AltaLink Management Ltd. - AUC · PDF file · 2017-08-30Proceeding 21341 August 30, 2017 ... AltaLink Management Ltd. 2017-2018 General Tariff Application Decision 21341-D01-2017

Decision 21341-D01-2017

AltaLink Management Ltd. 2017-2018 General Tariff Application Negotiated Settlement Agreement August 30, 2017

Alberta Utilities Commission

Decision 21341-D01-2017

AltaLink Management Ltd.

2017-2018 General Tariff Application

Negotiated Settlement Agreement

Proceeding 21341

August 30, 2017

Published by the:


Fifth Avenue Place, Fourth Floor, 425 First Street S.W.

Calgary, Alberta

T2P 3L8

Telephone: 403-592-8845

Fax: 403-592-4406

Website: www.auc.ab.ca

Decision 21341-D01-2017 (August 30, 2017) • i

Contents

1 Summary of decision ............................................................................................................. 1

2 Introduction and background .............................................................................................. 1

3 Discussion of issues ............................................................................................................... 4 3.1 Statutory and Commission requirements for a negotiated settlement ............................. 4

3.1.1 Legislation......................................................................................................... 4 3.1.2 Fairness of the negotiated settlement process ................................................... 7

3.1.2.1 Conduct of negotiation process ........................................................... 7 3.1.2.2 Adequate notice ................................................................................... 8

3.1.2.3 Relevant information ........................................................................... 8 3.1.3 Public interest.................................................................................................... 9

3.2 Quantum of refund of surplus accumulated depreciation ............................................. 11 3.2.1 Surplus accumulated depreciation arising from the amortization of reserve

differences ....................................................................................................... 11 3.2.2 Position of the parties...................................................................................... 13 3.2.3 Sensitivity of the present value of the two bookend proposals and the status

quo revenue requirement ................................................................................ 16 3.2.4 Discount rate to be used by the Commission in its assessment of the NSA .. 17

3.2.5 Intergenerational equity and the public interest .............................................. 17 3.2.6 Effect of population growth on intergenerational equity ................................ 18 3.2.7 Effect of capacity utilization on intergenerational equity ............................... 18

3.2.8 Effect of discounted values of real costs on intergenerational equity ............ 18 3.2.9 Effect of discounted values of real benefits on intergenerational equity ........ 18

3.2.10 Gradualism and moderation ............................................................................ 19

4 Commission findings ........................................................................................................... 19

5 Order .................................................................................................................................... 26

Appendix 1 – Proceeding participants ...................................................................................... 27

Appendix 2 – Negotiated settlement agreement ....................................................................... 28

List of tables

Table 1. Accumulated depreciation surplus (deficit)............................................................ 13

Table 2. Summary of present value analysis from customer perspective .......................... 16

Decision 21341-D01-2017 (August 30, 2017) • 1


Calgary, Alberta

AltaLink Management Ltd.

2017-2018 General Tariff Application Decision 21341-D01-2017

Negotiated Settlement Agreement Proceeding 21341

1 Summary of decision

1. This decision provides the Alberta Utilities Commission’s determinations regarding

AltaLink Management Ltd.’s (AltaLink or AML) application for approval of a negotiated

settlement agreement reached regarding its 2017-2018 general tariff application (GTA).

2. For the reasons set forth in this decision, the Commission has approved the negotiated

settlement agreement as filed with the quantum for the refund of surplus accumulated

depreciation set at $31.4 million, effective the date of this decision.

2 Introduction and background

3. On February 16, 2016, AltaLink filed an application with the Commission for approval of

its 2017-2018 GTA for the period January 1, 2017 to December 31, 2018. AltaLink sought

approval for:

a 2017 revenue requirement of $944.1 million

a 2018 revenue requirement of $989.5 million

to refund the remaining $90.9 million of the accumulated future income tax (FIT) liability

account

after consideration of the FIT refund, a transmission tariff of:

o 2017: $853.2 million

o 2018: $989.5 million

4. AltaLink also sought approval to continue with the following deferral and reserve

accounts:

federal and provincial taxes

taxes other than income taxes

annual structure payments

direct assign capital

long-term debt deferral account

international financial reporting standards

hearing costs (including the reconciliation and disposition of the hearing cost reserve

account)

2017-2018 General Tariff Application Negotiated Settlement Agreement AltaLink Management Ltd.

2 • Decision 21341-D01-2017 (August 30, 2017)

self-insurance (including the reconciliation and disposition of the self-insurance reserve

account)

5. The Commission issued a notice of application on February 18, 2016, and requested that

interested parties file statements of intent to participate (SIPs) by March 10, 2016.

6. The Commission received SIPs from the Alberta Direct Connect Consumers Association

(ADC), the Alberta Electric System Operator (AESO), ATCO Electric Ltd. (AE), the

Consumers’ Coalition of Alberta (CCA), FortisAlberta Inc. (FAI), the Industrial Power

Consumers Association of Alberta (IPCAA), the Office of the Utilities Consumer Advocate

(UCA) and the Regulatory Advocates of Alberta (RAA).

7. On March 9, 2016, FAI filed a motion requesting that sections 8.1.4 and 31.4 of

AltaLink’s 2017-2018 GTA, which concerned a proposal to refund customer contributions paid

by FAI, be struck from the application. Because the Commission had not yet released its decision

regarding AltaLink’s 2015-2016 GTA and as its decision in that proceeding would affect the

2017-2018 GTA, it suspended its process pending the release of the decision in AltaLink’s 2015-

2016 GTA.1 The Commission issued its decision regarding AltaLink’s 2015-2016 GTA,

Decision 3524-D01-2016, on May 9, 2016.

8. On May 26, 2016, AltaLink notified the Commission that it would file an amended

application in July of 2016 to take into account all relevant directives in the Decision 3524-D01-

2016. The amended application was filed by AltaLink on August 4, 2016, and the Commission

issued a process letter pertaining to the FAI motion on August 5, 2016. A ruling on the motion

was issued by the Commission on August 30, 2016. The ruling accepted the position of FAI,

sections 8.1.4 and 31.4 of AltaLink’s GTA were struck from the record, and AltaLink was

directed to file an amended application by September 14, 2016.

9. On September 8, 2016, AltaLink requested approval to commence a negotiated

settlement process (NSP) for its 2017-2018 GTA. Support letters for the NSP were filed on

September 8, 2016, by IPCAA, ADC and the UCA. A further letter in support of the NSP was

filed by the CCA on September 11, 2016. On September 22, 2016, the Commission ruled that it

was not prepared to approve the NSP request until after it had the opportunity to review

AltaLink’s responses to a round of information requests (IRs) and that it would provide its final

determination on the request for an NSP by October 21, 2016.

10. On September 29, 2016, the CCA requested an extension to the deadline to file IRs to

AltaLink. The CCA noted that the decision2 related to Proceeding 20622, the 2016 generic cost

of capital (GCOC) was scheduled for release on October 5, 2016, and argued that delaying the

issuance of IRs to AltaLink would allow for any inquiries resulting from that decision. On

October 6, 2016, the Commission amended the process schedule. IRs regarding GCOC matters

were due within two business days following the release of the GCOC decision.

11. Due to the volume of IRs submitted by parties, AltaLink requested an extension to

respond to the IRs to October 28, 2016. The AUC granted the request on October 12, 2016.

1 Decision 3524-D01-2016: AltaLink 2015-2016 GTA, Proceeding 3524, Application 1611000-1, May 9, 2016.

2 Decision 20622-D01-2016: 2016 Generic Cost of Capital, Proceeding 20622, October 7, 2016.



12. As directed, IRs relating to GCOC matters were issued to AltaLink on October 12, 2016,

and information responses to all IRs were received on October 28, 2016. Additionally, AltaLink

provided revisions to certain information responses on October 31, 2016.

13. The UCA filed a motion for further and better responses to the IRs on November 7, 2016.

A similar motion was filed by the CCA on November 14, 2016. In addition, the CCA requested a

technical meeting regarding the AltaLink application. The Commission established a process for

the IR motions and asked parties to provide comments on the CCA’s request for a technical

meeting by November 23, 2016.

14. The AESO withdrew its SIP to participate in this proceeding on November 25, 2016.

15. On December 13, 2016, the Commission ruled on the UCA and the CCA motions for

further and better IR responses, approved the AltaLink request to enter into a NSP, and denied

the CCA request for a technical meeting. On December 15, 2016, AltaLink requested a change in

the process schedule to delay the commencement of the negotiated settlement until January 17,

2017. The Commission approved the requested process schedule revision on December 16, 2016.

16. On February 6, 2017, AltaLink requested a two-day extension to each of the remaining

process steps the Commission approved in its letter of December 16, 2016. The Commission

approved the request on the same day.

17. AltaLink filed its negotiated settlement agreement (NSA) with the Commission on

February 8, 2017. Parties filed submissions with the Commission as to the fairness of the NSP on

that same day. Comments on further process were submitted by parties on February 14, 2017.

18. On February 23, 2017, the Commission issued a letter establishing an IR process

regarding the negotiated settlement agreement. Commission IRs were sent to AltaLink and

interveners on March 9, 2017 and IR responses were received March 23, 2017.

19. An additional round of Commission IRs were submitted to AltaLink on April 26, 2017,

with responses due May 3, 2017, and a further round of IRs specific to AltaLink’s present value

(PV) model were issued on May 10, 2017, with responses due from AltaLink on May 17, 2017.

At that time, the CCA also submitted IRs to AltaLink.

20. In response to the CCA IRs, AltaLink and the UCA filed objections to the Commission

requesting the IRs be struck from the record on the basis that they were contrary to the

Commission’s process. The CCA provided a reply submission on May 11, 2017. On May 12,

2017, the Commission ruled that it accepted the CCA’s submission that it did not intend to

breach process but that it was inappropriate for the CCA in the circumstances to have issued IRs

and struck those IRs from the record of this proceeding.

21. The Commission issued further IRs to AltaLink on June 9, 2017, with responses due

June 16, 2017. On June 28, 2017, the CCA provided correspondence stating that it did not agree

with the entirety of AltaLink’s June 16, 2017, IR responses and proposed to provide additional

comments to the Commission. AltaLink submitted a letter on June 29, 2017, objecting to the

CCA’s submission.



22. On July 4, 2017, the Commission ruled that it did not consider it necessary to obtain

further comments from the CCA. The Commission, however, did have an additional IR for

AltaLink and submitted it on July 4, 2017. AltaLink responded to this additional IR on July 7,

2017.

23. The Commission considers the close of record for this proceeding to be July 7, 2017.

24. In reaching the determinations set out within this decision, the Commission has

considered all relevant materials comprising the record of this proceeding. Accordingly,

reference in this decision to specific materials are intended to assist the reader in understanding

the Commission’s reasoning relating to a particular matter and should not be taken as an

indication that the Commission did not consider all relevant portions of the records with respect

to a particular matter.

3 Discussion of issues

25. The NSA reached by the parties encompassed all aspects of AltaLink’s 2017-2018 GTA

with the exception of the quantum of the refund of the accumulated depreciation surplus.

Although the parties all agreed in principle on a refund of the accumulated depreciation surplus,

there were differences related to the quantum of the refund and the rationale to support the

quantum of the refund. The parties’ provided a range between $31.4 million, as advocated by the

CCA, and $130.3 million, as advocated by the remaining signatories to the settlement agreement,

within which they requested the Commission make a final determination as to the amount of the

refund. A determination outside that range would effectively reject the NSA. Accordingly, this

decision is composed of two main sections. Section 3.1 addresses all matters respecting the NSA

unrelated to the quantum of the refund of the accumulated depreciation and Section 3.2 addresses

the quantum of the refund of the accumulated depreciation surplus.

3.1 Statutory and Commission requirements for a negotiated settlement

3.1.1 Legislation

26. AltaLink requested approval of the NSA pursuant to Rule 018: Rules on Negotiated

Settlements and sections 134 and 135 of the Electric Utilities Act.

27. Sections 134 and 135, reproduced below, provide the Commission with the authority to

approve a negotiated settlement as follows:

Commission approval of a settlement

134(1) If a settlement has been negotiated of an issue that is within the jurisdiction of the

Commission, the Commission may approve the settlement.

(2) Any issue dealt with in a settlement approved by the Commission is not subject to

further consideration in the hearing of the matter to which the settlement relates.

(3) Subject to subsection (4), the Commission may require a party to provide to it any

records relating to the settlement that it considers appropriate.



(4) The Commission shall not receive or consider any submission, position, evidence or

information provided by a party on a without prejudice or confidential basis in the course

of negotiating a settlement under this Part without the express consent of that party.

Limit on Commission discretion

135 If the parties negotiate a settlement on the basis that the settlement is contingent on

the Commission’s accepting the entire settlement, the Commission must either approve

the entire settlement or refuse it.

28. In the application for approval of AltaLink’s 2017-2018 GTA negotiated settlement

(negotiated settlement application),3 AltaLink stated that the terms of the negotiated settlement

were negotiated as a package and contingent on the Commission accepting the entire settlement,

with the provision that the Commission is to determine the amount of the accumulated

depreciation surplus to be refunded, within the range agreed to by the parties.4 Therefore,

AltaLink requested that the Commission approve the NSA as filed, in its entirety, in accordance

with Section 135 of the Electric Utilities Act.

29. Because the NSA was negotiated on the basis that it must be accepted or rejected in its

entirety by the Commission, the Commission will proceed on that basis for the purposes of this

decision.

30. Sections 4(1) and (2) of Rule 018 set out the requirements for initiating an NSA:

4(1) An applicant may only commence negotiations with the approval of the

Commission.

(2) An applicant must notify the Commission of its intention to initiate a negotiated

settlement process and provide the Commission with an outline of the pertinent

issues to be resolved.

31. Consistent with Section 6 of Rule 018, the utility must provide material to allow the

Commission to assess the effect of a negotiated settlement on rates and services, including:

6(1) Subject to section 3, when an agreement is reached on all or some of the issues,

the text of the agreement, including a representation that no party has withheld

relevant information, must be circulated to all parties to the agreement.

(2) Upon the concurrence of the parties on the text of the agreement, an application

for approval must be filed with the Commission.

(3) At a minimum, the application must include the following:

(a) evidence of adequate notice;

(b) the settlement agreement;

(c) details of issues not resolved;

3 Exhibit 21341-X0210, AML 2017-18 GTA negotiated settlement agreement.

4 Exhibit 21341-X0210, AML 2017-18 GTA negotiated settlement agreement, paragraph 63.



(d) outline of issues where acceptance is not unanimous, including the names of

those who disagree;

(e) the rates that result or will result from the settlement, supported by schedules,

to assist the Commission in understanding how the rates were derived;

(f) the text of any changes to the terms and conditions of service with supporting

information;

(g) a description of any outstanding issues; and

(h) unless the Commission directs otherwise, a settlement brief explaining the

basis of the settlement and how it meets the interests of the parties and the

public interest.

32. Section 6(5) of Rule 018 states that the onus is on the applicant to ensure that there is

sufficient evidence to support the application and that the quality and detail of the evidence,

including the rationale for the settlement of issues, are sufficient to enable the Commission to

understand and assess the agreement.

33. Section 8 of Rule 018 deals with unanimous or unopposed negotiated settlements and

requires that the Commission assess the settlement on the basis of two elements:

(1) whether the settlement will result in rates and terms and conditions that are just

and reasonable, and

(2) whether the settlement is patently against the public interest or contrary to law.

34. In considering these requirements, the Commission has taken into account the direction

of the Alberta Court of Appeal as set out in ATCO Electric Limited v. Alberta (Energy and

Utilities Board)5 (ATCO Electric decision). In accordance with the findings of the court that the

ultimate responsibility for approval of negotiated settlements must rest with the independent

body, the Commission considers that the responsibility for approving negotiated settlements, and

ensuring that the process operates in a fair and reasonable manner, rests with the Commission.

35. In assessing a settlement, the Commission is aware that, while one or more of the

interested parties to a settlement may represent certain stakeholders, none will represent all

stakeholders. Further, as noted by the court at paragraph 138 of the ATCO Electric decision,

“... even a broad range of [i]nterveners will not necessarily translate into a wide spectrum of

positions since parties may make trade-offs which leave other issues unresolved, unaddressed or

compromised.”6 Consequently, the negotiated settlement process does not replace a full and

informed review by the Commission as to what is in the overall public interest. Because

AltaLink had requested and received Commission approval to negotiate a settlement,

subsequently negotiated with parties representing customers, executed the NSA and then applied

to the Commission for approval of the NSA in its entirety, the Commission has proceeded on the

basis that the NSA satisfies the interests of AltaLink and has only assessed the NSA from the

point of view of ratepayers. This is consistent with the ATCO Electric decision which states:

5 ATCO Electric Limited v. Alberta (Energy and Utilities Board), 2004 ABCA 215.

6 ATCO Electric decision, paragraph 138.



That means in determining whether a negotiated settlement submitted for approval by a

utility is in the public interest and whether the rates and tariffs therein are “just and

reasonable”, the Board [Energy and Utilities Board, the Commission’s predecessor] is not

obliged at this point to consider whether the settlement adequately protects the utility’s

interests. The Board is instead entitled to proceed on the basis that the negotiated

settlement fully satisfies the utility’s interests. Thus, the Board need only assess the

public interest from the perspective of the consuming public.7

36. Given the statutory requirements, Rule 018 and the relevant case law, the Commission

has considered all of the following factors in making its determination on whether the negotiated

settlement should be accepted or rejected in its entirety:

Fairness of the negotiated settlement process: assessing whether there was procedural

fairness, both with respect to adequate notice having been served and with respect to the

conduct of the negotiation process itself.

Just and reasonable rates: considering the reasonableness of the NSA. The Commission

will consider the reasonableness of the individual elements that make up the application

to the extent they have been set out in the NSA.

Patently against the public interest or contrary to law: conducting a review of each of the

material provisions of the NSA in order for the Commission to determine whether these

provisions, individually, appear contrary to accepted regulatory practices, or could result

in undue rate and service effects on customers or are clearly contrary to law.

37. The Commission’s findings on the negotiated settlement process and on the specific

provisions of the NSA, excluding the determination of the quantum of the refund of the

depreciation surplus, which is addressed in Section 3.2, are discussed in the following sections of

this decision.

3.1.2 Fairness of the negotiated settlement process

38. The Commission must first assess whether the negotiated settlement process the resulted

in the NSA was fair.

3.1.2.1 Conduct of negotiation process

39. In the negotiated settlement application AltaLink submitted:

11. Without prejudice negotiations occurred over 9 days and concluded on January 27,

2017 with full participation of the UCA, the IPCAA, the ADC and the CCA ultimately

resulting in the Settlement Agreement which is attached.

12. The negotiations were completely arms‐length and hard fought. Further, all consumer

and industrial groups that have historically participated in AltaLink GTAs registered

Statements of Intent to Participate (SIPs) and fully participated in the negotiations. The

NSP fully complied with all aspects of Rule 018.8

7 ATCO Electric decision, paragraph 146.

8 Exhibit 21341-X0210, AML 2017-18 GTA negotiated settlement agreement, paragraphs 11-12.



40. The parties active in the negotiations and, ultimately, signatories to the NSA were

AltaLink, the ADC,9 the CCA,10 IPCAA11 and the UCA.12 Each of these signatories filed

correspondence with the Commission attesting to the fair and open manner in which the

negotiation was conducted.

41. The Commission did not appoint an observer to attend the negotiations because the

Commission had determined that the parties to the negotiations were sophisticated and

experienced in Rule 018 negotiations, and attendance by a Commission observer was not

necessary.

3.1.2.2 Adequate notice

42. Section 3 of Rule 018 deals with the provision of notice by a utility to parties who may be

interested in participating in negotiations. Rule 018 states:

3(1) The Commission requires a statement in the settlement agreement confirming

that proper notice was provided by the applicant to all interested parties.

(2) The notice provisions in the Rules of Practice apply [to] the giving of notice

under these rules.

43. AltaLink submitted that adequate notice was provided by the applicant to the parties as

follows:

15. On September 8, 2016 AltaLink filed a letter with the Commission requesting

approval to initiate negotiations. AltaLink invited the CCA, the UCA, the ADC and the

IPCAA to participate in the NSP. All materials filed by AltaLink in this proceeding prior

to the commencement of negotiations were available to the participants. Each of these

parties was given the opportunity to participate fully in the NSP and have their respective

issues addressed. As set out in section 10 of the Settlement Agreement, AltaLink

confirms that each intervener was provided with all relevant information and that proper

notice of the NSP was provided to all interested parties in accordance with the

Commission’s directions in that regard.13

3.1.2.3 Relevant information

44. As indicated in Section 2.1.1 above, Section 6(1) of Rule 018 provides that the text of the

agreement must include a representation that no party has withheld relevant information.

AltaLink addressed this under Section 11(a) of the NSA, which is reproduced below:

11 Representations and Warranties

(a) Each Party represents that it has not withheld relevant information.

9 Exhibit 21341-X0214.

10 Exhibit 21341-X0209.

11 Exhibit 21341-X0213.

12 Exhibit 21341-X0212.

13 Exhibit 21341-X0210, AML 2017-18 GTA negotiated settlement agreement, paragraph 15.



Commission findings

45. The Commission considers that the ADC, the CCA, IPCAA and the UCA had, at the time

that negotiations commenced, sufficient information to allow them to participate in the

settlement negotiations as informed parties.

46. The Commission is satisfied that the information filed in the negotiated settlement

application, the confirmation of notice and the experience of the negotiating parties provided a

sufficient level of assurance that interested parties were provided with sufficient notice, adequate

materials, and the opportunity to participate meaningfully, and that the negotiations were

conducted in an open and fair manner.

47. In addition, the Commission considers that a reasonable cross-section of customers was

represented. AltaLink stated that every intervener representing a constituent of Albertans that

historically participated in the testing of AltaLink’s GTAs was present at the negotiating table.

Industrial consumers, both large and small, as well as individual consumers, were separately

represented.14

48. Based on the above and its review of the entire negotiated settlement process, as

represented by the signatories to the settlement agreement, the Commission is satisfied that the

NSP met the requirements for fairness set out in Section 6(3) of Rule 018.

3.1.3 Public interest

49. The second question for the Commission to consider is whether the NSA is in the public

interest, including whether it will result in rates that are just and reasonable. In this regard, the

Commission is guided by the Electric Utilities Act and Rule 018, and, in particular, Section 8(2)

of Rule 018, which states that the Commission must intervene if it determines that a unanimous

settlement agreement is patently against the public interest or contrary to law.

50. In conducting the public interest assessment and because the Commission must consider

the NSA as a whole, the Commission has considered the public interest from the ratepayers’

perspective in accordance with the guidance provided by the Alberta Court of Appeal referred to

in the ATCO Electric decision as discussed above. The Commission has also considered whether

the effect of the NSA, taken as a whole, would lead to rates and terms and conditions of service

that are just and reasonable. In addition, in considering the public interest, the Commission has

reviewed each of the material provisions of the NSA in order to determine if any of these

provisions appear to be contrary to accepted regulatory practices, unusual, or could result in

undue rate impacts, service concerns, preferences or other difficulties in future rate applications.

51. In conducting its public interest analysis, the Commission has taken into account all

information on the record. The negotiated settlement application reflects material filed in the

proceeding prior to the commencement of negotiations, including responses to IRs on AltaLink’s

original application. This additional material on the record provided the Commission with an

additional basis to conduct its public interest analysis.

52. AltaLink submitted that its proposed 2017-2018 GTA as agreed to in the NSA is aligned

with customers to reduce costs and ensure efficiency gains are achieved in the 2017-2018 test

14

Exhibit 21341-X0210, AML 2017-18 GTA negotiated settlement agreement, paragraph 35.



period.15 AltaLink further submitted that the negotiated settlement application meets all the

requirements of Rule 018, and that the settlement is not patently against the public interest or

contrary to law. AltaLink summarized the terms of the NSA for AltaLink’s 2017-2018 GTA as

follows:

Direct Operations and Maintenance Costs (“O&M”) and Direct Administrative and

General Costs (“A&G”) will be reduced by $15.5 million in total over the Test Period

with the potential for additional reductions over this period through a 50/50 cost

savings sharing mechanism noting that customers will share in any additional cost

savings, but will not share the risk of any costs that exceed the adjusted forecast

costs;

Transmission Capital Maintenance and Information Technology Capital expenditures

will be reduced by $40.0 million in total;

Revenue offsets to revenue requirement (thus decreasing the amount of the revenue

requirement) will be increased by $2.5 million over the Test Period with the potential

for additional revenue offsets over this period through a 50/50 revenue sharing

mechanism noting that customers will share in additional revenues, but will not share

the risk that the revenues will be less than the adjusted forecast;

Refund of the accumulated depreciation surplus of an amount between $31.4 million

and $130.3 million based on the direction of the Commission.16

53. AltaLink added the NSA results in a direct reduction of the transmission tariffs set forth

in the 2017‐2018 GTA of up to $150.5 million inclusive of the depreciation surplus refund of an

amount between $31.4 million and $130.3 million to customers.

54. In addition, any additional cumulative direct O&M and A&G savings, excluding deferral

and reserve accounts (i.e., 567 – right of way payments, 408.1 – property taxes, 925 – injuries

and damages, and 928 – commission expenses), that have accumulated over the GTA test period

by the end of 2018 in excess of $15.5 million shall be shared equally between AltaLink and its

customers. Further, any additional revenue offset, in addition to $2.5 million, that has

accumulated over the GTA test period by the end of 2018 shall also be shared equally between

AltaLink and its customers. Sharing arising from the cumulative savings with respect to O&M

and A&G, and revenue offsets over the 2017 and 2018 periods will be determined as set out in

the negotiated settlement agreement.17

55. The contested issues arising from the application and tested through IRs were addressed

by parties and, with the exception of the quantum of the accumulated depreciation surplus to be

refunded, as previously noted, were unanimously resolved in the NSA.

Commission findings

56. The NSA represents a unanimous agreement reached as a result of a successful

negotiation reflecting a number of compromises of different interests and positions of the parties.

The signatories to the settlement agreement represent a constituent of Albertans that have

15

Exhibit 21341-X0210, AML 2017-18 GTA negotiated settlement agreement, paragraph 26. 16

Exhibit 21341-X0210, AML 2017-18 GTA negotiated settlement agreement, paragraph 20. 17

Exhibit 21341-X0210, AML 2017-18 GTA negotiated settlement agreement, paragraphs 20-22.



historically participated in the testing of AltaLink’s GTAs and supports a finding that the NSA is

in the public interest.

57. On the basis of the Commission’s assessment of provisions of the NSA above along with

its detailed analysis of the application and IRs the Commission finds that the NSA, taken as a

whole, with the exception of the quantum of refund of surplus accumulated depreciation which is

discussed in Section 3.2 which follows, cannot be said to be “patently against the public interest

or contrary to law” and should result in “rates and terms and conditions that are just and

reasonable” as required by Section 8 of Rule 018. The NSA is approved as filed and is attached

as Appendix 2 to this decision.

3.2 Quantum of refund of surplus accumulated depreciation

58. As stated above, signatories to the settlement agreement were unable to agree on the

quantum of the refund of surplus accumulated depreciation. The CCA submitted that the refund

of the accumulated depreciation surplus should be $31.4 million while the remaining signatories

proposed that the refund be $130.3 million. As they were unable to reach unanimous agreement

on the quantum, the parties requested that the Commission determine the amount of the refund

within this range. The parties were clear that if the Commission were to determine a refund

outside this range, the settlement agreement could not be approved because the NSA was

presented on the basis that it must be accepted in its entirety.

3.2.1 Surplus accumulated depreciation arising from the amortization of reserve

differences

59. The depreciation methodology used for mass property accounts is such that the composite

depreciation rate for each account (which is informed by the approved depreciation parameters

of estimated average service life, Iowa survivor curve and dispersion, and net salvage per cents

for each account) is predicated on the principle that the rate of retirement (or mortality) selected

for the assets based on historical retirement patterns will continue into the future. However, the

actual mortality of plant assets is only known with certainty after the asset has lived its useful life

and the costs associated with the retirement of utility asset have been incurred. Thus, the

estimation of what is expected to occur with respect to utility average service lives and net

salvage costs, as compared to what actually occurs, will invariably be different.

60. Although a single composite depreciation rate for each asset account is often referred to,

it is, nonetheless, comprised of unique depreciation rates that are specific to the recovery of the

original historical costs of the assets (a life rate) and the recovery of any net salvage costs (a net

salvage rate). As discussed below, these two depreciation rates can also be adjusted for any

associated amortization of reserve difference true-ups.

61. A full depreciation study provides estimates of recommended depreciation parameters as

well as a calculation of what the theoretical (or calculated) accumulated depreciation balance in

respect of assets still in service would be, when applying the depreciation parameters and

corresponding depreciation rate determined in the new depreciation study from the day the assets

were placed into service. When the theoretical accumulated depreciation balance is compared to

the actual (or book) accumulated depreciation balance, the resulting difference represents an

amount, at that specific point in time, that must be additionally collected or refunded to

customers on a prospective basis as a component of the depreciation expense. This amount is

called the amortization of reserve differences or the reserve differences true-up.



62. Typically, the reserve difference true-up is subject to the following constraint for each

asset account: the variance between the theoretical and actual accumulated depreciation must be

equal to or greater than 5.0 per cent of the theoretical accumulated depreciation balance and, if

so, the variance will be amortized on the basis of the average remaining life of the associated

asset account, or, over a minimum period of five years.

63. Any variance determined in this manner can be collected between depreciation studies

through depreciation expense as a set dollar amount or as a component of the depreciation rate.

Most utilities are able to determine and indicate the amortization of reserve difference true-up as

related to either the historical cost of the asset or as related to the net salvage costs.

64. A full depreciation study was provided and considered during the regulatory process

related to AltaLink’s 2015-2016 GTA. The corresponding decision, Decision 3524-D01-2016,

approved certain depreciation parameters associated with depreciation rates for the recovery of

the historical costs of the assets (life rate) and net salvage (net salvage rate). Further, any

required amortization of reserve difference true-up formed a component of each of those life and

net salvage depreciation rates.

65. In the NSA, parties agreed to refunding the surplus accumulated depreciation with

respect to the over-recovery of depreciation related to AltaLink’s transmission function assets

based on the depreciation parameters approved in Decision 3524-D01-2016. This surplus was

specific to the depreciation related to the recovery of the original historical cost of the assets and

did not consider or contemplate any amounts related to net salvage costs.

66. This surplus accumulated depreciation, as discussed in the NSA, is the equivalent of the

total amortization of reserve differences true-up related to original historical costs and can be

attributed to lengthening average service lives from those estimated in earlier depreciation

studies as compared to those service lives currently being estimated. Lengthening estimated

service lives could be due to both actual mortality experience incorporated into statistical

analysis or anticipated longevity related to technological advancements.

67. In determining the surplus accumulated depreciation to be refunded, parties relied on the

amortization of reserve differences balance determined in Decision 3524-D01-2016, with the

exception of updates that were conducted for each of Account 354 – transmission plant – towers

and fixtures – steel and Account 354.01 – transmission plant – towers and fixtures – steel (post

2011). Revised average service life estimates were required for these two accounts due to

Commission findings directing AltaLink to consider the unique functional specifications of steel

towers constructed under Independent System Operator (ISO) Rule 502.2. Thus, AltaLink

separated Account 354 into the two accounts identified above, updated service life estimates,

revised depreciation rates for life and net salvage and, revised its amortization of reserve

differences calculation.

68. Parties proposed to apply a tolerance of 5.0 per cent (of the theoretical accumulated

depreciation) similar to the tolerance level directed by the Public Utilities Board in Decision

E8213118 as a reduction to the total amortization of reserve differences amount. This resulted in

18

Decision E82131: TransAlta Utilities Corporation, In the matter of an Application by TransAlta to the PUB for

an Order or Orders approving changes in existing rates, tolls or charges for electric light, power or energy and

related services rendered to its customers within Alberta, File C3.6.89-6, June 21, 1982.



refunding 95.0 per cent of the accumulated depreciation surplus. The 5.0 per cent tolerance as

applied, would “provide a cushion against small changes in future retirement patters and life

estimates.” The refund amount was referred to as the “lump sum true-up” and was further

reduced by the 2017 and 2018 current annual provision for the amortization of reserve

differences true-up so as to avoid double counting of these amounts.

3.2.2 Position of the parties

69. As stated previously, although the parties reached agreement in principle on an

accelerated refund of the accumulated depreciation surplus over two years, there was not

agreement on the quantum of the refund nor on the rationale supporting the quantum of the

refund.

70. The NSA provided a calculation of the accumulated depreciation surplus in Appendix G,

which is reproduced below:

Table 1. Accumulated depreciation surplus (deficit)

2016 forecast Proceeding 3524 (AML-UCA-2016JAN20-12(b) Attachment 15)

Proceeding 21341 (AML-AUC-2016OCT05-026 Attachment C)

Accumulated depreciation surplus (deficit)

Estimated survival

curve

Calculated accrued

depreciation

Booked accumulated depreciation

Accumulated depreciation

surplus (deficit)

PUB’s* tolerance

limit

Lump sum

true-up

Transmission plant ($ million) (5%) ($ million)

350.10 land rights 56-R4 29.6 35.4 5.8 1.5 4.3

352.00 structures and improvements

50-R2.5 48.8 58.0 9.2 2.4 6.7

353.00 station equipment 47-R2 535.8 581.2 45.5 26.8 18.7

353.10 system communication and control

25.L1.5 230.7 279.3 48.6 11.5 37.1

354.00 towers and fixtures 57-R2.5 134.0 172.9 38.8 6.7 32.1

354.01 towners and fixtures (post 2011)

67-R2.5 78.7 115.2 36.5 3.9 32.5

355.00 poles and fixtures 50-R2.5 188.3 107.6 (80.6) 9.4 (90.1)

356.00 overhead conductors and devices

65-R4 178.3 291.5 113.2 8.9 104.3

358.00 underground conductors and devices

50-R5 6.1 6.9 0.8 0.3 0.5

1,430.2 1,648.0 217.7 71.5 146.2

Annual provision for true-up

2017 (7.9) - (7.9)

2018 (8.0) - (8.0)

201.8 71.5 130.3



2016 forecast Proceeding 3524 (AML-UCA-2016JAN20-12(b) Attachment 15)

Proceeding 21341 (AML-AUC-2016OCT05-026 Attachment C)

Accumulated depreciation surplus (deficit)

Estimated survival

curve

Calculated accrued

depreciation

Booked accumulated depreciation

Accumulated depreciation

surplus (deficit)

PUB’s* tolerance

limit

Lump sum

true-up

354.01 towers and fixtures (post 2011)

67-R2.5 78.7 115.2 36.5 3.9 32.5

Annual provision for true-up

2017 (0.6) - (0.6)

2018 (0.6) - (0.6)

35.4 3.9 31.4

Transmission plant other than Account 354.01 towers and fixtures (post 2011)

166.5 67.6 98.9

Source: Exhibit 21341-X0210, AML 2017-18 GTA Negotiated Settlement Agreement, Appendix G, PDF page 140. *The ±5% tolerance limited can be found in Public Utilities Board Decision E82131.

71. All of the signatories to the settlement agreement, with the exception of the CCA,19

agreed that the quantum of the refund of the accumulated depreciation surplus for all

transmission assets should be $130.3 million.

72. AltaLink submitted that the refund of $130.3 million was in the public interest for the

following reasons:20

As a result of the extension of service lives and reduction of depreciation rates, a

depreciation surplus has accumulated.

Customers have paid larger amounts of depreciation than the actual consumption of

utility assets to provide utility service.

There is no legal requirement that the accumulated reserve be distributed or accounted for

over any specific period.

The Commission considers depreciation among many other factors in the setting of fair

and reasonable tariffs. Any alleged depreciation “principles” do not dictate the setting of

fair and reasonable tariffs.

Postponing the return of the accumulated depreciation surplus too far into the future

virtually assures that the customers that paid the depreciation will never receive the

benefit of the return of the surplus.

The opinion of Larry Kennedy, its expert depreciation consultant, confirms that a five per

cent surplus will protect against future risk that depreciation, subsequent to the refund,

will have been under-collected.

The UCA, IPCAA and the ADC represent parties consuming a significant portion of

electricity in Alberta, as well as a wide cross section of all consumers; all are completely

arm’s length to AltaLink, and all support the refund of $130.3 million.

19

AltaLink, the UCA, IPCAA and the ADC. 20

Exhibit 21341-X0210, AML 2017-18 GTA negotiated settlement agreement, PDF pages 12-13.



The UCA, IPCAA and the ADC have been actively involved in successive AltaLink

GTAs, are well aware of the issues addressed in successive AltaLink GTAs, and the

decisions rendered by the Commission in AltaLink’s GTAs.

The UCA has a statutory mandate to represent the interests of residential, farm and small

business consumers and the view of IPCAA and the ADC represent the views of their

members.

Alberta continues to work through a significant downturn in economic activity and

additional rate relief will benefit all electricity consumers in Alberta.

73. The CCA advocated that the refund should be limited to the surplus of $31.4 million

associated only with the newly established Account 354.01 – transmission plant – towers and

fixtures – steel (post 2011).

74. In Appendix J21 of the NSA, the CCA provided reasons for supporting a refund of only

the surplus accumulated depreciation for Account 354.01 – transmission plant – towers and

fixtures – steel (post 2011). It argued that because the surplus had been accumulating since 2012,

it was reasonable to refund that surplus quickly. This would result in intergenerational equity

being maintained because the refund of $31.4 million would, in general, be to the same

customers who overpaid the amounts. Conversely, the CCA considered that the $130.3 million

refund of accumulated depreciation surplus would result in intergenerational inequity as it would

refund, over the two-year period, a surplus that had accumulated over many years.

75. The CCA also submitted that refunding accumulated depreciation surpluses related to the

original historical cost of the assets could potentially become a substantial deficiency of

accumulated depreciation related to net salvage costs. The CCA argued that refunding an amount

of $130.3 million was not in keeping with the Commission’s earlier considerations of gradualism

and moderation for all components of revenue requirement to satisfy its mandate to determine

just and reasonable rates.

76. In a series of IRs asked by the Commission, certain aspects of the NSA were examined as

they pertained to:

(1) the sensitivity of the present value of the two bookend proposals and the status quo

revenue requirement,

(2) the discount rate to be used by the Commission in its assessment of the NSA,

(3) gradualism and moderation,

(4) intergenerational equity issues

(5) the effect of population growth on intergenerational equity,

(6) capacity utilization,

21

Exhibit 21341-X0210, AML 2017-18 GTA negotiated settlement agreement, Appendix J, PDF pages 147-156.



(7) the discounted values of real costs, and,

(8) the discounted values of real benefits.

77. Each of these topics are discussed in the sections that follow.

3.2.3 Sensitivity of the present value of the two bookend proposals and the status quo

revenue requirement22 23

78. A workbook allowing for sensitivity analysis using a variety of inputs and assumptions

was prepared by AltaLink. The Commission has summarized the results of certain analyses in

the following table:

Table 2. Summary of present value analysis from customer perspective

Scenario analyzed

Tolerance limit and refund

period Present value at a discount rate of:

6.0% 6.8% 7.1% 9.05% 12.0%

($ million)

Refund of $130.3 5.0%, 2 years -13.5 - 0.0 18.4 35.5

Refund of $31.4 5.0%, 2 years -3.7 - 0.0 4.8 9.1

Status quo revenue requirement 5.0%, 48 years 141.0 129.0 - 104.6 83.1

Source: Exhibit 21341-X0245, AML-AUC-2017APR26-001 attachment and Exhibit 21341-X0264, AML-AUC-2017JUL04-001 attachment.

79. AltaLink stated that the 12.0 per cent discount rate represented industrial customers; the

6.0 per cent discount rate represented residential, farm and commercial customers; and the

9.05 per cent discount rate was an estimation of the weighted average discount rate of all

customers. The discount rate of 7.1 per cent was the rate at which there was no associated

present value.

80. The difference between the resultant present values of the two refund scenarios was

attributed to both the differing refund amounts ($130.3 million versus $31.4 million) and the

duration of scenarios (48 years versus 65 years).

81. Because the two refund scenarios show that customers would be in a positive present

value position given either refund amount, AltaLink stated it is in the public interest to approve

the $130.3 million refund as customers will benefit from receiving more funds now, as opposed

to what they would pay in the future.

82. AltaLink also argued that an immediate refund, in an amount to be determined by the

Commission, has the broad support of a wide spectrum of customers and therefore, is in the

public interest, particularly as it pertains to the larger positive present value associated with the

$130.3 million refund.24

22

Exhibit 21341-X0244, AML-AUC-2017APR26-001 and Exhibit 21341-X0245, AML-AUC-2017APR26-001

attachment. 23

Exhibit 21341-X0263, AML-AUC-2017JUL04-001 and Exhibit 21341-X0264, AML-AUC-2017JUL04-001

attachment. 24

Exhibit 21341-X0244, PDF pages 4-5.



83. As to the analysis of the status quo revenue requirement, AltaLink stated, with respect to

the present value and discount rate of 6.8 per cent, that the “[p]resent value of [c]ash flow (using

as discount rate the same weighted average cost of capital (WACC) as the WACC used to

produce the cash flow) will theoretically equal the rate base (mid-yr) amount on which the cash

flow is based.”25

3.2.4 Discount rate to be used by the Commission in its assessment of the NSA26 27

84. AltaLink cautioned that the assessment of a refund to customers “cannot and should not

be based solely upon NPV [net present value] economic runs that are by definition, captive to the

discount rate utilized.”28

85. When questioned why discount rates of 6.0 per cent and 12.0 per cent were representative

of the cost of money for those customers identified by AltaLink, AltaLink clarified that although

6.0 per cent generally reflected the utility’s cost of capital, the discount rate of 12.0 per cent was

used to represent customers with a higher cost of equity and debt than a regulated utility.

AltaLink acknowledged that discount rates are inherently different for each customer and it

would not be possible for the Commission to determine a single discount rate for customers.29

86. Subsequent IRs from the Commission asked what discount rates or combination of rates

should be used in assessing the proposed refund of accumulated depreciation surplus. In

response, AltaLink stated that given the full amount of the refund would be to all customers, the

9.05 per cent weighted average discount rate encompassed the potential impact on the customers

as a whole recognizing that customers have a range of discount rates.30

87. AltaLink explained its rationale in using a single and constant discount rate in its present

value scenarios as a reflection of the cash flow (as derived using a constant capital structure and

rate of return) being assessed. It asserted that changing the discount rate simultaneously with

each potential change in capital structure would not produce present values directionally

different from those resulting from a single constant discount rate.31

88. Further, and notwithstanding the long-lived nature of the assets involved in determining

the present value amounts, AltaLink was not aware of any circumstance that would support using

a declining discount rate in the present value calculation.32

3.2.5 Intergenerational equity and the public interest

89. AltaLink stated that a refund of the accumulated depreciation surplus in the amount of

$130.3 million does not create intergenerational equity issues and, in fact, serves to improve any

existing inequities. It arrived at this position because (1) the refund returns the surplus largely to

the same customers who contributed to it; (2) future generations will benefit from AltaLink’s

longer lived assets in combination with greater population and load growth; (3) not returning the

25

Exhibit 21341-X0264, AML-AUC-2017JUL04-001 attachment, Tab (a) PV Sensitivity Model, comment in

cell D26. 26

Exhibit 21341-X0254, AML-AUC-2017MAY10-001 and AML-AUC-2017MAY10-002. 27

Exhibit 21341-X0258, AML-AUC-2017JUN09-003, PDF pages 8-10. 28

Exhibit 21341-X0254, AML-AUC-2017MAY10-002, PDF page 5. 29

Exhibit 21341-X0254, AML-AUC-2017MAY10-001, PDF page 3. 30

Exhibit 21341-X0258, AML-AUC-2017JUN09-003(a), PDF pages 1-4. 31

Exhibit 21341-X0258, AML-AUC-2017JUN09-003(b), PDF pages 1-4. 32

Exhibit 21341-X0258, AML-AUC-2017JUN09-003(c), PDF pages 1-4.



accumulated depreciation surplus would magnify intergenerational inequity because in addition

to future generations paying lower depreciation rates, they would have the benefit of a surplus

they did not contribute to; and (4) a broad range of customers supported the approval of the

refund of $130.3 million to customers.

90. Conversely, the CCA considered that for all accounts (excluding the newly created

Account 354.01) and in the absence of a rigorous analysis determining when the accumulated

depreciation surplus or deficiency arose, intergenerational equity is better served by refunding

the accumulated depreciation surplus or deficiency (for life analysis) over the average remaining

life of the assets included in those accounts.33

3.2.6 Effect of population growth on intergenerational equity

91. AltaLink agreed that the Commission should factor in population growth in its

consideration of intergenerational equity, stating that as the province’s population grows, the

total cost of the transmission system will be shared over a larger number of customers.

92. AltaLink considered its proposal to refund the accumulated depreciation surplus on an

accelerated two-year basis allowed more of the customers who contributed to the surplus to

receive the benefit of the refund. Conversely, allowing no refund or a refund over a longer period

could result in many of the customers who contributed to the surplus not receiving any benefit if

they were no longer customers in the future and a growing number of new customers who never

contributed to the surplus receiving the benefit of a refund.

3.2.7 Effect of capacity utilization on intergenerational equity

93. AltaLink also agreed that the Commission should factor in capacity utilization or system

load when considering intergenerational equity. Similar to its views on how population growth

can result in the total transmission cost being spread over a larger number of customers,

transmission system costs will likewise be spread over a larger number of megawatts or

megawatt-hours. Refunding the surplus accumulated depreciation on an accelerated basis would

allow more of the customers who contributed to the surplus to receive the benefit of the refund.

If the refund were to be provided over a longer period of time, the customers who contributed to

the surplus would receive a decreasing refund per unit of consumption over time.34

3.2.8 Effect of discounted values of real costs on intergenerational equity

94. AltaLink considered that the Commission could factor in the discounted value of real

costs by adjusting the nominal costs for inflation; however, they viewed the adjustment would

not alter the relative results of comparing the effect of various discount rates within each

scenario. In consideration of intergenerational equity, any inequities would continue to be

exacerbated by the length of time over which the refund occurs, more so than the effect of

discounting or inflation adjustments.35

3.2.9 Effect of discounted values of real benefits on intergenerational equity

95. Similar to discounted values of real costs, AltaLink stated that the Commission could

factor in the discounted value of real benefits by adjusting the nominal benefits for inflation, as

33

Exhibit 21341-X0223, CCA-AUC-2017MAR09-001(a), PDF page 2. 34

Exhibit 21341-X0258, AML-AUC-2017JUN09-002(b), PDF page 6. 35

Exhibit 21341-X0258, AML-AUC-2017JUN09-002(c), PDF pages 5-7.



long as both costs and benefits are adjusted consistently. Inflation would not significantly affect

the benefits of the refund over two years. Similar to the situation described with respect to

discounted values of real costs, any intergenerational inequities would continue to be

exacerbated by the length of time over which the refund occurs, more so than the impact of

discounting or inflation adjustments.

96. Further, AltaLink stated the benefit of having rate relief in the current difficult economic

climate is the key benefit, but it is not readily quantifiable or measureable in any present value

analysis. “Lower transmission costs being paid by individuals and businesses in financial

difficulties today would be far more valuable than the same rate relief in the future.”36

3.2.10 Gradualism and moderation

97. When asked to explain any rationale for the Commission to depart from its past views of

gradualism and moderation with respect to the determination of just and reasonable rates,

AltaLink responded that the $130.3 million refund does not offend gradualism and moderation

with respect to tariff setting. However, if the Commission were to find this view was not aligned

with gradualism and moderation, then the refund should be considered as providing much needed

relief to Alberta’s ratepayers during the current challenging economic period.37

4 Commission findings

Discount rate to be used by the Commission in its assessment of the NSA

98. In its evidence, AltaLink argues for market interest rates to be used in inter-temporal

decision making that reflects the market costs of borrowing or the return from investing in

private investments for a variety of market participants. The idea is that market-determined rates

reflect the correct preferences for time discounting. Because these rates involve the actual

decisions of people interacting in the markets, which allows them to signal their actual rates of

time preference, decision makers with a public interest mandate also should use market-

determined rates when conducting inter-temporal decision making. Those involved in saving,

investing and the valuation of commodity flows are revealing their preferences for current and

future consumption as they interact in the market place; i.e., interest rates determined in various

markets reflect the willingness of market participants to invest, thereby foregoing current

consumption; they are expressing their rates of time preference. As a result, social questions, or

regulatory agency questions, regarding inter-temporal choice can be decided using the individual

preferences revealed in the market place or the market interest rates.

99. However, economic literature dealing with the social discount rates notes that market

interest rates are determined by economic agents that are participating in the various markets

right now. There are always those who cannot signal their preferred rates of time preference

because they are excluded from the markets. Young people, for example, who are future

ratepayers, often do not have the means necessary to participate in currently operating credit

markets. As a result, current market rates may not reflect their rates of time preference. The

preferences of those not yet alive who will pay rates in the future also are precluded from

participating in current credit markets. These arguments suggest that market rates are an

36

Exhibit 21341-X0258, AML-AUC-2017JUN09-002(d), PDF pages 5-7. 37

Exhibit 21341-X227.01, AML-AUC-2017MAR09-014, PDF page 27.



imperfect signal of the rates of time preference of some of those who might be included in

determining the public interest.

100. The economics literature contains other reasons as well to suggest that market interest

rates should not be used in many inter-temporal cost-benefit analyses, especially those dealing

with long lived assets like some of those used in the transmission of electricity. Instead, there is

an argument in favour of using discount rates that are lower than market rates, or even weighted

averages of a variety of market rates. That is, it has been argued that those pursuing a public

interest mandate should be more patient than current market participants.38

101. In very simple terms, a problem with using market interest rates in the determination of

inter-temporal decision making arises because, generally speaking, those in the future cannot

influence or change the choices of current market participants. Those operating in the market

place are current and forward-looking market participants. Those in the future, cannot participate

in current market decision making and may regret the decisions made by current market

participants; future customers may well prefer that a different outcome had been chosen.

102. For example, it may be that those in the future would have preferred that the current

generation not invest in longer lived assets because they are of lower value to future customers

than they were to current and forward-looking customers at the time the investments were made.

Alternatively, future customers may find it preferable to have even more such assets invested in

their past. Unfortunately, once decisions are made, they cannot often be undone.

103. If the backward-looking preferences of future customers matter, then market rates of

interest that reflect only the rates of time preference of current, forward-looking market

participants cannot be optimal from the perspective of a decision maker that considers the

welfare of future customers, which includes those who are not yet customers and also current

customers in the future.

104. Based on the evidence of this proceeding, as well as a large body of economic literature,

the Commission considers that the interest rates proffered by AltaLink in this proceeding are all

too high to represent interest rates that should be used by decision makers pursuing a public

interest mandate and who are engaged in inter-temporal decision making. However, the

Commission agrees with the parties who stated that the sum of present discounted value of

revenue requirement should not necessarily be the only factor to consider when making decisions

regarding inter-temporal benefits and costs. To the extent that any weight should be placed on

the results of the sum of the present discounted value of the revenue requirement, the present

discounted value analysis suggests moving toward reducing the amount of the accumulated

depreciation surplus that is to be returned to current ratepayers, as discount rates are lowered.

Declining discount rates

105. The Commission accepts AltaLink’s assertion that using declining discount rates would

be akin to placing less emphasis on the receipt of current benefits, the return of accumulated

depreciation surplus, and more emphasis the future costs, when compared to using a constant

discount rate.

38

Caplin, A. and J. Leahy (December, 2004), Journal of Political Economy, 112, no. 6, 1257-1268).



106. However, there is now a large body of economics literature arguing for time varying and

declining discount rates, especially for decision making that involves benefits and costs that have

associated with them long time horizons.

107. And while there are many arguments, both theoretical and empirical, in favour of

applying declining discount rates, one important argument acknowledges that market interest

rates and growth rates for the economy can vary considerably over time; their future values are

uncertain and, thus, there is uncertainty about what should be the social discount rate. If we

accept this uncertainty, then regardless of the discount rate employed in the inter-temporal

benefit-cost analysis, the results show that it will be time varying; i.e., uncertainty regarding

future market interest rates and growth rates means that declining discount rates should be used.

In an article39 cited by AltaLink in this proceeding, the authors of the article present the problem

as follows:

This means that if there is a probability distribution over the future discount rate under

constant exponential discounting, we should use a declining term structure of discount

rates today.

108. While AltaLink states in its evidence that it is unaware of any circumstance that would

support using a declining discount rate in the present value calculation, one of the articles that

AltaLink cites does, in fact, provide those circumstances. Indeed, the main conclusion of the

article, quoted from the introduction, is as follows:

We conclude that the arguments in favor of a DDR are compelling and thus merit serious

consideration by regulatory agencies in the United States.

109. In this quote, the acronym DDR stands for declining discount rates. The article also

points out that in France and the United Kingdom, declining discount rate schedules are used

when all costs and benefits occurring in the same year are discounted at a rate that declines over

time.

110. A second article cited by AltaLink agrees with the analysis contained in Arrow et al. but

does not conclude the United States should adopt a declining discount rate policy. This article is

an opinion piece published in a non-peer reviewed magazine that is not supported by any

rigorous analysis, economic or otherwise. As a result, the Commission has placed less weight on

the viewpoint on the opinions contained in this article.

111. The Commission finds the conclusions reached in the peer-reviewed article cited by

AltaLink on the record of this proceeding to be persuasive. This article is published in a

reputable, peer-reviewed journal and was written by many of the leading economists in the world

who are also some of the leading experts in the world on this topic. Therefore, the Commission

finds that consideration of the effects of declining discount rates has merit. In general, declining

discount rates would suggest moving toward reducing the amount of the accumulated

depreciation surplus that is to be returned to current ratepayers.

39

Exhibit 21341-X0258, AML-AUC-2017JUN09-003(c), PDF page 9, footnote 1: “Kenneth J. Arrow, et al.,

Should Governments Use a Declining Discount Rate in Project Analysis? Rev Environ Econ Policy 2014;8 (2):

145-163, Introduction, paragraph 6. Retrieved from:

https://academic.oup.com/reep/article/8/2/145/2888825/Should-Governments-Use-a-Declining-Discount-Rate

...”



Intergenerational equity and the public interest

112. The Commission accepts AltaLink’s claim that the maximum refund generally returns the

surplus largely to the same customers who contributed to it. The Commission also agrees with

the CCA when it suggests that returning the surplus accumulated depreciation only for

Account 354.1, as opposed to a broader set of accounts, does a better job of ensuring that the

refund goes to the same customers who overpaid the amounts.

113. AltaLink also suggested that not returning the surplus would magnify intergenerational

inequity. In considering this existing intergenerational inequity and the public interest, the

Commission has employed inter-temporal cost-benefit analysis to help inform its decision

making. This necessarily involves the choice of a discount rate that allows the decision maker to

incorporate the idea that future consumption or future welfare may be regarded differently than

current consumption. Put slightly differently, the consequences of paying rates today is typically

different from the consequences of paying the same rates in the future. The discount rate reflects

the degree to which future costs are traded off against current costs. If the discount rate is too

high; i.e., it does not reflect a decision maker's actual rate of time preference, then the rate at

which future costs are substituted for current costs will be wrong. Either current ratepayers are

paying too much or too little. Typically, if the discount rate is too high, then too many costs are

shifted into the future. Current ratepayers would be paying rates that would be considered to be

too low. If the discount rate in the past was too high, then, everything else equal, current

ratepayers would be paying too much, even if now, the discount rate was correct going forward.

114. If market interest rates have been used in the past in helping to inform inter-temporal

decision making, then it is likely that current ratepayers are paying rates that are too high,

everything else equal, given the finding in paragraph 104 above that market rates in general are

likely too high to be used when considering inter-temporal decision making. If this is true, then

this will make the argument for higher discount rates much more palatable, since it will be easier

to argue that current rates reflect an intergenerational inequity. The consequence of accepting

this argument is that the cycle continues, discount rates will be too high, costs will continue to be

shifted into the future, thereby perpetuating sub-optimal decision making through time.

115. Based on these factors, the Commission considers the public interest to be served by

using lower discount rates when employing inter-temporal benefit cost analysis that uses the sum

of present discounted values. Doing so would suggest that, contrary to the evidence of AltaLink,

intergenerational equity and the public interest could be served by refunding smaller amounts of

the accumulated depreciation surplus over two years, everything else equal.

Effect of population growth on intergenerational equity

116. AltaLink has stated that population growth should be factored into the Commission’s

considerations on intergenerational equity. AltaLink stated that because population will be higher

in the future, the costs of the transmission system can be spread over more people. The

Commission considers that if the population increases, everything else equal, then the per capita

cost of the transmission system will be lower.

117. Recall that the sum of the present discounted value of the revenue requirement becomes

more negative as the amount to be returned over two years increases. As we move through time,

this implies that future ratepayers will be burdened with a larger proportion of the costs of



adjusting to the new depreciation scheme. Mitigating this larger burden, it is argued, is the fact

that there will be population growth, so that this burden will be spread over a larger population.

118. Of course, the key idea here is that we should be interested in the per capita burden not

just the fact that costs are spread over more people. The per capita burden is affected by how

much of the burden is pushed into the future and the degree to which both inflation and

economic growth contribute to making the burden represent a smaller proportion of per capita

consumption or per capital income. Analyzing this problem is complicated.

119. For example, if population growth outstrips real income growth, then real per capita

income can be lower in the future than it is in the present. Thus, there can be more people, and,

in aggregate, real income can be higher than previously, yet real income per capita can be lower.

120. If this occurs, then shifting costs to the future can result in a higher per capita burden in

real terms. As a result, it is not an automatic outcome that shifting costs to the future will be a

good thing even if population and income are growing.

121. The plausibility of this example and the plausibility of the example presented in

AltaLink’s evidence, suggests that the effects of population growth and income growth are

speculative. Therefore, in the determination of the manner in which an accumulated depreciation

surplus should be returned, the Commission has taken these possible outcomes into

consideration. Because there are now other possible outcomes to consider, the weight given to

AltaLink’s original outcome, an outcome that supported the shifting costs to the future, is

lowered.

122. The Commission is also aware of the assumption implicit in the population growth factor

that the percentage of the population using the grid currently will be similar in the future. The

Commission is aware that alternative energy solutions are becoming more available and the

necessity of connecting to the grid could very well diminish in the future. Even with population

increases, shifting the cost burden now to the future could result in a smaller pool of users to

distribute the costs over, further eroding the population growth factor as support for deferring

costs to future ratepayers.

123. AltaLink also stated that its proposal to refund the accumulated depreciation surplus on

an accelerated two-year basis allowed more of the customers who contributed to the surplus to

receive the benefit of the refund. If a longer time period were employed to return the

accumulated depreciation surplus, then population growth would mean that a growing number of

customers would receive a portion of the accumulated depreciation surplus but would not have

contributed to that surplus. The Commission considers that if a refund is approved, the public

interest is served if, to the greatest extent possible, those who contributed to the surplus are those

who receive the refund.

Effect of capacity utilization on intergenerational equity

124. AltaLink stated that the Commission should factor in capacity utilization or system load

when considering intergenerational equity.



125. In an article cited by AltaLink,40 the author cautions the reader to consider capacity

utilization on a company-wide basis and not on an asset-specific basis.

However, it can be important to recognize that while cost recovery for a single asset of a

utility may be skewed as compared to its benefits, cost recovery for the entirety of the

utility’s assets may still be within reasonable bounds.

126. Current ratepayers may face low utilization rates for one type of asset but higher capacity

utilization rates for other assets. If capacity utilization for the company as a whole is constant

through time, then it would not make sense to focus on a single set of assets and suggest that low

capacity utilization be used as a rationale for shifting costs into the future.

127. The Commission considers that this cautionary stance is worthy of exploration. However,

because the Commission has no further information on company-wide or system-wide capacity

utilization, it did not include this factor into its decision-making in this proceeding.

Including the effects of inflation or using real values

128. The Commission considers that recognizing the distribution of the real values for benefits

and costs is in the public interest. This implies that, when inflation occurs, everything else equal,

the burden of paying the historical costs will fall in the future. This simply reflects that fact that

paying one dollar of costs today represents a larger burden than paying that same dollar of costs

in the future, everything else equal.

129. The Commission considers that including the effects of inflation, everything else equal,

will make it more attractive to push costs into the future, since this will lower the present

discounted value of real per capita burden.

Gradualism and moderation

130. The accumulated depreciation surplus had arisen because the actual accumulated

depreciation stemming from depreciation rates used over a period of time, differed than those

rates used in the theoretical or calculated accumulated depreciation based on the latest

depreciation study. On an aggregated account basis, assets are generally now lasting longer, so

the prior depreciation rates and expense (based on shorter service lives) were too high.

131. As we have articulated below, lower depreciation rates result in a larger rate base at each

point in time, which, in turn, means a higher return at each point in time, everything else equal.

132. The status quo has the effect of making the revenue requirement lower through time since

depreciation is lower at every point in time compared to the case of returning the surplus over

two years as a reduction to tariffs.

133. In using the current amortization of reserve differences true-up methodology, in the case

of a surplus, the depreciation rate is lowered by a small amount for the remaining years of the

asset’s life in order to effect a refund of the surplus. The sum of all of the reductions to

40

Exhibit 21341-X0258, AML-AUC-2017JUN09-002(a), PDF page 6, footnote 1: “Benjamin O. Davis (June 7,

2017). Thoughts on Intergenerational Equity in Utility Ratemaking. Retrieved from:

http://ceadvisors.com/thoughts-intergenerational-equity-utility-ratemaking/.”



depreciation expense, as a result of the composite depreciation rate reductions, will equal the

value of the accumulated depreciation surplus.

134. Changing depreciation expense changes other elements of the revenue requirement, most

notably return. As depreciation expense is lowered, this will sustain a larger rate base than

otherwise would be, had there been no accumulated depreciation surplus to return.

135. The effect of the status quo method of returning the accumulated depreciation surplus is

to lower depreciation rates, so it reduces the increase in rate base and return when compared to

returning the surplus over two years. Revenue requirement is less with the status quo compared

to returning the surplus over two years. This means the sum of the present discounted value of

the revenue requirement is higher under the status quo than it is under the two-year accumulated

depreciation surplus refund scenario.

136. AltaLink’s proposal represents a departure from the accepted method through which

accumulated depreciation differences are returned to customers. If the status quo method for

refunding the accumulated depreciation surplus is used, then this results in a sum of the present

discounted value of the revenue requirement that is highly positive.

137. Using the model provided by AltaLink, it can be shown that the amortization of reserve

differences approach resulted in a positive present discounted value for all of the discount rates

proposed by AltaLink and that the magnitude of this positive amount grew as the discount rate

was lowered. Alternatively, if AltaLink’s proposal is accepted then, at discount rates below

seven per cent, the sum of the present discounted value at the end of the asset’s life is highly

negative and this negative amount increases the larger is the amount of the give back over the

two-year period.

138. From the information provided by AltaLink and summarized in Table 2 above, the

Commission considers that the worst case scenario under the status quo (12 per cent discount

rate) is better than the best case scenario (12 per cent discount rate) under the applicant's

proposal, when using the sum of the present discounted value of the revenue requirement as the

Commission’s decision criterion. It also should be noted that, when interest rates are altered, the

point at which the sum of the present discounted value hits zero is almost the same year for each

value to be returned.

139. These data suggest that the gradualism approach, or the status quo, dominates AltaLink’s

proposal when using only the sum of the present discounted value of the revenue requirement as

the decision criterion. In addition, it suggests that if AltaLink’s proposal is to be accepted, then

the smallest amount of proposed payback should be approved since this would be the closest

solution to the status quo.

140. However, the manner in which the status quo returns the accumulated depreciation

surplus also distorts the approved depreciation rates since, as explained above, AltaLink adjusts

its depreciation rates to reflect the return of the accumulated depreciation surplus. The

Commission is unaware of the magnitude of the costs associated with this type of distortion. As a

result, the Commission considers that this type of distortion is reduced if the status quo method is

not used to return the accumulated depreciation surplus, everything else equal.



Conclusion

141. The Commission has considered each of the above factors that may have an influence on

determining the amount of the accumulated depreciation surplus that is to be returned to

customers as well as the timing of that return. In doing so, the Commission considers that there

are important conflicting or countervailing influences, none of which is determinative. Based on

all of the evidence, the Commission finds that a refund of the accumulated depreciation surplus

in the amount of $31.4 million is reasonable and in the public interest. The rest of the surplus

should be returned to customers using the currently established amortization of reserve

differences methodology. Taken together, these two methods of returning the accumulated

depreciation surplus capture a reasonable balance of all of the factors identified by parties to the

NSA and the Commission. The return of $31.4 million also falls with the range of values that

was considered acceptable to all signatories to the negotiated settlement.

5 Order

142. It is hereby ordered that:

(1) The negotiated settlement agreement attached as Appendix 2 to this decision is

approved. The approved quantum for the refund of surplus accumulated

depreciation is $31.4 million, effective the date of this decision.

Dated on August 30, 2017.


(original signed by)

Mark Kolesar

Vice-Chair


Henry van Egteren

Commission Member


Bill Lyttle

Commission Member



Appendix 1 – Proceeding participants

Name of organization (abbreviation) counsel or representative

AltaLink Management Ltd. Borden, Ladner Gervais LLP

Alberta Direct Connect Consumers Association (ADC) Ackroyd LLP

ATCO Electric Ltd. (AE)

Consumer’s Coalition of Alberta (CCA)

FortisAlberta Inc. (FAI)

Industrial Power Consumers Association of Alberta (IPCAA) Norton Rose Fulbright LLP

Office of the Utilities Consumer Advocate (UCA) Brownlee LLP

Alberta Electric System Operator (AESO)

Alberta Utilities Commission Commission panel M. Kolesar, Vice-Chair H. van Egteren, Commission Member B. Lyttle, Commission Member Commission staff

C. Wall (Commission Counsel) D. Ward L. Mullen J. Halls J. Cameron C. Strasser D. Ryan V. Pusztay



Appendix 2 – Negotiated settlement agreement

(return to text)

Appendix 2 - Negotiated settlement agreement

(consists of 16 pages)

1

SETTLEMENT AGREEMENT

ALTALINK MANAGEMENT LTD., IN ITS CAPACITY AS GENERAL PARTNER OF

ALTALINK, L.P.

2017-2018 GENERAL TARIFF APPLICATION

THESE TERMS OF SETTLEMENT for the Negotiated Settlement of the 2017-2018 General

Tariff Application (“2017-2018 GTA” or “Application”) are made and entered into as of

February 8, 2017.

AMONG:

ALTALINK MANAGEMENT LTD., in its capacity as general partner of AltaLink, L.P., (“AltaLink”)

and

CONSUMERS’ COALITION OF ALBERTA (“CCA”),

and

OFFICE OF THE UTILITIES CONSUMER ADVOCATE (the “UCA”),

and

ALBERTA DIRECT CONNECT CONSUMERS ASSOCIATION (“ADC”),

and

INDUSTRIAL POWER CONSUMERS ASSOCIATION OF ALBERTA (“IPCAA”)

each, a “Party” and collectively, the “Parties”

WHEREAS:

(a) by letter dated September 8, 2016 AltaLink requested permission to start negotiations with

respect to all aspects of its Application;

2017-2018 General Tariff Application Negotiated Settlement Agreement

AltaLink Management Ltd. Appendix 2 - Negotiated settlement agreement

Page 1 of 16

Decision 21341-D01-2017 (August 30, 2017)

2

(b) on December 13, 2016 the AUC issued a letter in which it approved AltaLink’s request to

commence negotiations under AUC Rule 018;

(c) AltaLink, the ADC, the CCA, the IPCAA and the UCA (collectively, the ADC, the CCA, the

IPCAA and the UCA will be referred to as the “Interveners”) entered into a negotiated

settlement process;

(d) After settlement negotiations in January and early February of 2017, the Parties successfully

reached a negotiated settlement on all elements of AltaLink’s 2017-2018 GTA with differences

on the quantum of, methodology, and rationale for the accumulated depreciation surplus to be

refunded; and

(e) The term of this settlement is the 2017-2018 Test Year Period.

IN CONSIDERATION of the mutual promises made in these Terms of Settlement and for other good

and valuable consideration, the receipt and sufficiency of which is hereby expressly acknowledged by

each of the Parties, and subject to the conditions hereinafter set out, the Parties agree as follows:

1. Cost Adjustments

(a) The overall cost adjustments agreed to in this Negotiated Settlement are set out in the revised

Schedule 3-1. The amounts set out are related to AltaLink’s Schedule 5-1, Schedule 25-1,

Schedule 10-4, and Schedule 8-1. Revised Minimum Filing Requirement (“MFR”) schedules

are attached as Appendix A, and the Summary of Changes to Revenue Requirement is

attached as Appendix B.

(b) AltaLink will prepare a revised filing by February 08, 2017 to be reviewed by Interveners to

obtain confirmation that the revised filing is consistent with this Negotiated Settlement. Once

a revised filing is approved, AltaLink will file it with the Commission for approval.

(c) Interveners agree to support, on a without prejudice basis as set out in this document or any

final agreement, the revised filing for approval.

2. Specific Reductions Identified

(a) Correction of errors involving computations within schedule 3.2 – 2018(i).

(b) AltaLink and Interveners confirm that they are not aware of any other factual errors present in

the Application, including the 2017-2018 GTA schedules that have been filed in the

proceeding or provided in negotiations, that would have an impact on the agreed upon revenue

requirement or matters more specifically set out in this document or the final agreement.



Page 2 of 16


3

(c) Specific reductions are addressed in revised Schedule 3-1.

(d) AltaLink agrees that the $15.5M in Operating and Maintenance (“O&M”) and Administrative

and General (“A&G”) cost reductions negotiated in this settlement will not result from

changes in accounting policies or practices for the 2017-2018 Test Period. AltaLink has agreed

to a 50/50 cost savings sharing mechanism for any additional O&M and A&G reductions in

excess of $15.5M in total over the Test Period. Customers will not share the risk of any costs

that exceed the adjusted forecasted costs for O&M and A&G. Attached in Appendix C is the

O&M and A&G cost savings sharing mechanism. Attached as Appendix D is an illustration

(example) of the cost savings sharing mechanism.

(e) AltaLink has agreed to a 50/50 revenue offset sharing mechanism for any additional

miscellaneous revenue in excess of the $2.5M total agreed to over the test period. Customers

will not share the risk of any revenue offsets that are less than the adjusted forecast. Attached

in Appendix E is the revenue offset sharing mechanism. Attached as Appendix F is an

illustration (example) of the revenue offset savings sharing mechanism.

(f) The cumulative effect of the reductions agreed to and set forth in the Settlement Agreement is

as follows:

(i) Direct Operations and Maintenance Costs (“O&M”) and Direct Administrative and

General Costs (“A&G”) will be reduced by $15.5 million in total over the Test Period

with the potential for additional reductions over this period through a 50/50 cost savings

sharing mechanism noting that customers will share in any additional cost savings, but

will not share the risk of any costs that exceed the adjusted forecast costs;

(ii) Transmission Capital Maintenance and Information Technology Capital expenditures

will be reduced by $40.0 million in total;

(iii) Revenue offsets to revenue requirement (thus decreasing the amount of the revenue

requirement) will be increased by $2.5 million over the Test Period with the potential

for additional revenue offsets over this period through a 50/50 revenue sharing

mechanism noting that customers will share in additional revenues, but will not share

the risk that the revenues will be less than the adjusted forecast;

(g) In addition, any additional cumulative direct O&M and A&G savings, excluding deferral and

reserve accounts (i.e. 567 – right of way payments, 408.1 – property taxes, 925 – injuries and

damages, and 928 - commission expenses), that have accumulated over the GTA Test Period

by the end of 2018 in excess of $15.5 million shall be shared equally between AltaLink and its



Page 3 of 16


4

customers. Further, any additional revenue offset, in addition to $2.5 million, that has

accumulated over the GTA Test Period by the end of 2018 shall also be shared equally

between AltaLink and its customers. Sharing arising from the cumulative savings with respect

to O&M and A&G, and revenue offsets over the 2017 and 2018 periods will be determined as

set out in the Settlement Agreement.

(h) Amounts payable to ratepayers arising from this cost savings sharing arrangement regarding

either the O&M and A&G and/or the Revenue Offset are to be disposed of through a separate

application to the Commission on or before July 1, 2019.

(i) The detail of each agreed to reduction is set forth in the revised Schedules 3-1, 5-1, 8-1, 10-4,

25-1 attached..

(j) In relation to the specific cost reductions:

(a) the reduction in revenue requirement for A&G and O&M in the Test Period is expected

to be achieved primarily through efficiency gains and effective risk management of the

operating aspects of the business;

(b) AltaLink has assessed and confirms that the reductions in revenue requirement in both

A&G and O&M, according to the facts currently known by AltaLink and to the best of

AltaLink’s knowledge, will not compromise the provision of safe and reliable

transmission service;

(c) reductions in CRU (“Transmission Capital Maintenance” in Schedule 10-4) and

Information Technology (“General Plant” in Schedule 10-4) capital expenditures in the

test period is expected to be achieved primarily through efficiency gains, life extension

of assets and effective risk management of the capital aspects of the business;

(d) AltaLink has assessed and confirms that the reductions in capital expenditures in both

CRU and Information Technology, according to the facts currently known by AltaLink

and to the best of AltaLink’s knowledge, will not compromise the provision of safe and

reliable transmission service;

(e) all reductions are in accounts not subject to deferral or reserve account proceedings.

3. Use of Existing Transmission System

(a) AltaLink and Interveners agree to encourage increased utilization of the existing transmission

system.



Page 4 of 16


5

4. Depreciation

Background on Accumulated Depreciation Variance

(a) As a result of lengthening the lives of the Account 354.01 assets, there is now an Accumulated

Depreciation variance balance of approximately $35.4 million and of this balance Parties have

agreed to a refund of $31.4 million. AltaLink has advised that additional accumulated

depreciation variance balances exist with respect to other asset balances. These additional

variance balances total an additional $166.5 million and of this balance the UCA, the ADC, the

IPCAA and AltaLink have agreed to a refund of $98.9 million. This would result in a total refund

of $130.3 million, details of surplus by asset class are attached in Appendix G. Larry Kennedy, on

behalf of AltaLink only, has provided a specific opinion with respect to the contemplated refund

attached as Appendix H of the Settlement Agreement. In this case the circumstances support a

shorter true-up period. The concurring position of the UCA, the ADC, and the IPCAA is set out

in Appendix I. Concerns by the CCA about a refund of $130.3 million, the method of the refund,

and their comments are addressed in Appendix J.

Accumulated Depreciation Variance True-up

(b) Based on these unique circumstances, all Parties agree that some portion of the Accumulated

Depreciation variance balances should be trued-up over a shorter period than the average

remaining life. However, there are differences related to the amount of the true-up to be

recognized for 2017 and 2018. After receiving a Direction from the Commission on the amount

and method to be refunded, AltaLink agrees to refund this Accumulated Depreciation variance

over the 2017 and 2018 two-year Test Period. If different than the schedules attached, AltaLink

will provide a revised depreciation schedule reflecting any change and the resulting FFO/Debt

ratio.

New Subaccounts for ISO 502.2 Assets

(c) AUC Decision 3524-D01-2016 paragraph 323 notes that AltaLink is required to “…create a

subaccount category for any USA account that now includes, and in the future will include, assets

constructed to comply with ISO Rule 502.2…” For each of Fixed Asset Accounts 352, 354, 355,

and 356 assets, a new subaccount will be created for ISO 502.2 related assets for the purposes of

tracking these costs and to permit the application of depreciation rates (including net salvage

rates) that may be different than the main accounts if depreciation studies so indicate.



Page 5 of 16


6

Correction

(d) AltaLink confirms that it corrected an error that used -25% as the net salvage percentage rather

than the approved -17%.1 This correction was reflected in AltaLink’s October 28, 2016

amendment in Exhibit 21341-X0134, MFR Schedule 6-4, PDF pages 176-177.

5. Depreciation Working Group

Background to Depreciation-related Options

(a) The AltaLink application includes a response to directives 24 and 27 from AUC Decision 3524-

D01-2016 that defers responses until the next depreciation study. The AltaLink application does

not address the comments of Commissioner Lyttle at paragraphs 465-486, and specifically

paragraphs 485-486 in the Decision. AltaLink agrees to address the comments of Commissioner

Lyttle at paragraphs 465-486 in its 2019-2020 GTA.

Depreciation Working Group Commitments

(b) AltaLink agrees to engage in good faith discussions with customers approximately 3 months

before the anticipated filing of its 2019-2020 GTA. The purpose of the discussions will be to

explore alternative approaches to depreciation and collection of net salvage or other cost recovery

mechanisms as mutually agreed upon. If the discussions result in an agreed upon approach to

depreciation it will form part of AltaLink’s 2019-2020 GTA filing with the expectation and

understanding that the customers will file in support or otherwise indicate their support of the

proposal.

(c) In the event that Parties are unable to agree to a depreciation proposal following the good faith

discussions above, Parties would be free to advance alternatives or variations on any submission

being advanced.

6. Property Taxes

(a) AltaLink agrees to investigate opportunities to reduce or defer property taxes from 2017 and

2018. AltaLink will file for information purposes the results of this initiative in the next GTA.

1 Exhibit 21341-X0141, PDF page 347, AML-AUC-2016OCT05-026.



Page 6 of 16


7

7. Savings related to Negotiated Settlement in Deferral Account

(a) AltaLink had originally forecast a funding requirement of $3.3 million in its 2017-2018 GTA. As

a result of this Negotiated Settlement, AltaLink forecasts that it will save $0.6 million plus a

reduction in forecast expense for interveners of $1.5 million for a total savings of $2.1 million.

8. Self-insurance Reserve

(a) The AltaLink response to an Information Request on self-insurance reserve is attached as

Appendix K and included as a part of this Negotiated Settlement.

9. EPCM Provider

(a) In the next and subsequent GTAs, for new projects exceeding $30M in total costs, AltaLink will

identify whether the project is expected to be self-managed by AltaLink or executed under an

existing EPCm Relationship Agreement or provided by another supplier. Additionally, AltaLink

will provide a rationale supporting its choice to either self-manage the project, execute it under an

existing EPCm Relationship Agreement or why it selected another supplier.

10. Without Prejudice

(a) The Negotiated Settlement reflected in these Terms of Settlement is a compromise and was

reached in part as a result of the desire of the Parties to avoid the significant resources associated

with a litigated process. These Terms of Settlement are for the purpose of AltaLink’s 2017-2018

GTA only, unless expressly stated otherwise, and they are without prejudice to the positions that

any of the Parties may take in any subsequent negotiations and regulatory proceedings. The

Parties acknowledge that AltaLink has advised the agreed reductions in revenue requirement

elements, as reflected in the cost adjustments of section 1 above, and compared to the revised

Application amounts, are matters AltaLink expects to manage within the overall operation of its

business over the 2017 and 2018 Test Period. For 2017 and 2018, the Parties agree to the specific

depreciation rate changes discussed in Section 3 and supporting documents of this Settlement

Agreement. AltaLink agrees to apply the specific depreciation rates, including amortization of the

Accumulated Depreciation, as stated or implied in Schedule 6-4 and supporting documents over

the 2017 2018 test year period of the Settlement Agreement.

(b) At the outset of the negotiations, AltaLink and Interveners confirmed that the negotiations were

limited to specific matters, exclusively within the scope of AltaLink’s 2017-2018 GTA, and other

matters that would ultimately be determined as part of ongoing or future applications would not



Page 7 of 16


8

be addressed as a result of this negotiation or impacted as result of these negotiations.

Specifically, the following matters were excluded from the scope of these negotiations:

i. It is agreed that the prudence of actual direct assign capital additions, compliance with

Commission directives for direct assign capital, and any other matter relevant to actual

direct assign capital are subject to future Commission approval.

ii. On a Without prejudice basis to the positions of any party regarding whether direct

assigned capital is used, required to be used, or the level of utilization is in or out of

scope in other proceedings, all parties agree that the matter of whether direct assign

capital is used, required to be used, or the level of utilization has not been addressed as

part of the 2017-2018 GTA negotiated settlement.

iii. Forecast 2018 return on equity and equity thickness are approved by the Commission on

an interim basis unless otherwise directed by the Commission.

iv. All other deferral and reserve accounts are included on a forecast basis, and are agreed to

for forecast revenue requirement purposes. Actual costs are subject to future

reconciliations and subject to Commission approval.

(c) For additional clarity, the settlement does not include matters to be determined in future Generic

Cost of Capital or Direct Assign Capital Deferral Account proceedings.

11. Representations and Warranties

(a) Each Party represents that it has not withheld relevant information.

(b) AltaLink represents that all information it provided to the interveners during the negotiated

settlement process was true and accurate, to the best of AltaLink’s knowledge.

(c) AltaLink represents, after due inquiry:

i. The 2017-2018 GTA, supporting material, responses to information requests and all

information filed with the Commission contains all material information and facts relied

upon by AltaLink to support its revenue requirements for the 2017 and 2018 Test Years.

ii. To the knowledge of AltaLink, the information provided by it in all of its filings with the

Commission and submissions to Parties during the negotiation of this Negotiated

Settlement does not omit any statement of material fact necessary to make the

information provided accurate and true.



Page 8 of 16


9

iii. At this time, other than the transfer to each of the Piikani First Nation and Blood First

Nation an interest in a portion of the of the AltaLink owned transmission assets across

their reserve lands, AltaLink has no plans or intentions, nor is AltaLink aware of any

plans or intentions, having, or potentially having, a material effect on its revenue

requirements for the 2017 or 2018 Test Years, including plans or intentions of selling or

otherwise disposing of any material assets during the 2017 or 2018 Test Years.

iv. To the knowledge of AltaLink, from the time the 2017-2018 GTA was filed up to and

including the date of these Terms of Settlement, no events have occurred materially

impacting AltaLink’s revenue requirements, revenues or accounting methods for the

2017 or 2018 Test Years.

(d) AltaLink represents that proper notice of the negotiated settlement process approved by the

Commission was provided to all interested parties in accordance with the Commission’s

directions in that regard.

(e) In the event that AltaLink discovers any material errors in calculations and/or facts related to the

revenue requirement set forth in the 2017-2018 GTA, AltaLink agrees to disclose them in its next

GTA.

(f) AltaLink agrees to disclose in its next GTA any changes in accounting policy or practice during

2017 and 2018 that result in material changes to AltaLink’s applied for revenue requirement for

2017 and 2018.

(g) The Parties further agree:

i. The division of these Terms of Settlement into headings and paragraphs is for

convenience and reference only and should not affect the interpretation or construction of

these Terms of Settlement.

ii. These Terms of Settlement and attached Appendices constitute the entire settlement

agreement between the Parties and no other agreements, expressed or implied, have been

made.

iii. Any alteration or amendment of these Terms of Settlement must be in writing and signed

by the Parties. These Terms of Settlement will be binding upon and inure to the benefit of

the Parties and each of their respective successors and permitted assigns. A Party may not

assign their rights and/or obligations under these Terms of Settlement without the consent

of all other Parties, provided such consent is not unreasonably withheld.



Page 9 of 16


10

iv. These Terms of Settlement may be executed in any number of counterparts.

v. These Terms of Settlement are to be interpreted pursuant to the laws of the Province of

Alberta.

vi. If any provision of these Terms of Settlement is found to be invalid by a court of law,

these Terms of Settlement will be read and interpreted as if the provision were omitted.

vii. The failure of any Party to exercise any right, power or option given to it under these

Terms of Settlement or to insist upon the strict compliance with any of the terms or

conditions in these Terms of Settlement will not constitute a waiver of any provision with

respect to any other or subsequent breach.

viii. Unless otherwise stated, any dollar amounts, prices or amounts stated under these Terms

of Settlement are in the lawful currency of Canada.

ix. Unless otherwise stated, all accounting matters or terms in these Terms of Settlement will

be interpreted and construed in accordance with International Financial Reporting

Standards.

x. References to any statute, legislation or regulation include all subsequent additions,

amendments, re-enactments or replacements enacted from time to time during the period

covered by these Terms of Settlement.

12. Support of Terms of Settlement

(a) The Intervener Parties agree that they will support the application by AltaLink to the Commission

for approval of these Terms of Settlement.

13. Costs of the CCA

(a) Within 30 days following the receipt of an invoice from the CCA, AltaLink will pay the CCA, on

a refundable basis, the reasonable costs and expenses incurred by the CCA in connection with

retaining consultants and counsel in relation to the 2017-2018 GTA and the related negotiated

settlement process to and including the point of the Settlement Agreement and approval of the

same. In the event of any difference between the costs paid to the CCA consultants by AltaLink

and the cost claim approved by the Commission, the CCA, or its counsel or consultants, as the

case may be, will refund to AltaLink any amount by which the approved cost claim differs from

the amount paid to the CCA by AltaLink within 30 days of the date of the Commission’s decision

approving the CCA’s cost claim.



Page 10 of 16


11

(b) AltaLink will, in any event, pay to the CCA the amount of costs and expenses incurred by the

CCA in connection with this Settlement Agreement and the related negotiated settlement process

within 30 days of the date of the Commission’s decision approving the CCA’s cost claim.

IN WITNESS WHEREOF, the Parties have duly executed this Settlement Agreement as of the date set out above.

ALTALINK MANAGEMENT LTD., in its capacity as general partner of ALTALINK, L.P. Per: ______________________ Name: Title:

CONSUMERS’ COALITION OF ALBERTA Per: ______________________ Name:

Title:

OFFICE OF THE UTILITIES CONSUMER ADVOCATE Per: ______________________ Name: Title:

INDUSTRIAL POWER CONSUMERS ASSOCIATION OF ALBERTA Per: ______________________ Name: Title:

ALBERTA DIRECT CONNECT CONSUMERS ASSOCIATION Per: ______________________ Name: Title:



Page 11 of 16




within 30 days of the date ofthe Commission's decision approving the CCA's cost claim.


ALT ALINK MANAGEMENT LTD., in its capacity as general partner of ALTALINK, L.P.

Per:~ . Name: EDtv.n!::> w. IV~ Title: :S v p

OFFICE OF THE UTILITIES CONSUMER ADVOCATE

Per: ------------------Name: Title:

ALBERTA DIRECT CONNECT CONSUMERS ASSOCIATION

Per: ------------------Name: Title:

CONSUMERS' COALITION OF ALBERTA

Per: ------------------Name: Title:

INDUSTRIAL POWER CONSUMERS ASSOCIATION OF ALBERTA

Per: ~---------------Name: Title:



Page 12 of 16


If lZ C T.D . 2 1 "3 '-1 I

AI SA- - ffv'l'l L /Ii'C:I!-.'{hl>t/uc-~(4



within 30 days of the date of the Commission's decision approving the CCA's cost claim.


ALTALINK MANAGEMENT LTD., in its capacity as general partner of ALTALINK, L.P.

Per::-:--------Name: Title:


Per: __________ _

Name: Title:


Per: ::-c---------Name: Title:



Per:---------Name: Title:

II

~ ..

~ --



Page 13 of 16


(b) AltaLink will, in any event. pay to the CCA the amount of costs nnd expenses incurred by the


within 30 days of the date of the Com~ission's decision approving the CCA's cost claim.


ALTALINK MANAGEMENT L TO., in its capacity as general partner of ALTALINK, L.P.

Per:~ Name: GDt.~~i:> lJ, A./#,1 Title: $ v p


Per:C.Wc ~ Name: Chr,-s /lv11 T Title: c~recvf.-v~ (P.-r~c.l;p,-


Per: _________ _

Name: Title:

CONSUMERS' COALITION OFALBE~TA

Per:--------Name: Title:


Per:::-:--------Name: Title:

II



Page 14 of 16


11



within 30 days of the date of the Commission’s decision approving the CCA’s cost claim.


ALTALINK MANAGEMENT LTD., in its capacity as general partner of ALTALINK, L.P. Per: ______________________ Name: Title:

CONSUMERS’ COALITION OF ALBERTA Per: ______________________ Name: Title:

OFFICE OF THE UTILITIES CONSUMER ADVOCATE Per: ______________________ Name: Title:


Per: Name: Vittoria Bellissimo Title: Executive Director

ALBERTA DIRECT CONNECT CONSUMERS ASSOCIATION Per: ______________________ Name: Title:



Page 15 of 16


(b) AltaLink will, in any event, pay to the CCA the amount of costs nnd expenses incurred by the


within 30 days of the date of the Commission's decision approving the CCA 's cost claim.


ALT ALINK MANAGEMENT LTD., in its capacity as general partner of AL T ALINK, L.P.

Per:~ Name: cDw,n.;:> "-'· 1Vffi./ Title: s v p-


Per:::7" _______ _

Name: Title:


Per: UdCXkbL Name: Cole\.te Che.te.n:!c. Title: E::xE.Lvr,ve:: Ot~Gc:rol(


Per:::-:---------Name: Title:

INDUSTRIAL POWER CONSUMERS ASSOCIA TJON OF ALBERTA

Per: N~am-e: ______ __

Title:

II



Page 16 of 16


Documents

AltaLink Management Ltd. - AUC · PDF file · 2017-08-30Proceeding 21341 August 30, 2017 ... AltaLink Management Ltd. 2017-2018 General Tariff Application Decision 21341-D01-2017