arise. After seven years, ATCO Pipelines takes assurance
that projects which have the ability to arise in a short timeframe and require commissioning
inside of a previously applied-for test period are small (i.e., under $15,000,000) and as such,
have an immaterial impact to revenue requirement. On the other hand, ATCO Pipelines indicated
that projects that potentially have a material impact on revenue requirement are large (over
$15,000,000), have much longer lead times, and would unlikely arise in a short enough manner
to impact the previously applied-for test period.
385. ATCO Pipelines stated that it would continue to work closely with NGTL in the initial
assessment of facilities required to serve a customer-expressed interest. As a result, ATCO
Pipelines would not characterize said projects as being outside of its control any more than they
were prior to integration with NGTL. ATCO Pipelines further stated that its forecasting
347 Exhibit 23793-X0001, application, PDF pages 12-13. 348 In October 2011.
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82 • Decision 23793-D01-2019 (June 25, 2019)
methodology relies upon historical averages and that there is no exceptional risk inherent in this
particular category that supports the need for a deferral account.349
386. No intervener raised any issues with ATCO Pipelines’ request.
Commission findings
387. The Commission has evaluated the request to discontinue this existing deferral account
based on the following established criteria from Decision 2003-100: materiality; uncertainty in
cost forecasts; factors beyond the utility’s control; and, risk to the utility, while ensuring costs
and benefits are symmetrically applied to the utility and customers.350 The data provided in
Table 36 shows that since 2014 the settlement amounts in this deferral account have generally
not been material. The Commission finds that this account no longer meets the test for deferral
account treatment because it no longer meets the materiality criterion in the deferral account test
from Decision 2003-100. For these reasons, the Commission approves ATCO Pipelines’ request
to discontinue the NGTL deferral account and directs ATCO Pipelines to confirm the settlement
of the account in its compliance filing.
11 Responses to previous Commission directions
388. In Section 6.1 of its application,351 ATCO Pipelines provided an update to the status of 16
directions originating from three separate decisions. ATCO Pipelines responded to these
directions or identified the future proceeding in which it would address each direction, either on
a one-time or on an ongoing basis. The Commission addresses the 16 directions below by
reference to the decision in which the direction was issued.
Commission direction from Decision 2014-010 (paragraph 300, no direction number)
389. With respect to paragraph 300 of Decision 2014-010, for the Urban Pipeline Replacement
Project, the Commission finds that ATCO Pipelines has complied with the Commission’s
direction to provide an update on the timing and cost of its UPR project by providing the
information found in Section 2.3.1 within its application. The Commission acknowledges ATCO
Pipelines’ commitment to continue to provide similar updates in the future on any material UPR
changes on an ongoing basis consistent with paragraph 300 of Decision 2014-010 and it is
directed to provide this information in its future GRAs.
Commission direction from Decision 3577-D01-2016 (directions 18 and 22)
390. With respect to Direction 18,352 the Commission finds that ATCO Pipelines has complied
with the Commission’s direction to file all forecast IT volume data for the test period and actual
volumes from the previous test period. The Commission finds that ATCO Pipelines provided the
information requested in Direction 18 in its 2019-2020 GRA. The Commission acknowledges
349 Exhibit 23793-X0025, AP-AUC-2018SEP06-004(a-b). 350 Decision 2000-9 at page 148, stated the following with respect to symmetry: “The Board agrees that the use of
deferral accounts should not be for the sole benefit of either the Company or the customers. Rather they should
provide a degree of protection to both the Company and the customer from circumstance beyond their control.
The Board expects that the individual mechanisms involved in the use of each deferral account should be
applied in a consistent and fair manner in both test years and non-test years. Symmetry must exist between costs
and benefits for both the Company and its customers.” 351 Exhibit 23793-X0001, application, Section 6.1 – Responses to Commission Directions, PDF pages 132-136. 352 Decision 3577-D01-2016, paragraph 452.
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Decision 23793-D01-2019 (June 25, 2019) • 83
ATCO Pipelines’ commitment to continue to provide similar information in all future GRAs on
an ongoing basis consistent with Direction 18 of Decision 3577-D01-2016 and directs ATCO
Pipelines to provide this information in its future GRAs.
391. With respect to Direction 22, where the Commission directed ATCO Pipelines to identify
and explain costs resulting from Surface Rights Board claims and whether the costs should be
recovered through the reserve for injuries and damages, the Commission acknowledges ATCO
Pipelines’ statement that there are no Surface Rights Board claims to adjust for in the test period.
The Commission further acknowledges ATCO Pipelines’ commitment to address Direction 22 at
the time it makes its next application to recover Surface Rights Board claims, legal, or other
related costs. ATCO Pipelines is directed to address Direction 22 of Decision 3577-D01-2016 in
its future GRAs.
Commission directions from Decision 22011-D01-2017
392. The Commission examined ATCO Pipelines’ responses to the 13 outstanding directions
(directions 1, 2, 3, 4, 12, 16, 21, 22, 23, 26, 28, 29 and 36) from Decision 22011-D01-2017.
393. The Commission finds that directions 26, 28, 29 and 36 from Decision 22011-D01-2017
remain outstanding and are to be addressed in ATCO Pipelines’ future GRAs.
394. Based on the information and responses in ATCO Pipelines’ application, the Commission
considers that ATCO Pipelines has complied with directions 1, 2, 3, 12, 16, and 21 from
Decision 22011-D01-2017.
395. In the sections that follow, the Commission addresses three remaining directions,
directions 4, 22 and 23, from Decision 22011-D01-2017 that require specific findings on ATCO
Pipelines’ compliance with these individual directions.
11.1 ATCO Pipelines response to Direction 4
396. Direction 4 of Decision 22011-D01-2017 stated:
4. The Commission approves, in this proceeding, ATCO Pipelines’ forecast ECDA
[external corrosion direct assessment] and ILI capital expenditures because the
inspections are a proactive initiative designed to detect areas of the pipeline susceptible to
future defects in transmission pipeline. However, the Commission notes that the CCA
argued that capitalization of ECDA and ILI costs should be treated as expense items as
the inspections themselves do not extend the life of the pipeline asset nor is capitalization
of these costs consistent with industry norms. As such, the Commission directs ATCO
Pipelines, in its next GRA:
• To survey and summarize the practices of other North American regulated pipeline
companies to establish if ILI costs are capitalized or expensed.
• Clarify why ECDA costs should be capitalized based on ATCO Pipelines’
capitalization policy.
397. In the application, ATCO Pipelines stated that the capitalization of major inspection and
overhaul costs was tested and approved by the Commission in Decision 2013-430353 and
353 Decision 2013-430: ATCO Pipelines, 2013-2014 General Rate Application, Application 1609158,
Proceeding 2322, December 4, 2013.
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84 • Decision 23793-D01-2019 (June 25, 2019)
Decision 2014-162.354 ATCO Pipelines sought this revised accounting treatment in its 2013-2014
GRA as a result of the implementation of International Financial Reporting Standards (IFRS).355
398. ATCO Pipelines stated that it is unable to affirm the accounting practices for “ILI costs”
specifically on behalf of regulated pipeline companies in North America. ATCO Pipelines did,
however, undertake an internet search for capitalization of “Major Inspections and Overhauls”
on the public record. ATCO Pipelines provided a list of regulated pipeline companies and
utilities that capitalize major inspections and overhauls:356
ATCO Pipelines
Terasen Gas (Vancouver Island) Inc.
ENMAX
EPCOR Utilities Inc.
FortisAlberta Inc.
Hydro Ottawa Holding Inc.
New Brunswick Power
Newfoundland and Labrador Hydro
SaskEnergy
Yukon Energy
399. ATCO Pipelines also noted that IFRS standard, IAS 16.14 (January 2010), states:
A condition of continuing to operate an item of property, plant and equipment (for
example, an aircraft) may be performing regular major inspections for faults regardless of
whether parts of the item are replaced. When each major inspection is performed, its cost
is recognised in the carrying amount of the item of property, plant and equipment as a
replacement if the recognition criteria are satisfied. Any remaining carrying amount of
the cost of the previous inspection (as distinct from physical parts) is derecognised. This
occurs regardless of whether the cost of the previous inspection was identified in the
transaction in which the item was acquired or constructed. If necessary, the estimated
cost of a future similar inspection may be used as an indication of what the cost of the
existing inspection component was when the item was acquired or constructed.
400. The Ontario Energy Board adopted this practice when it included the above IAS
definition in its Accounting Procedures Handbook for Electricity Distributors.357
401. Contrary to the CCA’s assertions, ATCO Pipelines stated in response to AP-CCA-
2018SEP06-031 that “ECDA … should be capitalized and treated as a major inspection because
it aligns with the clarification provided by the IFRS Institute.”358 Specifically, because ECDA
354 Decision 2014-162: ATCO Pipelines 2013-2014 Revenue Requirement Compliance Filing to Decision 2013-430,
Application 1610269-1, Proceeding 3037, June 10, 2014. 355 Exhibit 23793-X0001, application, PDF page 137. 356 Exhibit 23793-X0001, application, PDF page 138. 357 Exhibit 23793-X0001, application, PDF page 140. 358 Exhibit 23793-X0033, AP-CCA-2018SEP06-031(a-b), PDF page 270.
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Decision 23793-D01-2019 (June 25, 2019) • 85
occurs at regular intervals over the life of an asset that lasts more than one period, it would be
considered a major expenditure and capitalized in accordance with IFRS.359 Further, ECDAs do
result in extended life. In response to AP-CCA-2018SEP06-031(h), ATCO Pipelines described
its own ECDA inspections and explained how those inspections result in extended life, stating:
“AP has completed ECDA inspections in the past that have resulted in a portion of a licensed
pipeline to be cut-out and replaced and, not an entire asset. The cut-out and replacement of a
specific defect on a portion of a pipeline segment clearly extends the life of the remaining
asset.”360
402. ATCO Pipelines submitted that the evidence on the record of this proceeding supports the
capitalization of ILI and ECDA expenditures.
CCA
403. The CCA asserted it is not credible that, given its industry contacts and committee
positions, ATCO Pipelines is unable to contact and survey the accounting groups in other
pipeline companies to develop a consensus on the capitalization of ILI. The absence of industry
contacts to date points strongly to the conclusion that it is not common practice to capitalize
these expenditures.361
404. The CCA argued that there is no evidence that ECDA provides an extension of the useful
life of the asset as would be realized in a compressor overhaul or engine refurbishment. Further,
the CCA asserted that ATCO Pipelines had provided no credible support that the practice of
ECDA should be considered a major inspection, nor had it attempted to determine what
constituted pipeline industry accounting practice. The CCA said there was no evidence that any
pipeline company outside of ATCO Pipelines that capitalizes ILI or ECDA inspections. The
CCA contended that the burden should be on the applicant to demonstrate that its practice is
consistent with industry convention. The CCA considered that ATCO Pipelines had not met the
wording, nor the intent of Commission Direction 4 from Decision 22011-D01-2017 and that
ATCO Pipelines should be directed to transfer ILI and ECDA inspections from a capital
expenditure to an O&M expense.362
Commission findings
405. The Commission finds that ATCO Pipelines has adequately explained the rationale for
capitalizing its ILI. Although ATCO Pipelines was unable to confirm that ILI costs were
capitalized by other pipeline operators, the Commission accepts that ILI can be considered a
major inspection and that capitalization of ILI costs aligns with the cost treatment applied by the
other regulated pipeline companies and utilities referenced in paragraph 398 of this decision.
406. The Commission is also of the view that ATCO Pipelines has adequately explained that
capitalization of ECDA is consistent with IFRS and accepts ATCO Pipelines’ statement that
ECDA inspections occur at regular intervals that extend the useful life of an asset. The
Commission does not consider that there is sufficient information or evidence to support that ILI
and ECDA should be treated as an O&M expense.
359 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 109. 360 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 110. 361 Exhibit 23793-X0091, CCA argument, paragraphs 49-50. 362 Exhibit 23793-X0091, CCA argument, paragraphs 60-61.
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86 • Decision 23793-D01-2019 (June 25, 2019)
407. For these reasons, the Commission is satisfied that ATCO Pipelines has adequately
justified the capitalization of ILI and ECDA inspection costs, and as such, has complied with
Direction 4.
11.2 ATCO Pipelines’ response to Direction 22
408. Direction 22 of Decision 22011-D01-2017 stated:
22. The Commission finds merit in the CCA’s concern and related recommendation and
therefore directs ATCO Pipelines to provide the requested cost of removal
information (as being what has been collected and what has been expended, each on a
total cumulative basis) at the time of its next GRA. The cost of removal information
will be required for a single account, Account 465.00 – transmission plant – mains.
After examining the data, the Commission will make a subsequent determination
with respect to ATCO Pipelines’ remaining plant accounts and whether similar cost
of removal information for those accounts will be required.
409. In its application, ATCO Pipelines provided the information directed by the Commission
indicating that between 1958 and 2017, on a cumulative basis, there had been $34,500,000
collected in negative net salvage through depreciation rates and $70,200,000 expended in cost of
removal efforts.
410. The UCA questioned the manner in which the life-to-date net salvage and cost of removal
data had been collected and whether ATCO Pipelines could link this information to any specific
causes of retirement or salvaging events for the years 2016 and 2017.
411. ATCO Pipelines responded that it collected the $34,500,000 in negative net salvage
through its depreciation provision by applying the approved net salvage rate to the opening
original cost balance for that period. It based the cost of removal on actual expenditures, and
where applicable, offset it by any gross salvage received for the retired assets. ATCO Pipelines
clarified that is does not maintain detailed information on the nature and cause of its historical
retirements and removal costs; they are reflective of ongoing infrastructure and upgrade
activities.363
Commission findings
412. The Commission observes that parties generally, did not rely on this information in their
submissions and finds that the cost of removal information was of limited use in evaluating
Account 465.00. Therefore, the Commission will not direct ATCO Pipelines to provide similar
data in its next depreciation study or GRA. For the purposes of this application, ATCO Pipelines
complied with Direction 22 by providing the cost of removal for Account 465.00 and no further
direction is required.
11.3 ATCO Pipelines’ response to Direction 23
413. Direction 23 of Decision 22011-D01-2017 stated:
23. The Commission directs ATCO Pipelines to provide as part of all future rate
applications where either a depreciation study or technical update to a depreciation
study has been submitted, detailed depreciation expense calculations on the basis of
363 Exhibit 23793-X0029, AP-UCA-2018SEP06-030, PDF pages 99-101.
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Decision 23793-D01-2019 (June 25, 2019) • 87
both approved methodologies and depreciation parameters (and corresponding rates)
and proposed methodologies and depreciation parameters (and corresponding rates).
414. The Commission examined the detailed depreciation expense workbook364 submitted by
ATCO Pipelines in response to Direction 23 and finds that in general, ATCO Pipelines has
complied with the direction.365 However, in Section 7.1 of this decision, the Commission
provides further clarification and guidance as to the level of detail required to be submitted by
ATCO Pipelines, on an ongoing basis, with respect to the detailed depreciation expense
calculations, as directed in Direction 23.
12 Other matters
12.1 Corporate costs (head office rent)
415. As shown in Table 4.2.2-1 of the application, ATCO Pipelines provided ATCO Group
costs of $6,629,000 in 2019 and $6,829,000 in 2020, respectively.366
416. In argument, the CCA identified an issue concerning head office rent associated with the
opening of the new ATCO Park building and stated that in the interest of regulatory efficiency, it
proposed to address head office rent issues in the current ATCO Electric Transmission 2018-
2019 GTA proceeding (Proceeding 22742). The CCA recommended that costs be applied on a
pro-rata basis to this proceeding.367
417. In response, ATCO Pipelines stated that it is procedurally unfair to apply the issues
raised by the CCA with respect to head office rent in Proceeding 22742 on a pro-rata basis to
ATCO Pipelines. ATCO Pipelines submitted that by raising this issue and introducing the
request for placeholder treatment of costs in argument rather than in evidence, the CCA had
deprived AP of its opportunity to respond.368
Commission findings
418. Given that the issue of head office rent was not tested in the current proceeding and that
the CCA later raised head office rent in argument, there was no opportunity for ATCO Pipelines
or interveners to test whether the head office rent that is allocated through the corporate cost
allocator for ATCO Pipelines will be affected by the Commission’s findings in its decision in
Proceeding 22742. In ATCO Electric Transmission’s 2018-2019 GTA, currently before the
Commission in Proceeding 22742, the recovery of building costs and corporate costs through
head office rent are before the Commission. It is unknown at this time what, if any, impact that
decision may have on head office rent and corporate cost allocations. Accordingly, the
Commission directs ATCO Pipelines to file in its compliance filing, any information or evidence
364 Exhibit 23793-X0008, Section 6.1, Attachment 2. 365 The Commission acknowledges that given ATCO Pipelines filed a technical update in Proceeding 23793, the
detailed depreciation expense calculations consisted only of approved depreciation parameters and updated
depreciation rates. 366 Exhibit 23793-X0001, application, Table 4.2.2-1, PDF page 95 367 Exhibit 23793-X0091, CCA argument, paragraph 170. 368 Exhibit 23793-X0097, ATCO Pipeline reply argument, paragraph 145.
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88 • Decision 23793-D01-2019 (June 25, 2019)
on how its corporate cost allocator for head office rent may be affected by the Commission’s
findings and determinations issued in the decision on Proceeding 22742.369
13 Order
419. It is hereby ordered that:
(1) ATCO Pipelines, a division of ATCO Gas and Pipelines Ltd., is directed to file a
compliance filing in accordance with the findings and directions in this decision,
no later than August 8, 2019.
Dated on June 25, 2019.
Alberta Utilities Commission
(original signed by)
Neil Jamieson
Panel Chair
(original signed by)
Kristi Sebalj
Commission Member
(original signed by)
Tracee Collins
Commission Member
369 Decision 22742-D01-2019 is expected to be issued on or before July 4, 2019.
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 89
Appendix 1 – Proceeding participants
Name of organization (abbreviation) Company name of counsel or representative
ATCO Pipelines (AP)
Bennett Jones LLP
Consumers’ Coalition of Alberta (CCA)
Office of the Utilities Consumer Advocate (UCA)
Brownlee LLP
Alberta Utilities Commission Commission panel N. Jamieson, Panel Chair K. Sebalj, Commission Member T. Collins, Commission Member Commission staff
A. Sabo (Commission counsel) M. McJannet S. Karim L. Mullen P. Baker L. Osanyintola
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90 • Decision 23793-D01-2019 (June 25, 2019)
Appendix 2 – Summary of Commission directions
This section is provided for the convenience of readers. In the event of any difference between
the directions in this section and those in the main body of the decision, the wording in the main
body of the decision shall prevail.
1. The Commission has reviewed the variance between approved and estimated rate base for
2018 and is satisfied with the explanations provided by ATCO Pipelines in its application
and in responses to IRs. For this reason, the Commission approves ATCO Pipelines’
2018 opening rate base on an actual basis. However, as ATCO Pipelines’ actual closing
2018 rate base information is not available, the Commission makes no finding with
respect to 2019 opening rate base. ATCO Pipelines’ 2019 opening rate base amounts will
also be affected by the findings in other areas of this decision. ATCO Pipelines is
directed to provide its 2018 rate base actuals in the compliance filing to this decision.
.......................................................................................................................... Paragraph 23
2. The Commission determined, in a letter dated November 14, 2018, that due to the
potential overlap between this GRA and the facilities proceeding on the proposed
Pembina-Keephills project, it was more efficient to address the rates and facilities matters
for the project in Proceeding 23799. Given that the need and costs related to the project
are being determined in Proceeding 23799, the Commission approves placeholder
treatment for the project until a determination is made in Proceeding 23799. ATCO
Pipelines is directed to revise its revenue requirement and capital expenditures forecasts
in its compliance filing to this decision to reflect any findings arising from Proceeding
23799. .............................................................................................................. Paragraph 38
3. Given that WARP is currently under consideration in Proceeding 24176, any
determination in that proceeding may affect the consideration of the forecast WARP costs
in this proceeding. As a result, the Commission considers that placeholder treatment of
the WARP forecast is reasonable. Consistent with the denial of WARP reinspection and
repairs costs in Decision 22986-D01-2018 and Decision 23537-D01-2018 (Errata), the
Commission directs that the WARP placeholder amount be set at $0. .......... Paragraph 45
4. The Commission notes, however, that ATCO Pipelines confirmed that it is not aware of
any regulating body in Canada or any other jurisdiction that has mandated the use of
ROVs for natural gas systems. Before the Commission determines whether ROVs and the
associated costs are reasonably required for public safety or pipeline integrity, ATCO
Pipelines is directed to provide the following information in its compliance filing to this
decision:
Provide a detailed explanation of the advantages and disadvantages of the
installation of ROVs (and include any comments on the conclusions found in the
AGA White Paper);
File a copy of the AGA White Paper;
Provide a risk assessment, impact analysis and detailed cost estimates for each of
the proposed ROV locations;
Explain how it proposes to prioritize its ROV installations; and
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Decision 23793-D01-2019 (June 25, 2019) • 91
Confirm the process and costs that would be required for any consultation with
municipalities, industrial customers, other operators of critical facilities and
emergency responders regarding the proposed ROV program. .......... Paragraph 56
5. Based on the above determinations, ATCO Pipelines’ request for a quality control
initiative project is denied and it is directed to remove all O&M and capital costs related
to the project from its forecast 2019-2020 revenue requirements. ................. Paragraph 81
6. The Commission agrees with the UCA that ATCO Pipelines’ test year depreciation
expense calculations should represent, to the greatest extent possible, all forecast capital
activity, including capital additions and retirements. In the case of ATCO Pipelines’
accounts approved for depreciation under a square curve methodology, retirement
transactions are predictable because they are not dependent on the physical retirement of
the assets. It is not apparent to the Commission that there is a compelling reason why this
forecast information should be omitted by ATCO Pipelines from either its depreciation
expense calculations or its GRA schedules. For these reasons, the Commission directs
ATCO Pipelines to include square curve asset retirements in its detailed depreciation
expense calculations and GRA schedules and to provide revised schedules in its
compliance filing to this decision. ATCO Pipelines is further directed in its compliance
filing to reflect the correction in Account 453.01 – Well Inspections for 2016 and 2017
retirements in Account 454 – Well Equipment by way of a revision to its technical
update. ........................................................................................................... Paragraph 106
7. The Commission observes that for accounts 453.01 and 466.03 and 466.04, which are
depreciation study accounts using a square curve methodology, detailed vintage
information is available within sections 3, 4 and 5 of ATCO Pipelines’ technical update
that directly supports the forecast retirements directed in the previous paragraph of this
decision. The Commission considers that similar detailed vintage information is required
for ATCO Pipelines’ remaining accounts 483, 486, 489, 491 and 499 (three, seven and 10
years), which are also depreciated under a square curve methodology but are non-
depreciation study accounts. For this reason, ATCO Pipelines is directed, for these five
accounts, to file supplementary information similar to that provided in ATCO Pipelines’
technical update in Section 4 on an ongoing basis, commencing with the compliance
filing to this decision. This information would provide a measure of transparency as to
the vintage composition of these accounts and a means to confirm the forecast plant
retirement activity within ATCO Pipelines’ detailed depreciation expense calculations.
With respect to the series of Account 499 sub-account categories, ATCO Pipelines is
directed to file its Section 4 information for each of the 12 Account 499 – Software sub-
account categories shown in the detailed depreciation expense calculation workbook.
........................................................................................................................ Paragraph 107
8. With respect to ATCO Pipelines’ detailed depreciation expense calculations, the
Commission observes there is no “rate” information provided for Account 499 - Software
identified by sub-category; nor for any account on these schedules were there are
columns indicating opening or closing accumulated depreciation balances. The
Commission considers that this information is required to efficiently examine and
confirm ATCO Pipelines’ underlying depreciation expense calculations, particularly
given that ATCO Pipelines has been unable to provide parties with working copies of
these schedules. The Commission directs ATCO Pipelines to include the applicable
depreciation rate and opening and closing accumulated depreciation balances in its
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92 • Decision 23793-D01-2019 (June 25, 2019)
detailed depreciation expense calculations commencing with a revision to its detailed
depreciation expense workbook in its compliance filing to this decision. ..........................
........................................................................................................................ Paragraph 108
9. With respect to UCA recommendation 14, the Commission considers that the detailed
review of an actuarial database is a matter better suited to occur simultaneously with the
examination of a depreciation study. However, the Commission notes that it was not clear
whether ATCO Pipelines’ actuarial database contains transactional coding. In its
compliance filing to this decision, ATCO Pipelines is directed to clarify whether its
actuarial database contains transactional codes for the purposes of identifying any of the
following: regular retirements, reimbursed retirements, sales, end of period transfers,
beginning of period transfers, acquisitions, adjustments, outlier retirements, survivor
account balances and gross additions. .......................................................... Paragraph 119
10. For these reasons, the Commission accepts ATCO Pipelines’ proposal to credit
depreciation expense in the amount of $1,584,000. ATCO Pipelines is directed to record
the credit entry to depreciation expense as a one-time adjustment in the 2019 test year in
its compliance filing to this decision. However, ATCO Pipelines is directed to record the
debit side of the entry to the account of the shareholder because the shareholders were
originally the beneficiaries of the PPA in 2012 and that accounting was in error. ATCO
Pipelines shall therefore not recover the debit side of the directed accounting entry
through rate base or through revenue requirement. ...................................... Paragraph 127
11. The Commission addressed ATCO Pipelines’ quality control initiatives program in
Section 6.5 of this decision. In accordance with that section, the Commission directs that
all O&M forecast costs associated with the quality control initiatives programs be
removed from ATCO Pipelines’ forecasts in its compliance filing application. .................
........................................................................................................................ Paragraph 160
12. The Commission directs ATCO Pipelines, in its compliance filing, to provide a revised
timeline to complete this program that includes a risk assessment analysis (for example, if
ATCO Pipelines completed its pressure vessel inspection compliance program over a
longer timeframe, such as five or 10 years), including a prioritization of its pressure
vessels and risk analysis based on vessel vintage, date of last inspection and any other
relevant metrics. ............................................................................................ Paragraph 183
13. The Commission also directs ATCO Pipelines, in its compliance filing, to provide a
status update on its pressure vessel inspection compliance program, including
information on the description of the required work, the details of the contract for
inspection, and the status of and timeline for the process to engage a contractor has been
engaged. ATCO Pipelines is also directed to include an update of forecast costs for the
test period for this program and an update of the cost required to inspect each pressure
vessel that reflects the findings and directions of the Commission in this decision.
........................................................................................................................ Paragraph 184
14. The Commission finds that ATCO Pipelines’ has not justified the costs for this program.
Based on the evidence, the Commission is unable to assess how this program is different
from other asset management programs or the specific benefits that may result from the
third-party hazard operability assessments. The Commission directs ATCO Pipelines to
remove all forecast costs associated with this initiative for 2019 and 2020 in its
compliance filing to this decision. ................................................................ Paragraph 195
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15. The Commission has reviewed ATCO Pipelines’ proposal for an in-scope employee
salary escalation of 2.5 per cent in 2019 and of 2.8 per cent in 2020, and the data on
comparable wage settlement agreement provided by ATCO Pipelines in Table 16. Given
the limited amount of comparable wage settlement agreement data for 2019 and 2020, as
shown in Table 16, the Commission finds that a 2.0 per cent increase for in-scope
employees, consistent with its 2018 collective bargaining agreement, is more reasonable.
In addition, the Commission also finds that a 2.0 per cent increase is consistent with the
findings of the Mercer Canada Limited (Mercer) that the Alberta economy is forecasted
to grow at 2.0 per cent annually from 2019 through 2020, as discussed in more detail in
Section 8.7.1.2 below. Accordingly, the Commission approves a 2.0 per cent increase for
each of 2019 and 2020. ATCO Pipelines is directed to revise its in-scope employee salary
escalator to 2.0 per cent in its compliance filing to this decision. ................ Paragraph 213
16. Accordingly, the Commission approves a 2.0 per cent out-of-scope salary escalation
factor for each of 2019 and 2020. The Commission directs ATCO Pipelines to reflect
these findings in its compliance filing to this decision. ................................ Paragraph 224
17. For the remaining four applied-for FTEs in the test period, ATCO Pipelines provided an
explanation of the responsibilities of and justification for each, which is summarized in
Table 19 above. The Commission has examined ATCO Pipelines’ explanations for these
remaining four incremental FTEs and finds them to be reasonable. ATCO Pipelines is
directed to revise its FTE forecast in its compliance filing to reflect the denial of four
FTEs by the Commission, as discussed in paragraph 238 above. ................ Paragraph 239
18. The Commission has reviewed the evidence with respect to ATCO Pipelines’ initiative
for consolidating its management with ATCO Gas. The Commission approves the
consolidation of management for the Corporate Services and Engineering departments in
2017 and for the Operations and Construction departments in 2018, as this provides
benefits, including consistency of management between departments for both utilities and
annualized savings of $500,000. However, the Commission observes that in Table 18 of
this decision, the consolidation of management shows a reduction of 4.0 FTE positions.
Accordingly, in its compliance filing to this proceeding, ATCO Pipelines is directed to
update Table 18 of this decision to clarify whether the number of FTE positions
eliminated as a result of consolidation of management was 4.0 or 4.5. ....... Paragraph 245
19. The Commission has examined the evidence on the record for the continuation of the
VPP and the associated forecast VPP costs of $3,074,000 in 2019 and $3,177,000 in
2020. The Commission finds that the forecast VPP amounts are reasonable because the
VPP gives ATCO Pipelines the ability to react to the market conditions and manage its
employee retention. Accordingly, the Commission approves the forecast VPP costs, as
filed. Additionally, the Commission directs that any forecast VPP amounts not paid out
during the test period be refunded to customers through the VPP deferral account in the
next GRA. ..................................................................................................... Paragraph 251
20. The Commission finds that there is insufficient information to support the benefits of
symmetrical treatment of the VPP deferral account and that the asymmetrical variable
pay deferral account continues to be reasonable for ATCO Pipelines’ VPP costs.
Accordingly, no change to the operation of the currently-approved VPP deferral account
is required. ATCO Pipelines is directed to confirm that its 2019-2020 revenue
requirement is not affected by the Commission’s denial of symmetrical treatment
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associated with the VPP deferral account, in a compliance filing to this decision.
........................................................................................................................ Paragraph 260
21. Accordingly, the Commission approves ATCO Pipelines’ forecast vacancy rate of 4.8 per
cent for O&M and 5.6 per cent for capital for both 2019 and 2020. Consistent with this
determination, ATCO Pipelines is directed to revise its forecast vacancy rates in its
compliance filing to this decision. ................................................................ Paragraph 270
22. The Commission considers that the updated CPI for 2019 and 2020, provided in response
to IRs, is a more reasonable forecast of inflation for O&M supplies because it reflects
more accurate information on the current inflation rate. Accordingly, the Commission
directs ATCO Pipelines, in the compliance filing, to update the approved O&M supplies
forecasts in Table 22 to use an inflation factor of 1.9 per cent for both 2019 and 2020.
........................................................................................................................ Paragraph 281
23. In its compliance filing, ATCO Pipelines is directed to revise its forecast revenue
requirements for 2019 and 2020 to reflect the Commission’s findings on the cost
categories noted above. ................................................................................. Paragraph 283
24. The Commission has reviewed the forecast A&G costs outlined in Table 23 and
associated calculations and finds that the forecasts are reasonable given the information
provided in Table 23. Accordingly, the Commission approves the forecast A&G costs,
subject to the Commission findings on the O&M supplies expense inflation adjustment
and shared services. Consistent with the direction on O&M supplies expense inflation in
Section 8.8, the Commission directs ATCO Pipelines to revise its forecast A&G costs
using the approved inflation adjustment of 1.9 per cent for both 2019 and 2020, for the
O&M supplies expense. The Commission further directs ATCO Pipelines to provide a
revised table in its compliance filing to this decision incorporating the changes directed to
be made herein. ............................................................................................. Paragraph 290
25. The Commission directs ATCO Pipelines to coordinate with ATCO Electric
Transmission to ensure that both utilities provide the same or substantially similar
information in the same format in support of the shared services in their next respective
GRA/GTA, preferably filing common documents wherever possible. The information
should include evidence supporting the functions created, justifying total FTEs and costs
before allocation to the participating ATCO companies (ATCO Pipelines and all other
regulated and non-regulated ATCO entities), and include any analysis, studies and
calculations that explain and support the reasonableness and accuracy of the allocation
methodologies. The Commission finds that it also would be beneficial to show all
calculations that demonstrate the split between O&M and capital under the shared
services initiative in the next GRA/GTA. This common information will allow for a
proper testing of the shared services and for the provision of company specific
information to support shared services costs included in the proposed revenue
requirements.. Accordingly, the Commission directs ATCO Pipelines to provide the
evidence, analyses, studies calculations noted above as well as any underlying
assumptions for the split between O&M and capital in its next GRA. ......... Paragraph 318
26. The Commission acknowledges that of the ATCO companies, ATCO Electric
Distribution and ATCO Gas are under performance-based regulation and are subject only
to minimum filing requirement schedules. However, further information about common
costs are required to support the costs allocated to ATCO Pipelines. As such, ATCO
Pipelines is directed, on a go-forward basis, to provide all cost-information for every
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Decision 23793-D01-2019 (June 25, 2019) • 95
ATCO affiliate, comprising the total costs and supporting detail that substantiate and
justify the costs allocated to ATCO Pipelines as compared to the other regulated and non-
regulated ATCO companies under the shared services initiative. ................ Paragraph 319
27. As set out by the Commission in Decision 20514-D02-2019 and reproduced below,
ATCO Pipelines is directed to incorporate the adjustments to the IT disallowances on an
annual basis by capital, indirect capital and O&M, resulting from the MSA in a
compliance filing to this decision:
Similar to the IT and CC&B [customer care and billing] disallowance determined in
the Evergreen II decision and related compliance filings, ATCO Pipelines and ATCO
Electric Transmission will apply a first-year disallowance for 2015 and a glide path
reduction as set out in Section 6. ATCO Pipelines and ATCO Electric Transmission
are directed to file their compliance applications to this decision in the compliance
filings to their ongoing GRA/GTAs, clearly showing the directed IT disallowance on
an annual basis by capital, indirect capital and O&M. ...................... Paragraph 336
28. Upon receipt of the compliance filing to this decision, the Commission will evaluate the
approved rates multiplied by forecast IT volumes to determine the costs that will be
approved for inclusion in ATCO Pipelines’ revenue requirement. The IT costs for ATCO
Pipelines will then be finalized and included in the revenue requirement and rates. ATCO
Pipelines is directed to file Excel spreadsheets, with workable formulas, to support the
true-up of IT placeholder amounts arising from the calculation of forecast IT volumes
multiplied by the approved IT rates from Decision 20514-D02-2019. ...............................
........................................................................................................................ Paragraph 337
29. The Commission denies ATCO Pipelines’ request to use the average annual cost per IT
user instead of the current methodology for calculating IT costs because the Commission
finds that both volume information and rates are required to calculate IT costs properly.
However, the Commission sees some value in exploring a supporting metric in
combination with the existing practice requiring ATCO Pipelines’ to file schedules of IT
volumes. The Commission directs ATCO Pipelines to provide average annual cost per IT
user calculations as a metric to support forecast IT costs in its next GRA. .........................
........................................................................................................................ Paragraph 338
30. The Commission has reviewed ATCO Pipelines’ calculations of its deferral amounts and
approves the values listed in Table 29 above. The Commission accepts ATCO Pipelines’
proposal to include any differences in the deferral balances arising from December 31,
2018 actual amounts in its compliance filing. ATCO Pipelines is directed to provide a
table similar to Table 5.1-1 in its compliance filing showing any adjustment, if necessary,
to its deferral amounts. .................................................................................. Paragraph 356
31. The Commission has evaluated the request to discontinue this existing deferral account
based on the following established criteria from Decision 2003-100: materiality;
uncertainty in cost forecasts; factors beyond the utility’s control; and, risk to the utility,
while ensuring costs and benefits are symmetrically applied to the utility and customers.
The data provided in Table 36 shows that since 2014 the settlement amounts in this
deferral account have generally not been material. The Commission finds that this
account no longer meets the test for deferral account treatment because it no longer meets
the materiality criterion in the deferral account test from Decision 2003-100. For these
reasons, the Commission approves ATCO Pipelines’ request to discontinue the NGTL
deferral account and directs ATCO Pipelines to confirm the settlement of the account in
its compliance filing. ..................................................................................... Paragraph 387
2019-2020 General Rate Application ATCO Pipelines
96 • Decision 23793-D01-2019 (June 25, 2019)
32. With respect to paragraph 300 of Decision 2014-010, for the Urban Pipeline Replacement
Project, the Commission finds that ATCO Pipelines has complied with the Commission’s
direction to provide an update on the timing and cost of its UPR project by providing the
information found in Section 2.3.1 within its application. The Commission acknowledges
ATCO Pipelines’ commitment to continue to provide similar updates in the future on any
material UPR changes on an ongoing basis consistent with paragraph 300 of Decision
2014-010 and it is directed to provide this information in its future GRAs. .......................
........................................................................................................................ Paragraph 389
33. With respect to Direction 18, the Commission finds that ATCO Pipelines has complied
with the Commission’s direction to file all forecast IT volume data for the test period and
actual volumes from the previous test period. The Commission finds that ATCO
Pipelines provided the information requested in Direction 18 in its 2019-2020 GRA. The
Commission acknowledges ATCO Pipelines’ commitment to continue to provide similar
information in all future GRAs on an ongoing basis consistent with Direction 18 of
Decision 3577-D01-2016 and directs ATCO Pipelines to provide this information in its
future GRAs. ................................................................................................. Paragraph 390
34. With respect to Direction 22, where the Commission directed ATCO Pipelines to identify
and explain costs resulting from Surface Rights Board claims and whether the costs
should be recovered through the reserve for injuries and damages, the Commission
acknowledges ATCO Pipelines’ statement that there are no Surface Rights Board claims
to adjust for in the test period. The Commission further acknowledges ATCO Pipelines’
commitment to address Direction 22 at the time it makes its next application to recover
Surface Rights Board claims, legal, or other related costs. ATCO Pipelines is directed to
address Direction 22 of Decision 3577-D01-2016 in its future GRAs. ........ Paragraph 391
35. Given that the issue of head office rent was not tested in the current proceeding and that
the CCA later raised head office rent in argument, there was no opportunity for ATCO
Pipelines or interveners to test whether the head office rent that is allocated through the
corporate cost allocator for ATCO Pipelines will be affected by the Commission’s
findings in its decision in Proceeding 22742. In ATCO Electric Transmission’s 2018-
2019 GTA, currently before the Commission in Proceeding 22742, the recovery of
building costs and corporate costs through head office rent are before the Commission. It
is unknown at this time what, if any, impact that decision may have on head office rent
and corporate cost allocations. Accordingly, the Commission directs ATCO Pipelines to
file in its compliance filing, any information or evidence on how its corporate cost
allocator for head office rent may be affected by the Commission’s findings and
determinations issued in the decision on Proceeding 22742. ....................... Paragraph 418
36. ATCO Pipelines, a division of ATCO Gas and Pipelines Ltd., is directed to file a
compliance filing in accordance with the findings and directions in this decision, no later
than August 8, 2019. ................................................................................ Paragraph 419(1)
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 97
Appendix 3 – Detailed breakdown of capital expenditures (return to text)
Table 37. ATCO Pipelines’ forecast UPR expenditures
Description 2016 LTD
2017 Actual
2018 Estimate
2019 Forecast
2020 Forecast
Total Project
Edmonton ($000)
Northwest Edmonton Connector 27,895 0 0 0 0 27,895
Southwest Edmonton Connector
64,307 31,232 2,169 1,737 0 99,445
Northeast Edmonton Connector 2,059 9 426 7,665 3,652 13,810
South Edmonton Connector 0 365 14,500 6,132 0 20,997
East Calgary Connector 67,691 1,009 100 0 0 68,800
Southeast Calgary Connector 63,637 329 100 0 0 64,066
Northeast Calgary Connector 70,547 6,677 201 0 0 77,425
Peigan Trail Lateral 9,191 1,481 1,204 102 0 11,978
West Calgary Connector 14,754 67,904 8,394 1,124 0 92,176
Northwest Calgary Connector 23 451 7,000 45,735 34,166 87,375
Southwest Calgary Connector 996 35,775 38,900 767 0 76,437
Total UPR 321,100 145,232 72,994 63,262 37,818 640,404
Source: Exhibit 23793-X0001, application, Table 2.3.1-1, PDF page 32.
Table 38. ATCO Pipelines’ forecast growth expenditures
Growth Expenditures 2017
Actual 2018
Estimate 2019
Forecast 2020
Forecast
($000)
Alberta System Upgrades
South Airdrie Lateral 0 696 1,166 0
Pembina (610mm) Expansion 28,602 991 0 0
Turin East Loop and Rural Gate 2 4,535 400 0 0
Inland (508mm) Looping 11,973 503 0 0
Sub-total Alberta System Upgrades 45,110 2,590 1,166 0
Industrial Delivery Customers
Pembina-Keephills Transmission 1,442 41,337 108,637 5,212
Redwater Co-Gen Delivery #2 0 1,065 0 0
Scotford PDH Lateral and Delivery 0 0 0 2,721
EEEP Control Facilities 0 1,470 599 0
Shepherd Energy Centre Delivery 294 444 0 0
Sub-total Industrial Delivery Customers 1,736 44,316 109,236 7,933
LDC Utilities
Stoney Trans and Stoney & Nose Creek Gates 0 6,177 2,285 0
Lloydminster Looping and Gate 3 639 1,628 0 0
Grande Prairie Gate 8 75 592 0 0
Sub-total LDC Utilities 714 8,337 2,285 0
Carryover 909 266 0 0
Sub-total Large Projects 48,469 55,509 112,688 7,933
2019-2020 General Rate Application ATCO Pipelines
98 • Decision 23793-D01-2019 (June 25, 2019)
Growth Expenditures 2017
Actual 2018
Estimate 2019
Forecast 2020
Forecast
General
System Upgrades, Industrials, Receipts and LDC 896 746 5,932 6,850
Moveable Equipment 1,190 158 480 177
Land and Structures 55 0 0 0
Subtotal General 2,141 904 6,412 7,027
Total Growth 50,610 56,413 119,100 14,960
Contributions (291) (1,938) (599) 0
Source: Exhibit 23793-X0001, application, Table 2.3.2-1, PDF page 35.
Table 39. ATCO Pipelines’ forecast improvement and replacement expenditures
Improvement and Replacement Expenditures 2017 Actual 2018
Estimate 2019
Forecast 2020
Forecast
($000)
Pipelines
ILI Program 34,420 39,438 50,620 47,895
Lethbridge Urban Pipeline Upgrade 0 449 6,648 19,808
Viking #3 and Viking #4 – Upgrade for In-Line Inspection
0 2,772 6,577 3,096
Weld Assessment and Repair Program (WARP) (excl. reinspection costs)
4,795 2,992 5,972 6,091
Depth of Cover Improvements and Replacements 6,875 6,237 6,374 6,502
Hydrostatic Pressure Testing and MOP Verification 70 767 1,022 625
Program Worsley McLennan Loop 2,942 6,090 0 0
East Calgary Lateral-Class Location 0 4,520 0 0
Upgrade AltaLink Spruce Grove Substation 747 0 0 0
595S Alberta Utilities Commission Mitigation
Subtotal Pipelines 49,849 63,265 77,212 84,018
Facilities and Salt Cavern Gas Storage
RTU Replacement and Upgrade Program 5,770 4,996 5,565 5,681
Inland Bittern Lake 824 75 0 0
North Wabamun Control 870 0 0
Remote-Operated Valves Program 0 3,833 3,909
Pembina 8 Receipt 0 971 0
Viking Legal Uncas Control 0 0 797
Subtotal Facilities and Salt Cavern Gas Storage 6,593 5,940 10,369 10,388
Buildings and Other
Quality Control Initiatives 0 0 11,600 11,832
SCADA System Upgrade 100 875 0 0
APEC South Expansion 2,813 120 0 0
Carryover 692 24 0 0
Subtotal Buildings and Other 3,605 1,019 11,600 11,832
Subtotal Large Projects 60,047 70,224 99,181 106,237
General
Pipelines 6,040 6,427 6,233 6,493
Measurement and Regulating Stations 6,020 5,990 5,531 5,760
Compressor Stations 2,253 2,230 2,728 2,782
2019-2020 General Rate Application ATCO Pipelines
Decision 23793-D01-2019 (June 25, 2019) • 99
Improvement and Replacement Expenditures 2017 Actual 2018
Estimate 2019
Forecast 2020
Forecast
Salt Caverns 1,496 964 1,626 1,658
Cathodic Protection and Corrosion Control 1,062 548 625 638
Process Control 3,470 1,973 2,767 2,898
SCADA 1,046 725 1,563 1,069
Land & Structures 419 412 894 310
Moveable Equipment 1,803 2,354 1,286 1,231
Subtotal General 23,608 21,621 23,254 22,840
Total Improvements and Replacements 83,656 91,846 122,434 129,077
Contributions (845) (308) (105) (108)
Source: Exhibit 23793-X0001, application, Table 2.3.3-1, PDF page 40.
Table 40. ATCO Pipelines’ forecast relocation expenditures
Relocation Expenditures 2017 Actual 2018
Estimate 2019 Forecast
2020 Forecast
($000)
Large Project
Pembina (406mm) and Bonnie Glen (323mm) at 66 Street NW
1,715 (11) 0 0
Hermit Lake Transmission (219mm) 361 2,567 0 0
Salt Cavern Storage (610mm) Transmission 2,542 0 0 0
Mainline South (323.9mm) and Loop Line (406mm) at 194 Ave SE
0 725 0 0
Nisku-Airport (114mm) Transmission Relocation 667 0 0 0
Viking 3 & 4 (406mm) Transmission Relocation 0 740 0 0
Nisku-Airport Transmission (114mm) Highway 19 Crossing Lowering
679 0 0 0
South West Calgary Ring Road (SWCRR) Relocation and Removal
1,413 12,017 0 0
Villeneuve Transmission (323mm) 0 1,546 0 0
Subtotal Large Projects 7,377 17,584 0 0
General Relocations
1,171 607 0 0
Sub-total General 1,171 607 0 0
3-year Average Forecast (2015-2017) 6,388 6,646
Total Relocations 8,548 18,190 6,388 6,646
Contributions (13,731) (13,722) (6,157) (6,280)
Source: Exhibit 23793-X0001, application, Table 2.3.4-1, PDF page 46.
Table 41. ATCO Pipelines’ IT expenditures
IT Expenditures
2017 Actuals
2018 Estimate
2019 Forecast
2020 Forecast
($000)
IT Large Projects (>$500)
Oracle E-Business Upgrade 1,470 2,042 0 0
CBWS 0 0 546 1,067
GIS Replacement 0 1,280 0 0
MMS Upgrade and Migration 0 630 1,260 0
Subtotal Large Projects 1,470 3,952 1,806 1,067
2019-2020 General Rate Application ATCO Pipelines
100 • Decision 23793-D01-2019 (June 25, 2019)
IT Expenditures
2017 Actuals
2018 Estimate
2019 Forecast
2020 Forecast
IT Projects - General
Lifecycle Management
EPBCS 0 435 0 0
MARS Upgrade 0 225 92 73
General 0 343 51 42
Sub-total Lifecycle Management 0 1,003 143 115
Enhancements
GIS Enhancements 0 0 102 104
PIMS Enhancements 0 50 51 52
MARS Enhancements 68 0 0 0
General 213 264 51 53
Sub-total Enhancements 281 314 204 209
Enterprise Projects
General 627 296 396 299
Sub-total Enterprise Projects 627 296 396 299
TOTAL IT Projects 2,378 5,565 2,549 1,690
Source: Exhibit 23793-X0001, application, Table 2.3.5-1, PDF page 53.