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.

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) i

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-D01-2020 (April 16, 2020) ii

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

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• 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.

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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:

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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.

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(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.

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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.

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(“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.

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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.

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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.

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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.

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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 2019 2020 2021 Operational expenses Total forecast forecast forecast ($ 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 2019 2020 2021 Capital expenses Total forecast forecast forecast ($ 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 Total line Total line length % of line Component Structure Total fire-related Fire region length (km) in HRFA (km) in HRFAs replacement replacement notifications Calgary 1,063 175 16 106 64 170 Rocky Mountain 588 10 2 16 0 16 House Edson 713 170 24 145 12 157 Lac La Biche 244 132 54 29 0 29 Whitecourt 321 77 24 64 7 71 (extrapolated) White Zone 9,000 1,080 12 904 100 1,004 (extrapolated) 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 Average Total Average Total Average Total Units Units Units cost ($ million) cost ($ million) cost ($ million) Component 569 $10 5.6 522 $10 5.2 355 $10 3.5 replacement Structure 26 $65 1.7 61 $66 4.1 62 $67 4.1 replacement Total 7.3 9.3 7.7 expenditures 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

Asset hardening Structure replacement Fire area Total Component type Quantity quantity Conductor 12 12 Crossarm 15 15 Guy 3 3 Calgary 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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Asset hardening Structure replacement Fire area Total Component type Quantity quantity Sway Brace 4 4 Conductor 11 11 Crossarm 24 24 Guy 3 3 Insulator 38 38 Edson Overhead 9 9 Pole 59 10 69 Structure 2 2 Sway Brace 1 1 Conductor 4 4 Guy 2 2 Lac La Biche Overhead 6 6 Pole 17 17 Conductor 2 2 Crossarm 4 4 Rocky Mountain Insulator 3 3 House 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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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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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 2019 forecast 2020 forecast 2021 forecast Description Average Total Average Total Average Total km km km unit cost ($ million) unit cost ($ million) unit cost ($ million) Total line 0 0 0 10 $0.35 3.5 10 $0.35 3.5 rebuilds 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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• 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.

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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 2020 forecast 2021 forecast Description Average cost Total Average cost Total Units Units ($000) ($000) ($000) ($000) Integration of public weather 6 20 120 6 20 120 station data 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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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 2019 forecast 2020 forecast 2021 forecast Description Average Total Average Total Average Total Units Units Units cost ($ million) cost ($ million) cost ($ million) R/W 5 $130 0.60 5 $130 0.61 6 $130 0.83 Upgrades Wildfire Tree 12 $20 0.25 12 $20 0.26 17 $20 0.35 Removal 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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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, 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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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

Ground clearance Object clearance Crossing wires clearance Underbuild clearance Total violations violations violations violations 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) Ground Object Crossing/Parallel Underbuild Total Summary clearance clearance wires clearance High priority Underbuild violations violations violations violations underbuild Actual violations based on completion of engineering assessment of 123 39 14 50 approximately 30% of 506 732 AltaLink’s total transmission lines Subtotal of actual 226 higher priority violations 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 % Current % of Timeframe Complete Operational control examples of spans spans

50 0 3 to 5 years 2024 Long term de‐rate Medium term de‐rate; lower public safety risk (e.g. circuit to 35 35 1 to 3 years 2020/21 circuit clearance) 30 6 months 2020 Seasonal temporary de‐rate available 15 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 Net salvage expense using approved net salvage methodology 2 61.8 63.7 65.5 191.0 and parameters Net salvage expense using approved net salvage methodology 3 81.1 83.7 86.1 250.9 and parameters proposed in Concentric depreciation study

Increase to net salvage expense comparing approved 4 methodology and parameters to proposed methodology 24.5 28.8 34.9 88.2 (row 2 less row 1) Increase to net salvage expense comparing approved 5 methodology and parameters to approved methodology and 19.3 20.0 20.6 59.9 proposed parameters (row 3 less row 2) Increase to net salvage expense comparing proposed 6 methodology to approved methodology and proposed 43.8 48.8 55.5 148.1 parameters (row 3 less row 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 Proceeding 21341 Proceeding 23848 Proceeding 23848 AltaLink AltaLink UCA Transmission plant approved recommended 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 Proceeding 21341 Proceeding 23848 Proceeding 23848 AltaLink AltaLink AltaLink Transmission plant approved recommended 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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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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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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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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Appendix 2 – Oral hearing – registered appearances

Name of organization (abbreviation) Witnesses Name of counsel or representative

AltaLink Management Ltd. (AltaLink or AML) AltaLink Panel 1 Randall Block QC J. Piotto, B. Sc Bryan Hunter 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) CCA Panel 1 James Wachowich QC D. Madsen, CPA, CA Nick Bryanskiy 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) UCA Panel 1 Thomas Marriott QC P. Lee, B. S (Mathematics), CDP, BCRI Inc. P. Bowman, MNRM, Intergroup Consulting Ltd.

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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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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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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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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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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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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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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 Commission grants AML approval to enter into a NSP excluding May 1, 2019 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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Date Process step description July 5, 2019 AML extension request to file NSA AML submits update to its 2019-2021 GTA related to depreciation July 8, 2019 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 Ruling on CCA motion, request revision to NSA for Special Facilities August 7, 2019 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 AML requests confirmation that 2019 interim rates and terms and October 15, 2019 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

Decision 23848-D01-2020 (April 16, 2020) 133 2019-2021 General Tariff Application Negotiated Settlement Agreement and Excluded Matters AltaLink Management Ltd.

Appendix 5 – AML 2019-2021 GTA NSA application and agreement

(return to text)

Appendix 5 - AML 2019-2021 GTA NSA (consists of 27 pages)

Decision 23848-D01-2020 (April 16, 2020) 134 AltaLink Management Ltd. 2019-2021 General Tariff Application Appendix 5 - AML 2019-2021 GTA NSA Negotiated Settlement Agreement and Excluded Matters Page 1 of 27

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 Tariff Application; 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 the Utilities Consumer Advocate (UCA), the Alberta Direct Connect Consumers Association (ADC), and the Industrial 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; and g. 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

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Application for Approval of AltaLink’s 2019-2021 GTA Negotiated Settlement Agreement

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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Application for Approval of AltaLink’s 2019-2021 GTA Negotiated Settlement Agreement

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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Application for Approval of AltaLink’s 2019-2021 GTA Negotiated Settlement Agreement

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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Application for Approval of AltaLink’s 2019-2021 GTA Negotiated Settlement Agreement

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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Application for Approval of AltaLink’s 2019-2021 GTA Negotiated Settlement Agreement

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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Application for Approval of AltaLink’s 2019-2021 GTA Negotiated Settlement Agreement

• $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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Application for Approval of AltaLink’s 2019-2021 GTA Negotiated Settlement Agreement

(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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Application for Approval of AltaLink’s 2019-2021 GTA Negotiated Settlement Agreement

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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Application for Approval of AltaLink’s 2019-2021 GTA Negotiated Settlement Agreement

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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Application for Approval of AltaLink’s 2019-2021 GTA Negotiated Settlement Agreement

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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Application for Approval of AltaLink’s 2019-2021 GTA Negotiated Settlement Agreement

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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Application for Approval of AltaLink’s 2019-2021 GTA Negotiated Settlement Agreement

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 $1.9 million and Fixtures 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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Application for Approval of AltaLink’s 2019-2021 GTA Negotiated Settlement Agreement

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

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 Randall W. Block, Q.C. AltaLink Management Ltd. Borden Ladner Gervais LLP 2611 – 3rd Avenue SE 1900, 520 – 3rd Avenue SW Calgary, AB T2A 7W7 Calgary, AB T2P 0R3 [email protected] [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.

July 10, 2019 updated August 21, 2019 14 Decision 23848-D01-2020 (April 16, 2020) AltaLink Management Ltd. 2019-2021 General Tariff Application Appendix 5 - AML 2019-2021 GTA NSA Negotiated Settlement Agreement and Excluded Matters Page 16 of 27

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”),

and

ALBERTA DIRECT CONNECT CONSUMERS ASSOCIATION (“ADC”),

and

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 4

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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. 6

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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. 7

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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 CONSUMERS’ COALITION LTD., in its capacity as general OF ALBERTA partner of ALTALINK, L.P.

Per: ______Per: ______Name: Name: Title: Title:

OFFICE OF THE UTILITIES INDUSTRIAL POWER CONSUMER ADVOCATE CONSUMERS ASSOCIATION OF ALBERTA

Per: ______Per: ______Name: Name: Title: Title:

ALBERTA DIRECT CONNECT CONSUMERS ASSOCIATION

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 CONSUMERS' COALITION LTD., in its capacity as general OFALBERTA partner of ALTALINK, L.P. ~,,z/:,;,,,efT,,,,,v = J A vi A-<.k>.\ oL..J.. ~ . Title: 'f,.c_-s.d m 1- ,-cJ;'.t,) itle: J. ··'c . ~~~ .r ·IJ--lt5wt- I S- 2-<) \ °'/'j: S) ~ > g '1 ~ OFFICE OF THE UTILITIES INDUSTRIAL POWER CONSUMER ADVOCATE CONSUMERS ASSOCIATION OFALBERTA

Per: L-It/. 1/uL Per: /$~ Name: C Jr,~.i' llu/11 Name: Vittoria Bellissimo Title: E Ke cvf:ve f),"'re e'tr Title: Executive Director

ALBERTA DIRECT CONNECT CONSUMERS ASSOCIATION

Per:~ c&M Name: 0:>L e 1 -r 1:::. cflt:: t<: e. (

11

\

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