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Notice of variance of decision November 19, 2020 Variance of Decision 23848-D01-2020 Please be advised that the Alberta Utilities Commission’s Decision 23848-D01-2020 has been varied with the release of Decision 25870-D01-2020. Decision 23848-D01-2020 should be read together with Decision 25870-D01-2020 for completeness. Alberta Utilities Commission
Decision 23848-D01-2020
AltaLink Management Ltd. 2019-2021 General Tariff Application Negotiated Settlement Agreement and Excluded Matters April 16, 2020
Alberta Utilities Commission
Decision 23848-D01-2020
AltaLink Management Ltd.
2019-2021 General Tariff Application
Negotiated Settlement Agreement and Excluded Matters
Proceeding 23848
April 16, 2020
Published by the:
Alberta Utilities Commission
Eau Claire Tower
1400, 600 Third Avenue S.W.
Calgary, Alberta T2P 0G5
Telephone: 310-4AUC (310-4282 in Alberta)
1-833-511-4AUC (1-833-511-4282 outside Alberta)
Email: [email protected]
Website: www.auc.ab.ca
The Commission may, within 30 days of the date of this decision and without notice, correct
typographical, spelling and calculation errors and other similar types of errors and post the
corrected decision on its website.
Decision 23848-D01-2020 (April 16, 2020) i
Contents
1 Decision summary ................................................................................................................ 1
2 Introduction and background ............................................................................................. 1
3 Negotiated settlement........................................................................................................... 3 3.1 Statutory and Commission requirements for a negotiated settlement .......................... 3
3.1.1 Legislation......................................................................................................... 3 3.1.2 Fairness of the negotiated settlement process ................................................... 6
3.1.2.1 Conduct of negotiation process ........................................................... 6 3.1.2.2 Adequate notice ................................................................................... 7 3.1.2.3 Relevant information ........................................................................... 8
3.1.3 Public interest.................................................................................................... 8
4 Excluded matters ............................................................................................................... 11 4.1 Consideration of evidence ........................................................................................... 11
4.2 Section 33.1 Energy Storage Systems on the Alberta Integrated Electric System ..... 16 4.3 Appendix 22: Wildfire Mitigation Plan ...................................................................... 17 4.4 $20.0 million of increased CRU for line clearance mitigation work .......................... 39
4.5 Depreciation ................................................................................................................ 70 4.5.1 AltaLink’s proposed net salvage method ........................................................ 70
4.5.1.1 Overview ............................................................................................ 70 4.5.1.2 Rationale for the proposed net salvage and opposing views ............. 72 4.5.1.3 Summary of issues related to proposed net salvage method ............. 75
4.5.2 Net salvage per cents proposed in the Concentric depreciation study .......... 101 4.5.3 Asset retirements at age-interval zero ........................................................... 106
5 Order ................................................................................................................................. 110
6 Dissenting opinion of Bill Lyttle ..................................................................................... 111
Appendix 1 – Proceeding participants .................................................................................... 124
Appendix 2 – Oral hearing – registered appearances ........................................................... 125
Appendix 3 – Summary of Commission directions ................................................................ 126
Appendix 4 – Process step details ............................................................................................ 132
Appendix 5 – AML 2019-2021 GTA NSA application and agreement ................................ 134
List of figures
Figure 1. FPA (pink) and White Zone (white) in Alberta ......................................... 21
Figure 2. AltaLink rating assessment and prioritization process ............................. 57
Decision 23848-D01-2020 (April 16, 2020) ii
List of tables
Table 1. WMP operational expenditures ............................................................................... 20
Table 2. WMP capital expenditures ....................................................................................... 20
Table 3. Known and calculated fire-related notifications .................................................... 23
Table 4. Targeted component and structure replacements in HRFAs forecast costs ....... 29
Table 5. Volume and type of components based on July 26, 2019, update ........................ 29
Table 6. Line rebuilds in HRFAs forecast capital expenditures ......................................... 34
Table 7. Wildfire situational awareness forecast expenditures ........................................... 37
Table 8. Transmission line rights-of-way upgrades in HRFAs forecast expenditures ...... 38
Table 9. LCM program management update line clearance deficiency summary............ 58
Table 10. Undertaking 005 line clearance deficiency summary ............................................ 58
Table 11. Estimate of deficiencies and timeframe to address ................................................ 59
Table 12. Comparison of net salvage expense using AltaLink’s approved methodology and
parameters, proposed methodology, and approved methodology and proposed
parameters ................................................................................................................. 72
Table 13. Summary of AltaLink approved and recommended net salvage per cents ....... 104
Table 14. Summary of the net salvage per cents recommended and approved in this
decision ..................................................................................................................... 106
Decision 23848-D01-2019 (April 16, 2020) 1
Alberta Utilities Commission
Calgary, Alberta
AltaLink Management Ltd.
2019-2021 General Tariff Application Decision 23848-D01-2020
Negotiated Settlement Agreement and Excluded Matters Proceeding 23848
1 Decision summary
1. This decision provides the Alberta Utilities Commission’s determinations regarding
AltaLink Management Ltd.’s application for approval of a negotiated settlement agreement
(NSA) regarding its 2019-2021 general tariff application.
2. The Commission approves the revised NSA as submitted by AltaLink on August 21,
2019. The Commission has deferred its decision on several issues related to AltaLink’s Wildfire
Mitigation Plan and line clearance mitigation to the compliance filing when more data for
aspects of these plans will be available. Specifically, the Commission has deferred its decision on
the targeted component and structure replacements in high-risk fire areas and the line rebuilds in
high-risk fire areas programs of AltaLink’s Wildfire Mitigation Plan to the compliance filing of
this decision, and has reduced the level of line clearance mitigation expenditures for the forecast
period. The Commission made its determination, with respect to the incremental line clearance
mitigation forecast, on a placeholder basis that may be adjusted in the compliance filing for this
proceeding and/or in the next GTA.
3. Commission members van Egteren and Kolesar do not accept AltaLink’s proposed net
salvage method, nor do they accept the net salvage per cent proposed within the Depreciation
Study. In a dissenting opinion, Commission member Lyttle accepts AltaLink’s net salvage
proposals.
4. The Commission approves AltaLink’s asset retirements at age-interval zero.
2 Introduction and background
5. On August 23, 2018, AltaLink Management Ltd. (AltaLink or AML) filed an application
with the Commission for approval of its 2019-2021 general tariff application (GTA) for the
period from January 1, 2019 to December 31, 2021. AltaLink sought approval for:
• a 2019 revenue requirement of $884.6 million
• a 2020 revenue requirement of $886.7 million
• a 2021 revenue requirement of $888.7 million
• a change in the salvage cost recovery methodology and a new salvage reserve account for
2019-2021
2019-2021 General Tariff Application Negotiated Settlement Agreement and Excluded Matters AltaLink Management Ltd.
Decision 23848-D01-2020 (April 16, 2020) 2
• a proposed refunding of an accumulated depreciation surplus of $31.2 million over 2019-
2021, consistent with a similar accumulated depreciation surplus refund approved by the
Commission in Decision 21341-D01-2017
• a rate reduction of approximately $90 million per year related to the change from the
future income tax method to the flow-through method
6. AltaLink also sought approval to continue with the following deferral and reserve
accounts:
• taxes other than income taxes
• annual structure payments
• direct assign capital
• international financing reporting standards
• hearing costs
• injuries and damages
• post-retirement benefits plan liability
7. The Commission issued a notice of application on August 24, 2018, and requested that
interested parties file statements of intent to participate (SIPs) by September 5, 2018.1
8. The Commission received SIPs from the Alberta Direct Connect Consumers Association
(ADC),2 ATCO Electric Ltd. (AE),3 the Consumers’ Coalition of Alberta (CCA),4 the Industrial
Power Consumers Association of Alberta (IPCAA)5 and the Office of the Utilities Consumer
Advocate (UCA).6
9. Details on the process steps required for this proceeding can be found in Appendix 4 -
Process Step Details.
10. The Commission considers the record for this proceeding closed on January 17, 2020.
11. In reaching the determinations set out within this decision, the Commission has
considered all relevant materials comprising the record of this proceeding. Accordingly,
reference in this decision to specific materials are intended to assist the reader in understanding
the Commission’s reasoning relating to a particular matter and should not be taken as an
1 Exhibit 23848-X0039. 2 Exhibit 23848-X0042. 3 Exhibit 23848-X0048. 4 Exhibit 23848-X0043. 5 Exhibit 23848-X0041. 6 Exhibit 23848-X0040.
2019-2021 General Tariff Application Negotiated Settlement Agreement and Excluded Matters AltaLink Management Ltd.
Decision 23848-D01-2020 (April 16, 2020) 3
indication that the Commission did not consider all relevant portions of the records with respect
to a particular matter.
3 Negotiated settlement
12. The negotiated settlement agreement (NSA) reached by the parties encompassed all
aspects of AltaLink’s 2019-2021 GTA with the exception of the excluded matters. The excluded
matters are:
• AltaLink’s salvage proposal;
• AltaLink’s salvage study;
• Section 33.1 of AltaLink’s 2019-2021 GTA application: Energy Storage Systems on the
Alberta Integrated Electrical System;
• Appendix 8A of AltaLink’s 2019-2021 GTA application: – Account 354.00: Towers and
Fixtures Interval – Retirements During Age Interval Zero;
• Appendix 22 of AltaLink’s 2019-2021 GTA: AltaLink Wildfire Mitigation Plan; and
• $20.0 million of increased Capital Replacement and Upgrades Capital Expenditures
(CRU) for line clearance mitigation work.
13. Accordingly, this decision is composed of two main sections. Section 3.1 addresses all
matters respecting the NSA and the Section 4 addresses all matters excluded from the NSA.
3.1 Statutory and Commission requirements for a negotiated settlement
3.1.1 Legislation
14. The Electric Utilities Act provides the Commission with the authority to establish rules
with respect to negotiated settlements, including settlements dealing with rate-related matters.
Section 132 states:
Facilitated negotiation
132(1) The Commission must recognize or establish rules, practices and procedures that
facilitate
(a) the negotiated settlement of matters arising under this Act or the regulations, and
(b) the resolution of complaints or disputes regarding matters arising under this Act or
the regulations.
15. The Commission has established rules for negotiated settlements in Rule 018: Rules on
Negotiated Settlements. AltaLink requested approval of the NSA in accordance with Section 6 of
Rule 018.
16. Sections 134 and 135 of the Electric Utilities Act provide the Commission with the
authority to approve a negotiated settlement. These sections provide as follows:
2019-2021 General Tariff Application Negotiated Settlement Agreement and Excluded Matters AltaLink Management Ltd.
Decision 23848-D01-2020 (April 16, 2020) 4
Commission approval of a settlement
134(1) If a settlement has been negotiated of an issue that is within the jurisdiction of the
Commission, the Commission may approve the settlement.
(2) Any issue dealt with in a settlement approved by the Commission is not subject to
further consideration in the hearing of the matter to which the settlement relates.
(3) Subject to subsection (4), the Commission may require a party to provide to it any
records relating to the settlement that it considers appropriate.
(4) The Commission shall not receive or consider any submission, position, evidence or
information provided by a party on a without prejudice or confidential basis in the course
of negotiating a settlement under this Part without the express consent of that party.
Limit on Commission discretion
135 If the parties negotiate a settlement on the basis that the settlement is contingent on
the Commission’s accepting the entire settlement, the Commission must either approve
the entire settlement or refuse it.
17. AltaLink submitted that the NSA was negotiated as a package and contingent on the
Commission accepting the entire settlement, with the exception of the excluded matters.
Therefore, AltaLink requested that the Commission approve the NSA as filed, in its entirety, in
accordance with Section 135 of the Electric Utilities Act.
18. Because the NSA was negotiated on the basis that it must be accepted or rejected in its
entirety by the Commission, the Commission will proceed on that basis for the purposes of this
decision.
19. Sections 4(1) and (2) of Rule 018 set out the requirements for initiating a negotiated
settlement process:
4 Initiation of process
4(1) An applicant may only commence negotiations with the approval of the
Commission.
(2) An applicant must notify the Commission of its intention to initiate a negotiated
settlement process and provide the Commission with an outline of the pertinent
issues to be resolved.
20. Under Section 6 of Rule 018, the utility must provide material to allow the Commission
to assess the effect of a negotiated settlement on rates and services. Section 6 states:
6 Filing of the application and settlement agreement
6(1) Subject to section 3, when an agreement is reached on all or some of the issues,
the text of the agreement, including a representation that no party has withheld
relevant information, must be circulated to all parties to the agreement.
(2) Upon the concurrence of the parties on the text of the agreement, an application
for approval must be filed with the Commission.
2019-2021 General Tariff Application Negotiated Settlement Agreement and Excluded Matters AltaLink Management Ltd.
Decision 23848-D01-2020 (April 16, 2020) 5
(3) At a minimum, the application must include the following:
(a) evidence of adequate notice;
(b) the settlement agreement;
(c) details of issues not resolved;
(d) outline of issues where acceptance is not unanimous, including the names of
those who disagree;
(e) the rates that result or will result from the settlement, supported by schedules,
to assist the Commission in understanding how the rates were derived;
(f) the text of any changes to the terms and conditions of service with supporting
information;
(g) a description of any outstanding issues; and
(h) unless the Commission directs otherwise, a settlement brief explaining the
basis of the settlement and how it meets the interests of the parties and the
public interest.
21. Section 6(5) of Rule 018 states that the onus is on the applicant to ensure that there is
sufficient evidence to support the application, and that the quality and detail of the evidence,
including the rationale for the settlement of issues, are sufficient to enable the Commission to
understand and assess the agreement.
22. Section 8 of Rule 018 deals with unanimous or unopposed negotiated settlements and
requires that the Commission assess the settlement on the basis of two elements:
(i) whether the settlement will result in rates and terms and conditions that are
just and reasonable; and
(ii) whether the settlement is patently against the public interest or contrary to
law.
23. In considering these requirements, the Commission has taken into account the direction
of the Alberta Court of Appeal as set out in ATCO Electric Limited v. Alberta (Energy and
Utilities Board)7 (ATCO Electric decision). In accordance with the findings of the court that the
ultimate responsibility for approval of negotiated settlements must rest with the independent
body, the Commission considers that the responsibility for approving negotiated settlements, and
ensuring that the process operates in a fair and reasonable manner, rests with the Commission.
24. In assessing a settlement, the Commission is aware that, while one or more of the
interested parties to a settlement may represent certain stakeholders, none will represent all
stakeholders. Further, as noted by the court at paragraph 138 of the ATCO Electric decision,
“… even a broad range of [i]nterveners will not necessarily translate into a wide spectrum of
positions since parties may make trade-offs which leave other issues unresolved, unaddressed or
compromised.”8 Consequently, the negotiated settlement process does not replace a full and
7 ATCO Electric Limited v. Alberta (Energy and Utilities Board), 2004 ABCA 215. 8 ATCO Electric decision, paragraph 138.
2019-2021 General Tariff Application Negotiated Settlement Agreement and Excluded Matters AltaLink Management Ltd.
Decision 23848-D01-2020 (April 16, 2020) 6
informed review by the Commission as to what is in the overall public interest. Because
AltaLink had requested and received Commission approval to negotiate a settlement;
subsequently negotiated with parties representing customers; executed the NSA; and then
applied to the Commission for approval of the NSA in its entirety, the Commission has
proceeded on the basis that the NSA satisfies the interests of AltaLink and has only assessed the
NSA from the point of view of ratepayers. This is consistent with the ATCO Electric decision,
which states:
That means in determining whether a negotiated settlement submitted for approval by a
utility is in the public interest and whether the rates and tariffs therein are “just and
reasonable”, the Board [Alberta Energy and Utilities Board, the Commission’s
predecessor] is not obliged at this point to consider whether the settlement adequately
protects the utility’s interests. The Board is instead entitled to proceed on the basis that
the negotiated settlement fully satisfies the utility’s interests. Thus, the Board need only
assess the public interest from the perspective of the consuming public.9
25. Given the statutory requirements, Rule 018 and the relevant case law, the Commission
has considered all of the following factors in making its determination on whether the negotiated
settlement should be accepted or rejected in its entirety:
• Fairness of the negotiated settlement process: assessing whether there was procedural
fairness, both with respect to adequate notice having been served and with respect to the
conduct of the negotiation process itself.
• Just and reasonable rates: considering the reasonableness of the NSA. The Commission
will consider the reasonableness of the individual elements that make up the application
to the extent they have been set out in the NSA.
• Patently against the public interest or contrary to law: conducting a review of each of the
material provisions of the NSA in order for the Commission to determine whether these
provisions, individually, appear contrary to accepted regulatory practices, or could result
in undue rate and service effects on customers or are clearly contrary to law.
26. The Commission’s findings on the negotiated settlement process and on the specific
provisions of the NSA are discussed in this section and in Section 3.1.3. Excluded matters are
discussed starting at Section 4 of this decision.
3.1.2 Fairness of the negotiated settlement process
27. The first question for the Commission to consider is whether the negotiated settlement
process (NSP) that resulted in the NSA was fair.
3.1.2.1 Conduct of negotiation process
28. In the NSA, AltaLink submitted:
9. In a letter dated June 13, 2019, AltaLink advised the Alberta [Utilities] Commission
that a NSA had been agreed to in principle by the Alberta Direct Connect Consumers
Association (“ADC”), the CCA, the Industrial Power Consumers Association of Alberta
9 ATCO Electric decision, paragraph 146.
2019-2021 General Tariff Application Negotiated Settlement Agreement and Excluded Matters AltaLink Management Ltd.
Decision 23848-D01-2020 (April 16, 2020) 7
(“IPCAA”), the Office of the Utilities Consumer Advocate (“UCA”) (collectively, the
“Interveners”), and AltaLink.
…
12. Extensive negotiations occurred among AltaLink and the Interveners over 18 days,
resulting in all parties’ agreement in principle to an NSA on June 13, 2019. Continued
without-prejudice discussions over the following three weeks resulted in a detailed NSA,
finalized on July 5, 2019.
The parties successfully reached a negotiated settlement on all relevant aspects of
AltaLink’s 2019-2021 GTA, with the exception of the Commission Excluded Matters and
the following three matters (the “Party Excluded Matters”) …
13. The parties agreed that the Commission Excluded Matters and the Party Excluded
Matters shall be heard in the Excluded Matters Application before the Commission.
14. The negotiated settlement is set forth in the Settlement Agreement attached to this
application.10
29. The parties active in the negotiations and, ultimately, signatories to the NSA were
AltaLink, the ADC,11 the CCA,12 IPCAA13 and the UCA.14 Each of these signatories filed
correspondence with the Commission attesting to the fair and open manner in which the
negotiation was conducted.
3.1.2.2 Adequate notice
30. Section 3 of Rule 018 deals with the provision of notice by a utility to parties who may be
interested in participating in negotiations. Rule 018 states:
3(1) The Commission requires a statement in the settlement agreement confirming
that proper notice was provided by the applicant to all interested parties.
(2) The notice provisions in the Rules of Practice apply [to] the giving of notice
under these rules.
31. AltaLink submitted that adequate notice was provided to the parties as follows:
22. On April 23, 2019 AltaLink filed a letter with the Commission requesting approval to
initiate negotiations. AltaLink invited the Interveners to participate in the NSP. All
materials filed by AltaLink in this proceeding prior to the commencement of negotiations
were available to the participants. Each of these parties was given the opportunity to
participate fully in the NSP and have their respective issues addressed. As set out in
section 8 of the Settlement Agreement, AltaLink confirms that each intervener was
provided with all relevant information and that proper notice of the NSP was provided to
all interested parties in accordance with the Commission’s directions in that regard.15
[track changes removed]
10 Exhibit 23848-X0204, AML 2019-2021 GTA negotiated settlement agreement, paragraphs 9-14. 11 Exhibit 23848-X0214. 12 Exhibit 23848-X0215. 13 Exhibit 23848-X0214. 14 Exhibit 23848-X0212. 15 Exhibit 23848-X0204.01, AML 2019-2021 GTA negotiated settlement agreement, paragraph 22.
2019-2021 General Tariff Application Negotiated Settlement Agreement and Excluded Matters AltaLink Management Ltd.
Decision 23848-D01-2020 (April 16, 2020) 8
3.1.2.3 Relevant information
32. Section 6(1) of Rule 018 provides that the text of the NSA must include a representation
that no party has withheld relevant information. AltaLink addressed this requirement under
Section 8(a) of the NSA, which is reproduced below:
8 Representations and Warranties
(a) Each Party represents that it has not withheld relevant information.
Commission findings
33. The Commission considers that the ADC, the CCA, IPCAA and the UCA had sufficient
information, at the time that negotiations commenced, to allow them to participate in the
settlement negotiations as informed parties.
34. The Commission is satisfied that the information filed in the NSA, the confirmation of
notice, and the experience of the negotiating parties provides a sufficient level of assurance that
interested parties were provided with sufficient notice, adequate materials, and the opportunity to
participate meaningfully, and that the negotiations were conducted in an open and fair manner.
35. The Commission notes that ADC, the CCA, IPCAA and the UCA are sophisticated
parties with significant experience in negotiated settlements.
36. In addition, the Commission considers that a reasonable cross-section of customers was
represented. AltaLink stated that every intervener representing a constituent of Albertans that
historically participated in the testing of AltaLink’s GTAs was present at the negotiating table.
Industrial consumers, both large and small, as well as individual consumers, were separately
represented.16
37. In view of the above and a review of the entire NSP, the Commission is satisfied that the
NSP was fair and that AltaLink complied with the requirements set out in Section 6(3) of Rule
018.
3.1.3 Public interest
38. The second question for the Commission to consider is whether the NSA is in the public
interest, including whether it will result in rates that are just and reasonable.
39. In this regard, the Commission is guided by the Electric Utilities Act and Rule 018, and in
particular, Section 8(2) of Rule 018, which states that the Commission must intervene if it
determines that a unanimous settlement agreement is patently against the public interest or
contrary to law.
40. In conducting the public interest assessment and because the Commission must consider
the NSA as a whole, the Commission has considered the public interest from the ratepayers’
perspective in accordance with the guidance provided by the Alberta Court of Appeal referred to
in the ATCO Electric decision, as discussed above. The Commission has also considered
whether the effect of the NSA, taken as a whole, would lead to rates and terms and conditions of
16 Exhibit 23848-X0204.01, AML 2019-2021 GTA negotiated settlement agreement, paragraph 44.
2019-2021 General Tariff Application Negotiated Settlement Agreement and Excluded Matters AltaLink Management Ltd.
Decision 23848-D01-2020 (April 16, 2020) 9
service that are just and reasonable. In addition, in considering the public interest, the
Commission has reviewed each of the material provisions of the NSA in order to determine if
any of these provisions appear to be unusual, contrary to accepted regulatory practices or could
result in undue rate effects, service concerns, preferences or other concerns in future rate
applications.
41. In conducting its public interest analysis, the Commission has taken into account all
information on the record. The NSA reflects material filed in the proceeding prior to the
commencement of negotiations, including responses to IRs on AltaLink’s original application.
This additional material on the record provided the Commission with an additional basis upon
which to conduct its public interest analysis.
42. AltaLink submitted that its proposed 2019-2021 GTA as agreed to in the NSA, is aligned
with customers to reduce costs and ensure efficiency gains are achieved in the 2019-2021 test
period.17 AltaLink further submitted that the NSA satisfies all the requirements of Rule 018, and
that the settlement is not patently against the public interest or contrary to law. AltaLink
summarized the terms of the NSA for AltaLink’s 2019-2021 GTA as follows:
• Operating and Maintenance (“O&M”) and Administrative and General (“A&G”) costs
will be reduced by $22.5 million over the Test Period, “net” of Revenue Offsets as that
term is defined in Schedule 8-1 to the Settlement Agreement. AltaLink and the
Interveners have agreed to a 50/50 symmetrical cost sharing mechanism for any O&M,
A&G and Revenue Offsets reduction or exceedance over the Test Period. Customers’
share of the risk of any actual costs that cumulatively exceed the forecasted costs over the
Test Period for O&M, A&G and Revenue Offsets shall not exceed $3.0 million in total;
• CRU costs will be reduced by $69.0 million ($64.0 million net) over the Test Period, as follows:
• $30.0 million base capital reduction to CRU capital costs in the Test Period,
• $19.0 million gross ($14.0 million net) of estimated line move projects will be
removed from the 2019-2021 GTA. AltaLink will include the actual costs incurred for
line move projects constructed in the Test Period in AltaLink’s next General Tariff
Application, and
• $20.0 million of additional CRU reductions;
• Technology/Security costs will be reduced by $10.0 million over the Test Period;
• Facilities costs will be reduced by $4.0 million over the Test Period;
• Agreed upon reductions to interest rates will reduce interest on debt costs by an
estimated $3.6 million over the Test Period;
• A 2-year extension of the depreciation life of Account 355.01 – Poles and Fixtures will
result in a $1.9 million reduction over the Test Period; and
• The accumulated depreciation surplus of $31.2 million will be refunded18 [footnotes
omitted]
17 Exhibit 23848-X0204, AML 2019-2021 GTA negotiated settlement agreement, paragraph 33. 18 Exhibit 23848-X0204, AML 2019-2021 GTA negotiated settlement agreement, paragraph 28.
2019-2021 General Tariff Application Negotiated Settlement Agreement and Excluded Matters AltaLink Management Ltd.
Decision 23848-D01-2020 (April 16, 2020) 10
43. AltaLink submitted that the NSA results in a direct reduction in operating and capital
costs of $111.0 million, subject to the Commission’s determination of the excluded matters, and
a direct reduction of the transmission tariffs set out in the 2019-2021 GTA of $38.0 million.
44. In addition, AltaLink advised that amounts payable to ratepayers resulting from the cost
sharing agreement regarding the O&M, A&G and Revenue Offsets will be disposed of through a
separate application to be filed with the Commission by July 1, 2022.19
45. Regarding line clearance mitigation costs, in argument, the CCA advised that it was
“… supportive of including $18.9M in AltaLink’s revenue requirement, which is equal to the
amount the CCA agreed to as part of the negotiated settlement.”20 However, because the NSA
only covered AltaLink’s forecast costs, the CCA argued that nothing within the NSA prevents
parties from reviewing the reasonableness of AltaLink’s actual line clearance mitigation costs in
AltaLink’s opening rate base in its next GTA.21
46. In AltaLink’s view, if the Commission approves the NSA, then the $18.8 million for line
clearance mitigation work must be included in opening rate base in AltaLink’s next GTA. In
reply argument, AltaLink submitted that accepting the CCA’s position that the $18.8 million of
line clearance mitigation costs agreed to in the NSA did not include actual line clearance
mitigation cost would defeat the purpose of having an NSA and the strong policy reasons for
encouraging them, and result in more regulatory burden as matters agreed to in one proceeding
would be re-litigated in another.
Commission findings
47. The Commission finds that the scope of this proceeding is limited to AltaLink’s forecast
revenue requirement for the 2019-2021 test period. The Commission considers that opening rate
base for the next test period, commencing in 2022, is a matter that is better addressed in
AltaLink’s next GTA proceeding. It is not disputed that the parties unanimously agree and
support the forecast for line clearance mitigation costs in the NSA. The Commission will
proceed to consider the NSA on this basis.
48. In the Commission’s view, the NSA represents a unanimous agreement reached as a
result of a successful negotiation reflecting a number of compromises with respect to different
interests and positions of the parties. The signatories to the NSA represent a constituent of
Albertans that have historically participated in the testing of AltaLink’s GTAs and supports a
finding that the NSA is in the public interest.
49. On the basis of the Commission’s assessment of provisions of the NSA above, along with
a detailed analysis of the application and IR responses, the Commission finds that the NSA,
taken as a whole, with the exception of the excluded matters, which are discussed in Section 4,
cannot be said to be “patently against the public interest or contrary to law” and will result in
“rates and terms and conditions that are just and reasonable,” as required by Section 8 of
19 Exhibit 23848-X0204, AML 2019-2021 GTA negotiated settlement agreement, paragraphs 29-30. 20 Exhibit 23848-X0333, paragraph 212. 21 Exhibit 23848-X0335, paragraph 8.
2019-2021 General Tariff Application Negotiated Settlement Agreement and Excluded Matters AltaLink Management Ltd.
Decision 23848-D01-2020 (April 16, 2020) 11
Rule 018. Accordingly, the Commission approves the NSA as filed, and as attached as
Appendix 5 to this decision.
4 Excluded matters
4.1 Consideration of evidence
50. AltaLink argued that the evidence provided by Bema witnesses regarding line clearance
mitigation and wildfire mitigation, should be excluded or, alternatively, given little weight. The
Commission considers it would be of assistance to address AltaLink’s submissions regarding the
admissibility and impartiality of the evidence provided by the Bema witnesses, at the outset.
(i) Line Clearance Mitigation
51. AltaLink requested that the Commission strike or disregard the written and oral evidence
filed by Bema’s witnesses in its entirely on the basis that Bema’s evidence was neither
independent nor impartial. Alternatively, AltaLink “…submitted that the Commission should
reduce the weight accorded to Bema’s evidence to that of lay, partisan CCA evidence.”22
52. AltaLink argued that the written line clearance evidence provided by Bema witnesses
Mr. Itiveh and Mr. Tauh was not independent because it was subject to “overall supervision” of
Mr. Levson “on behalf of the CCA.”23 In AltaLink’s view, Mr. Itiveh and Mr. Tauh cannot be
said to be independent of the CCA if their line clearance report was not in a report separate from
Bema’s evidence.
53. In AltaLink’s view, Mr. Madsen, who appeared on the line clearance panel, was also not
independent, as at one point “… he conflated his own opinion in another proceeding with that of
the CCA, stating in respect of that opinion that “we are recommending -- and by ‘we,’ I mean the
CCA -- is recommending it.”24
54. In addition, AltaLink argued that Mr. Itiveh was not impartial during the oral hearing,
because he, at times: restated Bema evidence, offered legal argument, and went beyond the
question posed.
55. AltaLink also contended that Mr. Levson and Mr. Madsen had no relevant expertise
related to line clearance, and that the participation of Mr. Levson and Mr. Madsen on Bema’s
line clearance panel during the oral hearing deprived Mr. Itiveh and Mr. Tauh’s evidence of any
value it might have had as the independent opinion of subject-matter experts.
56. The CCA responded that the expert evidence provided by Mr. Itiveh, Mr. Levson and
Mr. Tauh, in their respective areas of expertise and responsibility, should be given full weight by
the Commission.
57. Regarding independence, the CCA emphasized that Mr. Itiveh and Mr. Tauh are
independent consultants who provide services to the CCA through Bema, and that the opinions
they provided were their own. The CCA submitted that Mr. Levson’s reference during the oral
22 Exhibit 23848-X0332, paragraph 304. 23 Exhibit 23848-X0332, paragraph 286, citing Transcript, Volume 4, page 814, lines 17-24. 24 Exhibit 23848-X0332, paragraph 289, citing Transcript, Volume 3, page 535, lines 16-18.
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hearing to “… ‘supervision’ meant nothing more than regulatory coordination of the process and
procedural matters in accordance with the Commission’s Rules of Practice and its well-
established procedural requirements.…”25
58. The CCA argued that there was no indication that Mr. Levson, Mr. Madsen, or anyone at
Bema or the CCA “… directed and instructed these witnesses to provide their technical expert
opinion in a certain way, or asked them to alter it to be aligned with Bema’s or the CCA’s
position.”26
59. The CCA also pointed to the fact that Mr. Itiveh, Mr. Levson and Mr. Tauh are
professional engineers and active APEGA members, with resulting ongoing professional
obligations. The CCA highlighted that these witnesses all confirmed on the record that they
understand their duty to provide opinion evidence to the Commission that is fair, objective and
non-partisan.27
60. As for Mr. Madsen, the CCA submitted that he mis-spoke regarding the CCA’s
recommendation and noted that he corrected his statement on the record.
61. Regarding impartiality and bias, the CCA submitted that disagreement with AltaLink
corporate witnesses does not mean that Bema’s expert witnesses were partial or biased in any
way. The CCA submitted that Mr. Itiveh provided helpful clarifications and illustrative
examples, and that any expert witness “may choose to expand on the narrative, be emphatic
about it or provide clarifications to explain his or her independent expert evidence to the
regulator and all parties involved in the Proceeding.”28
62. The CCA submitted that Mr. Itiveh never claimed he was a lawyer nor did he offer a
legal opinion. The CCA argued that most of the line clearance hearing time:
… focused on the interpretation of the Code, which required technical and engineering
expertise, as well as significant operating experience with line clearance issues, which
Mr. Itiveh had based on his education and prior field experience at AET, which is another
TFO [transmission facility owner] in Alberta.29
63. Regarding expertise, the CCA submitted that all their witnesses were competent in their
respective areas of responsibility.30 The CCA pointed to the CVs of each of the witnesses filed in
this proceeding as providing examples of their technical competence and expertise and
qualifications.
64. The CCA added that Mr. Madsen is an expert witness, who is well-known to the
Commission, and that he “appeared on the line clearance mitigation witness panel with a limited
set of responsibilities that were clearly outlined before the panel was made available for cross-
25 Exhibit 23848-X0335, paragraph 185. 26 Exhibit 23848-X0335, paragraph 187. 27 Exhibit 23848-X0335, paragraph 187. Citing Transcript, Volume 4, page 772, lines 5-9; page 773, lines 18-22;
page 776, lines 5-9. 28 Exhibit 23848-X0335, paragraph 201. 29 Exhibit 23848-X0335, paragraph 205. 30 Exhibit 23848-X0335, paragraph 208.
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examination.”31 The CCA submitted that Mr. Madsen was the only one on the panel who could
have addressed how the NSA applied to the line clearance business case.
(ii) Wildfire mitigation
65. AltaLink submitted that Bema’s wildfire evidence was not the opinion of an independent
expert witness, and should be disregarded in its entirely.
66. Regarding independence, AltaLink contended that:
Mr. Levson admitted to censoring Bema’s evidence “on behalf of the CCA”, which alone
deprives Bema’s evidence of any independence it could possibly have had. Bema’s
wildfire evidence was prepared by Mr. Levson himself, so it cannot possibly be said to be
independent of the CCA’s oversight.32 [footnotes omitted]
67. Additionally, AltaLink argued that the Bema witnesses did not meet the definition of
“independent witnesses” under Rule 001 because they had no specialized knowledge, training,
skills, experience or expertise in the area of wildfire or wildfire mitigation. AltaLink submitted
that Bema witnesses had no formal education related to wildfire mitigation, and that their
evidence only consisted of general research of the subject of wildfire management plans. Rather,
AltaLink characterized their evidence as that of a layperson.
68. In AltaLink’s view, Bema’s approach resulted in Bema misrepresenting the conclusions
of the experts cited in Bema’s evidence. AltaLink submitted that Bema’s approach was biased
because at least one external report cited in Bema’s evidence clearly refutes Bema’s conclusions
with respect to climate change risk. AltaLink argued that either Bema failed to read this report in
its entirely, or that Bema intentionally omitted this report in its evidence, resulting in the
conclusion that Bema is either not competent or not credible.
69. The CCA relied on its line clearance mitigation submissions regarding the weight of
Bema’s expert evidence, submitted that these submissions were equally applicable to AltaLink’s
credibility attacks in the wildfire mitigation context.
70. The CCA highlighted that the three professional engineers on Bema’s panel had the
following areas of expertise:
a. Mr. Levson addressed wildfire risks generally and from a regulatory policy and
practices perspective; and
b. Mr. Itiveh and Mr. Tauh focused on the asset management, operational and technical
perspectives of wildfire risks as applied to transmission assets based on their recent and
extensive experience from AET and ATCO Electric Distribution.33
71. The CCA added that Mr. Levson, Mr. Itiveh and Mr. Tauh provided evidence specific to
AltaLink’s transmission assets and its designated service area. In the CCA’s view:
… AltaLink’s WMP business cases for these two programs are not about wildfire science
or climate change science, they include specific requests for capital expenditures to
31 Exhibit 23848-X0335, paragraph 215. 32 Exhibit 23848-X0332, paragraph 359. 33 Exhibit 23848-X0335, paragraph 306.
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accelerate asset management notifications of ignition-specific items in specific risk areas
based on AltaLink’s understanding of the risk of ignition and the risk of resulting
significant and impactful wildfires.34
72. The CCA contrasted Bema’s evidence with the evidence provided by AltaLink’s
corporate witnesses, as well as AltaLink’s witness Dr. Flannigan who “knows little about
AltaLink, its assets and service area. Dr. Flannigan is not a climate change expert.”35 The CCA
explained:
Dr. Flannigan is a wildfire scientist who understands wildfire risks in general, but the
value of his evidence is limited as it is not applicable to AltaLink’s transmission assets
and its service area. Mr. Levson’s research, including cases and articles from the United
States and other Canadian provinces, was conducted with a focus on AltaLink’s
transmission assets and a good understanding of where AltaLink’s service area is located.
It makes no sense to compare Dr. Flannigan and what he brought to this Proceeding with
Mr. Levson and his contextual research as their evidence addressed different issues from
different perspectives. There is no contradiction in this case. AltaLink’s statements
regarding Bema’s complete lack of expertise and value are taken to the extreme
especially given that the field of wildfire prevention of fire ignitions is still fairly new (as
acknowledged by AltaLink in paragraphs 354-355).36
Commission findings
73. One of the ways in which the Commission’s process differs from that of the court is that
it is not required to apply as strictly the rules of evidence that relate to a trial before a judge.
Section 20 of the Alberta Utilities Commission Act states that the Commission is not bound by
the rules of law concerning evidence that are applicable to judicial proceedings. This provides
the Commission some flexibility to determine the evidence to admit and what weight to give
evidence, while at the same time, adhering to the principles of procedural fairness that underline
the formal rules of evidence.
(i) Admissibility of evidence presented by Bema witnesses
74. The CCA retained the Bema witnesses as “independent witnesses” under Section 19.1 of
Rule 001. Section 19.1 of Rule 001 states that “[a] party may engage one or more independent
witnesses to give opinion evidence in a proceeding on issues that are in the independent
witness’s area of specialized knowledge, training, skills, experience or expertise.” An
“independent witness” is defined in Rule 001 as follows:
“independent witness” means a witness with specialized knowledge, training, skills,
experience or expertise who is engaged by a party for the purpose of giving opinion
evidence in a proceeding on an issue or issues directly related to the witness’s specialized
knowledge, training, skills, experience or expertise.
75. The Commission’s approach to the admissibility of evidence follows White Burgess
Langille Inman v. Abbott and Haliburton Co.37 (White Burgess). In White Burgess, the Supreme
Court of Canada found that expert witnesses have a special duty to provide fair, objective and
34 Exhibit 23848-X0335, paragraph 310. 35 Exhibit 23848-X0335, paragraph 303, citing Transcript Volume 5, page 948, lines 14-22. 36 Exhibit 23848-X0335, paragraph 313. 37 2015 SCC 23, paragraphs 48-49.
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non-partisan assistance to the court. The court described the threshold inquiry as “whether the
expert is able and willing to carry out his or her primary duty to the court.”38 Paragraphs 48 and
49 of White Burgess are of particular significance in the circumstances:
[48] Once the expert attests or testifies on oath to this effect, the burden is on the party
opposing the admission of the evidence to show that there is a realistic concern that the
expert’s evidence should not be received because the expert is unable and/or unwilling to
comply with that duty. If the opponent does so, the burden to establish on a balance of
probabilities this aspect of the admissibility threshold remains on the party proposing to
call the evidence. If this is not done, the evidence, or those parts of it that are tainted by a
lack of independence or impartiality, should be excluded. This approach conforms to the
general rule under the Mohan framework, and elsewhere in the law of evidence, that the
proponent of the evidence has the burden of establishing its admissibility.
[49] … I emphasize that exclusion at the threshold stage of the analysis should occur only
in very clear cases in which the proposed expert is unable or unwilling to provide the
court with fair, objective and non-partisan evidence. Anything less than clear
unwillingness or inability to do so should not lead to exclusion, but be taken into account
in the overall weighing of costs and benefits of receiving the evidence.
76. Section 19.2 of Rule 001 establishes minimum filing requirements for an independent
witness’s written evidence, including, under part (d), “an acknowledgement that the independent
witness has a duty to provide opinion evidence to the Commission that is fair, objective and
nonpartisan.” All of the Bema witnesses provided an attestation under Rule 001(d) to give
opinion evidence that is fair, objective and non-partisan.39 Having done so, the burden is on the
party opposing the admission of the evidence, that is AltaLink in the circumstances, to show that
there is a realistic concern that evidence of each of the witnesses should not be received because
the expert is unable and/or unwilling to comply with that duty.
77. Having reviewed the written evidence and oral testimony of the Bema witnesses, and
having considered the demeanor of the Bema witnesses during the oral hearing, the Commission
is not satisfied that AltaLink has demonstrated that this proceeding constitutes the rare
circumstances or a very clear case in which each of the Bema witnesses was not able or willing
to carry out his duties to be fair, objective, and non-partisan.
78. Accordingly, the Commission finds that the evidence filed by Bema satisfies the
threshold for admissibility from the perspective of independence, and the Commission dismisses
AltaLink’s request to find each of the Bema witnesses’ evidence be struck or disregarded in its
entirety. In any event, the Commission no longer qualifies witnesses as “expert” and every
witness with standing in a proceeding is afforded the opportunity to provide “opinion evidence”
to the Commission.40 Accordingly, the Commission must assess the weight to assign to the
evidence of a witness.
38 White Burgess, paragraph 49. 39 For line clearance mitigation, Transcript, Volume 4: Mr. Levson, page 772, lines 5-9; Mr. Tauh, page 773,
lines 19-23; Mr. Itiveh, page 776, lines 5-9; and Mr. Madsen, pages 777-778, lines 23-25, 1-2. For wildfire
mitigation, Transcript, Volume 5, Mr. Levson, page 1060, line 16-20; Mr. Tauh, page 1062, lines 20-24, and
Mr. Itiveh, page 1064, lines 3-6. For all Bema written evidence, Exhibit 23848-X0337, paragraph 39. 40 In Bulletin 2016-07, Practice advisory and procedural change – expert witness qualification no longer required,
March 24, 2016, the Commission advised interested parties that it had dispensed with the need to qualify expert
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(ii) Weighing of evidence
79. The Commission’s approach to assessing evidence is to assign weight based on each
witness’s professional qualifications, specialized knowledge, experience, independence and
objectivity. The Commission has undertaken this analysis and determined the weight to be given
to evidence in the sections of this decision in which the evidence is discussed.
4.2 Section 33.1 Energy Storage Systems on the Alberta Integrated Electric System
80. Section 33 of AltaLink’s application addressed energy storage systems (ESS) on the
Alberta Integrated Electric System (AIES). AltaLink proposed:
• In the future, should an ESS cost effectively meet the need of a transmission project,
AltaLink would bring forward an application to the Commission.
• If installing and operating an ESS can meet a transmission need, improve performance of
the transmission grid, manage transmission congestion, defer/avoid future transmission
build and/or minimize transmission maintenance for Alberta ratepayers, AltaLink would
like to ensure proper treatment of these solutions under its tariff, and ensure they are
appropriately implemented for the benefit of Alberta ratepayers.
• In the event an ESS is implemented on the AIES by AltaLink, AltaLink would like to
ensure the proper and prudent treatment of these facilities within its 2019-2021 GTA.
(AltaLink advised that it had currently not forecast any revenues associated with ESS.)
• AltaLink submitted that it is important that TFOs have the option to evaluate and propose
regulated ESS to the Commission if regulated energy storage projects provide a cost
effective solution for transmission requirements/needs.41
81. In an IR, the Commission asked AltaLink what it was asking from the Commission with
respect to ESS in the context of the current GTA. AltaLink responded, in part:
To date, AltaLink is not aware of an ESS project that has been brought forward for
consideration by the Commission with regards to treatment under its tariff, and AltaLink
has not forecasted any revenues from ESS projects in this GTA period. However, if
AltaLink identifies opportunities to build economical ESS projects in this GTA period
that would defer, replace, or offset a traditional regulated wires solution, AltaLink would
like the Commission to consider these projects for proper and prudent treatment under its
tariff. Similarly, if AltaLink is direct assigned to build ESS projects on the AIES,
AltaLink would like the Commission to consider these projects for proper and prudent
treatment in future AltaLink DACDA applications.
For the purposes of this GTA Application, AltaLink is seeking consideration by the
Commission of how an ESS project would be treated under its tariff only for regulated
witnesses and that it would not be necessary for counsel to request that their respective witnesses be qualified as
an “expert” witness with regard to their pre-filed written evidence or testimony at an oral hearing. The
Commission also advised parties that it would accept opinion evidence, regardless of whether the witness could
meet the requirements to be qualified as an expert. The Commission reiterated this approach regarding the need
to qualify expert witnesses in its November 14, 2019, correspondence in this proceeding. 41 Exhibit 23848-X0002.02, Updated Application (August 21, 2019), paragraphs 1134-1137.
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ESS projects that would be executed by AltaLink that could be an economical alternative
to a traditional wires solution.42
82. In another IR response, AltaLink stated that neither it nor its parent company (Berkshire
Hathaway Energy) nor its affiliates are aware of any ESS projects brought forward for
Commission consideration, nor have there been formal discussions regarding the potential for
any specific ESS projects on AltaLink’s system.43
83. The Commission directed that this section be excluded from the NSP.44 Parties did not
comment on this issue in argument or reply argument.
Commission findings
84. The Commission is generally aware that policy work on ESS is being undertaken by the
Alberta Department of Energy and that the Alberta Electric System Operator (AESO) is
currently conducting some investigatory work into this topic.
85. As AltaLink has not provided any specific proposals regarding ESS projects in this
application, the Commission is unable to make any specific findings regarding ESS projects at
this time.
86. However, the Commission advises that it is prepared to consider a specific ESS project,
when such a project comes before the Commission.
4.3 Appendix 22: Wildfire Mitigation Plan
4.3.1 Overview
87. AltaLink proposed a new capital program, the Wildfire Mitigation Plan (WMP),45 to
reduce the risk of wildfires for Albertans. AltaLink explained that, through the WMP, it will
enhance current wildfire mitigation practices, operations and maintenance programs, and
implement additional practices or investments to reduce further the risk of transmission system
operation caused fire ignition.46
88. Regarding the need for the program, AltaLink advised that in 2018 it received new
information from Alberta Wildfire, as part of the Ministry of Agriculture and Forestry under the
Alberta Government, indicating that powerline-related wildfires were increasing, both in severity
and in total area burned.47 Some of the contributing factors for this increasing trend of powerline-
caused wildfires reported by Alberta Wildfire, and referenced by AltaLink in its application,
include:
• Increasing wind events that create a higher potential for the number of hectares burned;
• Climate change and forest health decline;
42 Exhibit 23848-X0062, AltaLink Information Response AML-AUC-2018OCT31-139, PDF page 312. 43 Exhibit 23848-X0089.01, Information responses to the CCA, AML-CCA-2018OCT31-132, PDF page 430. 44 Exhibit 23848-X0182, paragraph 8. 45 Exhibit 23848-X0169, Appendix 22, AltaLink Wildfire Mitigation Plan. 46 Exhibit 23848-X0169, Appendix 22, paragraphs 1-2. 47 Exhibit 23848-X0169, Appendix 22, paragraph 4.
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• Expanding wildland urban interface; and
• Spring time conditions and associated powerline ignitions in cured grass.48
89. AltaLink also cited recent wildfires that occurred in California, such as the November
2018 wildfire that resulted in fatalities and billions of dollars in damages and, in Alberta
specifically, the Slave Lake fire in 2011 and the Fort McMurray fire in 2016, as examples of
wildfire risk. With respect to the Alberta wildfires, while AltaLink advised that these wildfires
were not caused by powerline ignitions, AltaLink reported that Alberta is still seeing an
increasing trend of powerline-caused wildfires over the last decade.49 For example, AltaLink
indicated that historical data acquired from Alberta Wildfire shows that powerline wildfires have
increased from 64 fires during the 1996-2005 time period to 850 fires in the 2006-2017 period.50
90. Dr. Flannigan, a professor of wildland fire at the University of Alberta and Director of
the Canadian Partnership for Wildland Fire Science, provided evidence on behalf of AltaLink.
Dr. Flannigan stated that wildfire risk in Alberta is increasing due to increasing societal values
that are impacting communities, infrastructure, industry and the landscape and due to a warming
climate in Alberta. Specifically, Dr. Flannigan emphasized that Alberta and Canada are
experiencing longer fire seasons, more severe weather and increasing area burned.51
Dr. Flannigan submitted that one aspect of extreme weather conditions is high wind speeds and
that, with climate change, more high wind speed events are expected. Dr. Flannigan noted this is
important because the likelihood of powerline failures and the possibility of wildfires increases
with increasing wind speed.52 In addition, Dr. Flannagan advised that the risk is not uniform
across Alberta due to changes in the environment (i.e., fuels, weather and topography).
Dr. Flannigan also recommended that a detailed risk assessment be done to determine high-risk
areas, and stated that the highest risk areas are where preventive activities should occur first.53
91. AltaLink explained that the WMP is fundamentally about risk management,54 and is
similar in nature to the work that is currently performed under AltaLink’s CRU program,55 which
oversees the operation of AltaLink’s transmission system in a safe, reliable and efficient manner
over the long-run.56 Further, AltaLink submitted that, although some components of the CRU
program mitigate the risk of fire ignition, the CRU program is not driven exclusively by a
specific focus on wildfire risk, and does not currently reflect the new evidence of heightened
wildfire risk.57 AltaLink emphasized that this heightened risk constitutes a new and separate
driver that is not reflected under its current CRU program, where it necessitates incremental
work that, although similar in nature to work already performed under AltaLink’s CRU, is not
currently being performed at a pace sufficient to address the risk adequately.58
48 Exhibit 23848-X0169, Appendix 22, paragraph 6, citing “Appendix 22 Attachment 2, Best Management
Practice for Electrical Utility Wildfire Management, source Alberta Wildfire, page 4.” 49 Exhibit 23848-X0169, Appendix 22, paragraphs 12-13. 50 Exhibit 23848-X0169, Appendix 22, paragraph 5. 51 Exhibit 23848-X0295, AltaLink rebuttal evidence of Dr. Flannigan, paragraph 1. 52 Exhibit 23848-X0295, AltaLink rebuttal evidence of Dr. Flannigan, paragraph 5. 53 Exhibit 23848-X0295, AltaLink rebuttal evidence of Dr. Flannigan, paragraph 3. 54 Exhibit 23848-X0332, AltaLink argument, paragraph 330. 55 Exhibit 23848-X0337, AltaLink reply argument, paragraph 91. 56 Exhibit 23848-X0002.02, application, paragraph 630. 57 Exhibit 23848-X0337, AltaLink reply argument, paragraph 90. 58 Exhibit 23848-X0337, AltaLink reply argument, paragraph 91.
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92. AltaLink stated that the WMP will target its assets located in areas characterized as high-
risk fire areas (HRFAs). HRFAs are designated based on a cumulative risk of fire ignition
classification, set out in the risk assessment report for the Calgary Forest Area,59 in order of most
severe to least severe as: (a) intolerable; (b) risk reduction; (c) continuous improvement; and
(d) minor.60 AltaLink stated that it utilized this report received from Alberta Wildfire, to identify
its own transmission line assets that are located in areas classified as “intolerable and risk
reduction,” thereby, initiating a requirement to enhance its operations and maintenance practices
focused on assets in identified HRFAs.61 The risk evaluation in this report factors in:
• burn probability (which includes fuel types and loading, elevation, wind grids,
topography); and
• values at risk (which includes human life, communities, significant one way in/out roads,
natural resources, infrastructure).62
93. AltaLink argued that if a wildfire were to start in an HRFA, it would likely overwhelm
initial fire suppression resources.63 Accordingly, in AltaLink’s view, HRFAs represent locations
along its powerlines with the highest risk classification of fire intensity based on fuel types
present, combined with large effects on communities or infrastructure within two kilometers of
the powerline.64 Therefore, HRFAs are areas where wildfire risk is heightened and where
additional mitigation practices are required, and the risk level in HRFAs are determined through
a combination of wildfire probability and consequence.65
94. In developing the WMP, AltaLink submitted that it collaborated and consulted with
Alberta Wildfire and different utilities in Alberta and across North America in order to obtain
knowledge and understanding of wildfire mitigation practices, and apply best practices to its
service territory in Alberta with the help of local information and expertise.66
95. AltaLink stated that the key elements of the WMP are aligned with industry practices in
other jurisdictions,67 and include the following:
• Wildfire risk mapping and modelling;
• Incremental operational practices (wildfire inspections and patrols – USA 563,
vegetation management – USA 571.1, wildfire situational awareness – USA 561);
• Targeted component and structure replacements in HRFAs;
• Line rebuilds in HRFAs (system hardening);
• Wildfire situational awareness program; and
59 Exhibit 23848-X0172, appendix 22, attachment 3 (Calgary Wildfire Risk Management Plan). 60 Exhibit 23848-X0169, Appendix 22, paragraph 8. 61 Exhibit 23848-X0169, Appendix 22, paragraph 9. 62 Exhibit 23848-X0169, Appendix 22, paragraphs 7-8. 63 Exhibit 23848-X0332, AltaLink argument, paragraph 331. 64 Exhibit 23848-X0231, AML-AUC-2019JUL19-008, PDF page 27. 65 Exhibit 23848-X0169, Appendix 22, paragraph 23. 66 Exhibit 23848-X0332, AltaLink argument, paragraph 326. 67 Exhibit 23848-X0332, AltaLink argument, paragraph 341.
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• Transmission line rights-of-way upgrades in HRFAs.
96. AltaLink advised that it is seeking Commission approval for incremental operational and
capital forecast expenditures to implement the WMP and associated work. AltaLink also
requested that the WMP be approved in its entirety, as the individual elements or programs are
designed to complement each other, and submitted that not approving the WMP as a whole
would compromise its effectiveness.68
97. AltaLink’s WMP forecasts an operational investment of $3.0 million and capital
investment of $35.0 million over the 2019-2021 test period, as shown in the following tables.
Table 1. WMP operational expenditures
Operational expenses 2019
forecast 2020
forecast 2021
forecast Total
($ million)
Wildfire situational awareness (USA account 561) 0.1 0.1 0.1 0.3
Wildfire inspections and patrols (USA account 563) 0.1 0.1 0.1 0.3
Wildfire vegetation management (USA account 571.1) 0.8 0.8 0.8 2.4
Total 1.0 1.0 1.0 $3.0
Source: Exhibit 23848-X0169, Appendix 22, Table 3-1, paragraph 19.
Table 2. WMP capital expenditures
Capital expenses 2019
forecast 2020
forecast 2021
forecast Total
($ million)
Targeted component and structure replacements in HRFAs 7.3 9.3 7.7 24.3
Wildfire situational awareness 0.0 0.3 0.4 0.7
Line rebuilds in HRFAs 0.0 3.5 3.5 7.0
Transmission line rights-of-way upgrades in HRFAs 0.9 0.9 1.2 3.0
Total 8.2 14.0 12.8 35.0
Source: Exhibit 23848-X0169, Appendix 22, Table 3-2, paragraph 19.
98. The Commission will discuss the individual elements or programs of the WMP in the
sections below.
4.3.2 Wildfire risk mapping and modelling
99. AltaLink submitted that it received a “Calgary Wildfire Risk Management Plan” from
Alberta Wildfire in Quarter 1, 2019, for the first time, which included a wildfire risk assessment
of the Calgary Forest Area.
100. The Calgary Forest Area is located inside the Forest Protection Area (FPA). AltaLink
submitted that the risk assessment for the Calgary Forest Area provided new information for
AltaLink to evaluate its public safety, property, environment and wildfire risk in these areas.69
101. AltaLink explained that Alberta Wildfire is responsible for the FPA, indicated in pink on
the map below, whereas individual municipalities are responsible for their own territories in the
area known as the White Zone (or grasslands), indicated in white on the map. AltaLink advised
68 Exhibit 23848-X0332, AltaLink argument, paragraph 343. 69 Exhibit 23848-X0169, Appendix 22, paragraphs 7-8.
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that individual municipalities have not produced a wildfire risk assessment similar to the one
produced by Alberta Wildfire.70
Figure 1. FPA (pink) and White Zone (white) in Alberta
Source: Exhibit 23848-X0169, Appendix 22, Figure 2-1, paragraph 4.
102. The regions in the FPA, for which AltaLink has a wildfire risk map or is producing one,
are Calgary (which also is referred to as the Calgary Forest Area), Rocky Mountain House,
Edson, Lac La Biche and Whitecourt. These areas are also commonly referred to as fire regions
throughout AltaLink’s application.
103. AltaLink stated that, upon reviewing the wildfire risk map for the Calgary Forest Area, it
utilized the information contained in it to confirm and identify HRFAs within its service territory
in order to locate assets and prioritize incremental maintenance or capital investments.71 AltaLink
submitted that approximately 15 per cent of its transmission assets are situated in the FPA and
85 per cent of its transmission assets are situated in the White Zone.72
70 Exhibit 23848-X0169, Appendix 22, paragraph 21. 71 Exhibit 23848-X0169, Appendix 22, paragraph 20. 72 Exhibit 23848-X0169, Appendix 22, paragraph 21.
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104. AltaLink explained that the wildfire risk maps developed by Alberta Wildfire take into
consideration ignitions from all sources and not just powerlines. Furthermore, AltaLink stated
that Alberta Wildfire provided feedback that AltaLink should not wait until the risk planning for
the remainder of the FPA is complete. This is because the completion of the wildfire risk maps
for the remainder of the FPA within Alberta would take an additional two to four years.73
105. AltaLink advised that it retained Forsite Consultants Ltd. (Forsite) to provide independent
expertise and judgement in developing partial wildfire risk maps as part of its WMP.74 AltaLink
stated that the analysis utilized the same information used by Alberta Wildfire in its wildfire risk
maps, but was specific to AltaLink’s asset locations.75 AltaLink indicated that Forsite was the
same consultant used by Alberta Wildfire to develop its own wildfire risk maps.76
106. Forsite stated that the approach to identifying wildfire risk looked at the combination of
the likelihood of a burn or wildfire occurring and the potential effects on human life,
communities and the environment.77 AltaLink cited the following assumptions used in the
modelling of its wildfire risk maps:
(a) Use of fuels data and Fire Behaviour potential data as maintained by Alberta
Wildfire for wildfire growth and risk analysis;
(b) Fire growth modeling software used in the risk analysis mapping (Prometheus –
a program owned by the Alberta government);
(c) Impact layers to determine consequence to human life, communities and critical
infrastructure; and
(d) The model parameters used for the fire growth modeling process approved by the
Alberta government, including but not limited to:
(i) Fuels layer as provided by Alberta Wildfire;
(ii) Approach used to calculate fire intensity and associated threshold;
(iii) Decisions around grass curing rates/timing;
(iv) Wind grids used to adjust winds based on topography; and
(v) Weather data from government weather stations (Alberta Wildfire and
Environment Canada).78 [footnotes removed]
107. AltaLink submitted that the HRFA maps for the FPA (pink area) were completed fairly
quickly, as it already had the base data acquired from Alberta Wildfire.79 At the time of the oral
hearing, AltaLink had risk maps completed for four fire regions in the FPA: Calgary, Rocky
Mountain House, Edson and Lac La Biche, while the maps for the Whitecourt fire region and
White Zone were still under development.
73 Exhibit 23848-X0231, AML-AUC-2019JUL19-008, PDF page 32. 74 Exhibit 23848-X0231, AML-AUC-2019JUL19-008, Attachment 6, PDF page 111. 75 Exhibit 23848-X0231, AML-AUC-2019JUL19-008, PDF page 27. 76 Transcript, Volume 5, page 1044, lines 21-24. 77 Exhibit 23848-X0231, AML-AUC-2019JUL19-008, Attachment 6, PDF page 111. 78 Exhibit 23848-X0332, AltaLink argument, paragraphs 331-333. 79 Exhibit 23848-X0332, AltaLink argument, paragraph 334.
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108. Using the wildfire risk maps produced by Forsite for the four available fire regions in the
FPA, AltaLink overlaid all fire-related maintenance notifications on its assets,80 in order to
conclude which maintenance notifications were located in an HRFA.81
109. In an IR response to the Commission,82 AltaLink provided a table, produced in part
below, showing for each fire region the transmission line length in kilometres (km), and total
fire-related maintenance notifications.
Table 3. Known and calculated fire-related notifications
Fire region Total line
length (km) Total line length
in HRFA (km) % of line in HRFAs
Component replacement
Structure replacement
Total fire-related notifications
Calgary 1,063 175 16 106 64 170
Rocky Mountain House
588 10 2 16 0 16
Edson 713 170 24 145 12 157
Lac La Biche 244 132 54 29 0 29
Whitecourt (extrapolated)
321 77 24 64 7 71
White Zone (extrapolated)
9,000 1,080 12 904 100 1,004
Total 11,929 1,644 22 1,264 183 1,447
Source: Exhibit 23848-X0231, Table 1, PDF page 30
110. AltaLink explained that it had to extrapolate the forecast for the Whitecourt fire region
and the White Zone, as indicated in Table 3 above, as the White Zone was previously unmapped,
and AltaLink did not have the base data, as was the case with the FPA.83 For the Whitecourt fire
region, AltaLink estimated a forecast of 71 fire-related outstanding maintenance notifications in
that region, based on the number of notifications that were already identified in the Calgary,
Rocky Mountain House, Edson and Lac La Biche fire regions, as well as the transmission line
length that runs through an HRFA in those regions.84 AltaLink explained the extrapolation
methodology for the White Zone as follows:85
In the mapped areas for the FPA, the average percentage of total lines that fall in a HRFA
is 24%. Using this average as a proxy, and assuming that the rate of HRFA exposure in
the “white zone” is approximately half-based on discussions with expert consultants,
AltaLink estimated that 12% of AltaLink’s total lines in the “white zone” fall in a HRFA.
Since there are 9,000 km of lines in the “white zone”, AltaLink forecasts that
approximately 1,080 km of lines fall in a HRFA in the “white zone”. Actual expenditures
will be based on the completed final mapping of HRFAs of AltaLink’s service territory,
including the “white zone”. [footnotes omitted]
111. Further, AltaLink stated that it was confident that the forecast methodology used for
extrapolation in the White Zone would be confirmed when mapping activities were complete.
80 In Exhibit 23848-X0169, Appendix 22-A2, PDF page 23, AltaLink explained that a “maintenance notification”
on a structure can result from age-related wear, storm damage, clearance problems, environmental
contamination, industrial contamination or material defects, among others. 81 Exhibit 23848-X0332, AltaLink argument, paragraph 334. 82 Exhibit 23848-X0231, AML-AUC-2019JUL19-008, PDF page 30. 83 Exhibit 23848-X0332, AltaLink argument, paragraph 335. 84 Exhibit 23848-X0231, AML-AUC-2019JUL19-008, PDF page 29. 85 Exhibit 23848-X0332, AltaLink argument, paragraph 336.
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However, AltaLink emphasized that “immediate action is required to address HRFAs in the
‘white zone’,” citing the Acadia and Cypress fires that occurred in October 2017 in the White
Zone, and the fact that it is an area that is more populated relative to the FPA, as evidence that it
should not wait for forecasts to be confirmed to initiate preventative activities.86
112. AltaLink stated that upon reviewing the data in the FPA, it concluded the following:
(a) $9 million (of $24.3 million forecast) of Targeted Component and Replacements are
in the FPA;
(b) $7 million (of $7 million forecast) of Line Rebuilds are in the FPA;
(c) $0.9 million (of $3 million forecast) of Transmission Line Rights-of-way
Improvements are in the FPA;
(d) $0.4 million (of $0.7 million forecast) of Situational Awareness are in the FPA;
(e) $3 million (of $3 million forecast) for operating expenses applies to both the FPA
and non-FPA areas and cannot be separated (i.e., AltaLink cannot just do the work
only in the FPA and not in the ‘white zone’).87 [footnotes removed]
113. AltaLink noted that any variances to forecast will be examined and explained in its next
GTA. At that time, AltaLink will have the actual work completed, its actual expenditures in
performing the work, and the specific HRFAs in which the work was done.88
114. In argument, the CCA submitted that individual municipalities, who are responsible for
their own territories in the White Zone, have not produced any sort of wildfire risk assessment
for their respective areas and, therefore, the level of risk must be “significantly lower” relative to
the FPA.89 Further, the CCA questioned the urgency of the proposed capital expenditures to
mitigate wildfire risk, in the absence of evidence that the entities responsible for overseeing
wildfire risk in their own jurisdictions (i.e., Alberta Wildfire in the FPA and municipalities in the
White Zone) are allocating additional funding to wildfire prevention or mapping.90
115. The CCA submitted that AltaLink did not file sufficient evidence to support its
extrapolation in the White Zone, and that the extrapolation is based on “unreasonable
assumptions.”91 The CCA submitted that Forsite increased wildfire risk in the White Zone from
33 per cent to 50 per cent, translating to an increase in transmission line length in the White
Zone’s HRFAs from 270 km (as seen in the application92) to 1,080 km (as seen in Table 3).93 The
CCA also argued that AltaLink did not file evidence to demonstrate that the fires that occurred in
86 Exhibit 23848-X0332, AltaLink argument, paragraph 337. 87 Exhibit 23848-X0332, AltaLink argument, paragraph 339. 88 Exhibit 23848-X0332, AltaLink argument, paragraph 338. 89 Exhibit 23848-X0333, CCA argument, paragraphs 345-346. 90 Exhibit 23848-X0333, CCA argument, paragraph 391. 91 Exhibit 23848-X0335, CCA reply argument, paragraph 266. 92 Exhibit 23848-X0169, Appendix 22-A3, paragraph 12, PDF page 30. 93 Exhibit 23848-X0333, CCA argument, paragraph 348.
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the White Zone were caused by its transmission assets, or that the White Zone is more populated
than the FPA.94
116. The CCA also expressed concern that a third-party consultant was not present in the
hearing to speak to the development of the risk maps and extrapolation principles for the White
Zone.95
117. Despite the arguments discussed above, the CCA indicated in reply argument that it is
generally supportive of AltaLink’s wildfire risk modelling and mapping activities.96
118. In reply argument, AltaLink explained that neither the Government of Alberta nor
municipal governments are responsible for mitigating ignition risks resulting from AltaLink’s
own assets. As a result, AltaLink is required by law to maintain and operate its assets safely
within its service territory.97 Furthermore, AltaLink indicated that, since the wildfire risk maps
are specific to AltaLink’s own assets in its service area, there would be no overlap of
expenditures between AltaLink and government agencies.98 In AltaLink’s view, the CCA’s
suggestion to rely on government agencies to mitigate wildfire risk ignores AltaLink’s
responsibilities as a TFO.99
119. AltaLink submitted that there is clear evidence of elevated wildfire risk in Alberta, and
just because a major wildfire such as the Slave Lake fire or the Fort McMurray fire did not occur
in its service area, the Commission should not be dissuaded from approving AltaLink’s WMP.100
AltaLink stated further that it is irrelevant that these fires did not occur in AltaLink’s service
area, but it matters that these fires did occur.101 AltaLink concluded that the CCA’s request for
more wildfire risk evidence is, therefore, unreasonable.102
120. With respect to the White Zone maps, AltaLink submitted it had explained extensively
how it extrapolated its forecast,103 and that the maps are now finished. AltaLink further stated that
it was willing to provide the maps to the CCA, or file the maps in a compliance filing to this
proceeding, as a condition of receiving the requested forecast expenditures for the work to be
completed in the White Zone.104
Commission findings
121. The Commission notes that AltaLink is required by law to operate its assets in a safe and
reliable manner, and continues to be of the view that it is reasonable for AltaLink to mitigate
potential ignition risks caused by AltaLink’s transmission assets. While not determinative, the
Commission observes that it has approved AltaLink’s costs in the past under its CRU program
94 Exhibit 23848-X0335, CCA reply argument, paragraphs 268-269 95 Exhibit 23848-X0333, CCA argument, paragraph 350. 96 Exhibit 23848-X0335, CCA reply argument, paragraph 224. 97 Exhibit 23848-X0337, AltaLink reply argument, paragraph 98. 98 Exhibit 23848-X0337, AltaLink reply argument, paragraph 100. 99 Exhibit 23848-X0337, AltaLink reply argument, paragraph 99. 100 Exhibit 23848-X0337, AltaLink reply argument, paragraph 105. 101 Exhibit 23848-X0337, AltaLink reply argument, paragraph 103. 102 Exhibit 23848-X0337, AltaLink reply argument, paragraph 109. 103 Exhibit 23848-X0337, AltaLink reply argument, paragraph 113. 104 Exhibit 23848-X0337, AltaLink reply argument, paragraph 114.
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for work of similar to the work proposed in the WMP, which specifically targets wildfire risk
mitigation originating from AltaLink’s own assets.
122. The Commission shares AltaLink’s concerns with increasing wildfire risk, as described
generally by Dr. Flannigan. The Commission found Dr. Flannigan’s submissions105 that Alberta
is experiencing longer fire seasons, more severe weather and increased temperatures relative to
most of the world, to be persuasive in the circumstances. The Commission accepts
Dr. Flannigan’s observation that the risk is not uniform across the province due to changes in the
fire environment such as fuels, weather and topography, and that the best course of action is to
determine those high-risk areas where preventative activities should occur first.106 The
Commission notes that this is consistent with AltaLink’s HRFA determinations.
123. The Commission accepts AltaLink’s evidence that there is a higher level of wildfire risk
in identified HRFAs in its service territory, and that due to this higher level of wildfire risk, it is
reasonable to employ additional mitigation measures. In this regard, the Commission finds
AltaLink’s HRFA mapping and modeling approach (collectively referred to as AltaLink’s
methodology), which included utilizing the base data available from Alberta Wildfire’s initial
mapping activities of the FPA, adopting the same methodology as used by Alberta Wildfire, but
specific to AltaLink’s asset locations, and retaining the same consultant to map and model
wildfire risk maps as used by Alberta Wildfire to be reasonable.
124. Based on the above, the Commission accepts AltaLink’s position that there is a general
need for it to undertake additional measures to mitigate the risk of fire ignitions caused by its
transmission system operation in the circumstances. However, the Commission must still be
satisfied as to the reasonableness of the incremental activities and costs of these activities.
125. For instance, Mr. Lee stated during the hearing that one HRFA may be particularly risky
when compared to another HFRA, but both can still be classified as HRFAs:107
Q. … Is the level of risk in every HRFA assumed to be uniform or will some regions
have significantly higher risk but still -- or less risk but both would be designated as an
HRFA?
A. MR. LEE: There will be some that are higher risk than others and they can be both
designated as HRFAs.
However, it is not clear to the Commission how AltaLink is managing its activities, such as
prioritizing asset deficiencies, if at all, to recognize risk differences both among the different
HRFAs and within an HFRA.
126. Further, the Commission’s understanding of AltaLink’s wildfire risk mapping
methodology was constrained due to the fact that no one from Forsite was available to answer
questions regarding the development and modeling of its wildfire risk maps during the oral
hearing.
105 Exhibit 23848-X0295, AltaLink rebuttal evidence of Dr. Flannigan. 106 Exhibit 23848-X0295, AltaLink rebuttal evidence of Dr. Flannigan, paragraph 3. 107 Transcript, Volume 5, page 1047, lines 24-25, and page 1048, lines 1-5.
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127. The Commission also considers that the unavailability of the wildfire risk maps for the
Whitecourt fire region and particularly the White Zone, where approximately 85 per cent of
AltaLink’s assets are located, on the record of this proceeding, raises material concerns about the
reliability of the wildfire risk forecast by AltaLink in those geographic areas. The Commission
provides specific directions regarding the unavailable wildfire risk maps for the Whitecourt fire
region and White Zone in sections 4.3.4 and 4.3.5 below.
128. Given the above, the Commission directs AltaLink to file, at the time of AltaLink’s next
GTA, an explanation as to why AltaLink treated all identified HRFAs the same in terms of risk,
and how AltaLink is prioritizing asset deficiencies in a given HRFA.
4.3.3 Incremental operational practices
129. As outlined in Table 1 in section 4.3.1, AltaLink is requesting Commission approval of
$3.0 million for three incremental wildfire operational practices in the test period. This is
composed of $0.3 million for wildfire situational awareness, $0.3 million for additional wildfire
inspections and patrols, and $2.4 million for additional wildfire vegetation management.
130. Under the wildfire situational awareness activity, AltaLink sought $0.1 million per year
over a three-year test period to analyze the weather data by contracting fire specialists or fire
expertise to model the on-going and real-time dynamic wildfire risk in its service area.108
131. AltaLink also sought an additional $0.1 million per year over a three-year test period in
order to perform incremental inspections and patrols in HRFAs. Currently, AltaLink advised that
it performs air inspection patrols on each transmission line assets each year, with detailed line
inspections occurring every seven years on the 138 kV and 69 kV circuits, and every five years
on the 240 kV and 500 kV circuits. In addition, AltaLink stated that it also currently performs
ground patrols, site inspections and management/tracking of maintenance items. AltaLink
submitted that it intends to increase its inspections on specific assets to twice a year, with
detailed inspections occurring every three years.109
132. Lastly, AltaLink sought $0.8 million per year over a three-year test period for vegetation
management practices focused on HRFAs, starting in 2019. AltaLink stated that its current
vegetation management practices under the CRU program are not focused on HRFAs as the
primary factor, and that these incremental vegetation management practices will reduce wildfire
risk by removing vegetation on or off rights-of-way, more frequent trimming, herbicide
application and additional vegetation inspections.110
133. In reply argument, the CCA submitted that it is generally supportive of AltaLink’s
operational practices and enhancement activities.111
Commission findings
134. The Commission accepts that AltaLink’s current operational practices are not primarily
focused on mitigation activities in HRFAs. The Commission considers that incremental
operational activities focused on AltaLink’s assets located in HRFAs, both in the FPA and in the
108 Exhibit 23848-X0169, Appendix 22, paragraph 32, PDF page 10. 109 Exhibit 23848-X0169, Appendix 22, paragraphs 41-43, PDF page 11. 110 Exhibit 23848-X0169, Appendix 22, paragraphs 44-46, PDF page 12. 111 Exhibit 23848-X0335, CCA reply argument, paragraph 224.
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White Zone, and which include wildfire situational awareness, increased line inspections and
ground patrols to monitor asset conditions and wildfire risk, and additional vegetation
management practices to reduce the fire risk in its transmission line rights-of-way to be
reasonable efforts in the circumstances to mitigate wildfire risk.
135. Accordingly, the Commission finds that the forecast costs of $3.0 million in the test
period for these activities to be reasonable.
4.3.4 Targeted component and structure replacements in HRFAs
136. AltaLink submitted in its WMP that the components and structures that will be replaced
in identified HRFAs are focused on transmission line assets with maintenance notifications,112 in
order to reduce the risk of fire ignitions.113
137. Examples of replacements that will be targeted in HRFAs are:
• Replace degraded or damaged structures;
• Upgrade insulation on lines with observed contamination;
• Replace older designs of insulation with degraded condition;
• Replace older style porcelain insulators cracked from cement growth;
• Replace insulation with observed damage;
• Replace and repair damaged line hardware components such as sway braces, conductor
saddles, OHSW brackets and other conductor or structure supporting hardware;
• Repair conductor with observed damage at structure attachment points and hardware
installation locations;
• Replace wood cross-arms where external damage such as cracking and splitting has
been observed;
• Electrically bond hardware components to ground;
• Install bird deterrents where bird droppings or nests have impacted insulation integrity;
and
• Upgrade foundations with potential for structure failure.114
112 Exhibit 23848-X0169, Appendix 22-A2, paragraph 1, PDF page 23. 113 Exhibit 23848-X0169, Appendix 22-A2, paragraph 18, PDF page 26. 114 Exhibit 23848-X0169, Appendix 22-A2, paragraph 4, PDF page 23.
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138. AltaLink sought approval of a total of $24.3 million in forecast capital expenditures
under the targeted component and structure replacements in HRFAs (the targeted program), as
detailed in Table 4 below:
Table 4. Targeted component and structure replacements in HRFAs forecast costs
2019 forecast 2020 forecast 2021 forecast
Units Average
cost Total
($ million) Units
Average cost
Total ($ million)
Units Average
cost Total
($ million)
Component replacement
569 $10 5.6 522 $10 5.2 355 $10 3.5
Structure replacement
26 $65 1.7 61 $66 4.1 62 $67 4.1
Total expenditures
7.3 9.3 7.7
Source: Exhibit 23848-X0169, Appendix 22-A2, Table 1-1, PDF page 24.
139. AltaLink stated that it had determined components and structures that needed
replacements by identifying transmission line structures located in HRFAs and the volume of
outstanding maintenance notifications associated with these structures. Forecast costs were
determined through historic average cost experiences.115 AltaLink cited safety, reliability,
economic and legislative/legal requirements as the main drivers for this WMP program.116
140. AltaLink submitted further that it needs to replace components with maintenance
notifications that, potentially, could cause fire ignition in order to reduce the risk of wildfires
being initiated in HRFAs. AltaLink explained that this is the reason why it proposed the targeted
program in its WMP, with a focus on resolving deficiencies in HRFAs, while the current CRU
program continues to invest in managing notifications and asset condition based on all the factors
considered in those business cases.117
141. In an IR response to the Commission, AltaLink provided a table including the actual
volume and type of components to be addressed that were already identified for the Calgary,
Rocky Mountain House, Edson and Lac La Biche fire regions in the FPA. The Whitecourt and
White Zone regions are not included in Table 5 below because wildfire risk maps were not
completed at the time of IR response.118 However, the extrapolation for both of these areas is
given in Table 3 above, under Section 4.3.2.
Table 5. Volume and type of components based on July 26, 2019, update
Fire area Asset hardening Structure replacement
quantity Total
Component type Quantity
Calgary
Conductor 12 12
Crossarm 15 15
Guy 3 3
Insulator 16 16
Overhead 7 7
Pole 49 64 113
115 Exhibit 23848-X0169, Appendix 22-A2, paragraph 7, PDF page 24. 116 Exhibit 23848-X0169, Appendix 22-A2, paragraphs 14-17, PDF pages 25-26. 117 Exhibit 23848-X0188, AML-AUC-2019MAY6-011(b), PDF page 22. 118 Exhibit 23848-X0231, AML-AUC-2019JUL19-008, PDF page 30.
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Fire area Asset hardening Structure replacement
quantity Total
Component type Quantity
Sway Brace 4 4
Edson
Conductor 11 11
Crossarm 24 24
Guy 3 3
Insulator 38 38
Overhead 9 9
Pole 59 10 69
Structure 2 2
Sway Brace 1 1
Lac La Biche
Conductor 4 4
Guy 2 2
Overhead 6 6
Pole 17 17
Rocky Mountain House
Conductor 2 2
Crossarm 4 4
Insulator 3 3
Overhead 2 2
Pole 5 5
Total 296 76 372
Source: Exhibit 23848-X0231, Table 2, PDF pages 30-31.
142. AltaLink advised that these components and structures are not being replaced
prematurely, given the nature of the risk and their identified location in an HRFA.119
143. In argument, the CCA suggested that the targeted program be denied and refiled by
AltaLink at the time of its next GTA, submitting that AltaLink failed to provide evidence that
there is a significant risk of ignition resulting in a significant and damaging wildfire and a direct
correlation between this risk and its mitigation activities. Alternatively, the CCA recommended
that the Commission deny the targeted program in the White Zone, stating that in the absence of
wildfire risk maps for this area, there is no reasonable basis for the Commission to comprehend
fully the wildfire risks and issues associated with the White Zone.120
144. The CCA submitted that the mitigation activities proposed by AltaLink under the WMP
are the same activities approved by the Commission in previous GTAs, and AltaLink did not file
sufficient evidence on the record of this proceeding to justify the incremental capital
expenditures, scope and accelerated timing related to the targeted program (as well as the line
rebuilds in HRFA program, discussed in Section 4.3.5). For instance, while the CCA
acknowledged that AltaLink provided historical evidence of “large-scale” wildfires on its
system, the CCA advised that evidence of economic damage caused by two wildfires was limited
to $1.2 million.121 Further, the CCA submitted that AltaLink did not demonstrate on the record of
this proceeding why existing CRU programs are not adequate or sufficient to address wildfire
risk,122 and that there is no “continuity” between these programs and the CRU programs.123
119 Exhibit 23848-X0231, AML-AUC-2019JUL19-011, PDF page 137. 120 Exhibit 23848-X0333, CCA argument, paragraphs 326-328. 121 Exhibit 23848-X0333, CCA argument, paragraphs 332 and 337. 122 Exhibit 23848-X0333, CCA argument, paragraph 342. 123 Exhibit 23848-X0335, CCA reply argument, paragraph 232.
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145. The CCA also argued that AltaLink’s targeted program and line rebuilds in HRFA
program lack any asset-specific data or analysis, and that AltaLink should be required to provide
a cost-benefit analysis to support these WMP programs, in order justify the accelerated work on
maintenance notifications in HRFAs, and for the Commission to test the reasonableness of these
forecast capital expenditures.124
146. In addition, the CCA submitted that AltaLink has no liability exposure or “sustainability”
concerns in its service area to support the targeted program and line rebuilds program. On this
point, the CCA stated:125
… AltaLink has an appropriate self-insurance reserve approved by the AUC that should
address any wildfire impacts, and there is no evidence that its coverage is insufficient …
[footnote omitted]
147. The CCA also pointed out that there is no “formal” support on the record for AltaLink’s
targeted program and line rebuilds program from either Alberta Wildfire or the AESO.126 Further,
the CCA expressed concern that approval of these capital expenditures would create a precedent
or at least a significant reference point for all other TFOs and DFOs in Alberta.127 For instance,
the CCA referenced Bema’s evidence that states that approving the WMP will set a precedent in
Alberta, leading other utilities with more assets located in HRFAs to seek “tens if not hundreds
of millions” in costs to address similar issues.128 The CCA proposed a more well-balanced
approach to wildfire risk prevention is required, as opposed to approving each individual utility’s
plan for wildfire mitigation activities.129 For instance, the CCA suggested development of a
common Alberta Utilities Wildfire Mitigation Framework (which would involve the Government
of Alberta, the AESO, municipalities and all TFOs and DFOs)130 and other wildfire risk
mitigation tools such as off-ramp mechanisms, audits, reporting and cost-benefit analysis.131
148. In reply argument, the CCA argued that it is reasonable for the Commission to approve or
deny individual WMP programs, and there is nothing on the record to show that the individual
programs would not work if the Commission does not approve the WMP as a whole.132
149. The CCA suggested that the Commission should focus on wildfire risks that are specific
to AltaLink’s service area, and stated that evidence regarding wildfires that occurred across the
country or in the United States, such as the California wildfires, are only instructive, but not
directly relevant.133
124 Exhibit 23848-X0335, CCA reply argument, paragraphs 278-281. 125 Exhibit 23848-X0333, CCA argument, paragraph 385. 126 Exhibit 23848-X0333, CCA argument, paragraph 351. 127 Exhibit 23848-X0333, CCA argument, paragraph 354. 128 Exhibit 23848-X0272, CCA evidence of Bema Enterprises Ltd., paragraph 7. 129 Exhibit 23848-X0333, CCA argument, paragraph 355. 130 Exhibit 23848-X0272, CCA evidence of Bema Enterprises Ltd., paragraphs 53-57 and Exhibit 23848-X0333,
CCA argument, paragraph 356. 131 Exhibit 23848-X0272, CCA evidence of Bema Enterprises Ltd., paragraph 14, and Exhibit 23848-X0333, CCA
argument, paragraph 357. 132 Exhibit 23848-X0335, CCA reply argument, paragraphs 236-238. 133 Exhibit 23848-X0335, CCA reply argument, paragraph 245.
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150. In argument, the UCA also expressed concern regarding the cost effectiveness of the
targeted program, and supported the CCA’s position that AltaLink did not show it requires
incremental costs beyond what AltaLink already incurs to mitigate wildfire risks.134
151. In reply argument, AltaLink submitted that the WMP is a response to the new evidence of
heightened wildfire risk, which is not reflective of the current mitigation activities in place under
the existing CRU programs. AltaLink explained that the activities performed under the CRU are
not being performed at a fast enough pace to mitigate the heightened wildfire risk, and that the
CRU program does not currently have the necessary resources to address the deficiencies
identified in HRFAs and outlined in the WMP, which is why the business cases presented in the
WMP are necessary.135
152. AltaLink stated that it does not matter that the Slave Lake or Fort McMurray fires did not
occur in AltaLink’s service area. It matters that they did occur, and that they were recent, which
further emphasizes and supports Dr. Flannigan’s evidence of increased wildfire risk in Alberta.136
AltaLink also argued that the level of ignition risk that was presented in evidence during the
proceeding is sufficient to justify its accelerated mitigation activities, and that the level of
specificity that the CCA desires is excessive.137 Furthermore, AltaLink submitted that a self-
insurance reserve would not provide compensation for the extreme costs, loss of life, economic
damage and environmental impact that resulted from the above-mentioned wildfires, as
suggested by the CCA.138
153. AltaLink stated it has a duty under the Electric Utilities Act to maintain its assets in a safe
manner and, therefore, it should not wait for legislative direction to address an emerging and
urgent risk.139
Commission findings
154. For the Whitecourt fire region and the White Zone specifically, the Commission finds
that the absence of wildfire risk maps for these areas creates concerns regarding the accuracy of
forecast expenditures associated with HRFAs in these areas. For example, the Commission notes
that the White Zone alone contains approximately 85 per cent of AltaLink’s assets, and observes
that the forecast expenditures to address deficiencies in HRFAs located in this area are relatively
higher as compared to other fire regions. In the Commission’s view, this is likely to result in an
increased risk of material forecast variances, everything else equal, induced by a lack of
complete maps, in the area in which most of AltaLink’s assets are located.
155. The Commission also observes that the initial forecast of the number of km of
transmission lines running through HRFAs in the White Zone was significantly less at the time
the application was filed. As explained in an IR response, the revisions were due to actual data
resulting in changes to the forecast:
… Given that AltaLink operates approximately 9,000 km of transmission line outside the
Forest Protection Area, AltaLink estimates that 270 km will pass through HRFAs.
134 Exhibit 23848-X0329, UCA argument, paragraphs 96-97. 135 Exhibit 23848-X0337, AltaLink reply argument, paragraphs 90-91. 136 Exhibit 23848-X0337, AltaLink reply argument, paragraph 103. 137 Exhibit 23848-X0337, AltaLink reply argument, paragraph 104. 138 Exhibit 23848-X0337, AltaLink reply argument, paragraph 108. 139 Exhibit 23848-X0337, AltaLink reply argument, paragraphs 111-112.
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Decision 23848-D01-2020 (April 16, 2020) 33
AltaLink will be confirming these estimates through completion of fire risk maps for
areas outside the Forest Protection Area by the end of 2019.140
156. In the Commission’s view, the significant modifications to the number of km of
transmission lines that resulted as more actual data became available141 casts considerable doubt
on the ability of AltaLink’s extrapolation to act as a reliable estimator of required expenditures
during the forecast period.
157. Moreover, the Commission considers that AltaLink failed to identify the extent of
wildfire risk reduction that would result by accelerating the timing of the targeted program
mitigation activities in the Whitecourt fire region and White Zone. In other words, it is not clear
to the Commission how much wildfire risk will increase or decrease if this work is not performed
according to the forecast timeline.
158. For these reasons, the Commission will make its decision regarding the forecast
expenditures associated with the Whitecourt fire region and the White Zone in the compliance
filing to this decision. The Commission directs AltaLink to file the remaining wildfire risk maps
for the Whitecourt fire region and the White Zone in the compliance filing to this decision. In
addition, AltaLink is directed to update Table 3 with the most up-to-date information in the same
compliance filing.
159. Regarding the other fire regions, Calgary, Rocky Mountain House, Edson and Lac La
Biche, the Commission considers the volume of replacement work to be performed in these
regions to be minimal in scope and reasonable, relative to the replacement work forecast for the
White Zone. However, the Commission cannot determine whether forecast costs associated with
these regions are reasonable because the targeted program costs were provided collectively. In
the Commission’s view, a breakdown of the costs, by each specific region, is required in order
for it to assess the reasonableness of the work for each region. Therefore, the Commission directs
AltaLink to file this information in the compliance filing to this decision, in the form of an
updated Table 3, as directed above, with two new columns, showing, for each one of the fire
regions (including the Whitecourt fire region and the White Zone), a breakdown of up-to-date
forecast costs and a breakdown of actual costs incurred under the targeted program in 2019 and
to date in 2020. The Commission will review the forecast costs associated with the Calgary,
Rocky Mountain House, Edson and Lac La Biche fire regions under the targeted program in the
compliance filing to this decision.
160. AltaLink’s forecast costs for the entire targeted component and structure replacements in
the HRFAs program will be reviewed as part of AltaLink’s next opening rate base when actuals
are known and can be assessed for prudence. To facilitate the Commission’s review in
AltaLink’s next GTA, AltaLink is directed to submit information showing that it has completed
the targeted program in a cost effective manner. Some examples of the information that AltaLink
could provide at the time of its next GTA, as part of this assessment include, but are not limited
to: age and condition of components and structures to be replaced, average service life of these
assets, information on criteria for replacement, evidence that assets are not being prematurely
140 Exhibit 23848-X0188, AML-AUC-2019MAY6-002(c), PDF page 6. 141 Transcript, Volume 5, page 1006, lines 23-25, and page 1007, lines 1-4.
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Decision 23848-D01-2020 (April 16, 2020) 34
retired and explanations of any differences between forecast costs and actual costs of these
replacements.
161. In summary, the Commission will review and make a final determination regarding the
forecast expenditures of the entire targeted component and structure replacements in the HRFAs
program in the compliance filing to this decision. In addition, the entire targeted component and
structure replacements in the HRFAs program will be assessed for prudence in AltaLink’s next
GTA, once actuals are known.
4.3.5 Line rebuilds in HRFAs
162. AltaLink submitted it will replace line segments or rebuild transmission lines where lines
are confirmed to be running through identified HRFAs, in order to reduce the risk of fire
ignitions. AltaLink explained that it will replace conductor and shield wires, and rebuild wood
pole transmission lines to current fire preventative design standards, such as structures with
increased strength ratings, increased foundation strength, structure hardware with increased
strength rating, highly insulated cross arm material, increased and upgraded insulation and
bonding.142
163. AltaLink sought approval of a total of $7.0 million in forecast capital expenditures under
the line rebuilds in the HRFAs program, as detailed in Table 6 below, with work beginning in
2020. AltaLink stated further that it would complete only 20 km of line rebuilds in HRFAs in the
test period due to the uncertainty and unavailability of wildfire risk maps for the Whitecourt area
and the White Zone, as well as the time to plan, permit and finish the line rebuild projects.143
Table 6. Line rebuilds in HRFAs forecast capital expenditures
Description 2019 forecast 2020 forecast 2021 forecast
km Average unit cost
Total ($ million)
km Average unit cost
Total ($ million)
km Average unit cost
Total ($ million)
Total line rebuilds
0 0 0 10 $0.35 3.5 10 $0.35 3.5
Source: Exhibit 23848-X0169, Appendix 22-A3, Table 1-1, PDF page 29.
164. AltaLink explained that it determined transmission line segments that needed upgrades or
to be rebuilt by first identifying segments that were located in identified HRFAs. Forecast costs
were determined from historic average cost data.144 AltaLink indicated in an IR response that line
segments to be rebuilt are not being replaced prematurely, given the nature of the risk and their
identified location in an HRFA.145
165. Transmission line segments that were flagged for work met the following criteria:
• “Assets that are installed in areas identified as HRFA based on mapping and
modelling from Alberta forestry, or are in projected HRFA fueled areas;
• Are wood pole lines, with wood cross-arms;
142 Exhibit 23848-X0169, Appendix 22-A3, paragraphs 1-3, PDF page 29. 143 Exhibit 23848-X0231, AML-AUC-2019JUL19-011(e), PDF page 143. 144 Exhibit 23848-X0169, Appendix 22-A3, paragraphs 6-7, PDF page 29. 145 Exhibit 23848-X0231, AML-AUC-2019JUL19-011(f), PDF page 143.
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Decision 23848-D01-2020 (April 16, 2020) 35
• Have non-current design standard insulation which has a higher likelihood of
increasing fire ignition risk; and
• Have a history of involvement in previous fire ignition.”146
166. AltaLink cited safety as one of the main drivers for this WMP program, explaining that
assets with wood structures and crossarms have a higher risk of ignition due to non-current
design standard insulation. AltaLink also cited reliability, economic and legislative/legal
requirements as drivers for this business case.147
167. In argument, the CCA suggested that the line rebuilds in the HRFAs program be denied
and refiled by AltaLink at the time of its next GTA, on the basis that AltaLink failed to provide
evidence that there is a significant risk of ignition and a direct correlation between this risk and
its mitigation activities.148 Alternatively, the CCA recommended that the Commission deny the
same WMP program in the White Zone, stating that in the absence of wildfire risk maps for this
area, there is no “reasonable basis” for the Commission to comprehend fully the wildfire risks
and issues associated with the White Zone.149
168. In the CCA’s view, there was insufficient evidence on the record to justify the additional
$7.0 million in forecast capital expenditures for line rebuilds, since AltaLink was already seeking
approval of $25.2 million for rebuilding lines 56L, 150L, 113L and 54L under the “Rebuild
Older Wooden Pole Lines” CRU program in the test period. Further, the CCA stated that the
lines subject to rebuilds are not identified to be approaching end-of-life, with the exception of the
ones mentioned above.150
169. The CCA stated that the same arguments and recommendations related to the targeted
program and discussed above in Section 4.3.5, also apply to the line rebuilds in HRFAs program
of the WMP.151
170. In argument, the UCA expressed support for the CCA’s concerns regarding the cost
effectiveness of the line rebuilds in the HRFAs program of the WMP, supporting the CCA’s
position that AltaLink did not show it requires incremental costs beyond what AltaLink already
incurs to mitigate wildfire risks.152
Commission findings
171. The Commission finds that further review of capital expenditures associated with line
rebuilds in the HRFAs program for work to be performed in the Whitecourt fire region and the
White Zone is required in the compliance filing to this decision. This is because the absence of
wildfire risk maps for these two areas creates additional uncertainty regarding the ability of
AltaLink’s extrapolation to act as a reliable estimator of required expenditures during the
forecast period for HRFAs in these areas. As an example, as the White Zone alone constitutes
146 Exhibit 23848-X0169, Appendix 22-A3, paragraph 10, PDF page 30. 147 Exhibit 23848-X0169, Appendix 22-A3, paragraphs 14-20, PDF page 31. 148 Exhibit 23848-X0333, CCA argument, paragraphs 326-327. 149 Exhibit 23848-X0333, CCA argument, paragraph 328. 150 Exhibit 23848-X0333, CCA argument, paragraphs 456-457, and Exhibit 23848-X0169, Appendix 22,
paragraph 53, PDF page 14. 151 Exhibit 23848-X0333, CCA argument, paragraph 335. 152 Exhibit 23848-X0329, UCA argument, paragraphs 96-97.
2019-2021 General Tariff Application Negotiated Settlement Agreement and Excluded Matters AltaLink Management Ltd.
Decision 23848-D01-2020 (April 16, 2020) 36
approximately 85 per cent of AltaLink’s assets, the Commission considers that the potential
forecast risk and associated capital expenditure variance for this region may be material.
Therefore, the Commission requires the remaining wildfire risk maps for the Whitecourt fire
Region and the White Zone, and additional updated forecasts in order to assess the
reasonableness of these forecast expenditures.
172. The Commission will also undertake further review in the compliance filing with respect
to the line rebuild in the HRFAs program forecast costs associated with the Calgary, Rocky
Mountain House, Edson and Lac La Biche regions. The Commission observes that these costs
were provided collectively. In the Commission’s view, a breakdown of up-to-date forecast costs
and a breakdown of actual costs incurred to date in 2020, by each specific region, are required in
order for the Commission to assess the reasonableness of the work for each of these fire regions
under the line rebuilds in the HRFAs program. Therefore, the Commission directs AltaLink to
file this information in the compliance filing to this decision.
173. More generally, the Commission finds that there is insufficient evidence on the record of
this proceeding regarding how AltaLink makes decisions respecting transmission lines identified
under the line rebuilds in the HRFAs program of the WMP that are not approaching end-of-life
or are not fully depreciated. Accordingly, the Commission directs AltaLink to identify in the
compliance filing to this proceeding, the specific line segments that it intends to rebuild under
this WMP program, other than the estimation of 20 km of wood pole lines in the test period that
are potentially running through HRFAs outside the Calgary fire region.153
174. AltaLink’s forecast costs for the line rebuilds program of the WMP will be reviewed as
part of AltaLink’s next opening rate base when actuals are known and can be assessed for
prudence. To facilitate the Commissions review in AltaLink’s next GTA, the Commission directs
AltaLink to provide information in that proceeding detailing project descriptions, actual unit
costs and other relevant information necessary to support the timing, level, scope and costs of the
individual line rebuild projects.
175. In summary, the Commission will review and make a final determination regarding the
forecast expenditures of the entire line rebuilds in the HRFAs program in the compliance filing
to this decision. In addition, the entire line rebuilds in HRFAs program will be assessed for
prudence in AltaLink’s next GTA, once actuals are known.
4.3.6 Wildfire situational awareness
176. AltaLink submitted that the wildfire situational awareness program of the WMP will
invest in increased availability and visibility of wildfire data to the AltaLink control centre.
AltaLink explained that it plans to integrate weather-specific data from public weather stations
(such as humidity, wind speed and direction, evapotranspiration and precipitation data), as well
as deploy additional weather stations and cameras in HRFAs for improved visibility of high fire
risk conditions and real-time decision making by AltaLink’s operators.154
177. AltaLink is seeking approval of a total of $0.7 million in forecast capital expenditures for
wildfire situational awareness, as detailed in Table 7 below, with work beginning in 2020.155
153 Exhibit 23848-X0169, Appendix 22-A3, paragraph 11, PDF page 30. 154 Exhibit 23848-X0169, Appendix 22-A1, paragraphs 1-2, PDF page 18. 155 Exhibit 23848-X0188, AML-AUC-2019MAY6-007, PDF page 14.
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AltaLink explained that forecast expenditures are based on historical average costs of installing
weather stations and integrating public weather data into the control centre under the AltaLink
Control Centre Visibility business case.156
Table 7. Wildfire situational awareness forecast expenditures
Description 2020 forecast 2021 forecast
Units Average cost
($000) Total ($000)
Units Average cost
($000) Total
($000)
Integration of public weather station data
6 20 120 6 20 120
Weather stations 4 30 115 4 30 115
Cameras 4 30 115 4 30 115
Total 350 350
Source: Exhibit 23848-X0188, AML-AUC-2019MAY6-007, PDF page 14.
178. AltaLink cited safety, reliability, customer focus and economics as the main drivers for
this program of the WMP. AltaLink explained that this program will enable operators to react in
real time to changes in climate conditions, reduce the time required to evaluate risk and make
decisions during times when the risk of wildfire is elevated (including decisions related to
proactive de-energization), as well as reduce the need to send field staff, in person, to evaluate
weather conditions, thereby decreasing travel costs. Further, AltaLink submitted that the data
being used under this WMP program is a “key input” in proactive de-energization of
transmission circuit scenarios.157
179. In reply argument, the CCA indicated that it is generally supportive of AltaLink’s
wildfire situational awareness program.158
Commission findings
180. The Commission finds the forecast costs for the wildfire situational awareness program to
be reasonable in the circumstances. AltaLink has provided sufficient justification to demonstrate
that gathering and using weather-specific data should help to mitigate the increased wildfire risk
in real time. In addition, AltaLink has already installed weather stations in the past where
specific locations were provided to the Commission.159 These weather stations only measured
temperature and wind in order to assist in weather monitoring. However, the Commission finds
that the additional information from weather agencies, weather stations and cameras that
AltaLink proposes to collect will assist its power system operations and provide information
about fire conditions, which can then help guide other mitigation measures. Accordingly, the
wildfire situational awareness capital expenditures in the amount of $0.7 million are approved as
filed.
156 Exhibit 23848-X0169, Appendix 22-A1, paragraph 7, PDF page 19. 157 Exhibit 23848-X0169, Appendix 22-A1, paragraphs 9-19, PDF pages 19-20. 158 Exhibit 23848-X0335, CCA reply argument, paragraph 224. 159 Exhibit 23848-X0188, AML-AUC-2019MAY6-006(f), PDF pages 12-13.
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Decision 23848-D01-2020 (April 16, 2020) 38
4.3.7 Transmission line rights-of-way upgrades in HRFAs
181. AltaLink indicated that this program’s investment is focused on reducing the risk of
wildfire in HRFAs by addressing the risk of vegetation or airborne debris coming into contact
with energized conductors. AltaLink cited the following upgrades:
• initial herbicide applications on new transmission line rights-of-way to properly prepare
for future vegetation control cycles;
• widening and upgrading existing transmission rights-of-way in known HRFAs;
• removing identified hazard trees from off rights-of-way to reduce the risk of tree falls
into the power line;
• upgrading existing trim sites to enable use of herbicide or replacement with more
compatible vegetation species; and
• acquisitioning or upgrading access to rights-of-way along the transmission lines to
improve response and maintenance access to locations in HRFAs.160
182. AltaLink sought approval of a total of $2.9 million in forecast capital expenditures under
the transmission line rights-of-way upgrades in the HRFAs program, as detailed in Table 8
below. AltaLink explained that forecast expenditures are based on historical average costs of tree
removals and rights-of-way upgrades.161
Table 8. Transmission line rights-of-way upgrades in HRFAs forecast expenditures
Description
2019 forecast 2020 forecast 2021 forecast
Units Average
cost Total
($ million) Units
Average cost
Total ($ million)
Units Average
cost Total
($ million)
R/W Upgrades
5 $130 0.60 5 $130 0.61 6 $130 0.83
Wildfire Tree Removal
12 $20 0.25 12 $20 0.26 17 $20 0.35
Total 0.85 0.87 1.18
Source: Exhibit 23848-X0169, Appendix 22-A4, Table 1-1, PDF page 35.
183. Under this program, AltaLink submitted it will upgrade rights-of-way in HRFAs by
removing danger and hazard trees, establishing expanded clearances and acquiring or upgrading
easements or access agreements in HRFAs, in addition to applying more aggressive trimming
activities and engaging in alignment discussions with landowners to enable implementation.162
184. AltaLink cited safety, reliability and economics as the main drivers for this WMP
program. AltaLink explained that the proactive upgrades of rights-of-way will reduce the risk of
ignition and enable efficient on-going operating costs for vegetation management.163
160 Exhibit 23848-X0169, Appendix 22-A4, paragraph 1, PDF page 34. 161 Exhibit 23848-X0169, Appendix 22-A4, paragraphs 6-7, PDF pages 34-35. 162 Exhibit 23848-X0169, Appendix 22-A4, paragraphs 4-5, PDF page 34. 163 Exhibit 23848-X0169, Appendix 22-A4, paragraphs 15-19, PDF pages 36-37.
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Decision 23848-D01-2020 (April 16, 2020) 39
Commission findings
185. The Commission finds the forecast costs for this program of the WMP to be reasonable.
AltaLink has demonstrated that incremental rights-of-way upgrade work, such as right-of-way
widening and expansion, tree trimming and removal of vegetation on the rights-of-way, and
more frequent herbicide applications in HRFAs will contribute to mitigating the increased
wildfire risk. Accordingly, the forecast capital expenditures for transmission line rights-of-way
upgrades in HRFAs in the amount of $2.9 million are approved as filed.
4.4 $20.0 million of increased CRU for line clearance mitigation work
186. The Commission considers that it would be helpful in the circumstances to begin with
some general background on the line clearance mitigation issue.
187. Transmission lines are often heavily loaded because of increased power consumption. As
the amount of current flowing through a transmission line’s conductor (wire) increases, the
conductor’s temperature will increase. Likewise, ambient conditions surrounding a transmission
line (e.g., temperature, wind speed/direction, solar radiation) can have an effect on the
conductor’s temperature. As conductors are heated, they expand and sag towards the ground.
Aging effects and extreme heating conditions can cause severe and permanent sag to a
conductor, posing risks to public safety and system performance if the conductor is in close
proximity to the ground or objects such as buildings, land owner assets, or distribution
underbuilds. Alternatively, new road or pipeline projects, building projects, or landowner
activities can impinge on a transmission line’s safe clearance distances to nearby objects and
structures, by altering the line’s surrounding landscape.
188. Transmission lines are designed to meet the requirements of the Alberta Electrical Utility
Code. The Alberta Electrical Utility Code prescribes minimum clearance distances between
transmission lines and the ground, underbuilds, buildings, industrial facilities, and other
powerline and wire facilities. If a transmission line is identified with clearance deficiencies
relative to the Alberta Electrical Utility Code’s minimum clearance requirements, a TFO is
obligated to mitigate and resolve those deficiencies.
189. The line clearance mitigation (LCM) program filed by AltaLink in this application is not
a new program. Within recent GTA cycles and test years, AltaLink has provided expenditure
forecasts for its LCM program under the Line Components CRU Business Case. In its initial
application, AltaLink forecast a revenue requirement of $18.8 million for the 2019-2021 test
period to address line clearance deficiencies.164 AltaLink subsequently amended this forecast by
an incremental expenditure of $20.0 million, in its July 2019 LCM program management update,
as a consequence of the negotiated settlement process.165
190. LCM program expenditures included in the NSA are addressed in Section 3 of this
decision. Parties to the NSA agreed that the incremental expenditure of $20.0 million would be
litigated before the Commission as an excluded matter. Accordingly, for this section of the
164 Exhibit 23848-X0017.01, Appendix 13-A (Capital Replacements and Upgrades), Table 1-2 – 2019-2021 Line
Components Forecast Capital Expenditures ($000), PDF page 13. 165 Exhibit 23848-X0203, AML 2019-2021 GTA Update NSA - Appendix 13-A02B Line Clearance Mitigation,
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Decision 23848-D01-2020 (April 16, 2020) 40
decision, the Commission’s considerations and findings are limited to the incremental
$20.0 million expenditure.
191. For reasons that follow, the Commission finds that there is insufficient evidence, on the
record of this proceeding, to demonstrate that AltaLink’s entire $20 million incremental LCM
forecast, for the current forecast period, is reasonable. In the circumstances, the Commission
approves $13 million of AltaLink’s requested incremental LCM forecast, on a placeholder basis.
This amount may be adjusted, pending additional information that AltaLink is directed to file in
the compliance filing for this proceeding. The Commission considers that this additional
information is necessary to assess the reasonableness of AltaLink’s incremental LCM forecast.
192. Additionally, AltaLink’s forecast costs for the incremental $20 million LCM expenditure
will be reviewed as part of AltaLink’s next opening rate base, when actuals are known and can
be assessed for reasonableness. Accordingly, to facilitate this review, AltaLink is directed to file
a comprehensive business case to support its incremental LCM expenditures, at the time of its
next GTA.
4.4.1 AltaLink’s methodology to identify line clearance deficiencies
193. Section 4.4.1 addresses the methodology that AltaLink uses to identify line clearance
deficiencies.
194. In its LCM program management update, AltaLink explained that the original
$18.8 million forecast was based on the “expectation that 30% of the lines assessed would have a
deficiency.”166 This expectation was primarily informed by AltaLink’s historic experience with
the LCM program.
195. In support of the $20.0 million incremental expenditure, AltaLink advised that its line
assessments are progressively identifying an historic increase in the number of deficient line
spans that require clearance mitigation work, “representing more than 30% of the lines
modeled.”167 In its LCM program management update, filed on July 8, 2019, AltaLink provided
that 1.2 per cent of its transmission line spans were deficient, compared to the historical
aggregate deficiency rate of 0.6 per cent.168 On November 27, 2019, Mr. Bartel, vice president of
asset management at AltaLink, testified that AltaLink’s aggregate deficiency rate increased to
around three per cent after additional supplementary line assessments were completed up to the
end of October, 2019.169
196. In light of this increase to AltaLink’s deficiency rate, AltaLink’s methodology for
assessing and identifying whether a transmission line span is deficient, relative to the Alberta
Electrical Utility Code’s minimum clearance requirements, was a point of contention between
the CCA and AltaLink.
166 Exhibit 23848-X0203, AML 2019-2021 GTA Update NSA - Appendix 13-A02B Line Clearance Mitigation,
paragraph 3, PDF page 1. 167 Exhibit 23848-X0203, paragraph 6, PDF page 2. 168 Exhibit 23848-X0203, paragraph 6, PDF page 1. 169 Transcript, Volume 3, page 579, lines 24-25.
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Decision 23848-D01-2020 (April 16, 2020) 41
197. AltaLink explained that its line clearance assessment process generally includes four
steps:
(a) acquisition of Light Detection and Ranging (LiDAR) survey data on transmission lines;
(b) using LiDAR survey data in PLS-CADD software to create an “as surveyed” model of
a transmission line’s span;
(c) using applicable versions of the Alberta Electrical Utility Code to determine both the
required minimum clearance distances of a particular span, to nearby objects and
structures, and the wire conditions under which the required minimum clearance
distances must be met; and
(d) using PLS-CADD to calculate a span’s position, using conditions defined by the Alberta
Electrical Utility Code, to determine if the span violates clearance requirements to nearby
objects and structures.170
198. The Commission discusses AltaLink’s methodology, to identify line clearance
deficiencies, in the following three sections of the decision; beginning with AltaLink’s new
system-wide one-effort approach to LiDAR surveys and engineering assessments, followed by
AltaLink’s consideration of line ratings, and concluding with AltaLink’s line clearance
engineering assessment methodology.
4.4.1.1 System-wide one-effort approach to LiDAR surveys and engineering assessments
199. AltaLink explained that LiDAR is a surveying method that uses lasers and light sensors171
to capture the as-found conditions of a particular transmission line at the time of a survey.172
AltaLink explained that LiDAR surveys gather data on a transmission line’s position in space,
along with ambient conditions surrounding the line at the time of a survey (e.g., temperature,
wind speed and direction, solar radiation).173
200. In prior GTA test periods, AltaLink indicated that approximately 1,100 km of lines, per
year, were LiDAR surveyed under the LCM program.174
201. Mr. Bartel explained that in 2017, a decision was made by AltaLink to reallocate a
portion of its 2017-2018 LCM program funding towards a new system-wide, one-effort,
approach to LiDAR surveys and engineering assessments.175 Under its current LCM program,
AltaLink is LiDAR surveying a total of 13,385 km of lines for the 2019-2021 test period.176
However, Mr. Bartel advised that “fundamentally, the technology and technique used [in LiDAR
surveys] is the same as the past surveys.”177
170 Exhibit 23848-X0266, PDF pages 1-2. 171 Transcript, Volume 3, page 587, lines 7-8. 172 Exhibit 23848-X0266, PDF pages 1-2. 173 Exhibit 23848-X0266, PDF page 2. 174 Exhibit 23848-X0300, AML Rebuttal Evidence, paragraph 366, PDF page 88. 175 Transcript, Volume 3, page 616, lines 12-24. 176 Exhibit 23848-X0300, AML rebuttal evidence, paragraph 366, PDF page 88. 177 Transcript, Volume 3, page 586, lines 11-12.
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202. The impetus for AltaLink’s decision to conduct a system-wide LiDAR survey, Mr. Bartel
explained, is improvements to vendor computing capabilities that allow vendors to store and
process a large amount of data, in a cost effective and timely fashion.178 Mr. Bartel further
explained that significant cost savings on survey work, in addition to getting a holistic view of its
entire system, were the primary drivers for this decision.179 Accordingly, Mr. Bartel indicated that
the system-wide approach to LiDAR surveys would provide AltaLink with a more robust and up-
to-date picture of its transmission system, allowing AltaLink to more effectively manage risks
through its LCM program on a system-wide basis. 180 Additionally, Mr. Bartel explained that the
system-wide approach reduced LiDAR survey collection unit costs by 70 per cent,181 or around
$5-$6 million total,182 and is more cost-effective than the previous segmented, incremental,
approach to LiDAR.183
203. The CCA submitted that AltaLink’s decision to conduct a system-wide, one-effort,
LiDAR survey is a major change from the approach previously approved by the Commission,
and argued that AltaLink provided no evidence as to why its “historical approach to LiDAR and
line clearance in general was inappropriately scoped or deficient.”184
204. In the CCA’s view, there is no continuity between AltaLink’s historic, incremental,
approach to LiDAR surveys and the new system-wide LiDAR survey advanced in this
application. The CCA contended that AltaLink provided “no evidence on the record as to how all
of this extensive historical data was correlated with the ‘one effort’ LiDAR survey and whether it
allowed AltaLink to better understand the deficiencies across its system, and survey and address
them in a cost-efficient manner.”185 Furthermore, the CCA argued that AltaLink provided no
explanations or supporting data as to how LiDAR surveys were properly prioritized, and how
AltaLink avoided duplication of LiDAR surveys for lines that were mitigated within the last five
years.186
205. The CCA further contended that AltaLink did not provide a “clear explanation as to when
the next ‘one effort’ LiDAR will be undertaken again by AltaLink and when the Commission
will be able to assess the reasonableness of this new ‘one effort’ approach as a whole.”187 To
support its position, the CCA argued that, on the record, “no other public utilities in Alberta rely
on ‘one effort’ LiDAR surveys,” and that “it is unclear whether this approach results in any
efficiencies or cost savings in the long run.”
206. In response, AltaLink submitted that “the CCA’s suggestion ignores Mr. Bartel’s
evidence that the number of lines that would have been surveyed twice since the most recent
LiDAR survey was ‘fairly low’, and that in light of the 70% reduction in unit cost as a result of
the ‘one effort’ survey it would have been ‘less cost effective to separate them’.”188 Furthermore,
178 Transcript, Volume 3, page 586, lines 13-21. 179 Transcript, Volume 3, page 657, lines 19-25 and page 658, lines 1-2. 180 Transcript, Volume 3, page 585, lines 20-23 and page 658, lines 2-6. 181 Transcript, Volume 4, page 695, lines 7-8. 182 Transcript, Volume 3, page 618, lines 2-3. 183 Transcript, Volume 3, page 658, lines 18-19. 184 Exhibit 23848-X0333, Argument of the CCA on excluded matters in ID 23848, paragraph 222, PDF page 82. 185 Exhibit 23848-X0333, paragraph 224, PDF page 82. 186 Exhibit 23848-X0333, paragraph 226, PDF page 83. 187 Exhibit 23848-X0333, paragraph 227, PDF pages 83-84. 188 Exhibit 23848-X0337, paragraph 61, PDF page 23.
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AltaLink indicated that “there is no recognized industry standard as to the shelf life of LiDAR
data,” and that “there is no evidence of any meaningful redundancy or duplication of effort, or
that any such duplication was not justified by the significant cost savings from collecting data for
AltaLink’s entire system in a single effort.”
207. Likewise, AltaLink argued that “it is not necessary for AltaLink or any other utility to
perform a similar whole-system LiDAR survey for the Commission to satisfy itself of the
reasonableness of this approach.”189
4.4.1.2 Line ratings and line clearance mitigation
208. AltaLink explained that, initially, the AESO determines an asset’s appropriate posted line
rating, as part of its capital and long-term planning processes,190 at the time of the Need
Identification Document.191 Mr. Bartel testified that the posted line rating is “the rating that's
most germane to establishing how much the wire will sag and what clearances would therefore
result.”192 AltaLink indicated that it then designs that asset in accordance with the AESO’s line
rating using the applicable Alberta Electrical Utility Code in effect at that time. Mr. Bartel
advised that “once a transmission line is established and commissioned and in operation, then
AltaLink provides that line rating to the AESO under AESO rules, and is obligated to continue to
provide the safe maximum operating limit for a transmission line as it continues to be operated
through its lifetime.”193
209. In addition, AltaLink provided the following information on posted line ratings, and
AltaLink’s obligations to maintain them:
… AltaLink is required to design and maintain a posted rating for its facilities to the
AESO as per Alberta Reliability Standard FAC-008-AB-3. A facility needs to be
available for the posted rating at all times for power system use up to the extent of the
rating to ensure the integrity of the planning and operation of the transmission system.
The facility ratings AltaLink provides must be applicable for a summer season (May 1 to
October 31) and a winter season (November 1 - April 30). The ratings that AltaLink
provides must be applicable for the entire season, and therefore must take into account
specified ambient temperatures in that season.194
210. To that effect, AltaLink stated that the AESO’s posted line rating is “maintained until the
AESO defines a need for a new rating based on system needs/load growth. Or, if a subsequent
survey and engineering analysis finds a deficiency that shows the original rating is no longer
safe.”195 Accordingly, AltaLink explained, its engineering assessments validate whether a
transmission line is still compliant with the Alberta Electrical Utility Code’s minimum clearance
requirements, at the transmission line’s current posted line rating.196
189 Exhibit 23848-X0337, paragraph 62, PDF page 23. 190 Transcript, Volume 3, page 553, lines 8-11. 191 Exhibit 23848-X0300, paragraph 354, PDF page 85. 192 Transcript, Volume 3, page 555, lines 12-14. 193 Transcript, Volume 3, page 553, lines 12-17. 194 Exhibit 23848-X0300, paragraph 353, PDF page 85. 195 Exhibit 23848-X0300, paragraph 354, PDF page 85. 196 Exhibit 23848-X0332, paragraph 244, PDF page 82.
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211. With regard to line rating methodology, AltaLink indicated that it mitigates line clearance
deficiencies that occur under “defined static rating conditions.” 197 Additionally, AltaLink
explained that static ratings define the maximum capacity at which a transmission line can
normally be operated under all weather conditions. Mr. Bartel described “static ratings” and
“defined static rating conditions” as follows:
Let me try it this way at a high level. So I think the defined static-rating conditions would
be analogous to what I was just describing earlier about the conditions that are defined in
the Alberta Electric Utility Code as to how you would do the analysis based on the survey
to determine the rating, the line rating of a facility.
So the electric code defines the weather cases, the different types of loading, as well as
the clearances required to the different types of objects and ground and so on. So the code
covers both environmental conditions and the physical clearances that need to be met,
and that's the analysis that we're talking about there, and that establishes the static thermal
rating for the facility that's the same rating that we've been talking about here provided to
the AESO.198
212. The CCA disagreed, arguing that “[Alberta Reliability Standard] FAC-008[-AB-3] does
not require the TFO to “design and maintain” its facilities at a certain rating, rather it includes an
obligation to develop an appropriate methodology and report the ratings to the AESO as the
system operator.”199
213. In the CCA’s view, the posted line rating for a transmission line “is not set in stone and it
may be adjusted by the AESO in collaboration with the TFO for various reasons (e.g. condition
of the transmission line, actual and anticipated load flows do not require such a high rating, other
system-wide planning considerations, etc.).”200 The CCA argued that:
• There is no evidence on the record that the AESO dictates these ratings to the TFO and
that the TFO must maintain these ratings throughout the entire life of the asset at any
cost. 201
• There is nothing in the statutory or regulatory framework to prevent the TFO from
approaching the AESO with a request to reduce line ratings on those transmission lines
that experience line clearance issues, if load flow studies and the AESO’s planning
studies allow for it.202
• It’s up to AltaLink, not the AESO, to determine if a line’s rating is safe.203
214. Accordingly, the CCA suggested that AltaLink could work with the AESO to adjust
transmission line ratings to less stringent and appropriate levels when assessing line clearances,
197 Exhibit 23848-X0236, AML IR Responses to CCA Round 3 Excluded Matters (1-23), AML-CCA-2019JUL19-
009(a), PDF page 22. 198 Transcript, Volume 3, page 560, lines 20-25 and page 561, lines 1-11. 199 Exhibit 23848-X0333, paragraph 266, PDF page 93. 200 Exhibit 23848-X0333, paragraph 268, PDF page 93. 201 Exhibit 23848-X0333, paragraph 269, PDF page 93. 202 Exhibit 23848-X0333, paragraph 269, PDF page 93. 203 Transcript, Volume 3, page 556, lines 24-25, and page 557, lines 1-2.
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which could potentially “eliminate the identified line clearance issues altogether (and not just
temporarily mitigate them, as repeatedly suggested by AltaLink in this Proceeding).”204
4.4.1.3 Line clearance engineering assessment methodology
215. AltaLink advised that, once transmission line LiDAR survey data is processed, it utilizes
this data in PLS-CADD, an industry standard transmission line design software, to model the
position of a particular conductor at various wire temperatures (power loading) or swing
(e.g., wind) conditions.205 Subsequently, AltaLink explained that it analyzes the conductor’s
position under a set of Alberta Electrical Utility Code defined wire conditions, to determine if
the conductor’s position is deficient against any of the Alberta Electrical Utility Code’s
minimum clearance requirements.206 As explained by Mr. Bartel:
So when we determine -- when we go through the engineering survey and engineering
analysis process that I was describing earlier, that is a -- and I think we've provided it in
our evidence - a prescribed process of validating the wire -- the as-found conditions of
the wires against a number of environmental conditions that are defined in the Alberta
utilities code. And that code would then -- then determines -- by utilizing the survey data
and the engineering analysis defined in the code, you end up with a resultant rating or --
and if it’s different, that resultant rating, than the original believed rating, then that would
be what we were deeming a deficiency that then needs to be assessed and corrected.207
216. With regard to the Alberta Electrical Utility Code defined conductor conditions, AltaLink
provided the following information on conductor conditions that are commonly used in line
clearance assessments:
B. Wire Conditions
Wire Condition(s) define the position in space of the conductor under which the required
clearances shall be applied (e.g. operational and environmental conditions for the power
line). There are two general types of wire conditions:
i. Thermal or Sag conditions, where the wire is at a maximum vertical sag position; and
ii. Swing or Blowout conditions, where the wire at a nominal defined sag position is
swung out horizontally to some angle based on Code defined wind conditions.
AltaLink provides the some illustrative examples from the Code describing common wire
conditions used in clearance assessments as defined by the Code (see clauses of CSA
C22.3 No. 1 – 2015 (for AEUC 2016).
5.2.2 Vertical design clearances
Requires vertical clearances to apply under the maximum sag of the
wires whether thermally loaded or physically loaded under wind and ice.
5.2.3 Horizontal design clearances
Requires horizontal clearances to apply under the swing conditions
specified in Clause 5.2.7 (see below).
5.2.5 Conductor temperature for thermal loading conditions
204 Exhibit 23848-X0333, paragraph 292, PDF page 100. 205 Exhibit 23848-X0266, PDF page 5. 206 Exhibit 23848-X0266, PDF page 6. 207 Transcript, Volume 3, page 559, lines 1-15.
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5.2.5.2 states the conductor temperature shall be calculated in accordance
with ANSI/IEEE 738 for the anticipated worst case conditions or 100⁰C
for bare conductors.
5.2.7 Wire or conductor swing for horizontal design clearances
States the sag condition to be used when determining the horizontal
swing distance of 40⁰C final unloaded sag. A.5.2.7 states that the
conductor swing for horizontal design clearances is based on a wind
pressure of 230 N/m2.208
217. While the Alberta Electrical Utility Code defines a variety of conditions that are used in
clearance assessments, the interpretation of “conductor temperature for thermal loading
conditions,” or Section 5.2.5 of the Canadian Standards Association (CSA) C22.3 No. 1 – 2015
(provided above), was a point of contention between AltaLink and the CCA. In particular, the
issue was primarily centered around whether AltaLink had any discretion in setting the
conductor temperature to the “anticipated worst case conditions” alternative from Section 5.2.5,
when assessing conductors for clearance deficiencies.
218. AltaLink indicated that to calculate the maximum vertical sag position of a conductor, it
set conductor temperature at the transmission line’s current thermal rating.209 AltaLink advised
that for most transmission lines, this maximum thermal rating is 100⁰C. Mr. Bartel provided the
following explanation as to when AltaLink would apply the “anticipated worst case conditions”
alternative:
And so the reference there is looking at the IEEE 738 standard and basically allowing for
-- in some line designs in the past, 100 degree C is today's normal; but in the past there
was different thermal limits utilized by designers, depending on the asset and their
needs.210
…
It will be based on what's in the historical record for the design conditions for the asset.
I think for most -- most of AltaLink’s assets, we're using 100 degrees C based on their
history. There is a few that may be at a slightly different design parameter initially, and
then that would be what's being assessed.211
219. Mr. Bartel further explained that the “worst-case conditions are typically defined in the
design requirements for the asset when it was originally conceived.”212 Accordingly, AltaLink
indicated that it “uses the maximum thermal rating of the line established with the AESO. This is
often 100⁰C but not always, depending on the design history and system requirements.”213
Likewise, AltaLink explained that “when AltaLink provides the AESO with a line rating, it must
be confident that the line can be operated safely up to that rating. For purposes of ensuring
compliance with the Safety Codes Act, AltaLink therefore must plan to accommodate maximum
load flow in its line clearance analysis.”214
208 Exhibit 23848-X0266, page 7. 209 Exhibit 23848-X0266, pages 7-8. 210 Transcript, Volume 3, page 567, lines 14-19. 211 Transcript, Volume 3, page 568, lines 7-13. 212 Transcript, Volume 3, page 567, lines 12-14. 213 Exhibit 23848-X0300, paragraph 364, PDF page 87. 214 Exhibit 23848-X0332, paragraph 250, PDF page 84.
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220. The CCA asserted that AltaLink “chose to exercise its discretion to set the maximum
conductor temperature at 100⁰C,”215 as the CCA emphasized that Section 5.2.5 of the CSA C22.3
No. 1 – 2015 gave AltaLink the choice to use either “the anticipated worst-case conditions or
100 degrees Celsius for bare conductors.”216 In that regard, the CCA argued that “there is no
substantive evidence on the record that ‘100C is today’s normal’ or that the AESO’s Functional
Specifications, which include the applicable design requirements, refer to “worst-case
conditions” and set the conductor temperature at 100 degrees Celsius for the transmission lines
and spans included in the business case for the Program.”217
221. Likewise, the CCA contended that “AltaLink’s decision to rely on 100 degrees Celsius as
a default for virtually all transmission lines is unreasonable,”218 and that “it is unreasonable to
assume that the peak load flows on the majority of AltaLink’s transmission lines are at the
conductor’s thermal limits,”219 as “such an approach does not reflect any reasonable (actual or
anticipated) load flows or contingencies on AltaLink’s transmission system.”220
222. To support this position, the CCA argued that “with all other considerations and
environmental conditions being equal, setting the conductor temperature at the maximum of
100 degrees Celsius results in the lowest possible sag, which is lower than the most extreme
N-1-1 contingency conditions.”221 In that regard, the CCA explained that the N-1-1 contingency
defines the conditions (including load flows) of a system when two bulk electric system elements
(transformer, transmission line, etc.) go out of service sequentially.222 Therefore, the CCA
submitted that the use of 100⁰C as the default maximum conductor temperature for almost every
conductor “results in a disproportionately large and excessive number of line clearance issues,
which are unlikely to materialize even under the worst-case and unlikely contingency conditions
of N-1-1.”
223. In the CCA’s view, AltaLink has the discretion to “rely on load flow studies for each
transmission line included in the Program and consider the worst-case conditions as N-1-1
contingency conditions on its transmission system.”223
224. In response, AltaLink maintained that it “developed its Management Update forecast
(including the additional $20.0 million to which the CCA objects) by applying the same state-of-
the-art methodology approved in previous GTA proceedings, and that the CCA itself agreed to in
the present NSA, to a representative sample of its transmission line assets.”224
225. Regarding the interpretation of Section 5.2.5 of the CSA C22.3 No. 1 – 2015, AltaLink
responded that “the fact that clause 5.2.5.2 allows AltaLink to choose a maximum thermal rating
other than 100°C does not provide AltaLink with ‘discretion’ in terms of the maximum thermal
rating it uses to determine its lines’ compliance with the Code, nor is the ‘anticipated worst case
215 Exhibit 23848-X0333, paragraph 274, PDF page 95. 216 Exhibit 23848-X0333, paragraph 272, PDF page 94. 217 Exhibit 23848-X0333, paragraph 276, PDF page 95. 218 Exhibit 23848-X0333, paragraph 260, PDF page 91. 219 Exhibit 23848-X0333, paragraph 261, PDF page 92. 220 Exhibit 23848-X0333, paragraph 279, PDF page 96. 221 Exhibit 23848-X0333, paragraph 279, PDF pages 96-97. 222 Exhibit 23848-X0273, paragraph 19, PDF page 10. 223 Exhibit 23848-X0333, paragraph 274, PDF page 95. 224 Exhibit 23848-X0332, paragraph 256, PDF pages 86-87.
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conditions’ calculation based on historical load on the line.”225 Furthermore, AltaLink argued that
“the determination of a line’s maximum thermal rating for Code calculation purposes is not a
discretionary decision on AltaLink’s part, but is based on AltaLink’s collaboration with the
AESO regarding system needs and design requirements and on the asset’s original design.”
Commission findings
226. LiDAR technology, and LiDAR as a surveying method to gather data on transmission
lines, is not a new technology or methodology being proposed in AltaLink’s 2019-2021 LCM
program. The Commission accepts AltaLink’s submission that it is not proposing a new
methodology to identify line clearance deficiencies in this test period, and is not proposing a new
process or methodology to adjust line ratings. The Commission considers that AltaLink’s LiDAR
and engineering assessment methods are consistent with previous LCM programs and GTA
forecasts.226 The Commission has approved AltaLink’s LCM program forecast expenditures, and
the methodologies contained therein, in previous GTA proceedings, commonly as part of a
negotiated settlement between parties. This includes the LCM program in AltaLink’s 2017-2018
GTA (Proceeding 21341),227 and the associated Commission approval in Decision 21341-D01-
2017.228
227. Moreover, the Commission notes that parties to the current NSA supported AltaLink’s
original LCM forecast of $18.8 million. The Commission observes that the LiDAR technology
and LiDAR surveying methods, the process and methodology used to adjust line ratings, and the
engineering assessment methodology used to identify line clearance deficiencies are identical
between the original $18.8 million LCM forecast and the incremental $20.0 million forecast. The
Commission found the NSA filed by AltaLink, in this proceeding, to be just and reasonable, for
the reasons set out in Section 3.
228. In view of the above, the Commission finds AltaLink’s use of LiDAR technology, its
process and methodology for adjusting line ratings, and its engineering assessment methodology
to identify line clearance deficiencies, are reasonable. However, this general finding is subject to
the Commission’s more specific findings and directions, as set out below.
229. Regarding AltaLink’s line rating adjustment process, the Commission accepts that
AltaLink must adhere to certain AESO requirements, and that re-establishing or adjusting the
line rating of a transmission line is a collaborative effort between AltaLink and the AESO.
Specifically, the Commission understands that:
• initially, the AESO determines an asset’s posted line rating, at the time of the Need
Identification Document, and that AltaLink designs its assets to comply with this line
rating.
225 Exhibit 23848-X0332, paragraph 247, PDF page 83. 226 Exhibit 23848-X0332, AML Argument, paragraph 204, PDF page 70. 227 Proceeding 21341, AltaLink 2017-2018 General Tariff Application, Exhibit 21341-X0010, AML 2017-18 GTA
Application Appendix 13 (Business Cases), Line Clearance Mitigation, PDF page 12. 228 Decision 21341-D01-2017: AltaLink Management Ltd., 2017-2018 General Tariff Application Negotiated
Settlement Agreement, Proceeding 21341, August 30, 2017, paragraphs 56-57, PDF pages 14-15.
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• the AESO, as an entity tasked with planning the transmission system, has significant
input into line rating adjustments, and the methods set out therein.
• AltaLink collaborates with the AESO to confirm the line rating that the AESO needs,
based on the AESO’s planning and analysis of the system, before undertaking capital
repairs to re-establish the rating of a line.229 As indicated by Mr. Bartel in the following
example:
… if the AESO needed that line at 114 MVA [line rating] for all of history, we would ask
the question, “Do you still need that line to be able to operate at 114 MVA moving
forward? Is that the case?” And if the answer comes back as “yes,” that is what we have
to commit to.230
230. As collaboration with the AESO is an inherent part of AltaLink’s process to adjust the
line ratings of its transmission lines, the Commission is concerned that the nature and extent of
key elements of this collaborative process are not on the record of this proceeding. This includes
how the AESO determines a posted line rating, how AltaLink and the AESO determine an
appropriate line rating adjustment through their collaborative process, and what informs the
decision to adjust a transmission line rating. The Commission considers that this information is
necessary to review the prudence of the $20.0 million forecast incremental LCM costs, as part of
AltaLink’s next opening rate base.
231. Accordingly, the Commission directs AltaLink, at the time of its next general tariff
application and as part of its Line Components CRU Business Case, to explain in more detail the
nature and extent of its collaboration with the AESO on line rating adjustments. This includes
both temporary de-rates, re-rates, and de-energizations. In particular, AltaLink should include a
step-by-step example that explains this collaborative process, a list of factors that inform the
AESO’s and AltaLink’s decisions to adjust the line rating of any particular transmission line, and
references to all relevant standards, codes and rules with which AltaLink and the AESO are
obligated to comply, in respect to this collaborative process. Likewise, AltaLink should clearly
identify and delineate the responsibilities of the AESO and AltaLink, respectively, with regard to
the line rating adjustment process and the associated determinations of safe operating limits for
transmission lines. Further, AltaLink should include an explanation of whether the AESO’s N-0,
N-1, N-2 and N-1-1 contingencies factor into line rating adjustment discussions, and how system
requirements and transmission line design history inform the AESO’s and AltaLink’s decision to
adjust maximum thermal ratings, and maximum allowable load flows.
232. Similarly, the Commission considers that it would be helpful to have the AESO’s views
regarding its role in this collaborative process, specifically with regard to how the AESO
exercises its discretion in permitting de-rates, re-rates, de-energizations and alternative
mitigation measures. Accordingly, the Commission directs AltaLink to request the AESO to file
a submission explaining, from the AESO’s perspective, how the line rating adjustment process is
carried out between itself and AltaLink, how the AESO determines a posted line rating, how the
AESO makes its determination to adjust the line rating of any particular transmission line, what
factors are considered therein by the AESO, and any other information that the AESO considers
may be of assistance in the circumstances. AltaLink is directed to file the AESO’s response at
229 Transcript, Volume 3, page 652, lines 5-10, and Transcript, Volume 4, page 753, lines 22-25. 230 Transcript, Volume 4, page 743, lines 1-5.
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the time of its next general tariff application and as part of its Line Components CRU Business
Case.
233. With regard to AltaLink’s engineering assessment methodology, the Commission
considers that AltaLink is reasonably applying the relevant sections of the Alberta Electrical
Utility Code, and the standards defined in CSA C22.3 No. 1 – 2015, to identify transmission line
spans that are deficient relative to the Alberta Electrical Utility Code’s minimum clearance
requirements. The Commission notes that the Alberta Electrical Utility Code, along with the
relevant standards in CSA C22.3 No. 1 – 2015, define a variety of conditions that are used in line
clearance calculations, and that Section 5.2.5 of CSA C22.3 No. 1 – 2015 is not utilized in
isolation. As explained by Mr. Bartel:
It really depends on what the limiting case may be for a given physical configuration.
So, hence, the -- for example, the electric code includes other environmental scenarios to
evaluate clearances like -- there could be a blowout scenario that will be the limiting
clearance calculation that may not have any bearing on the maximum thermal capacity.231
234. In the Commission’s view, the CCA provided limited evidence, beyond its scrutiny of
how AltaLink applies Section 5.2.5 of CSA C22.3 No. 1 – 2015, as to why AltaLink’s
engineering assessment methodology to identify line clearance deficiencies is improper or
unreasonable.
235. Accordingly, the Commission finds that AltaLink has provided sufficient evidence to
support its engineering assessment methodology, as it relates specifically to identifying line
clearance deficiencies. Likewise, the Commission finds that AltaLink’s engineering assessment
methodology reasonably satisfies all the relevant standards, codes and rules identified in this
proceeding, with which AltaLink is obligated to comply.
236. Turning to AltaLink’s decision to change its approach to LiDAR surveys and engineering
assessments, the Commission considers that AltaLink’s new system-wide, one-effort, approach
to these activities is a considerable change from AltaLink’s prior LCM programs, which targeted
LCM activities on an smaller scale, incremental, basis. The Commission generally agrees that a
system-wide approach to LiDAR surveys and engineering assessments should provide AltaLink
with a more complete and up-to-date view of its transmission system, and has the potential to
enhance AltaLink’s ability to manage effectively the various risks within its LCM program, on a
system-wide basis. Accordingly, the Commission considers this approach to be reasonable on a
forecast basis.
237. However, the Commission is of the view that additional information regarding the
system-wide approach is required in order to review the prudence of AltaLink’s actual
incremental LCM costs as part of AltaLink’s next opening rate base. For example, the
Commission considers that additional information is required to understand why AltaLink’s
historic incremental approach to LiDAR surveys and engineering assessments was
inappropriately scoped or deficient, and why the new system-wide approach is favoured as a
better alternative to coordinate, prioritize and balance the costs, risks, scope, and order of
mitigation and repair work in AltaLink’s LCM program. Further, the Commission considers that
the level of detail provided in AltaLink’s evidence is insufficient to demonstrate that the new
231 Transcript, Volume 4, page 685, lines 4-11.
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system-wide approach to LiDAR surveys is cost-efficient, as compared to AltaLink’s historic
incremental approach. As an example, the Commission is unable to verify or assess the cost
savings from AltaLink’s new system-wide LiDAR survey, based on the information provided on
the record.
238. Accordingly, the Commission directs AltaLink, at the time of its next general tariff
application, to file a detailed comparison of LiDAR survey unit costs between the incremental
approach and the new system-wide approach, as part of its Line Components CRU Business
Case. The unit costs must be broken down into their respective component parts, and AltaLink
must clearly demonstrate, using the unit cost component breakdown, how the new system-wide
survey has reduced LiDAR unit costs, and the source of this reduction.
239. AltaLink is further directed to provide an analysis that demonstrates why the system-wide
approach to LiDAR and engineering assessments, which seeks to mitigate line clearance
deficiencies across all 13,385 km of AltaLink’s transmission system within this test period, is
more effective than the incremental approach, where AltaLink historically surveyed and assessed
approximately 1,100 km of its system per year. Specifically, AltaLink is to explain, with
supporting analyses and calculations, how the new system wide approach to LiDAR surveys and
engineering assessments is a more effective tool to prioritize and mitigate risks across AltaLink’s
entire system, over multiple years, while balancing both LiDAR unit costs and overall LCM
program costs. AltaLink should also address how the new system-wide approach facilitates more
effective coordination and prioritization of resources across AltaLink’s system, to ensure that
potential public safety and system reliability risks are mitigated, while costs are minimized.
4.4.2 Timeframe of AltaLink’s LCM program
240. AltaLink explained that the basis of its prior $18.8 million forecast was an expectation
that the capital investment required to mitigate all deficiencies could be spread out over a six-
year period, through the utilization of temporary mitigation activities.232 However, supplementary
line assessments completed by AltaLink throughout this proceeding identified a need to advance
the LCM program’s pace, from six years to three years. 233 AltaLink explained that two key
factors are driving this need to advance the LCM program’s pace.
241. As discussed above in Section 4.4.1, AltaLink submitted that one factor is the sheer
magnitude of line clearance deficiencies that are being identified through its line assessments. In
particular, Mr. Bartel explained that AltaLink’s engineering assessments are identifying a
significant increase in high risk deficiencies.234 As the second factor, AltaLink submitted that this
historic number of deficiencies is compounded by AltaLink’s inability to utilize temporary
mitigation actions, for periods longer than three years.235
242. AltaLink explained that temporary mitigation activities are used on an interim basis to
address a line clearance deficiency immediately, until a permanent solution is implemented.
AltaLink’s management update referenced two temporary mitigation activities that are used by
AltaLink to mitigate line clearance deficiencies: de-rates and physical barriers.236 Physical
232 Exhibit 23848-X0203, paragraph 3, PDF page 1. 233 Exhibit 23848-X0203, paragraph 5, PDF page 1. 234 Transcript, Volume 3, page 578, lines 7-23. 235 Exhibit 23848-X0203, paragraph 7, PDF page 2. 236 Exhibit 23848-X0203, paragraph 4, PDF page 1.
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barriers prevent the occurrence of public safety incidences by restricting access to locations
where a deficiency is identified,237 whereas, de-rates temporarily limit the maximum allowable
current that can flow through a transmission line by establishing a new, but reduced, safe
operating limit.238
243. Mr. Bartel, during the oral hearing, provided two reasons as to why AltaLink’s ability to
implement de-rates is limited:
So, first off, and I think this is probably the primary one, the nature of the deficiencies.
So that the number of them in aggregate, which we would be applying de-rates to, to
maintain public safety, like as that number increases, there’s a compounding effect in the
impacts to the power system and the restrictions for the operators.
So that -- given we weren't expecting the frequency -- the amount of de-rates, or the
amount of deficiencies, then the use of our temporary measure to de-rate the asset while
we wait to get into the field to fix it becomes much more difficult to do. So we're unable
to do that for as long, because there's more assets that are impacted, and the assets start to
interplay with each other. If one asset and a neighbouring asset are both de-rated, then the
likelihood of having an impact to the customer to the transmission system is much large.
So that to me would be one of the largest pieces we’ve been finding as the deficiency
rates are higher.239
…
I think the nature of the deficiency would be the impact on public safety, again, with the
large volume of deficiencies that would come in. De-rating is a good temporary measure
if there a few of them. But when the volume gets to a point, there is a tipping point where
de-rating all of the lines as a temporary measure will actually break up the system. And
now we're getting into system reliability concerns.
And, again, with the types -- the nature of the deficiency and the impact on public safety,
that is what is driving some of the pace.240
244. Similarly, AltaLink explained that utilizing physical barriers across a high volume of
deficiencies is not feasible, as “restricting public access at multiple locations, or interfering with
landowner access to their property is not sustainable over a 4‐6 year timeframe.”241
245. As such, AltaLink maintained that the $20.0 million forecast update is necessary to
advance the pace of its LCM program. Considering that $20.0 million is a material increase
compared to AltaLink’s historic LCM program forecasts, as discussed in more detail below, the
reasonableness of AltaLink’s request was a point of contention between AltaLink and the CCA,
specifically with regard to the need and urgency to mitigate all line clearance deficiencies within
this test period.
237 Exhibit 23848-X0231, AML IR Responses to AUC Round 3 Excluded Matters (1-11), AML-AUC-2019JUL19-
004(b), PDF page 13. 238 Transcript, Volume 3, page 554, lines 11-20. 239 Transcript, Volume 3, page 592, lines 10-25 and page 593, lines 1-4. 240 Transcript, Volume 3, page 593, lines 24-25 and page 594, lines 1-10. 241 Exhibit 23848-X0203, paragraph 10, PDF pages 2-3.
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246. The Commission assessment of AltaLink’s proposed timeframe to address line clearance
deficiencies continues in the following three sections. The Commission will discuss: first, public
safety and system reliability considerations; second, prioritization of line clearance mitigation
work; and third, alternative line clearance mitigation strategies.
4.4.2.1 Public safety and system reliability considerations
247. AltaLink submitted that “public safety is the specific key risk driver for the line clearance
mitigation program and is the key risk AltaLink is looking to mitigate with the implementation
of this program.”242 AltaLink added that this public safety risk is: “driven by inadequate
clearance between energized conductors and objects that can cause flashover between the
conductor and the object resulting in the object being momentarily energized to the voltage level
of the power line,” explaining that such an event “creates a public safety risk for individuals of
electrocution or the potential for flashover to other objects (e.g. structures, vehicles, vegetation,
other utility assets, etc.) further exposing personnel to electrocution risks and, potentially, the
risk of fire.”243
248. Furthermore, AltaLink submitted that “increased expenditures for LCM avoids the
potential for compounding power system de‐rates on multiple lines that potentially impact
reliability and customers.”244.
249. In that regard, AltaLink confirmed that it has operated and maintained its transmission
assets in a safe and reliable manner.245 In addition, AltaLink submitted that “due to [its]
operational practice to minimize public safety risk there are very few instances of flashover to
ground, objects or wires arising from clearance deficiencies.”246
250. The CCA responded by arguing that “the evidence filed by AltaLink on the record of this
Proceeding does not demonstrate that there are clear public safety grounds for the proposed
Program to be approved as filed.”247 Specifically, the CCA submitted that “AltaLink was able to
refer to only three flashover events in the previous eight years; one in each of 2012, 2017 and
2019, which may have been caused by line clearance issues,”248 and that “apart from the three
flashover incidents, the record of this Proceeding does not include any references to actual public
safety events for transmission lines subject to the proposed Program.”249 Furthermore, the CCA
contended that those flashover incidences identified by AltaLink cannot be linked to any
established line clearance issues, with any degree of certainty, as “there is no root cause analysis
for the flashover incidents referred to by AltaLink.”250
251. Additionally, the CCA pointed out that AltaLink’s approach251 to LiDAR surveys did not
prioritize transmission lines with known line clearance issues based on prior LiDAR data and
operational experience, and that “if there were major public safety concerns on specific
242 Exhibit 23848-X0236, AML-CCA-2019JUL19-010(a), PDF page 25. 243 Exhibit 23848-X0236, AML-CCA-2019JUL19-010(b), PDF page 25. 244 Exhibit 23848-X0203, paragraph 9, PDF page 2. 245 Transcript, Volume 3, page 648, lines 15-19. 246 Exhibit 23848-X0300, paragraph 325, PDF page 77. 247 Exhibit 23848-X0333, paragraph 249, PDF page 89. 248 Exhibit 23848-X0333, paragraph 235, PDF pages 85-86. 249 Exhibit 23848-X0333, paragraph 236, PDF page 86. 250 Exhibit 23848-X0333, paragraph 241, PDF page 87. 251 Transcript, Volume 4, page 749, lines 2-9.
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transmission lines, it would have made sense for AltaLink to address these lines and issues
without any delay.”252
252. Bema submitted, in its evidence filed on behalf of the CCA, that average load flows in
the last five years have been declining.253 Similarly, Bema submitted that AltaLink’s SAIFI and
SAIDI line performance statistics from 2008 to 2017 appear to be improving and outperforming
the rest of Canada.254 The CCA argued that “AltaLink did not provide any outage data or other
reliability metrics to confirm that the line clearance issues raise significant reliability concerns on
its transmission system.”255
253. In the CCA’s view, “if AltaLink’s line mitigation program forecast was driven by an
urgent need on its transmission system, its line performance statistics would have reflected an
increased number of outages due to sags and line contacts,”256 and “the onus remains on AltaLink
to demonstrate and prove that there is actually an elevated risk level to public safety or reliability
of its transmission system.”257
254. In response, AltaLink explained that “as data continues to be analyzed for more of
AltaLink’s system, it shows a continued increase in the amount of work required to resolve
safety code deficiencies, further reinforcing AltaLink’s forecast,”258 and that “AltaLink has a
legal obligation to address line clearance issues as it identifies them, subject to a limited
discretion as to timing.”259
255. AltaLink argued that SAIDI and SAIFI are irrelevant, as they are lagging customer
performance metrics that only change after an accident has already occurred.260 Therefore,
AltaLink contended that “simply waiting for flashovers to occur and show up in a lagging
customer performance metric before taking action, when the flashovers expose the public or
other third parties to high voltage transmission, is irresponsible and is not consistent with
AltaLink’s safety obligations under the Electric Utilities Act and the Safety Codes Act.”261
256. Additionally, AltaLink submitted that the CCA’s position on AltaLink’s performance
record is inconsistent, as the CCA “concedes that AltaLink’s safety record is ‘remarkable’, but at
the same time it [CCA] criticizes AltaLink for complying with the legislative scheme that
enables it [AltaLink] to achieve that record.”262 AltaLink advised that its safety record is
exceptional, precisely because of its approach and methodology to line clearance mitigation.263
252 Exhibit 23848-X0333, paragraph 238, PDF page 86. 253 Exhibit 23848-X0273, CCA evidence of Bema Enterprises Ltd. - Part 3 – 23848, paragraphs 33-35, PDF
pages 13-15. 254 Exhibit 23848-X0273, paragraphs 36-38, PDF pages 15-17. 255 Exhibit 23848-X0333, paragraph 252, PDF page 89. 256 Exhibit 23848-X0333, paragraph 313, PDF page 105. 257 Exhibit 23848-X0333, paragraph 314, PDF page 105. 258 Exhibit 23848-X0332, paragraph 201, PDF page 69. 259 Exhibit 23848-X0337, paragraph 57, PDF pages 21-22. 260 Exhibit 23848-X0332, paragraph 276, PDF page 93. 261 Exhibit 23848-X0332, paragraph 277, PDF page 93. 262 Exhibit 23848-X0337, paragraph 69, PDF pages 25-26. 263 Exhibit 23848-X0337, paragraph 70, PDF page 26.
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4.4.2.2 Prioritizing LCM work; high-risk versus low-risk deficiencies
257. AltaLink initially provided the following information on how mitigation and resolution
work is prioritized within its LCM program:
Prioritization
Deficiencies identified are locations of potential clearance violations when the
transmission line is operated to within and up to its full rated capacity. Deficiencies are
prioritized through engineering review based on the nature of the potential clearance
issue, amount of public exposure, the anticipated operating conditions of the line, type of
land access, as well as options for operational controls to ensure safety (e.g. temporary
operational limitations, restricting public access, etc.). The Line Clearance Mitigation
program investments address those locations where transmission structure upgrades or
modifications are required to resolve the prioritized clearance deficiencies.
A clearance deficiency is considered high risk when the energized conductor is modelled
and determined to encroach on safety code clearances near or within flashover distance at
the line’s average operating load while under reasonably expected ambient weather
conditions (wind, temperature, etc.). This line would receive immediate attention; both
interim de-energizing or derating the line to ensure public safety and mobilizing to
correct the deficiency as soon as possible.
A deficiency would be considered lower risk when an encroachment exists only when the
line is operated near its maximum rating but regularly operates well below this rating.
This risk may be address temporarily by operational or physical controls (such as
temporarily de-rating or restricting access to the location in question) while the line
remains in service. In this case, public safety is ensured by the operational controls
however the timeline for physical modifications to complete the mitigation would be
based on the need for that line’s rating to be fully restored, managed over a reasonable
period of time. 264
258. In its evidence, Bema submitted that AltaLink should apply a more risk-based framework
when prioritizing which line clearance violations should be addressed first.265 In particular, Bema
suggested that AltaLink should use the AESO’s N-0, N-1, N-2 and N-1-1 contingency load flows
to prioritize mitigation work appropriately based on a deficient line’s risk level.266 N-0 is the load
flow of a system that’s intact (normal load flows); therefore, Bema explained, spans that are
deficient at N-0 should have the highest priority for mitigation work. Alternatively, spans that are
deficient at N-2 or N-1-1 (when two elements are out of service) should have a lower priority for
mitigation work. Additionally, Bema suggested other factors that should be considered when
prioritizing line clearance mitigation work, such as frequency of clearance violations, potential
effects on public safety and any effects on customer load.267
259. To support this proposal, Bema provided an example of the risk-based approach used by
ATCO Electric Ltd. in Proceeding 22742,268 to prioritize line-to-line (circuit-to-circuit or
264 Exhibit 23848-X0062, AML IR Responses to AUC (1-139), AML-AUC-2018OCT31-065(a), PDF page 140. 265 Exhibit 23848-X0273, paragraph 66, PDF pages 25-26. 266 Exhibit 23848-X0273, paragraphs 67-69, PDF page 26. 267 Exhibit 23848-X0273, Figure 5: Illustration of Risk-based Prioritization Matrix, paragraph 70, PDF
pages 26-27. 268 Proceeding 22742, ATCO Electric Transmission 2018-2019 General Tariff Application.
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underbuild) clearance mitigation work.269 In particular, Bema explained that ATCO Electric
analyzed the historical performance of its transmission lines to mitigate primarily the worst and
most obvious line clearance deficiencies first. Using this information, Bema explained further
that ATCO Electric set a “margin of risk tolerance,” wherein, spans that posed a low risk of
making line-to-line contact were removed from the scope of ATCO Electric’s clearance
mitigation program.270
260. The CCA elaborated further on ATCO Electric’s risk-based prioritization approach by
providing the following excerpt from ATCO Electric’s line-to-line clearance mitigation business
case:
Overall Line Ranking = A X B X C
Where,
‘A’ represents the worst case line loading level ranked from 1 to 4 with 1 assigned to
lines that are loaded from 0 to 35% of their rating, 2 assigned to lines that are loaded
between 35% and 50% of their rating, 3 assigned to lines that are loaded between 50%
and 65% of their rating and 4 assigned to lines that are loaded between 65% and 100% of
their rating.
‘B’ is defined as the likelihood of high line loading based on operating conditions. Lines
are ranked from 1 to 4. The N-0 or normal operating condition is given the highest
ranking of 4. The rankings of 1 to 3 are based on N-1 contingency studies and the number
of contingencies that result in a line reaching the load levels defined in ‘A’. Once all the
contingency studies are completed, the lines with the top third frequency of contingencies
resulting in a particular load level are assigned a 3, lines the middle third frequency of
contingencies resulting in a particular load level are assigned a 2 and lines with the lower
third frequency of contingencies resulting in a particular load level are assigned a 1.
‘C’ is defined as the criticality of the line to the AIES. Criticality considers a line being
out of service and the ranking looks at direct impact to customers (load or generation
interrupted), impact to customers (load or generation interrupted) if next contingency
occurs, and impact to operating the AIES in the form of load or generation curtailments
that may be required consistent with the AESO’s operating directives. A ranking of 1 is
assigned for a direct load loss of 1 MVA or less, a next contingency load loss of 10 MVA
or less or a generation loss/curtailment of 10 MW or less. A ranking of 2 is assigned for a
direct load loss greater than 1 MVA and less than or equal to 5 MVA, a next contingency
load loss greater than 10 MVA and less than or equal to 50 MVA or a generation
loss/curtailment greater than 10 MW and less than or equal to 50 MW. A ranking of 3 is
assigned for a direct load loss greater than 5 MVA and less than or equal to 30 MVA,
a next contingency load loss greater than 50 MVA and less than or equal to 300 MVA or
a generation loss/curtailment greater than 50 MW and less than or equal to 300 MW.
A ranking of 4 is assigned for a direct load loss of 30 MVA or greater, a next contingency
load loss of 300 MVA or greater or a generation loss/curtailment of 300 MW or
greater.271
269 Exhibit 23848-X0273, paragraph 82, PDF page 28. 270 Exhibit 23848-X0273, paragraphs 82-83, PDF pages 28-29. 271 Proceeding 22742, ATCO Electric Transmission 2018-2019 General Tariff Application, Exhibit 22742-
X0171.04, Transmission Double Circuit Clearance Mitigation Projects, PDF pages 560-561.
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261. AltaLink responded by submitting the following, with regard to its prioritization process:
• AltaLink is completing the N-0, N-1 and N-1-1 planning studies and uses the results of
these studies to define the forecasted timelines for addressing line clearance deficiency
in the Test Period.272
• AltaLink evaluates, on a span by span basis, the impact a potential de-rate will have on
the transmission system when implemented. AltaLink will prioritize mitigation work in
cases where a de-rate has a considerable impact on the system. Furthermore, AltaLink
will consider the length of time a de-rate will have an effect on power system operations
when prioritizing mitigation work.273
262. To further clarify its prioritization process, AltaLink provided the following illustration
and flowchart:
Figure 2. AltaLink rating assessment and prioritization process
Source: Exhibit 23848-X0300, Figure 5-1, paragraph 332, PDF pages 79-80.
263. Additionally, AltaLink stated that ATCO Electric’s approach is irrelevant to AltaLink’s
transmission system, arguing that “ATCO runs a different transmission system that has
272 Exhibit 23848-X0300, paragraph 330, PDF page 79. 273 Exhibit 23848-X0300, paragraph 329, PDF pages 78-79.
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considerations that are based on its respective design and maintenance history, system needs,
customers, structure design and so on.”274 Likewise, AltaLink explained that its system is unique,
and that AltaLink, in collaboration with the AESO, applies its own operating judgement to
determine an appropriate management approach for its service area.
4.4.2.3 Time frame to address all line clearance deficiencies
264. In its management update, AltaLink forecast that a total of 494 lines would require
capital upgrades to resolve any identified line clearance deficiencies.275 Furthermore, AltaLink
submitted that “the increased volume of deficiencies being discovered combined with the
reduced ability to utilize operational or temporary controls for long periods of time requires
AltaLink to update its forecast to advance the LCM investments to resolve these deficiencies by
the end of 2021.”276 (emphasis added)
265. In response to a CCA IR, AltaLink provided the following line clearance deficiency
summary, based on program activities to the end of June 2019, which segmented each deficient
span by violation category:
Table 9. LCM program management update line clearance deficiency summary
Total violations Ground clearance
violations Object clearance
violations Crossing wires clearance
violations Underbuild clearance
violations
193 58 21 14 100
Source: Exhibit 23848-X0236, AML-CCA-2019JUL19-001(a), PDF page 2.
266. This summary was later updated by AltaLink, in response to an undertaking request, to
include additional program activities up to the end of October 2019:
Table 10. Undertaking 005 line clearance deficiency summary
Summary shown below is based on having completed engineering assessments on approximately 30% of AltaLink's total transmission lines (to end of Oct 2019)
Summary Ground
clearance violations
Object clearance violations
Crossing/Parallel wires clearance
violations
Underbuild Total
violations High priority underbuild
Underbuild
Actual violations based on completion of engineering assessment of approximately 30% of AltaLink’s total transmission lines
123 39 14 50
506 732
Subtotal of actual higher priority violations
226
Source: Exhibit 23848-X0321, AML Undertaking 005 Attachment (Known Violation Timelines and Mitigations Spreadsheet).
274 Exhibit 23848-X0332, AML argument, paragraph 279, PDF page 94. 275 Exhibit 23848-X0203, Table 1‐1 – 2019‐2021 Line Clearance Mitigation Advancement Expenditures Forecast
($000), paragraph 2, PDF page 1. 276 Exhibit 23848-X0203, paragraph 12, PDF page 3.
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267. Furthermore, a timeframe estimate of LCM program activities was provided by AltaLink
in its management update:
Table 11. Estimate of deficiencies and timeframe to address
Historic % of spans
Current % of spans
Timeframe Complete Operational control examples
50 0 3 to 5 years 2024 Long term de‐rate
35 35 1 to 3 years 2020/21 Medium term de‐rate; lower public safety risk (e.g. circuit to circuit clearance)
15
30 6 months 2020 Seasonal temporary de‐rate available
30 30 days 2019 Short term temporary de‐rate; or access restrictions
5 24 hours 2019 Line de‐energization; de‐rate not available
Source: Exhibit 23848-X0203, Table 1‐2 – Estimate of Deficiencies and Timeframe to Address, paragraph 7, PDF page 2.
268. With regard to this timeframe estimate, AltaLink provided the following explanations for
how an appropriate timeframe was chosen for each deficient span:
The 30 day timeframe was selected for cases where the de-rate is significant but is
manageable for power system operations in the short term due to the time of year, the
power system loading levels, upcoming planned outages, etc. This operational control
allows the lines to continue to remain in service at a reduced rating. The 30 day
timeframe also provides a brief period of time to address the deficiencies that are forcing
the de-rate.
The 6 month timeframe was selected for cases where the de-rate is manageable for the
current seasonal rating and will need to be addressed before the next season rating period
begins. For example, if the de-rate is acceptable for power system operations for the
current summer rating and will be unacceptable for the next season rating (e.g. winter
rating), the deficiencies need to be addressed before the next season rating commences.
AltaLink has two season ratings for its facilities: summer rating and winter rating, which
commence on May 1st and November 1st respectively. The 6 month timeframe provides
a period of time to address the deficiencies that are forcing the de-rate prior to the next
season rating commencing.
The 1 to 3 year timeframe was selected where the de-rate is acceptable for both summer
and winter ratings with marginal impact to power system operations and needs to be
addressed in this Test Period. AltaLink anticipates the percentage of spans to be
addressed in this timeframe will largely be made up of circuit to circuit clearances which
have less public safety risk. Although the risk may be less than a ground clearance
deficiency, a public safety risk still exists, especially if the circuit to circuit clearance
deficiencies are between transmission and distribution facilities. Correcting these
deficiencies are typically more complex as they usually consist of adjusting or moving
multiple spans or sections of lines to resolve the deficiency. The combination of public
safety risk and the complexity of the mitigations are the basis of AltaLink’s forecast to
take 1 to 3 years to address derates of this nature. AltaLink will work with external
stakeholders to make the necessary arrangements and obtain the necessary permits and
approvals to complete this work in a safe and timely manner.
The 3 to 5 year timeframe is appropriate where the de-rate is acceptable for both summer
and winter ratings with minimal impact to power system operations over the next few
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years. These derates would need to be addressed in the 3 to 5 year timeframe as load on
the power system increases. In this update, AltaLink is no longer forecasting de-rates of
this duration to be possible.277
269. When questioned as to whether mitigation work could be deferred for some of the lower
risk issues, given the risk profile of AltaLink’s transmission system, Mr. Bartel disagreed:
So I wouldn’t agree that it [lower risk work] can be deferred. We have an obligation to
repair the rating under the safety code to keep it safe. So the timing can be -- we have
some discretion in the timing, but we have to meet our obligation. So that's where the
dialogue is with the AESO on how long we may have and the nature of the deficiency to
manage the program.
So we are trying to balance the amount of work and the cost, along with ensuring we
meet our safety obligation.278
270. In response to this, the CCA contended that AltaLink “failed to establish the urgency of
the proposed capital expenditures under the Program to be completed in this Test Period.”279
271. To support its position, the CCA pointed out that “as of October 31, 2019, AltaLink
completed the Light Detection and Ranging survey (‘LiDAR’) and engineering assessments for
only 30% of its transmission lines,”280 noting that AltaLink’s engineering analyses would only be
complete in February 2020.281 Moreover, the CCA expressed concern that “the root cause of the
doubling of the historical deficiency rate from 0.8% to 1.6%, and then to 3.0%, has not been
determined or understood by AltaLink.” For those reasons, the CCA argued that “the escalation
of the Program requested by AltaLink is not prudent until the root causes of the historical rate
increase from 1.6% to 3.0% are supported by comprehensive data and engineering assessment
results (not available until February 2020) and, most importantly, fully understood by
AltaLink.”282
272. With regard to specific transmission line span deficiencies, the CCA submitted that
“AltaLink has not established the need to escalate and complete the ‘lower risk’ circuit-to-circuit
clearance issues in this Test Period [, …which] account for over 75% of all applied-for line
clearance violations.”283 As discussed above in Section 4.4.2.1, the CCA emphasized that
“AltaLink has failed to provide evidence of public safety and reliability concerns as the principal
drivers for the Program and justify the urgency of the proposed capital expenditures,”284 and that
“there is no credible evidence that these [circuit-to-circuit] clearance issues actually result in
elevated levels of reliability or public safety risks on AltaLink’s transmission system.”285
Accordingly, the CCA suggested that “the ‘lower risk’ circuit-to-circuit clearance issues could
and should have been deferred to the next test period,”286 as “AltaLink has not provided any
277 Exhibit 23848-X0231, AML-AUC-2019JUL19-007(c), PDF pages 24-25. 278 Transcript, Volume 3, page 671, lines 7-16. 279 Exhibit 23848-X0333, paragraph 317, PDF page 106. 280 Exhibit 23848-X0333, paragraph 214, PDF page 79. 281 Transcript, Volume 3, page 595, lines 3-7. 282 Exhibit 23848-X0333, paragraph 311, PDF pages 104-105. 283 Exhibit 23848-X0333, paragraph 217, PDF page 80. 284 Exhibit 23848-X0333, paragraph 310, PDF page 104. 285 Exhibit 23848-X0333, paragraph 217, PDF page 80. 286 Exhibit 23848-X0333, paragraph 321, PDF page 107.
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reliability or outage data, or reliable public safety data beyond three unconfirmed flashover
incidents for transmission lines that may not even be included in the scope of the proposed
Program.”287
273. The CCA noted that “in Decision 2013-358 regarding ATCO Electric Transmission
(‘AET’) 2013-2014 GTA, the Commission rejected AET’s circuit-to-circuit (or in AET’s
terminology ‘double-circuit’) line clearance mitigation program because … AET had failed to
demonstrate that there were any outage or reliability concerns due to double-circuit contacts.”288
274. Additionally, the CCA pointed out that AltaLink used a substantial portion of its 2017-
2018 LCM program forecast to fund the new system-wide, one-effort, approach to LiDAR
surveys and engineering assessments, “instead of completing the actual line clearance mitigation
work on individual transmission lines in 2017 and 2018.”289 To that effect, the CCA submitted
that “the line clearance mitigation work scope was not completed as forecast by AltaLink in the
previous test period,” arguing that “if the work was important for maintaining reliability and
safety, then the work should have been done.”290 In the CCA’s view, “if some of the line
clearance mitigation work on previously identified issues could wait for three years, it would
likely mean that AltaLink should be able to complete all of its engineering assessments and
provide a comprehensive business case (not 30% complete, as it did in this Proceeding),”291 and
maintained that “most existing and previously identified line clearance issues could have been
deferred in this Test Period (as they were in 2017 and 2018).”292
275. In response, AltaLink has maintained that it “is simply responding to the increased
number of deficiencies being discovered through the data and engineering analysis [… and that]
any uncertainty as to the cause for the increase in number of deficiencies found as compared to
historical rates does not change the fact that the deficiencies exist and does not alter AltaLink’s
legal obligation to rectify them.”293 In that regard, AltaLink indicated that it “is working
diligently to ascertain the reasons for the additional deficiencies.”294 Additionally, AltaLink
contended that “to wait until all engineering analysis is completed before proposing or updating
its forecast disregards existing safety risks and would be irresponsible.”295
276. In addition, AltaLink indicated that to defer circuit-to-circuit line clearance work in this
test period, because clearance-related outages have not resulted in significant public safety or
reliability consequences to date, would be “a naïve approach to risk, which ignores AltaLink’s
obligation to comply with applicable safety code requirements.”296 However, AltaLink confirmed
that the lowest-priority circuit-to-circuit issues may be deferred into a later test period.
Furthermore, AltaLink is currently estimating “that there may be over 500 spans, i.e. 226 (@30%
data) x 3 > 500 (@100% data), of higher risk clearance deficiencies by the time the full
engineering analysis is complete, consuming its [AltaLink’s] entire updated forecast of 494 total
287 Exhibit 23848-X0333, paragraph 245, PDF page 88. 288 Exhibit 23848-X0333, paragraph 242, PDF page 88. 289 Exhibit 23848-X0333, paragraph 237, PDF page 86. 290 Exhibit 23848-X0333, paragraph 237, PDF page 86. 291 Exhibit 23848-X0333, paragraph 228, PDF page 84. 292 Exhibit 23848-X0333, paragraph 239, PDF page 87. 293 Exhibit 23848-X0333, paragraph 205, PDF page 70. 294 Exhibit 23848-X0337, paragraph 57, PDF page 21. 295 Exhibit 23848-X0337, paragraph 59, PDF page 22. 296 Exhibit 23848-X0337, paragraph 68, PDF page 25.
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spans of mitigation provided in its Management Update.”297 Accordingly, AltaLink stated that it
“would provide an update to the Commission [on the specific number of low priority lines that
were deferred in this test period] in its next tariff application.”298
4.4.2.4 Alternative LCM strategies
277. With regard to LCM strategies, the CCA argued that “once the line clearance issues have
been identified, the next step for the TFO is to determine the most reasonable, appropriate and
cost-efficient way to address these line clearance violations.”299 In view of this, the CCA
submitted that “AltaLink did not fully explore alternative mitigation measures, except for
temporary solutions such as de-rates, and focused exclusively on capital upgrades that it has
proposed to accelerate in this Test Period regardless of the actual level of risk to public safety
and reliability of AltaLink’s transmission system.”300 Accordingly, the CCA advocated for
several additional LCM strategies that, in its view, AltaLink should have considered and
employed.
278. The CCA argued that de-rate and re-rate discussions with the AESO were not adequately
considered by AltaLink, as options to eliminate the identified line clearance issues altogether.
Accordingly, the CCA submitted that “there are no transmission lines and spans in this business
case, which were eliminated as a result of AltaLink’s rating adjustment discussions with the
AESO.”301
279. Furthermore, the CCA asserted that “as the TFO, AltaLink is required to rely on its
existing, previously approved capital and operating programs, such as vegetation management
and right-of-way maintenance, to resolve as many line clearance issues as possible before it
applies to the Commission for an approval of any incremental capital expenditures,” and that
“AltaLink was not able to confirm that it has exhausted all mitigation opportunities through its
vegetation management and right-of-way maintenance programs before it requested the
Commission’s approval of capital investments.”302 Accordingly, the CCA argued that “AltaLink
should be directed to take advantage of its existing, previously approved capital and operational
tools to address and resolve these issues in a cost-efficient manner.”303
280. The CCA similarly argued that AltaLink should “advise the Commission if any (and if
so, how many) [deficient] spans would fall under other CRU programs, such as line rebuilds.”304
281. Lastly, the CCA argued that AltaLink’s business case has not adequately addressed the
DFO’s perspective on circuit-to-circuit clearance deficiencies, which make up approximately
80 per cent of the identified line clearance deficiencies.305 In the CCA’s view, AltaLink provided
insufficient and inadequate evidence to demonstrate how AltaLink works with DFOs to
understand more completely the cause and nature of circuit-to-circuit line clearance deficiencies,
to identify which clearance deficiencies the DFOs were responsible for, and to determine the
297 Exhibit 23848-X0332, paragraph 203, PDF pages 69-70. 298 Exhibit 23848-X0337, paragraph 68, PDF page 25. 299 Exhibit 23848-X0333, paragraph 284, PDF page 98. 300 Exhibit 23848-X0333, paragraph 285, PDF page 98. 301 Exhibit 23848-X0333, paragraph 294, PDF page 100. 302 Exhibit 23848-X0333, paragraph 298, PDF page 101. 303 Exhibit 23848-X0333, paragraph 300, PDF page 101. 304 Exhibit 23848-X0333, paragraph 301, PDF page 102. 305 Exhibit 23848-X0333, paragraph 302, PDF page 102.
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most appropriate and cost effective solutions for each deficiency, including funding from DFOs
for LCM-related work.306 Likewise, the CCA submitted that such evidence was not provided for
those third parties who may have been involved with the LCM program.307 Accordingly, the
CCA suggested that further evidence is necessary from AltaLink, regarding its collaboration with
DFOs and other third parties, to justify the LCM forecast.
282. In response, AltaLink argued that “the CCA’s submissions mischaracterize the evidence,
which clearly shows that AltaLink does in fact consider all of the CCA’s suggested alternatives
when selecting appropriate mitigation strategies.”308 In support of this position, AltaLink stated
that “the CCA’s submissions … that AltaLink does not consult with the AESO or with DFOs, or
remove vegetation or other obstacles where possible, or obtain funds from third parties whose
facilities are responsible for clearance issues, all ignore or misrepresent relevant evidence. They
are all contradicted by AltaLink’s descriptions in Exhibit 23848-X0321 [AML Undertaking 005
Attachment (Known Violation Timelines and Violations Spreadsheet)] of the mitigation
measures it has implemented or planned for identified line clearance deficiencies.”309
283. In particular, AltaLink re-iterated that it “collaborates with the AESO in respect of line
clearance issues, and will not implement line mitigation capital improvements where the AESO
indicates that the prior rating is no longer required.”310
284. Regarding the DFO perspective on circuit-to-circuit clearance issues, AltaLink referred311
back to Mr. Bartel’s evidence, where he stated that “our [AltaLink’s] project and engineering
teams would work closely together on trying to determine what the lowest-cost solution would
be to resolving the deficiency that we've identified.”312
285. Likewise, with regard to third party funding, AltaLink indicated313 that it “does
appropriately seek funding from 3rd parties for encroachments that are caused by them in those
instances where AltaLink’s facilities existed prior to other third party facilities being installed.”314
Furthermore, AltaLink referred back to Mr. Bartel’s testimony, where he explained that
“historically, if we would have approached a third party and they were -- had added their facility,
let's say it’s a line crossing -- after -- after -- subsequent the transmission had been there before,
the third party pays for the modifications to resolve the deficiency.”315
4.4.2.5 Commission findings
286. In general, the Commission considers it reasonable, in the circumstances, for AltaLink to
act on the increased number of line clearance deficiencies being identified, as AltaLink has an
obligation to operate and maintain its transmission assets in a safe and reliable manner, and
AltaLink has identified the additional line clearance deficiencies by utilizing fundamentally the
same LiDAR technologies, the same LiDAR survey techniques and the same engineering
306 Exhibit 23848-X0333, paragraph 306, PDF pages 103-104. 307 Exhibit 23848-X0333, paragraph 307, PDF page 104. 308 Exhibit 23848-X0337, paragraph 72, PDF page 26 309 Exhibit 23848-X0337, paragraph 76, PDF page 28. 310 Exhibit 23848-X0337, paragraph 72, PDF page 26. 311 Exhibit 23848-X0337, paragraph 73, PDF page 27. 312 Transcript, Volume 4, page 718, lines 1-4. 313 Exhibit 23848-X0337, paragraph 74, PDF page 27. 314 Exhibit 23848-X0300, paragraph 307, PDF page 73. 315 Transcript, Volume 4, page 710, lines 24-25, and page 711, lines 1-4.
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assessment methodologies that were approved by the Commission in previous AltaLink LCM
programs.
287. However, AltaLink’s original forecast of $18.8 million relied on historical information,
whereas the $20.0 million incremental expenditure was informed by new and “refreshed” data on
AltaLink’s entire system, from the new system-wide approach to LiDAR surveys. The
Commission shares the CCA’s concerns that, as it stands, AltaLink is requesting an incremental
forecast of $20.0 million for its LCM program, but has provided limited evidence as to why its
engineering assessments are identifying an historic number of deficiencies across its
transmission system.
288. As acknowledged by Mr. Bartel, AltaLink had not yet started to investigate the cause of
this increase, at the time of the oral hearing:
Q. Has AltaLink done any investigation or does it have any plans to do any sort of
analysis to look into why this rate is increasing?
A. MR. BARTEL: So certainly that would be something we will be undertaking here
going forward as we are just getting the data in now and starting to see this emerge in the
last four to six months. And to have a look at if there are particular themes within that to
help us understand for future forecasts316
289. Given the uncertainty as to what induced such a drastic increase in line clearance
deficiencies across AltaLink’s transmission system, which AltaLink acknowledges has otherwise
historically operated in a safe and reliable manner, and as to why AltaLink’s LiDAR survey
techniques and technologies, which are fundamentally consistent with previous AltaLink LCM
programs, are identifying a historic number of deficiencies, the Commission finds that the results
of the investigation referenced above are required to assess the reasonableness of AltaLink’s
incremental LCM costs.
290. In addition, the Commission considers that its ability to assess the reasonableness of
AltaLink’s incremental $20.0 million LCM expenditure is constrained, as line clearance
engineering assessments have been completed for only 30 per cent of AltaLink’s transmission
lines, as of October 2019. Accordingly, the Commission is concerned as to whether program
costs, clearance deficiency risks, and system performance were effectively and reasonably
balanced on a system-wide basis in AltaLink’s LCM program. Because it is possible that the
30 per cent of AltaLink’s transmission system that has been surveyed and assessed may not be
representative of AltaLink’s entire system, the Commission considers that a comprehensive
picture of deficiencies across AltaLink’s entire system would aid in understanding the full scope
of AltaLink’s LCM program, and the necessity to address clearance deficiencies for each
transmission line span.
291. Further, while the Commission considers that AltaLink is generally acting reasonably
with regard to public safety and system reliability, the Commission is not convinced of the
necessity and urgency of certain elements within AltaLink’s LCM program.
316 Transcript, Volume 3, page 591, lines 11-19.
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292. For example, the Commission finds that the need for AltaLink to address all line
clearance deficiencies and, in particular, the lower risk deficiencies, within the timeframe of this
GTA’s forecast period, has not been demonstrated sufficiently. The Commission considers that
AltaLink has provided limited evidence to demonstrate an urgent need to accelerate work on
lower risk circuit-to-circuit issues, in the form of a $20.0 million incremental LCM forecast, with
regard to public safety and system reliability concerns. With regard to AltaLink’s 2017-2018
LCM program, the Commission observes that some of the LCM deficiencies forecast by
AltaLink, in 2017, were deferred to future test periods in order to fund the new system-wide
LiDAR surveys. The Commission is not persuaded that AltaLink cannot defer some of the
identified lower risk circuit-to-circuit issues in a manner similar to how forecast LCM
deficiencies were deferred in 2017-2018, while still adhering to its public safety and system
reliability obligations, in light of the significant number of deficiencies and, in particular, higher
risk deficiencies that are affecting AltaLink’s transmission system.
293. The Commission also considers that higher-risk clearance deficiencies may consume
AltaLink’s entire incremental $20.0 million LCM forecast, based on AltaLink’s most recent
estimates from engineering assessments that were completed up to October 2019. Furthermore,
AltaLink’s evidence, as confirmed by Mr. Bartel,317 is that some of the lower-risk circuit-to-
circuit issues may be deferred into either the back-end of this test period, or into a later test
period, to address the higher-risk issues first. The Commission agrees with AltaLink that higher-
risk issues should be addressed promptly.
294. Given these concerns regarding the necessity and urgency for AltaLink to address certain
elements of its LCM program within the timeframe of this GTA’s forecast period, the
Commission requires AltaLink to complete line clearance engineering assessments for all of its
transmission lines (as they relate to the LCM program), and to file updated information that is
consistent with fully complete line clearance engineering assessments of AltaLink’s entire
system. This includes information that identifies the full scope of AltaLink’s LCM program,
such as, which LCM issues are low risk and high risk, which LCM issues may be deferred into
future test periods, and how AltaLink plans to address all of its identified LCM issues, be it in
this test period or in future test periods. This information is required in order to assess the
reasonableness of AltaLink’s incremental LCM costs.
295. ISO Rule 304.6, Unplanned Transmission Facility Limit Changes, is also relevant to
assessing AltaLink’s LCM program. It states, in part:
Unplanned Transmission Facility Limit Changes
2(1) The operator of a transmission facility must verbally notify the ISO as soon as
possible, but within twenty-four (24) hours, of unplanned limit changes to its
transmission facility, indicating the new limit, the equipment affected by the limit
change, the cause of the limit change and the estimated period of time the limit change
will be in effect.
(2) The operator of a transmission facility must, within twenty-one (21) days of the
verbal notification in subsection 2(1), or within a shorter or longer period of time if
deemed necessary by the ISO in its sole discretion:
317 Transcript, Volume 4, page 766, lines 21-25, page 767, lines 1-25, and page 768, lines 1-4.
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(a) provide the ISO, in writing, with its plan to restore the transmission facility to
its previous limit; or
(b) notify the ISO that the transmission facility will not be restored to its
previous limit.
296. While the Commission finds, generally, that AltaLink is reasonably operating within the
purview of ISO Rule 304.6, and all other relevant standards, codes, and rules that were identified
in this proceeding, the Commission considers that more information is required as to how
AltaLink interprets and applies this ISO rule in the circumstances. For example, the Commission
requires additional explanation as to how AltaLink develops a “plan to restore the transmission
facility to its previous limit,” what factors are considered therein by AltaLink, when AltaLink
would choose option (b) of ISO Rule 304.6 2(2) over option (a), for any particular transmission
line span, and the extent and nature of the AESO’s involvement in developing such a plan.
297. The Commission notes that AltaLink described its collaboration with the AESO, with
respect to line clearance mitigation prioritizing, as follows:
Where a line clearance deficiency is identified, AltaLink collaborates with the AESO and
validates the applicable conductor loading based on the AESO’s needs and design
requirements. AltaLink will not implement line mitigation capital improvements where
the AESO indicates that the prior rating is no longer required. AltaLink’s forecast
includes and clearly identifies circuits that AltaLink intends to follow up with the AESO
to engage in assessing potential re-rating the transmission lines.318
AltaLink prioritizes line clearance mitigation work identified in the engineering
analysis in accordance with the mandatory requirements set forth in the Safety Codes Act,
in light of its statutory obligations, its collaboration with the AESO, and taking into
consideration the physical and operational attributes of the transmission system …319 [emphasis added]
298. Given AltaLink’s submissions, that collaboration with the AESO is an important
component of AltaLink’s LCM prioritization scheme, the Commission considers that additional
information, to explain the nature and extent of the AESO’s involvement in developing an
appropriate prioritization scheme, is necessary in order to assess the reasonableness of
AltaLink’s incremental LCM costs, as part of AltaLink’s next opening rate base review.
299. Regarding alternative LCM strategies, the Commission understands that AltaLink works
closely with DFOs to mitigate circuit-to-circuit clearance issues, and works closely with DFOs to
determine the lowest-cost solution for an identified LCM deficiency. However, the Commission
is concerned that the nature and extent of key elements of this collaborative process are not on
the record of this proceeding. This includes the alternative cost solutions that were considered
between AltaLink and the DFOs, why DFOs are typically not responsible for mitigating LCM
deficiencies, what factors, cost analyses, and industry standards are considered therein, and
whether contracts between AltaLink and the DFOs are relevant to this collaborative process. The
Commission considers that this information is necessary, in order to assess the reasonableness of
AltaLink’s incremental LCM costs, as part of AltaLink’s next opening rate base review.
318 Exhibit 23848-X0332, paragraph 252, PDF page 85. 319 Exhibit 23848-X0332, paragraph 253, PDF page 85.
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300. Many of the Commission’s concerns stem from the unavailability of certain information,
at the conclusion of the evidentiary portion of the proceeding, which AltaLink is in the process
of obtaining. This includes the results of a root cause investigation into the drastic increase in
line clearance deficiencies, and the results of the remaining 70 per cent of engineering
assessments. The Commission recognizes that, in some cases, AltaLink needs this information
first, before it can address additional concerns that were identified above by the Commission.
Some of this information should be available to AltaLink when it files the compliance filing to
this decision, while other information, and any additional analyses from AltaLink that the
Commission considers necessary (to assess the reasonableness of the incremental LCM forecast),
should be available when AltaLink files its next GTA.
301. Nevertheless, the Commission’s concerns still stand and, in view of the above, the
Commission finds that there is insufficient evidence on the record of this proceeding to
demonstrate that AltaLink’s entire $20 million incremental LCM forecast, for the current
forecast period, is reasonable. In the circumstances, the Commission approves $13 million of
AltaLink’s requested incremental LCM forecast. AltaLink is directed to treat this amount as a
placeholder, which may be adjusted in AltaLink’s compliance filing to this decision, pending
additional information that is necessary for the Commission to assess the reasonableness of
AltaLink’s incremental LCM forecast. Accordingly, AltaLink is directed to provide the
following in the compliance filing to this decision:
(a) The Commission observes that AltaLink should have completed 100 per cent of its line
clearance deficiency engineering assessments in February 2020.320 Accordingly,
AltaLink is directed to provide an updated version of Exhibit 23848-X0321, AML
Undertaking 005 Attachment (Known Violation Timelines and Mitigations
Spreadsheet), to include all additional line spans that were identified with line clearance
deficiencies since the end of October 2019. The format of this update should be
consistent with that of Exhibit 23848-X0321. Furthermore, AltaLink is directed to add
two more columns in the updated version of this exhibit: first, a column that identifies
whether a line span has a low risk or high risk line clearance deficiency; and second,
the year that mitigation activities were completed, or are planned to be completed, for
every line span that AltaLink is choosing to mitigate within the scope of this current
test period.
(b) AltaLink is directed to provide a summary of the actual number of line spans that were
mitigated in 2019, as they relates to line clearance deficiencies, and to provide actual
LCM program expenditures for 2019. Furthermore, AltaLink is directed to provide the
actual average unit cost, with line spans as the unit, for LCM activities in 2019.
(c) AltaLink is further directed to provide a summary, to date, of the actual number of line
spans that were mitigated in 2020, and to provide actual LCM program expenditures, to
date, for 2020. Furthermore, AltaLink is directed to provide the average unit cost, with
line spans as the unit, to date, for LCM activities in 2020.
(d) AltaLink is also directed, based on program activities to date, to provide an estimate of
the total number of line spans that AltaLink plans to mitigate in 2020 and 2021, and to
provide an estimate of the LCM program expenditures, for 2020 and 2021, that
320 Transcript, Volume 3, page 595, lines 3-7.
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AltaLink considers necessary for the LCM program. AltaLink is also directed to
provide an estimate of the average unit cost, with line spans as the unit, for LCM
activities in 2020 and 2021.
302. Additionally, AltaLink’s forecast costs for the incremental $13 million LCM expenditure
approved in this decision will be reviewed when determining AltaLink’s next opening rate base,
when actuals are known and can be assessed for prudence, by which time AltaLink will have had
a chance to prepare any additional information or analyses that the Commission considers
necessary to assess the prudence of the actual LCM spend and any subsequent forecast.
Accordingly, AltaLink is directed, at the time of its next general tariff application, to file a
comprehensive business case that is informed by fully completed engineering assessments of
AltaLink’s entire system, and includes the following:
(a) A root cause analysis to explain why AltaLink’s engineering assessments are identifying
an historic number of deficiencies across its transmission system.
(b) A line-by-line analysis that considers site and transmission-line-specific factors
(e.g., region, location, terrain, expected damages from clearance issues, likelihood of wire
contact with the public or other objects or structures, the associated risk of public safety
or system reliability issues materializing, and any additional public safety or system
reliability concerns), along with all the relevant standards, codes and rules, to identify
whether LCM work was necessary for any particular transmission line. AltaLink should
identify why a transmission line was deficient. If AltaLink identified the need to conduct
LCM work on a particular transmission line, it should provide a list of all the factors that
were considered to arrive at that decision, and explain why the LCM work was necessary.
Furthermore, AltaLink should provide a general overview of the total number of
transmission line spans that were mitigated, how AltaLink determined which
transmission line spans should be prioritized within this current test period, and why
LCM work on these transmission line spans was necessary.
(c) Line-specific costs should be provided, explaining how AltaLink achieved the lowest cost
LCM strategy for that particular transmission line. Likewise, AltaLink should provide the
average cost per transmission line span, for each transmission line, and explain how this
average unit cost was minimized. Furthermore, AltaLink is to provide a list of all
alternative line clearance mitigation strategies that it considered, for each transmission
line, with explanations, relevant analyses, and calculations that support AltaLink’s
chosen alternative. With regard to de-rates, AltaLink is to address how it determined the
appropriate de-rate period for any particular transmission line, and why other alternatives
such as physical barriers were not viable or cost effective/efficient. Furthermore, for
circuit-to-circuit line clearance deficiencies, AltaLink is to address which cost solutions
were considered between AltaLink and the DFOs.
(d) An explanation that elaborates further on the extent and nature of AltaLink’s
collaboration with DFOs and third parties. Furthermore, AltaLink is to address, with
references to any relevant industry standards, codes, rules, and DFO contracts, why DFOs
are not responsible, typically, for any circuit-to-circuit line clearance deficiencies.
(e) An explanation detailing the nature and extent of AltaLink’s collaboration with the
AESO, with respect to prioritizing LCM work. Specifically, AltaLink is to address ISO
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Rule 304.6, explaining how AltaLink develops a plan “to restore the transmission facility
to its previous limit,” what factors are considered therein, and the nature and extent of the
AESO’s involvement in this process. Likewise, AltaLink is to address when it would
consider option (b) of ISO Rule 304.6 2(2). Furthermore, AltaLink is to identify and
delineate clearly the responsibilities and authority of the AESO and AltaLink, with regard
to choosing a prioritization scheme for mitigating line clearance deficiencies.
(f) Similarly, the Commission considers that it would be helpful to have the AESO’s view
regarding its role in the development of an appropriate prioritization scheme for LCM
work. Accordingly, the Commission directs AltaLink to request the AESO to file a
submission explaining, in the AESO’s view, how the prioritization process is carried out
between itself and AltaLink, how the AESO determines which transmission lines should
be prioritized for LCM repair work, how the AESO ranks the different lines that require
LCM work, what factors are considered therein by the AESO, and any other information
that the AESO considers may be of assistance in the circumstances. Additionally, for all
transmission lines that require LCM work in this current test period, the Commission
directs AltaLink to request the AESO to file a submission that identifies which lines
should, in the AESO’s view, be prioritized for LCM repair work and to provide
explanations as to why those lines should be prioritized, and to provide a ranking of these
lines based on their priority. AltaLink is directed to file the AESO’s response at the time
of its next general tariff application and as part of its Line Components CRU Business
Case.
(g) A narrative with supporting examples, calculations and analyses, explaining how
AltaLink’s prioritization scheme for LCM work has effectively, and reasonably, managed
and balanced LCM expenditures with clearance deficiency risks and system performance.
This narrative is to be provided on both a line-by-line and system-wide basis.
303. Furthermore, the Commission observes that the scope of work being forecast in this test
period, under AltaLink’s new system-wide LCM program, is a considerable increase in
comparison to prior GTA periods. This is not surprising, as AltaLink, historically, surveyed and
assessed approximately 1,100 km of its system, per year, for its LCM programs in prior GTA
periods. This historical approach is in contrast to AltaLink’s current LCM program, which
originally set out to mitigate deficiencies across 13,385 km of AltaLink’s transmission system, in
six years. The Commission finds it appropriate, under the circumstances, that AltaLink should
consider alternative prioritization methodologies in light of such drastic increases to the scope of
AltaLink’s LCM program.
304. Accordingly, the Commission directs AltaLink, at the time of its next general tariff
application and as part of its Line Components CRU Business Case, to submit an analysis that
investigates how AltaLink may alter its LCM prioritization methodology going forward.
AltaLink should specifically refer to ATCO Electric’s prioritization methodology, as filed by the
CCA in this proceeding and identified in the prioritization methodology discussion above. If
ATCO Electric’s approach is not compatible with, or appropriate for, AltaLink’s transmission
system, AltaLink must provide an explanation as to why that is the case. The Commission notes
that this direction is strictly in regard to future AltaLink LCM programs, and not the LCM
program subject to this test period.
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4.5 Depreciation
305. As discussed earlier in this decision, with respect to AltaLink’s applied-for depreciation
expense, the cumulative effect of the reductions agreed to and set out in the NSA were as
follows:321
(i) A two-year extension of the depreciation life of Account 355.01 – Poles and
Fixtures322 will result in a $1.9 million reduction over the test period; and
(ii) A refund of the accumulated depreciation surplus of $31.2 million.323
306. Any remaining depreciation-related issues were matters specifically excluded from the
NSA, and consisted of the following:324
(i) AltaLink’s net salvage proposal;325
(ii) Traditional salvage study within Concentric Advisors, ULC (Concentric), 2018
Depreciation study; and326
(iii) Appendix 8A – Account 354.00 Towers and fixtures – retirements during age
interval zero.
307. In the sections that follow, the Commission addresses the depreciation-related matters
that were specifically excluded from the NSA.
4.5.1 AltaLink’s proposed net salvage method
4.5.1.1 Overview
308. In its application, AltaLink proposed a change to its existing method for collecting net
salvage costs related to the retirement of its utility assets. AltaLink’s existing method pre-
collected future net salvage costs through the use of net salvage depreciation rates327 to inform
“net salvage depreciation”328 expense as a component of revenue requirement. Under this
method, the net salvage depreciation rates were determined in a traditional net salvage study,
submitted as a component of a full depreciation study.
321 Exhibit 23848-X0204.01, paragraph 28. 322 Exhibit 23848-X0204.01, paragraph 28 and Settlement Agreement, Section 5(b), PDF page 21. 323 Exhibit 23848-X0204.01, paragraph 28 and Settlement Agreement, Section 5(a), PDF page 21. 324 Exhibit 23848-X0204.01, Settlement Agreement, Section 2(k), PDF page 20. 325 In this decision, the use of the term “net salvage” generally refers to a state of negative net salvage, where costs
of removal (or salvage costs) are greater than any amounts received (gross salvage) upon the retirement of an
asset. 326 Exhibit 23848-X0011.01, Appendix 8, Depreciation Study. The proposed traditional net salvage calculations
can be found in Section 7, PDF pages 99-107. 327 Net salvage depreciation rates are determined from net salvage per cents. These net salvage per cents represent
the percentage of original historical costs that is anticipated to be incurred in relation to the net of the costs to
retire the asset from service and salvage amounts received from the disposition of the retired asset. 328 Most utilities in Alberta currently collect depreciation expense in two parts. One part is related to the recovery
of the original historical cost of an asset over its average service life, called “life depreciation;” and a second
part is related to the pre-collection of the anticipated future net salvage costs to retire an asset from service,
called “net salvage depreciation.”
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309. A feature of AltaLink’s existing method, or traditional approach, is that from a theoretical
perspective, the net salvage costs that are anticipated to be incurred in the future, at the time the
assets are retired, are collected over the assets’ expected average service life in tandem with the
“life depreciation” expense. In effect, the traditional approach collects net salvage costs from
those ratepayers currently using the related assets such that, when an asset is retired from utility
service at some point in the future, all costs related to its retirement have been pre-collected from
the past and current ratepayers who benefited from and used the asset. At the time the cash is
expended for the purpose of an asset retirement in the future, the accounting entry is to offset the
expenditure against the amounts pre-collected and held in the accumulated depreciation
accounts.
310. Estimates of average service lives and future net salvage costs continue to be better
informed and updated on the basis of reflecting more current actuarial data. It is within the
results of a full depreciation study, which examines actuarial data and service life and net salvage
characteristics, that proposals for updated service lives or future net salvage cost estimates are set
out.
311. In contrast, under AltaLink’s self-described “capitalize and expense salvage method”329 if
fully implemented, there would no longer be any pre-collection of net salvage in depreciation
expense. This is because:
(i) Net salvage costs for assets retired and replaced with a new asset would be
capitalized as a cost of the new replacement asset.
(ii) Net salvage costs for assets that will be terminally retired with no replacement,
would be expensed to current operating costs.330
312. During the years in which AltaLink would transition to the proposed net salvage method,
AltaLink would collect net salvage through depreciation expense only to the extent it could
maintain a funds from operation (FFO)/Debt ratio of 11.1 per cent. The already pre-collected net
salvage would be transferred from each accumulated depreciation account in which it currently
resides, to a single net salvage reserve account and treated as no cost capital. All salvage
expenditures (or costs of removal) incurred during the 2019-2021 test period would be charged
to the net salvage reserve account and, similarly, all salvage collections (or gross salvage) would
be credited to this account. Assuming improving credit metrics over time, AltaLink intends to
incorporate a decrease in the need to collect net salvage through depreciation expense, resulting
at some point in the future, in no further pre-collection of salvage.331
313. AltaLink’s proposed net salvage method would result in a deferral of the collection of net
salvage costs to a future generation of ratepayers who would be paying for “new” assets in
service, whose cost would include the retirement costs of the “old” assets they were constructed
to replace.
329 Exhibit 23848-X0002.02, AML application, paragraph 18, PDF page 21. 330 Exhibit 23848-X0332, AML argument, paragraph 57: AltaLink defined an asset as a “replacement” as when the
site or right-of-way continues to be used, in contrast to a pure asset “removal” as when the retired asset is being
dismantled, hauled away and the site is restored to its natural state. 331 Exhibit 23848-X0332, AML argument, paragraph 56(a)-(j) describes in detail the specific transitional elements
of its proposed net salvage methodology.
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314. AltaLink stated that in the absence of the Commission approving its proposed net salvage
method, it would seek approval of the net salvage per cents proposed by Mr. Kennedy, of
Concentric, in a traditional net salvage study submitted with AltaLink’s 2018 Depreciation
Study.332 If these proposed net salvage per cents were incorporated into AltaLink’s existing net
salvage methodology, depreciation expense would increase by approximately $148 million in
comparison to its proposed net salvage methodology.
315. A comparison of the effect on revenue requirement related to AltaLink’s net salvage
proposals can be found in the following:
Table 12. Comparison of net salvage expense using AltaLink’s approved methodology and parameters, proposed methodology, and approved methodology and proposed parameters
2019 2020 2021 Total
($ million)
1 Net salvage expense using proposed net salvage methodology 37.3 34.9 30.6 102.8
2 Net salvage expense using approved net salvage methodology and parameters
61.8 63.7 65.5 191.0
3 Net salvage expense using approved net salvage methodology and parameters proposed in Concentric depreciation study
81.1 83.7 86.1 250.9
4 Increase to net salvage expense comparing approved methodology and parameters to proposed methodology (row 2 less row 1)
24.5 28.8 34.9 88.2
5 Increase to net salvage expense comparing approved methodology and parameters to approved methodology and proposed parameters (row 3 less row 2)
19.3 20.0 20.6 59.9
6 Increase to net salvage expense comparing proposed methodology to approved methodology and proposed parameters (row 3 less row 1)
43.8 48.8 55.5 148.1
Source: Extracted from Exhibit 23848-X0002.02, Table 1.1.7-1, Salvage dollar amounts in revenue requirement comparison, PDF page 25.
4.5.1.2 Rationale for the proposed net salvage and opposing views
316. AltaLink’s rationale for Commission approval of the proposed net salvage methodology
was the subject of substantial debate in this proceeding.
317. In general, parties agreed that the effects of the recent big build projects, which are now
largely complete and have been capitalized into rate base, were a major contributing factor to
rate (tariff) increases. There was also agreement that it would be beneficial to seek rate relief for
current ratepayers; however, the proposed methods by which any such rate relief should be
achieved varied significantly among parties.
AltaLink
318. AltaLink stated that the basis for its proposed net salvage methodology arose from the
Transmission Cost Recovery Subcommittee333 and the related Commission-initiated
332 Exhibit 23848-X0011.01, Appendix 8, Depreciation Study. The proposed traditional net salvage calculations
can be found in Section 7, PDF pages 99-107. 333 Proceeding 2421, Alternative approaches and rate treatments to recover electric transmission related
investments, Exhibit 2421-X0001, TCRS report – Transmission Cost Recovery Subcommittee Report – June 8,
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Proceeding 2421 – Alternative approaches and rate treatments to recover electric transmission
related investments. Proceeding 2421 culminated in the issuance of Bulletin 2016-16,334 in which
the Commission acknowledged that the addition of new transmission capacity tends to be lumpy
in nature. In Bulletin 2016-16, the Commission concluded, among other things, that alternative
approaches to mitigate the effect of increases in rates could be considered within the context of a
utility’s GTA.
319. AltaLink also pointed to Commission Direction 24 from Decision 3524-D01-2016,335 in
which it interpreted the Commission’s interest in “how AltaLink determines costs assigned to
cost of removal could not alternatively be included as cost of the replacement asset and directs
AltaLink to discuss this in its next depreciation study”336 as a reference to an opportunity for
AltaLink to explore alternative net salvage methodologies.
320. Finally, AltaLink stated in argument337 that its approved 2017-2018 NSA338 included
provisions for parties to form a depreciation working group committed to “explore alternative
approaches to depreciation and collection of net salvage or other cost recovery mechanisms as
mutually agreed upon” and, further, “to address the comments of Commissioner Lyttle at
paragraphs 465-486[339] in its 2019-2020 GTA.”
321. With respect to the timing of its proposed net salvage methodology, AltaLink stated:340
(i) The extensive planning and build of new transmission infrastructure was intended
for and will benefit both current and future generations. This is based on the
inherent long-term view of the AESO.
(ii) The proposed net salvage methodology has been requested at this point in time
because AltaLink is financially able to do so now without risk to its A level credit
rating.
(iii) The proposed net salvage method results in meaningful rate relief that AltaLink
can undertake to address the current unfairness (embedded in existing tariffs) to
existing ratepayers.
201, PDF page 2: The mandate of the Transmission Cost Recovery Subcommittee (TCRS) was to examine the
potential cost impact of the proposed transmission build in Alberta, and to develop alternative cost-recovery
mechanisms that would minimize near-term rate shock and would ensure that transmission costs are allocated
fairly between current and future ratepayers. 334 Bulletin 2016-16, Transmission rate treatments to recover electric transmission related investments, August 25,
2016. 335 Decision 3524-D01-2016: AltaLink Management Ltd., 2015-2016 General Tariff Application, Proceeding 3524,
Application 1611000-1, May 9, 21016, paragraph 414. Direction 24 stated: “With respect to the analysis
requested by Mr. Pous, the Commission is interested in how AltaLink determines costs assigned to cost of
removal could not alternatively be included as cost of the replacement asset and directs AltaLink to discuss this
in its next depreciation study.” 336 Decision 3524-D01-2016, paragraph 414, PDF page 87. 337 Exhibit 23848-X0322, AML argument, paragraph 26, PDF page 24, referring to Proceeding 21341,
Exhibit 21341-X0210. 338 Proceeding 21341, Exhibit 21341-X0210, AML 2017-18 GTA Negotiated Settlement Agreement, PDF page 22. 339 Decision 3524-D01-2016, paragraphs 465-486, PDF pages 94-97. 340 Exhibit 23848-X0332, AML argument, paragraphs 31-32 and 34.
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UCA
322. The UCA341 generally supported AltaLink’s proposed net salvage method, with limited
and specific reservations.342 The UCA agreed with AltaLink that there is a growing concern
stemming from the recent big build, and submitted that the continued use of a traditional
approach to net salvage will lead to current ratepayers overpaying for the use of transmission
assets as compared to future generations of ratepayers.
323. The UCA held the same interpretation as AltaLink with respect to Commission
Direction 24 from Decision 3524-D01-2016, which questioned “how AltaLink determines costs
assigned to cost of removal could not alternatively be included as cost of the replacement asset
and directs AltaLink to discuss this in its next depreciation study.”343
324. The UCA also stated that it shared some of the same concerns as those articulated by
Commission Member Lyttle in paragraphs 465-486 of Decision 3524-D01-2016.
CCA
325. In the CCA’s view, the question for the Commission to determine was whether a future
generation of ratepayers should pay for a cost that they had no responsibility for creating.344 The
CCA expressed concern that AltaLink’s proposed net salvage method “transfers the entirety of
the cost to a future generation of ratepayers, either as a cost included in a future asset or as a
period cost.” The CCA stated that while it was supportive of addressing, to the extent possible,
current intergenerational inequities, it was necessary that:
… the solutions do not lead to worse intergenerational inequities in the future.
Transferring the entire cost to a future generation without knowing with certainty the
amount of that cost or whether there will be an increase in load or any new rebuild of
assets presents a very significant risk to future ratepayers.345
326. The CCA recommended that AltaLink’s proposed net salvage method be denied and
current approved net salvage per cents be maintained. If current net salvage per cents were to
change, it should be on the basis of an analysis of long-term models for the purpose of
forecasting final net salvage costs. Further, the CCA encouraged the Commission to consider a
generic depreciation proceeding to assess approaches to depreciation methodology, including net
salvage.346
IPCAA and ADC
327. In argument, IPCAA and ADC recommended that AltaLink’s proposed net salvage
method should be adopted as part of the current GTA.347
341 Exhibit 23848-X0329, UCA argument, paragraphs 12-14. 342 Exhibit 23848-X0329, UCA argument, recommendations 3-5 at paragraphs 50, 52 and 55, PDF pages 13-15. 343 Decision 3524-D01-2016, paragraph 414, PDF page 87. 344 Exhibit 23848-X0333, CCA argument, paragraph 34. 345 Exhibit 23848-X0333, CCA argument, paragraph 30. 346 Exhibit 23848-X0269, Written evidence of Bema, Part I, paragraphs 102 and 112. 347 Exhibit 23848-X0334, IPCAA and ADC letter of support to UCA argument. Please also refer to Exhibit 23848-
X0317, Undertaking 001, IPCAA or ADC written support of AltaLink’s proposal.
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328. In doing so, IPCAA and ADC submitted a letter of support with respect to two of the
UCA’s recommendations. IPCAA and ADC expressed agreement that the proposed net salvage
method provides an opportunity to reflect:
… a better economic profile for the life span costs of assets; and avoids a highly
speculative estimation of costs that will not be incurred until long into the future due to
the recent large build cycle that has occurred. If the traditional approach is maintained, it
would add pressures on revenue requirements from net salvage.348
329. IPCAA and ADC also agreed that the proposed net salvage method is in line with the
Commission’s conclusion in Bulletin 2016-16 that alternative approaches to mitigate the effect
of electric transmission related investments on rates could be considered within the context of a
utility’s GTA. Therefore, in IPCAA’s and ADC’s views, it was not necessary to undertake a
generic depreciation proceeding as was suggested by the CCA.
4.5.1.3 Summary of issues related to proposed net salvage method
330. The Commission has summarized the issues related to AltaLink’s proposed net salvage
method into the following general propositions:
(i) Should the traditional net salvage method be re-examined?
(ii) Is there comparability of AltaLink’s proposed net salvage method to other
jurisdictions?
(iii) Do differing price signals necessitate similar net salvage methodologies in
Alberta?
(iv) Is AltaLink’s proposed net salvage method in compliance with IFRS?
(v) Would AltaLink’s proposed net salvage method breach utility asset disposition
(UAD) principles?
(vi) Does AltaLink’s proposed net salvage method result in a just and reasonable tariff
in accordance with the Commission’s legislated mandate?
(vii) How much weight should be given to the long-term AESO forecast?
(viii) How are principles of cost causation, gradualism and moderation, and other
secondary effects affected by AltaLink’s proposed net salvage method?
(ix) How can the time value of money be considered in relation to AltaLink’s
proposed net salvage method?
(x) Does AltaLink’s proposed net salvage method address intergenerational inequity?
(xi) Is it necessary that the Commission initiate a generic depreciation proceeding?
348 Exhibit 23848-X0334, IPCAA and ADC letter of support to UCA argument.
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331. In the subsections that follow, the Commission has summarized the main points of
contention with respect to the 11 issues identified above.
(i) Should the traditional net salvage method be re-examined?
332. A number of considerations were raised with respect to abandoning the traditional
approach to net salvage in favour of AltaLink’s proposed net salvage method.
333. The CCA asserted that the traditional approach has worked well for ratepayers for
decades and remains the most used and widely accepted method for recovering net salvage costs.
Moving to AltaLink’s proposed net salvage method disregards long-standing concepts
underpinning depreciation and would create inconsistencies between AltaLink and other Alberta
utilities.349
334. The UCA stated that there was no correct approach to net salvage and depreciation
principles and that regulators should:
Consider alternative models to straight-line depreciation that would permit removal costs
to be collected from ratepayers by a different route, for example through being rolled into
the capital costs of new projects. This not only helps in improving the cost profile of net
salvage, it also can act to improve the regulatory review capabilities of the regulator as
these costs become part of the well-regulated capital spending programs, rather than a
much-less visible transaction occurring in the details of the accumulated depreciation
accounts.350
335. AltaLink identified a number of concerns with the traditional method for net salvage
arguing that it results in current customers paying debt, equity return, salvage and depreciation
on a largely undepreciated rate base, whereas, future customers, using the same infrastructure,
will pay rates on a heavily depreciated rate base. AltaLink argued this places an unfair burden on
current ratepayers.
336. As an example of the disproportionate amount of costs attributed to today’s ratepayers,
AltaLink stated that the pre-collection of salvage under the traditional approach, which is
collected in advance of when the costs will actually be incurred:
… are effectively investments in AltaLink’s assets by ratepayers. While it is true that
AltaLink’s rate base is offset by these customer investments, customers only receive
AltaLink’s weighted average cost of capital as an offset to the tariff.351
337. Based on the concerns articulated by AltaLink, a Commission IR questioned whether
AltaLink considered the current approved net salvage per cents, as determined under the
traditional approach, to be excessive and that a reduction to those per cents would be to the same
effect as AltaLink’s net salvage proposal of collecting less (depreciation expense) revenue
requirement from current ratepayers.
338. AltaLink’s responded that modifying the approved salvage per cents without a principled
basis to achieve a reduction in salvage rates was neither fundamentally supportable nor feasible.
349 Exhibit 23848-X0333, CCA argument, paragraph 16, PDF page 7. 350 Exhibit 23848-X0276, Evidence of P. Bowman and P. Lee of behalf of the UCA, PDF page 46. 351 Exhibit 23848-X0300, AML rebuttal evidence, paragraph 58, PDF page 17.
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Further, the traditional net salvage study conducted by Concentric in its 2018 Depreciation Study
indicated that the currently approved net salvage per cents are too low.352
339. The CCA disagreed with any unfairness perceived as stemming from the traditional
approach, stating that while salvage costs are significant, they are far less than the depreciation,
equity return and debt charges AltaLink is currently recovering on its largely undepreciated rate
base. Further, from a theoretical view, if all parties were to accept, as was postured in AltaLink’s
depreciation study, that salvage costs are increasing and currently approved net salvage per cents
are too low under the traditional approach, then the logical conclusion is that current ratepayers
are already paying less in salvage costs than future ratepayers will be required to bear.353
340. The CCA held that AltaLink’s efforts to conflate the payment of salvage costs under the
traditional approach with an investment in AltaLink should be afforded no weight by the
Commission. The CCA pointed out that the notion of “investment” by customers runs counter to
jurisprudence and is a dangerous analogy for AltaLink to be making, particularly in relation to
the utility asset disposition (UAD) decision.354 Further, the CCA disagreed with AltaLink’s
testimony that ratepayers have been asking for their “investment back,” as misrepresenting the
circumstances of a refund of previously collected (life) depreciation that was approved, by the
Commission, to be refunded to ratepayers.355
341. Notwithstanding this position, the CCA in argument stated that in relation to choosing
between investment options “if a discount rate is selected to assess the NPV of the options, then
a lower discount rate is likely appropriate for all ratepayers. The CCA notes that a lower discount
rate than AltaLink’s WACC in all circumstances supports a denial of AltaLink’s proposal.”356
342. AltaLink also argued that the traditional method for net salvage provides inappropriate
price signals that could result in current ratepayers leaving Alberta or bypassing the transmission
system.357
343. The CCA countered that a Commission approval of AltaLink’s proposed net salvage
method would send a “very different” price signal to ratepayers than the one referenced by
AltaLink. The CCA stated that:
The most important signal that will be sent is that the Commission considers it just and
reasonable for ratepayers to pay for a cost that they did not create and which they are
most likely receiving no benefits for. This would be an important signal as it would
significantly increase the perceived unpredictability of regulation in Alberta. Specifically,
ratepayers will no longer be able to determine the reasonable amount of costs that they
should pay with any accuracy as this new precedent setting price signal implies that costs
can be moved between ratepayers regardless of whether they triggered those costs.358
352 Exhibit 23848-X0062, AML-AUC-2018OCT31-029(a), PDF page 62. 353 Exhibit 23848-X0335, CCA reply argument, paragraphs 18-19 and 24, PDF pages 9 and 11. 354 Decision 2013-417: Utility Asset Disposition, Proceeding 20, Application 1566373-1, November 26, 2013. 355 Exhibit 23848-X0335, CCA reply argument, paragraphs 27-29, PDF pages 12-13, referring to Transcript,
Volume 1, page 207, lines 4-7. 356 Exhibit 23848-X0333, CCA argument, paragraph 97, PDF page 36. 357 Exhibit 23848-X0332, AML argument, paragraphs 44-47 and 52-53, PDF pages 28-30 358 Exhibit 23848-X0333, CCA argument, paragraph 183, PDF page 70.
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344. AltaLink’s historical approach to depreciation relies to a great extent on aged actuarial
data that has been gathered over a long period of time, which would no longer be required for net
salvage purposes, under AltaLink’s proposed net salvage method; thus, the Commission
questioned both AltaLink and Concentric on certain logistics and practicalities of the proposed
net salvage method, under the assumption it was accepted by the Commission.
345. With respect to how AltaLink would reverse or undo any and all aspects of its net salvage
proposal, should AltaLink reverse its thinking and choose to revert to the traditional approach to
net salvage at a future point in time, AltaLink stated that it did not foresee a return to the
traditional method of net salvage.359
346. With respect to identifying any issues that could arise if AltaLink needed or requested to
return to a traditional approach, in the future, Concentric responded that:
AltaLink will track the costs of removal as a unique component of costs [and] the historic
cost of removal data related to capital replacement projects, will be available for analysis.
Additionally the final retirement costs should be available, therefore, a study of the cost
of removal based on historic cost will be possible …”360
(ii) Is there comparability of AltaLink’s proposed net salvage method to other
jurisdictions?
347. In response to Commission IRs, Mr. Kennedy of Concentric stated that AltaLink’s
proposed net salvage method is gaining more attention. Mr. Kennedy cited Manitoba Hydro,
Nalcor Energy and “Ontario” as utilities or jurisdictions that have recently been approved to
adopt, or proposed to adopt, net salvage methods similar to that proposed by AltaLink.361
AltaLink also noted that “EPCOR/EDTI [EPCOR] capitalizes cost of removal as capital
assets….”362
348. The UCA viewed that the collection of net salvage through depreciation rates via the
traditional approach is not universal in the utility industry and referenced Manitoba Hydro,
ATCO Electric Yukon, Newfoundland Power and BC Hydro as examples where there is some
similarity in methodology to AltaLink’s net salvage proposal.363
349. The CCA countered that with respect to EPCOR and Manitoba Hydro, there are several
nuanced differences between AltaLink’s proposal and the approach used by either EPCOR or
Manitoba Hydro.364 365 The CCA also stated that, given AltaLink’s circumstance as a “pure play
transmission facility owner,” which is in contrast to the various utilities referenced by AltaLink
359 Exhibit 23848-X0062, AML-AUC-2018OCT31-026(l), PDF page 50. 360 Exhibit 23848-X0062, AML-AUC-2018OCT31-038(d), PDF page 81. 361 Exhibit 23848-X0062, AML-AUC-2018OCT31-038(b), PDF pages 80-81. 362 Exhibit 23848-X0062, AML-AUC-2018OCT31-032, PDF page 72. 363 Exhibit 23848-X0276, Evidence of P. Bowman and P. Lee of behalf of the UCA, PDF pages 35-36 and
footnotes 2-3. 364 Exhibit 23848-X0269, Written evidence of Bema, Part I, paragraphs 126-147, PDF pages 53-59: The CCA
provides its understanding of the distinctions between the EPCOR, Manitoba Hydro and AltaLink approaches to
net salvage. 365 Exhibit 23848-X0333, CCA argument, paragraphs 122-123, PDF pages 43-44.
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and the UCA, the Commission should give little weight to the findings of other regulators in
Canada.366
350. AltaLink argued that the CCA’s position that AltaLink, as a pure play TFO, is unique in
comparison to the utilities that have adopted, or are in the process of adopting, similar net
salvage methodologies, and provides no basis or support for disregarding other regulators’
approval in this proceeding or for denying AltaLink’s request.367
(iii) Do differing price signals necessitate similar net salvage methodologies in Alberta?
351. During the oral hearing and in reference to concerns raised by Bema Enterprises Ltd.
(Bema) in its evidence368 addressing load growth and price signals, questions were posed to
AltaLink witnesses, Mr. John Piotto, vice-president of regulatory, and Mr. Robert Drotar, vice-
president and controller.
352. Mr. Piotto and Mr. Drotar were questioned about the risk of AltaLink’s reliance, as it
related to the proposed net salvage methodology, on the AESO’s 2017 long-term transmission
forecast and a worst case scenario of no load growth. In a scenario of no load growth, AltaLink’s
“revenue requirement goes to zero in 35, 40 years because your rate base is going to zero
anyways.”369 This outcome was agreed to by the AltaLink witnesses, because rate base would
continue to decline due to depreciation, particularly in the case where there are no capital
additions.370
353. Mr. Piotto and Mr. Drotar were also asked whether ATCO Electric Ltd.’s transmission
(ATCO Electric) approved (traditional) net salvage methodology in contrast to AltaLink’s
proposed net salvage methodology would send fundamentally different prices signals, resulting
from the disparity between methodologies, which may affect just and reasonable rates.371
354. The AltaLink witnesses stated that there would be no negative consequences of differing
net salvage methodologies, citing differences between other AltaLink and ATCO Electric
methodologies, such as income tax recovery methods and CWIP in rate base.372
355. In relation to AltaLink’s rebuttal evidence, which stated that in Alberta, the Commission
has already approved and adopted a similar net salvage methodology of capitalizing net salvage,
the AltaLink witnesses confirmed that this was the case for EPCOR.373
356. During the oral hearing, Mr. Piotto and Mr. Drotar were also directed to paragraph 229
from Decision 22742-D01-2019 addressing ATCO Electric and the West Fort McMurray 500-
kV Transmission (West Fort McMurray) Project, of which Canadian Utilities Ltd. was a partial
owner of Alberta PowerLine, which states:
366 Exhibit 23848-X0333, CCA argument, paragraph 20(h), PDF page 9. 367 Exhibit 23848-X0337, AML reply argument, paragraph 37-38, PDF page 15. 368 Exhibit 23848-X0269, Written evidence of Bema, Part I, paragraphs 87-88, PDF pages 24-25. 369 Transcript, Volume 2, page 359. 370 Transcript, Volume 2, page 359. 371 Transcript, Volume 2, pages 359-360. 372 Transcript, Volume 2, pages 360-361. 373 Transcript, Volume 2, page 361.
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229. In argument, AET addressed Alberta PowerLine’s (APL) treatment of net
salvage as it relates to the West Fort McMurray 500-kV Transmission (WFMAC)
Project. AET confirmed that APL’s commercial arrangement with the AESO precludes
the collection of funds for future net salvage costs during the 35-year contract. While the
CCA submitted that this arrangement is not in the public interest, it agreed with AET that
the “treatment of the cost of salvage for the WFMAC Project should be given no weight
regarding how the cost of salvage should be recovered for AET assets” particularly as the
terms of the agreement were set in a competitive process.374 [footnotes omitted]
357. In response to a premise that, in tandem with the concept discussed in paragraph 229,
“you have a situation where salvage is not being treated under the traditional method. I don’t
know what method it’s being treated on, but it’s not being collected. And a price signal is being
sent that’s not the typical traditional method price signal …,”375 the AltaLink witnesses
responded that the AESO’s method for setting a tariff takes into consideration the costs from
specific TFOs including the West Fort McMurray project, which was completed through a
competitive process that was approved by the Commission.376
358. In relation to potentially material inconsistencies in net salvage methodologies between
Alberta TFOs, Mr. Piotto and Mr. Drotar confirmed that the Commission has historically
allowed different regulatory cost recovery methods among the Alberta utilities. This included the
costs associated with the West Fort McMurray project, which does not include the recovery of
salvage costs.377
359. Similar to the questions posed to AltaLink’s witnesses, Mr. Madsen was also asked to
provide his views with respect to price signals in the context of the AESO tariff and differing net
salvage methodologies for transmission utilities in Alberta.378
360. Mr. Madsen submitted that although there was somewhat of a blending in the overall
AESO tariff, the individual TFO tariffs that are approved by the Commission do send price
signals:
And when you start having one large transmission utility with 7, $8 billion in [rate base]
charging customers costs on one – on a very different manner, and it is very different
because the costs are shifted, quite frankly generational shifting of costs from another
utility, you are, in my mind, sending – again, with the two largest utilities – very different
price signals.379
361. Mr. Madsen appreciated that while EPCOR has been approved to utilize a similar net
salvage method to that proposed by AltaLink, in his view, it was implemented by the
374 Decision 22742-D01-2019: ATCO Electric Ltd., 2018-2019 Transmission General Tariff Application, July 4,
2019, paragraph 229, PDF pages 60-61. 375 Transcript, Volume 2, pages 364-365. 376 Transcript, Volume 2, pages 366-367. 377 Exhibit 23848-X0332, AML argument, paragraph 178, PDF page 63. 378 Transcript, Volume 3, page 530. 379 Transcript, Volume 3, page 530, line 19 to page 531, line 1; Exhibit 23848-X0325, correction to page 530,
lines 19-21.
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Commission for a very different reason. Further, he noted that EPCOR is a much smaller
transmission utility with rate base that is a fraction of AltaLink’s.380
362. With respect to Alberta PowerLine assets of approximately $1.5 billion, Mr. Madsen
stated that the associated costs of the entity, while significantly smaller than AltaLink or ATCO
Electric, are nonetheless blended into the AESO tariff, and do send a price signal.381
363. Mr. Madsen concluded that if the Commission were to approve AltaLink’s proposed net
salvage methodology, it would have, in both the short and long term, a significant impact of
costs accumulating in the AESO tariff, that would send a signal to parties, “as to how those costs
should be collected who should pay for those costs and why they should pay for those costs.”382
(iv) Is AltaLink’s proposed net salvage method in compliance with IFRS?
364. AltaLink, and Bema on behalf of the CCA, provided conflicting evidence with respect to
whether the proposed net salvage method was in compliance with IFRS.
365. AltaLink purported that its proposed net salvage method is compliant with IFRS.383
However, from Bema’s point of view, a proposal that included the ability for “AltaLink to report
a salvage cost as an operating cost in one year and as a capital cost in the next,”384 would not be
permissible under IFRS. Therefore, any proposal by AltaLink to use IFRS as authoritative
support for its net salvage proposal was misguided, in Mr. Madsen’s view.
366. The CCA also referred to the statement made by AltaLink that its “external auditors
concur with its assessment, subject to review of the Commission’s final decision on the
matter,”385 386 as being insufficient evidence of an unqualified confirmation that AltaLink’s net
salvage proposal accords with IFRS requirements. The CCA concluded that “absent an approval
of such a change by the Commission, IFRS simply does not permit the capitalization of salvage
costs in a future asset.” Further, the CCA stated that while “the Commission can create assets
and liabilities for a utility, which is evidently a fact acknowledged by Deloitte, … that does not
mean that the Commission can alter IFRS.”387
367. The UCA alluded to “other regulatory authorities that have approved similar
methodologies [that] are also aware of regulatory principles and IFRS” as evidence in support of
AltaLink’s proposed net salvage method.388 For those comparable methodologies approved in
380 Transcript, Volume 3, page 531. 381 Transcript, Volume 3, page 531. 382 Transcript, Volume 3, page 531, lines 22-24. 383 For example, please refer to Exhibit 23848-X0002, responses to AUC IRs, PDF pages 49, 60, 63, 71-75, 81, 93,
95 and 111. 384 Exhibit 23848-X0269, Written evidence of Bema, Part I, paragraph 182, PDF page 68. 385 Exhibit 23848-X0300, AML rebuttal evidence, paragraph 87, PDF page 23. 386 Exhibit 23848-X0318, AML Undertaking 003, confirming that its independent auditor, Deloitte, concurred with
AltaLink’s assessment as set forth in Exhibit 23848-X0300, AML rebuttal evidence, paragraph 87, PDF
page 23. 387 Exhibit 23848-X0335, CCA reply argument, paragraph 65, PDF page 24. 388 Exhibit 23848-X0339, UCA reply argument, paragraph 12, PDF page 4.
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other jurisdictions, it appeared in specific circumstances, there had been some acceptance of, or
at least consideration of, similar IFRS-related issues, according to the UCA.389
368. AltaLink stated that whether or not its proposal net salvage method is compliant with
IFRS does not affect the decision as to whether the method results in a just and reasonable tariff.
(v) Would AltaLink’s proposed net salvage method breach UAD principles?
369. AltaLink stated, in response to a Commission IR questioning whether AltaLink’s
proposed net salvage method creates a potential for larger stranded asset costs given that the cost
of an asset would consist of a combined replacement asset cost and net salvage cost, that it would
seek clarity from the Commission that “as a critical underpinning to its salvage proposal, salvage
costs are recoverable in full under any conceivable scenario.”390
370. Both the UCA and the CCA took this statement as raising uncertainty as to the intent of
AltaLink’s request.
371. The UCA, while still favouring acceptance of AltaLink’s proposed net salvage method,
stated that the recovery of the net salvage costs should be contingent on and subject to a test of
prudency. Further, there should be no assurances to AltaLink that would amend the basic
framework for future UAD determinations.391
372. In response to a CCA IR, AltaLink confirmed that, with respect to the reasonableness of
actual future salvage costs, regardless of whether they are expensed immediately or capitalized in
the future, the Commission “will still need to review and approve all net salvage costs and all
costs formerly considered as net salvage costs which have become directly attributable costs of
an asset.”392
373. AltaLink confirmed its position in rebuttal evidence:
… the prudency of the quantum of actual salvage costs will be subject to review by the
Commission in the future in the same way all costs are reviewed for prudency. There is
no advance determination of prudency sought or requested in this application.393
374. Notwithstanding AltaLink’s clarification in rebuttal evidence, and the testimony of its
witnesses during the oral hearing, the CCA submitted that it remained unclear as to what
AltaLink requested. Specifically, the CCA expressed concern that AltaLink did not revise either
its application or IR responses to remove the request for a guarantee that salvage costs are
recoverable in full under any conceivable scenario. Therefore, the CCA argued, “it is unclear
what specific approval is being requested and under what circumstances a clarification from the
389 Exhibit 23848-X0276, Evidence of P. Bowman and P. Lee of behalf of the UCA, PDF pages 35-36 and
footnotes 2-3. 390 Exhibit 23848-X0062, AML-AUC-2018OCT31-029(g), PDF page 66. 391 Exhibit 23848-X0276, Evidence of P. Bowman and P. Lee of behalf of the UCA, Section 2.1.1 Issues with
AML proposal, PDF page 12. 392 Exhibit 23848-X0141, AML Response to CCA Motion for Further IR Responses, AML-CCA-2018OCT31-
067(l) - Appendix A, page 49. 393 Exhibit 23848-X0300, AML rebuttal evidence, paragraph 38, PDF page 11.
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Commission of its prior findings on salvage will result in AltaLink rescinding its request to
transition to a new salvage methodology.”394
375. In reply argument, AltaLink submitted that the CCA ignored the evidence and attempted
an overly technical analysis. AltaLink confirmed that it does not include any element in its
proposed net salvage method that is contrary to the UAD decision and, therefore, no revision to
the application is necessary to reflect that fact.395
(vi) Does AltaLink’s proposed net salvage method result in a just and reasonable tariff
in accordance with the Commission’s legislated mandate?
376. In argument, AltaLink summarized its position with respect to the Commission’s
legislated mandate - that the overarching requirement is that the Commission must approve a just
and reasonable tariff:
… That, in turn, requires each generation to pay its fair share of the costs of a new
transmission build. To achieve that result, all relevant factors must be considered and
reasoned judgement must be applied. Where each generation is paying a share of
transmission assets built in part for their use, it is not even certain that intergenerational
equity should be primary consideration. As Chairman Kolesar asked, “is it fair to say that
this is really about the smoothing of cost recovery rather than really about
intergenerational equity…?” In AltaLink’s submission, that is a very apt question but one
that need not be decided. Through whatever lens the New Salvage Methodology is
examined, it is fair and reasonable. It results in each generation paying its fair share for
the use of transmission assets and it complies with intergenerational equity.396 [footnote
omitted]
377. AltaLink argued that in Bulletin 2016-16, the Commission’s statement that “the principle
of intergenerational equity requires that both present and future customers bear a fair share of the
costs of new transmission”397 was a reference to all-in costs. AltaLink stated it “is aware of no
principle or legislated requirement that each component of a capital cost, such as salvage, must
be individually parsed and evenly allocated among generations of customers in order for rates to
be just and reasonable.”398
378. AltaLink also argued that in setting just and reasonable rates and tariffs in the public
interest, the Commission has historically allowed different regulatory cost recovery methods
among the Alberta utilities.399
379. The CCA agreed that the Commission has a legislated mandate to set just and reasonable
rates for all ratepayers, including both current and future ratepayers. However, the CCA argued
that there is no evidence on the record of this proceeding that demonstrates approval of
AltaLink’s proposed net salvage method will not result in worse harm to future ratepayers. In the
CCA’s view, the fact that AltaLink’s proposal transfers 100 per cent of the net salvage costs to
future ratepayers, who will have their own costs to bear, demonstrates that “AltaLink’s proposal
394 Exhibit 23848-X0333, CCA argument, paragraphs 53-58, PDF pages 22-23. 395 Exhibit 23848-X0337, AML reply argument, paragraphs 13-16, PDF pages 7-8. 396 Exhibit 23848-X0332, AML argument, paragraph 75, PDF page 38. 397 Bulletin 2016-16, Section 2.2, PDF page 4. 398 Exhibit 23848-X0332, AML argument, paragraph 76, PDF page 38. 399 Exhibit 23848-X0332, AML argument, paragraph 178, PDF page 63.
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will defer recovery of significant costs and very likely create worse inequities for future
generations.”400
380. The UCA advised that there is no one correct approach to net salvage, and that
depreciation principles and literature support multiple approaches from which an appropriate net
salvage methodology can be selected. Therefore, the UCA submitted, AltaLink’s proposed net
salvage method is an option that could be considered by the Commission in order to best address
the Commission’s mandate to achieve just and reasonable rates.401
(vii) How much weight should be given to the long-term AESO forecast?
381. AltaLink linked much of the anticipated success and benefit related to its proposed net
salvage method directly to the AESO’s 2017 long-term transmission plan402 forecast. In
AltaLink’s view, it is reasonable to rely on this forecast in the circumstances because, “if it was
reasonable to plan the big build around the AESO’s forecasts, then it must be reasonable to plan
salvage recovery around those same forecasts.”403
382. AltaLink also cited the AESO’s statutory responsibilities as support for relying on the
AESO’s long-term forecasting, arguing “… only one party has the legislated obligation to [make
projections about the future] with the corresponding legislative direction that its projections be
relied upon: the AESO.”404 AltaLink explained:
91. … The statutory scheme requires that the AESO deliver load forecasts to both the
Minister and the Commission. A core purpose of this legislated requirement is that those
forecasts will be used and relied on for transmission planning that is inherently forward
looking. The AESO’s forecasts were used to plan the system, including the big build, and
now, when it is appropriate to fairly allocate the costs of building the transmission
system, the forecasts should similarly be relied upon.405 [footnotes omitted]
383. With respect to potential uncertainty in the forecast, AltaLink advised that “the AESO’s
published long-term plan is the result of the AESO assessing multiple scenarios to arrive at a
reasonable forecast that is relied upon and legislatively intended to be relied upon.”406
384. AltaLink submitted that its proposed net salvage method is intended to address several
issues including those related to intergenerational inequity and negative price signals by “shifting
salvage costs to future customers since, compared to current customers, future customers will be
facing reduced levels of undepreciated transmission capital costs and these costs will be spread
out over an expected larger customer load base.”407
385. When asked what assurance AltaLink could provide that the size of customer load base
was likely to increase, AltaLink stated that it does not forecast the level of customer load base,
400 Exhibit 23848-X0335, CCA reply argument, paragraph 15, PDF page 8. 401 Exhibit 23848-X0329, UCA argument, paragraph 14, PDF page 4. 402 Exhibit 23848-X0062, AML-AUC-2018OCT31-029(c), PDF page 65. 403 Exhibit 23848-X0332, AML argument, paragraph 150. 404 Exhibit 23848-X0332, AML argument, paragraph 107. 405 Exhibit 23848-X0332, AML argument, paragraph 91. 406 Exhibit 23848-X0332, AML argument, paragraph 92. 407 Exhibit 23848-X0002, AML application, paragraph 43, PDF pages 25-26.
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but was reflecting expectations and projects of load growth contained in the AESO’s 2017 long-
term transmission plan.408
386. The CCA stated that the success of AltaLink’s proposed net salvage method, in being
dependent on the forecasts of the AESO, was inappropriate. This is because, for example,
AltaLink witness Mr. Piotto “admitted that AltaLink cannot confirm with certainty or provide a
guarantee that there will not be a future large transmission build or that there will in fact be load
growth.”409
387. In addition, the CCA argued that it is well known that the AESO’s forecasting accuracy
for historical load forecasts is subject to significant variability, which the AltaLink panel
appeared to be unaware of:
… AltaLink’s panel appeared to be unaware of the AESO’s historical forecasting
accuracy for load growth, which is surprising for a panel comprised of utility executives
operating in Alberta, the CCA submits that it is well known to all parties, including the
Commission, that the AESO’s ability to forecast load growth has been, at best, subject to
significant variability. Mr. Piotto at least assumed this to be the case in his testimony.410
388. AltaLink rejected the CCA’s “second-guessing of the AESO’s long term load growth
projections,” reiterating that the AESO has the statutory mandate to prepare and publish such
forecasts.411 Under the assumption that AltaLink’s net salvage proposal was accepted, “in the
future, transmission costs including capitalized salvage costs will be spread over a larger load
base, reducing the per unit cost of transmission. In addition, AltaLink argued, that expanded
customer base will have the benefit of a significantly depreciated transmission system”:412
5(l) The future is inherently uncertain. The AESO load growth forecast is the only
credible estimate of future load in Alberta. The AESO has the independent
statutory obligation to prepare load forecasts, and therefore the AESO and its
forecasts should and must be relied upon. AESO load forecasts underpinned the big
build and therefore it is perfectly logical to rely on the AESO’s long term forecasts
when assessing the New Salvage Methodology. A regulator like the Commission
frequently makes decisions that apply into the future and may be impacted by
future changed circumstances. That does not change its obligation to make
decisions on the facts available: that is the principle that is engaged in this
proceeding;413
389. AltaLink also rejected the “two extremes” raised by the CCA under a scenario of no long
term load growth projections being achieved. AltaLink submitted that it was only speculation on
the CCA’s part that, first, customers will flee the transmission system, leaving a reduced
408 Exhibit 23848-X0062, AML-AUC-2018OCT31-029(c), PDF page 65. 409 Exhibit 23848-X0333, CCA argument, paragraph 75, PDF page 29, referring to Transcript, Volume 1,
page 118, line 10 to page 122, line 21. 410 Exhibit 23848-X0333, CCA argument, paragraph 77, PDF pages 29-30, referring to Transcript, Volume 1,
page 125, lines 23-25 and page 148, lines 6-23. 411 In argument (Exhibit 23848-X0332, paragraph 84), AltaLink referenced sections 17 and 33(1) of the Electric
Utilities Act, and Section 10(1)(c) of the Transmission Regulation, as detailing these statutory requirements. 412 Exhibit 23848-X0332, AML argument, paragraphs 80 and 86, PDF pages 39 and 41. 413 Exhibit 23848-X0332, AML argument, paragraph 5, PDF page 8.
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ratepayer base to “foot the bill” or; second, that future ratepayers will be burdened by another big
build.414
390. The CCA countered, in reply argument, any suggestion that the AESO’s long-term load
forecasts should not be approached with a degree of skepticism:
When AltaLink is relying on a forecast to support such a substantive change to its
approach to collecting salvage costs, then an assessment of whether that forecast is
reasonable is entirely warranted. The CCA submits there should be no doubt that the
AESO’s historical ability to forecast load growth has been inadequate. Even if the current
forecast is accepted as being more moderate and therefore more realistic, the AESO
forecast still cannot be accepted unequivocally as a reasonable basis to support
AltaLink’s proposal. Inaccuracies of prior AESO forecasts are well known. Most
importantly, AESO forecasts are not tested in a regulatory setting, they are not subject to
a reasonableness test by the Commission and interveners and the Commission does not
approve the AESO’s forecasts.415
391. The CCA also rejected AltaLink’s argument that, based on the AESO’s most current
forecast predicts compounded load growth of 0.9 per cent, “in the future, transmission costs
including capitalized salvage costs will be spread over a larger load base, reducing the per unit
cost of transmission.”416 The CCA argued that under AltaLink’s proposed net salvage method, if
the AESO forecast is overstated by an average of 1.0 per cent per year in load growth, then there
will be zero load growth. Transmission costs would increase steadily into the future due to higher
accumulating rate base and future ratepayers may bear a steadily increasing amount of costs on a
per unit basis depending on the level of inflation.417
392. AltaLink responded that it had presented an overwhelmingly supportive case for its
proposed net salvage method, showing that it is superior to the traditional approach “under
current and likely future conditions (based on the AESO’s load forecasts).”418
(viii) How are principles of cost causation, gradualism and moderation, and other
secondary effects affected by AltaLink’s proposed net salvage method?
393. The CCA, in its evidence, articulated a number of other aspects related to AltaLink’s
proposed net salvage method, which are summarized in this section, along with the responses of
other parties.
394. The CCA stated that AltaLink’s proposed net salvage method is “clearly intended to
fulfill AltaLink’s Flat-for-Five commitment and provides a benefit of maintaining its rate base at
record high levels….”419 The CCA submitted that AltaLink management has an interest in
ensuring the flat-for-five commitment is met, as it is linked to its variable compensation:
… Management interests were satisfied given that AltaLink’s management will receive
variable compensation based on whether the Flat-for-Five commitment is met. Seeing as
414 Exhibit 23848-X0332, AML argument, paragraphs 87-91, PDF pages 41-42. 415 Exhibit 23848-X0335, CCA reply argument, paragraph 51, PDF pages 19-20. 416 Exhibit 23848-X0332, AML argument, paragraphs 85-86, PDF page 41. 417 Exhibit 23848-X0335, CCA reply argument, paragraph 52, PDF page 20. 418 Exhibit 23848-X0337, AML reply argument, paragraph 25, PDF page 11. 419 Exhibit 23848-X0269, Written evidence of Bema, Part I, paragraph 50, PDF page 14.
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how AltaLink has confirmed that the change in salvage methodology collection is critical
to meeting the Flat-for-Five commitment, this confirmation demonstrates a clear bias on
the part of AltaLink.420 [footnotes omitted]
395. The CCA presented other evidence related to AltaLink’s proposed net salvage method,
including an analysis showing that AltaLink’s forecast rate base and total return on equity “does
not appear to ever decline in the next 10-year period despite a reduction in forecast direct
assigned capital.”421
AltaLink’s proposal preserves its shareholders’ return and allows rate base to continue at
the record high level for the foreseeable future, all the while deferring a real and
necessary cost of salvage to future ratepayers, which will need to be paid regardless.422
396. With respect to credit metrics, the CCA concluded that in comparing AltaLink’s
FFO/Debt ratios based on the traditional approach and current versus proposed net salvage per
cents, AltaLink’s FFO/Debt ratio under the traditional approach is forecast to steadily improve
over the test period.423
397. With respect to the 11.1 per cent FFO/Debt ratio that AltaLink would apply as the
determinative cap on how much net salvage to collect through depreciation expense during the
period of transition, Bema stated it was “inappropriate because it is arbitrary.”424
398. With respect to gradualism and moderation, the CCA submitted that the Commission, in
an earlier decision related to an AltaLink GTA in which large negative net salvage per cents
were requested, was clearly not “prepared to order wholesale changes to depreciation concepts,
processes and methodologies, such as gradualism and moderation….”425 In the CCA’s view,
AltaLink’s current proposal represents a similar wholesale change to its traditional approach to
collecting net salvage costs that should be rejected by the Commission.426
399. In relation to cost causation, the CCA submitted that the price signal created by
AltaLink’s proposed net salvage method (being that future ratepayers, who received little, if any,
benefit from an asset will pay for the costs that have arisen from the use of those assets by other
ratepayers) could lead to further requests to abandon cost causation principles in the future.427
400. The CCA also questioned AltaLink’s process for assessing whether an asset retirement,
under its proposed net salvage method, would be classified as interim, or final, and argued that
AltaLink had likely underestimated the future replacements as opposed to final retirements.
Notwithstanding that AltaLink stated an interim retirement for an asset being replaced would
occur at the same location or right-of-way as the asset to be constructed, the CCA nonetheless
420 Exhibit 23848-X0333, CCA argument, paragraph 63, PDF page 25. 421 Exhibit 23848-X0269, Written evidence of Bema, Part 1, paragraph 99, PDF page 27. 422 Exhibit 23848-X0269, Written evidence of Bema, Part 1, paragraph 97, PDF page 27. 423 Exhibit 23848-X0269, Written evidence of Bema, Part I, paragraphs 92-93, PDF page 26. 424 Exhibit 23848-X0269, Written evidence of Bema, Part 1, paragraph 50, PDF page 53. 425 Decision 3524-D01-2016, paragraph 354, PDF page 83. 426 Exhibit 23848-X0269, Written evidence of Bema, Part I, paragraph 87, PDF page 24. 427 Exhibit 23848-X0335, CCA reply argument, paragraph 36, PDF page 15.
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viewed AltaLink’s method of delineation between interim and final retirements as vague, at
best.428
401. Based on AltaLink’s response to a CCA IR, the CCA concluded that debt can be reduced
significantly if net salvage costs are collected using the traditional approach – a reduction of
approximately $100 million in the year 2020 in comparison to AltaLink’s proposed net salvage
method. The CCA stated that, as would be required under the proposed net salvage method,
issuing additional debt to finance an increase in rate base is not in the public interest, especially
when it results from the deferral of costs of which current ratepayers should pay a reasonable
amount.429
402. AltaLink rejected the CCA assertion that its proposed net salvage method, in relation to
an intention to meet its flat-for-five commitment, was motivated in any way by AltaLink’s rate
base; rather, AltaLink reiterated, the proposed net salvage method is a critical component of a
just and reasonable tariff in light of the recent big build.430
403. AltaLink agreed that its credit metrics will continue to improve. It is for this reason that
AltaLink is able to undertake its proposed net salvage method, and further, the reason why, in
approximately 7-8 years, the collection of further salvage funds is anticipated to cease. AltaLink
stated that the application of the 11.1 per cent FFO/Debt ratio provides not only an easily
calculable metric, but that it would be used to define the gradual and moderated length of the
transition period during which AltaLink would fully implement the proposed net salvage
method.431
404. While AltaLink considered that cost causation aspects are important, it also cautioned
that these aspects should not be viewed in isolation or as an immutable principle that overrides
all else. In AltaLink’s view, its proposed net salvage method takes into consideration the
principle of cost causation, in that “current customers bear their fair cost of the large build by
paying a tariff that reflects an undepreciated rate base and its related costs, paid in current dollars
and by a smaller load base.”432
405. The UCA did not provide further comments on the issues identified above, other than to
clarify that the “wholesale change” rejected by the Commission in Decision 20272-D01-2016433
was the proposed abandonment of the principles of gradualism and moderation.434
(ix) How can the time value of money be considered in relation to AltaLink’s proposed
net salvage method?
406. In its application, AltaLink did not address aspects of its proposed net salvage method as
they related to the time value of money or an intertemporal cost-benefit analysis (net present
value (NPV) of cash flow analysis and associated discount rate).
428 Exhibit 23848-X0333, CCA argument, paragraph 20(j), PDF pages 9-10. 429 Exhibit 23848-X0269, Written evidence of Bema, Part I, paragraphs 228-230, PDF page 79. 430 Exhibit 23848-X0300, AML rebuttal, paragraph 41, PDF page 11. 431 Exhibit 23848-X0332, AML argument, paragraph 56, PDF page 31. 432 Exhibit 23848-X0332, AML argument, paragraph 96, PDF page 43. 433 Decision 20272-D01-2016: ATCO Electric Ltd., 2015-2017 Transmission General Tariff Application
Proceeding 20272, August 22, 2016. 434 Exhibit 23848-X0329, UCA argument, paragraph 45, PDF page 12.
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407. However, in an IR, the Commission requested clarification of how the factors relating to
the intertemporal cost-benefit analysis identified in Section 4 of Decision 21341-D01-2017435 had
been considered by AltaLink, in relation to its proposed net salvage method.
408. AltaLink responded that it did consider NPV or discount rate economics as one factor,
but stated the Commission’s evaluation of its proposed net salvage method cannot be determined
exclusively on this basis.
409. AltaLink suggested it would be inappropriate for the Commission, in the context of
evaluating AltaLink’s proposed net salvage method, to adopt a declining social discount rate to
inform its analysis of intertemporal matters such as intergenerational equity and public interest,
even if the analysis were to suggest “it may not be in the public interest to put more money in the
hands of ratepayers attributable to the provision of regulated electric transmission services today
because future ratepayers might be deprived.”436
410. In AltaLink’s view, the application of a declining discount rate as opposed to adopting
the regulated utility discount rate as a basis or reason to protect future customers from such
things as declining load growth, is unfair to current customers. Further, AltaLink’s proposed net
salvage method is intended to address far-reaching issues such as levelizing the tariff burden on
current transmission ratepayers.437 AltaLink stated that the inequities resulting from the big build
that are being placed on current transmission ratepayers, as compared to future ratepayers,
cannot be justified in today’s higher rates “as an insurance policy against load growth or
utilization levels failing to materialize as projected”438 by the AESO’s 2017 long-term
transmission plan.
411. AltaLink’s rebuttal evidence, as illustrated in Appendix A439 (which referred to the
WATL example analysis requested by the Commission in AML-AUC-2018OCT31-053), shows
how under all discount rates, customer savings increase for the first 16 years and remain positive
for longer at higher required rates of return.440
412. AltaLink asserted that the Commission’s consideration, in Proceeding 21341, that
“including the effects of inflation, everything else equal, will make it more attractive to push
costs into the future, since this will lower the present discounted value of real per capita
burden”441 supports AltaLink’s proposed net salvage method, and leaves more money in the
hands of today’s ratepayers.442
413. AltaLink submitted that while an NPV analysis provides useful information in the
assessment of its proposed net salvage method, it must be weighed and balanced against all other
relevant factors in setting a just and reasonable tariff. While AltaLink’s deemed discount rate for
435 Decision 21341-D01-2017: AltaLink Management Ltd., 2017-2018 General Tariff Application Negotiated
Settlement Agreement, Proceeding 21341, August 30, 2017. 436 Exhibit 23848-X0329, AML-AUC-2018OCT31-051, PDF page 103. 437 Exhibit 23848-X0329, AML-AUC-2018OCT31-051, PDF pages 103-104. 438 Exhibit 23848-X0329, AML-AUC-2018OCT31-051, PDF page 105. 439 Exhibit 23848-X0301, AltaLink rebuttal, Appendix A WATL example. 440 Exhibit 23848-X0300, AltaLink rebuttal, paragraph 51(d), PDF page 15. 441 Decision 21341-D01-2017, paragraph 129. 442 Exhibit 23848-X0062, AML-AUC-2018OCT31-051, PDF page 106.
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rate-setting purposes is the Commission’s approved rate of return, the cost of a service must be
viewed from the customers’ perspectives and with regard to the time value of money.443
414. Bema, in its evidence,444 similarly considered the factors relating to the intertemporal
cost-benefit analysis identified by the Commission in Section 4 of Decision 21341-D01-2017.
415. Bema, using the results from a WATL-related NPV analysis, under both the traditional
and proposed net salvage methods, with the interest rates used by AltaLink,445 illustrated that an
NPV analysis should not be the sole criterion to consider, and that when a discounted NPV
analysis is to be relied on, it should be at the lower discount rates available.446
416. The CCA agreed that any reasonable consideration of an NPV analysis demonstrates that
a lower discount rate is warranted in assessing the reasonableness of AltaLink’s proposal. Based
on this conclusion, the CCA agued that AltaLink’s proposal is undeniably negative for
ratepayers.447
417. Bema also agreed with the use of a declining discount rate, which “itself supports
denying AltaLink’s proposed changes in approach to collecting salvage.”448 In Bema’s view, the
results from the WATL NPV analysis support the conclusion that AltaLink’s proposal does not
support intergenerational equity and the public interest.
418. With respect to the Commission’s view in Decision 21341-D01-2017 that population and
income growth can be speculative, Bema considered that those concerns continue to apply in the
context of AltaLink’s proposed net salvage method and the assumption therein, that future
generations will not be harmed by the transferring of costs as they will be absorbed by an
increased load growth. Bema identified a number of scenarios including larger load customers
going behind-the-fence, and increases in alternative energy solutions that, if they came to
fruition, would negate load growth.
419. Bema considered that AltaLink’s proposed net salvage method violates the key factor
outlined by the Commission in Decision 21341-D01-2017, that “the public interest is served if,
to the greatest extent possible, those who contributed to the surplus are those who receive the
refund.”449 Bema likened that phrase as the equivalent of saying “those who paid for the services
should receive the benefits of those services:”450
Under AltaLink’s proposal, current ratepayers will not pay for any of the accruing future
costs of salvage. Instead, 100% of this cost will be borne by future ratepayers either as a
443 Exhibit 23848-X0332, paragraphs 118-120, PDF pages 48-49. 444 Exhibit 23848-X0269, Written evidence of Bema, Part I, paragraph 122, PDF pages 34-48. 445 Exhibit 23848-X0073, AML-AUC-2018OCT31-053(c) attachment. 446 Exhibit 23848-X0269, Written evidence of Bema, Part I, PDF page 35: For example, from the discount rates
shown in Exhibit 23848-X0073 related to WATL, Bema would recommend using three per cent versus 11 per
cent. 447 Exhibit 23848-X0335, CCA reply argument, paragraph 73, PDF page 26. 448 Exhibit 23848-X0269, Written evidence of Bema, Part I, PDF page 35: For example, from the discount rates
shown in Exhibit 23848-X0073 related to WATL, using any lower starting point discount rate than 11 per cent
in combination with [declining discount rates] DDRs would yield a large negative result for AltaLink’s
proposed net salvage method. 449 Decision 21341-D01-2017, paragraph, 123. 450 Exhibit 23848-X0269, Written evidence of Bema, Part I, PDF page 42.
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period cost and amortized over a reasonable period or as part of a future asset. Therefore,
while current customers are receiving a clear benefit from the existing assets, under
AltaLink’s proposal these same customers will not pay for this benefit.
AltaLink’s proposal ensures that those ratepayers who are receiving the benefits of the
current transmission infrastructure will likely not be the same ratepayers that pay to
remove the existing transmission infrastructure. Put differently, future ratepayers will be
paying for a future cost to salvage an asset that they receive little, if any, benefit from.
Accordingly, Bema considers that AltaLink’s proposal violates this key factor outlined by
the Commission which considers that the public interest is maintained when a ratepayer
receives the benefits it paid for and conversely pays for the benefits it receives. For these
reasons, Bema considers that AltaLink’s proposal should be denied by the
Commission.451
420. As discussed earlier in this decision, Bema raised the prospect of a generic depreciation
proceeding452 to further understand asset utilization and depreciation methodologies, and
submitted that these issues are similarly worth exploring in the context of intergenerational
inequities between current and future ratepayers.
421. Bema agreed in general with the Commission’s statement, in Decision 21341-D01-2017,
that “including the effects of inflation, everything else equal, will make it more attractive to push
costs into the future, since this will lower the present discounted value of real per capita
burden.”453 However, Bema cautioned that the reality in the case of future costs, as it would
pertain to AltaLink’s proposed net salvage method, is that everything else will not be equal for
several reasons, such as:
• the currently relatively stable annual collection of net salvage costs through depreciation
will become future large lump sums under AltaLink’s proposed net salvage method;
• there is uncertainty with future expectations of adding and replacing assets well into the
future; and
• while inflation improves the ability of future ratepayers to bear future costs, the future
salvage costs will also inflate annually.
422. Mr. Bowman and Ms. Lee, on behalf of the UCA, submitted that the AltaLink proposal
did not reflect an uneconomic distribution of costs, as demonstrated by the NPV of ratepayer
costs. They explained:
While the effect of recovering the same dollar value of costs in future years does lead to
the utility earning a larger return in the early years of the scenario, the value of deferral to
customers reflects multiple considerations, not just the total dollars recovered over the
asset’s life. First, many customers, particularly the smallest and largest customers, will
likely have internally-preferred discount rates that exceed the utility cost of capital.
Notionally, a good example is lower income residential customers with other payment
obligations, such as typical consumer debt. Under many debt instruments available to
small customers (e.g., credit cards, overdraft, etc.) the interest rates will far exceed the
451 Exhibit 23848-X0269, Written evidence of Bema, Part I, PDF page 43. 452 Exhibit 23848-X0269, Written evidence of Bema, Part I, paragraphs 102 and 112. 453 Decision 21341-D01-2017, paragraph 129.
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utility cost of capital. For the largest customers, alternative uses of funds will typically
reflect business opportunities, which would rarely have a cost of capital as low as a low-
risk utility. Second, the deferral is consistent with the expectation of increased usage in
future, as highlighted by AML in AML-AUC-2018OCT31-029(a), where an expected
larger base of future customers would bear a more representative share of costs,
consistent with assets put in place to manage growth.454 [footnote omitted]
423. During the oral hearing, Mr. Bowman stated that in relation to any economic principles
that could be used to determine the economically optimal time period in which to impose the net
salvage cost through time so as to consider intergeneration equity, the aspect he would focus on,
“is that ratepayers, over time, who receive similar service from an asset should pay similar
amounts on a real basis.” Mr. Bowman also confirmed that in relying on “real” costs he would
not use any discounting mechanism, even though he could understand how discounting would fit
into broad public policy decisions:455
And if you have the opportunity to levelize a cost across an asset's life during which it’s
providing relatively comparable service to different generations of ratepayers and they
pay relatively similar amounts for the all-in cost of that asset over that period, ideally in
real terms, then I think you've achieved fair and equitable distribution across time.456
424. AltaLink witness Mr. Drotar testified during the oral hearing that the traditional approach
to net salvage does not deal with the time value of money and has issues that are inherent in the
uncertainty of charging customers for activities that will not be completed until decades into the
future.457
425. When asked by the CCA why AltaLink did not consider an asset retirement obligation
approach to net salvage, which provides for a discounted liability based on the time value of
money, Mr. Drotar responded that the asset retirement obligation method involves a significant
amount of judgment and subjectivity: an estimated inflation rate, a discount rate, the number of
years until the asset is salvaged, and the uncertainty related to the costs, potentially 60 years into
the future.
426. In relation to using a constant dollar net salvage approach, the AltaLink witnesses
indicated that while the Commission had approved its use by AltaLink previously, it was
subsequently rejected by the Commission twice, and that AltaLink returned to the traditional
approach to net salvage.458
(x) Does AltaLink’s proposed net salvage method address intergenerational inequity?
427. In its application, AltaLink stated that from an intergenerational equity perspective,
current customers are unfairly burdened with paying rates that reflect the largely undepreciated
nature of the transmission assets constructed as part of the big build. In AltaLink’s view, its
proposed net salvage method, in transferring the collection of net salvage costs from current
ratepayers to future ratepayers, helps to moderate the level of tariffs required to be collected from
454 Exhibit 23848-X0276, Evidence of P. Bowman and P. Lee of behalf of the UCA, PDF pages 8-9. 455 Transcript, Volume 2, pages 400-402. 456 Transcript, Volume 2, page 402, lines 10-16. 457 Transcript, Volume 1, page 66, lines 3-6. 458 Transcript, Volume 1, pages 181-182.
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current customers for net salvage costs that are not expected to be incurred until well into the
future.
428. AltaLink stated its proposed net salvage method recognizes that the transmission build
was intended to address both current and future growth. Thus, AltaLink did not consider that its
proposed net salvage method would result in intergenerational inequity by shifting net salvage
costs to future customers since, “compared to current customers, future customers will be facing
reduced levels of undepreciated transmission capital costs and these costs will be spread out over
an expected larger customer load base.”459
429. In referencing quotes attributed to Bulletin 2016-016, AltaLink stated that:
… its salvage proposal with respect to “balancing rate mitigation with the provision of
price signals that support efficient outcomes” is also applicable as it serves to levelize the
tariff. This is important as it should go toward lower and more equitable rates for today’s
customers that should signal the objective to keep them on the system. Conversely,
placing higher burden of costs to today’s customers as a result of a large build built to
accommodate future growth and not taking into consideration inflation could cause a
price signal for load customers to leave the system.460
430. Further, AltaLink stated that its proposed net salvage method:
… fits within the Commission’s determinations that “alternative approaches and rate
treatments to mitigate or smooth the impact on consumer rates will be considered on a
case‐by-case basis, from time to time, in the context of comprehensive tariff applications
and satisfies the concept of the opportunity for regulated utilities to earn a fair return on
capital.” AltaLink agrees that the salvage proposal should be viewed in context of a full
application (and not in isolation)….461
431. AltaLink also cited the factors that it considered relevant in assessing whether its
proposed net salvage method would create intergenerational inequity as attributed to Section 4 of
Decision 21341-D01-2017,462 the section subheadings of which the Commission identified as
follows:
• Discount rate to be used by the Commission in its assessment …
• Declining discount rates
• Intergenerational equity and the public interest
• Effect of population growth on intergenerational equity
• Effect of capacity utilization on intergenerational equity
• Including the effects of inflation or using real values
• Gradualism and moderation
459 Exhibit 23848-X0002.02, AML application, paragraphs 42-43 and 534, PDF pages 25-26 and 186. 460 Exhibit 23848-X0077.01, AML-UCA-2018OCT31-129, PDF pages 186-187. 461 Exhibit 23848-X0077.01, AML-UCA-2018OCT31-129, PDF page 187. 462 Exhibit 23848-X0089.01, AML-CCA-2018OCT31-071(f), PDF page 244.
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432. On the basis of evidence provided by Mr. Bowman and Ms. Lee, the UCA supported
AltaLink’s proposed net salvage method, and agreed that there is growing concern, arising in a
large part from the “big build” that may lead to the present generation of customers overpaying
for the use of transmission assets, as compared to future generations of customers.463
433. As explained by Mr. Bowman and Ms. Lee, one of the principles for addressing the rate
impacts of new transmission investment on customers was, as elucidated by the Commission in
Bulletin 2016-16, the principle of intergenerational equity and cost causation.464 465 As confirmed
by Mr. Bowman during the oral hearing, his view was that “the AltaLink proposal will improve
the overall cost causation profile of the assets that were put into service.”466
434. The CCA recommended that AltaLink’s proposed net salvage method be denied.
435. In evidence, Bema stated that AltaLink’s proposed net salvage method did not take a
long-term view of addressing intergenerational issues and, in fact, had the effect of creating
material inequities.467
436. Bema referred to an analysis of AltaLink’s projected revenue requirement, which
illustrated468 that, in the absence of approving AltaLink’s proposed net salvage method, revenue
requirement is not steadily increasing. Bema asserted that this was an important fact for the
Commission to consider in deciding whether to “shift a significant cost burden to future
generations of customers despite current generations of customers receiving the benefit of the
assets providing service today.”469
437. Bema also provided evidence that under AltaLink’s proposed net salvage method, both
current and future generations of customers will be paying total returns on higher rate base, but
that future generations of customers will additionally bear the entire cost to salvage the final
assets, including the return on those costs:
Specifically, when combined with higher overall rate base, increasing operating costs,
future large transmission build cycles, and the entire burden of salvage costs, it is very
possible that future ratepayers could be worse off from an intergenerational perspective
than current ratepayers are. Put differently, AltaLink’s proposal represents a short-term
approach and solution to addressing a current inter-generational inequity without
sufficient evidence to understand the long-term impacts of that proposal.470
438. Bema noted that AltaLink is in effect seeking approval to earn a return on net salvage
costs in the future, as being capitalized as part of a future asset. From a principled perspective,
Bema considered it would be unreasonable for future customers to pay AltaLink a return on a
cost that has no future tangible benefit to those same customers.471
463 Exhibit 23848-X0329, UCA argument, paragraph 12, PDF page 4. 464 Exhibit 23848-X0276, Evidence of P. Bowman and P. Lee of behalf of the UCA, PDF page 9. 465 Exhibit 23848-X0329, UCA argument, paragraph 28, PDF page 8. 466 Transcript, Volume 2, page 407. 467 Exhibit 23848-X0269, Written evidence of Bema, Part I, paragraph 68, PDF page 19. 468 Exhibit 23848-X0269, Written evidence of Bema, Part I, Figure 1, PDF page 23. 469 Exhibit 23848-X0269, Written evidence of Bema, Part I, paragraph 84, PDF page 23. 470 Exhibit 23848-X0269, Written evidence of Bema, Part I, paragraph 106, PDF page 31. 471 Exhibit 23848-X0269, Written evidence of Bema, Part I, paragraph 111, PDF page 32.
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439. The CCA stated that the clearest example of intergenerational inequity was to consider
that under AltaLink’s proposed net salvage method, future customers were being forced to pay
for the costs that should have been paid for by previous generations of ratepayers.472 The CCA
argued that it “cannot simply focus only on the costs paid by current ratepayers and trust, without
evidence, that future ratepayers will be better off, which is the approach being proposed by
AltaLink.”473
440. AltaLink countered that the costs arising from the big build must be fairly addressed
through the tariff, and that its proposed net salvage method promotes intergenerational equity by
levelizing the transmission tariff so that today’s ratepayers will not bear a disproportionate
amount of costs relative to future ratepayers.474
441. AltaLink stated that the factual circumstances that current ratepayers are burdened by a
large undepreciated transmission rate base has caused inequity to current ratepayers. AltaLink
argued, however, that:
74. This case does not require a minute dissection of the concept of “intergenerational
equity,” if that were even possible. Every decision maker will address the principle of
intergenerational equity according to the facts before them. In the result, a given
approach to intergenerational equity that results in just and reasonable rates when applied
to one set of facts may be utterly inappropriate when applied to a different set of facts,
when considered in relation to other principles and in context of the overarching
requirement for just and reasonable rates.475
442. AltaLink further argued that there should be little, if any, weight given to the
intergenerational equity principle in assessing its salvage proposal:
78. No party had questioned the Commission’s jurisdiction to make an order that does not
strictly comport with any given approach to the principle of intergenerational equity. The
weight of authority clearly shows that intergenerational equity should not be the
predominant consideration, if it is indeed relevant at all.476
443. In reply argument, the CCA agreed that the existing intergenerational inequity was
caused by the large direct assigned capital build, and could be confirmed by looking at how
transmission rates have increased in the past decade, despite moderate load growth. The CCA
stated that intergenerational inequity has been present since at least 2015. There is no need to
rush to adjust approved net salvage rates or methodologies approved by the Commission without
additional evidence and analysis to support the necessity of those changes, as any changes must
make sense in both the short and longer term.
444. The CCA recommended both longer view modelling of net salvage costs and the prospect
of a generic depreciation proceeding to allow for a better understanding of the intergenerational
472 Exhibit 23848-X0333, CCA argument, paragraph 48, PDF page 20. 473 Exhibit 23848-X0333, CCA argument, paragraph 79, PDF page 30. 474 Exhibit 23848-X0300, AML rebuttal, paragraph 25, PDF page 8. 475 Exhibit 23848-X0332, AML argument, paragraph 74, PDF page 37. 476 Exhibit 23848-X0332, AML argument, paragraph 78, PDF page 39.
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impacts of any changes to AltaLink’s current approved net salvage rates or depreciation
methodologies.477
445. AltaLink argued that the CCA’s recommendation that the Commission reject AltaLink’s
proposed net salvage method and refer the question to a generic proceeding “is essentially a
recommendation to do nothing.”478
(xi) Is it necessary that the Commission initiate a generic depreciation proceeding?
446. As discussed elsewhere in this decision, the CCA, based on the evidence submitted by
Bema, recommended that the Commission deny AltaLink’s proposed net salvage method, in
part, as it constitutes a wholesale change in methodology that would result in inconsistency
among Alberta electric utilities. Bema noted that its recommendation is consistent with
Commission findings in Decision 20272-D01-2016, where the Commission stated that it was
“not currently prepared to order wholesale changes to depreciation concepts, processes and
methodologies, …. as such changes are beyond the scope of [that GTA] proceeding.”479
447. Bema submitted that a generic depreciation proceeding would allow for consistency
among Alberta electric utilities and could consider:
a. Transitioning to the asset retirement obligation (“ARO”) method of accounting for
salvage costs, which would align with IFRS;
b. Transitioning to the Constant Dollar Net Salvage (“CDNS”) method;
c. Using some other form of sinking fund method, perhaps limited to significantly
underutilized large transmission assets such as WATL, Heartland and CBW; or
d. Approving reductions to applied for salvage rates in the near term until better
information on the future cost of salvage is obtained.480
448. Bema noted that:
112. … it may be of benefit in the future for the Commission to clarify what matters it
considers to be within the scope of a GTA versus a generic proceeding to avoid
unnecessary costs and efforts of addressing those matters in a GTA in the future.481
449. Bema stated that if the Commission were to consider that changes to the current approved
depreciation and salvage collection approaches are warranted, the Commission should “consider
commencing a generic depreciation proceeding to assess the merits of the current and alternative
approaches to collection of both salvage and depreciation.”482 As argued by the CCA, the only
reasonable option available to the Commission in this proceeding would be to approve a
reduction to the currently approved net salvage rates: all other options should either be
considered in a generic proceeding or in the ISO’s tariff application.483
477 Exhibit 23848-X0335, CCA reply argument, paragraph 14, PDF pages 7-8. 478 Exhibit 23848-X0332, AML argument, paragraph 176, PDF page 62. 479 Decision 20272-D01-2016, paragraph 354, PDF page 83. 480 Exhibit 23848-X0269, Written evidence of Bema, Part I, paragraph 85, PDF page 24. 481 Exhibit 23848-X0269, Written evidence of Bema, Part I, paragraph 112, PDF page 32. 482 Exhibit 23848-X0269, Written evidence of Bema, Part I, paragraph 48, PDF page 13. 483 Exhibit 23848-X0333, CCA argument, paragraph 184, PDF page 70.
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450. Both AltaLink and the UCA’s expert witnesses, Mr. Bowman and Ms. Lee, argued that
AltaLink’s proposed net salvage method is appropriate to adopt as part of the current GTA, and
need not be the basis for any new generic proceeding. AltaLink and the UCA considered that
Bulletin 2016-16 principles484 highlighted why AltaLink’s proposal could be addressed as part of
the current proceeding.485
451. AltaLink also pointed to paragraph 357 of Decision 20272-D01-2016, which stated with
respect to a generic proceeding, that “[t]he Commission will advise parties in due course should
it determine such a proceeding to be necessary and in the public interest.”486 In AltaLink’s view,
no such advice has been forthcoming from the Commission. AltaLink summarized its position
that:
177. The history of rate levelization proceedings and the specific directions and steps
undertaken by AltaLink are outlined above. AltaLink has complied with the
Commission’s specific direction, honoured commitments made in the 2017-2018
negotiated settlement agreement, and negotiated with and reached agreement on the New
Salvage Methodology with sophisticated parties representing diverse interests. Yet the
recommendation of the CCA, as the only party opposing the New Salvage Methodology,
is simply to delay and punt the matter to some sort of a generic proceeding. History in
this case matters and a long road has been travelled to get to the point that all parties are
at now. The CCA’s suggestion of a generic proceeding is also vague to the point of
immateriality. Mr. Madsen stated that he was only recommending a generic proceeding
“to the extent that the Commission deems one is necessary to consider a proposal such as
AltaLink’s.”487 [footnote omitted]
452. With respect to any perceived requirement on the part of the CCA for consistency in
regulatory cost recovery methodologies, AltaLink argued that there is no requirement for
identical rate treatment of different utilities, and no factual commonality to link them together.
AltaLink concluded that, “[a] generic proceeding would be pointless.”488
Commission findings
453. The Commission advises parties that Section 6 of this decision contains a dissent with
respect to the majority’s findings on AltaLink’s salvage proposal.
Efficiency and equity in an intertemporal setting
454. AltaLink’s net salvage proposal has focused a bright light on the manner in which the
Commission undertakes an evaluation of proposals or projects that involve intertemporal choice
and, typically intertemporal choice under uncertainty. Intertemporal choice, which focuses on
decisions involving trade-offs among the costs and benefits that arise at different times, can
484 Bulletin 2016-16, PDF page 12: “… alternative approaches and rate treatments to mitigate or smooth the impact
on consumer rates will be considered on a case-by-case basis, from time to time, in the context of
comprehensive tariff applications.…” 485 Exhibit 23848-X0276, Evidence of P. Bowman and P. Lee of behalf of the UCA, PDF page 9; and Exhibit
23848-X0300, AML rebuttal, paragraph 63, PDF page 18. 486 Decision 20272-D01-2016, paragraph 357, PDF page 84. 487 Exhibit 23848-X0332, AML argument, paragraph 177, PDF page 63. 488 Exhibit 23848-X0332, AML argument, paragraphs 178-179, PDF page 63.
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occur within a generation (intragenerational choice) and across generations (intergenerational
choice).
455. In general, the Commission’s decisions are permeated by concepts of equity and
efficiency. Defining the public interest and determining what constitutes efficient and open
competition are examples of the application of these concepts. When faced with a determination
of what is equitable, a difficult task at the best of times, the Commission is faced with competing
core values or world views among the parties to a proceeding. In such circumstances, the
Commission is answering a question focused on what ought to be done, given its legislative
mandate, which involves the adoption of a normative methodological view point when
determining the equitable outcome. Put simply, the Commission must consider what is right and
wrong, desirable or undesirable, just or unjust in the context of its overall mandate to consider
the social, economic and environmental implications of a proposal.
456. Efficiency also can be viewed through a normative lens. For example, one can argue that
competitive markets yield outcomes that are efficient but not fair, while others might argue that
efficient outcomes are the very definition of fair and equitable. Normative values, then, are
important concepts to be considered in the Commission’s determination of what is in the public
interest, be it efficiency or equity. In other words, one simply cannot avoid or ignore normative
concepts in many regulatory settings.
457. The principles of ratemaking articulated in Bonbright et al.489 identify that efficiency is
not the only concept or principle to be considered in ensuring rates are set in the public interest.
Nonetheless, Bonbright et al. argue that efficiency, as a principle to pursue, might be first among
equals, so to speak. The Commission agrees that there may be circumstances in which efficient
outcomes may be dominated by other outcomes derived from other principles, including
principles of equity, when decisions are made in a regulatory setting. That is, both efficiency and
equity have roles to play in determining the public interest; outcomes need not always be
efficient. It is also possible that considerations of equity help to rank efficient outcomes; that is,
there is not always a trade-off between efficiency and equity.
458. The concepts of efficiency and equity also can be extended to evaluating intertemporal
choice problems involving intragenerational or intergenerational time frames. Decisions that
involve intergenerational transfers of benefits and costs need to be examined carefully, just as the
transfer of costs and benefits in an intragenerational setting is examined carefully, to ensure the
public interest is served. It is because the objective of the Commission is to protect the social,
economic and environmental interests of Albertans when markets do not, that the Commission
meticulously examined AltaLink’s net salvage proposal. It is unclear in this setting of
intertemporal choice that markets will protect those interests.
459. The Commission’s stated objective to protect the social, economic and environmental
interests of Albertans when markets do not, recognizes the important role to be played by
efficiency in determining the public interest. For example, when certain agents within a market,
either producers or consumers, have market power, then it is possible that market outcomes in
489 Principles of Public Utility Rates, Bonbright, J.C., Danielson, A.L. and Kamerschen, D.R., Public Utilities
Reports, Subsequent edition (March 1, 1988).
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this setting produce outcomes that are inefficient. Such outcomes often are deemed to be not in
the public interest because they are not efficient.
460. The extensive economics literature focused on these types of issues has coined these
types of circumstances as examples of market failure. Markets work in that products may be
produced, priced and traded but they are failing to deliver outcomes that are efficient. Under
such circumstances, the regulator is often charged with protecting the public interest because
markets do not.
461. It can be argued that markets work to satisfy the preferences of consumers subject to such
things as technologies, resources, knowledge and incomes. The driving force for why many
people consider that competitive markets are the best manner in which to organize the production
and consumption decisions of our economy is related to the fact that consumer preferences drive
the ultimate outcomes that emerge from those competitive markets. It is this property that
ultimately compels competitive markets to yield efficient outcomes. In the case of intertemporal
decision-making involving things like long-lived assets or finite natural resources, agents from a
future generation cannot physically enter current markets and register their preferences. This
inability of future ratepayers, for example, to represent their preferences in current decision-
making may represent a type of market failure. If this is true, just as in the intragenerational
setting of market failure, there may be a role for the regulator to play in mitigating the potential
harm associated with such a failure.
462. As the preceding sections indicate, the evidence before the Commission with respect to
AltaLink’s proposed net salvage methodology encompasses complicated and often conflicting
ideologies with respect to the interrelationship between the costs of utility assets and the equity
with which, and the timing of when, the costs of those assets become the responsibility of a
given generation of ratepayers.
463. AltaLink submitted that, in the current proceeding, its proposed net salvage method fell
under a very specific set of circumstances – that the proposed net salvage methodology provided
tariff relief to current ratepayers; allowed AltaLink to achieve its flat-for-five commitment,
which was premised on improving credit metrics over time (beyond the current desired
FFO/Debt ratio of 11.1 per cent); and lastly, was proposed at this time because AltaLink is
financially able to do so now without risk to its A level credit rating.
464. However, while the timing of such a proposal may be optimal from AltaLink’s point of
view, the Commission considers that AltaLink’s proposed net salvage method, in this
proceeding, has brought complex depreciation, intertemporal choice and intergenerational equity
issues to the forefront.
465. These issues are often presented or examined under regulatory practices, principles and
policies, as evidenced by the propositions articulated by the Commission earlier in this decision,
each of which is worthy in its own right of further examination.
466. For example, the Commission sought an understanding of what constitutes
intergenerational equity from the parities in this proceeding and whether or not the focus in the
determination of what constitutes intergenerational equity should be on the correction of current
inequities or the creation of future inequities. This is important because it is not clear from the
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evidence whether it is possible or warranted to correct or mitigate current inequities without
creating similar or worse intergenerational inequities in the future.
467. Another example is found in the discussions directed at the meaning, nature and methods
to be used for considering intertemporal choice problems. This included a discussion of issues
surrounding the methods to be used to accomplish intertemporal cost-benefit analysis, an
example of which is an analysis of the present discounted value of cash flows. Consideration of
the proper manner in which to calculate the present discounted value led parties to a
consideration of the proper discount rate to be used in this method of evaluating intertemporal
choice problems. This meant parties needed to contemplate whether or not interest rates
determined in current markets should be used to reflect the intertemporal time preferences of
those who do not participate in those credit markets; i.e., whether current market rates be used.
These types of questions naturally led to a consideration of the what constitutes a proper social
discount rate and whether or not decision-making that involves the public interest should employ
declining interest rates when considering the optimal use of long-lived assets.
468. There were clear, well-argued differences of opinion regarding these and other issues, but
the issues are interrelated and complex. The resolution of these complex depreciation,
intertemporal choice and intergenerational equity issues has far-reaching and substantial
implications for affected parties in this proceeding, but also for all stakeholders in Alberta’s
electric industry.
469. In Bulletin 2016-16, the Commission provided its final determinations on an initiative to
examine alternative approaches and rate treatments that might mitigate or smooth the impact on
consumers of rate or bill increases, while ensuring regulated utilities continue to have an
opportunity to earn a fair return on capital. The Commission concluded that alternative
approaches and rate treatments to mitigate or smooth the effect on consumer rates will be
considered on a case-by-case basis, from time to time, in the context of comprehensive tariff
applications.
470. In this GTA, AltaLink has applied for a substantial change to its method for collecting net
salvage in order to, in part, mitigate rate effects on current customers.
471. The requested change is substantial, in the sense that it will materially reduce AltaLink’s
revenue requirement in the forecast period and, therefore, materially benefit existing customers.
However, it also defers payment of these salvage costs to future customers, who will be bound
by the decisions made by this panel.
472. The requested change is also substantial, in the sense that the proposal tests the
(re)definition and relative (re)weighing of a number of fundamental rate regulation principles,
such as the principles of cost causation, intergenerational equity, gradualism, moderation, price
signals, and the time value of money. In the Commission’s view, it is difficult to develop a
cogent framework to approve AltaLink’s salvage proposal in the circumstances, without first
having a broader general discussion with utilities and ratepayers regarding the definition and
relative weighing of these principles. This is because all parties have an interest in how the
Commission interprets and applies these regulatory principles, and require an opportunity to
comment on proposed changes that may significantly impact other utilities and other customer
groups.
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473. Thus, while AltaLink’s request for approval of its proposed net salvage methodology was
subject to rigorous testing in the current proceeding, because AltaLink’s proposal represents a
major shift to a key component of revenue requirement that affects ratepayers, and because
AltaLink’s proposal raises complex issues that are subject to divergent philosophical and
technical views, the findings of which can have material effects on other Alberta-regulated
utilities, the Commission considers that further exploration of certain issues is required. For these
reasons, the Commission declines to approve AltaLink’s proposed net salvage methodology at
this time as it would be unfair to grant a change of this magnitude without a more complete
review that would involve a larger participation of utilities in Alberta and ratepayers
representatives.
474. The Commission considers that AltaLink’s proposed net salvage method should be part
of a bigger-picture examination best undertaken in a Commission-initiated generic proceeding.
475. Accordingly, the Commission is initiating a generic proceeding, by May 15, 2020, to
examine specific depreciation-related issues, including salvage practices and costs. Guidelines
regarding the scope of this generic proceeding will be laid out in a bulletin to be issued on or
before May 15, 2020.
476. The parties to this proceeding will be pre-registered as participants in the generic.
477. Given the findings above, the Commission denies the UCA’s three recommendations490
with respect to its proposed bounds on AltaLink’s proposed net salvage method.
478. Further, in the absence of accepting AltaLink’s proposed net salvage method, the
Commission, in the following section, examines the traditional net salvage study submitted by
AltaLink within its 2018 Depreciation Study.
4.5.2 Net salvage per cents proposed in the Concentric depreciation study
479. Within AltaLink’s 2018 Depreciation Study,491 Mr. Kennedy submitted a traditional net
salvage study that identified, by uniform system of account (USA), the specific net salvage per
cents proposed to be updated. The traditional net salvage per cent study and the recommended
per cents contained therein were matters excluded from the NSA.
480. In the event that the Commission were to deny AltaLink’s proposed net salvage method,
AltaLink proposed that it would seek approval for the net salvage per cents put forth by
Mr. Kennedy in the applicable portions of AltaLink’s 2018 Depreciation Study. AltaLink stated
that in order to maintain just and reasonable rates, it would be necessary to update salvage per
cents to reflect the latest actual cost data.492
481. Mr. Kennedy proposed changes to net salvage per cents for seven of AltaLink’s nine
transmission plant accounts. These nine accounts included two newly created subaccounts,
which were proposed to adopt the same net salvage per cents as the main account to which they
were most closely related. This is because there was limited, if any, historical information from
490 Exhibit 23848-X0329, UCA argument, recommendations 3-5 at paragraphs 50, 52 and 55, PDF pages 13-15. 491 Exhibit 23848-X0011.01, PDF page 3 stated AltaLink’s 2018 Depreciation Study developed depreciation
accrual rates based on plant in service as of December 31, 2017. 492 Exhibit 23848-X0332, AML argument, paragraph 185, PDF page 65.
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which to draw recommendations for the two new accounts. Thus, Mr. Kennedy requested that
the net salvage per cents proposed for USA 353 – Transmission Station Equipment (-25 per cent)
and USA 355 – Transmission Poles and Fixtures (-65 per cent) also apply to USA 353.01 –
Transmission Station Equipment – HVDC and USA 355.01 – Transmission Poles and Fixtures
(steel poles), respectively.
482. Mr. Kennedy’s recommendations for the remaining seven accounts were based on the
results of the traditional net salvage study and the general trends, which, according to
Mr. Kennedy, indicated that more negative net salvage per cents were required.
483. With the exception of USA 356 – Transmission OH Conductors and Devices,
Mr. Kennedy provided the same basis of analysis, which included a consideration of the concepts
of gradualism and moderation. As an example, for USA 353 – Transmission Station Equipment,
Mr. Kennedy’s net salvage analysis consisted of:
The updated net salvage study, included in Section 7 of this report, indicates the trend to
much more negative net salvage percentages. In fact, over the most recent two historic-
years of actual data, the cost of removal percentages has indicated percentages more
negative than -100%. The overall average cost of removal has been -44%, with the most
recent five-year average indicating -82%, and each of the last eight three-year rolling
averages exceeding -20%. As such, based on a traditional net salvage analysis,
Concentric recommends a net salvage percentage of -25% for this account, after
considering the concepts of gradualism and moderation. AltaLink is undertaking an
internal review of the way future costs of retirement and removal of assets will be funded.
Pending the completion of this review, the depreciation rate calculations in this report
have been based on the net salvage percentages approved by AUC Decision 3524-D01-
2016. Therefore, a net salvage percentage of -20% has been used in the depreciation rate
calculations within this report.493
484. With respect to USA 356 – Transmission OH Conductors and Devices, Mr. Kennedy
provided a similar analysis, but did not state that he had considered the concepts of gradualism
and moderation in his recommendations.
Views of the parties
485. Assuming that the traditional approach to net salvage is maintained, Mr. Bowman and
Ms. Lee, on behalf of the UCA, proposed, generally, to maintain AltaLink’s approved net
salvage per cents for its transmission accounts with the following exceptions.
486. First, Mr. Bowman and Ms. Lee were prepared to accept Mr. Kennedy’s recommended
revision to -5 per cent net salvage for USA 352 – Transmission Structures and Improvements.
The revision was based on a corrected and updated analysis applying a reduced weighting to a
large gross salvage amount in 2014 that Mr. Kennedy viewed as otherwise skewing the results
towards a more negative net salvage per cent.
487. Second, Mr. Bowman and Ms. Lee recommended decreases in the net salvage per cents
from those proposed by Mr. Kennedy. As discussed earlier, Mr. Kennedy proposed a -25 per
493 Exhibit 23848-X0011.01, Appendix 8, Depreciation Study, PDF page 14.
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cent net salvage for each of USA 353 – Transmission Station Equipment and USA 353.01 –
Transmission Station Equipment – HVDC, the latter of which is a newly created account.494
488. The UCA’s recommendations, based on the evidence of Mr. Bowman and Ms. Lee, cited
a low quality of information with respect to the high levels of increases noted in the net salvage
study, which they argued support their recommendation for USA 353 – Transmission Station
Equipment, to maintain its current net salvage of -20 per cent.
489. Mr. Bowman and Ms. Lee also noted there was limited historical retirement data for
USA 353.01 – Transmission Station Equipment – HVDC, and thus examined net salvage rates
recently approved for ATCO Electric Transmission in Decision 20272-D01-2016, which
indicated -15 per cent for both AC and HVDC assets. For this reason, Mr. Bowman and Ms. Lee
stated it was preferable that USA 353.01 – Transmission Station Equipment – HVDC, adopt the
established ATCO Electric Transmission benchmark of -15 per cent as opposed to the -25 per
cent proposed by Mr. Kennedy.
490. For the remaining accounts, Mr. Bowman and Ms. Lee recommended that the
Commission disregard the results of the Concentric net salvage study, specifically where it was
reporting “large increases to net salvage costs as a basis for net salvage percentages changes”495
and maintain the existing net salvage per cents.
491. Bema, on behalf of the CCA, recommended that the Commission deny any request by
AltaLink to increase its net salvage rates, should the Commission deny AltaLink’s proposed net
salvage method. Bema further recommended that AltaLink also be directed to provide a “detailed
business case as part of its next GTA explaining why AltaLink’s approach to salvaging various
assets is the most cost-effective approach having regard for all possible alternatives available
from a legal, regulatory, safety and environmental perspective.”496
492. Bema also recommended that the Commission consider that a long-term model is
necessary to support AltaLink’s costs in future GTAs because such a model would better assess
the impacts of certain proposals. Bema was interested in the prospect of AltaLink further
explaining what efforts and costs would be required to extrapolate existing plans or prepare a
longer-term plan covering a period of 50 years, or the estimated life of AltaLink’s assets,
whichever is greater.497
493. As support for its recommendation that AltaLink maintain its approved net salvage per
cents, the CCA referred to AltaLink’s statement that estimated future net salvage costs “are not
known with certainty”498 and AltaLink’s assertion that there was a lack of any correlation
between the increase in salvage costs during the large capital build and the need for higher
salvage costs in the future. This, in addition to AltaLink’s statement that, “compared to the big
494 Exhibit 23848-X0276, Evidence of P. Bowman and P. Lee of behalf of the UCA, PDF pages 17-18. 495 Exhibit 23848-X0329, UCA argument, paragraph 73, PDF page 20. 496 Exhibit 23848-X0333, CCA argument, paragraph 195, PDF page 74. 497 Exhibit 23848-X0333, CCA argument, paragraphs 169-178, PDF pages 65-68, 498 Exhibit 23848-X0002.02, AML application, paragraph 524, PDF page 184.
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build, yes, we see less salvage costs going forward, as we’ve forecast in the GTA,”499 confirmed
to the CCA that there is no need for an increase in net salvage per cents in the test period.500
494. AltaLink’s and the UCA’s recommendations have been summarized in the following
table:
Table 13. Summary of AltaLink approved and recommended net salvage per cents
Transmission plant
Proceeding 21341 AltaLink
approved
Proceeding 23848 AltaLink
recommended
Proceeding 23848 UCA
recommended
(%)
352.00 Structures & Improvements -10 -5 -5
353.00 Station Equipment -20 -25 -20
353.01 Station Equipment - HVDC (new account) n/a -25 -15
353.10 System Communication & Control -10 -20 -10
354.00 Towers & Fixtures -17 -20 -17
354.01 Towers & Fixtures (502.2 compliant) -17 -20 -17
355.00 Poles & Fixtures -53 -65 -53
355.01 Poles & Fixtures (steel poles) (new account) n/a -65 -53
356.00 OH Conductors & Devices -29 -35 -29
Source: AltaLink approved and recommended: Exhibit 23848-X0002.02, application, Table 6.4.4-1, PDF pages 192-193. Note that USA 352 – Transmission Structures and Improvements was originally proposed at -10 per cent, but in Exhibit 23848-X0298, AML rebuttal of Larry Kennedy, PDF page 7, Mr. Kennedy updated the recommendation for this account to a net salvage of -5 per cent. UCA recommended: Exhibit 23848-X0276, Evidence of Bowman and Lee, PDF pages 16-18 and Exhibit 23848-X0329, UCA argument, paragraph 80, PDF page 22, UCA accepts AML revised proposal of -5 per cent for USA 352 – Transmission structures and improvements.
Commission findings
495. With respect to AltaLink’s transmission plant accounts, the Commission finds the net
salvage related analysis provided by Mr. Kennedy to be of limited value.
496. In the reference to Mr. Kennedy’s written testimony quoted in paragraph 483 above, it
appears that the prospect of the Commission accepting AltaLink’s net salvage proposal may have
hampered a more robust analysis of the specific circumstances for which an increase in net
salvage per cent for a given account should be accepted. The paucity of analysis regarding
AltaLink’s net salvage per cent proposals is of concern to the Commission. The analysis
provided does not achieve the level of independent expert evidence generally provided by
Concentric. The Commission considers that there must be factors beyond a simple mathematical
exercise showing general upward trending of the ratios of costs of retirement over retirements to
support any recommended increases. This is particularly relevant given the comments of
AltaLink, which indicated that in the absence of another big build as was experienced recently in
Alberta, net salvage costs should decrease in the future.501 Intuitively, any trending of the net
salvage ratios observed in the traditional net salvage study may begin to move in the opposite
direction.
497. In considering peer information provided by Mr. Kennedy in response to a CCA IR,502 the
Commission was unable to reconcile the “current” net salvage per cent information provided by
499 Transcript, Volume 1, page 32, lines 3-5. 500 Exhibit 23848-X0333, CCA argument, paragraphs 195-199, PDF pages 74-75. 501 Transcript, Volume 1, page 31, line 24 to page 32, line 5. 502 Exhibit 23848-X0103, AML-CCA-2018OCT31-065 Attachment.
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Mr. Kennedy in this proceeding, which calls into question the veracity of the peer information
contained therein. In relying on the evidence submitted in this proceeding, the Commission has
been unable to consider a peer comparison in its finding.
498. Based on the above, the Commission denies AltaLink’s proposed increases in negative
net salvage per cents for its transmission plant accounts and directs AltaLink to revert to its
currently approved net salvage per cents, subject to the specific directions below for USA
accounts 352, 353.01 and 355.01.
USA 352 – Transmission Structures and Improvements
499. Specific to USA 352 – Transmission Structures and Improvements, the Commission
agrees with Mr. Kennedy’s corrected evidence that the large gross salvage amount in 2014
should be afforded less weight in the determination of the proposed net salvage per cent. For this
reason, the Commission finds AltaLink’s recommended -5 per cent net salvage to be reasonable
at this time.
500. AltaLink is directed to implement a net salvage of -5 per cent for USA 352 –
Transmission Structures and Improvements in its compliance filing to this decision.
USA 353.01 – Transmission Station Equipment – HVDC
501. For USA 353.01 – Transmission Station Equipment – HVDC, the Commission is not
prepared to direct AltaLink’s to adopt the net salvage parameters of those approved for use by
ATCO Electric Transmission, as was proposed by the UCA.
502. Instead, the Commission considers that in the absence of reasonable historical data for
USA 353.01 – Transmission Station Equipment – HVDC, the only viable alternative is to rely on
the net salvage per cents from AltaLink’s similar-type assets: in this case, AltaLink’s approved
net salvage per cent for USA 353 – Transmission Station Equipment.
503. The Commission directs AltaLink to adopt, for USA 353.01 – Transmission Station
Equipment – HVDC, the same net salvage -20 per cent that the Commission approved earlier in
this decision, for USA 353 – Transmission Station Equipment. AltaLink is directed to
incorporate this net salvage per cent in its compliance filing to this decision.
USA 355.01 – Transmission Poles and Fixtures (steel poles)
504. Specific to USA 355.01 – Transmission Poles and Fixtures (steel poles), which is a newly
created subaccount, the Commission directs AltaLink, in its compliance filing, to adopt a net
salvage per cent of -53 per cent, on the basis that this per cent is consistent with the currently
approved net salvage per cent of the similar USA 355 – Transmission Poles and Fixtures.
505. The Commission has summarized the net salvage per cents approved by the Commission
in this decision as follows:
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Table 14. Summary of the net salvage per cents recommended and approved in this decision
Transmission plant
Proceeding 21341 AltaLink
approved
Proceeding 23848 AltaLink
recommended
Proceeding 23848 AltaLink
approved
(%)
352.00 Structures & Improvements -10 -5 -5
353.00 Station Equipment -20 -25 -20
353.01 Station Equipment - HVDC n/a -25 -20
353.10 System Communication & Control -10 -20 -10
354.00 Towers & Fixtures -17 -20 -17
354.01 Towers & Fixtures (502.2 compliant) -17 -20 -17
355.00 Poles & Fixtures -53 -65 -53
355.01 Poles & Fixtures (steel poles) n/a -65 -53
356.00 OH Conductors & Devices -29 -35 -29
Source: AltaLink approved and recommended: Exhibit 23848-X0002.02, application, Table 6.4.4-1, PDF pages 192-193. Note that USA 352 – Transmission Structures and Improvements was originally proposed at -10 per cent, but in Exhibit 23848-X0298, AML rebuttal of Larry Kennedy, PDF page 7, Mr. Kennedy updated the recommendation for this account to a net salvage of -5 per cent.
506. With respect to the CCA’s recommendation that AltaLink also be directed to provide
more detailed information with respect to its salvage practices and longer-term financial models
and forecasts in its next GTA, the Commission makes no finding as this discussion is outside the
scope of the current proceeding.
4.5.3 Asset retirements at age-interval zero
507. As indicated earlier in this decision, parties agreed that asset retirements at age-interval
zero was a matter excluded from the NSA:503
Parties agree that Appendix 8A – Account 354.00: Towers and Fixtures Interval –
Retirements During Age Interval 0 amounts shall be the subject of an application before
the Commission. AltaLink has filed an explanatory letter from Larry Kennedy,10 an
updated depreciation study,11 and an updated response to AML-UCA-2018OCT31-111;12 __________________ 10 Exhibit 23848-X0202, AML 2019-2021 GTA Update NSA - Depreciation and Line Clearance
Mitigation, pdf p. 2 (July 8, 2019). 11 Exhibit 23848-X0011.01, AML 2019-2021 GTA - Appendix 08 Updated NSA (Depreciation)
Blackline, pdf p. 2 (July 8, 2019). 12 Exhibit 23848-X0077.01, AML IR Responses to UCA (1-131) Updated NSA Blackline, pdf
pp. 153-154 (July 8, 2019).
508. As a result, this issue was examined further during the oral hearing.
509. Through a series of IR responses504 and oral testimony, AltaLink explained the series of
events leading it to record the retirement of the excess materials stemming from the WATL
project as an asset retirement at age-interval zero:
(i) AltaLink stated its normal practice with respect to excess inventory is to capitalize
any excess to the capital project to which it relates. Under that practice, AltaLink
503 Exhibit 23848-X0204.01, NSA, paragraph 24, PDF page 5. 504 Exhibit 23848-X0077.01, AML‐UCA‐2018OCT31‐111 (amended), PDF pages 153-154; Exhibit 23848-X0231,
AML-AUC-2019JUL19-002, PDF pages 3-8; Exhibit 23848-X0234, AML-UCA-2019JUL19-011, PDF pages
18-22; and Exhibit 23848-X0276, Evidence of P. Bowman and P. Lee of behalf of the UCA, PDF pages 18-20.
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capitalized an amount of “$5,960,908 comprised of costs for materials that were
reasonably required for the efficient construction of the … WATL project when
procured but as the circumstances unfolded were remaining materials from the
project.”505
(ii) The delivery of excess tower steel material in the amount of $0.7 million was
thought to have been destroyed by a fire on a shipping vessel, and the material
was repurchased. According to the practice described above, an amount of
$0.7 million was included in the total capitalized amount of $5.9 million.506 507
(iii) The excess tower steel material (on the shipping vessel) was ultimately delivered
after the completion of the tower assembly and erection of the transmission line.508
(iv) The approximate total cost of the WATL project was $1.8 billion and the
$5.9 million of excess material represented less than five per cent of the total
tower steel and hardware ordered to support the construction of the transmission
line project.509
(v) Based on AltaLink’s “honest mistake” as to the value of excess tower steel
material that was on the shipping vessel, a “good faith” decision was made to
retire the entire $5.9 million value of the tower steel, 510 and thus, it was
subsequently incorporated into the actuarial data in the depreciation study as an
age-interval zero retirement.511
510. In rebuttal evidence, AltaLink summarized that:
113. The correct facts are that of the WATL tower excess materials of $5,941k, only
$728k of materials related to a fire on a shipping vessel. These excess materials were
purchased at the time of construction with a reasonable expectation to be used to
complete the project and were directly attributable to the WATL project. These materials
were never destroyed and in fact were delivered to AltaLink.512 [footnote omitted]
511. AltaLink further stated that “whether the costs are capitalized and included in the
depreciation accounts or included as a project costs, the amounts will be recovered from
ratepayers over the life of the project.”513 In future, however, AltaLink would “continue with its
normal course of practice of capitalizing surplus material as a project cost and will not include
excess material as an interval zero retirement in its depreciation studies.”514
512. AltaLink and Mr. Kennedy gave assurances that any effect on the average service lives
for USA 354 – Transmission Towers and Fixtures, stemming from including the age-interval
505 Exhibit 23848-X0077.01, AML‐UCA‐2018OCT31‐111 (amended), PDF pages 153-154. 506 Exhibit 23848-X0077.01, AML‐UCA‐2018OCT31‐111 (amended), PDF pages 153-154. 507 Exhibit 23848-X0231, AML-AUC-2019JUL002(g), PDF page 7. 508 Exhibit 23848-X0231, AML-AUC-2019JUL002(g), PDF page 7. 509 Exhibit 23848-X0231, AML-AUC-2019JUL002(i), PDF pages 7-8. 510 Exhibit 23848-X0332, AML argument, paragraph 313. 511 Exhibit 23848-X0332, AML argument, paragraph 315. 512 Exhibit 23848-X0300, AML rebuttal evidence, paragraph 113, PDF page 27. 513 Exhibit 23848-X0332, AML argument, paragraph 318, PDF page 104. 514 Proceeding 24681, Exhibit 24681-X0595, AML-AUC-2019SEP05-020(b), PDF page 49.
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zero retirement in the depreciation study, would be negligible as retirements at that interval are
given little weight for Iowa curve fitting and service life purposes. AltaLink summarized in reply
argument that it “will correct the regulatory account of the $5.941 million of surplus tower steel,
removing it from interval year zero in its depreciation study and capitalizing it instead.”515
513. AltaLink argued that the accounting treatment of the costs does not change the fact that
the costs were prudently incurred nor does it alter AltaLink’s right to a reasonable opportunity to
recover them.
514. In arriving at its recommendation that AltaLink be directed to record “an adjustment to
the accumulated depreciation balance for Account 354 for $5,960,908, offset to the account of
the shareholder,”516 Mr. Bowman and Ms. Lee applied the following three tests:517
1) Were the amounts prudently spent?
2) If the amounts were prudently spent, are the amounts capital in nature?
a. Do the amounts represent a Unit of Property?
b. Does the Unit of Property meet the tests for capitalization?
3) If the amounts are capital in nature, were they in fact disposed of by forces of
retirement?
515. With respect to test (1), Mr. Bowman and Ms. Lee did not take issue with the prudence of
the incurred costs. In relation to test (2), however, they did not consider that the retirement costs
were capital in nature because they were never used by the utility in its electric utility operations,
and did not have an expectation of a service life beyond one year from the date of installation.
Further, Mr. Bowman and Ms. Lee stated that:
90. … the associated costs could never be capitalized for depreciation over the associated
life until disposed of (test 3), not only because the towers were never in service, but also
because the resulting disposals are not driven by any identified force of retirement
eligible for depreciation accounting.518
516. Mr. Bowman and Ms. Lee also examined AltaLink’s statement asserting that the Uniform
System of Accounts specifically provides for unused materials.519 Mr. Bowman and Ms. Lee
submitted that:
While AML relies upon the phrase “… proper allowance shall be made for unused
materials and supplies …” it is not clear that this section intends the outcome suggested
by AML (and in fact, may require the opposite). It is noted that the section in question
does list a number of permissible factors that can raise the cost of a capital project
(e.g., duties, excise taxes, inspections, loading and transportation etc.), while the item in
question highlighted by AML is included in a sentence on costs presumably not eligible
for inclusion in capital cost, or required to be included as positive offsets (i.e., to lower
the cost to ratepayers), namely materials recovered from temporary structures, and
discounts from suppliers.
515 Exhibit 23848-X0337, AML reply argument, paragraph 45, PDF page 18. 516 Exhibit 23848-X0329, UCA argument, paragraph 83, PDF page 23. 517 Exhibit 23848-X0329, UCA argument, paragraph 88, PDF page 27. 518 Exhibit 23848-X0276, Evidence of P. Bowman and P. Lee of behalf of the UCA, PDF page 22. 519 Exhibit 23848-X0234, AML-UCA-2019JUL19-011, PDF pages 19-22
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On a general reading of the document, it would appear that unused materials require a
“proper allowance” to be made in order to ensure ratepayers are not paying for unused
materials that are not providing used and useful service. In short, on a plain reading, the
AML assertion that the above section supports their practice appears flawed.520
517. The UCA argued that the costs in question were never installed as assets, never had an
expected life of more than one year, and were not subject to capital-related forces of retirement.
Therefore, “they are not capital and should not be included in AML’s capital accounts going
forward, in any manner.”521 The UCA recommended that the Commission direct an adjustment of
$5.9 million to the accumulated depreciation balance for USA 354 – Transmission Towers and
Fixtures, offset to the account of the shareholder.522
518. The CCA stated that it supported the recommendations of the UCA. In particular, the
CCA was concerned that AltaLink had not demonstrated prudency in its management of the
excess material given that AltaLink appeared unable to fully explain and justify the reasons for
such a significant amount of excess materials for the WATL project. The CCA agreed that
AltaLink should be directed to remove the excess WATL material costs in the amount of
$5.9 million from the accumulated depreciation balance in USA 354 – Transmission Towers and
Fixtures, and offset that amount to the account of AltaLink’s shareholder.523
Commission findings
519. The Commission agrees that whether AltaLink had capitalized, or capitalized and retired,
the excess material costs, the outcome of AltaLink’s accounting transactions is the same: the
costs are currently positioned to be recovered from ratepayers.
520. The Commission has found the evidence presented by Mr. Bowman and Ms. Lee to be
persuasive, particularly as to whether the materials could have ever met the test for capitalization
under either AltaLink’s capitalization policy or the Uniform System of Accounts provision that
the components of construction costs can include a “proper allowance for unused material and
supplies.”524
521. While AltaLink may have undoubtedly acquired the materials at some point in time for
the WATL project, and accordingly made the purchase as a practical course of action, the
question remains why there was not better management of approximately $6 million worth of
inventory, particularly as it relates to AltaLink’s assertion that the WATL project required
specialized material that could not be used elsewhere. In the Commission’s view, the specialized
nature of the WATL project and its components implies that more care should be taken with
respect to procurement practices for such a project. Incurring these costs was entirely under the
control of AltaLink’s management.
522. When questioned by the Commission as to how AltaLink decides how much inventory
will end up as surplus, AltaLink witness, Mr. Fedorchuk, responded that “it’s not an exact
science…. We will have excess materials on every project we construct. The magnitude of that
520 Exhibit 23848-X0276, Evidence of P. Bowman and P. Lee of behalf of the UCA, PDF page 24. 521 Exhibit 23848-X0339, UCA reply argument, paragraph 33, PDF page 8. 522 Exhibit 23848-X0339, UCA reply argument, paragraph 83, PDF page 23. 523 Exhibit 23848-X0333, CCA argument, paragraphs 206-210, PDF pages 77-78. 524 Uniform System of Accounts, Electric Plant Instructions, Section 3(3), page 9.
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excess will change by the type of project.”525 As the UCA pointed out, there is some discordance
in AltaLink relying on the Uniform System of Accounts’ provision for a “proper allowance”
made for unused materials and supplies and an allowance for $5.9 million worth of highly
specialized inventory.
523. There is also concern with AltaLink’s statements that while it has assured the
Commission that its normal practice with respect to excess material is to capitalize the related
costs to the project, the fact remains that the material was ultimately scrapped. If the intention
was always for the materials to be scrapped, then the Commission agrees with the UCA that
AltaLink’s actions would not have resulted in the materials meeting any reasonable test for
capitalization.
524. Notwithstanding the concerns raised by the UCA, which the Commission found to be
compelling, the Commission finds that in the case of the WATL project, the $5.9 million in
excess steel to be within an acceptable threshold of materiality. This is because of the total
WATL cost of approximately $1.8 billion, the $5.9 million in excess materials which was
primarily steel, represents less than one-half of one per cent of the project costs, and less than
five per cent of the total tower steel and hardware costs ordered to support the construction of the
WATL project. The Commission denies the recommendation of the UCA to transfer these costs
to the account of the shareholder.
525. Nonetheless, the Commission remains interested in understanding AltaLink’s practice of
capitalizing excess materials beyond the instance of the WATL example. AltaLink is directed at
the time of its next GTA, to provide an update to its capitalization policy detailing its intended
practice in this regard and to include a provision for a threshold, or materiality test, by which
AltaLink proposes to determine what constitutes, as a construction cost, a “proper allowance” for
unused materials and supplies.
5 Order
526. It is hereby ordered that:
(1) The negotiated settlement agreement attached as Appendix 5 to this decision is
approved. AltaLink is to provide a compliance filing in response to the directions
contained in this decision regarding the excluded matters within 45 days of the
issuance of this decision.
525 Transcript, Volume 2, page 312, lines 21-24.
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Dated on April 16, 2020.
Alberta Utilities Commission
(original signed by)
Henry van Egteren
Vice-Chair
(original signed by)
Mark Kolesar
Chair
6 Dissenting opinion of Bill Lyttle
527. I would approve AltaLink’s new net salvage proposal and would direct them to include
the additional recommendations from the UCA. I would allow the proposed dollar amounts for
the new Net Salvage Reserve (NSR) Account for the current GTA, and placeholders for the
future, but would not anchor future additions to the NSR account with the 11.1 per cent
(FFO)/debt floor as proposed by AltaLink. I would not institute a generic depreciation
proceeding at this time to standardize depreciation methodologies for transmission utilities.
528. Historically, in circumstances where the usual regulatory standards constrained the
Commission’s ability to provide a fair and reasonable return to a company, the Commission
looked beyond these standards and approved alternative methodologies to reallocate cash flows
and provide relief. This assisted both companies and ratepayers in the long term.
529. These alternatives are best illustrated by tax methodology changes (future income tax
(FIT) versus flow-through), and by the suspension of the AFUDC during the big build in favour
of CWIP in rate base (Decision 2011-134,526 and Decision 2011-453,527 respectively). These
decisions provided temporary cash-flow assistance to AltaLink and ATCO Electric by increasing
zero cost capital, which kept borrowing costs minimized for ratepayers and did not require the
Commission to approve substantial increases in costly equity returns during the big build. This
AFUDC change was subsequently modified and partially reversed years later at the request of
526 Decision 2011-134: ATCO Electric Ltd., 2011-2012 Phase I Distribution Tariff, 2011-2012 Transmission
Facility Owner Tariff, Proceeding 650, Application 1606228-1, April 13, 2011. 527 Decision 2011-453: AltaLink Management Ltd., 2011-2013 General Tariff Application, Proceeding 1021,
Application 1606895-1, November 18, 2011.
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these companies, and with the approval of the Commission and the normal regulatory standard
was reinstituted.
530. The expected increase in transmission rates to current ratepayers from the big build was
the subject of Proceeding 2421, Alternative approaches and rate treatments to recover electric
transmission related investments, which produced Bulletin 2016-16. Exhibit 2421-X0001,
consisted of a report from the Transmission Cost Recovery Subcommittee dated June 8, 2012.
The executive summary of that report, over seven years ago, highlighted the Government of
Alberta’s concern with the potential cost impact to ratepayers, from the big build, and the
importance of exploring alternative cost recovery measures in the circumstances:
The mandate of the Transmission Cost Recovery Subcommittee (TCRS) was to examine
the potential cost impact of the proposed transmission build in Alberta, and to develop
alternative cost-recovery mechanisms that would minimize near-term rate shock and
would ensure that transmission costs are allocated fairly between current and future
ratepayers.
On February 23, 2012, the Alberta Government released its response to the Critical
Transmission Review Committee Report (CTRC). The Government’s action plan
included the following:
2. Pursue options to reduce the impact to consumers of the cost of transmission
projects. This work will include:
• Developing preliminary transmission cost recovery options by the existing
Transmission Cost Recovery Subcommittee.
• Directing the AUC to conduct a public transmission cost recovery inquiry into
approaches that could mitigate the rate impact of new transmission on
consumers.
• Implementing changes to transmission cost recovery approaches as
appropriate prior to the completion of the Western and Eastern Alberta
Transmission Lines.528
531. In Bulletin 2016-16, the Commission concluded that alternative cost recovery measures
would be considered on a case-by-case basis:
The Commission has determined that it will not, as a policy, adopt either of the rate
mitigation proposals it has considered in this initiative. Rather, alternative approaches
and rate treatments to mitigate or smooth the impact on consumer rates will be considered
on a case-by-case basis, from time to time, in the context of comprehensive tariff
applications. Should parties wish to pursue the alternatives examined in this report or to
pursue other alternatives, a proposal must be brought forward in either an ISO tariff
application, in the case of a rate cap and deferral account mechanism or a similar
proposal, or a TFO general tariff application in the case of depreciation alternatives.529
532. While the energization of the Western and Eastern Alberta Transmission Lines occurred
in December 2015, no alternative approaches to mitigate the impact on current ratepayers has
528 Proceeding 2421, TCRS report – Transmission Cost Recovery Subcommittee Report – June 8, 2012, PDF
page 3. 529 Bulletin 2016-16, page 12.
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been submitted by an applicant in a tariff application until now.530 Also, since the issuance of
Bulletin 2016-16, the issue of the Commission initiating a generic depreciation proceeding has
been raised in several proceedings, but the Commission has not initiated such a process.531 532
533. In the current proceeding, the Commission has been presented with the submission of a
depreciation alternative by a TFO in a GTA. This is consistent with the Commission’s
conclusions in Bulletin 2016-16, and as subsequently directed by the Commission in Decision
3524-D01-2016.
530 AltaLink has previously applied for some accumulated depreciation refund, which was partially approved but
was not a new methodology 531 Decision 2014-347: ENMAX Power Corporation, 2014 Phase I Distribution Tariff Application and 2014-2015
Transmission General Tariff Application, Proceeding 2739, Application 1609784-1, December 16, 2014,
paragraph 642: “The lack of consistency among the utilities in Alberta respecting the synchronization of capital
additions and/or retirements in the development of depreciation rates may be a topic for discussion in a future
generic proceeding related to depreciation.” and paragraph 678: “The lack of consistency among the utilities in
Alberta respecting the various levels of disaggregation of the USA into sub-accounts may be a topic for
discussion in a future generic proceeding related to depreciation.”; Decision 3524-D01-2016, paragraph 313,
“Consideration of a change to the depreciation methodology for AltaLink is a complex matter that cannot be
adequately considered within the confines of a GTA. Accordingly, consideration of a change to the ALG
[average life group] method is beyond the scope of this proceeding.…”; Decision 20272-D01-2016, paragraphs
356-357, respectively, “Several parties in recent proceedings, including the instant one, have recommended that
the Commission initiate a generic depreciation proceeding. The Commission will advise parties in due course
should it determine such a proceeding to be necessary and in the public interest.”; Decision 24753-D01-2020:
ATCO Electric Ltd., Hanna Region Transmission Development Deferral Account Compliance Filing,
Proceeding 24753, paragraph 67, “The CCA’s recommendation for a generic proceeding to address salvage
practices and costs is outside the scope of the current proceeding.” 532 Proceeding 22393, ATCO Electric Transmission, Application for Reconciliation of Hanna Regional
Transmission Development Deferral Account, Exhibit 22393-X0015, AUC letter, Ruling on the Consumers’
Coalition of Alberta’s request for clarification of Commission the ruling regarding participation of the Alberta
Electric System Operator, paragraphs 7-8, respectively, “Notwithstanding the above, the Commission has
determined that it is necessary to address the issue of transmission asset utilization raised by the CCA and how
the corporate and property law principles applied by the courts in the Alberta legislative context as referenced in
the UAD decision may relate. The Commission will be issuing a bulletin shortly to initiate a process to consider
the issue. In the interim, the Commission will continue to process proceedings 22393 and 22542 in accordance
with their respective schedules. In the event that proceedings 22393 and 22542 conclude prior to the conclusion
of the Commission-initiated proceeding, the Commission will put in placeholder amounts for the approved costs
of the assets in those proceedings”; Exhibit 23848-X0162, Commission ruling on CCA motion: Appendix A,
CCA motion Comment Matrix, PDF pages 31-32, “In Decision 2013-417 (the Utility Asset Disposition
decision), the Commission set out the test for determining which assets should be in rate base, in paragraph 326
as follows: ‘In the Commission’s view, assets used in an “operational sense” means assets that are presently
used, reasonably used or likely to be used in the future to provide utility services.’ The issue raised by the CCA
in this series of information requests concerns the utilization of transmission assets. The Commission notes that
this issue was also raised in Proceeding 22542 (AltaLink 2014 Deferral Accounts Reconciliation) and
Proceeding 22393 (ATCO Electric Hanna regional transmission development deferral account). On June 20,
2017, the Commission issued a ruling(2) in those proceedings, which determined that ‘the scope of the deferral
account proceedings should not be extended to consideration of the utilization of the assets for which final cost
approval is sought.’ At the time of the ruling, the Commission anticipated issuing a bulletin to initiate a process
to ‘address the issue of transmission asset utilization raised by the CCA and how the corporate and property law
principles applied by the courts in the Alberta legislative context as referenced in the UAD decision may relate.’
The Commission considers that, similarly, this issue should not be examined within the scope of AltaLink’s
current general tariff application, since it is a matter that is relevant to a number of utilities and parties and
requires an examination of the general parameters set out in paragraph 326. For this reason, the motion of the
CCA is denied, and AltaLink is not required to provide any further response.” (footnotes omitted)
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534. The depreciation alternative presented in the current proceeding addresses the unfair high
cost of transmission to current ratepayers and will reduce rates by $88.2 million in this GTA
period, and this benefit will extend beyond the current GTA. During this time of elevated
extreme stress within the Alberta market, I do not believe a delay of approving this alternative,
nor do I believe that a re-examination of the issues in a generic proceeding, is warranted or in the
public interest. Expeditious rate relief is needed.
535. IPCAA and ADC also supported AltaLink’s proposed net salvage methodology and
agreed it was consistent with the Commission’s conclusion in Bulletin 2016-16 and
subsequently, a generic depreciation proceeding as was suggested by the CCA was not needed.533
536. While AltaLink’s net salvage alternative is a change from its past practice, the issue of
whether salvage should be treated as a retirement or a replacement has been canvassed by parties
and the Commission previously. For example, in Decision 20272-D01-2016, ATCO Electric
Transmission’s 2015-2017 GTA, the Commission’s chair questioned the depreciation witness
Mr. Kennedy, who is AltaLink’s current depreciation witness in this proceeding, on this issue. In
the section of that decision titled “Removal of net salvage (costs of retirement) in rates,” the
Commission highlighted that exchanging, noting:
335. During the oral hearing, the Chair questioned Mr. Kennedy about options for
paying costs of retirement should those costs, in the future, be removed from depreciation
rates to give effect to a policy choice that “customers who are getting the new stuff are
going to have to pay to take the old stuff out.”
537. Additionally, as referenced above, in Decision 3524-D01-2016, AltaLink’s 2015-2016
GTA, the Commission directed AltaLink to indicate whether salvage costs could alternatively be
included as a cost of the replacement asset. The UCA also argued534 that:
Consistent with the consideration of these concerns, in Decision 3524-D01-2016, AML
was directed by the Commission to “indicate why costs assigned to the cost of removal
could not alternatively be included as a cost of the replacement asset.”535
538. Accordingly, I find that not only has AltaLink’s alternative net salvage methodology
been presented as the Commission directed, over seven years ago, but that it is consistent with
methodologies that the Commission has previously alluded to, and was specifically negotiated
with parties in the current proceeding as directed by the Commission, and agreed to during the
negotiated settlement by all parties except the CCA.
539. Currently AltaLink has $208 million in their Accumulated Depreciation - Salvage
Account. During the GTA period, the renamed NSR account will increase to $222.8 million,
illustrating that there is a conservative but substantial pool of zero cost capital already collected
to be applied to salvage costs as they are incurred. This demonstrates the prudency of AltaLink’s
proposal in the circumstances as terminally retired assets will still be expensed against this
reserve.
534 Exhibit 23848-X0329, UCA argument, paragraph 13, PDF page 4, referencing Decision 3524-D01-2016,
paragraph 434. 535 Decision 3524-D01-2016, paragraph 434.
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540. In my view, it is not necessary for this net salvage proposal to be standardized across all
transmission utilities. This finding is supported by Mr. Kennedy’s testimony, in which he stated
that there is room for different approaches, and that different approaches are already employed
across Canada and the United States:
So I think both methods can work if they're properly implemented and put into place, and
I think there's room for alternatives. Like I say, I've recommended alternative methods in
Ontario and the Northwest Territories, in Newfoundland, I've seen alternative methods
that work in the States. So there is room for alternative methods, but they have to be well
thought out, and I find this to be a well thought out and reasonable approach or
alternative.536
541. Any decision made in the current proceeding will not constrain another panel on a
different transmission GTA from taking a different approach, nor would a future panel be
constrained from reversing AltaLink’s proposal. Currently, there is no absolute consistency
between transmission utilities in Alberta; they have different operations that evolve over time
and they structure their ownership, tax methodology, depreciation, salvage and life estimations,
zero cost capital, and the age profiles of their plant in service, and so on, in many ways.537 538
542. As AltaLink witness Mr. Piotto testified during the oral hearing, in response to a question
from the CCA’s counsel as to how AltaLink’s depreciation alternative differs from ATCO
Electric’s:
Mr. Wachowich, maybe as an example, it depends on the circumstances of not only the
environment but also of the specific utility's own circumstances.
So, for instance, AltaLink applied for and got approval to refund equipment rate base it
had collected from its customers over the big build.
ATCO had applied for the same and then changed its mind with respect to going forward
with that and actually amended its application to remove the refunding of equipment rate
base.
I'm not saying that's right, I'm not saying that's wrong; it all depends on the financial
circumstances of the various utilities at the time.
I'm just saying the time for AltaLink is now. Actually I do like the word “sweet spot.”
I think this is the time to do it.539
543. This diversity of methodologies and ability for utilities to craft solutions for their own
situations underpins the versatile strength of the Alberta regulatory system. Solutions can and
should be modelled to maximize the efficiency of outcomes for strong and weak cash-flow
opportunities for different corporations, and minimize debt costs to ratepayers while awarding
utilities a fair and reasonable return. As discussed earlier in paragraph 446 of this decision, a
consistent application of normalized standards may conceptually sound fair to utilities and the
CCA, but only if their operations and outputs are similar. Forcing a normalized standard onto a
536 Transcript, Volume 1, page 176. 537 Exhibit 23848-X0332, AML argument, paragraph 178, PDF page 63. 538 Transcript, Volume 1, pages 172-173 539 Transcript, Volume 1, pages 172-173.
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dynamic regulatory structure will only create anomalies and cause inefficient outcomes for
ratepayers and utilities, and constrain future panels when unique problems present themselves.
The tax methodology standards debate that has existed for decades in the regulatory world is an
example where prescribing consistency may constrain panels’ options when cash-flow issues
require a more flexible view of circumstances.
544. Additionally, when a unique solution is found for one transmission utility, this creates a
unique price signal stemming from accelerated or decelerated cash flow. That uniqueness is
diluted in the price signal as the transmission costs are pooled by the AESO. Therefore,
ratepayers do not face 100 per cent of the price signal from a unique or specific tax or
depreciation methodology.
545. In contrast, a unique price signal is sent to all ratepayers when a specific tax methodology
or a “one AFUDC fits all” or a standardized depreciation methodology is prescribed. This, of
course, typically results from a generic proceeding and effectively constrains future panels with
predetermined outcomes. These prescribed standards need to be right for both the present and the
future. This is a difficult responsibility for any generic-proceeding panel. The usual goal in a
generic proceeding is to standardize and fix one methodology, i.e., FIT versus flow-through, or
UAD.540 Such rigidity limits future panels sometimes into inefficient or artificially constrained
determinations. The issues for a generic depreciation panel could include determinations of
fairness, or adaptability or dynamic flexibility. In my view, these issues, and their specific
applicability and circumstance, are already present and able to be examined in detail in a TFO
GTA. Any GTA findings are reviewable, appealable and can be reversed by any future panel, or,
at the very least, can be distinguished with reasons for a different TFO.
546. As noted during the oral hearing, EPCOR and Alberta PowerLine do not pre-collect
salvage, and these methodologies are already integrated into the current AESO tariff and
resulting price signal. AltaLink’s net salvage proposal would still be averaged within the overall
AESO tariff against all other current salvage methodologies that are now employed. There is a
further mosaic of operational costs, zero cost capital balances, debt charges and regulatory
principles that are averaged to the end ratepayer by a similar blending of these revenue
requirements into one tariff that is equally applied across the province. Some companies use FIT,
some use flow-through, and some utilities even distinguish between federal FIT and provincial
FIT. And all are incorporated into the current tariff with a co-mingling effect, thereby producing
the current transmission price signal. AltaLink’s proposal lies somewhere between the traditional
method and what is currently used by EPCOR and Alberta PowerLine. Nonetheless, the size of
AltaLink, as a relatively larger TFO, will have a substantial positive impact on current ratepayers
and effect the price signal to a certain degree as intended. Hopefully, lowering rates for the next
few years will encourage marginal ratepayers to stay on the system and contribute to lowering
unit costs for all current ratepayers, as was detailed by AltaLink’s argument.541
540 The GCOC proceedings can be differentiated from other generic proceedings, as they are repeated every few
years so expertise can be localized by Commission members and experts to create efficiencies and reduce costs.
Because of its periodic nature, the GCOC has a different set of goals than settling on standards that are difficult
to re-examine rather than a one-off generic proceeding. 541 Exhibit 23848-X0032, AML argument, paragraph 52, PDF page 30.
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547. Currently, AltaLink is in a favourable financial position542 and can present this proposal
for consideration.
548. The CCA has alleged that AltaLink management is biased in both the oral proceeding and
again in written argument in Section 2.2.2 titled “Bias exists in the proposal including an
increase in AltaLink’s return” as their bonuses are tied to the “flat for five” proposal and that this
proposal will add to rate base and financially benefit AltaLink. The CCA has proposed a generic
proceeding but no one has alleged that their proposal is biased by receiving financial
compensation for additional generic rate proceedings. Both propositions are without merit.
549. It is not disputed that AltaLink will earn a return on the money that they reinvest and
subsequently return to ratepayers, as this is the nature of increasing or decreasing cash flows that
affect zero cost capital. Nonetheless, the fair and just return on that investment is subject to the
Commission’s approval. This is the regulatory bargain in place in Alberta since 1948 when
private ownership of transmission assets was approved. Transmission assets are not treated like
public roads where current users benefit from the previous expenditure similar to an investment
of 100 per cent zero cost capital by historic ratepayers. Transmission assets are more similar to
toll roads where a current ratepayer “user pay system” is employed on the invested capital.
550. As an example, and in contrast to the current proposal, AltaLink earned an expected
lower return in 2011, when the Commission created additional zero cost capital in rate base when
AFUDC was suspended. The ratepayers that paid the increased cash costs when AFUDC was
suspended were not paying any costs related to the current big build and their transmission costs
were based on assets that were near their end of their depreciated life as rate base had been
cyclically reduced. This accelerated payment of CWIP effectively smoothed rates to some degree
for those eight or nine years until AFUDC was reinstituted. It is important to note that a long-
standing regulatory construct, being AFUDC, was suspended to accommodate corporate cash-
flow needs and keep debt costs low for ratepayers, while continuing to result in a tariff that
remained just and reasonable and not unduly preferential, or arbitrarily or unjustly
discriminatory.
551. My additional comments from Proceeding 3524, as cited in the current proceeding, spoke
to an unfairness in the high cost of transmission between current and future ratepayers, although
the scope of my comments in that decision did not go as far as to consider the capitalizing of
salvage costs related to future rebuild projects.
552. All parties recognize the unfairness to current ratepayers and support AltaLink’s proposal
except for the CCA. The CCA preferred staying with the current traditional approach and a
generic proceeding to examine other alternatives.
553. Three major areas of concern were detailed in the CCA’s position and warrant further and
careful scrutiny:
542 Exhibit 23848-X0332, AML argument, paragraphs 31-34.
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• What happens if the Commission approves AltaLink’s request and load growth never
materializes? Alternatively, what if load growth does materialize and there is a further
large transmission build in 30 years?543
• What is the effect on cost allocation where future period ratepayers pay 100 per cent of
previous period salvage costs?544
• The use of an NPV analysis and lower and declining discount rates.
Load growth extremes and the AESO forecast
554. An inordinate amount of time was spent during the hearing arguing about the validity of
the AESO’s growth forecast. During the hearing, the CCA and AltaLink responded to
hypothetical questions concerning load growth extremes. The CCA’s no-load-growth premise
was explored and AltaLink explained that under that premise, rate base would naturally decline
to zero.545 This is because, without rate base additions, future ratepayers will benefit from no load
growth as no new builds have to be financed from any future customers and rates will decline.
555. On the other hand, AltaLink explained, if future customers have to contend with another
big build, then costs will be spread over a much larger number of ratepayers with the growth of
the system and these historic salvage costs will be spread over more ratepayers, thus mitigating
the movement of the salvage costs to a future period.
556. The CCA’s concerns with load growth extremes appears inconsequential.
557. I suggest that actual load growth, in reality, will probably fall somewhere between the
two extremes, which includes the AESO forecast, and consequently, future load growth would
similarly not be problematic within the AltaLink proposal.
Cost allocation under the different methodologies
558. Bema, in its evidence, stated that “ratepayers who are receiving the benefits of the current
transmission infrastructure will not likely be the same ratepayers that pay to remove the existing
infrastructure” and that this violates the “key factor outlined by the Commission” where the
public interest is upheld when “a ratepayer receives the benefits it paid for and conversely pays
for the benefits it receives.”546
559. Section 3.2 of the CCA’s reply argument is titled “The Traditional Method of Collecting
Salvage is Fair to Current Ratepayers.”547 To evaluate the conclusion encapsulated within the
title, one needs to examine how well the current cost allocation system within the traditional
approach works, and then juxtapose that concept with AltaLink’s proposal. This, of course, must
also be tempered with the consideration that other principles besides cost allocation must be
evaluated in setting just and reasonable rates.
543 Exhibit 23848-X0333, CCA argument, paragraph 47, PDF page 20. 544 Exhibit 23848-X0269, Written evidence of Bema, Part I, PDF page 43; Exhibit 23848-X0335, CCA reply
argument, paragraph 15, PDF page 8. 545 Transcript, Volume 2, page 359. 546 Exhibit 23848-X0269, CCA evidence of Bema, PDF page 43. 547 Exhibit 23848-X0335, CCA reply argument, paragraphs 17-38.
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560. As far as cost allocation is concerned, I note the conclusions of Foster Associates Inc.
(Foster) highlighted in Bulletin 2016-16, which state that, in certain circumstances, deferring
recognition and recovery of depreciation is not necessarily in conflict with cost allocation and
accounting theory:
In its report, Evaluating Depreciation Alternatives for Delaying Capital Recovery (Foster
report) Foster concluded that regulatory practices that defer recognition and recovery of
depreciation are not necessarily in conflict with cost allocation and accounting theory, as
long as the opportunity for capital recovery is preserved and any unrecovered investment
from early retirements is allowed to remain in rate base and earn an authorized rate of
return. …
The Foster report explained that, both from an accounting and a valuation perspective,
depreciation can be used to represent the service potential of an asset, or group of assets,
that is consumed during an accounting interval (e.g., year). The dual objective of
depreciation accounting is cost allocation over the economic life of an asset in proportion
to the consumption of service potential. The economic life of an asset is the time period
over which economic benefits or service potential are realized. Ideally, the cost of an
asset should be allocated to future periods of operation in proportion to the amount of
service potential expended during each accounting interval.…
561. When one examines the traditional method while applying this cost allocation
perspective, some questions are raised. Using the traditional method, my example in Proceeding
3524 showed that ratepayers are paying 3.8 times more in the first year for using the
transmission line, as compared to what ratepayers pay 50 years later for using the same line. At
50 years later, the transmission line is older, but effectively can still transmit the same amount of
electricity and has a similar service potential. This price unfairness is amplified both by inflation
and by spreading those costs over more ratepayers over 50 years. Where is the fairness in the
traditional approach between current ratepayers and future ratepayers? In my view, this
unfairness includes the recovery of net salvage costs as well as straight line depreciation charges
and return on rate base.
562. The CCA is correct in its statement that “salvage costs while significant, are far less than
the depreciation and return charges that AltaLink is recovering on its largely undepreciated rate
base.”548 However, the CCA conflates this statement by concluding that in the section titled “The
traditional method of collecting salvage is fair to current ratepayers,549 that “In summary,
AltaLink’s argument that the Traditional Method sends an inappropriate price signal is incorrect
and should be afforded no weight by the Commission.”550
563. To be clear, discontinuing with net salvage recovery under the traditional approach, and
moving to transition to the AltaLink proposal, does not completely alleviate the unfairness to
current ratepayers versus future ratepayers, but it does mitigate the effect. The undisputed fact
remains that under the traditional method, current ratepayers are disadvantaged and will benefit
under AltaLink’s proposal from $88.2 million dollars of rate relief in this GTA period that will
extend beyond the test years. The traditional method is unfair to current ratepayers and
548 Exhibit 23848-X0335, CCA reply argument, paragraph 19, PDF page 9. 549 Exhibit 23848-X0335, CCA reply argument, Section 3.2 “The Traditional Method of Collecting Salvage is Fair
to Current Ratepayers,” PDF page 8. 550 Exhibit 23848-X0335, paragraph 38, PDF page 15.
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AltaLink’s proposal is a good beginning to reducing that unfairness. The unfairness that the
Government of Alberta identifies through its creation of the TCRS, that the Commission
identifies in Bulletin 2016-16 and further, as detailed by the UCA in Appendix B of their experts
evidence, stands in stark contrast to the CCA titled section that “The traditional method of
collecting salvage is fair to current ratepayers.”551
564. In challenging AltaLink’s net salvage proposal, the CCA has relied on the fact that future
ratepayers are paying for a benefit they did not receive, as the reason why the AltaLink proposal
fails from a cost allocation perspective.
565. AltaLink countered the CCA by stating that:
45. … At its root, the Traditional Method does not fairly apportion the costs of new
transmission. Its application requires current customers, for assets that were built for
current and future customers, to pay rates based on both a largely undepreciated rate base
and an estimate of salvage costs that will only actually be paid far in the future.
46. Therefore, the operation of the Traditional Method logically results in future
customers, using the same asset that was built, in part for them, essentially paying rates
calculated on a largely depreciated rate base and no salvage, as all of that has already
been pre-collected.
…
53. To the extent that customers and their respective loads leave the grid, the remaining
customers that do not have the option to leave the system will face unnecessarily higher costs.
Fair and reasonable tariffs keep customers on the grid, thereby avoiding uneconomic bypass and
the resulting shifting of costs to the remaining customers.
54. In summary, in relation to AltaLink, the Traditional Method for salvage collection
must change and the reasons are legion.552
566. The benefit that future ratepayers receive under AltaLink’s proposed net salvage method
was also examined in the oral hearing. When those benefits are compared with those identified in
the Foster report from Bulletin 2016-16 above, one can see where the economic life or service
potential553 aspect is brought into focus. Just because a tower is old or a transmission line is
expected to fail, and a decision is made to rebuild the line, much of the underlying infrastructure
still remains. The service potential of the rights-of-way, the AUC approvals, the purchased land,
concrete pilings, road access, etc., all continue into the future. Future ratepayers benefit from this
infrastructure and yet, under the traditional method, those future ratepayers do not contribute to
those costs and receive the residual service potential that is still present. As the CCA noted, the
public interest is upheld when “a ratepayer receives the benefits it paid for and conversely pays
for the benefits it receives.”554 This concept can equally be applied to benefits that future
ratepayers do not pay for under the traditional method. The UCA expanded on this aspect and
551 Exhibit 23848-X0335, CCA reply argument, Section 3.2 “The Traditional Method of Collecting Salvage is Fair
to Current Ratepayers,” PDF page 8. 552 Exhibit 23848-X0332, AML argument, paragraphs 45-46, 53-54. 553 Service potential is a different concept from the average service life detailed in paragraph 309 of this decision. 554 Exhibit 23848-X0269, Written evidence of Bema, PDF page 43.
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testified in paragraph 433 above that the AltaLink proposal was better than the traditional
method from a cost causation perspective of the assets put into service.
567. The CCA also objected to the fact that 100 per cent of the salvage cost is allocated to
future customers. Under the AltaLink proposal, if a line is replaced five times in the next 200
years, then each future ratepayer group will pay upfront salvage costs of the previous line.555
However, if each group of future ratepayers is treated the same with regard to the upfront salvage
costs, then the “perceived unfairness” to future ratepayers is mitigated. This notion of fairly
distributing the unfairness was highlighted in my additional comments, provided in paragraph
467 of Proceeding 3524, where, in the example, plant was added every year versus every build
cycle, but the mitigation effect is similar, it’s duration is just lengthened.
568. The single asset example gives a good understanding of the unfairness of the traditional
salvage methodology. However, the real world has transmission assets added continually and
with some periodic lumpy additions. Any perceived unfairness of allocating all net salvage to a
specific group of future ratepayers is therefore also potentially mitigated by blending the costs of
asset replacements and retirements over time to different user groups at different cyclical
periods.
NPV analysis and a lower and declining discount rate
569. Both AltaLink and the CCA agreed that the NPV analysis should not be the only
criterion556 used to evaluate the proposal. The CCA indicated that using a lower discount rate, as
well as declining discount rate, is warranted, and that this supports denying AltaLink’s proposal.
The UCA stated that the AltaLink proposal did not reflect an uneconomic distribution of costs, as
demonstrated by the NPV of ratepayer costs.557
570. As discussed earlier, if transmission assets are treated like roads, and the NPV analysis is
the only criterion, then with a declining and lower discount rate, if accepted, compared to a
utility’s WACC, a significant amount of cash flow will be allocated to zero cost capital. This is
irrespective of whether the issue is tax deferral, AFUDC or depreciation methodologies, which
can affect accelerated cash-flow determinations. Current customers shoulder an increasing share
of zero cost capital, effectively pre-funding the road.
571. Albertans could own a transmission line in a similar way as they own a public road by
pre-funding 100 per cent of the road. However, this is not what ratepayers historically agreed to
when permitting private ownership. Private ownership can defray current costs into the future but
there is a “rental cost” for using those funds much the same as a toll road. That is the regulatory
bargain. A lower and declining discount rate analysis will disadvantage current customers as they
are required to allocate more capital to zero cost capital with a declining and lower discount rate
and effectively prepay the road even though it is a toll road.
572. Current ratepayers are already disadvantaged, as was agreed to by all parties. Therefore,
a separate net salvage NPV analysis, which results in them shouldering an additional burden,
offends the principle that the resulting tariff will be just and reasonable and not unduly
555 Exhibit 23848-X0332, AML argument, paragraphs 31-34. 556 Exhibit 23848-X0269, Written evidence of Bema, Part I, PDF page 35. 557 Exhibit 23848-X0276, Evidence of P. Bowman and P. Lee of behalf of the UCA, PDF pages 8-9.
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Decision 23848-D01-2020 (April 16, 2020) 122
preferential, or arbitrarily or unjustly discriminatory. A NPV analysis does give valuable
information, but if examined and applied in isolation could be unfair.
The 11.1 per cent FFO/debt floor as proposed by AltaLink
573. AltaLink has tied their additions to the future NSR account with maintaining an 11.1 per
cent FFO/debt ratio. The 11.1 per cent FFO/debt target is a ratio of the cash flow from operations
compared to the debt that AltaLink supports. This 11.1 per cent, at the current time, supports an
A rating for utilities as determined by the credit rating agencies. An A rating allows utilities
access to long-term funding at reasonable rates for ratepayers.
574. Two major considerations prevent me from tying a FFO/debt ratio to future regulatory
approvals. First, circumstances change in the regulatory world and, while the applied-for
amounts for this period would be approved with continuing future amounts as placeholders, with
the current volatility of issues in the world, the need to tie any future panels to a specific ratio is
not warranted. Second, global interest rates have declined close to zero in Canada and in many
international jurisdictions. When interest rates on debt were higher, an 11.1 per cent FFO/debt
gave a reasonable cash-flow cushion on debt servicing. With rates settling into a lower range for
longer, the credit rating agencies may revisit their ratios, and decide a lower FFO/debt ratio
could still give a level of comfort that they require to maintain an A rating.
Conclusion
575. In my view, AltaLink’s net salvage proposal will remedy a substantial unfairness present
in rate design under the existing straight line depreciation methodology. However, this finding
does not prevent AltaLink, parties or the Commission from proposing and examining alternative
methodologies within a future GTA. This is because, as highlighted by the UCA, there was no
one correct approach to net salvage and depreciation principles.558
576. In Decision 20272-D01-2016, the Commission confirmed:
When regulated utilities accelerate the collection of taxes or depreciation then current
customers pay a greater share of those costs. When these current costs become excessive
versus future costs the Commission must ensure that the resulting tariff is still just and
reasonable and not unduly preferential, or arbitrarily or unjustly discriminatory.
577. In Bulletin 2016-16, the Commission considered that:
The principle of intergenerational equity requires that both present and future customers
bear a fair share of the costs of new transmission. The assessment of which customers
benefit from the use of transmission assets determines the timing and basis for cost
recovery. If benefits are not properly considered, current customers could pay for
capacity put in place to serve future customers. Correspondingly, future customers that
benefit from additional transmission capacity may not pay their fair share of its cost if,
for example, the cost recovery period is too short.
578. AltaLink has submitted, consistent with the Commission’s directions quoted above, a
prudent and reasonable proposal that does not offend cost allocation principles, and provides rate
relief to Alberta’s current transmission customers in the grip of global turmoil. Fortuitously,
558 Exhibit 23848-X0276, UCA evidence, PDF page 46.
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Decision 23848-D01-2020 (April 16, 2020) 123
AltaLink is in a “sweet spot,” as described by Mr. Piotto, to be able to present this proposal. The
Commission should embrace it.
Dated on April 16, 2020.
Alberta Utilities Commission
(original signed by)
Bill Lyttle
Acting Commission Member
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Decision 23848-D01-2020 (April 16, 2020) 124
Appendix 1 – Proceeding participants
Name of organization (abbreviation) Company name of counsel or representative
AltaLink Management Ltd. (AltaLink)
Borden Ladner Gervais LLP
Consumers’ Coalition of Alberta (CCA)
Wachowich & Company
Office of the Utilities Consumer Advocate (UCA)
Brownlee LLP
Industrial Power Consumers Association of Alberta (IPCAA)
ATCO Electric Ltd. (ATCO Electric)
Alberta Direct Connect Consumers Association (ADC)
Alberta Utilities Commission Commission panel H. van Egteren, Vice-Chair M. Kolesar, Chair B. Lyttle, Acting Commission Member Commission staff
J. Graham (Commission counsel) D. Ward L. Mullen C. Strasser P. Baker F. Alonso A. Starkov J. Cameron
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Decision 23848-D01-2020 (April 16, 2020) 125
Appendix 2 – Oral hearing – registered appearances
Name of organization (abbreviation) Name of counsel or representative
Witnesses
AltaLink Management Ltd. (AltaLink or AML)
Randall Block QC Bryan Hunter
AltaLink Panel 1 J. Piotto, B. Sc R. Drotar, CPA, IIA D. Fedorchuk, P. Eng. L. Kennedy, Concentric Advisors, ULC AltaLink Panel 2 M. Bartel, P. Eng., MBA P. Lee, P. Eng. AltaLink Panel 3 M. Bartel, P. Eng., MBA P. Lee, P. Eng. M. Flannigan, Ph. D
Consumers” Coalition of Alberta (CCA)
James Wachowich QC Nick Bryanskiy
CCA Panel 1 D. Madsen, CPA, CA CCA Panel 2 D. Levson, P. Eng., Bema Enterprises Ltd. D. Madsen, CPA, CA R. Itiveh, P. Eng., MBA N. Tauh, P. Eng. CCA Panel 3 D. Levson, P. Eng. R. Itiveh, P. Eng., MBA N. Tauh, P. Eng.
Office of the Utilities Consumer Advocate (UCA)
Thomas Marriott QC
UCA Panel 1 P. Lee, B. S (Mathematics), CDP, BCRI Inc. P. Bowman, MNRM, Intergroup Consulting Ltd.
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Decision 23848-D01-2020 (April 16, 2020) 126
Appendix 3 – Summary of Commission directions
This section is provided for the convenience of readers. In the event of any difference between
the directions in this section and those in the main body of the decision, the wording in the main
body of the decision shall prevail.
1. Given the above, the Commission directs AltaLink to file, at the time of AltaLink’s next
GTA, an explanation as to why AltaLink treated all identified HRFAs the same in terms
of risk, and how AltaLink is prioritizing asset deficiencies in a given HRFA.
........................................................................................................................ paragraph 128
2. For these reasons, the Commission will make its decision regarding the forecast
expenditures associated with the Whitecourt fire region and the White Zone in the
compliance filing to this decision. The Commission directs AltaLink to file the remaining
wildfire risk maps for the Whitecourt fire region and the White Zone in the compliance
filing to this decision. In addition, AltaLink is directed to update Table 3 with the most
up-to-date information in the same compliance filing. .................................. paragraph 158
3. Regarding the other fire regions, Calgary, Rocky Mountain House, Edson and Lac La
Biche, the Commission considers the volume of replacement work to be performed in
these regions to be minimal in scope and reasonable, relative to the replacement work
forecast for the White Zone. However, the Commission cannot determine whether
forecast costs associated with these regions are reasonable because the targeted program
costs were provided collectively. In the Commission’s view, a breakdown of the costs, by
each specific region, is required in order for it to assess the reasonableness of the work
for each region. Therefore, the Commission directs AltaLink to file this information in
the compliance filing to this decision, in the form of an updated Table 3, as directed
above, with two new columns, showing, for each one of the fire regions (including the
Whitecourt fire region and the White Zone), a breakdown of up-to-date forecast costs and
a breakdown of actual costs incurred under the targeted program in 2019 and to date in
2020. The Commission will review the forecast costs associated with the Calgary, Rocky
Mountain House, Edson and Lac La Biche fire regions under the targeted program in the
compliance filing to this decision. ................................................................. paragraph 159
4. AltaLink’s forecast costs for the entire targeted component and structure replacements in
the HRFAs program will be reviewed as part of AltaLink’s next opening rate base when
actuals are known and can be assessed for prudence. To facilitate the Commission’s
review in AltaLink’s next GTA, AltaLink is directed to submit information showing that
it has completed the targeted program in a cost effective manner. Some examples of the
information that AltaLink could provide at the time of its next GTA, as part of this
assessment include, but are not limited to: age and condition of components and
structures to be replaced, average service life of these assets, information on criteria for
replacement, evidence that assets are not being prematurely retired and explanations of
any differences between forecast costs and actual costs of these replacements.
........................................................................................................................ paragraph 160
5. The Commission will also undertake further review in the compliance filing with respect
to the line rebuild in the HRFAs program forecast costs associated with the Calgary,
Rocky Mountain House, Edson and Lac La Biche regions. The Commission observes that
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Decision 23848-D01-2020 (April 16, 2020) 127
these costs were provided collectively. In the Commission’s view, a breakdown of up-to-
date forecast costs and a breakdown of actual costs incurred to date in 2020, by each
specific region, are required in order for the Commission to assess the reasonableness of
the work for each of these fire regions under the line rebuilds in the HRFAs program.
Therefore, the Commission directs AltaLink to file this information in the compliance
filing to this decision. .................................................................................... paragraph 172
6. More generally, the Commission finds that there is insufficient evidence on the record of
this proceeding regarding how AltaLink makes decisions respecting transmission lines
identified under the line rebuilds in the HRFAs program of the WMP that are not
approaching end-of-life or are not fully depreciated. Accordingly, the Commission directs
AltaLink to identify in the compliance filing to this proceeding, the specific line segments
that it intends to rebuild under this WMP program, other than the estimation of 20 km of
wood pole lines in the test period that are potentially running through HRFAs outside the
Calgary fire region. ........................................................................................ paragraph 173
7. AltaLink’s forecast costs for the line rebuilds program of the WMP will be reviewed as
part of AltaLink’s next opening rate base when actuals are known and can be assessed for
prudence. To facilitate the Commissions review in AltaLink’s next GTA, the
Commission directs AltaLink to provide information in that proceeding detailing project
descriptions, actual unit costs and other relevant information necessary to support the
timing, level, scope and costs of the individual line rebuild projects. ........... paragraph 174
8. For reasons that follow, the Commission finds that there is insufficient evidence, on the
record of this proceeding, to demonstrate that AltaLink’s entire $20 million incremental
LCM forecast, for the current forecast period, is reasonable. In the circumstances, the
Commission approves $13 million of AltaLink’s requested incremental LCM forecast, on
a placeholder basis. This amount may be adjusted, pending additional information that
AltaLink is directed to file in the compliance filing for this proceeding. The Commission
considers that this additional information is necessary to assess the reasonableness of
AltaLink’s incremental LCM forecast. ......................................................... paragraph 191
9. Additionally, AltaLink’s forecast costs for the incremental $20 million LCM expenditure
will be reviewed as part of AltaLink’s next opening rate base, when actuals are known
and can be assessed for reasonableness. Accordingly, to facilitate this review, AltaLink is
directed to file a comprehensive business case to support its incremental LCM
expenditures, at the time of its next GTA. ..................................................... paragraph 192
10. Accordingly, the Commission directs AltaLink, at the time of its next general tariff
application and as part of its Line Components CRU Business Case, to explain in more
detail the nature and extent of its collaboration with the AESO on line rating adjustments.
This includes both temporary de-rates, re-rates, and de-energizations. In particular,
AltaLink should include a step-by-step example that explains this collaborative process, a
list of factors that inform the AESO’s and AltaLink’s decisions to adjust the line rating of
any particular transmission line, and references to all relevant standards, codes and rules
with which AltaLink and the AESO are obligated to comply, in respect to this
collaborative process. Likewise, AltaLink should clearly identify and delineate the
responsibilities of the AESO and AltaLink, respectively, with regard to the line rating
adjustment process and the associated determinations of safe operating limits for
transmission lines. Further, AltaLink should include an explanation of whether the
AESO’s N-0, N-1, N-2 and N-1-1 contingencies factor into line rating adjustment
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Decision 23848-D01-2020 (April 16, 2020) 128
discussions, and how system requirements and transmission line design history inform
the AESO’s and AltaLink’s decision to adjust maximum thermal ratings, and maximum
allowable load flows. ..................................................................................... paragraph 231
11. Similarly, the Commission considers that it would be helpful to have the AESO’s views
regarding its role in this collaborative process, specifically with regard to how the AESO
exercises its discretion in permitting de-rates, re-rates, de-energizations and alternative
mitigation measures. Accordingly, the Commission directs AltaLink to request the AESO
to file a submission explaining, from the AESO’s perspective, how the line rating
adjustment process is carried out between itself and AltaLink, how the AESO determines
a posted line rating, how the AESO makes its determination to adjust the line rating of
any particular transmission line, what factors are considered therein by the AESO, and
any other information that the AESO considers may be of assistance in the circumstances.
AltaLink is directed to file the AESO’s response at the time of its next general tariff
application and as part of its Line Components CRU Business Case............ paragraph 232
12. Accordingly, the Commission directs AltaLink, at the time of its next general tariff
application, to file a detailed comparison of LiDAR survey unit costs between the
incremental approach and the new system-wide approach, as part of its Line Components
CRU Business Case. The unit costs must be broken down into their respective component
parts, and AltaLink must clearly demonstrate, using the unit cost component breakdown,
how the new system-wide survey has reduced LiDAR unit costs, and the source of this
reduction. ...................................................................................................... paragraph 238
13. AltaLink is further directed to provide an analysis that demonstrates why the system-wide
approach to LiDAR and engineering assessments, which seeks to mitigate line clearance
deficiencies across all 13,385 km of AltaLink’s transmission system within this test
period, is more effective than the incremental approach, where AltaLink historically
surveyed and assessed approximately 1,100 km of its system per year. Specifically,
AltaLink is to explain, with supporting analyses and calculations, how the new system
wide approach to LiDAR surveys and engineering assessments is a more effective tool to
prioritize and mitigate risks across AltaLink’s entire system, over multiple years, while
balancing both LiDAR unit costs and overall LCM program costs. AltaLink should also
address how the new system-wide approach facilitates more effective coordination and
prioritization of resources across AltaLink’s system, to ensure that potential public safety
and system reliability risks are mitigated, while costs are minimized. ......... paragraph 239
14. Nevertheless, the Commission’s concerns still stand and, in view of the above, the
Commission finds that there is insufficient evidence on the record of this proceeding to
demonstrate that AltaLink’s entire $20 million incremental LCM forecast, for the current
forecast period, is reasonable. In the circumstances, the Commission approves
$13 million of AltaLink’s requested incremental LCM forecast. AltaLink is directed to
treat this amount as a placeholder, which may be adjusted in AltaLink’s compliance filing
to this decision, pending additional information that is necessary for the Commission to
assess the reasonableness of AltaLink’s incremental LCM forecast. Accordingly,
AltaLink is directed to provide the following in the compliance filing to this decision:
(a) The Commission observes that AltaLink should have completed 100 per cent of its
line clearance deficiency engineering assessments in February 2020. Accordingly,
AltaLink is directed to provide an updated version of Exhibit 23848-X0321, AML
Undertaking 005 Attachment (Known Violation Timelines and Mitigations
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Decision 23848-D01-2020 (April 16, 2020) 129
Spreadsheet), to include all additional line spans that were identified with line
clearance deficiencies since the end of October 2019. The format of this update
should be consistent with that of Exhibit 23848-X0321. Furthermore, AltaLink is
directed to add two more columns in the updated version of this exhibit: first, a
column that identifies whether a line span has a low risk or high risk line clearance
deficiency; and second, the year that mitigation activities were completed, or are
planned to be completed, for every line span that AltaLink is choosing to mitigate
within the scope of this current test period.
(b) AltaLink is directed to provide a summary of the actual number of line spans that
were mitigated in 2019, as they relates to line clearance deficiencies, and to provide
actual LCM program expenditures for 2019. Furthermore, AltaLink is directed to
provide the actual average unit cost, with line spans as the unit, for LCM activities in
2019.
(c) AltaLink is further directed to provide a summary, to date, of the actual number of
line spans that were mitigated in 2020, and to provide actual LCM program
expenditures, to date, for 2020. Furthermore, AltaLink is directed to provide the
average unit cost, with line spans as the unit, to date, for LCM activities in 2020.
(d) AltaLink is also directed, based on program activities to date, to provide an estimate
of the total number of line spans that AltaLink plans to mitigate in 2020 and 2021,
and to provide an estimate of the LCM program expenditures, for 2020 and 2021, that
AltaLink considers necessary for the LCM program. AltaLink is also directed to
provide an estimate of the average unit cost, with line spans as the unit, for LCM
activities in 2020 and 2021. .................................................................... paragraph 301
15. Additionally, AltaLink’s forecast costs for the incremental $13 million LCM expenditure
approved in this decision will be reviewed when determining AltaLink’s next opening
rate base, when actuals are known and can be assessed for prudence, by which time
AltaLink will have had a chance to prepare any additional information or analyses that
the Commission considers necessary to assess the prudence of the actual LCM spend and
any subsequent forecast. Accordingly, AltaLink is directed, at the time of its next general
tariff application, to file a comprehensive business case that is informed by fully
completed engineering assessments of AltaLink’s entire system, and includes the
following:
(a) A root cause analysis to explain why AltaLink’s engineering assessments are
identifying an historic number of deficiencies across its transmission system.
(b) A line-by-line analysis that considers site and transmission-line-specific factors (e.g.,
region, location, terrain, expected damages from clearance issues, likelihood of wire
contact with the public or other objects or structures, the associated risk of public
safety or system reliability issues materializing, and any additional public safety or
system reliability concerns), along with all the relevant standards, codes and rules, to
identify whether LCM work was necessary for any particular transmission line.
AltaLink should identify why a transmission line was deficient. If AltaLink identified
the need to conduct LCM work on a particular transmission line, it should provide a
list of all the factors that were considered to arrive at that decision, and explain why
the LCM work was necessary. Furthermore, AltaLink should provide a general
overview of the total number of transmission line spans that were mitigated, how
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Decision 23848-D01-2020 (April 16, 2020) 130
AltaLink determined which transmission line spans should be prioritized within this
current test period, and why LCM work on these transmission line spans was
necessary.
(c) Line-specific costs should be provided, explaining how AltaLink achieved the lowest
cost LCM strategy for that particular transmission line. Likewise, AltaLink should
provide the average cost per transmission line span, for each transmission line, and
explain how this average unit cost was minimized. Furthermore, AltaLink is to
provide a list of all alternative line clearance mitigation strategies that it considered,
for each transmission line, with explanations, relevant analyses, and calculations that
support AltaLink’s chosen alternative. With regard to de-rates, AltaLink is to address
how it determined the appropriate de-rate period for any particular transmission line,
and why other alternatives such as physical barriers were not viable or cost
effective/efficient. Furthermore, for circuit-to-circuit line clearance deficiencies,
AltaLink is to address which cost solutions were considered between AltaLink and
the DFOs.
(d) An explanation that elaborates further on the extent and nature of AltaLink’s
collaboration with DFOs and third parties. Furthermore, AltaLink is to address, with
references to any relevant industry standards, codes, rules, and DFO contracts, why
DFOs are not responsible, typically, for any circuit-to-circuit line clearance
deficiencies.
(e) An explanation detailing the nature and extent of AltaLink’s collaboration with the
AESO, with respect to prioritizing LCM work. Specifically, AltaLink is to address
ISO Rule 304.6, explaining how AltaLink develops a plan “to restore the transmission
facility to its previous limit,” what factors are considered therein, and the nature and
extent of the AESO’s involvement in this process. Likewise, AltaLink is to address
when it would consider option (b) of ISO Rule 304.6 2(2). Furthermore, AltaLink is
to identify and delineate clearly the responsibilities and authority of the AESO and
AltaLink, with regard to choosing a prioritization scheme for mitigating line
clearance deficiencies.
(f) Similarly, the Commission considers that it would be helpful to have the AESO’s
view regarding its role in the development of an appropriate prioritization scheme for
LCM work. Accordingly, the Commission directs AltaLink to request the AESO to
file a submission explaining, in the AESO’s view, how the prioritization process is
carried out between itself and AltaLink, how the AESO determines which
transmission lines should be prioritized for LCM repair work, how the AESO ranks
the different lines that require LCM work, what factors are considered therein by the
AESO, and any other information that the AESO considers may be of assistance in
the circumstances. Additionally, for all transmission lines that require LCM work in
this current test period, the Commission directs AltaLink to request the AESO to file
a submission that identifies which lines should, in the AESO’s view, be prioritized for
LCM repair work and to provide explanations as to why those lines should be
prioritized, and to provide a ranking of these lines based on their priority. AltaLink is
directed to file the AESO’s response at the time of its next general tariff application
and as part of its Line Components CRU Business Case.
(g) A narrative with supporting examples, calculations and analyses, explaining how
AltaLink’s prioritization scheme for LCM work has effectively, and reasonably,
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Decision 23848-D01-2020 (April 16, 2020) 131
managed and balanced LCM expenditures with clearance deficiency risks and system
performance. This narrative is to be provided on both a line-by-line and system-wide
basis. ........................................................................................................ paragraph 302
16. Accordingly, the Commission directs AltaLink, at the time of its next general tariff
application and as part of its Line Components CRU Business Case, to submit an analysis
that investigates how AltaLink may alter its LCM prioritization methodology going
forward. AltaLink should specifically refer to ATCO Electric’s prioritization
methodology, as filed by the CCA in this proceeding and identified in the prioritization
methodology discussion above. If ATCO Electric’s approach is not compatible with, or
appropriate for, AltaLink’s transmission system, AltaLink must provide an explanation as
to why that is the case. The Commission notes that this direction is strictly in regard to
future AltaLink LCM programs, and not the LCM program subject to this test period.
........................................................................................................................ paragraph 304
17. AltaLink also pointed to Commission Direction 24 from Decision 3524-D01-2016, in
which it interpreted the Commission’s interest in “how AltaLink determines costs
assigned to cost of removal could not alternatively be included as cost of the replacement
asset and directs AltaLink to discuss this in its next depreciation study” as a reference to
an opportunity for AltaLink to explore alternative net salvage methodologies.
........................................................................................................................ paragraph 319
18. Based on the above, the Commission denies AltaLink’s proposed increases in negative
net salvage per cents for its transmission plant accounts and directs AltaLink to revert to
its currently approved net salvage per cents, subject to the specific directions below for
USA accounts 352, 353.01 and 355.01. ......................................................... paragraph 498
19. AltaLink is directed to implement a net salvage of -5 per cent for USA 352 –
Transmission Structures and Improvements in its compliance filing to this decision.
........................................................................................................................ paragraph 500
20. The Commission directs AltaLink to adopt, for USA 353.01 – Transmission Station
Equipment – HVDC, the same net salvage -20 per cent that the Commission approved
earlier in this decision, for USA 353 – Transmission Station Equipment. AltaLink is
directed to incorporate this net salvage per cent in its compliance filing to this decision.
........................................................................................................................ paragraph 503
21. Specific to USA 355.01 – Transmission Poles and Fixtures (steel poles), which is a newly
created subaccount, the Commission directs AltaLink, in its compliance filing, to adopt a
net salvage per cent of -53 per cent, on the basis that this per cent is consistent with the
currently approved net salvage per cent of the similar USA 355 – Transmission Poles and
Fixtures. ......................................................................................................... paragraph 504
22. Nonetheless, the Commission remains interested in understanding AltaLink’s practice of
capitalizing excess materials beyond the instance of the WATL example. AltaLink is
directed at the time of its next GTA, to provide an update to its capitalization policy
detailing its intended practice in this regard and to include a provision for a threshold, or
materiality test, by which AltaLink proposes to determine what constitutes, as a
construction cost, a “proper allowance” for unused materials and supplies. . paragraph 525
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Decision 23848-D01-2020 (April 16, 2020) 132
Appendix 4 – Process step details
Date Process step description
August 23, 2018 AltaLink files 2019-2021 GTA
August 24, 2018 Notice issued
September 28, 2018 CCA motion to remove third test year of application
October 9, 2018 AML response to CCA motion
October 11, 2018 CCA reply on motion
October 16, 2018 Commission ruling on CCA motion
October 31, 2018 Round 1 IRs to AML
November 5, 2018 AML request for extension
November 6, 2018 Commission grants AML extension
November 28, 2018 AML Round 1 IR responses
November 29, 2018 AML Round 1 IR responses
December 5, 2018 Party submissions on further process
December 10, 2018 Commission defers further process pending receipt of motions
December 13, 2018 UCA motion for further and better responses
December 19, 2018 CCA motion for further and better responses
December 20, 2018 Process schedule set for motions
December 24, 2018 AML request for extension
January 3, 2019 Commission grants AML extension request
January 23, 2019 AML response to motions
January 24, 2019 CCA extension request
January 25, 2019 UCA submission supporting CCA request
January 25, 2019 Commission grants CCA extension request
February 13, 2019 CCA/UCA reply to AML response on motions
February 25, 2019 AML files submission on potential negotiated settlement process
March 11, 2019 Commission ruling on CCA/UCA motions
March 18, 2019 AML request for extension
March 19, 2019 Commission grants AML extension request
April 1, 2019 AML files update to its GTA
April 12, 2019 AML files responses to Commission ruling on CCA/UCA motions
April 23, 2019 AML requests Commission approval to commence NSP
April 29, 2019 CCA requests IR process on AML Wildfire Mitigation Plan (WMP)
April 30, 2019 AML provides submission agreeing with CCA request
May 1, 2019 Commission grants AML approval to enter into a NSP excluding
certain matters
May 6, 2019 IRs (Round 2) submitted to AML on WMP
May 13, 2019 CCA requests extension for NSP
May 14, 2019 AML provides Round 2 IR responses
May 16, 2019 Commission grants CCA extension request
June 12, 2019 AML requests extension for NSP
June 13, 2019 Commission grants AML extension request
June 13, 2019 AML request for extension for NSA
June 18, 2019 Commission grants AML extension request
June 18, 2019 CCA request for extension to file evidence on excluded matters
June 21, 2019 Commission grants CCA extension request
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Decision 23848-D01-2020 (April 16, 2020) 133
Date Process step description
July 5, 2019 AML extension request to file NSA
July 8, 2019 AML submits update to its 2019-2021 GTA related to depreciation
and line clearance mitigation
July 10, 2019 AML submits NSA
July 10, 2019 Submissions filed regarding fairness of NSP
July 11, 2019 Process established regarding NSA and excluded matters
July 12, 2019 CCA requests revisions to process schedule
July 15, 2019 AML objects to CCA request
July 16, 2019 Commission rules AML Wildfire education session can proceed.
July 16, 2019 Commission grants CCA’s request for process schedule revisions
July 19, 2019 Round 3 IRs to AML, Commission IRs to NSA parties
July 26, 2019 Round 3 IR responses by AML
July 29, 2019 CCA motion for further and better responses
July 31, 2019 AML objection to CCA motion
August 1, 2019 Response to Commission IRs from NSA parties
August 1, 2019 CCA reply to AML objection to CCA motion
August 1, 2019 AML response to Round 3 IRs
August 7, 2019 Ruling on CCA motion, request revision to NSA for Special Facilities
Charges (SFC), process schedule
August 14, 2019 Procedural comments from parties
August 16, 2019 AML submission to remove SFC from NSA
August 21, 2019 AML files update to 2019-2021 GTA, amends NSA removing SFC
August 21, 2019 AML files further and better IR responses
September 21, 2019 Intervener evidence on excluded matters
October 8, 2019 IRs on intervener evidence
October 15, 2019 AML requests confirmation that 2019 interim rates and terms and
conditions continue into 2020
October 18, 2019 Commission confirms Decision 24025-D01-2018
October 29, 2019 IR responses on intervener evidence received
November 12, 2019 AML files rebuttal evidence
November 23, 2019 Oral hearing on excluded matters commences
November 29, 2019 Oral hearing on excluded matters concludes
January 3, 2020 Final argument
January 17, 2020 Reply argument, close of record
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Decision 23848-D01-2020 (April 16, 2020) 134
Appendix 5 – AML 2019-2021 GTA NSA application and agreement
(return to text)
Appendix 5 - AML
2019-2021 GTA NSA
(consists of 27 pages)
2611 3rd AVE SE, CALGARY, ALBERTA, T2A 7W7 WWW.ALTALINK.CA
July 10, 2019
Filed on eFiling
Alberta Utilities Commission Eau Claire Tower 1400, 600 Third Avenue S.W. Calgary, AB T2P 0G5
Attention: Dwayne Ward Lead Application Officer
Dear Mr. Ward:
Re: AltaLink Management Ltd (AltaLink) – 2019-2021 General Tariff Application Proceeding ID: 23848 Negotiated Settlement Agreement (NSA)
Pursuant to Rule 18: Rules on Negotiated Settlements, enclosed for the Alberta Utilities Commission consideration is the following:
1. An application for approval of the negotiated settlement for AltaLink’s 2019-2021 General TariffApplication;
a. Submissions as to the fairness of the negotiated settlement are contained within the application,Section III. Settlement Brief, Part B.
2. A settlement agreement executed by AltaLink, the Consumer’ Coalition of Alberta (CCA), the Office of theUtilities Consumer Advocate (UCA), the Alberta Direct Connect Consumers Association (ADC), and theIndustrial Power Consumers Association of Alberta (IPCAA).
3. Appendices to the Settlement Agreement:
a. Appendix A – Revised 2019-2021 GTA MFR Schedules;b. Appendix B – Summary of Changes to Revenue Requirement;c. Appendix C – O&M, A&G and Revenue Offset Cost Savings Sharing Mechanism;d. Appendix D – O&M, A&G and Revenue Offset Cost Savings Sharing Example 1;e. Appendix E – O&M, A&G and Revenue Offset Cost Savings Sharing Example 2;f. Appendix F – Recommended Adjustments to IT and Facilities; andg. Appendix G – AltaLink Response to Interveners on Debt
If you have any questions or require additional information, please contact the undersigned at (403) 267-3450.
Yours truly,
(Original signed by)
Zora Lazic Senior Vice President, Law & Regulatory General Counsel
2019-2021 General Tariff Application Negotiated Settlement Agreement and Excluded Matters
AltaLink Management Ltd. Appendix 5 - AML 2019-2021 GTA NSA
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Decision 23848-D01-2020 (April 16, 2020)
Application for Approval of AltaLink’s 2019-2021 GTA
Negotiated Settlement Agreement
July 10, 2019 updated August 21, 2019 1
I. INTRODUCTION
1. On April 23, 2019, AltaLink Management Ltd., in its capacity as general partner of AltaLink, L.P.
(“AltaLink”) requested approval of the Alberta Utilities Commission (“AUC” or “the Commission”)
to initiate a negotiated settlement process (“NSP”) with respect to its 2019-2021 General Tariff
Application (“2019-2021 GTA”), which is the subject of AUC Proceeding 23848.1
2. AltaLink proposed to seek a unanimous comprehensive negotiated settlement with respect to all
elements of its 2019-2021 GTA.
3. On May 1, 2019, the Commission approved AltaLink’s request to commence an NSP on the 2019-
2021 GTA pursuant to Section 4 of Rule 018: Rules on Negotiated Settlements (“Rule 018”), with
the exception of the following (the “Commission Excluded Matters”):2
a. AltaLink’s salvage proposal;
b. AltaLink’s salvage study; and
c. Section 33.1 Energy Storage Systems on the Alberta Integrated Electrical System.
4. In that letter, the Commission set out an NSP timeline and directed AltaLink to file any resulting
negotiated settlement in accordance with Rule 018 by May 29, 2019. In addition, the Commission
set a schedule for an oral hearing for the Commission Excluded Matters (the “Excluded Matters
Application”).
5. In a letter dated May 13, 2019, the Consumers’ Coalition of Alberta (“CCA”) requested that the
Commission approve a schedule change to the negotiated settlement schedule. The CCA
requested an extension from May 29, 2019 to June 12, 2019, for the filing of the NSA or the notice
that a negotiated settlement cannot be reached.3
6. In a letter dated May 16, 2019, the Commission approved the CCA’s request to amend the
schedule.4
1 Exhibit 23848-X0176, AML Letter to AUC - Update on Interest in a Negotiated Settlement (April 23, 2019). 2 Exhibit 23848-X0182, AUC letter - AltaLink request to commence a Negotiated Settlement Process (May 1, 2019). 3 Exhibit 23848-X0187, CCA Letter re Process Schedule – 23848 (May 13, 2019). 4 Exhibit 23848-X0194, AUC letter - CCA request for adjustment to process schedule (May 16, 2019).
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7. In a letter dated June 12, 2019, AltaLink requested that the Commission approve a schedule
change to the negotiated settlement schedule.5 AltaLink requested a 48 hour extension to advise
if an NSA had not been reached.
8. In a letter dated June 13, 2019, the Commission approved AltaLink’s request for a 48 hour
extension.6
9. In a letter dated June 13, 2019, AltaLink advised the Alberta Commission that a NSA had been
agreed to in principle by the Alberta Direct Connect Consumers Association (“ADC”), the CCA, the
Industrial Power Consumers Association of Alberta (“IPCAA”), the Office of the Utilities Consumer
Advocate (“UCA”) (collectively, the “Interveners”), and AltaLink.7 AltaLink requested an extension
to July 5, 2019 to allow all parties time to review and complete documentation for AltaLink’s
submission of the NSA and application to the Commission.
10. In a letter dated June 18, 2019, the Commission approved AltaLink’s request for an extension to
file the NSA and application to the Commission.8
11. In a letter dated July 5, 2019, AltaLink advised the Commission that the NSA terms have been
finalized, subject to any necessary approval followed by signature of the Interveners, and
requested an extension for filing the NSA and application until early in the week of July 8, 2019.9
12. Extensive negotiations occurred among AltaLink and the Interveners over 18 days, resulting in all
parties’ agreement in principle to an NSA on June 13, 2019. Continued without-prejudice
discussions over the following three weeks resulted in a detailed NSA, finalized on July 5, 2019.
The parties successfully reached a negotiated settlement on all relevant aspects of AltaLink’s
2019-2021 GTA, with the exception of the Commission Excluded Matters and the following three
matters (the “Party Excluded Matters”):
a. Appendix 8A – Account 354.00: Towers and Fixtures Interval – Retirements During Age
Interval 0;
b. Appendix 22: AltaLink Wildfire Mitigation Plan; and
5 Exhibit 23848-X0195, AML Letter to AUC - 2019-2021 GTA Negotiated Settlement Update (June 12, 2019). 6 Exhibit 23848-X0196, AUC letter - AltaLink request for a 48-hour extension (June 13, 2019). 7 Exhibit 23848-X0197, AML Letter to AUC - Request for Extension to Negotiated Settlement Agreement (June 13, 2019). 8 Exhibit 23848-X0198, AUC letter - NSA process schedule (June 18, 2019). 9 Exhibit 23848-X0201, AML Letter to AUC - Request for Extension to Filing of NSA (July 5, 2019).
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c. $20.0M of increased Capital Replacement and Upgrades Capital Expenditures (“CRU”) for
Line Clearance Mitigation work.
13. The parties agreed that the Commission Excluded Matters and the Party Excluded Matters shall
be heard in the Excluded Matters Application before the Commission.
14. The negotiated settlement is set forth in the Settlement Agreement attached to this application.
15. This is AltaLink’s application for approval of the Settlement Agreement for its 2019-2021 GTA
under Rule 018.
II. ALTALINK’S SETTLEMENT APPLICATION COMPLIES WITH ALL
REQUIREMENTS OF RULE 018: RULES ON NEGOTIATED SETTLEMENT
A. Introduction
16. The NSP was approved by the Commission by letter dated May 1, 2019.
17. Prior to AltaLink’s request for an NSP, AltaLink responded to one round of extensive information
requests and the Commission made a number of rulings with respect to the 2019-2021 GTA.
Therefore, in addition to the comprehensive evidence provided by AltaLink in its 2019-2021 GTA,
all parties had the benefit of extensive information discovery through information responses from
AltaLink.
18. Without-prejudice negotiations occurred over 18 days with full participation of the Interveners
resulting in agreement in principle on June 13, 2019. Without-prejudice discussions continued
until July 5, 2019, ultimately resulting in the finalized Settlement Agreement which is attached.
19. The negotiations were completely arms length and hard fought. Further, all consumer and
industrial groups that have historically participated in AltaLink GTAs registered Statements of
Intent to Participate (SIPs) and fully participated in the negotiations. The NSP fully complied with
all aspects of Rule 018.
B. All Participants Had Full Access to All Relevant Information (Section 6(1) of Rule 018)
20. Section 6(1) of Rule 018 requires settlement agreements to include a representation that no party
has withheld relevant information. All parties have confirmed compliance with this requirement.
21. The express representation is set out in section 8(a) of the Settlement Agreement.
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C. All Interested Parties Were Notified (Section 6(3)(a) of Rule 018)
22. On April 23, 2019 AltaLink filed a letter with the Commission requesting approval to initiate
negotiations. AltaLink invited the Interveners to participate in the NSP. All materials filed by
AltaLink in this proceeding prior to the commencement of negotiations were available to the
participants. Each of these parties was given the opportunity to participate fully in the NSP and
have their respective issues addressed. As set out in section 8 of the Settlement Agreement,
AltaLink confirms that each intervener was provided with all relevant information and that proper
notice of the NSP was provided to all interested parties in accordance with the Commission’s
directions in that regard.
D. The Settlement Agreement (Section 6(3)(b) of Rule 018)
23. The Settlement Agreement resulting from the NSP is attached to this Application.
E. Details of Issues Not Resolved (Section 6(3)(c) of Rule 018)
24. With the exception of the Commission Excluded Matters and Party Excluded Matters, the parties
reached an agreement on all relevant issues relating to AltaLink’s 2019-2021 GTA negotiated
settlement. Further details of the Party Excluded Matters are as follows:
a. Parties agree that Appendix 8A – Account 354.00: Towers and Fixtures Interval –
Retirements During Age Interval 0 amounts shall be the subject of an application before
the Commission. AltaLink has filed an explanatory letter from Larry Kennedy,10 an
updated depreciation study,11 and an updated response to AML-UCA-2018OCT31-111;12
b. AltaLink requires $20.0 million of increased CRU costs for Line Clearance Mitigation work
for the Test Period that is not currently set forth in the 2019-2021 GTA. All parties agree
that this matter shall be the subject of an application before the Commission, and that
AltaLink’s 2019-2021 GTA shall include an additional $20.0 million as a placeholder
pending the outcome of that application. The materials that are the subject of this work
are the management update13 and revised schedules in Appendix A; and
10 Exhibit 23848-X0202, AML 2019-2021 GTA Update NSA - Depreciation and Line Clearance Mitigation, pdf p. 2 (July 8, 2019). 11 Exhibit 23848-X0011.01, AML 2019-2021 GTA - Appendix 08 Updated NSA (Depreciation) Blackline, pdf p. 2 (July 8, 2019). 12 Exhibit 23848-X0077.01, AML IR Responses to UCA (1-131) Updated NSA Blackline, pdf pp. 153-154 (July 8, 2019). 13 Exhibit 23848-X0203, AML 2019-2021 GTA Update NSA - Appendix 13-A02B Line Clearance Mitigation Management Update (July 8, 2019).
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c. AltaLink filed wildfire mitigation plans as it was deeply concerned with wildfires in Alberta
and the potential for AltaLink assets to contribute to fire ignition. All parties agree that
AltaLink’s wildfire mitigation plans shall be the subject of an application before the
Commission. The materials that are the subject of this work are Appendix 22: AltaLink
Wildfire Mitigation Plan,14 USA 561, USA 563 and USA 571.1.
25. All parties agree this is a comprehensive settlement. Accordingly, the parties agree that the Party
Excluded Matters shall be included with the Commission Excluded Matters in the Excluded
Matters Application before the Commission.15
F. Outline of Issues Where Acceptance is Not Unanimous (Section 6(3)(d) of Rule 018)
26. The parties agreed on all issues other than the Commission Excluded Matters and the Party
Excluded Matters, as detailed above.
G. The Rates That Will Result From the Settlement (Section 6(3)(e) of Rule 018)
27. Revised 2019-2021 Negotiated Settlement GTA Minimum Filing Requirements schedules and a
Summary of Changes to AltaLink’s Revenue Requirement are attached to the Settlement
Agreement as Appendix A and B respectively.
28. The cumulative effect of the reductions agreed to and set forth in the Settlement Agreement is as
follows:
• Operating and Maintenance (“O&M”) and Administrative and General (“A&G”) costs will be
reduced by $22.5 million over the Test Period, “net” of Revenue Offsets as that term is
defined in Schedule 8-1 to the Settlement Agreement. AltaLink and the Interveners have
agreed to a 50/50 symmetrical cost sharing mechanism for any O&M, A&G and Revenue
Offsets reduction or exceedance over the Test Period. Customers’ share of the risk of any
actual costs that cumulatively exceed the forecasted costs over the Test Period for O&M,
A&G and Revenue Offsets shall not exceed $3.0 million in total;16
• CRU costs will be reduced by $69.0 million ($64.0 million net) over the Test Period, as
follows:
14 Exhibit 23848-X0169, AML 2019-2021 GTA Update - Appendix 22 Wildfire Mitigation (April 1, 2019). 15 Settlement Agreement, ss. 2(k) and (l). 16 Settlement Agreement, s. 2(c).
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• $30.0 million base capital reduction to CRU capital costs in the Test Period,
• $19.0 million gross ($14.0 million net) of estimated line move projects will be removed
from the 2019-2021 GTA. AltaLink will include the actual costs incurred for line move
projects constructed in the Test Period in AltaLink’s next General Tariff Application, and
• $20.0 million of additional CRU reductions;17
• Technology/Security costs will be reduced by $10.0 million over the Test Period;18
• Facilities costs will be reduced by $4.0 million over the Test Period;19
• Agreed specific reductions to interest rates will reduce interest on debt costs by an
estimated $3.6 million over the Test Period;20
• A 2-year extension of the depreciation life of Account 355.01 – Poles and Fixtures21 will
result in a $1.9 million reduction over the Test Period; and
• Refund of the accumulated depreciation surplus of $31.2 million.22
29. Therefore, the Settlement Agreement results in operating and capital costs reductions of $111.0
million, subject to the Commission’s determination of the Commission Excluded Matters and the
Party Excluded Matters, and a direct reduction of the transmission tariffs set forth in the 2019-
2021 GTA of $38.0 million as set out in Appendix B to the Settlement Agreement.
30. Amounts payable to ratepayers arising from the cost sharing arrangement regarding the O&M,
A&G and Revenue Offsets are to be disposed of through a separate application to the Commission
on or before July 1, 2022.23
31. The detail of each agreed-to reduction is set forth in the revised Schedules 3-1, 5-1, 6-1, 25-1 and
10-4 attached to the Settlement Agreement.
32. In relation to the specific cost reductions:
17 Settlement Agreement, s. 2(e). 18 Settlement Agreement, s. 2(g). 19 Settlement Agreement, s. 2(h). 20 Settlement Agreement, s. 4. 21 Settlement Agreement, s. 5(b). 22 Settlement Agreement, s. 5(a). 23 Settlement Agreement, s. 2(d).
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(a) the reduction in revenue requirement for A&G and O&M in the Test Period is expected to
be achieved primarily through efficiency gains and effective risk management of the
operating aspects of the business;
(b) AltaLink has assessed and confirms that the reductions in revenue requirement in both A&G
and O&M, according to the facts currently known by AltaLink and to the best of AltaLink’s
knowledge, will not compromise the provision of safe and reliable transmission service;
(c) reductions in CRU (“Transmission Capital Maintenance” in Schedule 10-4) and Information
Technology (“General Plant” in Schedule 10-4) capital expenditures in the Test Period are
expected to be achieved primarily through efficiency gains, life extension of assets and
effective risk management of the capital aspects of the business;
(d) AltaLink has assessed and confirms that the reductions in capital expenditures in both CRU
and Information Technology, according to the facts currently known by AltaLink and to the
best of AltaLink’s knowledge, will not compromise the provision of safe and reliable
transmission service;
(e) all reductions are in accounts not subject to deferral or reserve account proceedings.
33. Therefore, AltaLink is aligned with customers to reduce costs and ensure efficiency gains are
achieved in the 2019-2021 Test Period.
H. The Text of Any Changes to the Terms and Conditions of Service (Section 6(3)(f) of
Rule 018)
34. There are no changes to the Terms and Conditions of Service.
I. A Description of Any Outstanding Issues (Section 6(3)(g) of Rule 018)
35. As noted above, the Commission Excluded Matters are:
a. AltaLink’s salvage proposal,
b. AltaLink’s salvage study, and
c. Section 33.1 Energy Storage Systems on the Alberta Integrated Electrical System.
36. The Party Excluded Matters are the following, as detailed above:
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a. Appendix 8A - Account 354.00: Towers and Fixtures Interval – Retirements During Age
Interval 0;
b. Appendix 22: AltaLink Wildfire Mitigation Plan; and
c. $20.0 million of increased CRU for Line Clearance Mitigation work.
37. The parties agree that the Commission Excluded Matters and the Party Excluded Matters shall be
included in the Excluded Matters Application before the Commission.24
38. Through intensive negotiations that occurred over 18 days, and detailed discussions over the
subsequent three weeks, the parties successfully reached agreement on all other relevant aspects
of AltaLink’s 2019-2021 GTA.
III. SETTLEMENT BRIEF
A. The Public Interest in Negotiated Settlements
39. The determination by the Commission of just and reasonable tariffs for TFOs has required
significant, litigated proceedings. The proceedings have been intensive, expensive and time
consuming for the Commission, interveners and for AltaLink.
40. The litigated proceedings, however, have resulted in a foundation of decisions where the
Commission has ruled on positions advanced by various, often opposed, parties.
41. The public interest in the settlement of litigated disputes has long been recognized by regulators
and Courts alike. Among other benefits, settlements result in:
• Finality: if approved, the result has been accepted by the litigating parties for the relevant
test years;
• Cost savings: litigated proceedings are costly and often require extensive expert evidence in
addition to the extensive company resources that must be devoted to preparing and
testifying to a GTA; and
• Interest based resolutions: as opposed to opposing positions advocated and decided by a
neutral decision maker, negotiated settlements can result in acceptable solutions that go
beyond the litigation position of adverse parties.
24 Settlement Agreement, ss. 2(k) and (l).
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42. Clearly, all settlements must be assessed by and approved by the Commission. Under the AUC
Rules, where a settlement is unanimous, the Commission is only required to intervene if the
settlement is “patently against the public interest or contrary to law”.25 The test encapsulated in
the AUC Rules very much aligns with the rationale applied by the Courts when the Courts are
required to approve settlements that arise from arms-length negotiations conducted by parties
adverse in interest. The underlying considerations are remarkably similar between the Courts and
regulatory bodies. The test to be applied is nicely summarized in Rule 018 by stating that a
settlement must be patently against the public interest or contrary to law in order for the
Commission to intervene.
43. In assessing the settlement, the Commission is not obliged to consider whether the settlement
protects a utility’s interest and is “entitled to proceed on the basis that the negotiated settlement
fully satisfies the utility’s interests”. Accordingly, the Commission “need only assess the public
interest from the perspective of the consuming public”.26
B. An Overview of the Settlement Process: The NSP Addressed the Entirety of the GTA
Application
44. In addition to AltaLink, all of the Interveners participated vigorously in the negotiation of the
Settlement Agreement. Thus, every intervener representing a constituent of Albertans that
historically participated in the testing of AltaLink’s GTA were present at the bargaining table.
Industrial consumers, both large and small, as well as individual consumers, were separately
represented.
45. There was no collusion. The negotiating parties were fully at arm’s length and adverse on many
issues. Settlement discussions are confidential and privileged for sound policy reasons. It is the
collision of opposing views through intensive negotiations that results in compromises that
generates a fair result.
46. Finally, the assessment of a settlement agreement, whether by a Court or by a regulatory body,
is not a trial or hearing of the underlying merits. It is an assessment of a settlement agreement
and the resolution of a myriad of often connected issues by way of settlement. The approving
25 Rule 018, s. 8(2). 26 ATCO Electric Limited v Alberta (Energy and Utilities Board), 2004 ABCA 215 at para 146, cited in AUC Decision 21149-D01-2016, ENMAX Power Corporation, Distribution 2015-2017 Performance-Based Regulation – Negotiated Settlement Application and Interim X Factor (August 3, 2016) at para 28.
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body exercises a review and not a primary role. The test is whether or not the settlement falls
within a range of acceptable outcomes as enshrined in the test that the settlement agreement
must be patently against the public interest or contrary to law for the Commission to intervene.
47. In Commission Decision 21149-D01-2016, the Commission applied a three part test in considering
whether to approve a negotiated settlement as follows:
• Whether there was procedural fairness, both with respect to adequate notice being served
and with respect to the conduct of the NSP itself;
• Whether the individual components of the Settlement Agreement that make up the
application will result in just and reasonable rates; and
• Whether the Settlement Agreement is patently against the public interest or contrary to law,
and whether the provisions of the Settlement Agreement individually appear contrary to
accepted regulatory practices, or could result in undue rate and service effects on customers
that are clearly contrary to law.27
48. The Settlement Agreement manifestly satisfies all elements of this test applied by the
Commission.
49. First, the NSP was procedurally fair. The Interveners in the NSP are the same entities that
participated in the NSP for AltaLink’s 2017-2018 GTA. In its decision approving that NSA, the
Commission considered that “a reasonable cross-section of customers was represented”.28 This
remains true for the present NSP: the Interveners are the parties historically active in AltaLink’s
GTAs and are well aware of the business of AltaLink and the issues commonly addressed in each
successive GTA.
50. A great deal of information, through one round of information responses, was provided before
the NSP even commenced. Proper and timely notice was provided. Prior to and during
negotiations, all existing relevant information was provided. All of the parties were active in the
negotiations and are ultimately signatories to the Settlement Agreement.
51. Second, the Settlement Agreement will result in rates that are just and reasonable.
27 AUC Decision 21149-D01-2016, ENMAX Power Corporation, Distribution 2015-2017 Performance-Based Regulation – Negotiated Settlement Application and Interim X Factor (August 3, 2016) at para 29. 28 AUC Decision 21341-D01-2017, AltaLink Management Ltd., 2017-2018 General Tariff Application Negotiated Settlement Agreement (August 30, 2017) at para 47.
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52. As set forth above, the Settlement Agreement results in a direct reduction of the transmission
tariffs set forth in the 2019-2021 GTA of $38.0 million as described in section C below.
53. The fact that all types of consumers were represented by interveners that historically participate
in AltaLink’s GTAs, provides forceful confirmation that the settlement is in the public interest. In
the decision approving the NSA for AltaLink’s 2017-2018 GTA, which was agreed to by the same
four Interveners as participated in the NSP for AltaLink’s 2019-2021 GTA, the Commission held:29
The NSA represents a unanimous agreement reached as a result of a successful
negotiation reflecting a number of compromises of different interests and positions of
the parties. The signatories to the settlement agreement represent a constituent of
Albertans that have historically participated in the testing of AltaLink’s GTAs and
supports a finding that the NSA is in the public interest.
54. The fact that the NSP avoids a contested process is also a factor that favours the NSA’s approval.
The Commission has previously held that approving an NSA results in “greater regulatory
efficiency and cost savings to customers than would a contested process”.30
C. The Key Terms of the Settlement Agreement
Introduction
55. The terms of the negotiated settlement are set forth in the Settlement Agreement which is
attached to this Application.
56. AltaLink provides, below, additional explanation of certain of the key terms of the negotiated
settlement.
Cost Adjustments
57. In its 2019-2021 GTA,31 AltaLink applied for approval of a transmission tariff of $864.1 million in
2019, $871.7 million in 2020 and $874.5 million in 2021.
58. The Settlement Agreement, if approved, results in specific cost reductions of $111.0 million.
29 AUC Decision 21341-D01-2017, AltaLink Management Ltd., 2017-2018 General Tariff Application Negotiated Settlement Agreement (August 30, 2017) at para 56. 30 AUC Decision 21149-D01-2016, ENMAX Power Corporation, Distribution 2015-2017 Performance-Based Regulation – Negotiated Settlement Application and Interim X Factor (August 3, 2016) at para 48. 31 Exhibit 23848-X0002.01, AML 2019-2021 GTA – Application.
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59. The specific cost reductions are comprised of the following:
O&M and A&G costs net of Revenue Offsets $22.5 million
CRU capital costs $69.0 million
Technology/Security capital costs $10.0 million
Facilities capital costs $4.0 million
Interest rate reductions (estimated) $3.6 million
2-year extension of the depreciation life of Account 355.01 – Poles and Fixtures
$1.9 million
Total $111.0 million
60. These specific cost reductions are subject to the Commission’s determinations of the Commission
Excluded Matters and Party Excluded Matters.
Alternative Regulatory Model
61. All parties to the NSP have agreed to enter into good faith discussions with all other TFOs in
Alberta in an effort to determine if an alternative regulatory model for transmission is
appropriate for all Alberta TFOs and if so, to develop an alternative regulatory model for
transmission that is acceptable to all parties. The parties agree that discussions should
commence 45 days after the issuance of a decision on AltaLink’s 2019-2021 GTA.32
Without Prejudice
62. The negotiated settlement reflected in the Settlement Agreement is a compromise, and was
reached in part as a result of the desire of the parties to avoid the significant resources associated
with a litigated process. The Settlement Agreement is for the purpose of AltaLink’s 2019-2021
GTA only, unless expressly stated otherwise, and is without prejudice to the positions that any of
the parties may take in subsequent negotiations or regulatory proceedings.33
32 Settlement Agreement, s. 6. 33 Settlement Agreement, s. 7.
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IV. THE AUC’S JURISDICTION TO APPROVE THE SETTLEMENT AGREEMENT
63. The Settlement Agreement reflects compromises regarding the different interests and positions
of the parties, and was negotiated as a package. The Settlement Agreement was negotiated on
the basis that it is contingent on the Commission accepting the entire settlement, with the result
that in accordance with section 135 of the Electric Utilities Act, S.A. 2003, c. E-5.1, the Commission
must either approve the entire settlement or refuse it.
64. However, AltaLink respectfully requests that if the Commission is considering rejecting the
Settlement Agreement because it is concerned with one or more provisions, it should indicate
which of the provisions are the source of the Commission’s concern, and that the Commission
provide the parties to the Settlement Agreement an opportunity to re-negotiate or remove the
provisions that are the source of the Commission’s concern.
V. CONCLUSION: THE SETTLEMENT AGREEMENT IS IN THE PUBLIC INTEREST
65. The Settlement Agreement is in the public interest as:
• The Settlement Agreement resulted from 18 days of negotiation covering all components
of the GTA and three weeks of detailed discussions thereafter;
• The Settlement Agreement reflects the unanimous agreement of AltaLink and the
Interveners with respect to all elements of AltaLink’s 2019-2021 GTA, except the
Commission Excluded Matters and Party Excluded Matters, which matters the parties
agree the Commission can and should determine;
• The Settlement Agreement results in a fair and reasonable tariff for 2019, 2020 and 2021;
• The Settlement Agreement results in a reduction of capital and operating costs of $111.0
million;
• The Settlement Agreement avoids a litigated proceeding, further consumption of
resources of the parties and the Commission, and avoids costs that necessarily arise in a
fully litigated proceeding;
• The Settlement Agreement brings finality and certainty; and
• The Settlement Agreement eliminates, largely, regulatory lag if expeditiously approved. As
AltaLink must implement efficiencies to achieve the reductions set forth in the Settlement
Agreement, it is critical that the approval be granted in 2019.
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Application for Approval of AltaLink’s 2019-2021 GTA
Negotiated Settlement Agreement
July 10, 2019 updated August 21, 2019 14
66. This Application meets all of the requirements of AUC Rule 018, and as a unanimous settlement
on all elements of AltaLink’s 2019-2021 GTA (except the Commission Excluded Matters and Party
Excluded Matters) engages section 8 of AUC Rule 018, which provides as follows:
Unanimous or unopposed settlement
(1) Upon presentation of a unanimous settlement or a settlement that is unopposed, the
Commission must assess whether the settlement results in rates and terms and conditions
that are just and reasonable.
(2) If a unanimous settlement is determined by the Commission to be patently against the
public interest or contrary to law, the Commission must intervene.
67. Accordingly, AltaLink respectfully requests the Commission to approve the Settlement Agreement
as filed.
ALL OF WHICH IS RESPECTFULLY SUBMITTED on August 21, 2019.
“Original Signed by Bryan Hunter on behalf of” Zora Lazic Senior Vice President, Law & Regulatory General Counsel
Communications in respect of the Application may be sent to: Zora Lazic AltaLink Management Ltd. 2611 – 3rd Avenue SE Calgary, AB T2A 7W7 [email protected]
Randall W. Block, Q.C. Borden Ladner Gervais LLP 1900, 520 – 3rd Avenue SW Calgary, AB T2P 0R3 [email protected]
Bryan Hunter AltaLink Management Ltd. 2611 – 3rd Avenue SE Calgary, AB T2A 7W7 [email protected]
Attachments:
Settlement Agreement - AltaLink 2019-2021 General Tariff Application.
2019-2021 General Tariff Application Negotiated Settlement Agreement and Excluded Matters
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1
SETTLEMENT AGREEMENT ALTALINK MANAGEMENT LTD., IN ITS CAPACITY AS GENERAL PARTNER OF
ALTALINK, L.P. 2019-2021 GENERAL TARIFF APPLICATION
THESE TERMS OF SETTLEMENT for the Negotiated Settlement of the 2019-2021 General
Tariff Application (“2019-2021 GTA” or “Application”) are made and entered into as of July 5,
2019.
AMONG:
ALTALINK MANAGEMENT LTD., in its capacity as general partner of AltaLink, L.P., (“AltaLink”)
and
CONSUMERS’ COALITION OF ALBERTA (the “CCA”),
and
OFFICE OF THE UTILITIES CONSUMER ADVOCATE (the “UCA”),
a n d
ALBERTA DIRECT CONNECT CONSUMERS ASSOCIATION (“ADC”),
a n d
INDUSTRIAL POWER CONSUMERS ASSOCIATION OF ALBERTA (“IPCAA”)
each, a “Party” and collectively, the “Parties”
WHEREAS:
(a) by letter dated April 23, 2019 AltaLink requested permission to commence negotiations on all aspects of its Application except AltaLink’s salvage proposal and salvage study;
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(b) on May 1, 2019 the Alberta Utilities Commission (“AUC”) approved AltaLink’s request to commence negotiations under AUC Rule 018 on all matters of the Application with the exception of AltaLink’s:
i. salvage proposal, ii. salvage study, and
iii. Section 33.1 Energy Storage Systems on the Alberta Integrated Electrical System;
(c) AltaLink, the ADC, the CCA, the IPCAA and the UCA (collectively the ADC, the CCA, the
IPCAA and the UCA will be referred to as the “Interveners”) entered into a negotiated settlement
process;
(d) After settlement negotiations in May, June and July of 2019, the Parties successfully reached a
negotiated settlement on all elements of AltaLink’s 2019-2021 GTA with the exception of
AltaLink’s:
i. salvage proposal,
ii. salvage study,
iii. Section 33.1 Energy Storage Systems on the Alberta Integrated Electrical System,
iv. Appendix 8A - Account 354.00: Towers and Fixtures Interval – Retirements During Age
Interval 0,
v. Appendix 22: AltaLink Wildfire Mitigation Plan, and
vi. $20.0M of increased Capital Replacement and Upgrades Capital Expenditures for Line
Clearance Mitigation work;
(e) The term of this settlement is the 2019-2021 Test Years Period (“Test Period”).
IN CONSIDERATION of the mutual promises made in these Terms of Settlement and for other good and
valuable consideration, the receipt and sufficiency of which is hereby expressly acknowledged by each of
the Parties, and subject to the conditions hereinafter set out, the Parties agree as follows:
1. Cost Adjustments
(a) The overall cost adjustments agreed to in this Settlement Agreement are set out in the revised
Schedule 3-1. The amounts set out are related to AltaLink’s Schedule 5-1, Schedule 6-1, Schedule
25-1, Schedule 10-4, and Schedule 8-1. Revised Minimum Filing Requirement (“MFR”) schedules
are attached as Appendix A to this Settlement Agreement and a Summary of Changes to AltaLink’s
Revenue Requirement is attached as Appendix B to this Settlement Agreement.
(b) AltaLink will prepare a revised filing by July 5, 2019 to be reviewed by the Interveners to obtain
confirmation that the revised filing is consistent with this Settlement Agreement. Once a revised
filing is approved, AltaLink will file it with the Commission for approval.
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(c) The Interveners agree to support, on a without prejudice basis as set out in this document or any
final agreement, the revised filing for approval.
2. Specific Reductions Identified
(a) AltaLink and the Interveners confirm that they are not aware of any other factual errors present in
the Application, including the 2019-2021 GTA schedules that have been filed in the proceeding
(b) Specific reductions are addressed in the revised schedules 3-1, 5-1, 25-1 and 10-4, attached as
Appendix A to this Settlement Agreement.
(c) AltaLink agrees to a $22.5M reduction in net Operating and Maintenance (“O&M”) and
Administrative and General (“A&G”) costs over the Test Period. For clarification, these amounts
are “net” of Revenue Offsets, but no specific changes have been made or are currently contemplated
by AltaLink to AltaLink’s Revenue Offsets included in Schedule 8-1. AltaLink agrees that the
$22.5M in O&M and A&G cost reductions negotiated in this Settlement Agreement will not result
from changes in accounting policies or practices for the Test Period. AltaLink has agreed to a 50/50
symmetrical cost sharing mechanism for any O&M, A&G and Revenue Offsets reduction or
exceedance over the Test Period. Customers’ share of the risk of any actual costs that cumulatively
exceed the forecasted costs over the Test Period for O&M, A&G and Revenue Offsets shall not
exceed $3.0M in total. Parties understand the cost sharing mechanism in this Settlement Agreement
is as follows:
i. Attached in Appendix C is the O&M, A&G and Revenue Offsets cost sharing mechanism;
ii. Attached as Appendix D and Appendix E are illustrations (examples) of the cost sharing
mechanism; and
iii. For greater clarity and as detailed in the Appendices, AltaLink and the Interveners have agreed
to a symmetrical cost sharing mechanism in this Settlement Agreement. In the event actual
costs are less than the forecast costs set forth in this Settlement Agreement, the savings will be
shared equally between AltaLink and ratepayers. In the event actual costs exceed the forecast
costs set forth in this Settlement Agreement, AltaLink and ratepayers will bear the costs equally
provided that rate payers shall be responsible for no more than $3 million of increased actual
costs over the Test Period.
(d) Amounts payable to ratepayers arising from this cost sharing arrangement regarding the O&M,
A&G and Revenue Offsets are to be disposed of through a separate application to the Commission
on or before July 1, 2022.
(e) AltaLink agrees to $69.0M gross ($64.0M net) of effective reductions in Capital Replacement and
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Upgrades Capital Expenditures (“CRU”) costs over the Test Period. AltaLink will reduce the
forecast costs by $49.0M gross ($44.0M net) of CRU costs over the Test Period directly in the
2019-2021 GTA. The cumulative effect of the $69.0M gross ($64.0M) reduction agreed to and set
forth in this Settlement Agreement is as follows:
i. $30.0M base capital reduction to CRU capital costs in the Test Period;
ii. $19.0M gross ($14.0M net) of estimated line move projects will be removed from the 2019-
2021 GTA. AltaLink will include the actual costs incurred for line move projects constructed
in the Test Period in AltaLink’s next General Tariff Application; and
iii. $20.0M of additional CRU reductions;
(f) AltaLink requires $20.0M of increased CRU costs for Line Clearance Mitigation work. The
additional $20.0M will be treated as a placeholder pending litigation solely of the $20.0M of
incremental costs. AltaLink anticipates an additional $20.0M for Line Clearance Mitigation work
in the Test Period that is not currently set forth in the 2019-2021 GTA. AltaLink has included a
management update to its 2019-2021 GTA along with revised schedules as Appendix A in support
of the $20M increase in CRU costs for Line Clearance Mitigation work.
(g) AltaLink agrees to $10.0M of reductions in Information Technology/Security costs over the Test
Period. AltaLink has included as Appendix F further information on AltaLink’s Information
Technology/Security.
(h) AltaLink agrees to $4.0M of reductions in Facilities costs over the Test Period.
(i) The detail of each agreed to reduction is set forth in the revised Schedules 3-1, 5-1, 10-4, and 25-1
(Appendix A) in the 2019-2021 GTA Negotiated Settlement Application.
(j) In relation to the specific cost reductions:
i. the reduction in revenue requirement for A&G and O&M in the Test Period is expected to be
achieved primarily through efficiency gains and effective risk management of the operating
aspects of the business.;
ii. AltaLink has assessed and confirms that the reductions in revenue requirement in both A&G
and O&M, according to the facts currently known by AltaLink and to the best of AltaLink’s
knowledge, will not compromise the provision of safe and reliable transmission service;
iii. reductions in CRU (“Transmission Capital Maintenance” in Schedule 10-4) excluding line
move projects, and Information Technology/Security (“General Plant” in Schedule 10-4)
capital expenditures and additions in the Test Period are expected to be achieved primarily
through efficiency gains, life extension of assets and effective risk management of the capital
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aspects of the business;
iv. AltaLink has assessed and confirms that the reductions in capital expenditures in both CRU
and Information Technology, according to the facts currently known by AltaLink and to the
best of AltaLink’s knowledge, will not compromise the provision of safe and reliable
transmission service; and
v. all reductions are in accounts not subject to deferral or reserve account proceedings.
(k) AltaLink and the Interveners agree that the following matters are specifically excluded from this
Settlement Agreement:
i. AltaLink’s salvage proposal,
ii. salvage study,
iii. Section 33.1 Energy Storage Systems on the Alberta Integrated Electrical System,
iv. Appendix 8A - Account 354.00: Towers and Fixtures Interval – Retirements During Age
Interval 0,
v. Appendix 22: AltaLink Wildfire Mitigation Plan, and
vi. $20.0M of increased Capital Replacement and Upgrades Capital Expenditures for Line
Clearance Mitigation work
Hereafter referred to as the Excluded Matters (“Excluded Matters”).
(l) All parties agree that the Excluded Matters shall be the subject of the Application before the AUC.
3. Use of Existing Transmission System
(a) AltaLink and the Interveners agree to encourage increased utilization of the existing transmission
system.
4. Specific Reductions Identified to Interest Rates
(a) AltaLink and the Interveners agree short term interest rates forecast over the Test Period are 2.17%
for 2019, 2.25% for 2020 and 2.25% for 2021 and the long-term debt interest forecast is 3.223%
on $200M. The cumulative effect is an estimated $3.6M reduction consisting of the following
estimates:
i. $1.3M reduction in short term interest rate costs in the 2019-2021 GTA over the Test Period;
and
ii. $2.3M reduction in long-term interest rates costs in the 2019-2021 GTA over the Test Period;
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(b) Specific reductions are addressed in revised Schedule 3-1, 28-1, and 28-2 attached as Appendix A
to this Settlement Agreement. AltaLink has also attached a response to the Interveners on debt as
Appendix G.
(c) AltaLink and Interveners agree to retain the deferral account for new long term debt issues during
the Test Period. AltaLink agrees to reflect this in its 2019-2021 GTA management update.
5. Depreciation
Background on Accumulated Depreciation Variance
(a) As a result of transferring steel poles from Account 355.00 to Account 355.01, a surplus of $26.6M
exists. In addition, another $4.6M of accumulated depreciation surplus exists from the ISO 502.2
compliant towers account. The total surplus is $31.2M. AltaLink and the Interveners agree to a
refund of the $31.2 million, as set out in Section 6.5 of the 2019-2021 GTA.
(b) AltaLink agrees to extend the depreciation average life of Account 355.01 – Poles and Fixtures by
an additional 2 years.
(c) Specific reductions are addressed in revised Schedule 3-1 and 6-1 attached as Appendix A to this
Settlement Agreement.
6. Alternative Regulatory Model (a) AltaLink and the Interveners will enter into good faith discussions with all other transmission
facility owners in Alberta in an effort to determine if an alternative regulatory model for transmission is appropriate for all Alberta transmission facility owners and if so, to develop an alternative regulatory model for transmission that is acceptable to all parties. AltaLink and the Interveners agree that discussions should commence 45 days after the issuance of a decision on AltaLink’s 2019-2021 GTA.
7. Without Prejudice
(a) The negotiated settlement reflected in this Settlement Agreement is a compromise and was reached
in part as a result of the desire of the Parties to avoid the significant resources associated with a
fully litigated process. These Terms of Settlement are for the purpose of AltaLink’s 2019-2021
GTA only, unless expressly stated otherwise, and they are without prejudice to the positions that
any of the Parties may take in any subsequent negotiations and regulatory proceedings. The Parties
acknowledge that AltaLink has advised the agreed reductions in revenue requirement elements, as
reflected in the cost adjustments of section 1 and 2 above, and compared to the revised Application
amounts, are matters AltaLink expects to manage within the overall operation of its business over
the 2019 - 2021 Test Period. For 2019, 2020 and 2021, the Parties agree to the specific depreciation
rate changes discussed in Section 5 and supporting documents of this Settlement Agreement.
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AltaLink agrees to apply the specific depreciation rates, including amortization of the Accumulated
Depreciation, as stated or implied in Schedule 6-4 (attached as Appendix A to this Settlement
Agreement) and supporting documents over the Test Period of the Settlement Agreement.
(b) At the outset of the negotiations, AltaLink and the Interveners confirmed that the negotiations were
limited to specific matters, exclusively within the scope of AltaLink’s 2019-2021 GTA, and other
matters that would ultimately be determined as part of ongoing or future applications would not be
addressed as a result of this negotiation or impacted as result of these negotiations. Specifically,
the following matters were excluded from the scope of these negotiations:
i. It is agreed that the prudence of actual direct assign capital additions, compliance with
Commission directives for direct assign capital, and any other matter relevant to actual direct
assign capital are subject to future Commission approval.
ii. On a without prejudice basis to the positions of any party regarding whether direct assigned
capital is used, required to be used, or the level of utilization is in or out of scope in other
proceedings, all parties agree that the matter of whether direct assign capital is used, required
to be used, or the level of utilization has not been addressed as part of the 2019-2021 GTA
negotiated settlement.
iii. The forecast 2021 return on equity and equity thickness included in the Application are
approved by the Commission on an interim basis unless otherwise directed by the
Commission.
iv. All other deferral and reserve accounts are included on a forecast basis and are agreed to for
forecast revenue requirement purposes. Actual costs are subject to future reconciliations and
subject to Commission approval.
(c) For additional clarity, the settlement does not include matters to be determined in future Generic
Cost of Capital, Direct Assign Capital Deferral Account or Asset Utilization proceedings.
8. Representations and Warranties
(a) Each Party represents that it has not withheld relevant information.
(b) AltaLink represents that all information it provided to the Interveners during the negotiated
settlement process was true and accurate, to the best of AltaLink’s knowledge.
(c) AltaLink represents, after due inquiry:
i. The 2019-2021 GTA, supporting material, responses to information requests and all
information filed with the Commission contains all material information and facts relied upon
by AltaLink to support its revenue requirements for the 2019, 2020 and 2021 test years.
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ii. To the knowledge of AltaLink, the information provided by it in all of its filings with the
Commission and submissions to Parties during the negotiation of this Settlement Agreement
does not omit any statement of material fact necessary to make the information provided
accurate and true.
iii. At this time, other than the transfer to each of the Piikani First Nation and Blood First Nation
an interest in a portion of the of the AltaLink owned transmission assets across their reserve
lands, AltaLink has no plans or intentions, nor is AltaLink aware of any plans or intentions,
having, or potentially having, a material effect on its revenue requirements for the Test Period,
including plans or intentions of selling or otherwise disposing of any material assets during
the Test Period.
iv. To the knowledge of AltaLink, from the time the 2019-2021 GTA was filed up to and
including the date of these Terms of Settlement, no events have occurred materially impacting
AltaLink’s revenue requirements, revenues or accounting methods for the Test Period.
(d) AltaLink represents that proper notice of the negotiated settlement process approved by the
Commission was provided to all interested parties in accordance with the Commission’s directions
in that regard.
(e) In the event that AltaLink discovers any material errors in calculations and/or facts related to the
revenue requirement set forth in the 2019-2021 GTA, AltaLink agrees to disclose them in its next
GTA.
(f) AltaLink agrees to disclose in its next GTA any changes in accounting policy or practice during
the Test Period that result in material changes to AltaLink’s applied for revenue requirement for
the Test Period.
(g) The Parties further agree:
i. The division of these Terms of Settlement into headings and paragraphs is for convenience
and reference only and should not affect the interpretation or construction of these Terms of
Settlement.
ii. These Terms of Settlement and attached Appendices constitute the entire settlement agreement
between the Parties and no other agreements, expressed or implied, have been made.
iii. Any alteration or amendment of these Terms of Settlement must be in writing and signed by
the Parties. These Terms of Settlement will be binding upon and inure to the benefit of the
Parties and each of their respective successors and permitted assigns. A Party may not assign
their rights and/or obligations under these Terms of Settlement without the consent of all other
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Parties, provided such consent is not unreasonably withheld. These Terms of Settlement may
be executed in any number of counterparts.
iv. These Terms of Settlement are to be interpreted pursuant to the laws of the Province of Alberta.
v. If any provision of these Terms of Settlement is found to be invalid by a court of law, these
Terms of Settlement will be read and interpreted as if the provision were omitted.
vi. The failure of any Party to exercise any right, power or option given to it under these Terms
of Settlement or to insist upon the strict compliance with any of the terms or conditions in
these Terms of Settlement will not constitute a waiver of any provision with respect to any
other or subsequent breach.
vii. Unless otherwise stated, any dollar amounts, prices or amounts stated under these Terms of
Settlement are in the lawful currency of Canada.
viii. Unless otherwise stated, all accounting matters or terms in these Terms of Settlement will be
interpreted and construed in accordance with International Financial Reporting Standards.
ix. References to any statute, legislation or regulation include all subsequent additions,
amendments, re-enactments or replacements enacted from time to time during the period
covered by these Terms of Settlement.
9. Support of Terms of Settlement
(a) The Interveners agree that they will support the application by AltaLink to the Commission for
approval of this Settlement Agreement.
10. Cost of the CCA
(a) Within 30 days following the receipt of an invoice from the CCA, AltaLink will pay the CCA, on
a refundable basis, the reasonable costs and expenses incurred by the CCA in connection with
retaining consultants and counsel in relation to the 2019-2021 GTA and the related negotiated
settlement process to and including the point of the Settlement Agreement and approval of the
same. In the event of any difference between the costs paid to the CCA consultants by AltaLink
and the cost claim approved by the Commission, the CCA, or its counsel or consultants, as the case
may be, will refund to AltaLink any amount by which the approved cost claim differs from the
amount paid to the CCA by AltaLink within 30 days of the date of the Commission’s decision
approving the CCA’s cost claim.
(b) AltaLink will, in any event, pay to the CCA the amount of costs and expenses incurred by the CCA
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in connection with this Settlement Agreement and the related negotiated settlement process within
30 days of the date of the Commission’s decision approving the CCA’s cost claim.
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IN WITNESS WHEREOF, the Parties have duly executed this Settlement Agreement as of the date set out above.
ALTALINK MANAGEMENT LTD., in its capacity as general partner of ALTALINK, L.P.
Per: ______________________ Name: Title:
OFFICE OF THE UTILITIES CONSUMER ADVOCATE
Per: ______________________ Name: Title:
ALBERTA DIRECT CONNECT CONSUMERS ASSOCIATION
Per: ______________________ Name: Title:
CONSUMERS’ COALITION OF ALBERTA
Per: ______________________ Name: Title:
INDUSTRIAL POWER CONSUMERS ASSOCIATION OF ALBERTA
Per: ______________________ Name: Title:
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\
IN WlTNESS WHEREOF. the Parties have duly executed this Settlement Agreement as of the date set out above.
ALT ALINI( MANAGEMENT LTD., in its capacity as general partner of ALT ALINK, L.P.
~,,z/:,;,,,efT,,,,,v Title: 'f,.c_-s.d m 1- ,-cJ;'.t,)
OFFICE OF THE UTILITIES CONSUMER ADVOCATE
Per: L- It/. 1/uL Name: C Jr,~.i' llu/11 Title: E Ke cvf :ve f),"'re e'tr
ALBERTA DIRECT CONNECT CONSUMERS ASSOCIATION
Per:~ c&M Name: 0:>L e 1 -r 1:::. c flt:: t<: e. (<DA Title: E.XEC.V Tl vG Pt 12.eL 70R_
CONSUMERS' COALITION OFALBERTA
= J A vi A-<.k>.\ oL..J.. ~ . itle: J. ··'c .
~~ ~ <? "'----1l ~ CC f>.r ·IJ--lt5wt- I S- 2-<) \ °'/ 'j: S) ~ > g '1 ~
INDUSTRIAL POWER CONSUMERS ASSOCIATION OFALBERTA
Per: /$~ Name: Vittoria Bellissimo Title: Executive Director
11
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