Decision 23793-D01-2019 ATCO Pipelines 2019-2020 General ... · ATCO Pipelines 2019-2020 General...

Decision 23793-D01-2019

ATCO Pipelines 2019-2020 General Rate Application June 25, 2019

Alberta Utilities Commission

Decision 23793-D01-2019

ATCO Pipelines

2019-2020 General Rate Application

Proceeding 23793

June 25, 2019

Published by the:


Eau Claire Tower

1400, 600 Third Avenue S.W.

Calgary, Alberta T2P 0G5

Telephone: 310-4AUC (310-4282 in Alberta)

1-833-511-4AUC (1-833-511-4282 outside Alberta)

Email: [email protected]

Website: www.auc.ab.ca

The Commission may, within 30 days of the date of this decision and without notice, correct

typographical, spelling and calculation errors and other similar types of errors and post the

corrected decision on its website.

Decision 23793-D01-2019 (June 25, 2019) • i

Contents

1 Decision summary ................................................................................................................. 1

2 Introduction ........................................................................................................................... 1

3 Previous and concurrent applications ................................................................................. 3

4 Summary of revenue requirement....................................................................................... 3

5 Rate base ................................................................................................................................ 5

6 Capital expenditures ............................................................................................................. 6 6.1 Pembina-Keephills Transmission Pipeline Project ........................................................ 8

6.2 Weld Assessment and Repair Program .......................................................................... 9 6.3 Remote Operated Valves Program ............................................................................... 10

6.4 Pembina 8 Receipt Station - upgrade ........................................................................... 13 6.5 Quality Control Initiatives ............................................................................................ 14 6.6 General improvements and replacements ..................................................................... 18

6.7 Other capital projects not specifically addressed ......................................................... 21

7 Depreciation ......................................................................................................................... 21 7.1 UCA recommendation 6 – Depreciation expense workbook ....................................... 22 7.2 UCA recommendations 12 and 14 – Procedures for insurance, customer or third-party

contributions ................................................................................................................. 24

7.3 UCA recommendation 16 – Account 496-05 SCADA adjustment .............................. 26

8 Operating costs .................................................................................................................... 28 8.1 Forecasting accuracy .................................................................................................... 29 8.2 Material, known variances ........................................................................................... 33

8.3 Direct operation and maintenance expenses ................................................................ 34 8.4 Quality control initiatives ............................................................................................. 35

8.5 Compliance initiatives .................................................................................................. 36 8.5.1 Methane reduction compliance ....................................................................... 36 8.5.2 Pressure vessel inspection compliance ........................................................... 38 8.5.3 Greenhouse gas compliance ............................................................................ 40

8.6 Reliability and security ................................................................................................. 41 8.6.1 Facility assessments ........................................................................................ 41 8.6.2 Cyber security ................................................................................................. 42

8.7 O&M labour costs ........................................................................................................ 43 8.7.1 Salary escalators.............................................................................................. 44

8.7.1.1 In-scope employees ........................................................................... 44 8.7.1.2 Out-of-scope employees .................................................................... 46

8.7.2 FTE forecasts .................................................................................................. 48 8.7.2.1 Consolidation of management between ATCO Pipelines and ATCO

Gas ...................................................................................................... 51 8.7.3 Variable pay program ..................................................................................... 52

8.7.3.1 Variable pay program deferral account ............................................. 53 8.7.4 Pension costs ................................................................................................... 55 8.7.5 Vacancy rates .................................................................................................. 55

8.8 O&M supplies expenses ............................................................................................... 57

ii • Decision 23793-D01-2019 (June 25, 2019)

8.9 Administrative and general expenses ........................................................................... 60 8.10 Shared services initiative .............................................................................................. 61

8.11 IT costs ......................................................................................................................... 68

9 Return on rate base ............................................................................................................. 71 9.1 Return on equity and capital structure .......................................................................... 71 9.2 Costs associated with long-term debt ........................................................................... 72

10 Deferral accounts ................................................................................................................ 74 10.1 Discontinuation of deferral accounts ............................................................................ 75

10.1.1 Debenture rate deferral account .................................................................... 75 10.1.2 Defined benefit pension deferral account...................................................... 77 10.1.3 NGTL directed growth deferral account ....................................................... 80

11 Responses to previous Commission directions ................................................................. 82 11.1 ATCO Pipelines response to Direction 4 ..................................................................... 83

11.2 ATCO Pipelines’ response to Direction 22 .................................................................. 86 11.3 ATCO Pipelines’ response to Direction 23 .................................................................. 86

12 Other matters ...................................................................................................................... 87 12.1 Corporate costs (head office rent) ................................................................................ 87

13 Order .................................................................................................................................... 88

Appendix 1 – Proceeding participants ...................................................................................... 89

Appendix 2 – Summary of Commission directions .................................................................. 90

Appendix 3 – Detailed breakdown of capital expenditures .................................................... 97

List of figures

Figure 1. Operating costs – test year forecast, approved and actual by GRA ($000) ......... 29

Figure 2. Operating costs – test year forecast excluding VPP and pension deferral

amounts, approved and actual by GRA ($000) ...................................................... 30

List of tables

Table 1. ATCO Pipelines’ revenue requirement changes ...................................................... 4

Table 2. ATCO Pipelines’ summary of placeholders, deferral accounts and reserve

accounts ........................................................................................................................ 5

Table 3. ATCO Pipelines’ historical and forecast rate base .................................................. 5

Table 4. ATCO Pipelines’ capital expenditures and capital additions ................................. 6

Table 5. ATCO Pipelines’ capital expenditures by project category .................................... 6

Table 6. ATCO Pipelines’ ROV program forecast capital expenditures ........................... 10

Decision 23793-D01-2019 (June 25, 2019) • iii

Table 7. Incidences of H2S levels exceeding NGTL’s gas specification .............................. 14

Table 8. ATCO Pipelines’ estimate of annual capital costs ................................................. 15

Table 9. ATCO Pipelines’ estimate of annual operational expenses................................... 15

Table 10. ATCO Pipelines’ net depreciation expense for years, by year, ending

December 31 .............................................................................................................. 21

Table 11. ATCO Pipelines’ total operating expenses ............................................................. 28

Table 12. Actual versus approved ROE 2012-2018 ................................................................ 31

Table 13. Property tax actual versus approved ...................................................................... 33

Table 14. ATCO Pipelines’ operating expense breakdown ................................................... 35

Table 15. ATCO Pipelines’ O&M labour costs....................................................................... 43

Table 16. External wage settlements ........................................................................................ 45

Table 17. ATCO Pipelines’ forecast and actual out-of-scope increases from 2014 to 2018 47

Table 18. ATCO Pipelines’ permanent FTE positions ........................................................... 48

Table 19. ATCO Pipelines’ forecast additional labour positions, by labour activity

category ...................................................................................................................... 49

Table 20. Consolidated management FTEs ............................................................................. 52

Table 21. ATCO Pipelines’ vacancy rate calculations ........................................................... 56

Table 22. ATCO Pipelines’ operations and maintenance supplies ....................................... 57

Table 23. ATCO Pipelines’ administration and general expenses ........................................ 60

Table 24. ATCO Pipelines’ shared services forecast .............................................................. 62

Table 25. ATCO Pipelines’ IT services charged to operations .............................................. 68

Table 26. ATCO Pipelines’ average annual cost per IT user ................................................ 69

Table 27. ATCO Pipelines’ 2019 debt rate forecast ............................................................... 72

Table 28. ATCO Pipelines’ 2020 debt rate forecast ............................................................... 72

Table 29. ATCO Pipelines’ proposed and existing deferral accounts .................................. 74

Table 30. ATCO Pipelines’ 2018 debenture rate deferral ..................................................... 76

Table 31. ATCO Pipelines’ 2014 to 2018 debenture rate variances and deferral account

recoveries ................................................................................................................... 77

iv • Decision 23793-D01-2019 (June 25, 2019)

Table 32. ATCO Pipelines’ 2018 pension funding deferral account ..................................... 78

Table 33. ATCO Pipelines’ 2014 to 2018 defined benefit pension variances and deferral

account recoveries ..................................................................................................... 78

Table 34. Market value of ATCO Pipelines defined benefit pension fund ........................... 79

Table 35. NGTL directed growth deferral account ................................................................ 81

Table 36. NGTL directed growth deferral account materiality ............................................ 81

Table 37. ATCO Pipelines’ forecast UPR expenditures......................................................... 97

Table 38. ATCO Pipelines’ forecast growth expenditures..................................................... 97

Table 39. ATCO Pipelines’ forecast improvement and replacement expenditures ............ 98

Table 40. ATCO Pipelines’ forecast relocation expenditures ................................................ 99

Table 41. ATCO Pipelines’ IT expenditures ........................................................................... 99

Decision 23793-D01-2019 (June 25, 2019) • 1


Calgary, Alberta

ATCO Pipelines Decision 23793-D01-2019

2019-2020 General Rate Application Proceeding 23793

1 Decision summary

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

Pipelines’ general rate application for the 2019-2020 test years.

2. For the reasons set out in this decision, the Commission denies the requested revenue

requirement of ATCO Pipelines for the 2019-2010 test years because certain revenue

requirement amounts require adjustment. The Commission has ordered ATCO Pipelines to

respond to the directions in this decision in a compliance filing to be filed no later than August 8,

2019.

2 Introduction

3. On July 30, 2018, ATCO Pipelines, a division of ATCO Gas and Pipelines Ltd., (ATCO

Pipelines or AP) filed a general rate application (GRA) with the Commission requesting

approval of its revenue requirements of $288,412,000 and $313,238,000 for 2019 and 2020,

respectively. ATCO Pipelines is seeking Commission approval of:

its forecast opening balances for plant, property & equipment (PP&E) as at January 1,

2019;

the continued use of certain deferral accounts and placeholders and the proposed

discontinuation of specific deferral accounts;

its proposed depreciation rate changes resulting from its 2017 Depreciation Technical

Update1 conducted by Mr. Earl Robinson of AUS Consultants as of December 31, 2017;

its proposed settlement of certain regulatory deferral accounts.

4. The Commission issued notice of the application on July 31, 2018, with statements of

intent to participate (SIPs) due on August 10, 2018. In response to the notice, SIPs were filed by

the Consumers’ Coalition of Alberta (CCA) and the Office of the Utilities Consumer Advocate

(UCA).

5. The Commission determined that the application would be reviewed by way of a full

written process. As outlined in Commission Bulletin 2015-09,2 the record development phase of

a full written process is expected to take no more than 172 calendar days from the receipt of

application, assuming a complete application is received, and there are no procedural delays. The

Commission’s process ultimately included two rounds of information requests (IRs) and

1 Exhibit 23793-X0007.01, Section 4.4, Attachment 1, Depreciation Study Technical Update as at December 31,

2017. 2 Bulletin 2015-09, Performance standards for processing rate-related applications, March 26, 2015.

2019-2020 General Rate Application ATCO Pipelines

2 • Decision 23793-D01-2019 (June 25, 2019)

responses to IRs from ATCO Pipelines, intervener evidence, IRs and responses to IRs from

interveners, rebuttal evidence and argument and reply argument.

6. Through a series of letters,3 the Commission established the following schedule:

Process step Deadline

Information requests (IRs) to ATCO Pipelines – round 1 September 6, 2018

IR responses from ATCO Pipelines – round 1 September 21, 2018

Submission by ATCO Pipelines of the reconciliation of

Account 496-05 – SCADA accumulated information as

directed in Decision 23539-D01-2018

October 24, 2018

Submission by ATCO Pipelines to file on the record of

Proceeding 23799 all IR responses filed in Proceeding 23793

and related to the Pembina-Keephills Transmission Line

Project as directed in the Commission ruling dated

November 14, 2018

November 20, 2018

IRs to ATCO Pipelines – round 2

November 23, 2018

IR responses from ATCO Pipelines – round 2 December 5, 2018

Submission by ATCO Pipelines as directed in the

Commission ruling dated November 14, 2018 with respect to

the October 9, 2018 motion of the CCA for ATCO Pipelines

to file further and better responses to IR AP-CCA-

2018SEP06-004(d), (e) and (f)

December 5, 2018

Submission by ATCO Pipelines as directed in the

Commission ruling dated December 19, 2018 with respect to

the December 11, 2018 motion of the CCA for ATCO

Pipelines to fully comply with the Commissions ruling of

November 14, 2018 regarding IR AP-CCA-2018SEP06-

004(d), (e) and (f)

December 21, 2018

Intervener evidence January 11, 2019

IRs to interveners February 1, 2019

IR responses from interveners February 15, 2019

Rebuttal evidence February 27, 2019

Argument March 13, 2019

Reply argument March 27, 2019

7. The Commission considers the close of record for this proceeding to be March 27, 2019.

8. In reaching the determinations throughout this decision, the Commission has considered

all relevant materials comprising the record of this proceeding, including the evidence and

arguments provided by each party. Accordingly, references in this decision to specific parts of

the record are intended to assist the reader in understanding the Commission’s reasoning relating

to a particular matter and should not be taken as an indication that the Commission did not

consider all relevant portions of the record with respect to a particular matter.

3 Exhibits 23793-X0017, 23793-X0039, 23793-X0056, 23793-X0071.


Decision 23793-D01-2019 (June 25, 2019) • 3

9. This decision addresses the contentious cost items forecast in the application, updates and

any matters that the Commission has otherwise determined are required to be specifically

addressed. If a matter or request for approval included in ATCO Pipelines’ application is not

addressed in the findings, that matter or request is approved for the purposes of this GRA

decision.

3 Previous and concurrent applications

10. In an August 29, 2017 decision, Decision 22011-D01-2017,4 the Commission issued its

findings and directions on ATCO Pipelines 2017-2018 GRA. A compliance filing decision,

Decision 22986-D01-20185 was issued on March 13, 2018. The compliance filing decision

included further compliance directions and ATCO Pipelines was directed to file a compliance

application to Decision 22986-D01-2018.

11. On May 15, 2018, ATCO Pipelines filed an application with the Commission requesting

approval of its compliance filing to Decision 22986-D01-2018. Specifically, ATCO Pipelines

requested the Commission’s confirmation or approval of:

ATCO Pipelines’ compliance with directions 1 and 4 from Decision 22986-D01-2018

and

ATCO Pipelines’ 2017-2018 forecast revenue requirements of $248,266,000 and

$268,535,000, respectively, as final.

12. In Decision 23537-D01-2018,6 the Commission approved ATCO Pipelines’ 2017 and

2018 revenue requirements of $248,016,000 and $268,226,000, respectively, subject to any

placeholders.

13. In this decision, the Commission considers any outstanding placeholders that can now be

finalized and any findings from the following proceedings that directly affect ATCO Pipelines’

updated revenue requirements for 2019-2020: the ATCO Utilities IT common matters

application in Proceeding 20514; ATCO Pipelines’ Pembina-Keephills Transmission Pipeline

application in Proceeding 23799; the 2018 Generic Cost of Capital (GCOC) in Proceeding

22570; ATCO Pipelines’ variance application related to Decision 22986-D01-2018 and Decision

23537-D01-2018 (Errata) in Proceeding 24176; and the Commission’s denial of weld assessment

and repair costs to address deficient welds in Decision 22986-D01-2018 and Decision 23537-

D01-2018 (Errata).

4 Summary of revenue requirement

14. In this application, ATCO Pipelines initially requested approval of revenue requirement

amounts of $288,412,000 for 2019 and $313,238,000 for 2020. In its application, ATCO

4 Decision 22011-D01-2017: ATCO Pipelines 2017-2018 General Rate Application Proceeding 22011,

August 29, 2017. 5 Decision 22986-D01-2018: ATCO Pipelines, Compliance Application to Decision 22011-D01-2017, 2017-2018

General Rate Application, Proceeding 22986, March 13, 2018. 6 Decision 23537-D01-2018 (Errata): Compliance Application II to Decision 22986-D01-2018, 2017-2018

General Rate Application Compliance Application, Proceeding 23537, August 29, 2018.


4 • Decision 23793-D01-2019 (June 25, 2019)

Pipelines provided an overview of the main contributors to the year-over-year changes in its

revenue requirement from 2018 to 2020:

Table 1. ATCO Pipelines’ revenue requirement changes

($000)

Approved 2018 revenue requirement(1) 268,535

Impact of rate base growth 16,631

Change in depreciation rates – technical update (247)

Operations and maintenance 3,600

Other (107)

Forecast 2019 revenue requirement 288,412

Impact of rate base growth 21,156

Change in depreciation rates – technical update (222)

Operations and maintenance 3,826

Other 66

Forecast 2020 revenue requirement 313,238

(1)Per ATCO Pipelines’ 2017-2018 compliance II filing (Proceeding 23537).

15. On December 5, 2018, ATCO Pipelines updated its revenue requirement and schedules to

include all errors or corrections identified to date for its 2019 and 2020 forecasts.7 This resulted

in updated revenue requirement forecasts of $289,678,000 for 2019 and $314,533,000 for 2020.

16. As mentioned in Section 3 of this decision, there are a number of proceedings currently

before the Commission that may affect ATCO Pipelines forecast costs of in this application, the

most noteworthy of which are Proceeding 22570 and Proceeding 20514.

17. In GCOC decisions, the Commission rules on the authorized equity thickness and return

on equity (ROE) of affected Alberta utilities. ATCO Pipelines included in its initial application,

the equity thickness and ROE approved in the 2016 Generic Cost of Capital (2016 GCOC

decision) proceeding8 as a placeholder for each of 2019 and 2020 because the 2018 GCOC

decision9 had not yet been issued. ATCO Pipelines proposed that the placeholders be updated to

reflect the 2018 GCOC decision in its compliance filing to this GRA. A discussion of return on

rate base and the impact of the 2018 GCOC decision is provided in Section 9 of this decision.

18. The Commission initiated Proceeding 20514 to examine IT rates related to the master

service agreements (MSAs) between the ATCO Utilities and Wipro. In its 2019-2020 GRA,

ATCO Pipelines requested approval of forecast IT volumes for 2019 and 2020 with the IT rates

to be treated as placeholders pending the outcome of the IT Common Matters proceeding.

19. A summary of placeholders and reserves included in this application is provided in

Table 2:

7 Exhibit 23793-X0062, AP-AUC-2018NOV23-001 and Exhibit 23793-X0063, AP-AUC-2018NOV23-001

Attachment. 8 Decision 20622-D01-2016: 2016 Generic Cost of Capital, Proceeding 20622, October 7, 2016, tables 1 and 26. 9 Decision 22570-D01-2018: 2018 Generic Cost of Capital, Proceeding 22570, August 2, 2018.


Decision 23793-D01-2019 (June 25, 2019) • 5

Table 2. ATCO Pipelines’ summary of placeholders, deferral accounts and reserve accounts

2019 2020

Placeholder

2018 GCOC

Equity thickness 37% 37%

Return on equity 8.50% 8.50%

IT Common Matters IT Rates/Costs IT Rates/Costs

Deferrals and reserve accounts ($000)

VPP 3,074 3,177

Regulatory expenses 3,717 3,717

Injuries & damages (67) (67)

Source: Exhibit 23793-X0001, Table 1.2-1 Summary of Placeholder and Reserve Requests, PDF page 9.

5 Rate base

20. ATCO Pipelines’ rate base consists of its mid-year plant in service plus necessary

working capital as set out in the following table:

Table 3. ATCO Pipelines’ historical and forecast rate base10

2017 Approved 2017 Actual 2018 Approved 2018 Estimate 2019 Forecast 2020 Forecast

($000)

Mid-year plant in service 1,473,992 1,455,215 1,673,722 1,676,975 1,861,153 2,045,056

Necessary working capital 30,826 35,281 29,878 33,719 32,160 33,964

Rate base 1,504,818 1,490,496 1,703,600 1,710,694 1,893,313 2,079,020

Source: Exhibit 23793-X0001, Table 2.1-1, PDF page 22; Exhibit 23793-X0026, AP-AUC-2018SEP06-001, Schedule 2.1-1.

21. Variances between the 2017-2018 approved amounts, 2017 actuals and 2018 estimated

rate base amounts consisted primarily of decreases to rate base due to the urban pipeline

replacement (UPR) re-scoping of projects, construction scheduling of capital projects, and

increases in contribution amounts from the South West Calgary Ring Road project.11 These

decreases were partially offset by higher than approved necessary working capital requirements

in both 2017 and 2018.

22. ATCO Pipelines also explained that the year-over-year increases in both 2019 and 2020

rate base in the table were driven by capital expenditures associated with the Pembina-Keephills

Transmission Pipeline Project, ongoing pipeline and facility integrity initiatives such as the

In-Line Inspection (ILI) Program, the Lethbridge Urban Pipeline Upgrade, and the continued

capital expenditures associated with the UPR Program.12

10 As noted in Section 4 above, in Exhibit 23793-X0062, AP-AUC-2018NOV23-001 and Exhibit 23793-X0063,

AP-AUC-2018NOV23-001 Attachment, ATCO Pipelines provided an update of its revenue requirement and

schedules to include all errors or corrections identified to date regarding its 2019 and 2020 forecasts, the values

in this table do not include those updates. 11 Exhibit 23793-X0025, AP-AUC-2018SEP06-001(c), PDF page 8. 12 Exhibit 23793-X0001, application, PDF pages 4-5.


6 • Decision 23793-D01-2019 (June 25, 2019)

Commission findings

23. The Commission has reviewed the variance between approved and estimated rate base for

2018 and is satisfied with the explanations provided by ATCO Pipelines in its application and in

responses to IRs. For this reason, the Commission approves ATCO Pipelines’ 2018 opening rate

base on an actual basis. However, as ATCO Pipelines’ actual closing 2018 rate base information

is not available, the Commission makes no finding with respect to 2019 opening rate base.

ATCO Pipelines’ 2019 opening rate base amounts will also be affected by the findings in other

areas of this decision. ATCO Pipelines is directed to provide its 2018 rate base actuals in the

compliance filing to this decision.

6 Capital expenditures

24. ATCO Pipelines provided its capital expenditures and capital additions on a project-by-

project basis for capital projects and for contributions, as shown in its detailed construction work

in progress (CWIP) continuity schedules. This information was provided for 2017 and 2018 on

an approved or actual basis, for 2018 on an estimated basis and for 2019 and 2020 on a forecast

basis, as set out in the following table:

Table 4. ATCO Pipelines’ capital expenditures and capital additions

2017 Approved 2017 Actual 2018 Approved 2018 Estimate 2019 Forecast 2020 Forecast

($000)

Capital expenditures 324,344 290,423 263,515 245,007 313,732 190,190

Contributions (7,789) (14,868) (7,789) (15,967) (6,861) (6,388)

Capital additions 350,920 356,252 196,120 243,077 296,538 253,032

Contributions (5,978) (3,273) (7,649) (23,350) (9,722) (6,716)

Source: Exhibit 23793-X0062, AP-AUC-2018NOV23-018, PDF pages 107, 109, 111, 113, 115, and 117.

25. ATCO Pipelines also provided a summary of its capital expenditures on a category basis,

as set out in the table below:

Table 5. ATCO Pipelines’ capital expenditures by project category

2017 Actual 2018 Estimate 2019 Forecast 2020 Forecast

($000)

UPR 145,232 72,994 63,262 37,818

Growth 50,610 56,413 119,100 14,960

Improvements and replacements 83,656 91,846 122,434 129,077

Relocations 8,548 18,190 6,388 6,646

IT projects 2,378 5,565 2,549 1,690

Total 290,424 245,008 313,733 190,191

Contributions (14,867) (15,968) (6,861) (6,388)

Source: Exhibit 23793-X0001, application, Table 2.3-1, PDF page 25.

26. ATCO Pipelines explained that the key drivers of the capital expenditures during the test

period are:


Decision 23793-D01-2019 (June 25, 2019) • 7

UPR projects in Edmonton and Calgary, the need for which was approved in

Decision 2014-010.13

Improvement and replacement projects focused on pipeline and facility integrity

initiatives, including the ILI program and other system upgrades, as well as additional

verification activities.

Relocation projects driven by municipal, provincial and private developments that result

in requests for ATCO Pipelines to relocate its existing facilities.14 There is often a

contribution in aid of construction (contribution) towards the cost of these relocations by

the third party requesting the relocation, depending upon applicable agreements in effect.

For the 2019 and 2020 test years, forecast contributions were $6,388,000 and $6,646,000,

respectively.15

27. A detailed breakdown of ATCO Pipelines’ forecast capital expenditures is provided in

Appendix 3 of this decision.

Commission findings

28. The Commission notes that there are several business cases that address capital

expenditures that are of a longer-term nature. For example, ATCO Pipelines’ forecast capital

expenditures of $63,300,000 in 2019 and $37,800,000 in 2020 for the UPR program. The

Commission will specifically address the three capital projects that were the major drivers of

capital expenditures in the test period and in the subsections that follow, the Commission will

address specific capital projects that were contentious or otherwise require specific findings of

the Commission.

29. With respect to UPR, on January 17, 2014, the Commission issued Decision 2014-010

that approved the proposal related to the need for ATCO Pipelines’ UPR pipelines. The UPR

proposal was comprised of 12 individual pipeline projects, four in Edmonton and eight in

Calgary, all of which included construction of new high-pressure pipelines within transportation

utility corridors to replace aging infrastructure and to meet the 20-year demand for natural gas.

While individual project forecasts have changed since Decision 2014-010 was issued, the overall

forecast of the UPR Project remains within one per cent of the previous 2017-2018 GRA

forecast. The Commission considers that the forecasts are supported by the information on the

record and the overall variance in the forecast has not significantly changed from the last GRA.

The Commission therefore accepts ATCO Pipelines’ forecast UPR costs for the 2019-2020 test

period.

30. ATCO Pipelines is continuing with its multi-year program ILI and depth of cover

programs that were approved by the Commission in Decision 22011-D01-D017. ATCO

Pipelines stated that ILI is a key component of its integrity program and is required to comply

with Canadian Standards Association (CSA) Z662-15, Section 3.2 and Annex N.16 From 2015 to

2022, ATCO Pipelines has forecast total capital costs of $244,161,000 plus removal costs of

13 Decision 2014-010: ATCO Pipelines, a division of ATCO Gas and Pipelines Ltd., Urban Pipeline Replacement

Project, Proceeding 1995, Application 1608617-1, January 17, 2014. 14 Exhibit 23793-X0001, application, PDF pages 24-26. 15 Exhibit 23793-X0001, application, PDF page 46. 16 Exhibit 23793-X0010, 7.2 Attachment, PDF page 67.


8 • Decision 23793-D01-2019 (June 25, 2019)

$21,000,775 for this program. ATCO Pipelines’ forecasts $50,620,000 in 2019 and $47,895,000

in 2020 for its ILI program.

31. In its application, ATCO Pipelines states that the depth of cover program replaces or

removes sections of pipeline that do not have sufficient depth of cover as required under CSA

Z662-15 and Alberta Pipeline Rules.17 ATCO Pipelines has forecast depth of cover capital

expenditures of $6,374,000 in 2019 and $6,502,000 in 2020. These amounts represent a portion

of the $25,988,000 plus $4,352,000 in removal costs of the overall forecast expenditures for the

program.

32. The Commission has reviewed the forecast costs associated with the ILI and depth of

cover programs and is satisfied that ATCO Pipelines has adequately explained the need for the

expenditures to ensure pipeline integrity. These costs have been reasonably supported on the

record and are approved for inclusion in the improvement and replacement capital expenditures

for 2019 and 2020.

33. In compliance with Decision 22011-D01-2017, ATCO Pipelines explained that the

retirement of the original assets from Account 465.00 transmission plant – Mains,18 associated

with the replacement and removal programs are ordinary retirements. The Commission considers

that these retirements are properly recorded as ordinary retirements as proposed by ATCO

Pipelines. The Commission approves ATCO Pipelines’ forecast capital expenditures for the ILI

and depth of cover programs, as filed. In the sections that follow, the Commission includes a

discussion of specific, applied-for capital projects.

6.1 Pembina-Keephills Transmission Pipeline Project

34. ATCO Pipelines applied to construct a new high-pressure natural gas pipeline to provide

natural gas transportation service to meet the incremental demand of electric power generation in

the Wabamun area, which is the Pembina-Keephills Transmission Pipeline Project (Pembina

Keephills). ATCO Pipelines originally forecast the cost of the project at $157,000,000 in this

GRA, with the majority of the costs of the project, (approximately $108,600,000) incurred in

2019. The forecast was revised to $230,000,000 in the concurrent facilities proceeding,

Proceeding 23799.19

35. The CCA argued that the costs of the project should be excluded from the 2019 and 2020

test years until the Commission renders its determination of the Pembina-Keephills project in

Proceeding 23799.

36. The UCA argued that the project should be treated as no cost capital until it is both

approved and in-service.

37. In reply argument, ATCO Pipelines stated, “to the extent the Commission adjusts costs or

revenues for the Project in the Facilities proceeding, ATCO Pipelines will reflect any such

adjustments in a compliance filing to the GRA.”20

17 Canadian Standards Association (CSA) Z662-15, Section 4.11 and Table 4.9. 18 Exhibit 23793-X0010, 7.2 Attachment, PDF pages 72 and 151. 19 Proceeding 23799, Exhibit 23799-X0055, PDF page 2. 20 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 75.


Decision 23793-D01-2019 (June 25, 2019) • 9

Commission findings

38. The Commission determined, in a letter dated November 14, 2018, that due to the

potential overlap between this GRA and the facilities proceeding on the proposed Pembina-

Keephills project, it was more efficient to address the rates and facilities matters for the project

in Proceeding 23799.21 Given that the need and costs related to the project are being determined

in Proceeding 23799, the Commission approves placeholder treatment for the project until a

determination is made in Proceeding 23799. ATCO Pipelines is directed to revise its revenue

requirement and capital expenditures forecasts in its compliance filing to this decision to reflect

any findings arising from Proceeding 23799.

6.2 Weld Assessment and Repair Program

39. ATCO Pipelines’ application included costs associated with its Weld Assessment and

Repair Program (WARP) initiated to assess and, where necessary, replace all in-service pre-

fabrication welds identified to have the potential to contain deficiencies as a result of insufficient

radiographic inspections. According to ATCO Pipelines, the inspection and assessment of welds

identified under this program are required to ensure continued safe and reliable service and to

maintain code compliance with applicable standards, i.e., CSA Z662-15, ASME B31.3, and

ASME BPV (Section V) and legal requirements (including the Pipeline Act).22

40. While the WARP business case presented the full program forecast, including both

reinspection and repair, the amounts included in revenue requirement for the test years excluded

reinspection costs, pursuant to Commission Decision 22986-D01-2018.23 ATCO Pipelines stated

it has forecast capital expenditures of $5,972,000 in 2019 and $6,091,000 in 2020,24 which is

only a portion of the estimated total project cost of approximately $67,133,000. The total project

cost includes $36,800,000 in reinspection costs, $28,980,000 in repairs, and $1,345,000 in

removal costs.25

Commission findings

41. On March 18, 2018, the Commission issued Decision 22986-D01-2018,26 the first

compliance decision to ATCO Pipelines’ 2017-2018 GRA denying 100 per cent of reinspection

costs of WARP and directing ATCO Pipelines to remove both the 2016 reinspection costs from

its 2017 opening rate base and from its 2017-2018 capital expenditures and revenue

requirements.

42. On May 7, 2018, ATCO Pipelines requested an R&V of the Commission’s disallowance

of the WARP reinspection costs in the first compliance decision. On September 27, 2018, the

Commission issued Decision 23539-D01-201827 granting a review of the WARP reinspection

costs.

21 Exhibit 23793-X0056, AUC letter – Ruling on UCA request for a second round of information requests and a

CCA motion for further and better responses to information requests. 22 Exhibit 23793-X0010, 7.2 Attachment, PDF page 141. 23 Exhibit 23793-X0001 application, PDF page 42. 24 Exhibit 23793-X0001 application, PDF page 40. 25 Exhibit 23793-X0010, 7.2 Attachment, PDF page 143. 26 Decision 22986-D01-2018: ATCO Pipelines, a division of ATCO Gas and Pipelines Ltd., Compliance

Application to Decision 22011-D01-20178, 2017-2018 General Rate Application, March 13, 2018. 27 Decision 23539-D01-2018: ATCO Pipelines, Office of the Utilities Consumer Advocate, Decision on

Preliminary Question Applications for Review of Decision 22986-D01-2018 Compliance Application to


10 • Decision 23793-D01-2019 (June 25, 2019)

43. In Decision 23537-D01-2018 (Errata), related to the second compliance decision,28 the

Commission denied 100 per cent of the incremental repair costs arising from improper

radiographic inspections. ATCO Pipelines filed an application on October 18, 2018, which was

assigned Proceeding 23953, for review of the Commission’s disallowance of incremental repair

costs.

44. On December 13, 2018, the Commission issued Decision 23953-D01-2018,29 wherein the

review panel found that findings related to WARP repair costs should be reviewed. The review

panel concluded that the review process should consider both WARP reinspection and repair

costs. On December 21, 2018, the Commission issued a notice of hearing for the review

proceeding to consider the merits of ATCO Pipelines’ application to vary Decision 22986-D01-

2018 and Decision 23537-D01-2018 (Errata) with respect to both the reinspection and repair

costs. The Commission assigned Proceeding 24176 to the review.

45. Given that WARP is currently under consideration in Proceeding 24176, any

determination in that proceeding may affect the consideration of the forecast WARP costs in this

proceeding. As a result, the Commission considers that placeholder treatment of the WARP

forecast is reasonable. Consistent with the denial of WARP reinspection and repairs costs in

Decision 22986-D01-2018 and Decision 23537-D01-2018 (Errata), the Commission directs that

the WARP placeholder amount be set at $0.

6.3 Remote Operated Valves Program

46. ATCO Pipelines proposed to initiate a multi-year program to incorporate remote operated

valves (ROVs) into its transmission system. The program includes the installation of ROVs on

31 pipeline segments in urban locations over a five-year period concluding in 2023. ATCO

Pipelines proposes to install ROVs on nine rural segments during the 2019-2020 period at

strategic locations that ATCO Pipelines submits would enhance its ability to respond to pipeline

failures and natural disasters. ATCO Pipelines noted that CSA Z662-15 in Section 4.4.1 states,

“Isolating valves shall be installed for the purpose of isolating the pipeline for maintenance and

for response to operating emergencies.”30

47. The forecast costs of the ROV program are provided in the table below:31

Table 6. ATCO Pipelines’ ROV program forecast capital expenditures

Engineering Materials Land Construction AFUDC* Total

($)

2019 383,000 2,300,000 0 1,150,000 0 3,833,000

2020 391,000 2,345,000 0 1,173,000 0 3,909,000

2021 266,000 1,595,000 0 797,000 0 2,658,000

Decision 22011-D01-2017: ATCO Pipelines 2017-2018 General Rate Application, Proceeding 23539,

September 27, 2018. 28 Decision 23537-D01-2018 (Errata): ATCO Pipelines, a division of ATCO Gas and Pipelines Ltd., Compliance

Application II to Decision 22986-D01-2018, 2017-2018 General Rate Application Compliance Application,

August 29, 2018. 29 Decision 23953-D01-2018 ATCO Pipelines Decision on Preliminary Question Application for Review of

Decision 23537-D01-2018 (Errata) Compliance Application to Decision 22986-D01-2018, Proceeding 23953,

December 13, 2018. 30 Exhibit 23793-X0010, 7.2 Attachment, PDF page 175. 31 Exhibit 23793-X0010, 7.2 Attachment, PDF page 179.


Decision 23793-D01-2019 (June 25, 2019) • 11

Engineering Materials Land Construction AFUDC* Total

2022 271,000 1,627,000 0 813,000 0 2,711,000

2023 277,000 1,659,000 0 830,000 0 2,766,000

Total 1,588,000 9,526,000 0 4,763,000 0 15,877,000

*Allowance for funds used during construction

CCA

48. The CCA argued that there is no requirement for the proposed valves either legislatively

or through mandated standards, nor is there industry consensus on the need to install these types

of shutdown valves. In response to IRs, ATCO Pipelines confirmed that it:

is not aware of any regulating body in Canada, or any other jurisdiction, that has

mandated the use of remote emergency valves for a natural gas system.

has not completed an impact analysis for each pipeline segment in the proposed ROV

business case.

has not consulted with any municipalities, industrial customers or other operators of

critical facilities regarding the proposed ROV program.

has not consulted with emergency responders regarding the response time for firefighters

for each of the proposed systems.32

49. The CCA submitted that ATCO Pipelines has not completed risk assessments that

support the necessity of the proposed valves and that ATCO Pipelines is relying on a single

directive from another jurisdiction that has received no follow-up since 2012. The CCA further

argued that ATCO Pipelines has relied on a 2012 research study based entirely on United States

standards that includes extensive discussion of hazardous liquid pipelines and high consequence

areas, neither of which are applicable to ATCO Pipelines’ business or its operating jurisdiction.33

The CCA submitted that ATCO Pipelines failed to address portions of the American Gas

Association (AGA) White Paper on ROVs with respect to unintended consequences of false

valve closures.34

50. The CCA asserted that ATCO Pipelines’ average estimate of $250,000 per site is

inadequate for inclusion into the revenue requirements of this proceeding because the estimate is

not based on any specific site evaluation and ATCO Pipelines has not provided for any site

acquisition or power and telecommunication access.35

51. The CCA recommended that ATCO Pipelines be directed to remove the costs related to

this project of $3,833,000 in 2019 and $3,909,000 in 2020 from the forecast revenue

requirements.

32 Exhibit 23793-X0091, CCA argument, paragraph 16. 33 Exhibit 23793-X0091, CCA argument, paragraphs 7-8. 34 Exhibit 23793-X0091, CCA argument, paragraph 11. 35 Exhibit 23793-X0091, CCA argument, paragraphs 12 and 17.


12 • Decision 23793-D01-2019 (June 25, 2019)

ATCO Pipelines

52. ATCO Pipelines confirmed that, although it had not completed a third-party risk analysis,

it did complete a “risk analysis to determine which systems are greatest risk,” which supported

the need for the program. Further, ATCO Pipelines detailed the consequences or probability of

false shutdowns. 36

53. ATCO Pipelines argued that ROVs are common within industry and that other Canadian

pipeline operators, including Manitoba Hydro, SaskEnergy, FortisBC and Energir (formerly Gaz

Metro) utilize ROVs. ATCO Pipelines also stated that it believes there is growing and

widespread industry consensus on the necessity and value of ROVs in both Canada and the

United States and that it “believes that ROVs would enhance its capabilities to respond to

operating emergencies.”37

54. ATCO Pipelines confirmed that in developing the $250,000 average cost per site, it relied

on “historical project installation costs” and that the estimate is consistent with the estimated cost

to retrofit an existing line in the AGA’s White Paper.38

Commission findings

55. The Commission is supportive of efforts by utilities to enhance response time in

situations that have the potential to threaten public safety or pipeline integrity. The Commission

considers that the evidence has reasonably demonstrated that ROVs would reduce response time

and therefore mitigate against potential consequences that could affect public safety or pipeline

integrity. Currently, utility staff are required to travel to locations to shut-off the flow of natural

gas, which could have consequences such as endangerment to utility staff or to the general

public.

56. The Commission notes, however, that ATCO Pipelines confirmed that it is not aware of

any regulating body in Canada or any other jurisdiction that has mandated the use of ROVs for

natural gas systems.39 Before the Commission determines whether ROVs and the associated costs

are reasonably required for public safety or pipeline integrity, ATCO Pipelines is directed to

provide the following information in its compliance filing to this decision:

Provide a detailed explanation of the advantages and disadvantages of the installation of

ROVs (and include any comments on the conclusions found in the AGA White Paper);

File a copy of the AGA White Paper;

Provide a risk assessment, impact analysis and detailed cost estimates for each of the

proposed ROV locations;

Explain how it proposes to prioritize its ROV installations; and

36 Exhibit 23793-X0033, AP-CCA-2018SEP06-024(f) and (g), PDF pages 126-127. 37 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 82. 38 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 88. 39 Exhibit 23793-X0033, AP-CCA-2018SEP06-23, PDF page 126.


Decision 23793-D01-2019 (June 25, 2019) • 13

Confirm the process and costs that would be required for any consultation with

municipalities, industrial customers, other operators of critical facilities and emergency

responders regarding the proposed ROV program.

6.4 Pembina 8 Receipt Station - upgrade

57. ATCO Pipelines proposed to upgrade the existing Pembina 8 Receipt Station (Pembina 8

upgrade), including upgrading the automated hydrogen sulfide (H2S) shutdown valve and

custody transfer metering and adding functionality at the current facility by installing a buy-back

run, an H2S containment vessel and a filter separator. ATCO Pipelines indicated that this station

was installed in 1958 and that the equipment has degraded over the past 60 years of operation

such that it is no longer adequate to protect the pipeline system from higher H2S levels. It

explained that the level of H2S contamination from the upstream producers at the Pembina 8

Receipt Station has the potential to exceed the Nova Gas Transmission Ltd. (NGTL) gas

specifications. This necessitates reliable H2S monitoring and automated shutdown equipment.

Incidents of the H2S limit exceeding NGTL’s gas specification have occurred at an increased rate

over the last three years, including five shutdowns in the last six months of 2017. ATCO

Pipelines stated that upgrades to the H2S shutdown system are necessary to ensure that H2S

levels do not exceed NGTL limits.40 ATCO Pipelines forecast capital expenditures for the project

of $1,001,000 with removal costs of $30,000 in 2019. The project is forecast to be in service in

2019.41

CCA

58. The CCA argued that despite the project being solely required to bring producer gas at a

single receipt point onto the Alberta system, there is no customer contribution for this project nor

has ATCO Pipelines verified contractual backstopping for the required expenditures. The CCA

noted that in two previous instances where similar upgrades took place, the projects were either

underpinned by existing contracts or required a contribution when existing contractual revenue

underpinning the project was insufficient.42

59. The CCA argued that it is inappropriate to permit the Pembina 8 upgrade to proceed as a

minor modification supported by the Alberta system ratepayer without evidence of a contractual

commitment. The CCA considers this lack of verification of contractual support to be untenable

and contends that investments of the magnitude of the Pembina 8 upgrade must be of direct

benefit to Alberta system customers as a whole and must not result in the subsidization of a

single customer. The CCA recommended that the costs of this project be disallowed from the

revenue requirements until ATCO Pipelines can demonstrate in the compliance filing the

contractual support necessary from the specific customers at this site to prevent subsidization by

the general ratepayer for these upgrades.43

ATCO Pipelines

60. ATCO Pipelines asserted that the Pembina 8 upgrade is not providing benefit to only one

customer but to multiple customers downstream of the receipt station. As stated in the business

case, “Upgrades to the H2S shutdown system are necessary to ensure that H2S levels do not

40 Exhibit 23793-X0010, 7.2 Attachment, PDF pages 191-192. 41 Exhibit 23793-X0010, 7.2 Attachment, PDF page 193. 42 Exhibit 23793-X0091, CCA argument, paragraphs 39-41. 43 Exhibit 23793-X0091, CCA argument, paragraphs 45-47.


14 • Decision 23793-D01-2019 (June 25, 2019)

exceed NGTL limits. The close proximity (2.5 km [kilometres]) of local distribution company

taps downstream of the receipt station reinforces the requirement for complete containment to

prevent the receipt of H2S contaminated gas onto the AP system.”44

61. In reply argument, ATCO Pipelines re-iterated that “there are firm service receipt

contracts held for this station. Gas delivered downstream of the station would also generate

delivery revenue.”45 ATCO Pipelines submitted that it clearly demonstrated that it has the

contractual support necessary for the project and that on this basis, the Pembina 8 upgrade should

be approved as filed.

Commission findings

62. The Commission finds that that the Pembina 8 upgrade is required to address the H2S

levels exceeding NGTL’s gas specification. The Commission notes that incidents of H2S levels

exceeding NGTL’s gas specification have occurred at an increasing rate since 2014:

Table 7. Incidences of H2S levels exceeding NGTL’s gas specification

Year Exceedances

2014 2

2015 3

2016 4

2017 7

2018 (to September 1) 6

Source: Exhibit 23793-X0025, AP-AUC-20-18SEP06-43(c), PDF page 228.

63. The Commission is persuaded that the project will benefit not only the one producer at

the receipt point, but also downstream customers, as supported by the information supplied by

ATCO Pipelines on the record. The project does not require NGTL approval as it is considered a

minor modification under the AP-NGTL Integration Agreement.46 There is sufficient evidence to

include the cost for the Pembina 8 upgrade in customer rates because this project is related to the

integrated system rather than specifically in relation to the contractual obligation for one

customer. The Commission is also satisfied that the upgrade is reasonably required in 2019.

Accordingly, the Commission approves the forecast costs for the Pembina 8 upgrade, as filed.

6.5 Quality Control Initiatives

64. ATCO Pipelines indicated that in light of the Commission decision on the 2017-2018

GRA compliance application in Decision 22986-D01-2018 and on its own initiative, it reviewed

its inspection and monitoring procedures across its pipeline system. Following this review, it

concluded that the quality control processes currently in place are not adequate to ensure the

absence of negligence or fraud. ATCO Pipelines noted that in Decision 22986-D01-2018 the

Commission stated:

… [AP] should have established some quality control measures to ensure that the work

performed by its contractors … was being properly completed in accordance with all

applicable standards[.] …[G]reater oversight … could have ensured a more reliable

44 Exhibit 23793-X0010, 7.2 Attachment, PDF page 192. 45 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 107; Exhibit 23793-X0033, AP-CCA-

2018SEP06-021(g), PDF pages 109-110. 46 Exhibit 23793-X0025, AP-AUC-2018SEP06-043(a), PDF page 228.


Decision 23793-D01-2019 (June 25, 2019) • 15

process and mitigated the risk[.] … [P]eriodic review and monitoring should be

expected.47

65. ATCO Pipelines proposes to implement several new quality control initiatives to reduce

the risk of negligent or fraudulent actions. The breakdown of test year forecast costs on an

annual basis for the proposed quality control initiatives by capital and operating and maintenance

(O&M) costs is provided below:48

Table 8. ATCO Pipelines’ estimate of annual capital costs

Category Annual cost

($000)

Increased construction inspection 6,355

Material verification 1,330

Radiography verification 835

Quality program administration 785

Engineering design 625

Survey 565

Environment 415

ILI verification 325

ECEA inspections 80

Watercourse survey 35

Total 11,350

Note: Programs to commence in 2019.

Table 9. ATCO Pipelines’ estimate of annual operational expenses

Category Annual cost

($000)

Measurement verification 1,000

Reinspection Program 620

Third-party activity verification 300

Critical equipment verification 205

Quality program coordinator 120

Critical facility assessment 100

Cathodic protection readings 50

Aerial survey 25

Total 2,420

66. The approximate effect of capital and operating spending activities for the quality control

initiatives on the revenue requirements is $2,830,000 in 2019 and $3,672,000 in 2020.49

67. ATCO Pipelines stated that the Commission’s disallowance in Decision 22986-D01-2018

and Decision 23537-D01-2018 of all reinspection and repair costs for all years implies that the

Commission has determined that no period of time is reasonable to discover deficiencies and that

47 Decision 22986-D01-2018, paragraph 47. 48 Exhibit 23793-X0010, 7.2 Attachment, PDF page 216. 49 Exhibit 23793-X0029, AP-UCA-2018SEP06-018(d), PDF page 53.


16 • Decision 23793-D01-2019 (June 25, 2019)

an increased level of quality control is therefore required.50 ATCO Pipelines argued that it

required higher levels of quality control to provide safe and reliable utility service. In Decision

22986-D01-2018, the Commission stated:

The Commission finds that ATCO Pipelines should have established some quality control

measures to ensure that the work performed by its contractors, such as radiographic

inspection companies and technicians, was being properly completed in accordance with

all applicable standards. The Commission recognizes that the welds went through visual,

radiography and hydrostatic testing, but greater oversight of the radiographic

inspections/inspectors could have ensured a more reliable process and mitigated the risk

of seven years of deficient inspections and welds being placed in service. The

Commission does not find it is reasonable that this type of deficient work continued for

seven years or more without being discovered. As submitted by the UCA, ATCO

Pipelines need not be expected to ‘audit the auditors,’ but periodic review and monitoring

should be expected. The fact that ATCO Pipelines explained that it is ‘Engaging in a

third-party review of weld inspection’ as well as ‘Providing leading indicator feedback to

welders’ and ‘Enhancing the weld quality process and documentation’ demonstrates that

better processes could have been and should have been in place.51

68. ATCO Pipelines submitted that the need for and scope of the quality control initiatives

are reasonable, and that the forecast costs included in its revenue requirements for the test period

are required to comply with the standards that the Commission stated in Decision 22986-D01-

2018. ATCO Pipelines added that if the Commission’s direction changed, ATCO Pipelines

would re-evaluate the proposed quality control initiative to align with any new Commission

direction.52

69. ATCO Pipelines explained that “The increased activities are not being proposed to

address a new risk; they apply the same reasoning that Decisions 22986-D01-2018 and 23537-

D01-2018 applied to radiography to other aspects of AP’s system construction and operations in

order to comply with the AUC’s decisions.”53

70. ATCO Pipelines submitted that it was, and remains, reasonable and necessary for it to

rely on the Commission’s findings in Decision 22986-D01-2018 to request the inclusion in

revenue requirement for 2019 and 2020 of the costs for the quality control initiatives.54

50 Exhibit 23793-X0025, AP-AUC-2018SEP06-045(a), PDF page 240. 51 Decision 22986-D01-2018, paragraph 47. 52 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 9. 53 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 49; Exhibit 23793-X0025, AP-AUC-

2018SEP06-045(g), PDF page 243. 54 Exhibit 237993-X0097, ATCO Pipelines reply argument, paragraphs 30-32.


Decision 23793-D01-2019 (June 25, 2019) • 17

UCA

71. The UCA noted that ATCO Pipelines stated that the proposed quality control initiatives

are generally above and beyond those instituted by other pipeline operators but are required to

comply with the Commission’s decisions.55

72. The UCA argued that ATCO Pipelines explicitly ignores the conclusions of the

Commission from the last GRA that ATCO Pipelines’ weld inspection procedures in place at that

time were operating at appropriate levels.56

73. The UCA argued that ATCO Pipelines has not appropriately investigated alternatives in

the event such standards were required to be met, nor did it complete a formal cost/benefit

analysis for each quality control initiative.57

74. Considering the ongoing review and vary process at the Commission and the court

process where ATCO Pipelines is seeking redress from the responsible parties for the deficient

radiographic inspections on prefabricated welds,58 the UCA argued that the quality control

initiatives are premature. The UCA further submitted that the Commission should reject the

quality control initiative project and remove the costs from the operating and capital expenditure

forecasts for the 2019 and 2020 revenue requirements.59

CCA

75. The CCA submitted that the proposal to implement 18 new quality control initiatives

appears to be a reaction to Decision 22986-D01-2018 and ATCO Pipelines’ lack of confidence in

its current quality assurance programs. The CCA argued that ATCO Pipelines’ quality control

initiative project is excessive and unwarranted.60

76. The CCA noted that Decision 22986-D01-2018 is currently being reviewed and that if

the Commission’s direction is changed, ATCO Pipelines would re-evaluate its proposed quality

control initiative project. The CCA argued that the quality control initiative is unreasonable, not

adequately supported and premature and that it should therefore be rejected entirely.61

Commission findings

77. The Commission finds that ATCO Pipelines has not adequately justified its quality

control initiatives project.

78. The determinations made in decisions 22986-D01-2018 and 23537-D01-2018 were

specific to the circumstances related to the deficient radiographic inspections and welds and the

disallowances in decisions 22986-D01-2018 and 23537-D01-2018 relate to a past event.

Although ATCO Pipelines argued that the additional quality control initiatives proposed in this

application are required to comply with Decision 22986-D01-2018 and Decision 23537-D01-

2018, it conceded that these proposed quality control initiatives are generally above and beyond

55 Exhibit 23793-X0029, AP-UCA-2018SEP06-045(l-m) 56 Decision 22986-D01-2018, paragraph 44. 57 Exhibit 23793-X0093, UCA argument, paragraph 50. 58 Exhibit 23793-X0074, UCA evidence, PDF page 43. 59 Exhibit 23793-X0093, UCA argument, paragraph 57. 60 Exhibit 23793-X0091, CCA argument, paragraph 117. 61 Exhibit 23793-X0091, CCA argument, paragraphs 118-119.


18 • Decision 23793-D01-2019 (June 25, 2019)

those instituted by other pipeline operators.62 Moreover, in Decision 22986-D01-2018, the

Commission commented on the revised procedures and controls that were put in place following

the discovery of the deficient welds in 2015. It stated:

44. … The Commission also agrees with the revised procedures and controls that ATCO

Pipelines has implemented to ensure that future radiographic inspections of prefabricated

piping assembled in the ATCO welding shop meet all applicable standards.

79. It is ATCO Pipelines’ onus to justify the need for and forecast costs of the quality control

initiatives. ATCO Pipelines has provided insufficient evidence to support the benefits that it says

could be realized by implementing the proposed additional quality control initiatives. Further,

ATCO Pipelines has not demonstrated to the Commission that the applied-for costs to implement

the initiatives, which would be funded by ratepayers through the revenue requirement, are

justified.

80. In particular, the Commission notes that ATCO Pipelines has not completed a formal cost

benefit analysis to support its expenditures, nor has it provided persuasive evidence that its

proposed quality control initiatives will actually and directly mitigate the unforeseen risks of

fraud or negligence. The absence of a detailed cost benefit analysis hinders the Commission’s

ability to determine whether separate quality control initiatives are required above and beyond

existing measures required by industry standards or by legislative requirements to ensure that

ATCO Pipelines is able to provide safe and reliable utility service to customers. Further, ATCO

Pipelines did not provide any evidence to demonstrate that these quality control initiatives are in

line with industry norms or best practices.

81. Based on the above determinations, ATCO Pipelines’ request for a quality control

initiative project is denied and it is directed to remove all O&M and capital costs related to the

project from its forecast 2019-2020 revenue requirements.

82. The Commission notes that it is always incumbent upon utilities to adopt prudent utility

practices that ensure the safe and reliable delivery of utility service. Nothing in this decision

obviates or reduces ATCO Pipelines’ obligation to provide safe and reliable service at just and

reasonable rates for its capital projects.

6.6 General improvements and replacements

83. ATCO Pipelines forecast general improvement and replacement capital expenditures of

$23,254,000 in 2019 and $22,840,000 in 2020. The forecast was derived using a three-year

rolling average of actual data.

84. ATCO Pipelines argued that it has provided a significant amount of information

regarding its general improvement and replacement projects, justifying the reasonableness of its

forecast and that the forecast costs for the unspecified category is consistent with its past

forecasts. In response to AP-CCA-2018NOV23-042(b), ATCO Pipelines stated, “while

individual unspecified or identified program categories may vary by more than 10%, the overall

forecast for the general improvements is within 10%.”63 ATCO Pipelines stated that the variance

from the three-year average to actual costs on a total basis was two per cent for 2016 and five per

62 Exhibit 23793-X0025, AP-AUC-2018SEP06-045(g), PDF page 243. 63 Exhibit 23793-X0066, AP-CCA-2018NOV23-042(b), PDF page 123.


Decision 23793-D01-2019 (June 25, 2019) • 19

cent for 2017.64 As such, the three-year average is an accurate method to forecast costs for

General Improvement and Replacement projects.

CCA

85. The CCA submitted that using a rolling average for improvement projects is entirely

inappropriate as there is no check on whether improvements are required.65

86. The CCA argued that it is not credible that ATCO Pipelines would have the number of

unspecified projects at the cost levels it has projected without having specific sites or activities

identified, based on its history in at least the last two proceedings. The CCA pointed to the

magnitude of capital work and replacements that ATCO Pipelines has undertaken in recent years

shown by a 27 per cent increase in its forecast revenue requirement between 2017 and 2020. The

CCA said it was inappropriate to forecast increased unspecified annual capital improvements on

a system that had already seen significant new assets, upgrades and improvement work.66

87. Further, the CCA argued that there are wide variances in each category in the 2013-2017

“forecast versus actuals” of the general - improvements and replacements and ATCO Pipelines is

not reliable in forecasting expenditures in these categories. The CCA provide the example that

ATCO Pipelines is basing its unspecified budgets for measurement and regulating compressor

stations on 2017 expenditures. The expenditures were 69 per cent and 40 per cent higher than

forecast in 2017.67

88. The CCA asserted that ATCO Pipelines must be required to return to an appropriate level

of accountability in identifying and forecasting general improvements.68

89. The CCA recommended that the Commission require or direct ATCO Pipelines to:69

(i) Reduce the unspecified component of general improvement and replacement work

to the historical average of the last three filings, excluding outliers with a variance

greater than 30 per cent and excluding the pipelines category. The CCA says this is

required to offset the reduction in forecasts in Pipeline Improvements that have

taken place between the 2017-2018 GRA and the current test period, and the

subsequent unsupported rise in unspecified forecasts in the other categories.

(ii) Provide, for the last two GRAs, the complete list of forecast and completed projects

with detailed costs in the general improvement and replacement category, including

business cases for all projects that exceed the Commission’s $500,000 business case

requirement threshold.

(iii) Provide in the compliance filing the complete 2019-2020 known projects to date in

the “General” category and the associated forecast annual costs.

64 Exhibit 23793-X0066, AP-CCA-2018NOV23-042(b) Attachment, PDF page 127. 65 Exhibit 23793-X0091, CCA argument, paragraph 20. 66 Exhibit 23793-X0091, CCA argument, paragraph 21. 67 Exhibit 23793-X0091, CCA argument, paragraph 30. 68 Exhibit 23793-X0091, CCA argument, paragraph 34. 69 Exhibit 23793-X0091, CCA argument, paragraphs 35-36; Exhibit 23793-0094, CCA reply argument,

paragraph 14.


20 • Decision 23793-D01-2019 (June 25, 2019)

(iv) Develop, at the compliance filing of this proceeding, a documented investment

policy whereby in all future applications, contractual support must be confirmed in

consultation with NGTL, for any proposed improvements on facilities for specific

customers (either receipt or delivery).

ATCO Pipelines

90. ATCO Pipelines submitted that there is no evidence to support the CCA’s assertion that

there are inadequate cost controls or that ATCO Pipelines is deliberately inflating project

expenditures.70

91. ATCO Pipelines argued that the CCA founded its recommendations that the unspecified

component of general improvement and replacement work be reduced to the historical average of

the last three filings, excluding outliers with a variance greater than 30 per cent and excluding

the pipelines category on Table 11 filed by the CCA in argument. ATCO Pipelines argued that

this table was error-filled and comprised of new evidence from proceedings 22011 and 3577 that

was improperly introduced in argument. For these reasons, ATCO Pipelines submitted that the

Commission should afford no weight to the data contained in the table and should reject the

recommendations of the CCA.71

92. With respect to the CCA’s request for business cases, ATCO Pipelines explained that it

provides business cases for all specific projects and that should any unspecified projects exceed

that $500,000 threshold, a business case would be provided in the subsequent GRA.”72

Commission findings

93. The Commission considers that ATCO Pipelines’ use of a three-year rolling average of

actual data to forecast general improvement and replacement costs is reasonable. In a response to

AP-CCA-2018NOV23-042(b), ATCO Pipelines explained that it utilizes a “three year

methodology for unspecified categories along with limited known required project work for the

general improvements and replacements category to forecast costs associated with improvement

or replacement work.”73 Based on the information provided on the record, the three-year average

is a reasonable method to forecast costs for general improvement and replacement capital

expenditures. In an attachment to AP CCA-2018NOV23-042(b), the variance between the three-

year average to actual costs on a total basis was two per cent for 2016 and five per cent for 2017.

94. The Commission agrees with ATCO Pipelines that there is no evidentiary support for the

CCA’s assertion that ATCO Pipelines is inflating project expenditures, and as such, the CCA’s

recommended adjustment to general improvement and replacement expenditures is denied.

95. With respect to the CCA’s request for business cases, the Commission is satisfied with

ATCO Pipelines’ explanation that a business case would be filed for all unspecified projects that

exceed $500,000 in the next GRA, consistent with the minimum cost threshold requirement for

business cases established in Decision 2003-100.74

70 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 93. 71 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 94. 72 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 100. 73 Exhibit 23793-X0061, AP-CCA-2018NOV23-042(b). 74 Decision 2003-100: ATCO Pipelines, 2003/2004 General Rate Application – Phase I, Application 1292783-1,

December 2, 2003, page 13.


Decision 23793-D01-2019 (June 25, 2019) • 21

96. The Commission approves ATCO Pipelines’ forecast general improvement and

replacement capital expenditures as filed.

6.7 Other capital projects not specifically addressed

97. The Commission has reviewed the information on the record with respect to the capital

projects not specifically addressed in this decision, and is satisfied that ATCO Pipelines has

justified the need for these projects. A detailed breakdown of capital expenditures and projects is

provided in Appendix 3 of this decision. The capital projects for the 2019-2020 test years that are

not subject to specific findings and directions in this decision are approved as filed.

7 Depreciation

98. ATCO Pipelines forecast net depreciation expense amounts of $84,163,000 and

$91,564,000 for 2019 and 2020, respectively. These amounts reflect a year-over-year increase of

$7,327,000 in 2019 and of $7,401,000 in 2020, due primarily to forecast increases in rate base

amounts.

99. The depreciation expense calculation provided by ATCO Pipelines reflected the

continued use of the depreciation parameters approved in Decision 22011-D01-2017. In the

current proceeding, ATCO Pipelines submitted a technical update75 conducted by Mr. Earl

Robinson of AUS Consultants, which updated ATCO Pipelines’ depreciation rates and annual

reserve for differences amounts by applying the approved depreciation parameters to actual plant

balances, as of December 31, 2017. Table 10 shows ATCO Pipelines’ net depreciation expense

for 2017 actuals, 2018 estimates, and the forecasts and revised forecasts for each of the 2019 and

2020 test years:

Table 10. ATCO Pipelines’ net depreciation expense for years, by year, ending December 31

2017 Actual 2018 Estimate 2019 Forecast Applied-for

2020 Forecast Applied-for

2019 Forecast Revised*

2020 Forecast Revised*

($000)

Depreciation expense:

Straight-line equal life group 68,885 76,921 83,714 90,919 83,397 90,602

Contract life 1,357 1,254 1,221 1,227 1,221 1,227

Straight-line fixed rate 2,232 2,145 2,886 3,227 2,886 3,227

Subtotal 72,474 80,320 87,821 95,373 87,504 95,056

Amortization of contributions

Straight-line equal life group 3,210 3,457 3,639 3,791 3,639 3,791

Contract life 47 27 19 18 19 18

Straight-line fixed rate - - - - - -

Sub-total 3,257 3,484 3,658 3,809 3,658 3,809

Net depreciation expense 69,217 76,836 84,163 91,564 83,846 91,247

Source: Exhibit 23793-X0002, GRA Schedule 4.4-1, applied for; Exhibit 23793-X0063, AP-AUC-2018NOV23-001, Attachment Schedule 4.4-1, revised. *Revised forecast numbers include ATCO Pipelines proposed correction to Account 496-05 – SCADA.

75 Exhibit 23793-X0007.01, Section 4.4, Attachment 1, Depreciation Study Technical Update as at December 31,

2017.


22 • Decision 23793-D01-2019 (June 25, 2019)

100. With the exception of issues related to Account 496-05 – SCADA, the UCA

recommended in its recommendation 1176 that the Commission approve ATCO Pipelines’

depreciation rates consistent with the technical update. However, in his evidence on behalf of the

UCA, Mr. Patrick Bowman, made a further six recommendations with respect to specific

depreciation practices. Recommendations 13 and 15 were subsequently withdrawn by the UCA

in its argument,77 and Recommendations 6, 12, 14 and 16 are addressed in the sections that

follow.

101. No concerns were identified by the CCA with respect to ATCO Pipelines’ technical

update or the issues identified by the UCA.

Commission findings

102. The Commission has examined ATCO Pipelines’ technical update. The Commission

finds the depreciation rates, amortization of reserve differences amounts and depreciation

expense calculations were determined by applying approved parameters to more recent plant-in-

service balances and that the results of the technical update are therefore reasonable. ATCO

Pipelines’ depreciation expense is approved, subject to any applicable findings and directions of

the Commission in the sections that follow, which address the UCA recommendations regarding

depreciation, and subject to any of the Commission’s findings and directions made elsewhere in

this decision.

7.1 UCA recommendation 6 – Depreciation expense workbook

103. In Section 3.5.2 of his evidence, Mr. Bowman provided the following recommendation:

Recommendation 6: AP should ensure that the Test Year forecasts accurately model

known disposals for Fixed Rate assets.78

104. Mr. Bowman examined plant activity within Account 453-01 – Well Inspections and

Account 499 – Software, including capital addition and retirement transactions, over the period

2016-2018. He noted that effective 2017, the Commission had approved a “fixed rate

depreciation,” or square curve depreciation methodology for this group of assets79 wherein any

retirement activity, for accounting purposes, is based on a vintage group of assets reaching the

average service life assigned to that account. Mr. Bowman indicated that, given these facts and

that retirements are known in advance, forecast retirement activity for any account using a square

curve methodology should be included in ATCO Pipelines detailed depreciation expense

calculations.80

105. ATCO Pipelines acknowledged that it had omitted recording two years of retirements in

Account 453.01 – Well Inspection, but that the oversight did not have a material impact on

revenue requirement. With respect to the Account 499 – Software retirements, ATCO Pipelines

76 Exhibit 23793-X0074, UCA evidence, Section 5.1 - Technical update, PDF pages 56-57. 77 Exhibit 23793-X0093, UCA argument, paragraphs 107 and 112. 78 Exhibit 23793-X0074, UCA evidence, Section 3.5.2 - Software (Account 499), PDF pages 45-48. 79 In Decision 22011-D01-2017, paragraph 514, the Commission approved SQ service lives of three years for

desktop type software, seven years for business specific software and 10 years for enterprise type software. 80 Exhibit 23793-X0008, Section 6.1, Attachment 2, PDF pages 5-13.


Decision 23793-D01-2019 (June 25, 2019) • 23

argued that it had accurately modelled its test year forecast depreciation expense for fixed rate

assets and no further action was required.81

Commission findings

106. The Commission agrees with the UCA that ATCO Pipelines’ test year depreciation

expense calculations should represent, to the greatest extent possible, all forecast capital activity,

including capital additions and retirements. In the case of ATCO Pipelines’ accounts approved

for depreciation under a square curve methodology,82 retirement transactions are predictable

because they are not dependent on the physical retirement of the assets. It is not apparent to the

Commission that there is a compelling reason why this forecast information should be omitted by

ATCO Pipelines from either its depreciation expense calculations or its GRA schedules. For

these reasons, the Commission directs ATCO Pipelines to include square curve asset retirements

in its detailed depreciation expense calculations and GRA schedules and to provide revised

schedules in its compliance filing to this decision. ATCO Pipelines is further directed in its

compliance filing to reflect the correction in Account 453.01 – Well Inspections for 2016 and

2017 retirements in Account 454 – Well Equipment by way of a revision to its technical update.

107. The Commission observes that for accounts 453.01 and 466.03 and 466.04, which are

depreciation study accounts using a square curve methodology, detailed vintage information is

available within sections 3, 4 and 5 of ATCO Pipelines’ technical update that directly supports

the forecast retirements directed in the previous paragraph of this decision. The Commission

considers that similar detailed vintage information is required for ATCO Pipelines’ remaining

accounts 483, 486, 489, 491 and 499 (three, seven and 10 years), which are also depreciated

under a square curve methodology but are non-depreciation study accounts. For this reason,

ATCO Pipelines is directed, for these five accounts, to file supplementary information similar to

that provided in ATCO Pipelines’ technical update in Section 483 on an ongoing basis,

commencing with the compliance filing to this decision. This information would provide a

measure of transparency as to the vintage composition of these accounts and a means to confirm

the forecast plant retirement activity within ATCO Pipelines’ detailed depreciation expense

calculations. With respect to the series of Account 499 sub-account categories, ATCO Pipelines

is directed to file its Section 4 information for each of the 12 Account 499 – Software sub-

account categories shown in the detailed depreciation expense calculation workbook.84

108. With respect to ATCO Pipelines’ detailed depreciation expense calculations, the

Commission observes there is no “rate” information provided for Account 499 - Software

identified by sub-category; nor for any account on these schedules were there are columns

indicating opening or closing accumulated depreciation balances. The Commission considers

that this information is required to efficiently examine and confirm ATCO Pipelines’ underlying

depreciation expense calculations, particularly given that ATCO Pipelines has been unable to

provide parties with working copies of these schedules. The Commission directs ATCO

Pipelines to include the applicable depreciation rate and opening and closing accumulated

81 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraphs 41-44 and 51. 82 Decision 22011-D01-2017, tables 44 and 46 - Accounts depreciated under a square curve methodology:

Underground storage - Account 453.01, Transmission - Account 466.03, Account 466.04 and General -

Account 483, Account 486, Account 489, 489.11, Account 491, Account 499 (three, seven and 10 years). 83 For example refer to: Exhibit 23793-X0007.01, Technical Update, Account 453.01, Section 4, PDF page 82. 84 Exhibit 23793-X0008, Section 6.1, Attachment 2, PDF page 6. For example: 499 Software – General; 499.02

Software – Oracle; 499.10 Software – MARS … 499.22 Software – Dynamic Risk.


24 • Decision 23793-D01-2019 (June 25, 2019)

depreciation balances in its detailed depreciation expense calculations commencing with a

revision to its detailed depreciation expense workbook in its compliance filing to this decision.

7.2 UCA recommendations 12 and 14 – Procedures for insurance, customer or

third-party contributions

UCA

109. In Section 5.2 of his evidence, Mr. Bowman recommended that:

Recommendation 12: AP should exclude retirement events that were funded by

insurance, customers or third parties in conducting life analysis in future depreciation

studies.85

…

Recommendation 14: AP should implement improved record keeping for retirements,

which allows ready identification of asset retirements that occur based on insurance, or

on customer or third-party funding.86

110. In response to Direction 21 of Decision 22011-D01-2017, ATCO Pipelines submitted its

plant procedures, which document its “Accounting for Customer Contributions.”87 ATCO

Pipelines outlined both its accounting and depreciation study treatment for contributions under

the following circumstances: contributions for newly constructed assets; asset removals where

assets were fully funded (or contributed); and, asset removals where assets were partially-funded

(or contributed).

111. Under a fully-contributed removal scenario, where the customer is required to contribute

the total removal costs plus the total replacement cost of the equivalent asset, Mr. Bowman

claimed that ATCO Pipelines’ inclusion of asset retirement and replacement events funded by

insurance, customers or third parties was resulting in shortened average service lives in

depreciation study analyses, and was leading to higher depreciation rates. For this reason,

Mr. Bowman submitted that retirement events leading to the replacement of assets funded by a

third party should not be included in the actuarial database relied upon in a depreciation study

when evaluating the service life characteristics of an asset class.

112. Mr. Bowman cited depreciation literature indicating that:

A reimbursed retirement is one for which the company is fully compensated at the time

of retirement, usually because the retirement occurred earlier than normal as the result of

an unusual event. Compensation may be from insurance, from the party who damaged the

utility by causing the retirement, or from an individual or public authority who desired or

required the relocation or abandonment of the retired property.88

85 Exhibit 23793-X0074, UCA evidence, Section 5.2 - Procedures for customer/third-party contributions,

PDF page 62. 86 Exhibit 23793-X0074, UCA evidence, Section 5.2 - Procedures for customer/third-party contributions,

PDF page 63. 87 Exhibit 23793-X0008, Section 6.1, Attachment 1, PDF pages 1-4. 88 Exhibit 23793-X0074, UCA evidence, PDF pages 61-62 referencing: Depreciation Systems, Frank K. Wolf and

W. Chester Fitch, Iowa State University Press, Ames, Iowa, 1994, page 16.


Decision 23793-D01-2019 (June 25, 2019) • 25

Usually reimbursed retirements should not be included in analysis to estimate the life and

salvage of property whose original investment is recovered through depreciation

accruals.89

113. Mr. Bowman criticized ATCO Pipelines’ failure to classify certain retirement events or

causes of retirements, referencing again, the depreciation literature that outlines common

practices for coding of actuarial data and allows for “data to be checked for consistency and

allow[s] the analysis to include or exclude a specific category of transactions from an analysis.”90

114. He stated it was “clear that ATCO Pipelines does not at present apply quality-control

adjustments to its depreciation study input data to remove retirements driven by customer or

third-party funded contributions.”91 Mr. Bowman indicated that this was problematic in terms of

the ability to denote this type of retirement event in order to remove such data for depreciation

study purposes. Thus, he said that ATCO Pipelines should be directed to exclude these

reimbursed types of retirements from data used to determine both service life and salvage

estimates, and should be directed to implement improved record keeping for retirements to allow

for the identification of third party type asset retirements.

ATCO Pipelines

115. ATCO Pipelines did not specifically refute the UCA’s claim that it did not apply a coding

system to its actuarial data, but it pointed to other depreciation literature that states the following

with respect to insured losses:

In the case of insured losses, the payment received may be different from the original cost

of the equipment. Thus, treating the reimbursement as normal gross salvage data in

studies may give results that are not typical of the account as a whole because the

insurance payment is not characteristic of the account in general. Therefore, such

retirements and the corresponding salvage should either both be included or excluded

from the depreciation study.

Retirements may be subject to reimbursement from various sources.… Depending on the

accounting treatment for reimbursements related to retired property, the analyst may need

to remove such plant from the database. If the reimbursement is recorded as salvage, no

adjustment of retirement data would be necessary, assuming that such salvage is also

considered in establishing future depreciation rates. Consistent treatment is the rule.92

116. ATCO Pipelines stated that it has consistently included retirement events related to

insurable losses and third-party funded relocations, and the recommendation of the UCA should

be rejected. ATCO Pipelines proposed to continue its historic approach to including retirement

events in its depreciation study database.93 94

89 Exhibit 23793-X0074, UCA evidence, PDF pages 61-62 referencing: Depreciation Systems, 1994, pages 16-17. 90 Exhibit 23793-X0074, UCA evidence, PDF page 63 referencing: Depreciation Systems, Iowa, 1994, page 15. 91 Exhibit 23793-X0074, UCA evidence, PDF page 61. 92 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraph 57, referencing: Public Utility

Depreciation Practices, Compiled and Edited by Staff Subcommittee on Depreciation of The NARUC Finance

and Technology Committee of the National Association of Regulatory Utility Commissioners, Published by

National Association of Regulatory Utility Commissioners, Washington, D.C., August 1996, pages 31 and 113. 93 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraphs 58-59. 94 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 66.


26 • Decision 23793-D01-2019 (June 25, 2019)

Commission findings

117. There appear to be opposing opinions in the depreciation literature presented by the UCA

and ATCO Pipelines with respect to the inclusion of retirement events that were funded by

insurance, customers or third parties in conducting life analysis.

118. The Commission accepts as valid ATCO Pipelines’ argument for maintaining consistency

in its approach to establishing depreciation parameters. Considering that depreciation studies are

examined at regular intervals, the Commission finds comparability to be important and for this

reason denies UCA recommendation 12.

119. With respect to UCA recommendation 14, the Commission considers that the detailed

review of an actuarial database is a matter better suited to occur simultaneously with the

examination of a depreciation study. However, the Commission notes that it was not clear

whether ATCO Pipelines’ actuarial database contains transactional coding. In its compliance

filing to this decision, ATCO Pipelines is directed to clarify whether its actuarial database

contains transactional codes for the purposes of identifying any of the following: regular

retirements, reimbursed retirements, sales, end of period transfers, beginning of period transfers,

acquisitions, adjustments, outlier retirements, survivor account balances and gross additions.

7.3 UCA recommendation 16 – Account 496-05 SCADA adjustment

120. In Section 5.4 of his evidence, Mr. Bowman recommended that:

Recommendation 16: The SCADA depreciation for 2019 and 2020 should be adjusted

as proposed by AP to remove the $1.584 million shortfall from 2012 (a reduction to

depreciation expense of $0.317 million/year). AP should also adjust the accumulated

depreciation balance permanently, starting with the opening 2019 balance, by

$1.584 million.95

121. The Commission is mindful that the issue, details and understanding of the over-

depreciation of certain SCADA assets has evolved and expanded over several proceedings before

the Commission.96 The Commission has summarized the relevant details, which are not disputed

by parties, and has included references to documents on the record in support of the history of

the retirement of the SCADA assets, as follows:

In 2001, certain SCADA assets were physically retired, which cost $3,743,000;

however, the retirement event was not reflected in ATCO Pipelines’ accounting records

until 2006.97

As a result, ATCO Pipelines continued to depreciate the physically retired assets

between 2001 and 2006, resulting in over-depreciation of $1,584,000. This amount was

included in ATCO Pipelines’ revenue requirement.98

95 Exhibit 23793-X0074, UCA evidence, Section 5.4 – Account 496.05 SCADA adjustment, PDF pages 65-67. 96 Proceeding 22011 – ATCO Pipelines 2017-2018 GRA, Proceeding 22986 – ATCO Pipelines Compliance

Application to Decision 22011-D01-2017, Proceeding 23539 – Application to Review and Vary Decision

22986-D01-2018, Proceeding 23793 – ATCO Pipelines 2019-2020 GRA. 97 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraph 61. 98 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraph 61.


Decision 23793-D01-2019 (June 25, 2019) • 27

The over-depreciation of $1,584,000 was discovered by ATCO Pipelines in 2012. The

accounting correction was made by way of a 2012 prior period adjustment (PPA) in the

amount of $1,584,000 where the accumulated depreciation account was relieved of the

excess depreciation (debit to accumulated depreciation) and shareholders were credited

(credit to retained earnings).99

ATCO Pipelines acknowledged that the PPA brought the accumulated depreciation

account back into balance with a net book value of zero dollars for the related assets.100

In the current proceeding, ATCO Pipelines acknowledged that the $1,584,000 over-

depreciation should be refunded to ratepayers through revenue requirement, and

proposed to transact the refund annually through the amortization of reserve differences

mechanism over a period of five years.101

The proposed annual refund through the amortization of reserve differences mechanism

was calculated by ATCO Pipelines as follows: $1,584,000 / five years = $317,000 per

year. The corresponding accounting entry is proposed to be a debit to accumulated

depreciation and a credit to depreciation expense (or a reduction to revenue

requirement).102

122. The UCA agreed with the overall refund of $1,584,000 to ratepayers proposed by ATCO

Pipelines, but argued that using the amortization of reserve differences mechanism will result, at

the end of five years, in ratepayers having to again pay for the $1,584,000. To counter this, the

UCA recommended a permanent adjustment to the accumulated depreciation account by the

same $1,584,000 amount.103

123. ATCO Pipelines stated that the adjustments proposed by the UCA in “… 2019 would

essentially double up on the incorrect ARD [amortization of reserve differences] adjustment

approved in 2015 (thereby negating the agreed to AP proposed ARD adjustment for the

$1.584 million PPA) and would not appropriately adjust the accumulated depreciation balance

for the SCADA account.”104

Commission findings

124. The Commission accepts ATCO Pipelines’ acknowledgement that ratepayers are entitled

to a refund of the over-depreciation during the years 2001-2006 of the SCADA asset in the

amount of $1,584,000.

125. Further, the Commission acknowledges that under normal regulatory practice, a utility is

entitled to recover, by way of a charge for depreciation, its investment in assets used for utility

service. This is the case with the SCADA assets where ATCO Pipelines was entitled to recover

no more and no less than its original $3,743,000 investment. This concept applies irrespective of

whether the asset account in question is treated as a depreciation study asset or not. Based on the

99 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraph 63. 100 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraph 63. 101 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 69. 102 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 69. 103 Exhibit 23793-X0074, UCA evidence, PDF pages 65-68. 104 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 55.


28 • Decision 23793-D01-2019 (June 25, 2019)

evidence provided by ATCO Pipelines, the Commission accepts ATCO Pipelines’ statement that

as a result of the debit side of the PPA entry in 2012, the accumulated depreciation account for

that SCADA asset, was brought back into balance with a net book value of zero. This means that

because of the 2012 PPA, ATCO Pipelines had fully recovered its $3,743,000 investment at this

point in time. However, the Commission considers that the credit side of the 2012 PPA entry was

made in error as it was to the account of shareholder and should have been to the benefit of

ratepayers given that the over depreciation from 2001-2006 was originally charged through

revenue requirement and thus, should have been refunded.

126. The Commission therefore finds that the effect of the adjustment proposed by ATCO

Pipelines, when examined in its entirety, is at odds with the conclusion reached above. The credit

side of ATCO Pipelines’ proposed entry would correctly refund the $1,584,000 over-

depreciation to ratepayers through depreciation expense over five years, but the debit side of the

entry, as currently proposed by ATCO Pipelines will in essence, create an additional $1,584,000

in rate base for the SCADA assets, to which ATCO Pipelines is not entitled. The Commission

notes that its interpretation of the outcome of ATCO Pipelines’ proposed adjustment aligns with

the submissions of the UCA.

127. For these reasons, the Commission accepts ATCO Pipelines’ proposal to credit

depreciation expense in the amount of $1,584,000. ATCO Pipelines is directed to record the

credit entry to depreciation expense as a one-time adjustment in the 2019 test year in its

compliance filing to this decision. However, ATCO Pipelines is directed to record the debit side

of the entry to the account of the shareholder because the shareholders were originally the

beneficiaries of the PPA in 2012 and that accounting was in error. ATCO Pipelines shall

therefore not recover the debit side of the directed accounting entry through rate base or through

revenue requirement.

128. Given the above direction to ATCO Pipelines, the Commission makes no finding with

respect to the recommendation of the UCA.

8 Operating costs

129. ATCO Pipelines’ revenue requirement includes operating costs, which are composed of

O&M costs and administration and general (A&G) costs. ATCO Pipelines forecast total

operating costs of $73,522,000 in 2019 and $77,348,000 in 2020.105 The total forecast operating

expenses represent approximately 25 per cent of ATCO Pipelines’ forecast revenue requirement

in each of 2019 and 2020. The total operating expenses are shown in the following table:

Table 11. ATCO Pipelines’ total operating expenses


($000)

O&M 35,406 38,256 46,135 49,437

A&G 27,748 29,461 29,379 30,566

Operating costs – corporate (subtotal) 63,154 67,717 75,514 80,003

Less disallowed operating costs 2,421 2,978 1,992 2,655

Total operating costs – utility 60,733 64,739 73,522 77,348


105 Exhibit 23793-X0001, application, PDF page 76.


Decision 23793-D01-2019 (June 25, 2019) • 29

130. ATCO Pipelines stated that the key drivers for increases in forecast operating costs from

2018 estimates are: quality control initiatives, compliance programs, initiatives related to the

provision of safe, reliable and secure service and an increase to labour.106

131. Certain components of the total operating costs that were at issue in this proceeding are

discussed further in the sections below. However, the Commission will address some of the

recommendations of the UCA with respect to forecasting accuracy and variances before

addressing the components of the total operating costs included in the application.

8.1 Forecasting accuracy

UCA

132. In its evidence, Mr. Bowman recommended reductions to total operating costs of

$10,105,000 in 2019 and $12,545,000 in 2020 due to ATCO Pipelines’ history of over-

forecasting.107 Mr. Bowman’s evidence included a review of ATCO Pipelines’ last three GRAs

noting material variances in total operating costs. He provided the figure below that shows the

trend of test year forecast, approved and actuals by GRA:

Figure 1. Operating costs – test year forecast, approved and actual by GRA ($000)

Source: Exhibit 23793-X0074, UCA evidence, PDF page 18.

106 Exhibit 23793-X0001, application, PDF pages 76-77. 107 Exhibit 23793-X0074, UCA evidence, PDF page 6. Mr. Bowman’s recommendation was based on taking the

percentage average increase in actual total operating costs over 2012 to 2017 (2.19 per cent) and then escalating

actual 2017 total operating costs 2.19 per cent each year to obtain revised 2019 and 2020 forecast values. See

Exhibit 23793-X0074, PDF pages 24-27.


30 • Decision 23793-D01-2019 (June 25, 2019)

133. The UCA had presented similar evidence in ATCO Pipelines’ last GRA but in reply

argument ATCO Pipelines took issue with the fact that the UCA’s analysis had not considered

the effect on cost levels of the variable pay program (VPP) and the pension deferral account.108 In

this proceeding, Mr. Bowman also provided the following analysis that excludes VPP and

pension costs entirely from each category, including test year forecasts, approved amounts and

actuals, as follows:

Figure 2. Operating costs – test year forecast excluding VPP and pension deferral amounts, approved and actual by GRA ($000)


134. Mr. Bowman stated that removing the VPP and pension deferral accounts made little

difference to the pattern of over-forecasting.

135. In argument, the UCA submitted that although the Commission’s general approach is to

assess revenue requirement by a line-item analysis, it has in some circumstances made top-down

adjustments as it did in Decision 20633-D01-2016109 for EPCOR Energy Alberta GP Inc. and in

Decision 3577-D01-2016110 for ATCO Pipelines.111

108 Exhibit 23793-X0074, UCA evidence, PDF page 19. 109 Decision 20633-D01-2016: EPCOR Energy Alberta GP Inc., 2016-2017 Regulated Rate Tariff Application,

Proceeding 20633, December 20, 2016, Section 4.6. 110 Decision 3577-D01-2016: ATCO Pipelines, 2015-2016 General Rate Application, Proceeding 3577,

February 29, 2016, Section 4.4. 111 Exhibit 23793-X0093, UCA argument, paragraphs 6-8.


Decision 23793-D01-2019 (June 25, 2019) • 31

136. In addition, the UCA provided the table below showing ATCO Pipelines’ ROE and noted

that ATCO Pipelines’ actual ROE has consistently been higher than approved levels.

Table 12. Actual versus approved ROE 2012-2018

2012

Actual 2013

Actual 2014

Actual 2015

Actual 2016

Actual 2017

Actual 2018

Estimate

Common equity return (%)

11.16 10.14 10.31 9.80 11.39 10.99 9.47

Common equity return ($000)

35,103 33,560 36,495 39,255 52,786 60,605 59,944

2012

Approved 2013

Approved 2014

Approved 2015

Approved 2016

Approved 2017

Approved 2018

Approved

Common equity return (%)

8.75 8.30 8.30 8.30 8.30 8.50 8.50

Common equity return ($000)

28,166 27,718 30,060 35,016 42,615 47,327 53,578

2012

Variance 2013

Variance 2014

Variance 2015

Variance 2016

Variance 2017

Variance 2018

Variance

Higher (lower) than approved (%)

2.41 1.86 2.01 1.50 3.09 2.49 0.97

Higher (lower) than approved ($000)

6,937 5,842 6,435 4,239 10,171 13,278 6,366


137. Mr. Bowman submitted that this pattern has been sustained and persistent since at least

2012, and has grown in recent years through 2017 when actual returns were 28.1 per cent

higher112 than the approved level.113 In argument, the UCA submitted that the fact that the actual

ROE was consistently higher than the approved ROE was largely due to ATCO Pipelines’

operating costs forecasts.

ATCO Pipelines

138. ATCO Pipelines stated that its O&M forecast is based on 2017 actual and 2018 estimated

costs, including efficiencies achieved during that period.114 ATCO Pipelines submitted that the

UCA’s recommendation to apply a reduction to total operating costs based on the trend of

historical data from 2012 to 2017 is flawed and should be rejected by the Commission.

139. ATCO Pipelines commented that for the years 2015-2018, if deferred capital related costs

are included in the variance (between approved rate base and the actuals), then the values range

from -0.95 per cent to 0.78 per cent for the years 2017 and 2018, and the variances are less than

+/- one per cent. Therefore, ATCO Pipelines argued that material variances between approved

rate base and actuals do not exist for 2015-2018, after adjusting for deferred capital.115

140. ATCO Pipelines submitted that the primary reason that actuals were lower than forecast

for the years 2014-2016 was because of the UPR program. In Decision 3577-D01-2016, a UPR

deferral account was established due to the timing of the tendering and re-tendering of work, as a

112 $13,278,000 excess on an approved level of $47,327,000. 113 Exhibit 23793-X0074, UCA evidence, PDF page 13. 114 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 15. 115 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 23.


32 • Decision 23793-D01-2019 (June 25, 2019)

result of the economic downturn. For the 2017-2018 GRA, ATCO Pipelines did not apply for a

UPR deferral account because its forecasts were in-line with actual contractor pricing.

141. ATCO Pipelines mentioned that the Commission approved the discontinuation of the

UPR deferral account in Decision 22011-D01-2017.116 117

142. In response to the analysis provided on behalf of the UCA, ATCO Pipelines submitted

that using historical trends for the purpose of forecasting costs is problematic for the following

reasons:

Trends lack specific context such as how they relate to system growth, system

complexity, changing regulatory compliance requirements and inflationary factors.

Trends can be skewed based on the period chosen, for example, ATCO Pipelines showed

that if a three-year average of its actual operating costs is used in place of a five-year

average, the average increase in actual operating costs would be 6.24 per cent as opposed

to 2.19 per cent.

Trends ignore specific, one-time factors that may have occurred that may not be

repeatable in subsequent years.

Many cost increases or reductions cannot be accurately trended into the future, i.e., costs

of new programs.118

143. ATCO Pipelines stated that the forecasting methodology suggested by the UCA gives no

regard to known or anticipated cost increases and to efficiencies. ATCO Pipelines therefore

concluded that the forecasting methodology is unreasonable and cannot be considered a valid

means to develop a cost of service forecast.119 ATCO Pipelines argued that the UCA has not

presented any evidence that would warrant a departure from the Commission’s findings in

Decision 22011-D01-2017, where the Commission rejected a similar proposal.120

Commission findings

144. The Commission is required to approve forecast costs for the safe and reliable operation

of the system while ensuring just and reasonable rates for the service received by ratepayers.

145. The Commission has reviewed the evidence submitted by the UCA, and by ATCO

Pipelines in response, along with the argument and reply argument submitted by the UCA and

ATCO Pipelines. The evidence filed by Mr. Bowman for the UCA represents a high-level review

of ATCO Pipelines’ last three GRAs showing test year forecasts, approved and actual returns.

The Commission found Mr. Bowman’s evidence to be helpful, as it provided a compelling and

thorough analysis. However, the Commission continues to consider that a high-level analysis of

forecasting accuracy has value only to the extent that it shows a consistent trend of over-

forecasting and where the over-forecasting cannot be otherwise reasonably explained by specific

cost drivers. The Commission has determined that, in this case, it will evaluate forecast accuracy

116 Decision 22011-D01-2017, paragraph 82. 117 Exhibit 23793-X0062, AP-AUC-2018NOV23-020(a). 118 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraphs 4-13. 119 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraph 11. 120 Exhibit 23793-X0090, ATCO Pipelines argument, paragraphs 24-25


Decision 23793-D01-2019 (June 25, 2019) • 33

for each of the specific cost categories to determine the reasonableness of the applied-for

amounts.

146. The Commission observes that historical total O&M forecasts are greater than the actuals

for the five years used in the UCA comparison. The Commission accepts that some portion of

these variances may be due to efficiencies gained by ATCO Pipelines. The Commission also

observes, as noted by ATCO Pipelines, that when deferred capital related costs are included in

the variance between approved rate base and the actuals, the variances, especially for the years

2015-2018, are immaterial.

147. Further, the UCA recommended a high-level cost reduction to total operating costs of

$10,105,000 in 2019 and $12,545,000 in 2020, which was calculated based on escalating 2017

actual results by the five-year average increase of actual results. The Commission considers that

escalating actual O&M results by an average does not reflect the specific drivers of the

underlying costs. The Commission therefore denies the UCA’s proposal for an overall reduction

to ATCO Pipelines’ total operating costs due to concerns with forecasting accuracy. Further, a

five-year average will not take into account more recent trends or efficiencies achieved in

operating costs.

148. Specific concerns raised by parties with regard to certain cost category forecasts are

discussed in sections of this decision that follow.

8.2 Material, known variances

UCA

149. In his evidence, Mr. Bowman recommended that ATCO Pipelines should be required to

update certain operating cost forecasts for material, known variances in the test year arising

before the time of final GRA submissions.121 He used the example of property taxes that he said

have been six million dollars higher than actuals cumulatively from 2014 to 2018. Mr. Bowman

submitted property tax forecasts should show relatively little or no persistent variance over

time.122 Mr. Bowman provided the following table in his evidence to show the difference in

approved and actuals or estimated property taxes:

Table 13. Property tax actual versus approved

Property tax 2014 2015 2016 2017 2018

($000)

Originally proposed 12,230 12,518 13,352 15,140 15,566

Approved 12,230 12,518 13,352 15,140 15,566

Actual/estimate 11,872 11,910 12,623 12,905 13,611

Difference 358 608 729 2,235 1,955

Source: Exhibit 23793-X0074 UCA evidence, PDF page 14.

150. The UCA submitted that there were other categories of known, material variances in

previous proceedings, which would have reduced ATCO Pipelines’ revenue requirement, and

121 Exhibit 23793-X0074, UCA evidence, PDF page 27. 122 Exhibit 23793-X0093, UCA evidence, PDF page 14.


34 • Decision 23793-D01-2019 (June 25, 2019)

submitted that where ATCO Pipelines knows that such variances exist and are in favour of

customers, the items should be identified as part of the compliance filing.123

ATCO Pipelines

151. ATCO Pipelines responded that it had explained that its 2017 and 2018 actual property

taxes were below the forecasts because the updated pipeline assessment year modifier rate used

in the calculation of property taxes was not available at the time of filing its 2017-2018 GRA.

ATCO Pipelines stated that excluding the years 2017 and 2018, for which it had provided

variance explanations, the average variance in its property tax forecasts between 2014 and 2016

has been less than five per cent.124 ATCO Pipelines submitted that the Commission should only

consider application updates in exceptional circumstances and that any update would need to

consider both cost increases and cost decreases.125

Commission findings

152. The Commission has reviewed the UCA’s and ATCO Pipelines’ submissions with

respect to changes in material, known variances. The Commission process for an application is

intended to obtain the best available information by the time of the close of record. Parties are

given an opportunity to provide submissions on the best available information in a proceeding

and the Commission assesses further information required to be supplied in the compliance

filing. Provision of actual information is generally compelled when further information on

actuals is required for a utility to comply with specific directions; when actual results are or will

be available for a test year by the time the compliance filing is submitted and the actuals can be

reasonably incorporated into the compliance filing; and, when errors and omissions are identified

that require correction in the compliance filing.

153. The Commission finds that it is not reasonable to require ATCO Pipelines to update its

application for material downward variances, but not for upward variances. The Commission

therefore denies the UCA’s proposal for downward adjustments due to material, known

variances.

8.3 Direct operation and maintenance expenses

154. O&M costs include labour and supplies costs related to the operation and maintenance of

ATCO Pipelines’ transmission lines, compressors, measurement and regulating facilities, as well

as its control and communication systems.126

155. O&M costs are forecast to be $45,944,000 in 2019 and $49,296,000 in 2020. ATCO

Pipelines explained that the increase in O&M costs over the duration of the test period is largely

due to the quality control initiatives proposed as a result of Decision 22986-D01-2018, increased

environmental regulatory requirements for greenhouse gas and methane emissions, other

inspections, reliability and security initiatives and inflation affecting labour and supply costs.127

123 Exhibit 23793-X0093, UCA argument, paragraph 18. 124 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraphs 21-22. 125 Exhibit 23793-X0087, ATCO Pipelines rebuttal evidence, paragraph 23. 126 Exhibit 23793-X0001, application, PDF page 79. 127 Exhibit 23793-X0001, application, PDF page 79.


Decision 23793-D01-2019 (June 25, 2019) • 35

156. ATCO Pipelines grouped its O&M expenses into the cost categories, as shown in the

table below:

Table 14. ATCO Pipelines’ operating expense breakdown

2017 Actual

2018 Estimate

2019 Forecast

2020 Forecast

($000)

Fringe benefit transmission labour 3,271 3,705 4,061 4,231

Salt cavern operation 1,055 945 972 1,000

Underground storage - compressors 119 200 205 210

Transmission operations 8,785 9,114 11,920 13,881

Pipeline operations 14,771 16,299 19,365 20,124

Compressor operations 1,817 1,968 2,130 2,186

Measurement and regulating 6,725 7,228 8,718 9,174

Transmission other 1,885 1,223 1,255 1,287

Cost of providing service 5,120 6,885 7,065 7,669

Recovery of costs (8,142) (9,311) (9,556) (10,325)

Sub-Total 35,406 38,256 46,135 49,437

Less: Disallowed costs 190 141 141 141

Total 35,216 38,115 45,994 49,296

Source: Exhibit 23793-X0001, application, Table 4.2.1-2, PDF page 84

157. Transmission function costs are further split between internal labour costs and external

supply costs. ATCO Pipelines’ forecast total transmission labour expenses were $19,808,000 and

$20,641,000 in 2019 and 2020, respectively, and were compared against 2018 estimates of

$18,077,000. O&M supplies were forecast to be $29,529,000 and $32,595,000 in 2019 and 2020,

respectively, as compared against the 2018 estimate of $23,304,000.128

158. Labour cost components of O&M will be discussed further in Section 8.7 and O&M

supplies expenses will be discussed further in Section 8.8.

Commission findings

159. Having examined ATCO Pipelines’ forecast O&M costs in the application, relevant

responses to IRs, argument, reply argument and other information submitted by all parties, the

Commission approves ATCO Pipelines’ forecast O&M costs for the years 2019 and 2020,

subject to the adjustments arising from the findings on O&M costs components specifically

identified in the sections below.

8.4 Quality control initiatives

160. The Commission addressed ATCO Pipelines’ quality control initiatives program in

Section 6.5 of this decision. In accordance with that section, the Commission directs that all

O&M forecast costs associated with the quality control initiatives programs be removed from

ATCO Pipelines’ forecasts in its compliance filing application.

128 Exhibit 23793-X0001, application, Table 4.2.1-1, PDF page 83.


36 • Decision 23793-D01-2019 (June 25, 2019)

8.5 Compliance initiatives

161. ATCO Pipelines is initiating a number of programs to ensure continued compliance with

various directives and operating expectations.129 These compliance initiatives are addressed

individually in the sections below.

8.5.1 Methane reduction compliance

ATCO Pipelines

162. ATCO Pipelines submitted that its methane reduction compliance program was created in

response to the federal methane regulations130 enacted by the Government of Canada. The

regulations require that ATCO Pipelines have a methane program in place by January 1, 2020, to

measure and report methane emissions and to detect and repair methane leaks three times a

year.131 ATCO Pipelines submitted that the O&M forecast expense associated with methane

reduction compliance is $1,650,000 in 2019 and $3,008,000 in 2020.132

163. ATCO Pipelines submitted that its methane reduction compliance program commenced

in 2018. There was an increase in O&M costs of $150,000 from 2017 to 2018 to comply with the

program at ATCO Pipelines’ compressor stations. ATCO Pipelines forecast an increase of

$1,500,000 in O&M costs from 2018 to 2019 to implement the full program using a staged

approach, by including approximately half of its receipt, industrial delivery, commercial

delivery, and control facilities in the program. The forecast $1,358,000 increase in O&M costs

from 2019 to 2020 will allow ATCO Pipelines to include all of its receipt, industrial delivery,

commercial delivery, control and compressor facilities.133

164. ATCO Pipelines forecast 160 person-days from March to December to complete this

program in 2019 and indicated that it had not yet completed the job scope definition and draft

contract for these services.134

165. In addition to contract services, ATCO Pipelines indicated that it requires two full-time

environmental advisors, one each in 2019 and 2020 to complete scheduling, analysis and record

keeping of compliance with the federal methane regulations.135

CCA

166. The CCA noted that ATCO Pipelines confirmed that it did not have the internal qualified

resources and experienced external resources to develop the programs required to comply with

the federal methane regulations and therefore would require the engagement of contractors to

develop the program. The CCA further noted that as of September 6, 2018, ATCO Pipelines had

not completed the job scope definition and draft contract for each service as part of the contract

engagement process. The CCA stated that subsequent to the development of the programs, bid

documents, prequalification of contractors, invitation to bid, bid analysis, contractor selection

129 Exhibit 23793-X0001, application, PDF pages 81-82. 130 Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds,

SOR/2018-66. 131 Exhibit 23793-X0065, AP-UCA-2018NOV23-003(e). 132 Exhibit 23793-X0001, application, PDF page 81. 133 Exhibit 23793-X0025, AP-AUC-2018SEP06-049. 134 Exhibit 23793-X0033, AP-CCA-2018SEP06-019(b-d). 135 Exhibit 23793-X0025, AP-AUC-2018SEP06-086(d-e).


Decision 23793-D01-2019 (June 25, 2019) • 37

and engagement activities would be required before the successful contractor could commence

work in March 2019.136

167. The CCA argued that ATCO Pipelines had over-stated its ability to complete the

activities for the first half of its staged approach by 2019 year-end. The CCA recommended that

the entire amount of $4,658,000 for the methane reduction compliance program be denied and

that ATCO Pipelines should refile its revenue requirement for this program, update its program

development and revise its revenue requirement forecasts in its compliance filing to this

proceeding.137

UCA

168. The UCA submitted that in the event that a top down adjustment to total O&M costs is a

concern to the Commission, the UCA recommended a line item decrease to the costs of the

methane reduction compliance program of $1,650,000 in 2019 and of $3,008,000 in 2020,

essentially all costs for this program.138 The UCA argued that a third-party letter of support for

this program filed on the record did not comment on whether the proposed size or scope of the

program is reasonable, nor whether the level of forecast spending could be supported.139

Commission findings

169. In Section 8.1 of this decision, the Commission denied a top-down approach to

forecasting and found that it would evaluate the reasons for increases in forecasts for specific

cost categories to determine the reasonableness of applied-for amounts. Consistent with this

approach, the Commission has evaluated the specific reasons for ATCO Pipelines’ methane

reduction compliance program and related forecast costs.

170. The Commission notes that ATCO Pipelines is required to comply with the following

activities by January 1, 2020, as mandated by the federal methane regulations:

Inspect leaks at meter, control and compressor stations three times per year140

Repair leaks within 30 days or by the next planned shutdown141

Measure emissions of natural gas from compressor vents annually142

Take corrective action when emissions are higher than the applicable limit143

171. The Commission has reviewed ATCO Pipelines’ response to AP-AUC-2018SEP06-

056(b)144 and considers that the current methane reduction practices undertaken by ATCO

Pipelines do not fulfill all of the obligations required by the regulations to be fulfilled by 2020.

The federal methane regulations necessitate increased activities by ATCO Pipelines that must be

in place by January 1, 2020, and the Commission agrees with ATCO Pipelines that a staged

136 Exhibit 23793-X0091, CCA argument, paragraphs 101-102. 137 Exhibit 23793-X0091, CCA argument, paragraphs 103 and 106. 138 Exhibit 23793-X0081, UCA-AUC-2019FEB15-001(a). 139 Exhibit 23793-X0093, UCA argument, paragraph 40. 140 Exhibit 23793-X0088, Section 30(3)(b), PDF pages 23-25. 141 Exhibit 23793-X0088, Section 32(1)(a) and Section 31(1)(b), PDF pages 25-26. 142 Exhibit 23793-X0088, Section 16(3), PDF page 10. 143 Exhibit 23793-X0088, Section 18(1), PDF page 12. 144 Exhibit 23793-X0025.


38 • Decision 23793-D01-2019 (June 25, 2019)

approach for compliance is required in 2019 and 2020. For these reasons, the Commission finds

that the forecast costs for the methane reduction compliance program are reasonable given the

activities required to be completed in 2019 and 2020. The Commission approves the forecast

costs in 2019 and 2020, as filed.

8.5.2 Pressure vessel inspection compliance

ATCO Pipelines

172. ATCO Pipelines submitted that through internal reviews of the American Petroleum

Institute (API) Recommended Practice (RP) 510, it has identified that its current inspection

program for pressure vessels should be expanded. ATCO Pipelines stated that it conducts

periodic reviews of applicable codes and regulations to ensure compliance. API RP 510 is

referenced in CSA Z662-15 (Clause 10.9.2.8) as a requirement to follow for inspections of

pressure vessels. ATCO Pipelines had previously interpreted API RP 510 to only require visual

inspection of pressure vessels, but following its most recent review, ATCO Pipelines’ current

interpretation is that a more thorough inspection of pressure vessels is required, which includes a

Non-Destructive Examination (NDE) completed by a third-party NDE contractor. The frequency

of inspections, including NDE completed by third-party contractors, is prescribed in API RP 510

and requires an inspection frequency of no more than 10 years.145 ATCO Pipelines provided a

letter from Acuren Group Inc. as third-party support for its pressure vessel inspection compliance

program.146

173. ATCO Pipelines plans to implement a program based on API RP 510 consisting of a

third-party inspection of all 758 of its pressure vessels, including 192 filter separators, 156 dump

tanks, 11 knockouts, 377 odorant tanks, and 22 air cushion tanks, during the test period. The

associated O&M forecast expense is $702,000 in 2019 and $782,000 in 2020.147

174. ATCO Pipelines submitted that pressure vessel inspection compliance is a program to

expand the inspections of pressure vessels beginning in 2018. ATCO Pipelines said that the

increase in O&M costs of $78,000 from 2017 to 2018 was to scope and plan the inspection

program. The forecast increase of $622,000 in O&M costs from 2018 to 2019 is for inspections

of approximately half of the 758 vessels included in the program. The $80,000 increase in O&M

costs from 2019 to 2020 allows for inspections of the remaining pressure vessels.148 ATCO

Pipelines noted that the O&M forecast expense is based on an estimated cost of $2,000 per

vessel inspection.149

175. ATCO Pipelines stated that 170 person-days from January to October are forecast to

complete five per cent of ATCO Pipelines’ 758 pressure vessel inspections in 2019. ATCO

Pipelines confirmed that it had not yet completed the job scope definition and draft contract for

this service.150 ATCO Pipelines stated that all of its 758 pressure vessels are subject to the

inspection frequencies outlined in API RP 510 and that the proposed program will result in the

145 Exhibit 23793-X0025, AP-AUC-2018SEP06-057(b-d). 146 Exhibit 23793-X0089. 147 Exhibit 23793-X0001, ATCO Pipelines application, PDF pages 81-82. 148 Exhibit 23793-X0025, AP-AUC-2018SEP06-049. 149 Exhibit 23793-X0025, AP-AUC-2018SEP06-057(g). 150 Exhibit 23793-X0033, AP-CCA-2018SEP06-019(b-d).


Decision 23793-D01-2019 (June 25, 2019) • 39

inspection of all vessels by 2020, at which point inspection frequency will be scaled back to

maintain the inspection frequency requirements outlined in API RP 510.151

CCA

176. The CCA submitted that the API 510 third-party support document confirms ATCO

Pipelines’ assertion that the catch-up inspections are necessary was in fact based on an ATCO

Pipelines’ reinterpretation of API 510 and not driven by any change in legislation. The CCA

argued that the proposal to inspect all assets in the test years of this application results in an

improper allocation of intergenerational costs and that current customers should not be expected

to pay for catch-up inspections. The CCA further argued that ATCO Pipelines had an obligation

to have reviewed and conformed to these requirements since the early 1990s and that the

inspections should have been completed on a six-to-10 year rolling basis (based on the asset

description) since the early 1990s.152

177. The CCA stated that while it does not object to the pressure vessel inspection initiative, it

does not agree that the program should be completed within the test period. The CCA further

stated that since ATCO Pipelines has an existing pressure vessel inspection program within its

current inspection protocol, there should be no urgency to complete this program in two years.153

The CCA recommended that ATCO Pipelines restructure the duration of the program to 10 years

commencing in 2020 and charge one tenth of its inventory inspection costs per annum until the

inspections are complete, to avoid prejudice to current ratepayers. The CCA submitted that this

would give ATCO Pipelines time to complete its job scope definition and engage a contractor for

the service. The CCA submitted that ATCO Pipelines did not provide third-party support

regarding the $2,000 forecast cost to inspect each vessel.154 The CCA recommended that ATCO

Pipelines be directed to reflect reduced inspection costs in its compliance filing for this

proceeding.155

UCA

178. The UCA submitted that in the event that a top down adjustment to total O&M costs is

not adopted by the Commission then a reduction should be made to the costs of the pressure

vessel inspection program of $702,000 in 2019 and $782,000 in 2020, essentially all costs for

this program. The UCA noted that ATCO Pipelines should pursue these initiatives but work

within existing budgets or demonstrate the need for new budgets at the time of ATCO Pipelines’

2021 GRA.156

ATCO Pipelines

179. ATCO Pipelines noted that the CCA’s evidence does not reference or address any of

ATCO Pipelines’ O&M activities or forecast costs. ATCO Pipelines submitted that no party

challenged any specific aspects of its interpretation of API RP 510 or put forward expert

evidence supporting an alternative interpretation to this mandatory requirement under CSA

Z662-15. ATCO Pipelines argued that it had provided third-party support for its interpretation of

151 Exhibit 23793-X0025, AP-AUC-2018SEP06-057(e). 152 Exhibit 23793-X0091, CCA argument, paragraph 111. 153 Exhibit 23793-X0091, CCA argument, paragraph 113. 154 Exhibit 23793-X0091, CCA argument, paragraphs 112-113. 155 Exhibit 23793-X0091, CCA argument, paragraphs 111 and 114. 156 Exhibit 23793-X0081, UCA-AUC-2019FEB15-001(a).


40 • Decision 23793-D01-2019 (June 25, 2019)

API RP 510 in rebuttal evidence and stated that the applied-for costs are reasonable and

necessary.157

Commission findings




approach, the Commission has evaluated the specific reasons for ATCO Pipelines’ pressure

vessel inspection compliance program and the related forecast costs.

181. The Commission agrees that more thorough inspection of pressure vessels is required and

that ATCO Pipelines requires a program to complete the inspections to ensure compliance with

the codes and regulations. The Commission has reviewed a letter from Acuren Group Inc. filed

by ATCO Pipelines that provides support for the inspections required under its pressure vessel

inspection program. 158

182. The Commission finds that although the letter provides general support for increased

inspections and for ATCO Pipelines’ pressure vessel inspection program, the letter provides no

guidance on a timeline to inspect all of ATCO Pipelines’ 758 pressure vessels. ATCO Pipelines

submitted that API RP 510, referenced in CSA Z662-15, requires an inspection frequency of no

more than 10 years, for this reason the Commission agrees with the CCA that there is no

requirement for ATCO Pipelines to complete this program over a two-year period.

183. The Commission directs ATCO Pipelines, in its compliance filing, to provide a revised

timeline to complete this program that includes a risk assessment analysis (for example, if ATCO

Pipelines completed its pressure vessel inspection compliance program over a longer timeframe,

such as five or 10 years), including a prioritization of its pressure vessels and risk analysis based

on vessel vintage, date of last inspection and any other relevant metrics.

184. The Commission also directs ATCO Pipelines, in its compliance filing, to provide a

status update on its pressure vessel inspection compliance program, including information on the

description of the required work, the details of the contract for inspection, and the status of and

timeline for the process to engage a contractor has been engaged. ATCO Pipelines is also

directed to include an update of forecast costs for the test period for this program and an update

of the cost required to inspect each pressure vessel that reflects the findings and directions of the

Commission in this decision.

8.5.3 Greenhouse gas compliance

185. ATCO Pipelines stated that in January 2018, Alberta transitioned from the Specified Gas

Emitters Regulation (SGER) to an Output Based Allocation (OBA) model to manage greenhouse

gas emissions. Based on its forecast of greenhouse gas emissions and its new greenhouse gas

compliance targets, ATCO Pipelines expects its emissions to exceed greenhouse gas compliance

targets from 2018 onward. ATCO Pipelines submitted that it will be required to purchase

157 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraphs 21-22. 158 Exhibit 23793-X0089, letter from Acuren Group Inc.


Decision 23793-D01-2019 (June 25, 2019) • 41

emission performance credits from the government in each of 2019 and 2020 at a forecast O&M

expense of $377,000 in 2019 and of $569,000 in 2020.159

186. In response to IRs, ATCO Pipelines stated that it forecasts emissions by trending its

historical emissions inventories with adjustments based on recent system changes and planned

improvement activities. It noted that its historical emissions inventories are verified by an

accredited third party and approved by the Government of Canada.160

187. No interveners commented on ATCO Pipelines’ greenhouse gas compliance initiative.

Commission findings

188. The Commission has examined the evidence respecting greenhouse gas emissions,

ATCO Pipelines’ forecast compliance costs in the test period relating to greenhouse gas

emissions and the reasons for these costs and finds them to be reasonable. The Commission

approves ATCO Pipelines’ greenhouse gas compliance costs for 2019 and 2020, as filed.

8.6 Reliability and security

189. ATCO Pipelines stated it has launched certain initiatives and programs consistent with its

obligation to ensure a safe, reliable, and secure pipeline system.161 These reliability and security

initiatives are addressed individually in the sections below.

8.6.1 Facility assessments

190. ATCO Pipelines submitted that it intends to implement a program to perform third-party

hazard operability assessments on its critical facilities. These assessments will identify

opportunities for capital investment in ATCO Pipelines’ facilities to reduce O&M expenses,

confirm that the appropriate level of equipment redundancy is present to maximize the reliability

of its operations, and identify potential process hazards that could increase the risk of incidents

impacting health and safety, asset integrity, or customer service. The associated O&M forecast

expense is $500,000 in each of 2019 and 2020.162

191. In response to IRs, ATCO Pipelines stated that 200 person-days from January to

December are forecast to complete this program in 2019 and that it had not yet completed the job

scope definition and draft contract for this service.163

192. ATCO Pipelines submitted that it intends to complete a hazard and operability study at

each of its critical facilities to identify any potential hazards that may result from operations

outside of each facility’s original design or through the malfunction of individual pieces of

equipment. Once these studies are complete, ATCO Pipelines would then initiate capital

projects, if necessary, to address the findings. ATCO Pipelines planned to complete 10 studies in

each of 2019 and 2020 with an O&M forecast expense of $50,000 per study.164

159 Exhibit 23793-X0001, application, PDF page 82. 160 Exhibit 23793-X0025, AP-AUC-2018SEP06-058(b). 161 Exhibit 23793-X0001, application, PDF pages 82-83. 162 Exhibit 23793-X0001, application, PDF page 82. 163 Exhibit 23793-X0033, AP-CCA-2018SEP06-019(b-d). 164 Exhibit 23793-X0025, AP-AUC-2018SEP06-059(b-d).


42 • Decision 23793-D01-2019 (June 25, 2019)

193. The UCA argued that costs for this program should be denied in the test period and that if

ATCO Pipelines wants to undertake this initiative it can do so within existing budgets. The UCA

added that the program can be re-examined at the next GRA when actual expenditures,

benchmarking and study outcomes can provide more justification for inclusion of these costs in

revenue requirement.165

194. ATCO Pipelines responded that the UCA did not address this program in its evidence and

its recommendation that the forecast should be disallowed is without merit and should be

disregarded.166

Commission findings

195. The Commission finds that ATCO Pipelines’ has not justified the costs for this program.

Based on the evidence, the Commission is unable to assess how this program is different from

other asset management programs or the specific benefits that may result from the third-party

hazard operability assessments. The Commission directs ATCO Pipelines to remove all forecast

costs associated with this initiative for 2019 and 2020 in its compliance filing to this decision.

196. If ATCO Pipelines sees merit in conducting third-party hazard operability assessments,

the Commission considers that ATCO Pipelines could conduct one or more of these studies on

own initiative and within existing budgets to demonstrate the benefits, costs and result of the

assessments. This would allow ATCO Pipelines to support any future business case put before

the Commission with actual experience and costs incurred from an assessment.

8.6.2 Cyber security

197. In response to an increase in the number of cyber security attacks reported globally,

ATCO Pipelines submitted that it must continue to focus on initiatives that protect its

infrastructure and pipeline control network from being compromised. ATCO Pipelines’ capital

program includes projects to address potential cyber security deficiencies related to its SCADA

system. These projects will include security appliances that monitor the pipeline control network

and identify potential threats. These appliances require ongoing support and attract licence costs.

The associated O&M forecast expense is $290,000 in 2019 and $295,000 in 2020.167

198. In response to IRs, ATCO Pipelines stated that 180 person-days from January to

December are forecast to complete this program in 2019 and that this service will be provided

based on ongoing analysis of SCADA network traffic reports and investigation of abnormal

activities discovered. ATCO Pipelines noted that it had not yet completed the job scope

definition and draft contract for this service.168

199. The UCA argued that costs for this program should be denied in the test period and that if

ATCO Pipelines wants to undertake this initiative it can do so within existing budgets. The UCA

stated that the program can be re-examined at the next GRA when actual expenditures,

165 Exhibit 23793-X0093, UCA argument, paragraphs 44-45. 166 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 25. 167 Exhibit 23793-X0001, application, PDF pages 82-83. 168 Exhibit 23793-X0033, AP-CCA-2018SEP06-019(b-d).


Decision 23793-D01-2019 (June 25, 2019) • 43

benchmarking and study outcomes can provide more justification for inclusion of these costs in

revenue requirement.169

200. ATCO Pipelines responded that the UCA did not address this program in its evidence and

that its recommendation that the forecast should be disallowed is without merit and should be

disregarded.170

Commission findings

201. The Commission has examined the evidence respecting ATCO Pipelines’ forecast cyber

security costs and finds it to be reasonable. The Commission notes that costs for this category

include network monitoring, industry best practices for cyber security and securing

communication infrastructure.171 The Commission does not agree with the UCA that costs should

be denied in this test period because the Commission finds that these are activities that ATCO

Pipelines must undertake to ensure the security of its system. The Commission has reviewed the

forecast costs for the activities to be undertaken in the test years and approves ATCO Pipelines’

forecast cyber security costs for each of 2019 and 2020, as filed.

8.7 O&M labour costs

202. ATCO Pipelines is forecasting that O&M labour costs will be higher in 2019 and 2020

primarily due to annual labour inflation and new positions associated with the Quality Control

Initiatives. O&M labour is classified by activity, namely salt cavern operation, gas control,

customer and pipeline system support, engineering and planning, pipeline operations, safety and

training, compressor operations, and measurement and regulating operations, as shown in the

table below.172

203. ATCO Pipelines grouped its O&M labour costs into these activities, as shown in the table

below:

Table 15. ATCO Pipelines’ O&M labour costs


($000)

Salt cavern operation 457 467 483 498

Gas control 4,016 4,611 5,121 5,295

Engineering and planning 808 835 863 889

Pipeline operations 4,795 5,461 6,172 6,432

Safety and training 886 885 965 1,088

Compressor operations 673 695 715 735

Measurement and regulating operations 4,412 5,123 5,489 5,704

Total 16,047 18,077 19,808 20,641

Source: Exhibit 23793-X0001, application, Table 4.2.1-3, PDF page 85.

204. ATCO Pipelines provided explanations for the differences in forecast costs for each of

the O&M activities in 2019 and 2020. For example, forecast labour costs for the operation and

169 Exhibit 23793-X0093, UCA argument, paragraphs 44-45. 170 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 25. 171 Exhibit 23793-X0025, AP-AUC-2018SEP06-060. 172 Exhibit 23793-X0001, application, PDF pages 84-87.


44 • Decision 23793-D01-2019 (June 25, 2019)

maintenance of ATCO Pipelines’ salt cavern gas storage facility increased in 2019 and 2020 due

to inflation.173

205. For gas control, forecast labour costs increased in 2019 to reflect inflation and the

planned enhancement of ATCO Pipelines’ Cyber Security and Control Room Management

programs. Forecast labour costs for the programs also increased in 2020 to reflect inflation.174

206. The forecast labour costs for engineering and planning also increased due to inflation.175

207. For pipeline operations, the forecast increase in 2019 reflects inflation and additional

resources required to implement ATCO Pipelines’ proposed quality control initiatives for the

third-party activity verification program.176

208. The forecast increases for safety and training labour costs in 2019 and 2020 reflect

inflation and the addition of one Environmental Advisor to administer new provincial and federal

environmental regulations.177

209. The forecast increases for compressor stations reflect inflation for the test period.

Similarly, the forecast increase in 2019 for measurement and regulating operation reflect

inflation and the additional resources required to implement ATCO Pipelines’ proposed quality

control initiatives in the Critical Equipment and Measurement Verification programs, as well as a

quality program coordinator position.178

210. ATCO Pipelines explained that increases in labour costs are due to wage inflation, which

is discussed in Section 8.7.1, the addition of five full-time staff in 2019 and of one full-time

employee in 2020. The O&M FTE positions are discussed in Section 8.7.2.

8.7.1 Salary escalators

8.7.1.1 In-scope employees

211. ATCO Pipelines, and the Natural Gas Employees Association, which represents ATCO

Pipelines’ association members (in-scope employees), negotiated a one-year collective

agreement for the period January 1, 2018, to December 31, 2018. The agreement provided for a

salary increase of 2.0 per cent for in-scope employees. In the application, ATCO Pipelines

forecast an in-scope salary escalation of 2.5 per cent for 2019 and 2.8 per cent for 2020. 179

ATCO Pipelines submitted that the increases for 2019 and 2020 are consistent with recent

Alberta union wage settlements, as shown in the table below: 180

173 Exhibit 23793-X0001, application, PDF page 85. 174 Exhibit 23793-X0001, application, PDF page 85. 175 Exhibit 23793-X0001, application, PDF pages 86-87. 176 Exhibit 23793-X0001, application, PDF page 87. 177 Exhibit 23793-X0001, application, PDF pages 86-87. 178 Exhibit 23793-X0001, application, PDF page 88. 179 Exhibit 23793-X0001, application, Table 1.3-1, PDF pages 14-15. 180 Exhibit 23793-X0001, application, Table 1.3-2, PDF page 15 and Exhibit 23793-X00025, AP-AUC-

2018SEP06-005(a).


Decision 23793-D01-2019 (June 25, 2019) • 45

Table 16. External wage settlements

Company Union 2014 2015 2016 2017 2018 2019 2020

(%)

ATCO Gas Natural Gas Employees’ Association (NGEA)

3.5 3.5 3.75 1.96 1.75

ATCO Pipelines NGEA 3.5 3.5 2.75 2.67 2

ATCO Electric Canadian Energy Workers’ Association (CEWA)

3.5 3.5 3.75 1.75 2

ATCO Electric Yukon

CEWA 3.5 3.5 3.25 1.75 2

ATCO Power CEWA 3.5 3.5 3.75 1.5 1.75

Northland (NWT) CEWA 3.5 3.5 2.5 1.5 2

Northland (YK) CEWA 3.5 3 3 1.75 2

AltaGas

CEP(Communications, Energy and Paperworkers Union of Canada) 1947

3 3 2 2 2

AltaLink United Utilities Workers’ Association (UUWA)

3.5 4 2.5 2.5 2.35 3

AltaLink International Brotherhood of Electric Workers (IBEW)

3.5 4 3.5 2.35 2.35

Capital Power IBEW 3.5 3.5 2.5 2 2

Capital Power CEP 3.5 3.75 3.75 2 2

Capital Power Civil Service Union (CSU)

3.5 2.5 2 2 2.5

Medicine Hat Power

IBEW 3.5 3.5 3 0 2 2

ENMAX Canadian Union of Public Employees (CUPE) 38

3.5 3.5 3.5 1.25 2.25 3

ENMAX IBEW 4 3.5 3.5 3.75

EPCOR IBEW 3.5 3.5 2.5 2.5 2.35

EPCOR CSU52 3.5 3 2.25 2.15 2.35 2.75 2.75

Fortis Alberta UUWA 3.25 3.5 3.5 3.75 1.5 2.25 2.75

Milner Power CEWA 3.5 3.75 4 0 0

TransAlta IBEW254 3.5 3.5 3.75 0 1.5 1.75

TransAlta UUWA100 3 3 3 0

Average, Including ATCO 3.5 3.4 3.1 1.8 1.9 2.5 2.8

Average, Excluding ATCO 3.5 3.4 3.0 1.7 1.9 2.5 2.8

212. No issues were raised by interveners with respect to in-scope employee salary

escalations.

Commission findings

213. The Commission has reviewed ATCO Pipelines’ proposal for an in-scope employee

salary escalation of 2.5 per cent in 2019 and of 2.8 per cent in 2020, and the data on comparable


46 • Decision 23793-D01-2019 (June 25, 2019)

wage settlement agreement provided by ATCO Pipelines in Table 16.181 Given the limited

amount of comparable wage settlement agreement data for 2019 and 2020, as shown in Table 16,

the Commission finds that a 2.0 per cent increase for in-scope employees, consistent with its

2018 collective bargaining agreement, is more reasonable. In addition, the Commission also

finds that a 2.0 per cent increase is consistent with the findings of the Mercer Canada Limited

(Mercer) that the Alberta economy is forecasted to grow at 2.0 per cent annually from 2019

through 2020, as discussed in more detail in Section 8.7.1.2 below. Accordingly, the

Commission approves a 2.0 per cent increase for each of 2019 and 2020. ATCO Pipelines is

directed to revise its in-scope employee salary escalator to 2.0 per cent in its compliance filing to

this decision.

8.7.1.2 Out-of-scope employees

214. ATCO Pipelines retained Mercer to provide advice with respect to the level of salary

escalation applicable to non-union (out-of-scope) employees. ATCO Pipelines is forecasting

salary escalators of 3.0 per cent for out-of-scope employees for each of 2019 and 2020,

consistent with the salary increase projections provided by Mercer.182

215. In the 2018 Total Remuneration Report provided as an attachment to the application

(Mercer report),183 ATCO Pipelines’ 2018 remuneration was compared to 2017 actual

remuneration in 39 peer companies to reflect the competitiveness of ATCO Pipelines’ total

remuneration. The Mercer report and responses to IRs on the Mercer report184 noted that ATCO

Pipelines’ base salary and total cash compensation185 are five per cent and eight per cent,

respectively, below the market median at 50th percentile, total direct compensation186 is 11

per cent below the market median, and total remuneration187 is 14 per cent below the market

median.

216. In the Mercer report, Mr. Yung made the following statement with respect to its 2019-

2020 salary escalation projections:

Based on the results to-date, we expect the median aggregate salary increase budget in

2018 for ATCO Pipelines’ Peer Group to fall near 2.3%. The Alberta economy is

forecasted to grow at 2.0% annually from 2019 through 2020 after rebounding from the

recession with rapid growth in 2016 and 2017. As this growth rate exceeds projections

for Canada, and the unemployment rate is forecasted to be better than the national

average in 2020, overall expectations for Alberta are for stronger growth than the long-

term national trend. Given the economic context, we expect that salary increase budgets

from 2019 to 2020 will revert back to the historical mean of around 2.8% – 3.0% per

year, inclusive of promotional budgets, for an approximate total increase of 5.6% – 6.0%

for the two-year period.188

181 Exhibit 23793-X0001, application, PDF page 15. 182 Exhibit 23793-X0001, application, PDF pages 15-16. 183 Exhibit 23793-X0003, Section 1.3 Attachment 1. 184 Exhibit 23793-X0003, Section 1.3 Attachment 1, PDF page 19 and Exhibit 23793-X00025, AP-AUC-

2018SEP06-008(a). 185 Target total cash compensation = base salary + target short-term incentives 186 Target total direct compensation = target total cash compensation + perquisites + long-term incentives. 187 Target total remuneration = target total direct compensation + pension and savings + health and group benefits. 188 Exhibit 23793-X0003, Section 1.3 Attachment 1, PDF page 14.


Decision 23793-D01-2019 (June 25, 2019) • 47

217. ATCO Pipelines submitted that it targets the 50th percentile of the market for its total

employee compensation. ATCO Pipelines stated that its use of a higher end of the range of

Mercer’s recommendations is supported by the total direct compensation being 11 per cent

below market.189 ATCO Pipelines submitted that this target will allow ATCO Pipelines to

continue to monitor and respond to the market accordingly and to ensure that it is able to attract

and retain experienced employees.190

218. ATCO Pipelines’ forecast and actual salary increases for out-of-scope employees from

2014 to 2018 were provided in the table below.

Table 17. ATCO Pipelines’ forecast and actual out-of-scope increases from 2014 to 2018

2014 2015 2016 2017 2018

(%)

Actual 3.3 0.9 0.0 2.8 2.5

Forecast 5.5 3.0 3.0 3.0 2.5

Source: Exhibit 23793-X00025, AP-AUC-2018SEP06-007(d).

219. ATCO Pipelines stated that Mercer’s salary escalation projections are market focused

where the market range for promotional increase budgets in Alberta was 0.2 to 1.0 cent in 2017.

ATCO Pipelines’ forecast labour costs are inclusive of promotional and incremental adjustments

for employee progression.191

220. No issues were raised by interveners with respect to out-of-scope employee salary

escalations.

Commission findings

221. The Commission has reviewed the Mercer report and finds that it is only one factor in

assessing the level of required wage increases. The Mercer report does not supplant management

judgement and other economic factors that must be considered before determining the salary

level required to attract and retain talent. The Commission considers that it is very difficult for

any study to incorporate intangible factors such as the economic climate in Alberta, risk of job

loss, labour productivity and the unemployment rate.

222. Target total compensation includes items such as variable pay, perquisites, long-term

incentive pay, pension and savings, and health and group benefits.192 Although some of these

items are not included for recovery in ATCO Pipelines’ revenue requirement, the Commission

considers that it is incumbent upon ATCO Pipelines’ management to review whether these forms

of compensation are required to retain and attract employees. ATCO Pipelines can and should

vary these items to meet its objectives with respect to total compensation. The target total

compensation data from Mercer is only one measure that the Commission uses in approving out-

of-scope labour forecasts.

223. The Commission has reviewed the record and is not persuaded that the current economic

climate supports an out-of-scope labour escalation of 3.0 per cent in each of 2019 and 2020.

Rather, the Commission finds that an out-of-scope labour escalation rate of 2.0 per cent for each

189 Exhibit 23793-X0025, AP-AUC-2018SEP06-007(b). 190 Exhibit 23793-X0001, application, PDF page 16 and Exhibit 23793-X00025, AP-AUC-2018SEP06-007(b). 191 Exhibit 23793-X0025, AP-AUC-2018SEP06-007(e-f). 192 Exhibit 23793-X0003, Section 1.3 Attachment 1.


48 • Decision 23793-D01-2019 (June 25, 2019)

of 2019 and 2020 is more reflective of the current market based on the best information available

on the record of this proceeding.

224. Accordingly, the Commission approves a 2.0 per cent out-of-scope salary escalation

factor for each of 2019 and 2020. The Commission directs ATCO Pipelines to reflect these

findings in its compliance filing to this decision.

8.7.2 FTE forecasts

225. ATCO Pipelines forecast eight additional full-time equivalents (FTEs) from 2019 to 2020

to support the resource requirements of its quality control initiatives and compliance activities.193

226. ATCO Pipelines also forecast a decrease of 4.5 FTEs in the test period and stated that this

decrease resulted from the consolidation of management that has occurred between it and ATCO

Gas.194 The consolidation of management initiative is discussed in more detail in Section 8.7.2.1

below.

227. ATCO Pipelines also forecast a decrease of three FTEs as a result of the shared services

initiative with the ATCO companies as discussed in more detail in Section 8.10 below. 195

228. ATCO Pipelines stated that in the case of the eight FTEs to be added in the test period,

the utilization of temporary resources is not a consideration due to the company-specific nature

of the work and the requirement to develop and retain long-term knowledge.196 ATCO Pipelines

provided the following table quantifying the total permanent employee complement during the

test period:

Table 18. ATCO Pipelines’ permanent FTE positions

Permanent FTEs 2014 Actual

2015 Actual

2016 Actual

2017 Actual

2018 Estimate

2019 Forecast

2020 Forecast

At January 1 412 434 446 415 416 414 421 Net Growth 22 12 (31) 1 (2) 7 1 Total Added Positions 22 19 19 16 5 7 1

Total Eliminated Positions - (7) (50) (15) (7) - -

Shared Services Reductions - - - - (3) - -

AP/AG Consolidation - - - - (4) - -

At December 31 434 446 415 416 414 421 422

Vacancies at December 31 31 46 19 12 11 11 11

Filled Positions 403 400 396 404 403 410 411

Approved Year End Forecast from Prior GRA Filings

415 470 416 422 425 N/A N/A

Source: Exhibit 23793-X0062, AP-AUC-2018NOV23-012(b).

229. ATCO Pipelines stated that throughout the 2018 estimate year and the 2019 to 2020

forecast test years, it has focused on managing FTE counts by addressing resource requirements

193 Exhibit 23793-X0001, application, PDF page 103. 194 Exhibit 23793-X0001, application, PDF page 105. 195 Exhibit 23793-X0062, AP-AUC-2018NOV23-007-1, Attachment 196 Exhibit 23793-X0001, application, PDF page 107.


Decision 23793-D01-2019 (June 25, 2019) • 49

through temporary and seasonal resources. ATCO Pipelines forecast 65 temporary/seasonal

employee positions in each of 2019 and 2020, which is based on the positions required in

2017.197 ATCO Pipelines stated that it will continue to use temporary and seasonal employees

where required during the test period.198

230. The additional positions proposed in the test period are discussed individually in the table

below by labour activity category:

Table 19. ATCO Pipelines’ forecast additional labour positions, by labour activity category

Labour activity group

Proposed additional position

Reason for additional position

Process Control Technologist

1

To complete the incremental workload introduced by the Quality Control Initiatives Business Case. The Process Control Technologist will join ATCO Pipelines’ existing group of Technologists and will be responsible for completing portions of the Critical Equipment Verification (fire detection, gas detection and H2S analyzers), Measurement Verification (gas chromatograph and meter verification), and Reinspection (instrumentation work) programs as part of the quality control initiatives

Land agents 2

Due to the recent changes in the AUC’s Rule 020199 regarding the participant involvement program, ATCO Pipelines will require two new Land Agent positions to accommodate additional consultation requirements on pipeline projects. The changes to Rule 020 came into effect on December 1, 2017 and have expanded the scope of personal consultation and notification requirements for all projects, with the exception of small diameter pipelines in rural settings. This increase in consultation and the follow-up that is required with landowners, residents, and occupants is the driver for these additional land agents

Field Quality Coordinator

2

As part of the Quality Control Initiatives, ATCO Pipelines will require two full-time employees to oversee the activity of all crossing and locate inspectors working on behalf of ATCO Pipelines. These inspectors monitor third-party activity around ATCO Pipelines’ pipeline assets to ensure that there is no damage to these assets during third-party construction activities. The Field Quality Coordinators will ensure that the inspectors are following regulatory requirements and ATCO Pipelines’ specifications.

Quality Program Coordinator

1

The coordination and administration of the quality control initiatives for operational expenditures and the Quality Control Initiatives will require one full-time employee. The Quality Program Coordinator will be responsible for the planning and successful completion of the Critical Equipment, Critical Facility, Measurement, and Third Party Activity Verification programs, and the Reinspection programs. The Quality Program Coordinator will also coordinate all of the in-house and contractor resources associated with the previously mentioned programs.

Environment Advisor

2

Many additional environmental requirements have been developed or are in development by provincial and federal regulators, which will increase environmental management and reporting for ATCO Pipelines. Two additional full-time Environment Advisors are needed due to new requirements, including the Greenhouse Gas Output Based Allocation System and the Methane Reduction Regulations, as well as the Multi-Sector Air Pollutants Regulations, Bill C68 (Fisheries Act) and Bill C69 (specifically, changes to implement the Canadian Navigable Waters Act). The Environment Advisors are required to set up the systems, tools, and records necessary to maintain compliance with expanded requirements.

Source: Exhibit 23793-X0001, application, PDF pages 108-110.

231. ATCO Pipelines anticipated that approximately 23 per cent of its employees in leadership

positions will retire during the test period and nearly all employees in the defined benefit pension

plan will retire within the next 10 years. It indicated that 10 per cent of its workforce is eligible

197 Exhibit 23793-X0025, AP-AUC-2018SEP06-085(g). 198 Exhibit 23793-X0001, application, PDF pages 107-108. 199 Rule 020: Rules Respecting Gas Utility Pipelines.


50 • Decision 23793-D01-2019 (June 25, 2019)

to retire in the next five years, with an additional five per cent currently eligible to retire. ATCO

Pipelines stated that these retirements will result in a loss of knowledge and experience and will

result in declining average years of service, which will in turn increase the need to train and

develop successors to address the gap.200

UCA

232. The UCA recommended that ATCO Pipelines’ forecast growth in O&M labour costs

should be rejected and a material downward revision should be included. The UCA argued that

O&M labour costs are forecast to increase from $16,050,000 in 2017 to $20,640,000 in 2020 and

this results in a cumulative increase of 28.6 per cent in three years.201

233. The UCA argued that actuals show stable levels of FTEs with 2018 total FTEs of 414,

which is only two FTEs higher than the 2013 total FTE count of 412, before vacancies. Further,

the UCA argued that its is difficult to pinpoint the specific areas of labour costs where downward

revisions should be made. Actual labour costs are lower in almost all subcategories compared to

approved amounts from 2016 to 2018 and therefore it is appropriate for the Commission to direct

a top-down adjustment to labour costs, in the order of half the growth in O&M labour costs,

approximately $1,600,000 in 2019 and $2,300,000 in 2020. The UCA stated that previous ATCO

Pipelines GRAs have overstated labour costs in forecast years compared to what is later

presented in actuals, which informs its recommendation in the current GTA.202

ATCO Pipelines

234. ATCO Pipelines submitted that its 2017 workforce was larger than forecast and that its

forecast for 2019-2020 continues to incorporate a higher level of temporary and seasonal

employees, which the UCA ignores in its interpretation of ATCO Pipelines’ FTE growth. ATCO

Pipelines argued it continues to manage both its capital and O&M workload using a combination

of permanent, temporary and contract resources. The UCA’s limited focus on FTE growth

ignores the important role that temporary and contract resources contribute to completing ATCO

Pipelines’ annual workload.203

235. ATCO Pipelines submitted that the UCA’s recommendation with respect to O&M labour

costs is arbitrary and unsupported as the tables presented in the UCA’s evidence and argument

do not support a 50 per cent reduction to the growth in ATCO Pipelines’ O&M labour costs.

ATCO Pipelines submitted that the UCA’s recommendation with respect to O&M labour costs

should be dismissed.204

Commission findings




approach, the Commission has evaluated the specific reasons for ATCO Pipelines’ proposals

with respect to FTEs and labour cost forecasts.

200 Exhibit 23793-X0001, application, PDF pages 103-104. 201 Exhibit 23793-X0093, UCA argument, paragraphs 20-21. 202 Exhibit 23793-X0093, UCA argument, paragraphs 26 and 34. 203 Exhibit 23793-X0090, ATCO Pipelines argument, paragraphs 37-38. 204 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 18.


Decision 23793-D01-2019 (June 25, 2019) • 51

237. The Commission has reviewed Table 9 of Mr. Bowman’s evidence205 and Table 3 of the

UCA’s argument206 and notes these tables show a significantly lower variance in labour costs

of -2.3 per cent for 2018 when compared to the variances of -10.8 per cent and -10.3 per cent in

each of 2016 and 2017, respectively. The Commission finds that the 2018 variance is reasonable.

238. The Commission notes that ATCO Pipelines has justified four of the eight new proposed

FTEs based on its proposed Quality Control Initiatives program, the costs of which the

Commission denied in Section 6.5 of this decision.

239. For the remaining four applied-for FTEs in the test period, ATCO Pipelines provided an

explanation of the responsibilities of and justification for each, which is summarized in Table 19

above. The Commission has examined ATCO Pipelines’ explanations for these remaining four

incremental FTEs and finds them to be reasonable. ATCO Pipelines is directed to revise its FTE

forecast in its compliance filing to reflect the denial of four FTEs by the Commission, as

discussed in paragraph 238 above.

8.7.2.1 Consolidation of management between ATCO Pipelines and ATCO Gas

240. ATCO Pipelines has proposed to consolidate the management of specific divisions with

ATCO Gas. The consolidation of management relates to the Corporate Services and Engineering

departments in 2017 and to the Operations and Construction departments in 2018. ATCO

Pipelines explained that both it and ATCO Gas provide regulated natural gas services and

overlapping geography, and therefore have similar business requirements. This has enabled both

ATCO Pipelines and ATCO Gas to improve customer interactions and provide broad

management oversight.207

241. Due to the consolidation of management between ATCO Pipelines and ATCO Gas,

ATCO Pipelines incorporated a reduction of 4.5 management FTEs into its 2019-2020 revenue

requirement forecast.208 The reductions were composed of 1.5 FTEs for Engineering, 1.5 FTEs

for Senior Leadership and 1.5 FTEs for Operations.209

242. In response to a Commission IR, ATCO Pipelines provided the following table to show

the 2018 integration of its consolidated management.

205 Exhibit 23793-X0074, UCA evidence, Table 9, PDF page 32. 206 Exhibit 23793-X0093, UCA argument, Table 3, PDF page 12. 207 Exhibit 23793-X0025, AP-AUC-2018SEP06-084(a-b). 208 Exhibit 23793-X0001, application, PDF page 105. 209 Exhibit 23793-X0062, AP-AUC-2018NOV23-011(a) and (c).


52 • Decision 23793-D01-2019 (June 25, 2019)

Table 20. Consolidated management FTEs

2017 Add. Red. Adj. 2018

Management team 3.7 (1.5) 0.7 2.9

Engineering 131.3 (1.5) 11.2 141.0

Construction 45.2 (2.0) 43.2

Operations* 173.0 3.0 (1.5) (6.9) 167.6

Health, safety, environment and quality

13.9 (2.6) 11.3

Administrative and general 18.4 (0.9) 17.5

Shared services 30.8 3.0 (3.0) 30.8

Ending FTEs 416.3 6.0 (7.5) (0.5) (414.3)

*Operations include District Operations, Calgary & Edmonton Region Operations, and Customer Experience & Innovation. Source: Exhibit 23793-X0062, AP-AUC-2018NOV23-011(d) Attachment, PDF page 43.

243. ATCO Pipelines identified O&M savings of approximately $500,000 that have been

incorporated into the 2019-2020 forecast. Other benefits, while not quantifiable, also include the

implementation of best practices across the divisions, and the ability to more effectively plan for

succession, provide more cross-functional support and carry out consistent business processes.210

244. No issues were raised by the CCA apart from the CCA’s concern that ATCO Pipelines

did not respond to requested information regarding leader salaries, burden and benefits.211

Commission findings

245. The Commission has reviewed the evidence with respect to ATCO Pipelines’ initiative

for consolidating its management with ATCO Gas. The Commission approves the consolidation

of management for the Corporate Services and Engineering departments in 2017 and for the

Operations and Construction departments in 2018, as this provides benefits, including

consistency of management between departments for both utilities and annualized savings of

$500,000. However, the Commission observes that in Table 18 of this decision, the consolidation

of management shows a reduction of 4.0 FTE positions. Accordingly, in its compliance filing to

this proceeding, ATCO Pipelines is directed to update Table 18 of this decision to clarify

whether the number of FTE positions eliminated as a result of consolidation of management was

4.0 or 4.5.

8.7.3 Variable pay program

246. In 2013, ATCO Pipelines implemented a new variable pay program (VPP) that was

approved by the Commission in Decision 2013-430. The VPP is an important part of ATCO

Pipelines’ compensation to attract and retain qualified and motivated employees.212

247. As outlined in Decision 22011-D01-2017, VPP is a variable pay-at-risk program that

rewards eligible employees for helping the organization achieve a high level of performance,

with the amount of the award aligned to company and individual performance. Payments under

its VPP are based on three criteria: achievement of employees’ individual performance goals,

achievement of department metrics, and achievement of company goals.

210 Exhibit 23793-X0001, application, PDF page 105 and Exhibit 23793-X0062, AP-AUC-2018NOV23-011(e). 211 Exhibit 23793-X0091, CCA argument, paragraphs 195-196. 212 Decision 22011-D01-2017, paragraph 244 and Exhibit 23793-X0025, AP-AUC-2018SEP06-092(f).


Decision 23793-D01-2019 (June 25, 2019) • 53

248. Variances can exist if these goals are not met, if there are fewer employees eligible for

VPP than originally forecast or if there are extraordinary market conditions. ATCO Pipelines

currently has a VPP deferral account and any amounts under the approved forecast will be trued

up in the next GRA.

249. In the test period, ATCO Pipelines forecast expenses of $3,074,000 in 2019 and

$3,177,000 in 2020 for VPP.213

250. In Decision 3577-D01-2016, the Commission approved ATCO Pipelines’ continued use

of a VPP deferral account. ATCO Pipelines is requesting continuation of its VPP deferral

account but is proposing changes to the VPP deferral account, which are discussed in

Section 8.7.3.1.

Commission findings

251. The Commission has examined the evidence on the record for the continuation of the

VPP and the associated forecast VPP costs of $3,074,000 in 2019 and $3,177,000 in 2020. The

Commission finds that the forecast VPP amounts are reasonable because the VPP gives ATCO

Pipelines the ability to react to the market conditions and manage its employee retention.

Accordingly, the Commission approves the forecast VPP costs, as filed. Additionally, the

Commission directs that any forecast VPP amounts not paid out during the test period be

refunded to customers through the VPP deferral account in the next GRA.

8.7.3.1 Variable pay program deferral account

ATCO Pipelines

252. ATCO Pipelines was directed to establish a variable pay deferral account to capture the

differences between the actual and approved VPP payouts in the 2013 and 2014 test years. 214

ATCO Pipelines explained that the VPP deferral account was established to reconcile the

approved with the actual VPP payouts for the test years. As this deferral account is asymmetrical

in nature, ATCO Pipelines stated that if actual VPP costs are less than the approved VPP costs,

then amounts are refunded to customers, but if actual VPP costs are greater than the

Commission-approved VPP costs those amounts are to the account of the shareholders and are

not recovered from customers.215

253. In the application, ATCO Pipelines requested symmetrical treatment for its VPP deferral

account, such that costs in excess of the approved forecast for a given year could be recovered as

part of a future deferral account settlement. Amounts in excess of the approved forecast that are

proposed for recovery would be subject to a prudence test, similar to that of ATCO Pipelines’

Reserve for Injuries and Damages. ATCO Pipelines submitted that symmetrical treatment would

ensure that ATCO Pipelines is able to react to changes in the marketplace in the test period,

recognizing that VPP is part of the compensation mix in the market in which ATCO Pipelines

competes for employees. In addition, it plays a factor in the attraction and retention of qualified

and motivated employees.216

213 Exhibit 23793-X0001, application, Table 4.2.9-1, PDF page 117. 214 Approved in Decision 2013-430, paragraph 321. 215 Exhibit 23793-X0001, application, PDF page 11. 216 Exhibit 23793-X0001, application, PDF page 12.


54 • Decision 23793-D01-2019 (June 25, 2019)

254. In argument, ATCO Pipelines stated that it addressed the Commission’s concerns

regarding the need to protect customers in Decision 2013-430, and regarding the need for

historical data to allow for symmetrical treatment of the VPP deferral account in Decision 3577-

D01-2016. As a result, ATCO Pipelines stated that it has demonstrated in recent years its prudent

decision making with respect to the payout of VPP, and in some years choosing to make no VPP

payouts.217

UCA

255. The UCA recommended that the Commission deny ATCO Pipelines’ request for

symmetrical treatment as a similar request was denied by the Commission in Decision 3577-

D01-2016.218 219

256. As indicated by Mr. Bowman in evidence, “there is no indication AP has ever been

negatively impacted by the design of this account, with AP never paying VPP above GRA

approved levels since its implementation in Decision 2013-430, and there is no evidence of

material risk to AP for this to occur. Importantly, it is not apparent that payments above AUC

approved [amounts] would be of value to customers.”220

ATCO Pipelines

257. In reply to the UCA, ATCO Pipelines stated that its proposal for symmetrical treatment

does not harm customers, and in fact, the prudency review prior to recovery of such amounts

from customers would protect customers from the perceived risk, even though the evidence

demonstrates ATCO Pipelines’ prudent decision making and responsible VPP payouts in past

periods. It further stated that the applied-for symmetrical treatment of the VPP deferral account

is justified and should be granted.221

Commission findings

258. In Decision 2013-430, the Commission directed ATCO Pipelines to establish a variable

pay deferral account and stated as follows:

The VPP is controlled by the utility and employee eligibility and any payments made on

VPP objectives are solely at the discretion of ATCO Pipelines. If the utility has the

discretion to increase the VPP costs and participants, customers would be exposed to a

significant risk of additional costs. The Commission considers that an asymmetrical

deferral account protects customers from variances between forecast and actual costs of

the VPP which is solely under management control …222

259. The Commission reaffirms its finding from Decision 2013-430 and finds that there has

been no material change to ATCO Pipelines’ VPP since it last made its decision on this issue.

The VPP is controlled and managed by ATCO Pipelines, and any payments made are at the sole

discretion of ATCO Pipelines. The Commission is not convinced that a symmetrical VPP will

provide an incentive for ATCO Pipelines to manage its VPP more prudently in reacting to

217 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 108. 218 Decision 3577-D01-2016, paragraph 324. 219 Exhibit 23793-X0093, UCA argument, paragraph 91. 220 Exhibit 23793-X0093, UCA argument, paragraph 92. 221 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 47. 222 Decision 2013-430, paragraph 321.


Decision 23793-D01-2019 (June 25, 2019) • 55

changes in the marketplace. The Commission finds that, to date, ATCO Pipelines has been able

to manage the risk of VPP payouts within the operation of the current VPP deferral account. It

should continue to be incented to do so. The Commission maintains, and reaffirms its findings

regarding the VPP deferral account in Decision 2013-430 and Decision 3577-D01-2016.

260. The Commission finds that there is insufficient information to support the benefits of

symmetrical treatment of the VPP deferral account and that the asymmetrical variable pay

deferral account continues to be reasonable for ATCO Pipelines’ VPP costs. Accordingly, no

change to the operation of the currently-approved VPP deferral account is required. ATCO

Pipelines is directed to confirm that its 2019-2020 revenue requirement is not affected by the

Commission’s denial of symmetrical treatment associated with the VPP deferral account, in a

compliance filing to this decision.

8.7.4 Pension costs

261. ATCO Pipelines has applied for defined benefit pension costs in the amount of

$1,544,000 in each of 2019 and 2020. ATCO Pipelines stated that its defined benefit pension

costs are consistent with a recent 2018-2019 actuarial valuation, to be filed in the coming months

with the Alberta Superintendent of Pensions. In the application, ATCO Pipelines has included

50 per cent pension cost of living allowance (COLA) as per its compliance with Decision 21831-

D01-2017.223 224

Commission findings

262. The Commission has reviewed ATCO Pipelines’ defined benefit pension costs forecast of

$1,544,000 in each of 2019 and 2020 and finds that the forecast amounts are reasonable and

consistent with the actuals of $2,074,000 for 2017 and the estimate of $1,544,000 for 2018. The

Commission approves ATCO Pipelines’ defined benefit pension costs, subject to any other

findings in this decision, as filed.

8.7.5 Vacancy rates

263. The vacancy rate is used to approximate the time lag between a position becoming vacant

and the position being filled. The vacancy rate was previously determined using a five-year

average. In the current application, ATCO Pipelines based its vacancy rate on an analysis of

vacant O&M positions in 2016 and 2017.225 ATCO Pipelines forecast an overall vacancy rate of

2.6 per cent for each of 2019 and 2020. The vacancy rate for O&M is also forecast at 2.6 per

cent, while the vacancy rate for capital is forecast at 2.5 per cent in each of the test years.226

264. ATCO Pipelines provided the following vacancy rate calculations for capital, O&M and

total using a five-year and a two-year average, as shown in the tables below:

223 Decision 21831-D01-2017: ATCO Utilities (ATCO Gas and Pipelines Ltd., and ATCO Electric Ltd.), 2017-

2018 Pension Application, Proceeding 21831, July 12, 2017. 224 Exhibit 23793-X0001, application, PDF page 118. 225 Exhibit 23793-X0001, application, PDF pages 16-17. 226 Exhibit 23793-X0001, application, Table 1.3-1, PDF page 14.


56 • Decision 23793-D01-2019 (June 25, 2019)

Table 21. ATCO Pipelines’ vacancy rate calculations

Capital 2013 2014 2015 2016 2017 5-Year

average 2-Year

average Vacant weeks 570 678 1,020 321 258 Position weeks 8,825 9,479 11,058 11,257 11,493 Vacancy rate 6.5% 7.1% 9.2% 2.9% 2.2% 5.6% 2.5%

Operations 2013 2014 2015 2016 2017 5-Year

average 2-Year

average Vacant weeks 501 669 1,115 295 252 Position weeks 12,186 13,089 11,510 10,947 10,192 Vacancy rate 4.1% 5.1% 9.7% 2.7% 2.5% 4.8% 2.6%

Total 2013 2014 2015 2016 2017 5-Year

average 2-Year

average Vacant weeks 1,071 1,346 2,134 616 510 Position weeks 21,011 22,568 22,568 22,204 21,684 Vacancy rate 5.1% 6.0% 9.5% 2.8% 2.3% 5.1% 2.6%

Source: Exhibit 23793-X0025, AP-AUC-2018SEP06-010(a-b).

265. ATCO Pipelines stated that it generally agrees with the five-year average approach for

the purpose of calculating vacancy rates, however, the years 2013-2015 years have a statistically

higher vacancy rate of 6.3 per cent due to economic conditions.227 Accordingly, ATCO Pipelines

stated that that a five-year average vacancy rate is not a valid methodology for calculating its

vacancy rate in the test years.228

Commission findings

266. In Decision 22011-D01-2017, the Commission stated that:

283. In Decision 3577-D01-2016, the Commission found that adjustments to the vacancy

rate calculation methodology could be required to account for anomalies in the economic

environment. In this application, ATCO Pipelines has deviated from its past practice of

determining its vacancy rate using a five-year average of historical rates, to account for

the current high unemployment and lower economic growth conditions in Alberta. In

recognition of the Commission’s finding in the last GRA and in light of the continuing

decline in the Alberta economic environment, the Commission accepts ATCO Pipelines’

proposed methodology to determine its vacancy rate in this application.

284. However, the Commission continues to consider that, given the difficulty in

forecasting vacancies due to uncertainties in ATCO Pipelines’ operating environment,

using a five-year average of historical rates is a reasonable methodology to estimate

vacancy rates, and directs ATCO Pipelines to use this methodology in its next GRA, or to

provide an explanation of why this methodology is not appropriate for the test period.

(footnote removed)

227 Exhibit 23793-X0025, AP-AUC-2018SEP06-011(a-c). 228 Exhibit 23793-X0001, application, PDF page 17.


Decision 23793-D01-2019 (June 25, 2019) • 57

267. The Commission continues to be of the view that, in general, using a five-year average to

calculate the forecast vacancy rate is acceptable for the purpose of reflecting the vacancy rate in

revenue requirement.

268. In this application, ATCO Pipelines has proposed to deviate from its past practice of

determining its vacancy rate using a five-year average of historical rates as based on its view that

2013-2015 represent anomalous years that had a statistically higher vacancy rate due to

economic conditions. The Commission has reviewed ATCO Pipelines’ evidence and is not

persuaded that a change in the methodology for calculating its vacancy rates is warranted at this

time.

269. The Commission considers that, given the difficulty in forecasting vacancies due to

uncertainties in ATCO Pipelines’ operating environment, a five-year average of historical rates is

a reasonable methodology to estimate vacancy rates. This methodology is reflective of past

experience and should account for variability in vacancy rates due to those fluctuations in ATCO

Pipelines’ operating environment. A five-year average better addresses longer-term trends. The

Commission is not persuaded that a change in the methodology for calculating of its vacancy

rates is warranted at this time.

270. Accordingly, the Commission approves ATCO Pipelines’ forecast vacancy rate of

4.8 per cent for O&M and 5.6 per cent for capital for both 2019 and 2020. Consistent with this

determination, ATCO Pipelines is directed to revise its forecast vacancy rates in its compliance

filing to this decision.

8.8 O&M supplies expenses

271. In the application, ATCO Pipelines provided a breakdown of the components of O&M

supplies expenses, in the table below:

Table 22. ATCO Pipelines’ operations and maintenance supplies

2017 Actual

2018 Estimate

2019 Forecast

2020 Forecast

Supplies ($000)

Contract services 6,691 6,911 11,899 13,441

Utilities 1,690 1,818 1,863 1,910

Company vehicles 920 942 997 1,022

Fringe benefits 3,271 3,705 4,061 4,231

Travel, accommodations and meals 428 448 499 460

Materials, equipment and tools 6,359 6,355 7,008 7,732

Total 19,359 20,179 26,327 28,796


272. Contract services includes costs that ATCO Pipelines incurs through contractors, such as

locates, measurement verification and regulatory compliance initiatives, right-of-way brushing,

cathodic protection, SCADA maintenance, aerial surveys, gas composition analysis, leak

detection surveys, third-party crossing inspections and vegetation control. Generally, contract

services are seasonal in nature, have specialized requirements or relate to the manufacturer’s

support of equipment.229

229 Exhibit 23793-X0001, application, PDF page 89.


58 • Decision 23793-D01-2019 (June 25, 2019)

273. Contract services are forecast to increase in 2019 due to inflation and for the increased

usage of contractors for compliance initiatives, which include the new methane reduction

regulations, pressure vessel inspections, facility assessment, cyber security and Quality Control

Initiatives. The forecast increases in 2020 reflect inflation and a continuation of the foregoing

services, as well as the increasing scope of the Methane Reduction Compliance program. ATCO

Pipelines explained that it does not have the internal resources with the right qualifications, and

therefore, experienced external resources will be used for these programs.230

274. Utilities include costs incurred for electric power and other utility service for its office

buildings and its metering, regulating and compressor stations. The forecast increases in 2019

and 2020 reflect inflation.231

275. ATCO Pipelines indicated that company vehicles, travel, accommodation, and meals

costs under the O&M supplies expenses category are forecast to increase due to inflation in both

2019 and 2020. In addition, ATCO Pipelines is also forecasting an increase to its company

vehicles associated with new positions. In 2019, ATCO Pipelines intends to expand its

emergency response training to include exercises coordinated by third parties within Alberta and

throughout the country, to broaden operator training and solicit third-party feedback on its

Emergency Management program and staff preparedness. The enhanced emergency response

training will be held bi-annually. The forecast increase for the category of travel, accommodation

and meals also reflects costs associated with enhanced emergency response training.232

276. Fringe benefit costs include costs such as employment insurance, Workers’

Compensation Board costs, Canada Pension Plan costs, company pension costs, employee health

and dental plans, group life insurance and post-employment benefits. The forecast increases in

both 2019 and 2020 reflect inflation and include fringe benefits for new positions.233

277. Lastly, the category of materials, equipment, and tools includes expenses required in the

operation and maintenance of ATCO Pipelines’ facilities, i.e., separator filters, batteries, pipe

and fittings, flange gaskets, regulator and meter parts, compressor oil and coolant, small tools,

valve grease, nitrogen, circuit boards, sensor heads for safety devices, process control computers

and man-machine interface screens, land rights payments, gravel, sand, asphalt and concrete. The

forecast increase reflects inflation, current market pricing for items that are affected by

commodities pricing such as nitrogen and compressor oil, an increase in surface lease expenses,

and the purchase of fund credits from the government for emissions above Greenhouse Gas

(GHG) compliance targets.234

278. ATCO Pipelines assumed inflation rates of 1.8 per cent in 2019 and 2.0 per cent in 2020.

The forecast inflation rate was based on the Alberta Consumer Price Index (CPI) published in

June 2018 by the Conference Board of Canada.235 CPI is commonly used to forecast supplies

inflation and is consistent with the direction provided by the Commission in Decision 3577-D01-

2016. In response to a Commission IR, ATCO Pipelines provided an updated Alberta CPI of

1.9 per cent in both 2019 and 2020 from the Summer 2018 Conference Board of Canada outlook.

230 Exhibit 23793-X0001, application, PDF pages 89-90. 231 Exhibit 23793-X0001, application, PDF page 90. 232 Exhibit 23793-X0001, application, PDF page 91. 233 Exhibit 23793-X0001, application, PDF page 91. 234 Exhibit 23793-X0001, application, PDF page 92. 235 Exhibit 23793-X0001, application, PDF page 17.


Decision 23793-D01-2019 (June 25, 2019) • 59

However, ATCO Pipelines submitted that this change was not significant from its forecast and

therefore no updates to the application were necessary.236

279. Both the UCA and the CCA raised issues with respect to contract services costs for

ATCO Pipelines’ proposed Quality Control Initiatives, compliance programs and reliability and

security services that affect O&M supply expenses.

Commission findings

280. Where possible, the Commission relies on the best available information when rendering

a decision. As the board stated in Decision in 2006-004,237 the best available information includes

information which has been updated after the preparation of the initial application, including

actuals:

In recent years, when confronted with the question of whether or not to consider events

that have occurred after the preparation of revenue requirement forecasts, the Board has

usually taken the position that such information will be used in assessing the

reasonableness and accuracy of the forecasts and the methodology utilized in preparing

the forecasts. The Board has not, however, substituted the forecasts with the updated

information, except with respect to certain specific forecast items. For example, the

Board has updated interest rate forecasts in determining the cost of capital, income tax

rates, opening balances for plant property and equipment and has excluded amounts

forecast for capital projects that did not proceed. The Board has determined that the use

of updated information in these particular types of categories was in the overall public

interest and had as its objective an appropriate revenue stream without undue benefit or

detriment to the regulated utility. The utility has also always been able to update its

application and its forecasts to reflect any unforeseen increases in costs. The Board

continues to be of the view that this is the appropriate use of information that becomes

available subsequent to the preparation of the forecasts underpinning an application.

On the basis that the Board should have the best available information, the Board has

expressed a preference in having actuals for the full year prior to the test year where

possible. Providing the Board with the best available information at the time it must make

its decision, will assist the Board in determining a revenue requirement for the utility that

most closely matches current expectations and conditions. Properly considered, this

should reduce the initial forecasting risk to the utility and reduce the possibility of

overpayment by ratepayers.238

281. The Commission considers that the updated CPI for 2019 and 2020, provided in response

to IRs, is a more reasonable forecast of inflation for O&M supplies because it reflects more

accurate information on the current inflation rate. Accordingly, the Commission directs ATCO

Pipelines, in the compliance filing, to update the approved O&M supplies forecasts in Table 22

to use an inflation factor of 1.9 per cent for both 2019 and 2020.

282. The Commission notes that the issues raised by the UCA and the CCA regarding contract

services costs were specifically related to Quality Control Initiatives, compliance programs and

236 Exhibit 23793-X0025, AP-AUC-2018SEP06-005(b-c). 237 Decision 2006-004: ATCO Gas, 2005-2007 General Rate Application, Phase I, Application 1400690-1,

January 27, 2006. 238 Decision in 2006-004, PDF pages 5-6


60 • Decision 23793-D01-2019 (June 25, 2019)

the provision of reliable and secure services. The Commission’s determinations regarding these

programs and their related costs are found in the following sections:

Quality Control Initiatives – Section 6.5

Compliance programs – Section 8.5

Reliability and security – Section 8.6

283. In its compliance filing, ATCO Pipelines is directed to revise its forecast revenue

requirements for 2019 and 2020 to reflect the Commission’s findings on the cost categories

noted above.

8.9 Administrative and general expenses

284. Administrative and general (A&G) expenses include labour and supplies costs for the

general, financial, human resources, corporate communication, regulatory and information

management functions of ATCO Pipelines. A&G expenses also include legal costs, audit and

consulting services costs, the costs for insurance, injuries and damages, hearing costs and

employee benefits.239

285. A&G expenses are forecast to be $27,528,000 in 2019 and $28,052,000 in 2020,

respectively. The increase in A&G expenses are primarily due to inflation. Table 23 shows the

2017 actual, 2018 estimate and 2019-2020 forecast for A&G expenses:

Table 23. ATCO Pipelines’ administration and general expenses

2017

Actual 2018

Estimate 2019

Forecast 2020

Forecast

($000)

Labour 3,427 3,270 3,235 3,335

Supplies 13,563 14,247 13,124 13,944

Net affiliate services 7,353 8,538 9,370 9,637

Regulatory accounts 3,405 3,406 3,650 3,650

Less: disallowed costs 2,231 2,837 1,851 2,514

Total 25,517 26,624 27,528 28,052


286. As with O&M supplies discussed above, A&G supplies were inflated by 1.8 per cent and

2.0 per cent in 2019 and 2020, respectively.

287. For administration labour, ATCO Pipelines stated that this is separate from the amounts

now reported under shared services. ATCO Pipelines stated that the A&G expenses for

administration labour costs that remain embedded in ATCO Pipelines’ expenses are forecast to

decrease by $35,000 in 2019 because of the annualized savings of consolidated management

offset partially by inflation. The increase in 2020 reflects inflation.240

239 Exhibit 23793-X0001, application, PDF page 76. 240 Exhibit 23793-X0001, application, PDF page 95.


Decision 23793-D01-2019 (June 25, 2019) • 61

288. Labour supplies are forecast to decrease by $1,123,000 in 2019 and increase by $820,000

in 2020, which is primarily due to the uneven occurrence of legal and consulting fees related to

regulatory proceedings and inflation.241

289. The affiliate services cost categories are forecast to remain constant from 2018 to 2020.242

Commission findings

290. The Commission has reviewed the forecast A&G costs outlined in Table 23 and

associated calculations and finds that the forecasts are reasonable given the information provided

in Table 23. Accordingly, the Commission approves the forecast A&G costs, subject to the

Commission findings on the O&M supplies expense inflation adjustment and shared services.

Consistent with the direction on O&M supplies expense inflation in Section 8.8, the Commission

directs ATCO Pipelines to revise its forecast A&G costs using the approved inflation adjustment

of 1.9 per cent for both 2019 and 2020, for the O&M supplies expense. The Commission further

directs ATCO Pipelines to provide a revised table in its compliance filing to this decision

incorporating the changes directed to be made herein.

8.10 Shared services initiative

ATCO Pipelines

291. ATCO Pipelines proposed to implement a shared services initiative (shared services)

pursuant to which ATCO Pipelines and several other ATCO companies have identified common

shared services functions that provide standardized internal services to all of the ATCO group of

companies on a cost recovery basis.243 These newly formed shared services functions consist of

groups or a sub-set of groups, which were previously embedded in regulated or non-regulated

entities of each of the ATCO Group of companies that now perform these functions as a shared

service.

292. ATCO Pipelines indicated that the following eight shared services functions had been

created:

Supply Chain - inventory management and enterprise sourcing

Financial Services - general accounting, accounts payable, project accounting and fixed

asset accounting

Human Resources - employee resource centers, and the pension, benefits and disability

areas

Regulatory

Project Management Office

Facilities Management

Fleet Services

241 Exhibit 23793-X0001, application, PDF page 96. 242 Exhibit 23793-X0001, application, PDF page 96. 243 Exhibit 23793-X0001, application, PDF page 98.


62 • Decision 23793-D01-2019 (June 25, 2019)

Information Technology Services.244

293. Under shared services, ATCO Pipelines is requesting that $2,711,000 and $2,776,000 be

included in its 2019 and 2020 revenue requirements, respectively. ATCO Pipelines stated that

overall, the costs of the shared services initiative represent less than 1 per cent of revenue

requirements for 2019 and 2020.245

294. ATCO Pipelines provided the following tables to support its 2019-2020 forecast for

shared services:

Table 24. ATCO Pipelines’ shared services forecast

Functions 2015 Comparable

2016 Comparable

2017 Comparable

2018 Estimate

2019 Forecast

2020 Forecast

($000)

Financial services 1,483 1,417 1,048 726 1,099 1,125

Human resources 375 290 199 260 248 254

Regulatory 1,105 701 750 838 990 1,014

Information technology services

314

393

397

239

259

265

Supply chain 57 57 57 367 57 59

Facilities management 63 63 63 56 58 59

Total A&G 3,397 2,921 2,514 2,486 2,711 2,776

Function 2015 Comparable

2016 Comparable

2017 Comparable

2018 Estimate

2019 Forecast

2020 Forecast

($000)

Fleet services 63 63 63 87 50 51


295. As shown in Table 24 above, ATCO Pipelines identified an anomalous reduction for the

Financial Services function in 2017 and 2018 caused by employees in the financial services and

human resources functions being temporarily assigned to work on the Oracle E-Business

Upgrade Project. ATCO Pipelines stated that these employees coded their time to capital during

this period, resulting in a temporary reduction in operating costs for that period. Knowing that

this was temporary, ATCO Pipelines decided to fill only a limited number of positions with

temporary staff. This decision resulted in reallocating work and adding additional duties to the

existing staff. This model was not sustainable, as it resulted in additional hours worked and

limited vacations.246 The cost increases for the remaining functions in Table 24 are mainly due to

inflation.247

296. ATCO Pipelines explained that the objective of shared services is to capture efficiencies

by leveraging economies of scale and best practices in the safe and reliable operation of the

244 Exhibit 23793-X0004, Section 4.2.3 Attachment 1 and Exhibit 23793-X0025, AP-AUC-2018SEP06-068(c). 245 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 109. 246 Exhibit 23793-X0025, AP-AUC-2018SEP06-074(e). 247 Exhibit 23793-X0001, application, PDF page 101.


Decision 23793-D01-2019 (June 25, 2019) • 63

ATCO Pipelines system.248 By bringing these functions together, this will allow ATCO Pipelines

and the ATCO companies to take advantage of common leadership, leverage economies of scale,

identify best practices, standardize processes, share expertise and consolidate institutional

knowledge.249 The activities that form part of shared services are required regardless of whether

they are directly embedded in ATCO Pipelines or, allocated through shared services.250

297. ATCO Pipelines stated that by virtue of the shared services functions, the services

provided are common in nature and, therefore, cannot be attributed to a specific company. 251

Given that shared services perform functions for multiple ATCO companies, allocation

methodologies were utilized to allocate costs to ATCO Pipelines.252 Thus, costs and the shared

services FTEs are allocated based on either a causal allocator that is typically based on some

volumetric measure or a general corporate allocator (GCA) that is based on an equal weighting

of net revenues, total assets, and labour expenses.253

298. In its application, ATCO Pipelines provided a description of the various methods used to

allocate the costs of the functional groups to the eight shared services functions:

Fleet Services: “number of vehicles”

Facilities Management: “square footage”

Human Resources: “headcount”

Financial Services: “number of invoices for accounts payables and GCA for general

accounting/ fixed asset and project accounting.”

IT: “50 per cent operating and 50 per cent net book values of IT assets”

Regulatory: “GCA”

Project Management Office: “GCA”

Supply Chain: “GCA” 254

299. ATCO Pipelines asserted that all of the ATCO companies receiving shared services use

the allocators.255 A third-party analysis provided by KPMG concluded that the allocators used

were appropriate and fair to all ATCO companies. 256 ATCO Pipelines also provided a breakdown

of the allocation percentages, total allocation, allocation for O&M and GCA calculations for

each of ATCO Pipelines, ATCO Group, ATCO Electric – Transmission, ATCO Electric –

248 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 111. 249 Exhibit 23793-X0001, application, PDF page 98. 250 Exhibit 23793-X0090, ATCO Pipelines argument, paragraph 110. 251 Exhibit 23793-X0025, AP-AUC-2018SEP06-069(c-d). 252 Exhibit 23793-X0001, application, PDF page 101. 253 The GCA was approved by the AEUB in Decision 2002-069, which focused on ATCO Groups’ affiliate code of

conduct. In Decision 2013-111, the Commission directed ATCO to remove the capital expenditures from the

GCA and replace it with labour expenses. See KPMG report in Exhibit 23793-X0005, Section 4.2.3

Attachment 2, PDF pages 8-9. 254 Exhibit 23793-X0004, Attachment 4.2.3 and Exhibit 23793-X0064, AP-AUC-2018NOV23-005 Attachment. 255 Exhibit 23793-X0025, AP-AUC-2018SEP06-081. 256 Exhibit 23793-X0005, Section 4.2.3 Attachment 2.


64 • Decision 23793-D01-2019 (June 25, 2019)

Distribution, ATCO Gas and other non-regulated companies of ATCO Power Canada Ltd. and

ATCO Energy Ltd.257

300. In response to a Commission IR, ATCO Pipelines provided a list of reduced positions

that relate to the functions that have become a shared service.258 The total costs of the functions

performed by shared services resulted in a reduction of approximately 18 per cent between 2015

and 2020, before normalizing for inflation. For the current test years, efficiencies and benefits

have been incorporated and ATCO Pipelines indicated that its customers are receiving the

benefits of the workforce reductions that took place in 2018, without bearing the associated

severance costs in the test period.259 ATCO Pipelines stated that workforce reductions have been

the most significant savings from shared services to date. In addition to workforce reductions, the

shared services functions have been able to execute standalone initiatives successfully that have

resulted in savings, such as restructuring mobility plans and securing a number of enterprise

wide contracts that provide greater value at lower costs to ATCO Pipelines.260

301. ATCO Pipelines stated that it has implemented the shared services initiative and is

focused on streamlining the people and processes related to the shared services functions. ATCO

Pipelines noted that streamlining people and processes is more complex in some areas as

compared to others.261 262

302. ATCO Pipelines stated it would not fully know the long-term savings outside of the test

period until the shared services functions are mature in their operations.263 ATCO Pipelines stated

that shared services will continue to evolve over time as ATCO Pipelines and the ATCO

companies continue to assess and implement continual improvements in delivering the services

required.264

303. ATCO Pipelines clarified that shared services was formed through the amalgamation of

activities and tasks, not necessarily by moving specific positions. However, ATCO Pipelines

identified a reduction of three FTEs in 2018 as a result of this initiative.265 It did not eliminate

any positions in 2017.266 ATCO Pipelines did not include FTE positions that were directly

charged to capital in shared services.267 ATCO Pipelines stated that all functions that can be

directly assigned to a specific company would continue to be embedded in that company,

consistent with how it has treated these costs in the past.268

257 Exhibit 23793-X0064, AP-AUC-2018NOV23-005 Attachment. 258 Exhibit 23793-X0062, AP-AUC-2018NOV23-006(a) Attachment and AP-AUC-2018NOV23-007-1. 259 Exhibit 23793-X0025, AP-AUC-2018SEP06-070(c). 260 Exhibit 23793-X0062, AP-AUC-2018NOV23-008(a). 261 As an example, a longer transition is anticipated where IT solutions would be required to standardize and

implement best practices. 262 Exhibit 23793-X0025, AP-AUC-2018SEP06-070(b). 263 Exhibit 23793-X0025, AP-AUC-2018SEP06-072(a-b). 264 Exhibit 23793-X0025, AP-AUC-2018SEP06-070(b). 265 Exhibit 23793-X0062, AP-AUC-2018NOV23-007-1 Attachment. 266 Exhibit 23793-X0062, AP-AUC-2018NOV23-007-1(a). 267 Exhibit 23793-X0062, AP-AUC-2018NOV23-007-1(a). 268 Exhibit 23793-X0062, AP-AUC-2018NOV23-006(c).


Decision 23793-D01-2019 (June 25, 2019) • 65

304. ATCO Pipelines explained that it must adhere to the ATCO Group Inter-Affiliate Code

of Conduct before, during, and after the transition to the shared services model and that steps

have been undertaken to ensure that appropriate controls are in place to ensure such adherence.269

CCA

305. The CCA identified a number of outstanding concerns and procedural issues with the

proposed shared services initiative in this proceeding and as also filed in the ATCO Electric

Transmission 2018-2019 GTA (Proceeding 22742). For example, the CCA stated that it found

the allocation of capital costs and the split between capital and operating costs unclear.270 The

CCA stated that ATCO Pipelines did not adequately support its shared services costs and they

should not be approved.271

306. The CCA also identified that ATCO Pipelines applied a two-year rule from Decision

2013-111, and that ATCO Pipelines was unclear when it stated that “consistent with a two-year

rule, the 2018 estimate is based on the 2016 actual costs for the allocation and the 2019-2020 test

years are based on the 2017 actual costs for the allocation, and therefore a change in allocation

percentage year-after-year is not abnormal.”272 The CCA stated that this decision referenced the

requirement to update allocators every two years for the ATCO utilities corporate costs, and not

for shared services.273

307. In addition, the CCA recommended that all direct third-party costs such as legal, audit

and other, should be included in the analysis of the shared services forecast, and not only the

costs that are deemed to be relevant by ATCO Pipelines.274

308. The CCA also stated that the allocations were unclear, as there was limited to no testing

of the allocators.275 The CCA indicated that it raised a number of questions with respect to the

allocators in its evidence in Proceeding 22742, arguing that these types of questions would need

to be addressed before analyzing the allocator values in this proceeding .276

309. The CCA further requested a detailed analysis respecting the 50 per cent increase in the

Financial Services function from the 2018 estimate to 2019. Specifically, the CCA identified

discrepancies in the data that ATCO Pipelines used to explain these increases and requested

clarification of this data and associated variances.277 Accordingly, the CCA proposed that the

2019 forecast be limited to 2018 plus inflation.278

310. Due to a multitude of outstanding issues, the CCA recommended a generic proceeding to

consider shared services, arguing that it is opaque, confusing and was not justified. The CCA

269 Exhibit 23793-X0025, AP-AUC-2018SEP06-073. 270 Exhibit 23793-X0091, CCA argument, paragraph 135. 271 Exhibit 23793-X0091, CCA argument, paragraph 138. 272 Exhibit 23793-X0091, CCA argument, paragraph 130. 273 Exhibit 23793-X0091, CCA argument, paragraph 130. 274 Exhibit 23793-X0091, CCA argument, paragraph 165. 275 Exhibit 23793-X0091, CCA argument, paragraph 167. 276 Exhibit 23793-X0091, CCA argument, paragraph 131. 277 Exhibit 23793-X0091, CCA argument, paragraphs 148-153 and Exhibit 23793-X0097, CCA reply argument,

paragraph 42. 278 Exhibit 23793-X0075, CCA evidence, paragraph 73


66 • Decision 23793-D01-2019 (June 25, 2019)

recommended a placeholder of either zero per cent or 75 per cent of the applied for amount until

the outstanding issues are dealt with.279

ATCO Pipelines

311. In response to the CCA’s concern surrounding the split between capital and O&M,

ATCO Pipelines reiterated that the shared services costs are pooled by function, and then

allocated to each business. ATCO Pipelines indicated that a shared services lead personnel works

with each business to determine the portion of the costs that support each of the operation and

capital functions of the business and allocates accordingly. ATCO Pipelines stated that the

resulting costs are in accordance with its capitalization policy.280

312. ATCO Pipelines responded that the CCA had ample opportunity to test the allocators and

that sufficient evidence was provided on inputs to the allocators; allocation methodologies; total

costs pooled by function and allocated to ATCO Pipelines and the other ATCO companies; and,

information included in the KPMG report filed to support and justify approval of the initiative.281

313. With respect to the two-year rule for the allocator inputs, ATCO Pipelines stated that the

application of a two-year rule has been consistently applied in past decisions such as Decision

2013-111282 (ATCO Utilities corporate costs) and Decision 21701-D01-2017283 (transmission

common group).284

314. ATCO Pipelines challenged the CCA’s recommendations on direct costs stating that they

are not included in the shared services allocations because these costs would continue to be

directly charged to ATCO Pipelines, just as they were prior to implementing shared services.285

315. ATCO Pipelines argued that the Commission should dismiss the CCA’s recommendation

that the 2019 forecast for Financial Services be limited to 2018 plus inflation. ATCO Pipelines

provided further analysis showing that it committed 20 staff (or 14 per cent) to the Oracle

project, and reiterated that this was an anomalous and temporary situation as employees returned

to their duties in 2019.286

316. ATCO Pipelines argued that the record on shared services is comprehensive, clear and

supports the requested costs.287 ATCO Pipelines indicated that ATCO Electric Transmission did

not support a separate proceeding for shared services288 in Proceeding 22742. ATCO Pipelines

concluded that the CCA’s issues have been adequately addressed, and placeholder treatment is

not required.

279 Exhibit 23793-X0091, CCA argument, paragraph 192 280 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 137. 281 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraphs 128-129, 138 and 144. 282 Decision 2013-111: The ATCO Utilities Corporate Costs, Application 1608510, Proceeding 1920, March 21,

2013. 283 Decision 21701-D01-2017: ATCO Electric Ltd. Transmission Common Group Application, Proceeding 21701,

July 4, 2017. 284 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 135. 285 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 141. 286 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 139. 287 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 128. 288 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 146.


Decision 23793-D01-2019 (June 25, 2019) • 67

Commission findings:

317. This is the first proceeding for which shared services is being proposed by an ATCO

company. Shared services is before the Commission in the current proceeding and was

introduced in Proceeding 22742, ATCO Electric Transmission’s 2018-2019 GTA, though

approval of costs associated with shared services is not sought in that case.289 As two ATCO

entities have introduced shared services in two separate proceedings, the Commission agrees

with the CCA that a full understanding of shared services is required. The Commission is not

persuaded, however, that a generic proceeding is the most effective process to test the proposed

shared services.

318. The Commission directs ATCO Pipelines to coordinate with ATCO Electric

Transmission to ensure that both utilities provide the same or substantially similar information in

the same format in support of the shared services in their next respective GRA/GTA, preferably

filing common documents wherever possible. The information should include evidence

supporting the functions created, justifying total FTEs and costs before allocation to the

participating ATCO companies (ATCO Pipelines and all other regulated and non-regulated

ATCO entities), and include any analysis, studies and calculations that explain and support the

reasonableness and accuracy of the allocation methodologies. The Commission finds that it also

would be beneficial to show all calculations that demonstrate the split between O&M and capital

under the shared services initiative in the next GRA/GTA. This common information will allow

for a proper testing of the shared services and for the provision of company specific information

to support shared services costs included in the proposed revenue requirements.. Accordingly,

the Commission directs ATCO Pipelines to provide the evidence, analyses, studies calculations

noted above as well as any underlying assumptions for the split between O&M and capital in its

next GRA.

319. The Commission acknowledges that of the ATCO companies, ATCO Electric

Distribution and ATCO Gas are under performance-based regulation and are subject only to

minimum filing requirement schedules. However, further information about common costs are

required to support the costs allocated to ATCO Pipelines. As such, ATCO Pipelines is directed,

on a go-forward basis, to provide all cost-information for every ATCO affiliate, comprising the

total costs and supporting detail that substantiate and justify the costs allocated to ATCO

Pipelines as compared to the other regulated and non-regulated ATCO companies under the

shared services initiative.

320. The Commission considers the difference in the amount of forecast costs related to

shared services to be immaterial compared to the previously embedded comparable costs in prior

test periods, as shown in Table 24. The forecast amount of $2,711,000 and $2,776,000 included

in ATCO Pipelines’ 2019 and 2020 revenue requirement, respectively are less than one per cent

of the total revenue requirement in each of the test years. The Commission therefore approves

the 2019 and 2020 forecast shared services costs as final. The Commission approves the

allocations and supporting methodologies on an interim basis only pending full testing of shared

services and associated allocation methodology as contemplated in paragraphs 318 and 319

herein.

289 Shared services was filed for only information purposes in Proceeding 22742.


68 • Decision 23793-D01-2019 (June 25, 2019)

8.11 IT costs

321. On June 4, 2015, the Commission issued Bulletin 2015-11,290 which initiated the ATCO

Utilities291 IT common matters proceeding in Proceeding 20514 to examine IT costs related to the

IT services Master Service Agreements (MSAs). The IT common matters decision, Decision

20514-D02-2019292 issued on June 5, 2019, set the IT pricing for ATCO Pipelines, ATCO Gas,

ATCO Electric Transmission and ATCO Electric Distribution. Accordingly, the remaining IT

issue to be examined in this proceeding is ATCO Pipelines’ IT volumes.

322. In Decision 22011-D01-2017, the Commission determined that the total IT costs were to

be treated as placeholders, pending a determination in Proceeding 20514. Therefore, this

decision examines only IT volumes, which will affect the placeholders for IT costs.

323. IT services charged to operating costs include costs to operate, maintain, and distribute

existing and new IT applications required by ATCO Pipelines to manage its financial, human

resources and operational activities. These services include the provision of hardware (e.g., PCs,

laptops, and monitors), network, voice (telecommunications), data storage, printing management,

infrastructure and ad hoc employee service requests. Wipro Solutions Canada Limited provides

these services to the ATCO Utilities.293

324. ATCO Pipelines provided its actual IT costs in 2017, estimated actual IT costs in 2018,

and the forecast costs for 2019 and 2020, charged to operations. The IT costs were derived using

the Wipro MSA rate and glide path as shown in the table below:

Table 25. ATCO Pipelines’ IT services charged to operations

2017 Actual

2018 Estimate

2019 Forecast

2020 Forecast

($000)

Total 4,344 4,186 3,995 3,996


325. ATCO Pipelines forecast a decrease in IT operating costs from 2019 to 2020 primarily as

a result of reduced licensing and support costs due to the implementation of Enterprise Planning

and Budgeting Cloud Service (EPBCS), and to a downward rate glide path under the Wipro

MSA.294 In response to an IR, ATCO Pipelines identified a reduction of $87,000 in O&M costs

in 2019 and $84,600 in 2020 that are directly attributable to the implementation of EPBCS.295

326. ATCO Pipelines stated that its forecast IT volumes, provided as an attachment in the

application,296 were developed using actual volumes from 2017 and estimated actual volumes

from 2018, and adjusting for known changes.297 Because 2017 actuals and 2018 forecast volumes

290 Bulletin 2015-11, Initiating the ATCO Utilities information technology common matters proceeding to examine

IT costs related to the master services agreements between the ATCO Utilities and Wipro Solutions Canada

Limited, June 4, 2015. 291 ATCO Pipelines, ATCO Gas, ATCO Electric Transmission and ATCO Electric Distribution. 292 Decision 20514-D02-2019: The ATCO Utilities (ATCO Gas and Pipelines Ltd. and ATCO Electric Ltd.)

Information Technology Common Matters Proceeding, June 5, 2019. 293 Exhibit 23793-X0001, application, PDF page 111. 294 Exhibit 23793-X0001, application, PDF page 111. 295 Exhibit 23793-X0025, AP-AUC-2018SEP06-088(b). 296 Exhibit 23793-X0006, 4.2.6 Attachment. 297 Exhibit 23793-X0001, application, PDF page 111.


Decision 23793-D01-2019 (June 25, 2019) • 69

are relatively stable throughout the year, ATCO Pipelines considered these years were the best

starting point to apply known changes such as FTE fluctuations identified in the 2019-2020 FTE

forecast and cost reductions directly attributable to the implementation of EPBCS, to determine

forecast volumes and units for the test period. 298

327. In response to an IR, ATCO Pipelines provided variance explanations at the category

level for any variance greater than + or -10 per cent.299

328. ATCO Pipelines proposed to use an average annual cost per IT user calculation to

determine its IT costs as this is a more appropriate metric than IT volumes. ATCO Pipelines

submitted that the average annual cost per IT user should be used in future GRAs after the

expiration of the applicable period of IT pricing resulting from the ATCO Utilities IT common

matters proceeding in Proceeding 20514.300 ATCO Pipelines provided the following average

annual cost per IT user calculations:

Table 26. ATCO Pipelines’ average annual cost per IT user

Year Total User Driven IT Charges Mid-year User Count Average Annual Cost per user

2017 $3,165,000 481 $6,580

2018 $3,207,000 480 $6,682

2019 $3,197,000 483 $6,620

2020 $3,170,000 487 $6,510

Source: Exhibit 23793-X0062, AP-AUC-2018NOV23-014(k-l).

329. To calculate the average annual cost per IT user, ATCO Pipelines characterized each

individual IT service as either an application-driven or a user-driven cost. ATCO Pipelines stated

that it included only user-driven costs in the average annual cost per IT user calculations, as

these are controllable costs that can be directly attributed to a user’s day-to-day IT support

requirements.301 ATCO Pipelines then calculated the yearly actual or forecast IT charges

incurred, allocated all of the user-driven costs to O&M, and divided the resulting sum by the

forecast, mid-year user count of permanent and temporary employees.302 303

330. ATCO Pipelines explained that the average annual cost per IT user is a practical and

efficient forecasting tool that provides business managers with an easy to understand IT user cost

projection that they use to forecast their IT user costs. ATCO Pipelines submitted that

forecasting each individual Wipro service by month and year is a lengthy, complex, detailed and

labour intensive exercise to produce that provides no measurable benefit, other than to comply

298 Exhibit 23793-X0025, AP-AUC-2018SEP06-088(b). 299 Exhibit 23793-X0062, AP-AUC-2018NOV23-014(a) Attachment. 300 Exhibit 23793-X0001, application, PDF page 113. 301 ATCO Pipelines stated that “the services related to Application costs and are not included in the Average Cost

per User calculation are support or storage charges that would be incurred by AP regardless of the number of

users, such as Server Hosting, Application Managed Services, Distributed Application Storage, Web Hosting,

and the remaining Pass Through Charges. These services were deemed to not be directly related to a user’s IT

requirements because the monthly charge would not be directly affected by an increase or decrease of the

number of users.” The calculation steps are shown in response to Exhibit 23793-X0025, AP-AUC-2018SEP06-

089(a). 302 The average annual cost per IT user is calculated using the user count calculated as: (the beginning of year FTE

count + end of year FTE count)/2 + monthly average temporary employees. This is shown in response to

Exhibit 23793-X0062, AP-AUC-2018NOV23-014(m). 303 Exhibit 23793-X0025, AP-AUC-2018SEP06-089(a-b) and (i).


70 • Decision 23793-D01-2019 (June 25, 2019)

with the Commission’s directions set out in Decision 3577-D01-2016.304 Specifically, ATCO

Pipelines stated that comparing each IT service on an individual level does not add value and

does not reflect ATCO Pipelines’ IT landscape. Instead, the average annual cost per IT user that

is used to budget, measure, and identify trends related to IT user costs and assists ATCO

Pipelines in making effective IT decisions, reduce unnecessary expenditures and reallocate IT

resources.305

331. ATCO Pipelines explained that if the Commission were to approve the average annual

cost per IT user metric to forecast IT volumes, then ATCO Pipelines would use the yearly

calculated average cost per IT user for 2020 and apply necessary adjustments in future years to

reflect reduction targets and adjust for known changes to IT services. The mid-year IT user

count, multiplied by the average cost per IT user would determine IT forecast in future test

years.306

332. No intervener addressed IT volumes in evidence, argument or reply argument.

Commission findings

333. The Commission is cognizant that the ATCO Utilities IT common matters proceeding,

Proceeding 20514, addressed the MSA pricing. The total forecast IT costs are calculated from

the forecast IT volumes and the negotiated IT pricing, the latter of which was determined in

Decision 20514-D02-2019.

334. As discussed in Decision 22011-D01-2017,307 the Commission continues to consider that

the GRA proceeding is the appropriate forum in which to examine IT volumes. This is consistent

with past determinations in Decision 2014-169, where the Commission found, “The pricing for

ATCO Electric and ATCO Gas, as determined in accordance with this decision, shall be applied

to forecasted volumes through each respective utility’s GRA/GTA process.”308

335. The Commission finds that to evaluate the forecast IT volumes, to which pricing has been

applied as determined in Decision 20514-D02-2019, it is necessary for all IT-related volume data

to be filed and evaluated in the GRA. The Commission also notes that its direction in

Decision 3577-D01-2016 was for ATCO Pipelines to file forecast IT volumes for the test period

and actual volumes from the previous test period in all future GRA proceedings.309 It did so in

this proceeding. The Commission finds this direction to be on-going for the next GRA

proceeding.

336. As set out by the Commission in Decision 20514-D02-2019 and reproduced below,

ATCO Pipelines is directed to incorporate the adjustments to the IT disallowances on an annual

basis by capital, indirect capital and O&M, resulting from the MSA in a compliance filing to this

decision:

Similar to the IT and CC&B [customer care and billing] disallowance determined in the

Evergreen II decision and related compliance filings, ATCO Pipelines and ATCO

304 Exhibit 23793-X0025, AP-AUC-2018SEP06-089(g). 305 Exhibit 23793-X0001, application, PDF pages 112-113. 306 Exhibit 23793-X0025, AP-AUC-2018SEP06-089(g). 307 Decision 22011-D01-2017, paragraph 321. 308 Decision 2014-169 (Errata), paragraph 468. 309 Decision 3577-D01-2016, paragraph 452.


Decision 23793-D01-2019 (June 25, 2019) • 71

Electric Transmission will apply a first-year disallowance for 2015 and a glide path

reduction as set out in Section 6. ATCO Pipelines and ATCO Electric Transmission are

directed to file their compliance applications to this decision in the compliance filings to

their ongoing GRA/GTAs, clearly showing the directed IT disallowance on an annual

basis by capital, indirect capital and O&M.310

337. Upon receipt of the compliance filing to this decision, the Commission will evaluate the

approved rates multiplied by forecast IT volumes to determine the costs that will be approved for

inclusion in ATCO Pipelines’ revenue requirement. The IT costs for ATCO Pipelines will then

be finalized and included in the revenue requirement and rates.311 ATCO Pipelines is directed to

file Excel spreadsheets, with workable formulas, to support the true-up of IT placeholder

amounts arising from the calculation of forecast IT volumes multiplied by the approved IT rates

from Decision 20514-D02-2019.

338. The Commission denies ATCO Pipelines’ request to use the average annual cost per IT

user instead of the current methodology for calculating IT costs because the Commission finds

that both volume information and rates are required to calculate IT costs properly. However, the

Commission sees some value in exploring a supporting metric in combination with the existing

practice requiring ATCO Pipelines’ to file schedules of IT volumes. The Commission directs

ATCO Pipelines to provide average annual cost per IT user calculations as a metric to support

forecast IT costs in its next GRA.

9 Return on rate base

339. Return on rate base is calculated after determining the utility’s capital structure, and is

comprised of long-term debt, preferred shares, and common equity components. ATCO Pipelines

noted that it is not forecasting the issuance of any preferred shares in the test period.312

340. On August 2, 2018, the Commission issued Decision 22570-D01-2018,313 the 2018

GCOC decision. In its decision, the Commission approved a rate of ROE for ATCO Pipelines of

8.5 per cent for 2019 and 2020. The Commission also approved ATCO Pipelines’ capital

structure of 37 per cent equity and 63 per cent debt for 2019 and 2020.314

9.1 Return on equity and capital structure

341. ATCO Pipelines indicated that in the schedules to its application it had included a

placeholder of 8.5 per cent for its ROE for 2019 and 2020 and a common equity ratio

placeholder of 37 per cent for 2019 and 2020.

Commission findings

342. The Commission finds there is no change required to ATCO Pipelines’ ROE and capital

structure placeholders as the amounts approved in Decision 22570-D01-2018 are the same as

those applied-for by ATCO Pipelines in the current proceeding. The Commission approves

310 Decision 20514-D01-2019, paragraph 398. 311 See Decision 20514-D02-2019, paragraph 19. 312 Exhibit 23793-X0001, application, PDF page 66. 313 Decision 22570-D01-2018: 2018 Generic Cost of Capital, Proceeding 22570, August 2, 2018. 314 Decision 22570-D01-2018: paragraph 4, Table 1.


72 • Decision 23793-D01-2019 (June 25, 2019)

ATCO Pipelines’ ROE of 8.5 per cent and its capital structure of 37 per cent equity and 63 per

cent debt on a final basis for both 2019 and 2020.

9.2 Costs associated with long-term debt

343. ATCO Pipelines forecast a 2019 long-term debt issuance of $215,000,000 at 4.34 per

cent and a 2020 long-term debt issue of $90,000,000 at 4.74 per cent. ATCO Pipelines noted that

its forecast cost of new debt was derived using the methodology approved in Decision 3577-

D01-2016 whereby the Consensus Forecast is used.315

344. The tables below show ATCO Pipelines’ debt rate forecast:

Table 27. ATCO Pipelines’ 2019 debt rate forecast

2019 Forecast debt rates (%)

Consensus forecast, 10-year GOC

April 2018 2.40

April 2019 2.70

2019 mid-year 10-year GOC proxy (A) 2.55 2.55

10- to 30-year GOC bond yield differential (B) 0.34

30-year credit spread (C) 1.45

2019 forecast 30-year debt rate (A+B+C) 4.34

Source: Exhibit 23793-X0029, AP-UCA-2018SEP06-021(a).

Table 28. ATCO Pipelines’ 2020 debt rate forecast

2020 Forecast debt rates (%)

Consensus forecast, 10-year GOC

April 2019 2.70

April 2020 3.20

2020 mid-year 10-year GOC proxy (A) 2.95 2.95

10- to 30-year GOC bond yield differential (B) 0.34

30-year credit spread (C) 1.45

2020 forecast 30-year debt rate (A+B+C) 4.74

Source: Exhibit 23793-X0029, AP-UCA-2018SEP06-021(a).

345. ATCO Pipelines submitted that the most recent Consensus Forecast, published in April

2018, did not provide a December 2018 or a December 2019 forecast and as such, a mid-year

calculation for 2019 was not possible. Instead, ATCO Pipelines used the April 2018 and April

2019 as a proxy for the mid-year forecast. The 10-year to 30-year bond differential was

calculated as the average of the observed differential between the 10-year and 30-year

Government of Canada bond yield between April 17, 2017, and April 17, 2018. The credit

spread was an average of data points of CU Inc.’s316 actual and indicative spreads from 2017 to

2018.317

315 Exhibit 23793-X0001, application, PDF page 65. 316 ATCO Pipelines is a division of ATCO Gas and Pipelines Ltd., which is a wholly owned subsidiary of CU Inc.

CU Inc. is the entity that goes to market to raise debt for ATCO Gas and Pipelines Ltd. 317 Exhibit 23793-X0029, AP-UCA-2018SEP06-021(a).


Decision 23793-D01-2019 (June 25, 2019) • 73

346. In IRs the Commission asked ATCO Pipelines to update its debt rate forecast using the

most current rates and assumptions available. In its September 2018 responses to IRs, ATCO

Pipelines did not provide an update as a new Consensus Forecast was not yet available.318

347. On November 21, 2018, CU Inc. on behalf of ATCO Pipelines issued a 2018 debenture at

a rate of 3.95 per cent, which was nine basis points below its forecast rate of 4.04 per cent.

ATCO Pipelines noted that the CU Inc. 30-year credit spread was 152 basis points at the time of

this debenture issue.319

348. The CCA recommended that, should the Commission agree to eliminate the debt

debenture deferral account, then the approved debt rate for ATCO Pipelines should be no higher

than 3.75 per cent, which was based on using the 30-year risk free rate and CU Inc. credit

spreads to calculate a debt rate forecast.320

349. The UCA recommended that the debt rate forecast should incorporate updated yield

curve information to reflect recent flattening of the yield curve. The UCA argued that the spread

between the 10-year and 30-year bond yields had narrowed from the 0.34 per cent used by

ATCO Pipelines initially in the application, to 0.08 per cent observed over the period from

November 2017 to November 2018.

350. ATCO Pipelines submitted that the drop in the 10-year to 30-year yield differential

during 2017 and 2018 was abnormal and that the spread has begun to increase in recent months.

As of February 21, 2019, the spread was 26 basis points. Additionally, ATCO Pipelines argued

that the forecast 30-year CU Inc. credit spread has increased from 145 basis points to 150 basis

points in February 2019. ATCO Pipelines argued that this increase is reflective of the credit

spread achieved on CU Inc.’s most recent 30-year debenture issue in November 2018 that was

issued at a 30-year credit spread of 152 basis points.321

Commission findings

351. In Section 10.1.1 of this decision, the Commission denied ATCO Pipelines’ request to

discontinue its debt rate deferral account.

352. The Commission finds that ATCO Pipelines has prepared its debt rate forecasts using a

method consistent with what was approved in Decision 3577-D01-2016. The Commission fully

tested and approved this methodology in ATCO Pipelines’ 2015-2016 GRA. Consistent with the

Commission’s general practice, the Commission would normally direct ATCO Pipelines to

incorporate the most current yield curve information on the record of this proceeding when

determining what debt rate to use, as recommended by the UCA. In this case, the decrease of the

10-year to 30-year bond yield curve from 34 basis points,322 to 26 basis points323 is a decrease of

eight basis points, which is effectively offset by the increase in CU Inc.’s 30-year credit spread

318 Exhibit 23793-X0025, AP-AUC-2018SEP06-005(a). 319 Exhibit 23793-X0087, ATCO Pipelines evidence, paragraphs 80, 81 and 87. 320 Exhibit 23793-X0075, CCA evidence, paragraphs 29-31, and Exhibit 23793-X0091, CCA argument,

paragraph 86. 321 Exhibit 23793-X0090, ATCO Pipelines argument, paragraphs 87-88. 322 ATCO Pipelines initially applied for 34 basis points, calculated as the average of the observed differential

between the 10-year and 30-year Government of Canada bond yield between April 17, 2017, and April 17,

2018. 323 Spread as of February 21, 2019, as submitted by ATCO Pipelines in Exhibit 23793-X0090, paragraph 80.


74 • Decision 23793-D01-2019 (June 25, 2019)

of five basis points. The net change does not result in a substantive change to the debt rate

forecasts and therefore, the Commission approves ATCO Pipelines’ debt rate forecasts as filed.

10 Deferral accounts

353. ATCO Pipelines requested the continuation and settlement of reserve accounts and

deferral accounts and recommended that certain accounts be discontinued. ATCO Pipelines

provided a table of its deferral accounts, reproduced below:

Table 29. ATCO Pipelines’ proposed and existing deferral accounts

Deferral account Description Estimate to

December 2018 Requested settlement

($000)

Salt cavern working gas deferral

To collect the difference between the average cost of the salt cavern working gas inventory and the market price received when gas is sold for withdrawal purposes plus any related transaction costs.

1,013

Pension funding deferral

To collect the difference between actual pension payments made for the defined benefits pension plan including special payments, and the pension funding placeholder amounts approved in ATCO Pipelines’ 2017-2018 GRA. ATCO Pipelines is seeking to discontinue this deferral account, effective January 1, 2019, as it no longer meets the criteria for deferral account treatment.

(269) (269)

Variable pay program deferral

To collect the difference between actual and approved VPP charged to operations plus the net revenue requirement impact on the variance between actual and approved VPP charges to capital accounts. ATCO Pipelines is seeking symmetrical treatment of this deferral account, to be effective January 1, 2019.

(1,176) (1,176)

Debenture rate deferral

To capture the difference between actual and approved financing costs, resulting from actual interest rates that were different from those approved. ATCO Pipelines is seeking to discontinue this deferral account, effective January 1, 2019, as it no longer meets the criteria for deferral account treatment.

(1,833) (1,833)

NGTL directed growth deferral

To capture revenue requirement impacts of variance between approved forecast and actual major growth capital projects directed by NGTL. ATCO Pipelines is seeking to discontinue this deferral account, effective January 1, 2019, as it no longer meets the criteria for deferral account treatment.

46 46

Reserve for regulatory costs To capture the difference between actual and forecast AUC operating fees and to recover Commission approved hearing costs.

(66)

Reserve for injuries and damages

To fund injuries and damages expenses. (422)

Total recovery (2,707) (3,232)

Source: Assembled from Exhibit 23793-X001, application, Section 5.1, Table 5.1-1, PDF pages 124-131.

354. ATCO Pipelines proposed to settle the cumulative net deferral refund of $3,232,000 as a

one-time adjustment to ATCO Pipelines’ monthly revenue requirement immediately after the


Decision 23793-D01-2019 (June 25, 2019) • 75

Commission approves ATCO Pipelines’ compliance filing. ATCO Pipelines noted that any

differences in the deferral balances arising from December 31, 2018 actual amounts would be

addressed at the time of the compliance filing for this application.324

355. No interveners addressed the deferral account settlement in evidence, argument or reply.

Commission findings

356. The Commission has reviewed ATCO Pipelines’ calculations of its deferral amounts and

approves the values listed in Table 29 above. The Commission accepts ATCO Pipelines’

proposal to include any differences in the deferral balances arising from December 31, 2018

actual amounts in its compliance filing. ATCO Pipelines is directed to provide a table similar to

Table 5.1-1 in its compliance filing showing any adjustment, if necessary, to its deferral

amounts.

357. The Commission finds that ATCO Pipelines’ proposal to settle deferral account balances

as a one-time adjustment to be reasonable and consistent with past treatment for the deferral

accounts approved by the Commission.

10.1 Discontinuation of deferral accounts

358. ATCO Pipelines requested the removal of the following three deferral accounts stating

that they no longer meet the criteria for deferral account treatment established by the

Commission in Decision 2003-100:

Debenture rate deferral

Defined benefit pension deferral

NGTL directed growth deferral

359. ATCO Pipelines’ requests to remove these deferral accounts are discussed in sections

10.1.1 to 10.1.3 below.

10.1.1 Debenture rate deferral account

360. In Decision 2013-430, the Commission directed ATCO Pipelines to establish a deferral

account for the settlement of differences between approved and actual long-term debenture rates.

The rationale at that time, as stated by the Commission in its decision, was that “The evidence on

the record regarding 2009-2012 demonstrates that ATCO Pipelines’ forecast debt rates have been

above actual debt rates by a material amount. This indicates an ongoing tendency to err on the

side of overestimation to protect the utility and customers from likely interest rate forecast errors

and uncontrollable risk, the Commission finds that a deferral account for debenture rates should

be established for the test period, consistent with Decision 2013-358.”325

361. In its application, ATCO Pipelines requested the discontinuation of this deferral account

effective January 1, 2019, because in ATCO Pipelines’ view, it no longer meets the criteria for

deferral account treatment. ATCO Pipelines stated that the variances between approved and

324 Exhibit 23793-X0001, application, PDF pages 125-126. 325 Decision 2013-430: ATCO Pipelines, 2013-2014 General Rate Application, Proceeding 2322,

Application 1609158, December 4, 2013, paragraph 220.


76 • Decision 23793-D01-2019 (June 25, 2019)

actual debenture rates are not material for the test period. ATCO Pipelines provided the

following table showing the estimated over recovery of 2017 and 2018 debenture costs:

Table 30. ATCO Pipelines’ 2018 debenture rate deferral

2017 Actuals

2018 Estimate

Balance to settle

Approved embedded cost of debt 4.91% 4.82%

Actual embedded cost of debt 4.85% 4.70%

Approved mid-year debt balances $961,194 $1,102,537

Difference (549) (1,251)

Carrying costs (6) (27)

Net (over)/under recovery (555) (1,278)

Cumulative (over)/under recovery (555) (1,833) (1,833)


362. In Decision 3577-D01-2016, the Commission directed a revised methodology for

developing forecast long-term debenture rates. ATCO Pipelines explained that the currently

approved methodology results in forecasts that are not materially different from actual debenture

rates.326

363. In support of this position, ATCO Pipelines stated that since the establishment of the

debenture rate deferral account, the materiality of differences between forecast and actual debt

rates has declined. The variance between forecast and actual debt rates during the years 2009-

2012, which prompted the Commission to establish the deferral account, ranged from 241 to 319

basis points.327 The debt rate forecasting methodology approved in Decision 3577-D01-2016,

relies upon third-party outputs, such as the Consensus Forecast report. This methodology has

resulted in improved forecasting of debt rates. The average variance since the adoption of the

methodology has been 39 basis points, which is significantly less than the variance identified for

the 2009-2012 period, and results in variances that are no longer material.328

364. ATCO Pipelines explained that while there are some factors that are beyond the utility’s

control, such as market conditions, there are other factors that ATCO can control to manage its

debt costs. Specifically, ATCO Pipelines notes that it has ability to control the timing of when it

goes to market to secure debt at optimal rates. In this regard, the discontinuance of the deferral

account will appropriately place forecast risk for long-term debt rates on the utility and incent it

to manage these costs.329

365. In argument, the UCA stated that the debenture rate deferral account should be

maintained.330 In his evidence Mr. Bowman commented, that while forecasting has improved

since the adoption of the new methodology of using a Consensus Forecast, both forecast basis

points for actual debt rates and debt cost variances between approved and actual remain material.

In addition, if the deferral account had not been in place, then ATCO Pipelines would have

earned an additional $2,257,000 cumulatively in the years 2016-2018. Mr. Bowman added that

326 Exhibit 23793-X0001, application, PDF page 12. 327 Exhibit 23793-X0090, ATCO Pipelines reply argument, paragraph 99. 328 Exhibit 23793-X0090, ATCO Pipelines reply argument, paragraph 100. 329 Exhibit 23793-X0025, AP-AUC-2018SEP06-004(a-b). 330 Exhibit 23793-X0093, UCA argument, paragraph 86.


Decision 23793-D01-2019 (June 25, 2019) • 77

ATCO Pipelines is undertaking significant debenture issues ($215,000,000 in 2019) and any

variance differences will have larger ramifications.331

Commission findings

366. In response to IRs, ATCO Pipelines provided the following table showing approved

amounts, actual amounts and any over-recovery or under-recovery in its debt deferral account for

the years from 2014 to 2018:

Table 31. ATCO Pipelines’ 2014 to 2018 debenture rate variances and deferral account recoveries

Debenture rate DA 2011 2012 2013 2014 2015 2016 2017 2018

Forecast debt rate (%)

7.00 7.00 4.30 5.00 5.00 5.75 4.02 4.62

Approved debt rate (%)

7.00 7.00 4.30 5.00 3.96 4.21

4.29 4.16 4.46

Actual/projected debt rate (%)

4.54 4.59

3.81 3.83 3.86

4.72 4.09 3.96 4.21

3.76 3.54 4.04

(Over)/under recovery ($000)

N/A N/A 140 (120) - (424) (555) (1,278)

Debt rate variance (%) (actual – approved)

(2.46) (2.41)

(3.19) (3.17) (3.14)

0.42 (0.91) 0.00 (0.53) (0.62) (0.42)

Source: Exhibit 23793-X0025, AP-AUC-2018SEP06-004.

367. The Commission agrees with ATCO Pipelines that since the establishment of the debt

rate forecasting methodology approved in Decision 3577-D01-2016, the differences between its

forecast and actual debt rates has declined. The Commission finds, however, that ATCO

Pipelines’ debt rate forecasts continue to overestimate debt rates as shown in Table 31 above,

and finds this overestimation to be material for the test years. Accordingly, the Commission

denies ATCO Pipelines’ request to discontinue its debt rate deferral account.

10.1.2 Defined benefit pension deferral account

368. Consistent with Decision 22986-D01-2018332, ATCO Pipelines has maintained the

defined benefit pension costs deferral account to collect the difference between actual pension

payments made for the defined benefits pension plan, including special payments, as well as the

pension funding placeholder amounts approved in ATCO Pipelines’ 2017-2018 GRA.333 In a

compliance filing to Decision 22011-D01-2017, the Commission directed the continuation of the

deferral account for the 2017-2018 test period.

369. ATCO Pipelines requested approval to discontinue this deferral account effective

January 1, 2019, as it no longer meets the criteria for deferral account treatment.334 ATCO

Pipelines stated that its GRA forecast is based upon the most recent pension funding evaluation

331 Exhibit 23793-X0074, evidence of Mr. Bowman on behalf of the UCA, PDF page 53. 332 Decision 22986-D01-2018, paragraph 98. 333 Exhibit 23793-X0001, application, PDF page 128. 334 Exhibit 23793-X0001, application, PDF page 128.


78 • Decision 23793-D01-2019 (June 25, 2019)

filed in June 2018,335 and therefore it is able to forecast future amounts accurately during the test

period.336

370. ATCO Pipelines provided the following table showing the estimated over recovery of

pension costs:

Table 32. ATCO Pipelines’ 2018 pension funding deferral account

2017 actuals 2018 estimate Balance to settle

($000)

Charging to Operating Costs

Actual/estimate 973 725

Approved placeholder 975 975

(2) (250)

Charging to capital

Actual/estimate 1,101 819

Approved 1,099 1,099

2 (280)

Revenue requirement impact 0 (13)

Carrying charges (0) (4)

Net (over)/under recovery (2) (267)

Cumulative (over)/under recovery (2) (269) (269)


371. In response to a Commission IR, ATCO Pipelines stated that the materiality of

settlements for this deferral account has declined because entry into ATCO Pipelines’ defined

benefit pension plan ended in 1997, the number of active participants in the plan is declining and

will continue to do so, and given the stability of pension fund performance. Table 33 below

shows the variances and deferral account recoveries:337

Table 33. ATCO Pipelines’ 2014 to 2018 defined benefit pension variances and deferral account recoveries

Defined benefit pension DA

2014 2015 2016 2017 2018

($000)

Forecast (per respective GRA)

2,192 1,412 1,412 975 975

Approved funding (operating costs)

2,192 1,298 1,244 975 975

Actual funding (operating costs)

1,596 1,298 1008 973 725

(596) - (236) (2) (250)

Rev req impact of capital (37) - (10) - (13)

Carrying charges - (15) (17) - (4)

(Over)/under recovery (633) (15) (263) (2) (267)

Cumulative settlement (911) (269)


335 See AP-CCA-2018SEP06-012(a) Attachment for the most recent pension valuation. 336 Exhibit 23793-X0001, application, PDF page 13. 337 Exhibit 23793-X0025, AP-AUC-2018SEP06-004(a-b).


Decision 23793-D01-2019 (June 25, 2019) • 79

372. ATCO Pipelines submitted that the stability of the pension fund performance in recent

years is further demonstrated by the following table:

Table 34. Market value of ATCO Pipelines defined benefit pension fund

2014 2015 2016 2017

January 1 $2,158,418 $2,445,615 $2,573,672 $2,595,864

December 31 $2,445,615 $2,573,672 $2,595,864 $2,695,206

Rate of return net of expenses

15.00% 7.35% 4.55% 6.65%


373. ATCO Pipelines stated that its methodology for forecasting pension funding relies on

pension funding actuarial valuations. In accordance with pension legislation, ATCO is required

to undertake periodic pension evaluations and file with the appropriate regulatory body. ATCO

Pipelines further noted that the forecast risk for pension funding should be borne by the utility in

order to provide incentives for the utility to best manage these costs as it would any other cost

that is not subject to a deferral account.338

374. In its evidence, the CCA stated that when a deferral account is discontinued it creates

incentives around forecasting including an incentive to game the forecast. The CCA stated that

ATCO Pipelines is forecasting flat pension expenditures despite five years of falling costs and it

appears that ATCO Pipelines may be incented to overstate costs. The CCA indicated that if

ATCO Pipelines’ request is granted, there should be symmetrical treatment through a

Commission direction that (a) ATCO be responsible for any deficit at the end of the test period

or (b) ATCO Pipelines’ decision to abandon the deferral account be considered permanent.339

375. In argument, the CCA recommended that if the Commission approves ATCO Pipelines’

request to remove the pension deferral account, then ATCO Pipelines should be responsible for

any gains or losses in the test period.340

376. ATCO Pipelines responded that the CCA provided no arguments suggesting that ATCO

Pipelines should not be permitted to discontinue the deferral account, other than to assert that “it

appears that ATCO may be acting upon the incentive to overstate costs.” ATCO Pipelines

asserted that this statement is “unsubstantiated” and the CCA’s assertions to the contrary should

be disregarded.341

377. With respect to ATCO Pipelines being “responsible for any gains or losses which are

attributable to the test period,” if the deferral account were to be discontinued, ATCO Pipelines

responded by stating that:

… The Pension Funding valuations are conducted with the purpose of determining future

funding requirements as required by prevailing pension legislation given the financial

position of the plan at that time. For example, the valuation conducted as of

December 31, 2017 determines the contribution requirements for 2018, 2019 and 2020

and has no impact on contributions prior to the valuation date. Plan experience prior to

the valuation date will have an impact on future funding requirements however

338 Exhibit 23793-X0025, AP-AUC-2018SEP06-004(a-b) 339 Exhibit 23793-X0075, CCA evidence, paragraphs 40-57. 340 Exhibit 23793-X0091, CCA argument, paragraph 200. 341 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraphs 154-155.


80 • Decision 23793-D01-2019 (June 25, 2019)

attempting to calculate the impact on future years’ funding requirements is not

appropriate. For example, if actual performance of the pension fund during the test period

was favorable with the result that future funding was reduced, it would not be appropriate

to expect customers to pay for higher pension funding as if that actual favorable

performance did not occur. AP would be responsible for providing funding forecasts in

subsequent GRAs, which will be tested and approved by the Commission. [emphasis in

original]342

378. ATCO Pipelines argued that the Commission should dismiss the CCA’s request and with

the discontinuance of its deferral account, should treat forecast defined benefit pension funding

as any other forecast included in ATCO Pipelines’ applications.343

Commission findings

379. The Commission has reviewed the evidence regarding defined benefit pension costs

including Table 33 above. The Commission continues to find defined benefit pension over-

recoveries to be significant. Table 33 confirms an over-recovery of $1,180,000 over the period

from 2016 to 2018. The Commission finds that ATCO Pipelines’ defined benefit pension GRA

placeholder amounts continue to overestimate actual defined benefit pension costs. Accordingly,

the Commission is persuaded that ATCO Pipelines’ defined benefit pension deferral account

continues to be required. The Commission denies ATCO Pipelines’ request to discontinue this

deferral account.

10.1.3 NGTL directed growth deferral account

380. In Decision 2013-430,344 the Commission approved the NGTL directed growth deferral

account to capture the revenue requirement impact of major growth capital projects directed by

NGTL and requiring NGTL authorization in the test year of the forecast at the time of the

application.345 At the time that the deferral account was approved, ATCO Pipelines maintained

that the deferral account was appropriate as ATCO Pipelines was unable to reasonably forecast

the need for NGTL-directed capital expenditures, in advance of receiving a decision summary

from NGTL. In addition, outside of a forecast test year period, ATCO Pipelines stated that it had

no ability to collect revenue to recover the costs of both constructing and operating the

facilities.346

381. ATCO Pipelines indicated that over the past six years leading up to this application, it has

worked closely with NGTL in the development of directed growth projects within ATCO

Pipelines’ footprint. As such, ATCO Pipelines explained that it is now able to forecast NGTL-

directed growth projects to a higher degree of accuracy. Furthermore, ATCO Pipelines has found

that projects that unexpectedly arise and are completed within a two-year test period are not

generally material in nature. Therefore, ATCO Pipelines stated that expenditures no longer meet

the criteria for deferral account treatment.

342 Exhibit 23793-X0033, AP-CCA-2018SEP06-012(d). 343 Exhibit 23793-X0097, ATCO Pipelines reply argument, PDF pages 51-52. 344 Decision 2013-430: ATCO Pipelines, 2013-2014 General Rate Application, Application 1609158,

Proceeding 2322 December 4, 2013; 345 Exhibit 23793-X0001, application, PDF page 131. 346 Exhibit 23793-X0001, application, PDF page 12.


Decision 23793-D01-2019 (June 25, 2019) • 81

382. In the application, ATCO Pipelines has requested to discontinue the NGTL directed

growth deferral account, effective January 1, 2019. ATCO Pipelines provided the following table

to show the proposed settlement of the NGTL directed growth deferral account.347

Table 35. NGTL directed growth deferral account

2017 Actuals

2018 Estimate

Balance to settle

($000)

Revenue requirement impacts

Redwater cogen delivery #2 0 1,065

Revenue requirement impacts 0 45

Carrying costs 0 1

Net (over)/under recovery 0 46

Cumulative (over)/under recovery 0 46 46


383. The following table was provided by ATCO Pipelines to demonstrate that variances have

not been material:

Table 36. NGTL directed growth deferral account materiality

NGTL Directed Growth DA 2014 2015 2016 2017 2018

($000)

Approved forecast capital 3,105 3,099 42,917 - -

Actual capital 14,375 3,506 28,297 - 1,065

Capital variance 11,270 407 (14,620) - 1,065

Revenue requirement impact 293 17 (851) - 45

Carrying charges - - (9) - 1

(Over)/under recovery 293 17 (861) - 46

Cumulative deferral account settlement 249 (844) 46


384. With respect to uncertainty regarding the accuracy and ability to forecast the deferral

account amount, ATCO Pipelines stated that at the outset of integration with NGTL,348 it was

unclear how frequently and to what extent projects unknown to ATCO Pipelines at the time of a

GRA submission would subsequently arise. After seven years, ATCO Pipelines takes assurance

that projects which have the ability to arise in a short timeframe and require commissioning

inside of a previously applied-for test period are small (i.e., under $15,000,000) and as such,

have an immaterial impact to revenue requirement. On the other hand, ATCO Pipelines indicated

that projects that potentially have a material impact on revenue requirement are large (over

$15,000,000), have much longer lead times, and would unlikely arise in a short enough manner

to impact the previously applied-for test period.

385. ATCO Pipelines stated that it would continue to work closely with NGTL in the initial

assessment of facilities required to serve a customer-expressed interest. As a result, ATCO

Pipelines would not characterize said projects as being outside of its control any more than they

were prior to integration with NGTL. ATCO Pipelines further stated that its forecasting

347 Exhibit 23793-X0001, application, PDF pages 12-13. 348 In October 2011.


82 • Decision 23793-D01-2019 (June 25, 2019)

methodology relies upon historical averages and that there is no exceptional risk inherent in this

particular category that supports the need for a deferral account.349

386. No intervener raised any issues with ATCO Pipelines’ request.

Commission findings

387. The Commission has evaluated the request to discontinue this existing deferral account

based on the following established criteria from Decision 2003-100: materiality; uncertainty in

cost forecasts; factors beyond the utility’s control; and, risk to the utility, while ensuring costs

and benefits are symmetrically applied to the utility and customers.350 The data provided in

Table 36 shows that since 2014 the settlement amounts in this deferral account have generally

not been material. The Commission finds that this account no longer meets the test for deferral

account treatment because it no longer meets the materiality criterion in the deferral account test

from Decision 2003-100. For these reasons, the Commission approves ATCO Pipelines’ request

to discontinue the NGTL deferral account and directs ATCO Pipelines to confirm the settlement

of the account in its compliance filing.

11 Responses to previous Commission directions

388. In Section 6.1 of its application,351 ATCO Pipelines provided an update to the status of 16

directions originating from three separate decisions. ATCO Pipelines responded to these

directions or identified the future proceeding in which it would address each direction, either on

a one-time or on an ongoing basis. The Commission addresses the 16 directions below by

reference to the decision in which the direction was issued.

Commission direction from Decision 2014-010 (paragraph 300, no direction number)

389. With respect to paragraph 300 of Decision 2014-010, for the Urban Pipeline Replacement

Project, the Commission finds that ATCO Pipelines has complied with the Commission’s

direction to provide an update on the timing and cost of its UPR project by providing the

information found in Section 2.3.1 within its application. The Commission acknowledges ATCO

Pipelines’ commitment to continue to provide similar updates in the future on any material UPR

changes on an ongoing basis consistent with paragraph 300 of Decision 2014-010 and it is

directed to provide this information in its future GRAs.

Commission direction from Decision 3577-D01-2016 (directions 18 and 22)

390. With respect to Direction 18,352 the Commission finds that ATCO Pipelines has complied

with the Commission’s direction to file all forecast IT volume data for the test period and actual

volumes from the previous test period. The Commission finds that ATCO Pipelines provided the

information requested in Direction 18 in its 2019-2020 GRA. The Commission acknowledges

349 Exhibit 23793-X0025, AP-AUC-2018SEP06-004(a-b). 350 Decision 2000-9 at page 148, stated the following with respect to symmetry: “The Board agrees that the use of

deferral accounts should not be for the sole benefit of either the Company or the customers. Rather they should

provide a degree of protection to both the Company and the customer from circumstance beyond their control.

The Board expects that the individual mechanisms involved in the use of each deferral account should be

applied in a consistent and fair manner in both test years and non-test years. Symmetry must exist between costs

and benefits for both the Company and its customers.” 351 Exhibit 23793-X0001, application, Section 6.1 – Responses to Commission Directions, PDF pages 132-136. 352 Decision 3577-D01-2016, paragraph 452.


Decision 23793-D01-2019 (June 25, 2019) • 83

ATCO Pipelines’ commitment to continue to provide similar information in all future GRAs on

an ongoing basis consistent with Direction 18 of Decision 3577-D01-2016 and directs ATCO

Pipelines to provide this information in its future GRAs.

391. With respect to Direction 22, where the Commission directed ATCO Pipelines to identify

and explain costs resulting from Surface Rights Board claims and whether the costs should be

recovered through the reserve for injuries and damages, the Commission acknowledges ATCO

Pipelines’ statement that there are no Surface Rights Board claims to adjust for in the test period.

The Commission further acknowledges ATCO Pipelines’ commitment to address Direction 22 at

the time it makes its next application to recover Surface Rights Board claims, legal, or other

related costs. ATCO Pipelines is directed to address Direction 22 of Decision 3577-D01-2016 in

its future GRAs.

Commission directions from Decision 22011-D01-2017

392. The Commission examined ATCO Pipelines’ responses to the 13 outstanding directions

(directions 1, 2, 3, 4, 12, 16, 21, 22, 23, 26, 28, 29 and 36) from Decision 22011-D01-2017.

393. The Commission finds that directions 26, 28, 29 and 36 from Decision 22011-D01-2017

remain outstanding and are to be addressed in ATCO Pipelines’ future GRAs.

394. Based on the information and responses in ATCO Pipelines’ application, the Commission

considers that ATCO Pipelines has complied with directions 1, 2, 3, 12, 16, and 21 from

Decision 22011-D01-2017.

395. In the sections that follow, the Commission addresses three remaining directions,

directions 4, 22 and 23, from Decision 22011-D01-2017 that require specific findings on ATCO

Pipelines’ compliance with these individual directions.

11.1 ATCO Pipelines response to Direction 4

396. Direction 4 of Decision 22011-D01-2017 stated:

4. The Commission approves, in this proceeding, ATCO Pipelines’ forecast ECDA

[external corrosion direct assessment] and ILI capital expenditures because the

inspections are a proactive initiative designed to detect areas of the pipeline susceptible to

future defects in transmission pipeline. However, the Commission notes that the CCA

argued that capitalization of ECDA and ILI costs should be treated as expense items as

the inspections themselves do not extend the life of the pipeline asset nor is capitalization

of these costs consistent with industry norms. As such, the Commission directs ATCO

Pipelines, in its next GRA:

• To survey and summarize the practices of other North American regulated pipeline

companies to establish if ILI costs are capitalized or expensed.

• Clarify why ECDA costs should be capitalized based on ATCO Pipelines’

capitalization policy.

397. In the application, ATCO Pipelines stated that the capitalization of major inspection and

overhaul costs was tested and approved by the Commission in Decision 2013-430353 and

353 Decision 2013-430: ATCO Pipelines, 2013-2014 General Rate Application, Application 1609158,

Proceeding 2322, December 4, 2013.


84 • Decision 23793-D01-2019 (June 25, 2019)

Decision 2014-162.354 ATCO Pipelines sought this revised accounting treatment in its 2013-2014

GRA as a result of the implementation of International Financial Reporting Standards (IFRS).355

398. ATCO Pipelines stated that it is unable to affirm the accounting practices for “ILI costs”

specifically on behalf of regulated pipeline companies in North America. ATCO Pipelines did,

however, undertake an internet search for capitalization of “Major Inspections and Overhauls”

on the public record. ATCO Pipelines provided a list of regulated pipeline companies and

utilities that capitalize major inspections and overhauls:356

ATCO Pipelines

Terasen Gas (Vancouver Island) Inc.

ENMAX

EPCOR Utilities Inc.

FortisAlberta Inc.

Hydro Ottawa Holding Inc.

New Brunswick Power

Newfoundland and Labrador Hydro

SaskEnergy

Yukon Energy

399. ATCO Pipelines also noted that IFRS standard, IAS 16.14 (January 2010), states:

A condition of continuing to operate an item of property, plant and equipment (for

example, an aircraft) may be performing regular major inspections for faults regardless of

whether parts of the item are replaced. When each major inspection is performed, its cost

is recognised in the carrying amount of the item of property, plant and equipment as a

replacement if the recognition criteria are satisfied. Any remaining carrying amount of

the cost of the previous inspection (as distinct from physical parts) is derecognised. This

occurs regardless of whether the cost of the previous inspection was identified in the

transaction in which the item was acquired or constructed. If necessary, the estimated

cost of a future similar inspection may be used as an indication of what the cost of the

existing inspection component was when the item was acquired or constructed.

400. The Ontario Energy Board adopted this practice when it included the above IAS

definition in its Accounting Procedures Handbook for Electricity Distributors.357

401. Contrary to the CCA’s assertions, ATCO Pipelines stated in response to AP-CCA-

2018SEP06-031 that “ECDA … should be capitalized and treated as a major inspection because

it aligns with the clarification provided by the IFRS Institute.”358 Specifically, because ECDA

354 Decision 2014-162: ATCO Pipelines 2013-2014 Revenue Requirement Compliance Filing to Decision 2013-430,

Application 1610269-1, Proceeding 3037, June 10, 2014. 355 Exhibit 23793-X0001, application, PDF page 137. 356 Exhibit 23793-X0001, application, PDF page 138. 357 Exhibit 23793-X0001, application, PDF page 140. 358 Exhibit 23793-X0033, AP-CCA-2018SEP06-031(a-b), PDF page 270.


Decision 23793-D01-2019 (June 25, 2019) • 85

occurs at regular intervals over the life of an asset that lasts more than one period, it would be

considered a major expenditure and capitalized in accordance with IFRS.359 Further, ECDAs do

result in extended life. In response to AP-CCA-2018SEP06-031(h), ATCO Pipelines described

its own ECDA inspections and explained how those inspections result in extended life, stating:

“AP has completed ECDA inspections in the past that have resulted in a portion of a licensed

pipeline to be cut-out and replaced and, not an entire asset. The cut-out and replacement of a

specific defect on a portion of a pipeline segment clearly extends the life of the remaining

asset.”360

402. ATCO Pipelines submitted that the evidence on the record of this proceeding supports the

capitalization of ILI and ECDA expenditures.

CCA

403. The CCA asserted it is not credible that, given its industry contacts and committee

positions, ATCO Pipelines is unable to contact and survey the accounting groups in other

pipeline companies to develop a consensus on the capitalization of ILI. The absence of industry

contacts to date points strongly to the conclusion that it is not common practice to capitalize

these expenditures.361

404. The CCA argued that there is no evidence that ECDA provides an extension of the useful

life of the asset as would be realized in a compressor overhaul or engine refurbishment. Further,

the CCA asserted that ATCO Pipelines had provided no credible support that the practice of

ECDA should be considered a major inspection, nor had it attempted to determine what

constituted pipeline industry accounting practice. The CCA said there was no evidence that any

pipeline company outside of ATCO Pipelines that capitalizes ILI or ECDA inspections. The

CCA contended that the burden should be on the applicant to demonstrate that its practice is

consistent with industry convention. The CCA considered that ATCO Pipelines had not met the

wording, nor the intent of Commission Direction 4 from Decision 22011-D01-2017 and that

ATCO Pipelines should be directed to transfer ILI and ECDA inspections from a capital

expenditure to an O&M expense.362

Commission findings

405. The Commission finds that ATCO Pipelines has adequately explained the rationale for

capitalizing its ILI. Although ATCO Pipelines was unable to confirm that ILI costs were

capitalized by other pipeline operators, the Commission accepts that ILI can be considered a

major inspection and that capitalization of ILI costs aligns with the cost treatment applied by the

other regulated pipeline companies and utilities referenced in paragraph 398 of this decision.

406. The Commission is also of the view that ATCO Pipelines has adequately explained that

capitalization of ECDA is consistent with IFRS and accepts ATCO Pipelines’ statement that

ECDA inspections occur at regular intervals that extend the useful life of an asset. The

Commission does not consider that there is sufficient information or evidence to support that ILI

and ECDA should be treated as an O&M expense.

359 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 109. 360 Exhibit 23793-X0097, ATCO Pipelines reply argument, paragraph 110. 361 Exhibit 23793-X0091, CCA argument, paragraphs 49-50. 362 Exhibit 23793-X0091, CCA argument, paragraphs 60-61.


86 • Decision 23793-D01-2019 (June 25, 2019)

407. For these reasons, the Commission is satisfied that ATCO Pipelines has adequately

justified the capitalization of ILI and ECDA inspection costs, and as such, has complied with

Direction 4.

11.2 ATCO Pipelines’ response to Direction 22


22. The Commission finds merit in the CCA’s concern and related recommendation and

therefore directs ATCO Pipelines to provide the requested cost of removal

information (as being what has been collected and what has been expended, each on a

total cumulative basis) at the time of its next GRA. The cost of removal information

will be required for a single account, Account 465.00 – transmission plant – mains.

After examining the data, the Commission will make a subsequent determination

with respect to ATCO Pipelines’ remaining plant accounts and whether similar cost

of removal information for those accounts will be required.

409. In its application, ATCO Pipelines provided the information directed by the Commission

indicating that between 1958 and 2017, on a cumulative basis, there had been $34,500,000

collected in negative net salvage through depreciation rates and $70,200,000 expended in cost of

removal efforts.

410. The UCA questioned the manner in which the life-to-date net salvage and cost of removal

data had been collected and whether ATCO Pipelines could link this information to any specific

causes of retirement or salvaging events for the years 2016 and 2017.

411. ATCO Pipelines responded that it collected the $34,500,000 in negative net salvage

through its depreciation provision by applying the approved net salvage rate to the opening

original cost balance for that period. It based the cost of removal on actual expenditures, and

where applicable, offset it by any gross salvage received for the retired assets. ATCO Pipelines

clarified that is does not maintain detailed information on the nature and cause of its historical

retirements and removal costs; they are reflective of ongoing infrastructure and upgrade

activities.363

Commission findings

412. The Commission observes that parties generally, did not rely on this information in their

submissions and finds that the cost of removal information was of limited use in evaluating

Account 465.00. Therefore, the Commission will not direct ATCO Pipelines to provide similar

data in its next depreciation study or GRA. For the purposes of this application, ATCO Pipelines

complied with Direction 22 by providing the cost of removal for Account 465.00 and no further

direction is required.

11.3 ATCO Pipelines’ response to Direction 23


23. The Commission directs ATCO Pipelines to provide as part of all future rate

applications where either a depreciation study or technical update to a depreciation

study has been submitted, detailed depreciation expense calculations on the basis of

363 Exhibit 23793-X0029, AP-UCA-2018SEP06-030, PDF pages 99-101.


Decision 23793-D01-2019 (June 25, 2019) • 87

both approved methodologies and depreciation parameters (and corresponding rates)

and proposed methodologies and depreciation parameters (and corresponding rates).

414. The Commission examined the detailed depreciation expense workbook364 submitted by

ATCO Pipelines in response to Direction 23 and finds that in general, ATCO Pipelines has

complied with the direction.365 However, in Section 7.1 of this decision, the Commission

provides further clarification and guidance as to the level of detail required to be submitted by

ATCO Pipelines, on an ongoing basis, with respect to the detailed depreciation expense

calculations, as directed in Direction 23.

12 Other matters

12.1 Corporate costs (head office rent)

415. As shown in Table 4.2.2-1 of the application, ATCO Pipelines provided ATCO Group

costs of $6,629,000 in 2019 and $6,829,000 in 2020, respectively.366

416. In argument, the CCA identified an issue concerning head office rent associated with the

opening of the new ATCO Park building and stated that in the interest of regulatory efficiency, it

proposed to address head office rent issues in the current ATCO Electric Transmission 2018-

2019 GTA proceeding (Proceeding 22742). The CCA recommended that costs be applied on a

pro-rata basis to this proceeding.367

417. In response, ATCO Pipelines stated that it is procedurally unfair to apply the issues

raised by the CCA with respect to head office rent in Proceeding 22742 on a pro-rata basis to

ATCO Pipelines. ATCO Pipelines submitted that by raising this issue and introducing the

request for placeholder treatment of costs in argument rather than in evidence, the CCA had

deprived AP of its opportunity to respond.368

Commission findings

418. Given that the issue of head office rent was not tested in the current proceeding and that

the CCA later raised head office rent in argument, there was no opportunity for ATCO Pipelines

or interveners to test whether the head office rent that is allocated through the corporate cost

allocator for ATCO Pipelines will be affected by the Commission’s findings in its decision in

Proceeding 22742. In ATCO Electric Transmission’s 2018-2019 GTA, currently before the

Commission in Proceeding 22742, the recovery of building costs and corporate costs through

head office rent are before the Commission. It is unknown at this time what, if any, impact that

decision may have on head office rent and corporate cost allocations. Accordingly, the

Commission directs ATCO Pipelines to file in its compliance filing, any information or evidence

364 Exhibit 23793-X0008, Section 6.1, Attachment 2. 365 The Commission acknowledges that given ATCO Pipelines filed a technical update in Proceeding 23793, the

detailed depreciation expense calculations consisted only of approved depreciation parameters and updated

depreciation rates. 366 Exhibit 23793-X0001, application, Table 4.2.2-1, PDF page 95 367 Exhibit 23793-X0091, CCA argument, paragraph 170. 368 Exhibit 23793-X0097, ATCO Pipeline reply argument, paragraph 145.


88 • Decision 23793-D01-2019 (June 25, 2019)

on how its corporate cost allocator for head office rent may be affected by the Commission’s

findings and determinations issued in the decision on Proceeding 22742.369

13 Order

419. It is hereby ordered that:

(1) ATCO Pipelines, a division of ATCO Gas and Pipelines Ltd., is directed to file a

compliance filing in accordance with the findings and directions in this decision,

no later than August 8, 2019.

Dated on June 25, 2019.


(original signed by)

Neil Jamieson

Panel Chair


Kristi Sebalj

Commission Member


Tracee Collins

Commission Member

369 Decision 22742-D01-2019 is expected to be issued on or before July 4, 2019.


Decision 23793-D01-2019 (June 25, 2019) • 89

Appendix 1 – Proceeding participants

Name of organization (abbreviation) Company name of counsel or representative

ATCO Pipelines (AP)

Bennett Jones LLP

Consumers’ Coalition of Alberta (CCA)

Office of the Utilities Consumer Advocate (UCA)

Brownlee LLP

Alberta Utilities Commission Commission panel N. Jamieson, Panel Chair K. Sebalj, Commission Member T. Collins, Commission Member Commission staff

A. Sabo (Commission counsel) M. McJannet S. Karim L. Mullen P. Baker L. Osanyintola


90 • Decision 23793-D01-2019 (June 25, 2019)

Appendix 2 – Summary of Commission directions

This section is provided for the convenience of readers. In the event of any difference between

the directions in this section and those in the main body of the decision, the wording in the main

body of the decision shall prevail.

1. The Commission has reviewed the variance between approved and estimated rate base for

2018 and is satisfied with the explanations provided by ATCO Pipelines in its application

and in responses to IRs. For this reason, the Commission approves ATCO Pipelines’

2018 opening rate base on an actual basis. However, as ATCO Pipelines’ actual closing

2018 rate base information is not available, the Commission makes no finding with

respect to 2019 opening rate base. ATCO Pipelines’ 2019 opening rate base amounts will

also be affected by the findings in other areas of this decision. ATCO Pipelines is

directed to provide its 2018 rate base actuals in the compliance filing to this decision.

.......................................................................................................................... Paragraph 23

2. The Commission determined, in a letter dated November 14, 2018, that due to the

potential overlap between this GRA and the facilities proceeding on the proposed

Pembina-Keephills project, it was more efficient to address the rates and facilities matters

for the project in Proceeding 23799. Given that the need and costs related to the project

are being determined in Proceeding 23799, the Commission approves placeholder

treatment for the project until a determination is made in Proceeding 23799. ATCO

Pipelines is directed to revise its revenue requirement and capital expenditures forecasts

in its compliance filing to this decision to reflect any findings arising from Proceeding

23799. .............................................................................................................. Paragraph 38

3. Given that WARP is currently under consideration in Proceeding 24176, any

determination in that proceeding may affect the consideration of the forecast WARP costs

in this proceeding. As a result, the Commission considers that placeholder treatment of

the WARP forecast is reasonable. Consistent with the denial of WARP reinspection and

repairs costs in Decision 22986-D01-2018 and Decision 23537-D01-2018 (Errata), the

Commission directs that the WARP placeholder amount be set at $0. .......... Paragraph 45

4. The Commission notes, however, that ATCO Pipelines confirmed that it is not aware of

any regulating body in Canada or any other jurisdiction that has mandated the use of

ROVs for natural gas systems. Before the Commission determines whether ROVs and the

associated costs are reasonably required for public safety or pipeline integrity, ATCO

Pipelines is directed to provide the following information in its compliance filing to this

decision:

Provide a detailed explanation of the advantages and disadvantages of the

installation of ROVs (and include any comments on the conclusions found in the

AGA White Paper);

File a copy of the AGA White Paper;

Provide a risk assessment, impact analysis and detailed cost estimates for each of

the proposed ROV locations;

Explain how it proposes to prioritize its ROV installations; and


Decision 23793-D01-2019 (June 25, 2019) • 91

Confirm the process and costs that would be required for any consultation with

municipalities, industrial customers, other operators of critical facilities and

emergency responders regarding the proposed ROV program. .......... Paragraph 56

5. Based on the above determinations, ATCO Pipelines’ request for a quality control

initiative project is denied and it is directed to remove all O&M and capital costs related

to the project from its forecast 2019-2020 revenue requirements. ................. Paragraph 81

6. The Commission agrees with the UCA that ATCO Pipelines’ test year depreciation

expense calculations should represent, to the greatest extent possible, all forecast capital

activity, including capital additions and retirements. In the case of ATCO Pipelines’

accounts approved for depreciation under a square curve methodology, retirement

transactions are predictable because they are not dependent on the physical retirement of

the assets. It is not apparent to the Commission that there is a compelling reason why this

forecast information should be omitted by ATCO Pipelines from either its depreciation

expense calculations or its GRA schedules. For these reasons, the Commission directs

ATCO Pipelines to include square curve asset retirements in its detailed depreciation

expense calculations and GRA schedules and to provide revised schedules in its

compliance filing to this decision. ATCO Pipelines is further directed in its compliance

filing to reflect the correction in Account 453.01 – Well Inspections for 2016 and 2017

retirements in Account 454 – Well Equipment by way of a revision to its technical

update. ........................................................................................................... Paragraph 106

7. The Commission observes that for accounts 453.01 and 466.03 and 466.04, which are

depreciation study accounts using a square curve methodology, detailed vintage

information is available within sections 3, 4 and 5 of ATCO Pipelines’ technical update

that directly supports the forecast retirements directed in the previous paragraph of this

decision. The Commission considers that similar detailed vintage information is required

for ATCO Pipelines’ remaining accounts 483, 486, 489, 491 and 499 (three, seven and 10

years), which are also depreciated under a square curve methodology but are non-

depreciation study accounts. For this reason, ATCO Pipelines is directed, for these five

accounts, to file supplementary information similar to that provided in ATCO Pipelines’

technical update in Section 4 on an ongoing basis, commencing with the compliance

filing to this decision. This information would provide a measure of transparency as to

the vintage composition of these accounts and a means to confirm the forecast plant

retirement activity within ATCO Pipelines’ detailed depreciation expense calculations.

With respect to the series of Account 499 sub-account categories, ATCO Pipelines is

directed to file its Section 4 information for each of the 12 Account 499 – Software sub-

account categories shown in the detailed depreciation expense calculation workbook.

........................................................................................................................ Paragraph 107

8. With respect to ATCO Pipelines’ detailed depreciation expense calculations, the

Commission observes there is no “rate” information provided for Account 499 - Software

identified by sub-category; nor for any account on these schedules were there are

columns indicating opening or closing accumulated depreciation balances. The

Commission considers that this information is required to efficiently examine and

confirm ATCO Pipelines’ underlying depreciation expense calculations, particularly

given that ATCO Pipelines has been unable to provide parties with working copies of

these schedules. The Commission directs ATCO Pipelines to include the applicable

depreciation rate and opening and closing accumulated depreciation balances in its


92 • Decision 23793-D01-2019 (June 25, 2019)

detailed depreciation expense calculations commencing with a revision to its detailed

depreciation expense workbook in its compliance filing to this decision. ..........................

........................................................................................................................ Paragraph 108

9. With respect to UCA recommendation 14, the Commission considers that the detailed

review of an actuarial database is a matter better suited to occur simultaneously with the

examination of a depreciation study. However, the Commission notes that it was not clear

whether ATCO Pipelines’ actuarial database contains transactional coding. In its

compliance filing to this decision, ATCO Pipelines is directed to clarify whether its

actuarial database contains transactional codes for the purposes of identifying any of the

following: regular retirements, reimbursed retirements, sales, end of period transfers,

beginning of period transfers, acquisitions, adjustments, outlier retirements, survivor

account balances and gross additions. .......................................................... Paragraph 119

10. For these reasons, the Commission accepts ATCO Pipelines’ proposal to credit

depreciation expense in the amount of $1,584,000. ATCO Pipelines is directed to record

the credit entry to depreciation expense as a one-time adjustment in the 2019 test year in

its compliance filing to this decision. However, ATCO Pipelines is directed to record the

debit side of the entry to the account of the shareholder because the shareholders were

originally the beneficiaries of the PPA in 2012 and that accounting was in error. ATCO

Pipelines shall therefore not recover the debit side of the directed accounting entry

through rate base or through revenue requirement. ...................................... Paragraph 127

11. The Commission addressed ATCO Pipelines’ quality control initiatives program in

Section 6.5 of this decision. In accordance with that section, the Commission directs that

all O&M forecast costs associated with the quality control initiatives programs be

removed from ATCO Pipelines’ forecasts in its compliance filing application. .................

........................................................................................................................ Paragraph 160

12. The Commission directs ATCO Pipelines, in its compliance filing, to provide a revised

timeline to complete this program that includes a risk assessment analysis (for example, if

ATCO Pipelines completed its pressure vessel inspection compliance program over a

longer timeframe, such as five or 10 years), including a prioritization of its pressure

vessels and risk analysis based on vessel vintage, date of last inspection and any other

relevant metrics. ............................................................................................ Paragraph 183

13. The Commission also directs ATCO Pipelines, in its compliance filing, to provide a

status update on its pressure vessel inspection compliance program, including

information on the description of the required work, the details of the contract for

inspection, and the status of and timeline for the process to engage a contractor has been

engaged. ATCO Pipelines is also directed to include an update of forecast costs for the

test period for this program and an update of the cost required to inspect each pressure

vessel that reflects the findings and directions of the Commission in this decision.

........................................................................................................................ Paragraph 184

14. The Commission finds that ATCO Pipelines’ has not justified the costs for this program.

Based on the evidence, the Commission is unable to assess how this program is different

from other asset management programs or the specific benefits that may result from the

third-party hazard operability assessments. The Commission directs ATCO Pipelines to

remove all forecast costs associated with this initiative for 2019 and 2020 in its

compliance filing to this decision. ................................................................ Paragraph 195


Decision 23793-D01-2019 (June 25, 2019) • 93

15. The Commission has reviewed ATCO Pipelines’ proposal for an in-scope employee

salary escalation of 2.5 per cent in 2019 and of 2.8 per cent in 2020, and the data on

comparable wage settlement agreement provided by ATCO Pipelines in Table 16. Given

the limited amount of comparable wage settlement agreement data for 2019 and 2020, as

shown in Table 16, the Commission finds that a 2.0 per cent increase for in-scope

employees, consistent with its 2018 collective bargaining agreement, is more reasonable.

In addition, the Commission also finds that a 2.0 per cent increase is consistent with the

findings of the Mercer Canada Limited (Mercer) that the Alberta economy is forecasted

to grow at 2.0 per cent annually from 2019 through 2020, as discussed in more detail in

Section 8.7.1.2 below. Accordingly, the Commission approves a 2.0 per cent increase for

each of 2019 and 2020. ATCO Pipelines is directed to revise its in-scope employee salary

escalator to 2.0 per cent in its compliance filing to this decision. ................ Paragraph 213

16. Accordingly, the Commission approves a 2.0 per cent out-of-scope salary escalation

factor for each of 2019 and 2020. The Commission directs ATCO Pipelines to reflect

these findings in its compliance filing to this decision. ................................ Paragraph 224

17. For the remaining four applied-for FTEs in the test period, ATCO Pipelines provided an

explanation of the responsibilities of and justification for each, which is summarized in

Table 19 above. The Commission has examined ATCO Pipelines’ explanations for these

remaining four incremental FTEs and finds them to be reasonable. ATCO Pipelines is

directed to revise its FTE forecast in its compliance filing to reflect the denial of four

FTEs by the Commission, as discussed in paragraph 238 above. ................ Paragraph 239

18. The Commission has reviewed the evidence with respect to ATCO Pipelines’ initiative

for consolidating its management with ATCO Gas. The Commission approves the

consolidation of management for the Corporate Services and Engineering departments in

2017 and for the Operations and Construction departments in 2018, as this provides

benefits, including consistency of management between departments for both utilities and

annualized savings of $500,000. However, the Commission observes that in Table 18 of

this decision, the consolidation of management shows a reduction of 4.0 FTE positions.

Accordingly, in its compliance filing to this proceeding, ATCO Pipelines is directed to

update Table 18 of this decision to clarify whether the number of FTE positions

eliminated as a result of consolidation of management was 4.0 or 4.5. ....... Paragraph 245

19. The Commission has examined the evidence on the record for the continuation of the

VPP and the associated forecast VPP costs of $3,074,000 in 2019 and $3,177,000 in

2020. The Commission finds that the forecast VPP amounts are reasonable because the

VPP gives ATCO Pipelines the ability to react to the market conditions and manage its

employee retention. Accordingly, the Commission approves the forecast VPP costs, as

filed. Additionally, the Commission directs that any forecast VPP amounts not paid out

during the test period be refunded to customers through the VPP deferral account in the

next GRA. ..................................................................................................... Paragraph 251

20. The Commission finds that there is insufficient information to support the benefits of

symmetrical treatment of the VPP deferral account and that the asymmetrical variable

pay deferral account continues to be reasonable for ATCO Pipelines’ VPP costs.

Accordingly, no change to the operation of the currently-approved VPP deferral account

is required. ATCO Pipelines is directed to confirm that its 2019-2020 revenue

requirement is not affected by the Commission’s denial of symmetrical treatment


94 • Decision 23793-D01-2019 (June 25, 2019)

associated with the VPP deferral account, in a compliance filing to this decision.

........................................................................................................................ Paragraph 260

21. Accordingly, the Commission approves ATCO Pipelines’ forecast vacancy rate of 4.8 per

cent for O&M and 5.6 per cent for capital for both 2019 and 2020. Consistent with this

determination, ATCO Pipelines is directed to revise its forecast vacancy rates in its

compliance filing to this decision. ................................................................ Paragraph 270

22. The Commission considers that the updated CPI for 2019 and 2020, provided in response

to IRs, is a more reasonable forecast of inflation for O&M supplies because it reflects

more accurate information on the current inflation rate. Accordingly, the Commission

directs ATCO Pipelines, in the compliance filing, to update the approved O&M supplies

forecasts in Table 22 to use an inflation factor of 1.9 per cent for both 2019 and 2020.

........................................................................................................................ Paragraph 281

23. In its compliance filing, ATCO Pipelines is directed to revise its forecast revenue

requirements for 2019 and 2020 to reflect the Commission’s findings on the cost

categories noted above. ................................................................................. Paragraph 283

24. The Commission has reviewed the forecast A&G costs outlined in Table 23 and

associated calculations and finds that the forecasts are reasonable given the information

provided in Table 23. Accordingly, the Commission approves the forecast A&G costs,

subject to the Commission findings on the O&M supplies expense inflation adjustment

and shared services. Consistent with the direction on O&M supplies expense inflation in

Section 8.8, the Commission directs ATCO Pipelines to revise its forecast A&G costs

using the approved inflation adjustment of 1.9 per cent for both 2019 and 2020, for the

O&M supplies expense. The Commission further directs ATCO Pipelines to provide a

revised table in its compliance filing to this decision incorporating the changes directed to

be made herein. ............................................................................................. Paragraph 290

25. The Commission directs ATCO Pipelines to coordinate with ATCO Electric

Transmission to ensure that both utilities provide the same or substantially similar

information in the same format in support of the shared services in their next respective

GRA/GTA, preferably filing common documents wherever possible. The information

should include evidence supporting the functions created, justifying total FTEs and costs

before allocation to the participating ATCO companies (ATCO Pipelines and all other

regulated and non-regulated ATCO entities), and include any analysis, studies and

calculations that explain and support the reasonableness and accuracy of the allocation

methodologies. The Commission finds that it also would be beneficial to show all

calculations that demonstrate the split between O&M and capital under the shared

services initiative in the next GRA/GTA. This common information will allow for a

proper testing of the shared services and for the provision of company specific

information to support shared services costs included in the proposed revenue

requirements.. Accordingly, the Commission directs ATCO Pipelines to provide the

evidence, analyses, studies calculations noted above as well as any underlying

assumptions for the split between O&M and capital in its next GRA. ......... Paragraph 318

26. The Commission acknowledges that of the ATCO companies, ATCO Electric

Distribution and ATCO Gas are under performance-based regulation and are subject only

to minimum filing requirement schedules. However, further information about common

costs are required to support the costs allocated to ATCO Pipelines. As such, ATCO

Pipelines is directed, on a go-forward basis, to provide all cost-information for every


Decision 23793-D01-2019 (June 25, 2019) • 95

ATCO affiliate, comprising the total costs and supporting detail that substantiate and

justify the costs allocated to ATCO Pipelines as compared to the other regulated and non-

regulated ATCO companies under the shared services initiative. ................ Paragraph 319

27. As set out by the Commission in Decision 20514-D02-2019 and reproduced below,

ATCO Pipelines is directed to incorporate the adjustments to the IT disallowances on an

annual basis by capital, indirect capital and O&M, resulting from the MSA in a

compliance filing to this decision:

Similar to the IT and CC&B [customer care and billing] disallowance determined in

the Evergreen II decision and related compliance filings, ATCO Pipelines and ATCO

Electric Transmission will apply a first-year disallowance for 2015 and a glide path

reduction as set out in Section 6. ATCO Pipelines and ATCO Electric Transmission

are directed to file their compliance applications to this decision in the compliance

filings to their ongoing GRA/GTAs, clearly showing the directed IT disallowance on

an annual basis by capital, indirect capital and O&M. ...................... Paragraph 336

28. Upon receipt of the compliance filing to this decision, the Commission will evaluate the

approved rates multiplied by forecast IT volumes to determine the costs that will be

approved for inclusion in ATCO Pipelines’ revenue requirement. The IT costs for ATCO

Pipelines will then be finalized and included in the revenue requirement and rates. ATCO

Pipelines is directed to file Excel spreadsheets, with workable formulas, to support the

true-up of IT placeholder amounts arising from the calculation of forecast IT volumes

multiplied by the approved IT rates from Decision 20514-D02-2019. ...............................

........................................................................................................................ Paragraph 337

29. The Commission denies ATCO Pipelines’ request to use the average annual cost per IT

user instead of the current methodology for calculating IT costs because the Commission

finds that both volume information and rates are required to calculate IT costs properly.

However, the Commission sees some value in exploring a supporting metric in

combination with the existing practice requiring ATCO Pipelines’ to file schedules of IT

volumes. The Commission directs ATCO Pipelines to provide average annual cost per IT

user calculations as a metric to support forecast IT costs in its next GRA. .........................

........................................................................................................................ Paragraph 338

30. The Commission has reviewed ATCO Pipelines’ calculations of its deferral amounts and

approves the values listed in Table 29 above. The Commission accepts ATCO Pipelines’

proposal to include any differences in the deferral balances arising from December 31,

2018 actual amounts in its compliance filing. ATCO Pipelines is directed to provide a

table similar to Table 5.1-1 in its compliance filing showing any adjustment, if necessary,

to its deferral amounts. .................................................................................. Paragraph 356

31. The Commission has evaluated the request to discontinue this existing deferral account

based on the following established criteria from Decision 2003-100: materiality;

uncertainty in cost forecasts; factors beyond the utility’s control; and, risk to the utility,

while ensuring costs and benefits are symmetrically applied to the utility and customers.

The data provided in Table 36 shows that since 2014 the settlement amounts in this

deferral account have generally not been material. The Commission finds that this

account no longer meets the test for deferral account treatment because it no longer meets

the materiality criterion in the deferral account test from Decision 2003-100. For these

reasons, the Commission approves ATCO Pipelines’ request to discontinue the NGTL

deferral account and directs ATCO Pipelines to confirm the settlement of the account in

its compliance filing. ..................................................................................... Paragraph 387


96 • Decision 23793-D01-2019 (June 25, 2019)

32. With respect to paragraph 300 of Decision 2014-010, for the Urban Pipeline Replacement

Project, the Commission finds that ATCO Pipelines has complied with the Commission’s

direction to provide an update on the timing and cost of its UPR project by providing the

information found in Section 2.3.1 within its application. The Commission acknowledges

ATCO Pipelines’ commitment to continue to provide similar updates in the future on any

material UPR changes on an ongoing basis consistent with paragraph 300 of Decision

2014-010 and it is directed to provide this information in its future GRAs. .......................

........................................................................................................................ Paragraph 389

33. With respect to Direction 18, the Commission finds that ATCO Pipelines has complied

with the Commission’s direction to file all forecast IT volume data for the test period and

actual volumes from the previous test period. The Commission finds that ATCO

Pipelines provided the information requested in Direction 18 in its 2019-2020 GRA. The

Commission acknowledges ATCO Pipelines’ commitment to continue to provide similar

information in all future GRAs on an ongoing basis consistent with Direction 18 of

Decision 3577-D01-2016 and directs ATCO Pipelines to provide this information in its

future GRAs. ................................................................................................. Paragraph 390

34. With respect to Direction 22, where the Commission directed ATCO Pipelines to identify

and explain costs resulting from Surface Rights Board claims and whether the costs

should be recovered through the reserve for injuries and damages, the Commission

acknowledges ATCO Pipelines’ statement that there are no Surface Rights Board claims

to adjust for in the test period. The Commission further acknowledges ATCO Pipelines’

commitment to address Direction 22 at the time it makes its next application to recover

Surface Rights Board claims, legal, or other related costs. ATCO Pipelines is directed to

address Direction 22 of Decision 3577-D01-2016 in its future GRAs. ........ Paragraph 391

35. Given that the issue of head office rent was not tested in the current proceeding and that

the CCA later raised head office rent in argument, there was no opportunity for ATCO

Pipelines or interveners to test whether the head office rent that is allocated through the

corporate cost allocator for ATCO Pipelines will be affected by the Commission’s

findings in its decision in Proceeding 22742. In ATCO Electric Transmission’s 2018-

2019 GTA, currently before the Commission in Proceeding 22742, the recovery of

building costs and corporate costs through head office rent are before the Commission. It

is unknown at this time what, if any, impact that decision may have on head office rent

and corporate cost allocations. Accordingly, the Commission directs ATCO Pipelines to

file in its compliance filing, any information or evidence on how its corporate cost

allocator for head office rent may be affected by the Commission’s findings and

determinations issued in the decision on Proceeding 22742. ....................... Paragraph 418

36. ATCO Pipelines, a division of ATCO Gas and Pipelines Ltd., is directed to file a

compliance filing in accordance with the findings and directions in this decision, no later

than August 8, 2019. ................................................................................ Paragraph 419(1)


Decision 23793-D01-2019 (June 25, 2019) • 97

Appendix 3 – Detailed breakdown of capital expenditures (return to text)

Table 37. ATCO Pipelines’ forecast UPR expenditures

Description 2016 LTD

2017 Actual

2018 Estimate

2019 Forecast

2020 Forecast

Total Project

Edmonton ($000)

Northwest Edmonton Connector 27,895 0 0 0 0 27,895

Southwest Edmonton Connector

64,307 31,232 2,169 1,737 0 99,445

Northeast Edmonton Connector 2,059 9 426 7,665 3,652 13,810

South Edmonton Connector 0 365 14,500 6,132 0 20,997

East Calgary Connector 67,691 1,009 100 0 0 68,800

Southeast Calgary Connector 63,637 329 100 0 0 64,066

Northeast Calgary Connector 70,547 6,677 201 0 0 77,425

Peigan Trail Lateral 9,191 1,481 1,204 102 0 11,978

West Calgary Connector 14,754 67,904 8,394 1,124 0 92,176

Northwest Calgary Connector 23 451 7,000 45,735 34,166 87,375

Southwest Calgary Connector 996 35,775 38,900 767 0 76,437

Total UPR 321,100 145,232 72,994 63,262 37,818 640,404


Table 38. ATCO Pipelines’ forecast growth expenditures

Growth Expenditures 2017

Actual 2018

Estimate 2019

Forecast 2020

Forecast

($000)

Alberta System Upgrades

South Airdrie Lateral 0 696 1,166 0

Pembina (610mm) Expansion 28,602 991 0 0

Turin East Loop and Rural Gate 2 4,535 400 0 0

Inland (508mm) Looping 11,973 503 0 0

Sub-total Alberta System Upgrades 45,110 2,590 1,166 0

Industrial Delivery Customers

Pembina-Keephills Transmission 1,442 41,337 108,637 5,212

Redwater Co-Gen Delivery #2 0 1,065 0 0

Scotford PDH Lateral and Delivery 0 0 0 2,721

EEEP Control Facilities 0 1,470 599 0

Shepherd Energy Centre Delivery 294 444 0 0

Sub-total Industrial Delivery Customers 1,736 44,316 109,236 7,933

LDC Utilities

Stoney Trans and Stoney & Nose Creek Gates 0 6,177 2,285 0

Lloydminster Looping and Gate 3 639 1,628 0 0

Grande Prairie Gate 8 75 592 0 0

Sub-total LDC Utilities 714 8,337 2,285 0

Carryover 909 266 0 0

Sub-total Large Projects 48,469 55,509 112,688 7,933


98 • Decision 23793-D01-2019 (June 25, 2019)

Growth Expenditures 2017

Actual 2018

Estimate 2019

Forecast 2020

Forecast

General

System Upgrades, Industrials, Receipts and LDC 896 746 5,932 6,850

Moveable Equipment 1,190 158 480 177

Land and Structures 55 0 0 0

Subtotal General 2,141 904 6,412 7,027

Total Growth 50,610 56,413 119,100 14,960

Contributions (291) (1,938) (599) 0


Table 39. ATCO Pipelines’ forecast improvement and replacement expenditures

Improvement and Replacement Expenditures 2017 Actual 2018

Estimate 2019

Forecast 2020

Forecast

($000)

Pipelines

ILI Program 34,420 39,438 50,620 47,895

Lethbridge Urban Pipeline Upgrade 0 449 6,648 19,808

Viking #3 and Viking #4 – Upgrade for In-Line Inspection

0 2,772 6,577 3,096

Weld Assessment and Repair Program (WARP) (excl. reinspection costs)

4,795 2,992 5,972 6,091

Depth of Cover Improvements and Replacements 6,875 6,237 6,374 6,502

Hydrostatic Pressure Testing and MOP Verification 70 767 1,022 625

Program Worsley McLennan Loop 2,942 6,090 0 0

East Calgary Lateral-Class Location 0 4,520 0 0

Upgrade AltaLink Spruce Grove Substation 747 0 0 0

595S Alberta Utilities Commission Mitigation

Subtotal Pipelines 49,849 63,265 77,212 84,018

Facilities and Salt Cavern Gas Storage

RTU Replacement and Upgrade Program 5,770 4,996 5,565 5,681

Inland Bittern Lake 824 75 0 0

North Wabamun Control 870 0 0

Remote-Operated Valves Program 0 3,833 3,909

Pembina 8 Receipt 0 971 0

Viking Legal Uncas Control 0 0 797

Subtotal Facilities and Salt Cavern Gas Storage 6,593 5,940 10,369 10,388

Buildings and Other

Quality Control Initiatives 0 0 11,600 11,832

SCADA System Upgrade 100 875 0 0

APEC South Expansion 2,813 120 0 0

Carryover 692 24 0 0

Subtotal Buildings and Other 3,605 1,019 11,600 11,832

Subtotal Large Projects 60,047 70,224 99,181 106,237

General

Pipelines 6,040 6,427 6,233 6,493

Measurement and Regulating Stations 6,020 5,990 5,531 5,760

Compressor Stations 2,253 2,230 2,728 2,782


Decision 23793-D01-2019 (June 25, 2019) • 99

Improvement and Replacement Expenditures 2017 Actual 2018

Estimate 2019

Forecast 2020

Forecast

Salt Caverns 1,496 964 1,626 1,658

Cathodic Protection and Corrosion Control 1,062 548 625 638

Process Control 3,470 1,973 2,767 2,898

SCADA 1,046 725 1,563 1,069

Land & Structures 419 412 894 310

Moveable Equipment 1,803 2,354 1,286 1,231

Subtotal General 23,608 21,621 23,254 22,840

Total Improvements and Replacements 83,656 91,846 122,434 129,077

Contributions (845) (308) (105) (108)


Table 40. ATCO Pipelines’ forecast relocation expenditures

Relocation Expenditures 2017 Actual 2018

Estimate 2019 Forecast

2020 Forecast

($000)

Large Project

Pembina (406mm) and Bonnie Glen (323mm) at 66 Street NW

1,715 (11) 0 0

Hermit Lake Transmission (219mm) 361 2,567 0 0

Salt Cavern Storage (610mm) Transmission 2,542 0 0 0

Mainline South (323.9mm) and Loop Line (406mm) at 194 Ave SE

0 725 0 0

Nisku-Airport (114mm) Transmission Relocation 667 0 0 0

Viking 3 & 4 (406mm) Transmission Relocation 0 740 0 0

Nisku-Airport Transmission (114mm) Highway 19 Crossing Lowering

679 0 0 0

South West Calgary Ring Road (SWCRR) Relocation and Removal

1,413 12,017 0 0

Villeneuve Transmission (323mm) 0 1,546 0 0

Subtotal Large Projects 7,377 17,584 0 0

General Relocations

1,171 607 0 0

Sub-total General 1,171 607 0 0

3-year Average Forecast (2015-2017) 6,388 6,646

Total Relocations 8,548 18,190 6,388 6,646

Contributions (13,731) (13,722) (6,157) (6,280)


Table 41. ATCO Pipelines’ IT expenditures

IT Expenditures

2017 Actuals

2018 Estimate

2019 Forecast

2020 Forecast

($000)

IT Large Projects (>$500)

Oracle E-Business Upgrade 1,470 2,042 0 0

CBWS 0 0 546 1,067

GIS Replacement 0 1,280 0 0

MMS Upgrade and Migration 0 630 1,260 0

Subtotal Large Projects 1,470 3,952 1,806 1,067


100 • Decision 23793-D01-2019 (June 25, 2019)

IT Expenditures

2017 Actuals

2018 Estimate

2019 Forecast

2020 Forecast

IT Projects - General

Lifecycle Management

EPBCS 0 435 0 0

MARS Upgrade 0 225 92 73

General 0 343 51 42

Sub-total Lifecycle Management 0 1,003 143 115

Enhancements

GIS Enhancements 0 0 102 104

PIMS Enhancements 0 50 51 52

MARS Enhancements 68 0 0 0

General 213 264 51 53

Sub-total Enhancements 281 314 204 209

Enterprise Projects

General 627 296 396 299

Sub-total Enterprise Projects 627 296 396 299

TOTAL IT Projects 2,378 5,565 2,549 1,690


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