Decision 24681-D01-2020

AltaLink Management Ltd.

2016 to 2018 Deferral Accounts Reconciliation Application

December 11, 2020

Alberta Utilities Commission Decision 24681-D01-2020 AltaLink Management Ltd. 2016 to 2018 Deferral Accounts Reconciliation Application Proceeding 24681

December 11, 2020

Published by the: Utilities Commission Eau Claire Tower 1400, 600 Third Avenue S.W. , 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.

Contents

1 Decision ...... 1

2 Introduction ...... 1

3 DACDA common matters ...... 2 3.1 DACDA application requirements ...... 2 3.2 Project management and overhead costs ...... 4 3.3 Land costs ...... 5 3.4 Legal costs ...... 6 3.5 Pipeline AC mitigation costs ...... 8 3.6 Salvage costs ...... 10 3.6.1 Salvage expenditures requested ...... 10 3.6.2 AltaLink’s approach to salvage activities as part of a larger project execution ...... 11 3.6.3 CCA concerns with the evidence provided ...... 12 3.7 Placeholders ...... 17 3.7.1 Helix spacer dampers ...... 17 3.7.2 Sunnybrook Retention Pond ...... 18 3.8 Capitalization of deferral account support costs ...... 19

4 Major system projects ...... 20 4.1 AltaLink project delivery model and project risk management practices ...... 20 4.2 Southern Alberta Transmission Reinforcement ...... 21 4.2.1 D.0310 - 138 kV Area Reconfiguration ...... 21 4.2.1.1 Project procurement, consultation and alternate route 1A...... 23 4.2.1.2 Medicine Hat engineering costs ...... 24 4.2.1.3 Medicine Hat Project scheduling ...... 25 4.3 South and West of Area Transmission Development ...... 32 4.3.1 Substation steel supplier ...... 32 4.3.2 D.0394 – Harry Smith ...... 33 4.3.2.1 Project execution and foundation design ...... 34 4.3.2.2 Use of access mats ...... 35 4.3.3 D.0513 – Saunders Lake 289S ...... 37 4.3.3.1 Project execution ...... 38 4.3.4 D.0514 – Cooking Lake 522S ...... 39 4.4 Red Deer Area Transmission Development ...... 42 4.4.1 D.0470 – Red Deer Hazelwood 287S ...... 43

5 Outstanding directions ...... 48 5.1 Direction 8 from Decision 22542-D02-2019 ...... 48 5.2 Provision of unit cost information ...... 50 5.3 Responses to other outstanding directions ...... 52

6 Compliance filing ...... 52

7 Order ...... 52

Decision 24681-D01-2020 (December 11, 2020) i

Appendix 1 – Proceeding participants ...... 54

Appendix 2 – Process steps for Proceeding 24681 ...... 1

Appendix 3 – Summary of Commission directions ...... 6

List of tables

Table 1. Summary of project management and overhead cost disallowances proposed by the CCA...... 4

Table 2. Summary of land compensation costs for all 2016‐2018 application projects ...... 5

Table 3. Summary of AltaLink DACDA projects incurring salvage costs 2016-2018 ...... 10

Table 4. Final salvage costs for Medicine 138 kV Area Reconfiguration Project ...... 13

Table 5. Salvage costs breakdown for Medicine 138 kV Area Reconfiguration Project .. 14

Table 6. Cost summary for the Medicine Hat 138 kV Area Reconfiguration Project (D.0310) ...... 22

Table 7. Cost summary for the Harry Smith Project (D.0394) ...... 34

Table 8. Cost summary for the Saunders Lake 289S Project (D.0513) ...... 38

Table 9. Cost summary for the Cooking Lake 522S Project (D.0514) ...... 39

Table 10. Cost summary for the Red Deer Hazelwood 287S Project (D.0470) ...... 44

Table 11. WATL Project PMPC costs summary ...... 48

Decision 24681-D01-2020 (December 11, 2020) ii

Alberta Utilities Commission Calgary, Alberta

AltaLink Management Ltd. Decision 24681-D01-2020 2016 to 2018 Deferral Accounts Reconciliation Application Proceeding 24681

1 Decision

1. This decision sets out the Alberta Utilities Commission’s determinations on the application of AltaLink Management Ltd. (AltaLink) for the disposition of certain deferral accounts in respect of the years 2016 through 2018.

2. With respect to AltaLink’s request for approval of its reconciliation of its direct assign capital deferral account (DACDA) in respect of the years 2016, 2017, and 2018, the Commission has applied disallowances of approximately $4.7 million and $1 million in respect of the Medicine Hat 138 kV Area Reconfiguration and Red Deer Hazelwood 287S projects, respectively. The Commission has approved AltaLink’s applied-for costs for all of AltaLink’s other projects during the 2016 to 2018 period, as filed.

3. The Commission has also approved AltaLink’s request for the recovery of expenses from projects cancelled by the Alberta Electric System Operator (AESO) in 2017 and 2018.

4. The Commission has approved AltaLink’s proposed disposition of deferral accounts for taxes other than income taxes, long-term debt, and annual structure payments, as filed.

5. The Commission has approved AltaLink's request for placeholder amounts in respect of two ongoing disputes.

6. A refiling application to comply with the directions and disallowances in this decision is due on or before January 29, 2021.

2 Introduction

7. On July 7, 2019, AltaLink, in its capacity as General Partner of AltaLink, L.P., filed an application1 (the application) with the Commission for approval of the reconciliation of certain deferral accounts. The Commission assigned the application to Proceeding 24681.

8. Prior to filing the application, on June 26, 2019, AltaLink filed a letter2 in which it sought confidential treatment of certain documents. On July 5, 2019, the Commission issued a ruling3 that outlined the types of application documents that had been granted confidential treatment.

9. AltaLink applied for the following specific relief in the application:

1 Exhibit 24681-X0006.01, application. 2 Exhibit 24681-X0001. 3 Exhibit 24681-X0003.

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• a determination of reasonable project costs for projects completed in 2016, 2017 and 2018 and orders disposing of the 2016, 2017 and 2018 DACDA balance pertaining to direct assign projects completed in those years; • approval of the 2016, 2017 and 2018 balances for other deferral accounts including long‐ term debt, taxes other than income taxes and annual structure payments; • recovery of expenses from projects cancelled by the Alberta Electric System Operator (AESO) in 2017 and 2018; • a revenue true‐up for the year 2016 in relation to amounts determined in AltaLink’s 2015‐2016 General Tariff Application (GTA) and true-ups for the years 2017 and 2018 in relation to amounts determined in AltaLink’s 2017‐2018 GTA; and • such further and other orders, declarations or exemptions of the Commission as are necessary to give effect to the application.

10. AltaLink also requested approval for the recovery of interest in the amount of $2.9 million pursuant to Rule 0234 in respect of costs arising from the approvals sought in the application for the years 2016, 2017 and 2018.5 AltaLink proposed that the settlement of costs approved following the Commission’s consideration of the application should be settled by way of a one-time charge to the AESO.6

11. A chronology of the process steps that occurred during Proceeding 24681 is provided in Appendix 2 to this decision.

12. The Commission considers the record for Proceeding 24681 to have closed on September 14, 2020.

3 DACDA common matters

3.1 DACDA application requirements 13. The CCA, and AltaLink devoted significant portions of their argument and reply to the following points of dispute:

• Who bears the onus of proof to demonstrate the prudence of AltaLink’s costs?

• What is the standard of proof; reasonableness or perfection?

• Is a DACDA application a prudence review, or an audit?

• Are AltaLink’s filings on the record of this proceeding (including AltaLink’s general ledger) adequate to allow the Commission and interveners to test the application?

• Must the CCA present evidence to challenge the reasonableness of AltaLink’s costs?

4 Rule 023: Rules Respecting Payment of Interest. 5 Exhibit 24681-X0006.01, application, paragraph 4. 6 Exhibit 24681-X0006.01, application, paragraph 5.

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• Does the Commission apply a less rigorous standard to AltaLink as compared to ATCO in DACDA applications?

Commission findings 14. It is not clear to the Commission why these issues continue to be raised in AltaLink DACDAs. Issues of onus, standard of proof, and prudence have all been addressed repeatedly by the Commission in previous decisions. In particular, in Decision 3585-D03-2016,7 the Commission provided extensive direction and guidance on the test for prudence and the burden of proof for DACDAs. The Commission stated:

110. The Commission previously defined the test for prudence or reasonableness of costs in Decision 2001-110:

In summary, a utility will be found prudent if it exercises good judgment and makes decisions which are reasonable at the time they are made, based on information the owner of the utility knew or ought to have known at the time the decision was made. In making decisions, a utility must take into account the best interests of its customers, while still being entitled to a fair return. … 114. Recently, the SCC, in two parallel decisions, one involving the Ontario Energy Board and one involving this Commission provided guidance regarding the role of the tribunal in determining prudence and the burden of proof. Justice Rothstein, writing for the court, in ATCO Gas and Pipelines Ltd v. Alberta (Utilities Commission), commenting on the Alberta legislative scheme, stated: The prudence requirement is to be understood in the sense of the ordinary meaning of the word: for the listed costs and expenses to warrant a reasonable opportunity of recovery, they must be wise or sound; in other words, they must be reasonable. Nothing in the ordinary meaning of the word “prudent” or the use of this word in the statute as a standalone condition says anything about the time at which prudence must be evaluated. Thus, neither the ordinary meaning of “prudent” nor the statutory language indicate that the Commission is bound by the legislative provisions to apply a no-hindsight approach to the costs at issue, nor is a presumption of prudence statutorily imposed in these circumstances. In the context of utilities regulation, there is no difference between the ordinary meaning of a “prudent” cost and a cost that could be said to be reasonable. It would not be imprudent to incur a reasonable cost, nor would it be prudent to incur an unreasonable cost. Further, the burden of establishing that the proposed tariffs are just and reasonable falls on public utilities, which necessarily imposes on them the burden of establishing that the costs are prudent.8 115. The burden of proof to establish prudence is on the applicant. The Commission has no obligation to presume prudence when no evidence is provided to the contrary and must evaluate all costs on the merits of the evidence (or lack of evidence) before it.

7 Decision 3585-D03-2016: AltaLink Management Ltd., 2012 and 2013 Deferral Accounts Reconciliation Application, Proceeding 3585, Application 1611090-1, June 6, 2016. 8 ATCO Gas and Pipelines Ltd. and ATCO Electric Ltd. v Alberta Utilities Commission and the Office of the Utilities Consumer Advocate of Alberta, 2015 SCC 45, page 2.

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15. The Commission’s views with respect to these matters remain unchanged, and the Commission has applied this test to its examination of expenditures in this proceeding. Further, the Commission considers each application on the basis of the record before it.

16. Finally, the Commission is disturbed by the CCA’s suggestion that the Commission applies a different standard to its examination of expenditures in ATCO Electric proceedings than it does to AltaLink. The CCA advanced tenuous anecdotal evidence, founded on no more than a difference in outcomes in two unrelated Commission proceedings. Such assertions are reckless, and addressing them hampers regulatory efficiency.

17. The Commission considers that none of the matters addressed in section 3.1 of this decision contributed to a better understanding of the issues, nor were the associated efforts reasonable and directly and necessarily related to the proceeding, and the Commission will address this further in its consideration of any costs claim for participation in this proceeding.

18. The Commission expects that its position on onus, standard of proof, and prudence is now clear.

3.2 Project management and overhead costs 19. The CCA submitted that some AltaLink direct assign projects have high overhead costs in part due to AltaLink’s failure to appropriately manage project risks. Referencing Table 39 that it prepared in support of its evidence, the CCA stated that the majority of the full-time equivalent labour units (FTEs) working on projects are incurred in the detailed design and construction stages. If there are delays to the work in these phases, a large number of people may be idle, both increasing costs and decreasing productivity. Consequently, the CCA submitted that there is a need to address risks before activity starts to avoid this risk.10

20. The CCA analyzed the Blackie, Harry Smith and Saunders Lake projects and proposed a disallowance for each project to limit actual project management and overhead costs to no more than 15 per cent of each project’s total cost.

21. A summary of the CCA’s proposed disallowances for each of the projects is provided in Table 1 below.

Table 1. Summary of project management and overhead cost disallowances proposed by the CCA D.0470 D.0441 D.0310 D.0314 D.0513 D.0471 D.0466 D.0394 Red Deer Red Deer SATR Medicine SATR SWEATD Red Deer Red Deer SWEATD Hazelwood 80L S Hat 138 kV Area Blackie Saunders New 423L Rebuild 755L Harry Smith 287S Underground Reconfiguration 138 kV Lake 289S ($ million) 4.11 6.70 4.03 -1.21 23.35 3.33 11.14 8.31 Source: Prepared from Exhibit 24681-X0823, Tab “Table 1, lines 32-33.

22. AltaLink responded by critiquing both the basis for the CCA’s analysis of project management and overhead costs and the assumptions used by the CCA in deriving its implied FTE and disallowance calculations.

9 Exhibit 24681-X0823, Project Delay and PMPC Costs Analysis, tab “Table 3.” 10 Exhibit 24681-X0824, CCA part 2 evidence, paragraph 170.

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Commission findings 23. The CCA’s evidence on project management and overhead costs has been built around an implied average FTE analysis derived from the information on the record available to the CCA. The absence of detailed data that could have facilitated the development of CCA’s evidence through other means is a consequence of the fact that AltaLink, supported by subsequent rulings by the Commission,11 did not provide the detailed invoice data requested by the CCA. In the circumstances, the CCA’s use of a more limited set of information was not, of itself, unreasonable.

24. Notwithstanding, the Commi