EPCOR Distribution & Transmission Inc. · decision to specific parts of the record are intended to assist the reader in understanding the ... Beljan has agreed to reimburse EPCOR

Decision 22749-D01-2017

EPCOR Distribution & Transmission Inc. Application to Dispose of Substation Property August 24, 2017

Alberta Utilities Commission

Decision 22749-D01-2017

EPCOR Distribution & Transmission Inc.

Application to Dispose of Substation Property

Proceeding 22749

August 24, 2017

Published by the:


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

Calgary, Alberta

T2P 3L8

Telephone: 403-592-8845

Fax: 403-592-4406

Website: www.auc.ab.ca

Decision 22749-D01-2017 (August 24, 2017) • i

Contents

1 Decision .................................................................................................................................. 1

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

3 Background ........................................................................................................................... 2 3.1 The substation property .................................................................................................. 2 3.2 Property transaction history ........................................................................................... 2

4 Legislation .............................................................................................................................. 3

5 Discussion of issues ............................................................................................................... 4 5.1 Disposition of assets and the ordinary course of business ............................................. 4

5.2 Adjustment due to disposition ........................................................................................ 7

6 Order ...................................................................................................................................... 8

Appendix 1 – Proceeding participants ...................................................................................... 11

Appendix 2 – Summary of Commission directions .................................................................. 12

List of tables

Table 1. Disposition of assets outside of the ordinary course of business since the Stores Block appeal ................................................................................................................ 4

Decision 22749-D01-2017 (August 24, 2017) • 1


Calgary, Alberta

EPCOR Distribution & Transmission Inc. Decision 22749-D01-2017

Application to Dispose of Substation Property Proceeding 22749

1 Decision

1. This decision provides the Alberta Utilities Commission’s determination of an

application by EPCOR Distribution & Transmission Inc. (EPCOR) to dispose of a segment of

land. EPCOR submitted that the disposition was outside of the ordinary course of business and

required Commission approval pursuant to Section 101(2) (d) of the Public Utilities Act. For the

reasons that follow, the Commission has determined that the contemplated disposition is not

outside of the ordinary course of business. Accordingly, Commission approval of the disposition

is not required and the application is dismissed.

2 Introduction

2. On June 21, 2017, EPCOR filed an application with the Commission requesting approval

to dispose of a small segment of a larger parcel of land on which Substation No. 200 is located at

12019 102 Avenue Northwest, in Edmonton, Alberta (segment of land).

3. On June 22, 2017, the Commission issued a notice of application that required interested

parties to submit a statement of intent to participate (SIP) by July 6, 2017. The Commission did

not receive any SIPs by this date. On July 12, 2017, the Commission received a SIP from the

Office of the Utilities Consumer Advocate (UCA). In the SIP, the UCA indicated that it would

monitor the proceeding.

4. Also on July 12, 2017, the Commission issued a process letter indicating that information

requests would be issued to EPCOR on July 26, 2017, with information responses due August 9,

2017. The Commission determined that the application would be considered by way of a basic

written process as set out in Bulletin 2015-09.1

5. In subsequent correspondence dated July 21, 2017, the Commission indicated that after

reviewing the application in further detail, it determined that no further process was required.

In the letter, the Commission mistakenly noted the close of record for this proceeding as July 21,

2017. The Commission considers the record of this proceeding to have closed on July 12, 2017,

when the UCA’s SIP was filed.

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

considered all relevant materials comprising the record of this proceeding. References in this

decision to specific parts of the record are intended to assist the reader in understanding the

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

that the Commission did not consider all relevant portions of the record with respect to this

matter.

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

Application to Dispose of Substation Property EPCOR Distribution & Transmission Inc.

2 • Decision 22749-D01-2017 (August 24, 2017)

3 Background

3.1 The substation property

7. EPCOR is the owner of two lots at 12019 102 Avenue Northwest, Edmonton, Alberta,

legally described as Plan 4423AJ, Block 20, Lots 18 and 19 (the land)2 and a 5-kilovolt (kV)

substation located on the land, referred to as Substation No. 200 (the substation). The substation

consists of transformers, voltage regulators, breakers, switchgear and associated equipment, as

well as a small brick building to house sensitive equipment.3 EPCOR stated that the substation

will remain in use until 2018, when EPCOR intends to decommission the substation and apply

for permission to dispose of the remainder of the substation properties, including the land and

building located on the 12019 102 Avenue Northwest property.4

3.2 Property transaction history

8. In January 1996, the City of Edmonton transferred the land and substation to Edmonton

Power Inc., which was subsequently transferred to EPCOR in December 2000. The transaction

on the whole involved the transfer of 24 lots, including the land. EPCOR explained that the total

value of the 24 lots was recorded in its accounting system as $150,972. To determine a value for

each individual lot, EPCOR allocated the total value of $150,972 using the individual lot sizes,5

resulting in an initial book value of the land of $2,036.6

9. In 2016, the property and building adjacent to the substation, a former Edmonton

Telephones Corporation (and later Telus Communications) telephone exchange (the exchange

building) was purchased by Beljan Development (Beljan). According to EPCOR, Beljan intends

to convert the exchange building into a mixed-use office, retail and workshop space. As the

exchange building was built in 1913, Beljan is seeking to have it designated as a Municipal

Historic Resource by the City of Edmonton. EPCOR explained that Beljan’s Municipal Historic

Resource application is complicated by the fact that a portion of the exchange building

encroaches onto the segment of land.

10. In order to facilitate Beljan’s efforts to have the exchange building designated as a

Municipal Historic Resource by the City of Edmonton, EPCOR is seeking approval from the

Commission to sell the segment of land to Beljan. EPCOR submitted that the sale of the segment

of land to Beljan is the most efficient way to assist Beljan in preserving the historic building.7

11. The area of the land is 1,086 m2, and the area of the segment of land is approximately

66 m2. Given the land’s initial book value of $2,036, the calculated net book value of the

segment of land is $124, as shown below:8

66𝑚2

1,086𝑚2× $2,036 = $124

2 Exhibit 22749-0002, application, paragraph 8, Table 3.0-1, line 12.

3 Exhibit 22749-0002, application, paragraph 11.


5 Lots 18 and 19.

6 Exhibit 22749-0002, application, paragraphs 7-8.

7 Exhibit 22749-0002, application, paragraphs 4-5.




12. EPCOR estimated that the approximate value of the land, based on the tax assessment

value, is $139,000.9 This yields an estimated value of $8,447 for the segment of land, as a

proportion of the entire site’s area and tax assessment value, as shown below:10

66𝑚2

1,086𝑚2 × $139,000 = $8,447

13. EPCOR explained that pending a decision from the Commission on this application, the

actual sale price will be determined by negotiations between EPCOR and Beljan. No costs

associated with the disposition of the segment of land will be charged to EPCOR ratepayers.

Beljan has agreed to reimburse EPCOR for any environmental assessment and remediation costs,

land appraisal fees, land agent fees and legal fees associated with the disposition.11

4 Legislation

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

Utilities Act and its regulation,12 EPCOR is subject to Section 101(2) of the Public Utilities Act,

which states:

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

…

(d) without the approval of the Commission,

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

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

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

part of them,

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

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

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

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

the property of an owner of a public utility designated under

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

added]

9 The Property is zoned as “Public Utility” and its tax roll number is 3519055, with a tax assessment value for the

Property of $139,000. 10

Exhibit 22749-0002, application, paragraph 13. 11


The Public Utilities Designation Regulation, Alta Reg 194/2006, Section 1(1)(n) provides that sections 101 and

102 of the Public Utilities Act applies to EPCOR Distribution & Transmission Inc.



5 Discussion of issues

5.1 Disposition of assets and the ordinary course of business

15. EPCOR submitted that its proposed disposition of the segment of land is outside of the

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

to Section 101(2)(d) of the Public Utilities Act.13

16. In the application, EPCOR provided the following list of its properties that were disposed

outside of the ordinary course of business since 2006:

Table 1. Disposition of assets outside of the ordinary course of business since the Stores Block appeal14

Property

A B C D E F G H I J

Original Cost

Transaction year

Land Building Total Accumulated depreciation

Net book value

Sale price

Selling costs

Net proceeds

Total gain on sale

($ million)

1 West Service Center 2006 0.25 0.27 0.51 0.15 0.36 2.26 0.10 2.17 1.80

2 Meter Hall 2006 0.11 0.08 0.18 0.05 0.14 0.27 0.01 0.25 0.12

3 West Edmonton Storage Site 2007 - - 0.01 0.00 0.01 0.10 0.01 0.09 0.08

4 Substations 300 & 360 2011 0.00 0.00 0.00 0.00 0.00 1.01 0.00 1.01 1.01

5 Substation 250 2017 0.00 0.12 0.13 0.03 0.10 0.40 0.241 0.16 0.06

6 Substation 450 2017 0.00 0.023 0.02 0.01 0.02 0.55 0.192 0.36 0.34

7 Substation 200 (Segment) 2017 0.00 - 0.00 0.00 0.00 0.01 - 0.01 0.01

1 Substation 250 selling costs shown here include $0.22 million in decommissioning costs. 2 Substation 450 selling costs shown here include $0.15 million in decommissioning costs. 3 EPCOR notes that the Substation 450 Property Disposition Application inadvertently omitted $0.02 million in costs that were associated with the

small metal-clad structure described in paragraph 13 of Exhibit 21405-X0002. These costs were recorded as building costs in EPCOR’s Asset Tracking System. Table 8.0-1 has been updated to reflect these costs.

17. EPCOR noted that in recent utility property disposition proceedings15 the Commission

considered materiality, net book value, market value, frequency and type of asset disposition, in

determining whether a disposition is inside or outside the ordinary course of business. EPCOR

provided the following details in respect of each of these factors in its consideration of the

current disposition:

Materiality – net book value and market value: The net book value of the segment of land

is approximately $124. EPCOR expects to sell the segment of land to Beljan for

approximately $0.01 million. The expected proceeds of the sale and the net book value do

not fall within the range of values in asset dispositions previously approved by the

13


Exhibit 22749-0002, application, Table 8.0-1, paragraph 20. 15

For example, see: Decision 3206-D01-2015: EPCOR Distribution & Transmission Inc., Disposition of

Substation Property, Proceeding 3206, Application 1610546-1, February 25, 2015; Decision 20271-D01-2015:

FortisAlberta Inc., Disposition of Land in High River, Proceeding 20271, August 31, 2015; Decision 20329-

D01-2015: ATCO Electric Ltd., Disposition of Land and Buildings Located in Grande Prairie and

Lloydminster, Proceeding 20329, September 16, 2015; Decision 21405-D01-2016: EPCOR Distribution &

Transmission Inc., Disposition of Substation Property, Proceeding 21405, May 11, 2016; and Decision 22055-

D01-2017: ENMAX Power Corporation, Application to Dispose of Substation Properties, Proceeding 22055,

February 15, 2017.



Commission as outside of the ordinary course of EPCOR’s business, and EPCOR does

not consider these amounts to be material.

Frequency: EPCOR has disposed of seven assets outside of the ordinary course of

business, including the proposed sale of the segment of land, since 2006. This yields a

frequency of approximately one asset disposition every 1.5 years over that period.

Type of asset disposition: Given the unusual nature of the transaction and because of

EPCOR’s plans to dispose of the remaining land and the substation in 2018, EPCOR

considers that Commission approval is necessary for the disposition. Past dispositions

applied for by EPCOR have been for entire properties, including land and buildings, that

were no longer used or required to be used for providing utility service. The proposed

disposition of the segment of land is the only instance where EPCOR has sought to sell a

portion of a property while the remainder remains in service. Further, in anticipation of

applying for Commission approval for the disposition of the remaining portion of the

property in 2018, EPCOR determined that it would be preferable to take a consistent

approach with all portions of the property. EPCOR is pursuing this proposed disposition

solely to accommodate Beljan’s plans to have the exchange building designated as a

Municipal Historic Resource by the City of Edmonton.16

Commission findings

18. Section 101(2) (d) of the Public Utilities Act prevents a designated owner of a public

utility from, amongst other things, disposing of any property outside of the ordinary course of

business without first obtaining Commission approval. Any disposition without such prior

approval is void.

19. Before the Commission can consider the merits of the application, it must determine

whether the proposed disposition of the segment of land is inside, or outside, the ordinary course

of EPCOR’s business. The term “ordinary course of business” has existed in law for many years

and, as noted by the Supreme Court of Canada in ATCO Gas & Pipelines Ltd. v Alberta (Energy

& Utilities Board), 2006 SCC 4 (Stores Block), public utilities have been required to obtain the

approval of the Commission’s predecessors before selling any property as far back as 1915.17

20. In Order U2001-196,18 the Alberta Energy and Utilities Board, a predecessor to the

Commission, outlined the criteria to be used in determining whether the disposition of an asset

should be treated as being outside of the ordinary course of business, as follows:

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

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

[net book value], frequency and type of sale would be among the factors considered by

the Board in that determination. The quantum, and materiality (in relation to the total rate

base) of the proceeds of disposition and the NBV would all be considered.19

16

Exhibit 22749-0002, application, paragraphs 21-23. 17

ATCO Gas & Pipelines Ltd. v Alberta (Energy & Utilities Board), 2006 SCC 4. 18

Alberta Energy and Utilities Board, Order U2001-196: In the Matter of the Sale of the Athabasca Maintenance

Facility, Application 2001112, File 6417-04, August 3, 2001. 19

Order U2001-196, pages 3-4.



21. In Decision 2013-417,20 the Commission confirmed that the factors identified in Order

U2001-196, namely proceeds of disposition, net book value, frequency and type of sale, and

quantum and materiality of the proceeds of disposition and the net book value in relation to total

rate base, remained the criteria to be applied in determining whether a disposition is inside or

outside of the ordinary course of business of a particular utility. At paragraph 321 of that

decision, the Commission stated the following:

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

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

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

of the disposition must be filed.21

22. The criteria used in determining whether a disposition is inside or outside the ordinary

course of business were also considered and affirmed in a number of recent Commission

decisions.22

23. Should the Commission decide that a disposition is outside of the ordinary course of

business, it will apply a “no-harm” test that examines the transaction in the context of both

potential financial impacts and service level impacts to customers23 in considering whether to

approve the disposition.

24. EPCOR expects to sell the segment of land to Beljan for approximately $8,500 and

submitted that the net book value of the segment of land is approximately $124. In its

application, EPCOR explained that the proceeds of the proposed disposition and the net book

value of the land segment are not material and do not fall within the range of values of asset

dispositions previously approved by the Commission as outside of the ordinary course of

EPCOR’s business. The Commission agrees with EPCOR that if the segment of land is sold to

Beljan as proposed, the net book value and the proceeds of disposition are not material in

relation to EPCOR’s total rate base. The limited value to be realized upon disposition and the

immaterial net book value of the segment of land suggest that this disposition is not of a type that

requires Commission approval.

25. EPCOR’s evidence on the frequency of dispositions is that since 2006, EPCOR has

disposed of six assets as being outside of the ordinary course of business. The proposed

disposition of the segment of land is the only instance for which EPCOR has sought to sell a

portion of a piece of property while the remainder remains in service. EPCOR’s past

dispositions, as indicated in Table 1, have been for entire properties that were no longer used or

required to be used for providing utility service. The proposed disposition is only to

accommodate Beljan’s plans to have the exchange building designated as a Municipal Historic

Resource by the City of Edmonton.

26. The Commission considers the proposed disposition to be in the nature of a minor

adjustment to the lands to correct for an unintended encroachment. EPCOR represented that this

correction will have no impact on the operations of the substation or the accompanying

equipment. Consequently, although the proposed disposition is unusual, the Commission does

20

Decision 2013-417: Utility Asset Disposition, Proceeding 20, Application 1566373-1, November 26, 2013. 21

Decision 2013-417, paragraph 321. 22

See footnote 15. 23

See Decision 20528-D01-2015, Section 4.2. See also Decision 2000-41: TransAlta Utilities Corporation, Sale of

Distribution Assets, Application 2000051, File 6404-3, July 5, 2000, pages 7-8.



not consider that an adjustment of this nature merits Commission scrutiny, or that the adjustment

is outside of the ordinary course of EPCOR’s business in these circumstances.

27. In weighing each of the above factors, and in consideration of the unique nature of the

proposed transaction and the immaterial amounts at issue, the Commission finds that the

proposed disposition of the segment of land to Beljan is within the ordinary course of business of

EPCOR. Accordingly, Commission approval for the disposition of the segment of land to Beljan

is not required pursuant to Section 101(2)(d) of the Public Utilities Act. In making this finding,

the Commission recognizes that it is neither practical nor efficient for EPCOR to apply to the

Commission for prior approval of every minor transaction. For these reasons, subject to the

directions of the Commission in Section 5.2, the application to dispose of the segment of land is

dismissed. EPCOR may proceed to dispose of the segment of land without Commission

approval. Given the representations of EPCOR with respect to the reasons for the disposition and

that Beljan has agreed to pay all associated costs, it is the Commission’s expectation that

EPCOR’s customers will not bear any costs associated with this transaction and the transfer of

the segment of land, including any costs associated with subdividing the land.

5.2 Adjustment due to disposition

28. In connection with the disposition of the segment of land, EPCOR explained that it does

not propose to adjust its revenue and rates due to the disposition of the segment of land because

it considered both the net book value of the segment of land (approximately $124) and the

expected proceeds from the proposed sale (in the range of $8,500 as discussed in Section 5.1

above) to be immaterial.24

Commission findings

29. The Commission has considered the timing for removal of the segment of land from rate

base by EPCOR and the impact to rates. As established by the courts and as reflected in prior

Commission decisions, EPCOR has the obligation to remove assets from rate base when they

cease to be used or required to be used in the provision of utility service.25 Once the segment of

land is subdivided from the land on which the substation is located, the segment will no longer

be part of an asset that is used or required to be used for utility service and should be removed

from rate base. In previous decisions dealing with EPCOR’s requests to dispose of substation

properties (both land and buildings) during the 2013-2017 performance-based regulation (PBR)

term, specifically in decisions 3206-D01-201526 and 21405-D01-2016,27 the Commission

generally took the approach of not requiring an adjustment to rate base and rates during the then

current PBR term. This was done to preserve the incentives of PBR, which is intended to

decouple a company’s revenues from costs for the duration of the PBR term and is consistent

with the Commission’s direction in Decision 2012-23728 that adjustments to going-in rates are

24


See, e.g., Atco Gas and Pipelines Ltd v Alberta (Utilities Commission), 2014 ABCA 28 and Calgary (City) v

Alberta (Utilities Commission), 2010 ABCA 158 as cited in Decision 20528-D01-2015: ATCO Gas and

Pipelines Ltd., CU Inc. and Canadian Utilities Limited, Disposition of the Calgary Service Centre Assets,

Proceeding 20528, September 23, 2015 and FortisAlberta Inc. v Alberta (Utilities Commission), 2015 ABCA

295, leave to appeal refused, SCC File No. 36728. 26

Decision 3206-D01-2015, paragraph 99. 27

Decision 21405-D01-2016, paragraph 52. 28

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

Application 1606029-1, September 12, 2012.



not to be made to reflect actual events during the PBR term.29 In these two decisions, the

Commission determined that it would not require EPCOR to remove any assets being disposed

of from rate base and rates prior to the expiry of the then current PBR term in 2017.

30. Based on the record of this proceeding, it is the Commission’s expectation that EPCOR

will dispose of the segment of land by the end of 2017. In the application, EPCOR explained that

it did not intend to make an adjustment to its revenue and rates due to the disposition of the

segment of land because it considered both the net book value of the segment of land

(approximately $124) and the expected proceeds from the proposed sale (in the range of $8,500

as discussed in Section 5.1 above) to be immaterial.

31. EPCOR’s rebasing application30 to set its going-in rates for the 2018-2022 PBR plan is

currently before the Commission. Because of this, and given the direction from the courts

referred to above, the Commission finds that EPCOR should reflect the removal of the segment

of land from rate base upon disposition. At the same time, the Commission acknowledges that

the net book value of the segment of land is of such immateriality relative to its rate base that

reflecting this disposition would not, practically speaking, have any impact on EPCOR’s

rebasing application or customer rates. Accordingly, the Commission will not require EPCOR to

submit amended schedules in the rebasing proceeding but directs EPCOR to reflect the removal

of the segment of land from rate base as part of EPCOR’s next filing dealing with actual rate

base.

32. EPCOR has indicated that the remainder of the land after the subdivision and removal of

the segment of land will continue to provide utility service until 2018, at which point the

substation will be decommissioned. The Commission will consider the treatment of the net book

value of the remaining portion of the land and the substation located on it when EPCOR makes

an application to the Commission.

6 Order

33. It is hereby ordered that:

(1) The application of EPCOR Distribution & Transmission Inc. to dispose of the

segment of land located at 12019 102 Avenue Northwest, Edmonton, Alberta, is

dismissed.

29

Decision 2012-237, paragraph 88. 30

Proceeding 22394, Exhibit 22394-X0034, application.



Dated on August 24, 2017.


(original signed by)

Anne Michaud

Commission Member



Appendix 1 – Proceeding participants

Name of organization (abbreviation) Company name of counsel or representative

EPCOR Distribution & Transmission Inc. (EPCOR)

Office of the Utilities Consumer Advocate (UCA)

Alberta Utilities Commission Commission panel A. Michaud, Commission Member Commission staff

K. Kellgren (Commission counsel) P. Genderka P. Howard



Appendix 2 – Summary of Commission directions

This section is provided for the convenience of readers. In the event of any difference between

the directions in this section and those in the main body of the decision, the wording in the main

body of the decision shall prevail.

1. EPCOR’s rebasing application to set its going-in rates for the 2018-2022 PBR plan is

currently before the Commission. Because of this, and given the direction from the courts

referred to above, the Commission finds that EPCOR should reflect the removal of the

segment of land from rate base upon disposition. At the same time, the Commission

acknowledges that the net book value of the segment of land is of such immateriality

relative to its rate base that reflecting this disposition would not, practically speaking,

have any impact on EPCOR’s rebasing application or customer rates. Accordingly, the

Commission will not require EPCOR to submit amended schedules in the rebasing

proceeding but directs EPCOR to reflect the removal of the segment of land from rate

base as part of EPCOR’s next filing dealing with actual rate base. ................ Paragraph 31

Documents

EPCOR Distribution & Transmission Inc. · decision to specific parts of the record are intended to assist the reader in understanding the ... Beljan has agreed to reimburse EPCOR