EPCOR Distribution & Transmission Inc. · transformers, distribution electrical switchgear,...

Decision 3206-D01-2015

EPCOR Distribution & Transmission Inc. Disposition of Substation Property February 25, 2015

Alberta Utilities Commission


EPCOR Distribution & Transmission Inc.

Disposition of Substation Property

Proceeding 3206

Application 1610546-1

February 25, 2015

Published by the:


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

Calgary, Alberta

T2P 3L8

Telephone: 403-592-8845

Fax: 403-592-4406

Website: www.auc.ab.ca

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

Decision 3206-D01-2015 (February 25, 2015) • i

Contents

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

2 Background ........................................................................................................................... 2

3 Legislation .............................................................................................................................. 5

4 Issues ...................................................................................................................................... 6 4.1 Ordinary retirement or extraordinary retirement............................................................ 6 4.2 Disposition of the asset and the ordinary course of the business ................................. 11 4.3 Assessment of harm ..................................................................................................... 18 4.4 Adjustment due to disposition ...................................................................................... 21

5 Order .................................................................................................................................... 23

Appendix 1 – Proceeding participants ...................................................................................... 25

Appendix 2 – Summary of Commission directions .................................................................. 26

List of tables

Table 1. EDTI – disposition of assets outside of ordinary course of business since the

Stores Block appeal ................................................................................................... 17

Decision 3206-D01-2015 (February 25, 2015) • 1


Calgary, Alberta


EPCOR Distribution & Transmission Inc. Proceeding 3206

Disposition of Substation Property Application 1610546-1

1 Introduction

1. On May 5, 2014, EPCOR Distribution & Transmission Inc. (EPCOR or EDTI) filed an

application with the Alberta Utilities Commission (AUC or Commission) requesting approval to

dispose of a distribution substation property, which included the land and a substation building,

Substation No. 250 (substation), located at 9724 - 118 Avenue Northwest, Edmonton, Alberta.

EDTI submitted that the disposition was outside the ordinary course of business of the utility and

accordingly required the approval of the Commission pursuant to Section 101(2)(d) of the Public

Utilities Act, RSA 2000, c. P-45.

2. On May 7, 2014, the Commission issued a notice of application that required interested

parties to submit a statement of intent to participate (SIP) by May 21, 2014. In their SIPs, parties

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

position, the need for further process and the supporting rationale.

3. The Commission received SIPs from the Consumers’ Coalition of Alberta (CCA) and

AltaLink Management Ltd. (AML). In its SIP, the CCA requested the opportunity to test the

application with a process involving information requests, argument and reply argument. In its

SIP, AML indicated that it would choose to participate in the proceeding if certain issues became

material in nature. ATCO Electric Ltd. also registered as a participant in this proceeding, but it

did not file a SIP.

4. The Commission determined that the application would be considered by way of a

minimal written process described in Bulletin 2010-161 and issued the following schedule on

May 28, 2014.

Process step Deadline

Information requests to EDTI June 11, 2014

Information responses from EDTI June 25, 2014

Argument July 9, 2014

Reply argument July 23, 2014

5. On July 8, 2014, the Commission received a letter from EDTI requesting approval for an

extension to the deadline for filing argument and reply argument in order to allow for the filing

of a Phase II Environmental Assessment report for the substation property in response to a

Commission information request. In a July 9, 2014 letter, the Commission granted the extension

1 Bulletin 2010-16, Performance Standards for Processing Rate-Related Application, April 26, 2010.

http://www.auc.ab.ca/news-room/bulletins/Bulletins/2010/Bulletin%202010-16.pdf

Disposition of Substation Property EPCOR Distribution & Transmission Inc.

2 • Decision 3206-D01-2015 (February 25, 2015)

request and set the dates for filing argument and reply argument as July 16, 2014 and August 1,

2014, respectively.

6. After reviewing the record of the proceeding, the Commission determined that additional

information was required from EDTI. In a September 12, 2014 letter, the Commission reopened

the record and issued a supplemental round of information requests to EDTI, with a deadline for

responses of September 26, 2014. Parties were requested to provide submissions on the need for

additional argument and reply argument by September 19, 2014, and if no submissions were

received, the Commission would consider the close of record to be September 26, 2014.

7. On September 19, 2014, the Commission received a letter from the CCA indicating that

the CCA could not comment on the need for any additional process, including the need for

additional argument and reply argument, until it had the opportunity to review the supplemental

round of information responses submitted by EDTI.

8. On October 17, 2014, the Commission determined that after review of the information

responses from EDTI, that it required additional information and clarification from EDTI and the

CCA. The Commission issued a third round of information requests to both EDTI and the CCA,

with a deadline for responses of October 31, 2014. The Commission also established a

supplemental round of argument and reply argument to be provided from both parties, to be

submitted by November 14, 2014 and November 28, 2014, respectively. The Commission

considers the record for this proceeding to have closed on November 28, 2014.

9. In reaching the determinations set out in this decision the Commission has considered all

relevant materials comprising the record of this proceeding. 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 this matter.

2 Background

10. In the application, EDTI is requesting approval to dispose of a substation building, the

land on which the substation is located (and the remaining substation assets including

transformers, distribution electrical switchgear, protective relaying, and communications and

supervisory control and data acquisition (SCADA) equipment (collectively, the substation

electrical assets). The substation building and land upon which the substation building is located

are collectively referred to as the substation property. The substation electrical assets, the

substation building and the land are collectively referred to as the substation assets.

11. The bi-level substation housing five-kilovolt (kV) distribution feeders was built in 1957

and from 1957 to 2000, the substation was used by Edmonton Power Inc. The substation was

transferred to EPCOR Distribution Inc. the predecessor company of EDTI, on December 28,

2000. EDTI stated that the substation remained in service until 2012. The building has a footprint

of 1,748 square feet of main floor space, and an additional basement footprint of 1,748 square

feet beneath the main floor. Located on the east-side of the substation building are two

distribution substation (15/five kV) power transformers.

12. In 2012, EDTI commenced a program to convert the five-kV distribution feeders to

15-kV distribution feeders supplied through either EDTI’s Namao or Victoria substations, and



the program was completed in 2013. As a result, EDTI decommissioned the five-kV feeders at

the substation when they were merged into a nearby 15-kV circuit, and the substation was no

longer required for distribution electricity service in 2012. In AUC-EDTI-05,2 EDTI indicated

that the decommissioning process was planned in two stages. The first stage involved the

decommissioning of the five-kV feeders, while the second stage was to decommission the

substation building and land. EDTI estimated a total cost of $125,000 to decommission the

substation, which would be an operating cost to EDTI not paid by ratepayers. EDTI stated that

the substation building was not decommissioned at the same time as the five-kV feeders because

“the overall 5kV conversion project required a significant amount of work and certain portions

need to be scheduled around other higher priority work.”3 EDTI stated that service from the

substation is no longer required and the property otherwise plays no role in the provision of safe

and reliable service to ratepayers.4

13. In the application, EDTI indicated that it would undertake a “one off” project in 2014 to

decommission the remaining infrastructure located at the substation. EDTI explained that the

scope of this work would include the decommissioning and removal from service of EDTI’s

remaining substation electrical assets installed at the substation. This project would take

approximately three months to complete and would be scheduled pending Commission approval

of the disposition.

14. EDTI retained Gettel Appraisals Ltd. (Gettel) to perform land and building valuations for

the substation property for the future sale of the property. EDTI stated that it would sell the

substation property within the price range of $365,000 to $400,000, the estimated fair market

value, as determined by Gettel. In addition, the sale would also be conditional upon an

environmental assessment indicating that there are no environmental issues related to the lot,

thus insulating ratepayers from potential remediation costs.5

15. The substation property is recorded as a distribution asset in EDTI’s rate base. EDTI

provided its accounting records, and calculated the 2014 mid-year net book value of the

substation building in the amount of $103,092 using the direct life method (DLM) approach of

depreciation as of December 31, 2014, and the rate base value of the land as $1,492.6 EDTI

stated that the DLM approach only recognizes half a year of depreciation in the year of an

addition or a removal of an asset. The only asset that is not fully depreciated is the substation

building, including capital additions to the building. EDTI stated that the net book value of the

substation building was not removed from rate base during 2014 and depreciation continued to

be charged.7 EDTI stated that its DLM method uses a square-curve amortization approach for all

property classes. Therefore, all assets decommissioned as part of this project, including the

substation building, were depreciated using a square-curve method.8

16. With respect to the substation electrical assets, EDTI stated that the “redundant”

transformers, distribution electrical switchgear, protective relaying and communications and

SCADA equipment are no longer required to provide service to customers, as the load previously

2 Exhibit 11.01.

3 Exhibit 11.01, AUC-EDTI-05.

4 Exhibit 1, application, paragraph 13.


6 Exhibit 11.01, Table AUC-EDTI-01-1.

7 Exhibit 11.01, AUC-EDTI-01(a).

8 Exhibit 23.01, AUC-EDTI-07(c).



handled by the substation had been transferred to the 15-kV distribution system. EDTI confirmed

that, “… none of these [substation electrical assets] have been decommissioned. They are not

being used but the electrical equipment is still energized.”9

17. EDTI explained that it was not able to identify the original investment relating to the

substation electrical assets that it will decommission as part of this project. Therefore, it is not

able to calculate the accumulated depreciation for each of these assets at the time it

decommissions these assets. However, although the substation building has not been fully

depreciated, EDTI confirmed that the substation electrical assets have been fully depreciated and

retired from EDTI’s accounting records based on each assets type’s average service lives

consistent with the DLM approach. The average service life (in years) and the year of retirement

for each type of substation electrical asset were provided in response to AUC-EDTI-10.10

18. In assessing any harm to its ratepayers, EDTI stated that the proposed disposition of the

substation property will have no adverse effect on the quality and quantity of the service being

offered to ratepayers, and it will not create additional operating costs for the future. The

proposed disposition will also not a cause a break in the continuity of safe and reliable service to

ratepayers. The distribution feeders originating from the substation have been decommissioned

and as a result, electricity service from this substation is no longer required.11

19. The proposed disposition will lead to a small reduction in the costs currently borne by

ratepayers because the book value of the land ($1,492), and the remaining book value of the

substation building ($103,092) will be removed from EDTI’s distribution rate base. EDTI

confirmed that ratepayers will not be harmed by the disposition because service will not be

impacted and EDTI will pay the transaction costs arising from the disposition, such as the

$125,000 operating costs to decommission the substation, land appraisal fees, land agent fees and

legal fees, as all transaction costs will be netted against the proceeds from the property sale.12

EDTI stated that it would likely sell any equipment that is salvaged through the

decommissioning (such as old transformers) for scrap at an insignificant value expected to be

$2,750.13

20. EDTI proposed to remove the property from its revenue and rates at the time of a cost-of-

service rebasing at the end of the performance-based regulation (PBR) term in 2018. EDTI also

stated that if the sale and disposition of the property occurs prior to 2018, then the adjustment to

PBR revenue for the sale will still occur in the 2018 rebasing, and not during the current PBR

term.

21. In the rebasing application, EDTI stated that it would credit customers for the

accumulated depreciation relating to the substation building. The accumulated depreciation for

the substation building would be in the amount of $21,327, as of December 31, 2014,14 if the

disposition is approved by the Commission and the asset was disposed in 2014, which would

effectively pay customers back for their contribution to the facility. EDTI would then reduce its

rate base by the net book value of the substation building by removing the original cost to EDTI

9 Exhibit 23.01, AUC-EDTI-07(d).

10 Exhibit 28.01, AUC-EDTI-10.

11 Exhibit 1, application, paragraphs 12-13.


13 Exhibit 23.01, AUC-EDTI-07(a).

14 Exhibit 11.01, Table AUC-EDTI-01-1.



from its predecessor and accumulated depreciation for the facility at the date that the property is

sold. EDTI will include any difference between the amount received from the sale of land, less

agent commissions and other costs incidental to the sale of the substation property, the original

cost of the building ($123,188) and the land ($1,492), in Account 922, Gains and Losses from

disposition of utility facility.15 The recording of the original cost of the land and the building in

Account 922 would result in the expected gain being to the account of the shareholder and not to

customers.

3 Legislation

22. As a designated owner of a public utility pursuant to Section 101(1) of the Public

Utilities Act and its regulation, EDTI is subject to Section 101(2) of the Public Utilities Act,

which states:

101(1) The Lieutenant Governor in Council may by regulation designate those owners of

public utilities to which this section and section 102 apply.

(2) No owner of a public utility designated under subsection (1) shall

…

(d) without the approval of the Commission,

(i) sell, lease, mortgage or otherwise dispose of or encumber its

property, franchises, privileges or rights, or any part of them, or

(ii) merge or consolidate its property, franchises, privileges or rights,

or any part of them,

and a sale, lease, mortgage, disposition, encumbrance, merger or

consolidation made in contravention of this clause is void, but nothing in

this clause shall be construed to prevent in any way the sale, lease,

mortgage, disposition, encumbrance, merger or consolidation of any of

the property of an owner of a public utility designated under subsection

(1) in the ordinary course of the owner’s business.

23. EDTI was deemed subject to the Public Utilities Designation Regulation, AR 194/2006

as if it had been designated under that regulation.16 Accordingly, Section 101(2)(d) applies to

EDTI.

15

Exhibit 11.01, AUC-EDTI-04. 16

The designated public utilities under the Public Utilities Designation Regulation, to which sections 101 and 102

of the Public Utilities Act apply, include in Section 1(1)(n) EPCOR Distribution Inc. and in Section 1(1)(o)

EPCOR Transmission Inc. In Decision 2006-134 for EPCOR Utilities Holdings Inc., EPCOR Distribution Inc.,

EPCOR Transmission Inc., Amalgamation and Related Tariff Amendments, Application 1487073,

December 22, 2006, the Alberta Energy and Utilities Board ordered: “EDTI is deemed to be subject to sections

101, 102 and 109 of the PUBA [Public Utilities Board Act, RSA 2000 c. P-45] following the completion of the

transaction and until such time as EDTI may be designated a “public utility” under the PUD Regulation [Public

Utilities Designation Regulation, AR 194/2006].”

http://www.auc.ab.ca/applications/decisions/Decisions/2006/2006-134.pdf



4 Issues

4.1 Ordinary retirement or extraordinary retirement

24. EDTI indicated that the substation assets were no longer required for electric distribution

service effective upon the decommissioning of the five-kV feeders at the substation, and merger

into a nearby 15-kV circuit in 2012. EDTI stated that the remaining electrical assets and

substation building were not decommissioned at the same time as the five-kV feeders because

“the overall 5kV conversion project required a significant amount of work and certain portions

need to be scheduled around other higher priority work.”17 The application for the sale and

disposition of the substation property was filed in May 2014.

25. Although the substation electrical assets were fully depreciated at the time they ceased to

be used for electric distribution service, capital additions to the building had not been fully

depreciated and depreciation expense continues to be included in customer rates. A preliminary

issue for the Commission to determine is the proper accounting treatment in respect of the

undepreciated capital costs of the capital additions to the substation building, between the time

that the substation assets ceased to be used for electric distribution service and the time of the

final decommissioning, salvage or disposition of those assets and the substation building in

accordance with the application.

26. In a series of information requests the Commission referred to the Uniform System of

Accounts (USA),18 to Decision 2013-417,19 the Utility Asset Disposition (UAD) decision and to

the discussion in that decision with respect to “ordinary retirements” and “extraordinary

retirements” and the consequent responsibility for unrecovered capital costs at the time of an

asset’s retirement.20

27. The Commission asked EDTI to explain the retirement of the substation building and the

substation electrical assets and whether the decommissioning of the five-kV feeders at the

substation and merger into a nearby 15-kV circuit in 2013, which resulted in the building no

longer being required for distribution utility service in 2012, constituted an ordinary or an

extraordinary retirement. EDTI stated in response:

… the substation assets (with the exception of the land and building) were fully

depreciated and retired from EDTI’s accounting records at the end of their average

service life in line with EDTI’s DLM [direct life method] practice. The retirement of the

substation land and building is not an ‘extraordinary item’ as that term is used in the

USA. More specifically, it depends “primarily on decisions or determinations by

management or owners” as set out in the CIAC [sic] [Canadian Institute of Chartered

Accountants (CICA)] Handbook Section 3480, which is referenced in Item 7 on page 5 of

the USA General Instructions.21

28. In a supplemental information request, EDTI was asked to provide additional information

on the reasoning as to why the retirement of the land and substation building was not an

17


Bulletin 2006-25, Announcing the Approval in Principle of the Form and Content of a Uniform System of

Accounts and Minimum Filing Requirements for Alberta Electric Utilities, July 12, 2006. 19

Decision 2013-417: Utility Asset Disposition, Proceeding 20, Application 1566373, November 26, 2013. 20

Decision 2013-417, see in particular paragraphs 302-305. 21

Exhibit 23.01, AUC-EDTI-07(f).


http://www.auc.ab.ca/news-room/bulletins/Bulletins/2006/Bulletin%202006-25.pdf



“extraordinary item,” based on the CICA Handbook Section 3480, Item 2 on page 4 of the USA

General Instructions, which stated the following:

02 Extraordinary items are items which result from transactions or events that have all

of the following characteristics:

(a) they are not expected to occur frequently over several years;

(b) they do not typify the normal business activities of the entity; and

(c) they do not depend primarily on decisions or determinations by management or

owners.”22

29. In response to the Commission’s information request, EDTI stated that the retirement of

the substation land and building meet characteristics (a) and (b), but did not meet characteristic

(c), as used in the USA General Instructions and defined by Section 3480 of the CICA

Handbook. EDTI indicated that retirement of the substation land and building does depend

“primarily on decisions or determinations by management or owners.” As a result, the retirement

of the substation land and building do not meet all of the required characteristics, and is therefore

not an “extraordinary item.”23

30. EDTI stated that when originally installed, the five-kV voltage service provided by the

substation was a standard voltage. However, the five-kV voltage service is now a non-standard

voltage within EDTI’s service area, and all new circuits are now constructed either at 15 kV or

25 kV. EDTI indicated that its customers were converted from the five-kV distribution feeders

from the substation to 15-kV distribution feeders from other existing substations because

replacing the existing five-kV equipment with 15-kV equipment at the same substation would

not be practical given space constraints and the potential for significant outages.24

31. EDTI also noted that the average age of its five-kV substations is 58 years. As a result,

most of the equipment in these substations is obsolete and is no longer being supported by the

manufacturer. The five-kV system is also becoming increasingly difficult to maintain

economically. If it were to retain the five-kV system, EDTI would be required to maintain a third

distribution voltage within its system, which would require a variety of different types of

infrastructure assets such as insulators to be held in stock. There has also been load growth

within its service area. Increasing the voltage level of the distribution primary feeder from

five kV to 15 kV allows for greater capacity using less current, less voltage drop and decreased

line losses.25

32. EDTI confirmed that the substation electrical assets were fully depreciated and were

retired from the accounting records at the end of their average service lives in accordance with

the DLM approach whether or not they were physically decommissioned at the same time. EDTI

further noted that it does not track [these] individual assets in its accounting records, and that the

total asset additions for a given year in a category are retired at mid-year in the year in which

their service life expires.26

22

CICA Handbook Section 3480, Item 2, page 4. 23

Exhibit 28.01, AUC-EDTI-09(a). 24

Exhibit 28.01, AUC-EDTI-09(e) and (f). 25

Exhibit 28.01, AUC-EDTI-09(e) and (g). 26

Exhibit 28.01, AUC-EDTI-10.



33. When asked by the Commission if the substation became no longer required for utility

service as the result of causes that were or were not reasonably assumed to have been anticipated

or contemplated in prior depreciation or amortization provisions, EDTI indicated the following:

… EDTI decommissioned the 5kV feeders in 2012 when they were merged into a nearby

15kV circuit. At this time, the substation electrical equipment assets were already fully

depreciated. As these assets were installed 57 years ago, EDTI no longer has historical

records (including depreciation studies) going back far enough to confirm whether causes

such as this were ever anticipated or contemplated in prior depreciation or amortization

provisions. Further, causes such as this were not mentioned in EDTI’s 2003 depreciation

study included in Appendix O of EPCOR Distribution Inc.’s 2004 Distribution Tariff

Application.27

34. Finally, EDTI submitted that the terms “ordinary retirement” and “extraordinary

retirement” are not relevant to electric utilities, as these terms are reserved for gas utilities under

the Uniform Classification of Accounts for Gas Utilities Regulation, AR 546/1963.28

35. No submissions were provided by the CCA on this issue.

Commission findings

36. The Commission does not consider it necessary to determine if the decommissioning of

the five-kV feeders or the remaining electrical equipment and substation building constitute

either an ordinary retirement or an extraordinary retirement given:

(a) EDTI’s expressed intention at the time it decommissioned the five-kV feeders to also

decommission the remaining electrical equipment and the substation building when other

service priorities would allow, and

(b) the Commission’s findings in Section 4.2 below that the proposed disposition of the

substation building and land constitutes a disposition outside of the ordinary course of

EDTI’s business with all costs of disposition and all proceeds or losses accruing to the EDTI

shareholder.

37. The determination of ordinary or extraordinary retirement is relevant to the question of

accountability for any unrecovered net book value of an asset at the time of retirement. However,

where the intention is expressed to dispose of the asset at the time that the asset ceases to be used

for electric distribution service and the planned disposition is outside of the ordinary course of

business of the utility, the nature of the retirement is generally moot. If the time period between

the time that an asset ceases to be used for electric distribution service and the time that the asset

is disposed of, is unreasonable or material in the circumstances, the Commission may be required

to consider the asset to have retired at the time it ceased to be used for utility operational

purposes and it may be required to consider whether that retirement was ordinary or

extraordinary. This will be the case in circumstances where ratepayers continue to pay

depreciation expense in respect of the asset that is no longer required for utility purposes and is

intended for salvage or disposition. The time period between when the substation ceased to

provide electric distribution service and the anticipated time of disposing of the substation

property is discussed further below.

27

Exhibit 28.01, AUC-EDTI-09(e) and (g). 28

Exhibit 29.01, supplemental EDTI argument, paragraph 9.



38. In support of the above findings, the Commission refers to the following EDTI evidence

which provide the reasons for decommissioning the substation in a two-stage process: the

intention to dispose of the substation building made at the time that the five-kV feeders were

decommissioned, the reasons why undepreciated capital costs on the building had not been fully

recovered at the time that the five-kV feeders were decommissioned and the efforts taken to

complete the two-stage decommissioning and asset disposition process:

The substation was built in 1957.

The average age of a five-kV substation is 58 years.

The five-kV voltage service is now a non-standard voltage within EDTI’s service area,

and all new circuits are now constructed at either 15 kV or 25 kV.

Replacing the existing five-kV equipment with 15-kV equipment at the same substation

would not be practical, given factors such as space constraints and the potential for

significant outages to customers as the old five-kV equipment is removed and new 15-kV

equipment is installed.

Most of the equipment in the substation is obsolete and is no longer being supported by

the manufacturer, making the five-kV system increasingly difficult to maintain. If EDTI

were to retain the five-kV system, it would be required to maintain a third distribution

voltage with its system. This would also require a variety of types of infrastructure assets

such as insulators to be held in stock.

In 2012, EDTI commenced a program to convert its remaining five-kV distribution

feeders to 15-kV distribution feeders shortly after the filing of its 2012 Phase I and II

Distribution Tariff and its 2012 Transmission Facility Owner Tariff application

(Proceeding 1596, Application 1607944,) on November 30, 2011.

In AUC-EDTI-05, EDTI indicated that the decommissioning process was planned in two

stages. The first stage involved decommissioning the five-kV feeders, while the second

stage was to decommission the substation building and property. EDTI estimated a total

cost of $125,000 to decommission the substation, which would be an operating cost to

EDTI not paid by ratepayers. EDTI stated that the substation building was not

decommissioned at the same time as the five-kV feeders because, “the overall 5kV

conversion project required a significant amount of work and certain portions need to be

scheduled around other higher priority work.” 29

EDTI indicated that while the electrical distribution assets were fully depreciated, the net

book value of the building was $101,860 and accumulated depreciation of the substation

building was $21,327, as of December 31, 2014.30 The direct life method of depreciation

used by EDTI, retires assets from service at the end of the average service life approved

as part of the depreciation study or review, regardless of whether they ceased to be used

prior to, or continue to be used after, the end of the average service life. As a result, while

it appears that that substation building was retired from the accounting records at the end

29


Exhibit 11.01, Table AUC-EDTI-01-1.



of its estimated 50 year service life, there remains historical costs being recovered

through EDTI’s direct life method that are related to 1996 to 2007 maintenance capital

additions to the building which have resulted in the recovery of accumulated depreciation

related to the building in rates. The fact that the capital additions to substation building

were not fully depreciated at the time that it ceased to be used for electric distribution

service appears to be the result of this depreciation methodology.

39. While the Commission has determined that in the circumstances of the present

proceeding that it need not determine if the decommissioning of the five-kV feeders or the

subsequent retirement of the remaining electrical assets and substation building constituted an

ordinary or an extraordinary retirement, the Commission remains concerned with respect to the

timing of the disposition process for the substation. The length of time between when the

substation ceased to provide electric distribution services in 2012 and the application to dispose

of the substation building in May 2014 serves to emphasis that it is incumbent on EDTI to act

promptly in removing assets from rate base that are no longer required to be used for electricity

service, so as not to prejudice ratepayers. Once an asset is no longer required for utility purposes,

the utility must act expeditiously in taking prudent steps to salvage or to sell the asset in order to

mitigate depreciation costs and/or return and taxes paid by ratepayers.

40. Regardless of whether a retirement would be considered as an ordinary retirement or as

an extraordinary retirement, or whether a disposition is within or outside of the ordinary course

of business, when an asset ceases to provide utility services, it should be retired and salvaged or

otherwise disposed of within a reasonable period of time in order to mitigate depreciation costs

and/or return and taxes included in rates. As noted by the Alberta Court of Appeal in Atco Gas

and Pipelines Ltd v. Alberta (Utilities Commission) 2014 ACA 28 (Salt Caverns II decision):

65. In summary:

1. Assets not being used or required to be used for utility service are not to be

included in the rate base; and

2. a utility has the responsibility to withdraw assets from the rate base once the

assets are no longer used or required to be, and no Commission approval is

required. Such removal is, of course, subject to a prudency review by the

Commission.

41. Should assets not be retired, salvaged or disposed of, within a reasonable period after

they cease to be used in providing utility service, the Commission may disallow depreciation

costs and/or return and taxes that would otherwise not have been collected from ratepayers had

the assets been retired, salvaged or disposed of within a reasonable time period.

42. EDTI had the obligation to take reasonable measures to salvage or otherwise dispose of

the substation building upon the decommissioning of the five-kV feeders in order to mitigate the

impact to ratepayers of the remaining depreciation expense, return and taxes in respect of the

capital additions made to the building. Although the Commission remains concerned with the

period of time that elapsed subsequent to the decommissioning of the five-kV feeders until EDTI

proceeded with steps to decommission the building, the Commission is prepared, given the

unique circumstances of this case, to accept EDTI’s explanation with respect to why it did not

undertake the “one off” project to decommission the building and equipment sooner. EDTI

indicated that its management made the decision to delay the decommissioning work required for

the substation building because the overall five-kV conversion project required a significant



amount of work and certain portions needed to be scheduled around other higher priority work.

The Commission also accepts that the decommissioning delay had no impact on customers with

respect to quality and quantity of service. It also did not have a significant impact on customer

costs given the minimal impact of the accumulated depreciation collected from customers in

2012 and 2013. For these reasons, the Commission will not disallow the recovery of depreciation

expense associated with the substation building capital additions after the asset ceased to provide

electric distribution service.

4.2 Disposition of the asset and the ordinary course of the business

43. EDTI has indicated that its proposed disposition of the substation property is outside the

ordinary course of business and therefore requires the prior consent of the Commission pursuant

to Section 101(2)(d) of the Public Utilities Act. The CCA stated that the disposition is within the

ordinary course of business.

44. EDTI stated that the determination of whether a gain is recorded on the building

retirement and disposition is based on whether the disposition is classified as being within or

outside the ordinary course of business. If the disposition is within the ordinary course of

business, no gain would be recorded. If the disposition is outside the ordinary course of business,

a gain would be recorded on the account of the shareholder. If the building retirement and

disposition was classified as being within the ordinary course of business, EDTI would account

for the disposition in a manner such that no gain would be recorded by crediting the value of the

proceeds of the building (less disposal costs) to the asset account in which the cost of the

building was originally recorded.31

45. EDTI submitted that the relevant criteria in determining whether a disposition is outside a

utility’s ordinary course of business were clarified in Decision 2013-417, the UAD decision.

Rather than requiring a utility to consider the ten items previously delineated in Decision

2011-450,32 the Commission determined in that decision that a utility only needs to regard the

criteria previously articulated in the Alberta Energy and Utilities Board’s (the board) Order

U2001-196.33 That order confirmed that consideration of proceeds of disposition or quantum,

materiality, net book value, frequency and type of sale are the relevant factors for an assessment

of whether a disposition is within or outside the ordinary course of business. In that decision, the

board stated the following:

… The Board confirms that it must first determine whether the disposition of an asset is

outside the ordinary course of business for a utility. The proceeds of disposition, NBV,

frequency and type of sale would be among the factors considered by the Board in that

determination. The quantum, and materiality (in relation to the total rate base) of the

proceeds of disposition and the NBV would all be considered. For example in this case,

the NBV of $2,163,801 would be at the bottom end of the range of dispositions the Board

would consider as outside the ordinary course of business. With respect to the frequency

and type of sale the Board does not agree with NGTL that acquiring and divesting

regional service centres, maintenance facilities, and field offices are necessarily in the

ordinary course of NGTL’s business. The Board considers that NGTL’s ordinary

31

Exhibit 28.01, AUC-EDTI-09(h). 32

Decision 2011-450: ATCO Gas (a Division of ATCO Gas and Pipelines Ltd.), 2011-2012 General Rate

Application Phase I, Proceeding 969, Application 1606822, December 5, 2011. 33

Order U2001-196: In the Matter of the Sale of the Athabasca Maintenance Facility Application 2001112,

File 6417-04, August 3, 2001.


http://www.auc.ab.ca/applications/orders/utility-orders/Utility%20Orders/2001/U2001-196.pdf



business is the owning and operating of a pipeline, not the acquiring and divesting of real

estate.34

46. In its supplemental argument, EDTI stated that the disposition of the substation land and

building is outside the ordinary course of its business, and any gain on the disposition is for the

account of the utility. EDTI stated that the factors it identified are generally consistent with the

factors described in Decision 2011-450, as being relevant to determine that the disposition is

outside the ordinary course of business.

47. In a series of information requests, the Commission asked EDTI and the CCA for the

criteria or considerations that should be employed in determining whether the disposition of the

substation property is within or outside the ordinary course of the business. EDTI was asked to

identify factors such as: the frequency and type of disposition, materiality of the proceeds of

disposition in relation to the total rate base, net book value, whether the disposition is a normal

business activity of EDTI, whether the disposition depends primarily on a decision of

management, whether the functionality of the asset being disposed has been relocated, or any

other factors that were considered by EDTI in determining whether a disposition would be in, or

outside, the ordinary course of business. EDTI provided the following responses in respect of

each of the requested factors:

Materiality – EDTI explained that the estimated proceeds of the disposition is

approximately $370,000 to $400,000, and is material. This assessment of materiality is

based on the Commission’s other previous approved dispositions as outside the ordinary

course of business. In this case, EDTI stated that it considers the proceeds of a sale

amount to be material if it is greater than $500,000. Lastly, EDTI’s previous four

dispositions, approved by the Commission, were considered to be outside the ordinary

course of business.

Relocation of the functionality of the asset – EDTI explained that no portion of the

functionality of the land or the building has been relocated to an existing facility or will

be relocated to a new facility.

Frequency and type of asset dispositions – EDTI stated that the disposition of this type of

asset occurs infrequently (less than once per year over 2011 to 2013).

Market value – EDTI stated that the anticipated proceeds are expected to be consistent

with the market value assessment provided by Gettel. EDTI stated that it expects to

dispose of the building for an amount within the fair market value range contained in the

assessment.35

48. EDTI stated that it “acknowledges that the anticipated proceeds from this disposition will

be just below the materiality threshold of $0.5 million suggested in EDTI’s response to AUC-

EDTI-08 (d). However, given the infrequency and type of this transaction, along with the fact

that the assets will not be relocated, EDTI submitted that this disposition should be categorized

as falling outside the ordinary course of business.”36 In addition, acquiring and divesting property

34

UAD Decision 2013-417, paragraph 72. 35

Exhibit 28.01, AUC-EDTI-08 and Exhibit 29.01, EDTI supplemental argument, paragraph 3. 36

Exhibit 29.01, EDTI supplemental argument, paragraph 6.



is occasionally incidental to EDTI’s operations but its ordinary business is the ownership and

operation of distribution and transmission facilities.

49. In response to the Commission’s information request, the CCA made the argument that

the proposed disposition was within the ordinary course of business, and that the proceeds should

be retained by EDTI for customers and applied to utility service. The CCA indicated that

Decision 2011-450 established $1.5 million as the threshold for ATCO Gas. The ATCO Gas

threshold and the guidelines for a threshold was affirmed in the UAD decision and the

Commission indicated that other utilities could apply for monetary threshold guidelines to

determine if a transaction is within or outside the ordinary course of business. However, EDTI

did not apply for such a threshold in this proceeding, and did not provide its rationale for how the

$500,000 threshold amount was selected in this application.37

50. In its supplemental reply argument, the CCA proposed that EDTI’s threshold should be

$500,000 or $750,000, based on ATCO Gas’s mid-year rate base of $1.86 billion as compared to

EDTI’s mid-year rate base of $906 million or roughly 50 per cent of ATCO Gas’s rate base.

Therefore, EDTI’s threshold should be 50 per cent of ATCO Gas’s threshold established in

Decision 2013- 417, which is $750,000.

51. The CCA stated that EDTI also failed to pass its own very low materiality threshold,

therefore, the transaction does not appear to be outside the ordinary course of business.

52. In regard to the frequency criterion, the CCA indicated that frequency helps to provide

assistance where there are multiple transactions over a short period of time which would suggest

that the transaction is within the ordinary course of business, however the opposite is not

necessarily true. The CCA stated that infrequent transactions do not necessarily mean that the

transaction is outside of the ordinary course of business. The CCA noted that EDTI had four

sales in approximately eight years, however little weight should be attached to the frequency

measure.38

53. The CCA proposed that an additional criterion be added to the factors outlined in

Decision 2011-450, and the Commission should consider the reason for the disposition. The

CCA added that the disposition should depend primarily on a management decision, and that this

disposition appears to be a management decision in determining when to decommission the

facility. However, if management’s determination does not otherwise fit the rest of the criteria,

then the disposition cannot be considered outside the ordinary course of business. Since the

disposition amount did not exceed the materiality threshold, a management’s decision or

determination would be irrelevant in this proceeding. Therefore, the disposition of the assets

related to five-kV voltage service would be inside the ordinary course of business.39

54. In response to the CCA, EDTI stated that although materiality is a relevant consideration,

the $1.5 million threshold does not apply to EDTI because this threshold was established for

ATCO Gas. EDTI stated that the Commission should give little weight to the CCA’s reasoning

that the frequency criterion is inconsistent with Decision 2013-417, because the decision

specifically confirms frequency as a factor relevant to the determination of whether a transaction

37

Exhibit 31.01, CCA supplemental reply argument, paragraphs 4-13. 38

Exhibit 31.01, CCA supplemental reply argument, paragraphs 10-13. 39

Exhibit 30.01, CCA supplemental argument, paragraphs 24-27.



is outside the ordinary course of business. EDTI stated that transactions similar to the proposed

disposition occur very rarely, at a rate of less than once a year. Therefore, frequency is a key

consideration to assessing whether the sale of property is outside its ordinary course of business.

In addition, EDTI’s ordinary business is the ownership and operation of distribution and

transmission facilities not the acquisition and sale of property.40

Commission findings

55. Section 101(2)(d) of the Public Utilities Act as it has been determined to apply by the

Commission to EDTI, prevents a designated owner of a public utility from disposing of assets

outside the ordinary course of business without first obtaining the prior consent of the

Commission. Any disposition without such prior consent is void.

56. In the application, EDTI proposed to remove the substation building and land from its

rate base through a sale to a third party at fair market value pursuant to a transaction that has yet

to be determined.

57. The Commission must determine whether the disposition of the substation property is

within, or outside, the ordinary course of EDTI’s business. The term “ordinary course of

business” has existed in law for many years, and as noted by the Supreme Court in ATCO Gas &

Pipelines Ltd. v. Alberta (Energy & Utilities Board), 2006 SCC 4 (Stores Block), the

Commission’s predecessors, determined the approval of public utilities sale of property outside

of the ordinary course of business as early as 1915.41

58. As noted above, Order U2001-196, described the factors to be considered on whether the

disposition of an asset is outside the ordinary course of business, as follows:

… The Board confirms that it must first determine whether the disposition of an asset is

outside the ordinary course of business for a utility. The proceeds of disposition, NBV,

frequency and type of sale would be among the factors considered by the Board in that

determination. The quantum, and materiality (in relation to the total rate base) of the

proceeds of disposition and the NBV would all be considered. For example in this case,

the NBV of $2,163,801 would be at the bottom end of the range of dispositions the Board

would consider as outside the ordinary course of business. With respect to the frequency

and type of sale the Board does not agree with NGTL that acquiring and divesting

regional service centres, maintenance facilities, and field offices are necessarily in the

ordinary course of NGTL’s business. The Board considers that NGTL’s ordinary

business is the owning and operating of a pipeline, not the acquiring and divesting of real

estate.42

59. Other factors previously considered by Commission, or its predecessors, were also

identified in paragraph 276 of Decision 2011-450:

276. This panel of the Commission concurs with the earlier decisions of the

Commission and its predecessor that materiality and frequency are relevant factors to

consider when determining whether the disposition of an asset is within or outside of the

ordinary course of business. The Commission considers that the approach outlined by

Ms. Wilson at the oral hearing provides a satisfactory balance between bringing multiple

40

Exhibit 32.02, EDTI supplemental reply argument, paragraph 6. 41

Stores Block, paragraph 55. 42

Order U2001-196, pages 3-4.



minor applications to the Commission for review while ensuring that substantive

transactions are brought forward for consideration. The Commission agrees that $1.5

million is a reasonable transaction value at this time to use as a threshold guideline.

Should the transaction price be over $1.5 million, AG will be required to bring an

application for Commission approval under Section 26(2)(d) of the Gas Utilities Act. If

the transaction price is less than $1.5 million, AG should consider if there are other

factors that would suggest that the transaction is outside of the ordinary course of

business and therefore require the consent of the Commission to the disposition. Those

other factors would include:

the quantum and materiality of the proceeds of disposition in relation to the total

rate base of the utility

the quantum and materiality of the net book value of the asset in relation to the

total rate base of the utility

whether all or any portion of the functionality of the asset being disposed of has

been relocated to an existing facility or relocated to a new facility

the frequency and type of disposition of like assets

the other party(ies) to the transaction and if the transaction involves an affiliate,

whether the ATCO Group Inter-Affiliate Code of Conduct has been complied

with

the market value of the asset when compared to the consideration received on the

disposition

the allocation of sale proceeds between depreciable and non-depreciable property

the net book value of the assets

whether the asset was a utility or non-utility asset

any other unique or distinguishing aspect of the asset or of the transaction.43

60. In the UAD decision, the Commission clarified the application of the criteria to be

applied in determining whether a disposition is within or outside the ordinary course of business

of a particular utility:

321. The Commission considers that the criteria articulated in Order U2001-196 are

sufficient for the utility to determine whether a disposition is inside or outside the

ordinary course of business for the purpose of determining if an application for approval

of the disposition must be filed. While the additional criteria provided for in Decision

2011-450 may be useful to the Commission in evaluating specific cases, the Commission

does not consider that these criteria are necessary for the utility to consider in making a

determination of whether it must apply for approval of a disposition. … [T]he utilities

may limit the criteria they use in determining whether an application in respect of a

proposed disposition of an asset is necessary to the criteria described in Order U2001-

196.44

61. In the present circumstances, the Commission considers that the determination of whether

the substation disposition is to be considered inside or outside the ordinary course of EDTI’s

business must be assessed given the nature of the transaction, the factors set out in Order

U2001-196 and the evidence disclosed on the record.

43

Ibid., paragraph 276. 44

Decision 2013-417, paragraph 321.



62. EDTI submits that the disposition of the substation property should be considered to be

outside the ordinary course of business, because of the following factors:

The materiality of the proceeds of disposition; and the fair market value of the asset.

The frequency of the transactions for the disposition of the type of asset.

Relocation of the functionality of the asset.

63. The CCA stated that the reason for the disposition and whether the disposition is within

management’s control are additional factors that should be considered by the Commission.

64. With respect to the substation disposition, the Commission provides its findings on the

factors raised in this proceeding on whether the disposition of the substation property is inside or

outside the ordinary course, in the subsections below.

Materiality

65. As noted above, in Decision 2011-450, the Commission established a transaction value

materiality threshold of $1.5 million for ATCO Gas in assessing whether an asset disposition is

outside of the ordinary course of business. However, if the transaction value was found to be less

than $1.5 million, then ATCO Gas was directed to consider if there are other factors that would

suggest that the transaction is outside of the ordinary course of business.

66. In the UAD decision, the Commission provided the following on materiality thresholds

with respect to regulated utilities:

322. The $1.5 million threshold established for ATCO Gas in Decision 2011-450 as a

guideline for determining when a transaction will be considered to be outside of the

ordinary course of business will continue to apply. Each other utility may apply for a

monetary threshold guideline applicable to their company in determining if a transaction

is within or outside of the ordinary course of business.45

67. EDTI submitted that the $1.5 million threshold that was established for ATCO Gas is

specific to that company and should not be applied to EDTI. In AUC-EDTI-08(d), EDTI

suggested a materiality threshold of $500,000. EDTI did not provide a complete basis for the

$500,000 suggested materiality threshold but noted in its supplemental argument that the

proposed threshold amount should not be determinative in the present application, stating:

EDTI acknowledges that the anticipated proceeds from this disposition will be just below

the materiality threshold of $0.50 million suggested in EDTI’s response to AUC-EDTI-

08 (d). However, given the infrequency and type of this transaction, along with the fact

that the assets will not be relocated, EDTI submits that this disposition should be

categorized as falling outside the ordinary course of business.46

68. In Decision 2011-211,47 the Commission considered an EDTI disposition of substation

land with a fair market value for the portion of land to be sold of $1,007,000. The Commission

45

Decision 2013-417, paragraph 322. 46

Exhibit 29.01, EDTI supplemental argument, paragraph 6. 47

Decision 2011-211: EPCOR Distribution &Transmission Inc., Disposal of Substation Land, Proceeding 1091,

Application 1607037, May 17, 2011.




determined that the transaction was outside the ordinary course of business and approved the sale

of the substation land.

69. The CCA filed a table from Proceeding 2191, the 2013 Generic Cost of Capital

proceeding,48 with respect to the transaction value and frequency of past EDTI dispositions

considered outside the ordinary course of business commencing in 2006 which is reproduced

below as Table 1. As seen in Table 1, dispositions approved by the Commission have ranged

from a sales price of $101,000 to $2,261,000:

Table 1. EDTI – disposition of assets outside of ordinary course of business since the Stores Block appeal

($000) A B C= A-B D E F= D-E G

Transaction

year

Original cost

(land)

Original cost

(building)

Original cost total

Accumulated depreciation

Net book value

Sale price

Selling costs

Net proceeds

Total gain on

sale

West Service Center

2006 245 266 510 147 363 2,261 95 2,166 1,802

Meter Hall 2006 107 75 182 45 138 268 14 253 116

West Edmonton

Storage Site 2007 - - 12 2 10 101 8 93 83

Substation Land (300 and 360)

2011 2 0 2 0 2 1,007 0 1,007 1,005

70. The Commission agrees that the materiality threshold proposed and accepted for ATCO

Gas should not be applied to EDTI, however given the wide range of EDTI transactions

approved as being outside of the ordinary course of business and without further explanation and

testing of the proposed $500,000 threshold amount and how it might apply in general to EDTI

dispositions, the Commission will not establish a generic materiality threshold amount for EDTI

at this time. However, given that both the value of the proposed transaction and the net book

value at the time of disposition, fall within the range of prior approvals, the Commission

considers that this factor suggests that the proposed disposition is outside of the ordinary course

of EDTI’s business.

Frequency and type

71. EDTI noted that it did not normally engage in the selling of property, and that its primary

function is to provide electric distribution services to customers within its service territory.

72. Table 1 above demonstrates that although the disposition of land and buildings do occur,

EDTI distribution engages in these types of transactions infrequently and not as part of any core

activity necessary to provide electric distribution services. Further, the disposition of a substation

has occurred only once in the past four years. Accordingly, the frequency and type of disposition

which is the subject of this application suggests that the proposed disposition is outside of the

ordinary course of EDTI’s business.

48

Proceeding 2191, Application 1608918, the table was reproduced from Exhibit 136.01 of the Generic Cost of

Capital proceeding.



Conclusion

73. Based on the above analysis, the Commission finds EDTI’s proposed sale of the

substation land and building is a disposition outside of the ordinary course of EDTI’s business

and requires the prior consent of the Commission pursuant to Section 101(2)(d) of the Public

Utilities Act.

4.3 Assessment of harm

74. In deciding whether an application for Commission approval of a disposition outside of

the ordinary course of business under Section 101(2)(d) if the Public Utilities Act, the

Commission and its predecessor, the board, have traditionally applied a “no harm” test in

assessing whether the disposition will negatively affect service quality or quantity, or rates.

75. In the application, EDTI confirmed that the proposed disposition will have no adverse

effect on the quality and quantity of the customer services, nor will it create additional operating

costs in the future.49

76. With respect to service quality and quantity, EDTI indicated that the proposed disposition

will not impact the continuity of safe and reliable service to ratepayers because the distribution

feeders which originated from the substation have been decommissioned. The substation

property no longer plays a role in the provision of safe and reliable service to EDTI’s

ratepayers.50

77. With respect to rate impacts, EDTI stated that the proposed disposition would lead to

slight savings for ratepayers once EDTI removed the substation from its rate base. EDTI also

indicated that ratepayers would be protected from potential environmental clean-up costs on the

property51 and that EDTI would bear all remediation expenses prior to the disposition.52

Remediation requirements were identified in the Phase II Environmental Assessment report

completed by Blanchard Environmental Consulting (Blanchard) and filed with the Commission

on July 15, 2014. This report identified hydrocarbon levels exceeding guidelines in soil samples

near the transformer pad on the property, as well as boron concentrations that exceeded

guidelines on the eastern portion of the site. Remediation will delay the decommissioning and

disposition of the property until sometime in 2015.

78. In addition, EDTI confirmed that ratepayers would not pay transaction costs such as land

appraisal fees, land agent fees and legal fees because transaction costs will be netted against the

proceeds from the sale of the property.

79. The CCA stated that the cumulative impact on revenue requirement would amount to

approximately $50,000 over the five-year PBR term given that the substation generated an

annual revenue amount of $10,000 reflected in the PBR base rates of EDTI. In the CCA’s view,

customers should not have to pay $50,000 for an asset that is no longer used and useful.53

49

Exhibit 1, application, paragraph 12. 50



Exhibit 17.01, EDTI argument, paragraph 8. 53

Ehbitit 15.01, CCA argument, paragraph 9.



80. In reply argument, EDTI indicated that the $50,000 figure was based on speculation and

was unsupported by any evidence.54

81. EDTI stated that based on its Phase II Environmental Assessment report, the cumulative

impact on its revenue requirement would likely be $30,000 (or less), not the $50,000 amount

identified by the CCA. EDTI stated that the $30,000 is an insignificant amount which would

have very little impact on customers rates and would not “certainly exceed any regulatory

proceeding costs” when the cumulative costs of all parties’ time and expenses are determined.55

Commission findings

82. The no harm test traditionally applied by the Commission and its predecessors has been

reviewed in several board, Commission and court decisions56 and was summarized in Decision

2000-41,57 where the board stated:

The Supreme Court of Canada has stated that the Board’s jurisdiction to “safeguard the

public interest in the nature and quality of the service provided to the community by

public utilities” is “of the widest proportions.” The Board has also noted that its

governing legislation provides no specific guidance for the exercise of the Board’s

direction in approving an asset disposition by a designated owner of a public utility.

The Board has held that its discretion under essentially similar provisions of the GU Act

must be exercised according a “no-harm” standard. More specifically, the Board has held

that it must be satisfied that customers of the utility will experience no adverse impact as

a result of the reviewable transaction.

…

The Board believes that its duty to ensure the provision of safe and reliable service at just

and reasonable rates informs its authority to approve an assets disposition by a public

utility pursuant to Section 91.1(2) of the PUB Act. Therefore, the Board is of the view

that, subject to those issues which can be dealt with in future regulatory proceedings …,it

must consider whether the disposition will adversely impact the rates customers would

otherwise pay and whether it will disrupt safe and reliable service to customers. As

already noted, the Board also accepts that it must assess potential impacts on customers

in light of the policy reflected in the EU Act, namely the unbundling of the generation,

transmission and distribution components of electric utility service and the development

of competitive markets and customer choice. As a result, rather than simply asking

whether customers will be adversely impacted by some aspect of the transactions, the

Board concludes that it should weight the potential positive and negative impacts of the

transactions to determine whether the balance favours customers or at least leaves them

no worse off, having regard to all of the circumstances of the case. If so, then the Board

considers that the transactions should be approved.58

(footnotes omitted)

83. The Supreme Court of Canada stated in Stores Block, the board determined that where

there was no harm or risk of harm from the sale and the board, “should only exercise its

54

Exhibit 19.01, EDTI reply argument, paragraph 3. 55

Exhibit 19.01, EDTI reply argument, paragraphs 5-6. 56 See for example the Stores Block decision, at paragraphs 83-84. 57 Decision 2000-41: TransAlta Utilities Corporation Sale of Distribution Assets, Application 2000051,

File 6404-3, July 5, 2000. 58

Ibid., pages 7-8.




discretion to act in the public interest when customers would be harmed or would face some risk

of harm.”59

84. In ATCO Gas and Pipelines v. Alberta (Energy and Utilities Board) 2009 ABCA 171

(Harvest Hills), the Court of Appeal of Alberta considered the “no harm” test in the context of

the sale of land by ATCO Gas that had previously been in rate base. The Court of Appeal of

Alberta addressed the circumstances in which the no harm test should be applied, and referred to

the Supreme Court of Canada’s Stores Block decision. The court found:

In Stores Block, the Board found that there would be no harm to customers as a result of

the sale. In the Supreme Court, Bastarache J. observed that even by the Board’s own

reasoning, it should only exercise its discretion to act in the public interest when

customers would be harmed or would face some risk of harm (at para. 84). In our view,

the harm contemplated by the Supreme Court must be harm related to the transaction

itself.

85. An application of the no harm test requires the Commission to consider whether or not

the transaction will adversely affect rates or the quantity or quality of service. For the reasons

that follow, the Commission finds that the disposition of the substation property will not result in

adverse rate or service impacts.

86. The Commission has reviewed the concerns raised by both parties in regard to the

remediation costs and the results of the Phase II Environmental Assessment report. The

Commission accepts EDTI’s confirmation that the costs of salvage, disposal, and site

remediation costs will be borne by EDTI. The Commission is satisfied that EDTI will perform

the required remediation process identified by Blanchard prior to the disposition of the property.

The Commission accepts that the remediation process will delay the decommissioning and

disposition of the property until later in 2015. Accordingly, the Commission is satisfied that

EDTI will commit to bearing all remediation, and there will not be a resulting impact to rates for

remediation costs.

87. In respect of service level impacts, the substation property is no longer required for the

provision of electricity service, and therefore the proposed disposition will have no adverse

effect on the quality and quantity of utility service. There will be no harm to customers in terms

of service quality if the substation property is removed from EDTI’s revenue used to establish

customer rates.

88. The Commission accepts EDTI’s reasoning that the cumulative revenue impact

associated with the revenue requirement of the substation assets embedded in the PBR rates

represents an amount of $30,000, or less, will have a negligible effect on the revenue ultimately

charged to customers through rates. The Commission accepts that this disposition will not create

any adverse financial impact to rate payers.

89. Given EDTI’s proposal for the disposition of property at fair market value and the fact

that remediation will be undertaken and the resulting remediation costs will be absorbed by the

utility, the Commission finds that the disposition of the substation property will not result in

harm to customers and the substation property that is no longer required for the provision of

59

Stores Block, paragraph 84.



electricity service should be removed from rate base. The Commission approves the proposed

disposition of EDTI’s substation property, as filed.

4.4 Adjustment due to disposition

90. EDTI stated that it would remove the substation land and building from its revenue and

rates during the cost-of-service rebasing at the end of the PBR term in 2018. EDTI further noted

that should the sale of these assets take place prior to 2018, then an adjustment to PBR revenue

for the disposition would still occur during rebasing expected to be in 2018, and not during the

current PBR term.

91. In terms of the adjustment to PBR revenue, EDTI stated that in cases where the disposal

of land and buildings are outside the ordinary course of business, the net proceeds, if any, from

the sale of these assets are treated in the manner prescribed by the Supreme Court of Canada in

the Stores Block case with any net proceeds accruing to the EDTI shareholder. In regard to the

removal of the asset, EDTI would first credit customers for the accumulated depreciation relating

to the substation building, in the amount of $21,327 assuming the disposition is approved by the

Commission and assuming the asset disposed in 2014, now expected in 2015. This would

effectively pay customers back for their contribution to the facility.

92. Second, EDTI would reduce its rate base by the net book value of the substation property

by removing the original cost and accumulated depreciation for the property at the date that the

property is sold. EDTI will include any difference between the amount received from the sale of

land, less agents’ commissions and other costs incidental to the sale, the original cost of the

building ($123,188) and the land ($1,492), in Account 922, Gains and Losses from disposition of

utility facility.60

93. The CCA stated that if the proceeds go into general revenue or to the I-X (indexing

mechanism) component of the PBR revenue requirement, then this would be the same as treating

the disposition of the substation building as being disposed of outside the ordinary course of

business. In this case, the benefits would accrue to EDTI under the indexing mechanism portion

of the revenue requirement.

94. The CCA proposed that the proceeds from the disposition should be included in the

capital revenue requirement and therefore ultimately be included in the K factor accounting test

to determine the application of a K factor.61

95. The CCA stated that the $50,000 cumulative revenue be removed from the indexing

mechanism under PBR, or from the capital tracker increment for 2014 onwards, whichever is

easier.62

96. EDTI confirmed that the substation property cannot be sold until at least 2015 because of

the remediation process to be undertaken, three years prior to any rebasing of its revenue

requirement and rates under PBR. EDTI stated that $30,000 is an insignificant amount and it

60


Exhibit 31.01, CCA supplemental reply argument, paragraphs14-15. 62

Exhibit 15.01, CCA argument, paragraphs 9-12.



should not be required to refund customers the cumulative revenue impact from disposing the

substation property.63

Commission findings

97. The Commission does not accept the CCA’s proposal that EDTI’s cumulative revenue be

removed from the indexing mechanism under PBR, or the capital tracker increment for 2014

onwards. The Commission directs EDTI to remove the net book value of the substation property

from its distribution rate base, at the end of the current PBR term.

98. In paragraph 88 of Decision 2012-237,64 Rate Regulation Initiative, Distribution

Performance-Based Regulation, the Commission stated:

88. The Commission considers the second alternative is in keeping with the decision

to use 2012 approved rates rather than 2012 actual costs as the basis for going-in rates.

The 2012 rates have been tested and approved by the Commission as just and reasonable

for 2012. Accordingly, the 2012 approved rates are the correct starting point on which to

base going-in rates. The Commission confirms the findings in Decision 2009-035[65] that

adjustments to going-in rates should not be made to reflect actual results. Further,

adjustments should not be made selectively but, rather, should only be made in the

context of a full rate case. Adjustments may be made in exceptional situations, however,

like the case of the short term incentive plan adjustment approved in the ENMAX

decision.

99. PBR is intended to decouple a company’s revenues from costs for the duration of the

PBR term. The Commission will not require EDTI to make any adjustments to remove the

substation property and cumulative revenue prior the expiry of the current PBR term given the

Commission’s direction in the Decision 2012-237 that adjustments to going-in rates are not to be

made to reflect actual events during the PBR term. In that decision, the Commission considered

that adjustments to going-in rates should only be made in the context of a full rate case.

Consistent with Decision 2012-237, the Commission finds that the removal of the substation

property and other substation assets from rates should be reflected in EDTI’s next revenue

requirement application, which may take the form of a rebasing of EDTI’s PBR plan or, in the

event that a full rebasing of EDTI’s PBR plan does not occur, it may take the form of a full rate

case after a subsequent PBR term.

100. The Commission also finds that all net proceeds of sale and net gain arising from the

disposition are to be for the account of the utility shareholders, in accordance with the Stores

Block decision. At paragraph 69 of the Stores Block decision, the court stated in part: “Despite

the consideration of utility assets in the rate-setting process, shareholders are the ones solely

affected when the actual profits or losses of such a sale are realized; the utility absorbs losses and

gains, increases and decreases in the value of assets, based on economic conditions and

occasional unexpected technical difficulties, but continues to provide certainty in service both

with regard to price and quality.”

63

Exhibit 19.01, EDTI reply argument, paragraphs 5 and 6. 64

Decision 2012-237: Rate Regulation Initiative Distribution Performance-Based Regulation, Proceeding 566,

Application 1606029, September 12, 2012. 65

Decision 2009-035: ENMAX Power Corporation, 2007-2016 Formula Based Ratemaking, Proceeding 12,

Application 1550487, March 25, 2009.





101. With respect to the accumulated depreciation relating to the substation building, which

was calculated in 2014 as $21,327, the Commission considers that no adjustment for

accumulated depreciation is required given the findings in Section 4.1 of this decision.

102. EDTI is directed to provide confirmation and details of the substation disposition,

including the net proceeds of the disposition, in its next revenue requirement application. The

Commission also directs EDTI to file in its next revenue requirement application, the net book

value of the substation property and other substation assets as of the date of the disposition and

the proposed adjustment to its closing and opening-rate base, to reflect the findings and

directions in this decision. The final adjustment to rate base as a result of the substation

disposition will be reviewed in that proceeding.

5 Order

103. It is hereby ordered that:

(1) EPCOR Distribution & Transmission Inc.’s application to dispose of the land and

substation building located at located at 9724 - 118 Avenue Northwest,

Edmonton, Alberta, known as Substation No. 250, is approved.

(2) EPCOR Distribution & Transmission Inc. shall file the details of the disposition,

including the net proceeds of sale of the substation property, related to the

disposition of the substation land and building, in its next revenue requirement

application.

(3) EPCOR Distribution & Transmission Inc. shall also file, in its next revenue

requirement application, the net book value of the substation property and other

substation assets as of the date of the disposition and the proposed adjustment to

its closing and opening rate base, in order to reflect the findings and directions in

this decision.

Dated on February 25, 2015.


(original signed by)

Tudor Beattie, QC

Commission Member



Appendix 1 – Proceeding participants

Name of organization (abbreviation) counsel or representative

EPCOR Distribution & Transmission Inc. (EPCOR or EDTI)

ATCO Electric Ltd.

Bennett Jones LLP

AltaLink Management Ltd. (AML) Consumers’ Coalition of Alberta (CCA)

Alberta Utilities Commission Commission panel T. Beattie, QC, Commission Member Commission staff

B. McNulty, (Associate general counsel) A. Sabo (Commission counsel) P. Genderka S. Allen



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 does not accept the CCA’s proposal that EDTI’s cumulative revenue be

removed from the indexing mechanism under PBR, or the capital tracker increment for

2014 onwards. The Commission directs EDTI to remove the net book value of the

substation property from its distribution rate base, at the end of the current PBR term.

.......................................................................................................................... Paragraph 97

2. EDTI is directed to provide confirmation and details of the substation disposition,

including the net proceeds of the disposition, in its next revenue requirement application.

The Commission also directs EDTI to file in its next revenue requirement application, the

net book value of the substation property and other substation assets as of the date of the

disposition and the proposed adjustment to its closing and opening-rate base, to reflect

the findings and directions in this decision. The final adjustment to rate base as a result of

the substation disposition will be reviewed in that proceeding. ................... Paragraph 102

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