Decision 23571-D01-2019 EPCOR Distribution & Transmission Inc. 2017 Performance-Based Regulation Capital Tracker True-Up Application – Module One April 12, 2019 Alberta Utilities Commission Decision 23571-D01-2019 EPCOR Distribution & Transmission Inc. 2017 Performance-Based Regulation Capital Tracker True-Up Application – Module One Proceeding 23571 April 12, 2019 Published by the: Alberta Utilities Commission Eau Claire Tower, 1400, 600 Third Avenue S.W. Calgary, Alberta T2P 0G5 Telephone: 403-592-8845 Fax: 403-592-4406 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 procedural background .......................................................................... 1 3 Background ............................................................................................................................ 3 4 Commission process for reviewing the 2017 capital tracker true-up application ........... 3 5 Overview of programs and projects included in the 2016 capital tracker true-up application .............................................................................................................................. 5 6 Grouping of projects for capital tracker purposes ............................................................. 8 7 Project assessment under Criterion 1 – the project must be outside the normal course of the company’s ongoing operations .................................................................................. 9 7.1 Common issues ............................................................................................................... 9 7.1.1 Allocated overhead ........................................................................................... 9 7.1.2 Affiliate transactions ....................................................................................... 11 7.1.2.1 Evaluation of EPCOR’s affiliate transactions ................................... 14 7.1.2.2 Engineering and drafting technology services ................................... 17 7.1.2.3 Civil construction services for cable replacement ............................. 20 7.1.2.4 Construction, maintenance and repair of security lighting systems and pole replacement work ...................................................................... 23 7.1.2.5 Hydro-excavation dispatch and dewatering services and directional drilling services ................................................................................. 25 7.1.2.6 Power base and/or pedestal repair and other jobbing services (thumping, fibre installation and streetlight installation and repairs) 27 7.1.3 Asset usage fees .............................................................................................. 29 7.1.4 Controls and accountability ............................................................................ 29 7.2 Capital tracker programs or projects for which no issues were raised ......................... 30 7.2.1 Third-Party Driven Relocations Program ....................................................... 30 7.2.2 Capitalized Underground System Damage Project......................................... 31 7.2.3 New Underground and Aerial Service Connections for Commercial, Industrial, Multi-Family and Miscellaneous Customers ................................. 32 7.2.4 Underground Residential Distribution Servicing - Rebates, Acceptance Inspections and Terminations ......................................................................... 33 7.2.5 Poundmaker Feeders ....................................................................................... 33 7.2.6 Outage Management System/Distribution Management System Life Cycle Replacement .................................................................................................... 34 7.2.7 Underground Industrial Distribution Servicing – Rebates, Acceptance Inspections and Terminations ......................................................................... 34 7.2.8 Replacement of Faulted Distribution PILC Cables ........................................ 35 7.2.9 Neighbourhood Renewal ................................................................................ 35 7.2.10 Customer Revenue Metering .......................................................................... 36 7.2.11 IT Hardware Lifecycle Replacements and Additions ..................................... 38 7.2.12 Manhole Rebuilds and Life Cycle Replacements ........................................... 38 7.2.13 Network Reconfigurations .............................................................................. 39 Decision 23571-D01-2019 (April 12, 2019) • i 7.2.14 Street Light Service Connections and Security Lighting Addition and Capital Replacement .................................................................................................... 40 7.2.15 Commission findings on EPCOR’s capital tracker programs or projects for which no issues were raised ............................................................................ 41 7.3 New 15-kV and 25-kV Circuit Additions .................................................................... 41 7.4 New Underground Cable and Aerial Line Reconfigurations and Extensions to Meet Customer Growth ......................................................................................................... 45 7.5 Capital Tools and Instrument Purchases ...................................................................... 50 7.6 Capitalized Aerial System Damage .............................................................................. 51 7.7 Service Centre Redevelopment and Life Cycle Replacements .................................... 54 7.8 Vehicles – Growth and Life Cycle Replacement Project ............................................. 58 7.8.1 Compliance with Direction 8 of Decision 22672-D01-2018 .......................... 59 7.8.2 Vehicles – Growth and Life Cycle Replacement Project for 2017 ................. 60 7.8.2.1 Fleet additions to account for growth ................................................ 61 7.8.2.2 Life cycle replacements of vehicles ................................................... 62 7.8.2.3 Purchase of hired fleet vehicles ......................................................... 64 7.9 Replacement of Aerial Ground Rod and Underground Distribution Equipment Ground Grid ............................................................................................................................... 69 8 Accounting test under Criterion 1 – the project must be outside of the normal course of the company’s ongoing operations, and Commission conclusion on Criterion 1 ...... 73 8.1 Accounting test for the 2017 true-up ............................................................................ 73 8.1.1 Accounting test model adjustments ................................................................ 73 8.1.2 Accounting test assumptions........................................................................... 74 8.1.2.1 Cost of debt ........................................................................................ 75 8.2 Commission’s conclusions on Criterion 1 .................................................................... 81 9 Criterion 2 – ordinarily the project must be for replacement of existing capital assets or undertaking the project must be required by an external party ............................... 81 10 Criterion 3 – the project must have a material effect on the company’s finances ........ 83 11 EPCOR’s compliance with Commission directions ......................................................... 84 12 2017 true-up application K factor calculations ................................................................ 84 13 Service quality and asset monitoring ................................................................................. 85 14 Order .................................................................................................................................... 87 Appendix 1 – Proceeding participants ...................................................................................... 89 Appendix 2 – Summary of Commission directions .................................................................. 90 Appendix 3 – EPCOR’s prior capital tracker-related decisions ............................................ 92 List of tables Table 1. Applied-for 2017 K factor true-up adjustments ...................................................... 5 Table 2. 2017 capital tracker programs or projects capital additions .................................. 7 ii • Decision 23571-D01-2019 (April 12, 2019) Table 3. EPCOR’s capital overhead pool 2012-2017 ............................................................ 10 Table 4. EPCOR distribution functions capital overhead rate 2012-2017 ......................... 11 Table 5. EPCOR’s affiliate services ....................................................................................... 12 Table 6. Detailed breakdown of EPCOR’s affiliate services ............................................... 13 Table 7. 2017 AUF forecast compared to actual ................................................................... 29 Table 8. 2017 new 15-kV and 25-kV circuit