Decision 25369-D01-2020 AltaLink Management Ltd. and TransAlta Corporation Direct Assigned Capital Deferral Account for the Edmonton Region Project December 10, 2020 Alberta Utilities Commission Decision 25369-D01-2020 AltaLink Management Ltd. and TransAlta Corporation Direct Assigned Capital Deferral Account for the Edmonton Region Project Proceeding 25369 December 10, 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 Background .......................................................................................................................... 1 2.1 Project description ........................................................................................................ 1 2.2 Direct assigned capital deferral account application .................................................... 3 2.3 Cost summary ............................................................................................................... 4 3 Prudency assessment of costs .............................................................................................. 5 3.1 1043L – Facilities not on the reserve ............................................................................ 5 3.2 1043L-Reserve – Facilities on the reserve .................................................................... 6 3.2.1 Pre-application stage ......................................................................................... 7 3.2.2 Facilities application stage ................................................................................ 8 3.2.3 Pre-construction stage ....................................................................................... 8 3.2.4 Construction stage ............................................................................................. 9 3.2.5 Stop work order............................................................................................... 10 3.2.6 Memorandum of Understanding negotiations stage ....................................... 12 3.2.7 Cooperation Agreement stage ......................................................................... 12 3.2.8 1043L-Reserve – Construction work on the reserve....................................... 14 3.2.9 Allowances for funds used during construction.............................................. 15 3.2.10 Commission findings ...................................................................................... 16 4 Procedural fairness concerns ............................................................................................ 21 5 Order ................................................................................................................................... 23 Appendix 1 – Proceeding participants ...................................................................................... 25 Appendix 2 – Project map .......................................................................................................... 26 Appendix 3 – Summary of Commission directions .................................................................. 27 List of tables Table 1. AFUDC project costs ................................................................................................ 15 Table 2. AFUDC project costs under the hypothetical scenario where suspension of work did not occur in May 2012 and assets put into service in 2013 ............................. 16 Decision 25369-D01-2020 (December 10, 2020) i Alberta Utilities Commission Calgary, Alberta AltaLink Management Ltd. and TransAlta Corporation Direct Assigned Capital Deferral Account for Decision 25369-D01-2020 the Edmonton Region Project Proceeding 25369 1 Decision summary 1. In this decision, the Alberta Utilities Commission finds that some of the costs applied for in AltaLink Management Ltd.’s and TransAlta Corporation’s deferral account reconciliation application for approval were not prudently incurred and, therefore, not all of the applied-for rate base capital additions for the Edmonton Region 240 kilovolt (kV) Upgrades Project (the Project) were approved. 2. In the application, AltaLink and TransAlta requested final cost approval of $112.5 million in capital costs: $90.9 million in costs for AltaLink and $21.6 million for TransAlta Corporation for the Project. This latter cost, $21.6 million, included $1.15 million attributable to a Cooperation Agreement reached with the Enoch Cree Nation (Enoch). 3. The Commission found AltaLink and TransAlta to have prudently planned and executed the majority of this Project, with the exception of the execution of the 8 kilometre (km) of transmission line constructed (rebuilt) across Stoney Plain Reserve #135. Fifteen per cent of these costs, net of the costs of the Cooperation Agreement, were disallowed. Additionally, the Commission disallowed a similar percentage of the costs incurred by the utilities to negotiate and conclude the Cooperation Agreement. The Commission allowed the utilities to determine amongst themselves the appropriate division of the disallowance. The total amount of the project costs disallowed in the decision is approximately $3 million, which represents slightly less than one per cent of the total capital additions requested. 4. TransAlta and AltaLink are directed to provide a compliance filing to this decision and in conjunction with the decision in Proceeding 24681 (if so directed) on or before January 29, 2021. 2 Background 2.1 Project description 5. The Project consisted of the construction of a new 240 kV transmission line 1043L1 located between Keephills 320P Substation and the Jack Fish Lake area west of Edmonton (Proceeding 754). A map of this transmission project can be found in Appendix 2 of this decision. 1 Decision 2011-340: Alberta Electric System Operator, Needs Identification Document Amendment, AltaLink Management Ltd., New Transmission Line 1043L and Alteration of Transmission Line 904L West of Edmonton/Jackfish Lake Area, EPCOR Distribution & Transmission Inc., Conductor Replacement and New Structure on Existing Transmission Lines 904LE/904LW in the Edmonton Area, Proceeding 754, August 12, 2011, paragraph 103, both the 12 km new and 50 km rebuild were given the name 1043L. Decision 25369-D01-2020 (December 10, 2020) 1 Direct Assigned Capital Deferral Account for the Edmonton Region Project AltaLink Management Ltd. and TransAlta Corporation 6. The portion of the Project that is the subject of this application, the 1043L line, includes:2 • A new 12 km 1043L double-circuit 240 kV line from 240 kV junction (Keephills 320P Substation) to Jackfish Lake. (This is referred to as the preferred transmission route 1043L in Appendix 2 of this decision and is represented by the dotted line from Keephills 320P Substation to Jack Fish Lake Point 2 on the map.) Point 2 was the western terminus of what was known as line 904L. • A rebuild of 904L consisting of 50 km of single-circuit 240 kV H‐Frame line from Jackfish Lake to Petrolia 816S Substation. (This is identified by the solid line from EPCOR Petrolia E816S Substation to Point 2 on the map in Appendix 2 of this decision.) The rebuild portion of the project scope included the 8 km of line within the existing right of way (ROW) on the Stony Plain Reserve #135 (the reserve). The rebuild of transmission line 904L was renamed 1043L. 7. For the purposes of this proceeding, the Project and associated costs are divided into two portions: 1043L (the portion of the Project not on the reserve, 54 km) and 1043L-Reserve (the 8 km portion of the Project on the reserve). 8. The reserve encompasses federal lands that were set aside for Enoch by the Government of Canada under Treaty 6. Enoch’s Chief and Council has the jurisdictional authority (powers, duties and functions) to manage the reserve lands on behalf of the band members subject to the terms of the Indian Act, and with oversight of the Minister of Indigenous Services Canada. 9. TransAlta is the transmission facility owner (TFO) of 1043L-Reserve. The original ROW was granted to a predecessor of TransAlta (Calgary Power Ltd.) under an Easement Agreement with Canada dated April 18, 1956. In 1981, TransAlta was issued a permit pursuant to Section 28(2) of the Indian Act, which permit was consented to by Enoch.3 10. AltaLink and TransAlta have an Operations and Maintenance Agreement in which AltaLink provides certain operation and maintenance services for transmission facilities located on First Nations’ reserves including the Enoch Cree First Nation’s reserve.4 AltaLink plans and provides all operational and maintenance services, including repairing and replacing assets, maintaining appropriate records, as well as preparing and filing applications on behalf of TransAlta. 11. On July 28, 2010, AltaLink filed the facilities application with the AUC for the Project. The Commission approved the facilities application in Decision 2011-340. The initial permits stated that the approved construction or alterations were to be completed by August 23, 2012.5 12. Construction on