Errata to Decision 20414-D01-2016 2018-2022 Performance ...

1 Decision 20414-D01- 2016 ( Errata ). Errata to Decision 20414-D01- 2016 . 2018-2022 Performance -Based Regulation Plans for Alberta Electric and Gas Distribution Utilities February 6, 2017 . Alberta Utilities Commission Decision 20414-D01- 2016 ( Errata ). 2018-2022 Performance -Based Regulation Plans for Alberta Electric and Gas Distribution Utilities Proceeding 20414. February 6, 2017 . Published by the: Alberta Utilities Commission Fifth Avenue Place, Fourth Floor, 425 First Street Calgary, Alberta T2P 3L8. Telephone: 403-592-8845. Fax: 403-592-4406. Website: Alberta Utilities Commission Calgary, Alberta 2018-2022 Performance -Based Regulation Plans Decision 20414-D01- 2016 ( Errata ). for Alberta Electric and Gas Distribution Utilities Proceeding 20414. 1. On December 16, 2016 , the Alberta Utilities Commission issued Decision 20414-D01- 1. 2016 , to establish the parameters to be included in the next generation of Performance -based regulation (PBR) plans (next generation PBR plans) to be implemented for the 2018 to 2022.

2 Period. This Decision applies to four electric distribution utilities, ATCO Electric Ltd. (distribution), ENMAX Power Corporation (distribution), EPCOR Distribution & Transmission Inc. (distribution), and FortisAlberta Inc. and two gas distribution utilities, AltaGas Utilities Inc., and ATCO Gas and Pipelines Ltd. (distribution), together referred to as the distribution utilities. 2. Section of the Commission's Rule 001: Rules of Practice provides that the Commission may correct typographical errors, errors of calculation and similar errors made in any of its orders, decisions or directions. The Commission corrects errors of this nature through the issuance of an Errata to the original Decision . 3. Upon review of Decision 20414-D01- 2016 , the Commission has noted a section reference typographical error and required correction. 4. A correction to the subsection numbering is required in Section 5. Currently there are two subsections numbered The headings in Section 5 read as follows: Commission determination of the X factor for the 2018-2022 PBR plans X factor for ENMAX's 2015- 2017 PBR plan Proposals for a non-negative I-X provision 5.

3 The heading references to sections and of Decision 20414-D01- 2016 are hereby amended to read as follows: Commission determination of the X factor for the 2018-2022 PBR plans X factor for ENMAX's 2015- 2017 PBR plan Proposals for a non-negative I-X provision 6. All references to these subsections within the Decision will remain as they appeared in the original Decision . 7. In accordance with provisions of Decision 20414-D01- 2016 , the base K-bar calculation involves the use of an accounting test similar to the one currently employed for the capital tracker mechanism used during the current PBR term (albeit with certain modifications).2 The 1. Decision 20414-D01- 2016 : 2018-2022 Performance -Based Regulation Plans for Alberta Electric and Gas Distribution Utilities, Proceeding 20414, December 16, 2016 . 2. Decision 20414-D01- 2016 , paragraph 242. Decision 20414-D01- 2016 ( Errata ) (February 6, 2017 ) 1. 2018-2022 Performance -Based Regulation Plans for Alberta Electric and Gas Distribution Utilities Commission has noted that the order of the steps for the calculation of the interim base K-bar, as outlined in paragraph 254 of the Decision , does not follow the order of the K factor calculation process as outlined in paragraphs 498 to 501 of Decision 2013-4353 and is inconsistent with the resulting terminology set out in paragraph 14 of Decision 3434-D01-20154 and adopted in subsequent capital tracker decisions.

4 Specifically, Step 1 in paragraph 254 of Decision 20414- D01- 2016 currently corresponds to the second component of the accounting test, defined in Decision 3434-D01-2015, while Step 2 currently corresponds to the first component. This inconsistency does not affect the resulting base K-bar amount calculated, but the Commission considers that it may cause unnecessary confusion for parties calculating and evaluating the results of the base K-bar accounting test. Consequently, the Decision will be amended to re-order the steps in paragraph 254 such that the original Step 2 becomes Step 1, consistent with the first component of the accounting test as defined previously. The original Step 1 will, therefore, become Step 2. 8. Further, an error occurred in the placement of the last sentence of the original Step 2, part (i) in paragraph 254 of Decision 20414-D01- 2016 , which provides instructions for the calculation of the interim base K-bar amount. This sentence reads: Distribution utilities should use a four-year average of inflation-adjusted retirements from 2013 to 2016 as an assumption in the accounting test.

5 9. This sentence should be removed from the original Step 2, part (i) and added as the last sentence of the original Step 1, part (v) of paragraph 254. 10. The changes described above affect all the steps for calculating base K-bar described in paragraph 254 of Decision 20414-D01- 2016 . Paragraph 254 and the resulting steps are hereby amended to read as follows: 254. To summarize, the calculation of interim base K-bar will involve the following steps: Step 1: Calculate the revenue requirement that is recovered in the base rates under the I-X mechanism for Type 2 K-bar projects or programs for 2018. (i) Calculate the amount of revenue requirement by program or project recovered in base rates under the I-X mechanism for 2018 using going-in capital-related revenue requirement by program or project, using the method for calculating recovered capital-related revenue requirement from the capital tracker accounting test approved in the current generation PBR. plans. There will, however, no longer be a materiality threshold in the accounting test, and the accounting test must be applied to all Type 2.

6 Projects or programs, not just those with positive accounting test results. 3. Decision 2013-435: Distribution Performance -Based Regulation 2013 Capital Tracker Applications, Proceeding 2131, Application 1608827-1, December 6, 2013. 4. Decision 3434-D01-2015: Distribution Performance -Based Regulation Commission-Initiated Review of Assumptions Used in the Accounting Test for Capital Trackers, Proceeding 3434, Application 1610877-1, February 5, 2015. 2 Decision 20414-D01- 2016 ( Errata ) (February 6, 2017 ). 2018-2022 Performance -Based Regulation Plans for Alberta Electric and Gas Distribution Utilities Step 2: Calculate the projected revenue requirement for Type 2 K-bar projects or programs for 2018. (i) Distribution utilities on the 2013- 2017 PBR plans will determine the capital additions for each K-bar project for each of 2013 to 2016 , and ENMAX will determine the capital additions for each K-bar project for 2015 and 2016 . K-bar projects include all capital projects or programs that have historical rate base associated with them at the time of the rebasing applications.

7 For non-capital tracker programs from the current generation PBR plans, use the actual capital additions as determined to be prudent in the rebasing application, and for capital tracker projects or programs from the current generation PBR plans, use the actual capital additions approved in the capital tracker decisions. As 2016 actual capital tracker additions will not have received Commission approval at the time of the rebasing application, use the 2016 applied-for actual costs from the 2016 capital tracker true-up application. The 2016 actual costs will be trued up to the amounts approved in the 2016 capital tracker true-up decisions at a later date. ENMAX will not have Commission approval for any of its capital tracker actuals. As such, ENMAX will use the applied-for actuals from its recent capital tracker true-up application for both 2015 and 2016 . These amounts will be trued up at a later date. (ii) Inflate the capital additions to 2017 dollars using the I-X methodology with the approved I factor for each year and the approved X factor for the 2013- 2017 PBR plans, which is equal to As ENMAX was not on the 2013- 2017 PBR plans, it will use the X factor approved for ENMAX's 2015- 2017 PBR plan, which is equal to , as noted in Section (iii) Calculate the average K-bar capital additions, by project, in 2017 dollars for the 2013 to 2016 period, or the 2015 to 2016 period for ENMAX.

8 (iv) Inflate the average K-bar capital additions by project to 2018 dollars using the I-X methodology with the approved I factor for 2018 and the X factor for the next generation PBR plans. (v) Calculate the amount of K-bar capital cost incurred for 2018, by program or project, based on the 2018 capital additions from Step 2(iv) and the 2017 . mid-year rate base using the method for calculating incurred capital costs from the capital tracker accounting test approved in Decision 2013-435. Distribution utilities should use a four-year average of inflation-adjusted retirements from 2013 to 2016 as an assumption in the accounting test. Step 3: Calculate the base K-bar. (i) Calculate the difference between the 2018 K-bar capital-related revenue requirement required on a projected basis by program or project (from Step 2) and the 2018 K-bar capital-related revenue requirement recovered in the base rates by program or project (from Step 1). The result is the capital funding shortfall or surplus amount for each program or project for 2018.

9 (ii) Sum the capital funding shortfall and surplus amounts, including both negative accounting test results and positive accounting test results without any materiality considerations, for all Type 2 projects and programs from Step 3(i) to get the total interim base K-bar for 2018. Decision 20414-D01- 2016 ( Errata ) (February 6, 2017 ) 3. 2018-2022 Performance -Based Regulation Plans for Alberta Electric and Gas Distribution Utilities 11. For ease of reference, a corrected version of Decision 20414-D01- 2016 is appended to this Errata Decision . Dated on February 6, 2017 . Alberta Utilities Commission (original signed by). Willie Grieve, QC. Chair (original signed by). Neil Jamieson Commission Member (original signed by). Henry van Egteren Commission Member 4 Decision 20414-D01- 2016 ( Errata ) (February 6, 2017 ). Decision 20414-D01- 2016 . 2018-2022 Performance -Based Regulation Plans for Alberta Electric and Gas Distribution Utilities December 16, 2016 . Alberta Utilities Commission Decision 20414-D01- 2016 .

10 2018-2022 Performance -Based Regulation Plans for Alberta Electric and Gas Distribution Utilities Proceeding 20414. December 16, 2016 . Published by the: Alberta Utilities Commission Fifth Avenue Place, Fourth Floor, 425 First Street Calgary, Alberta T2P 3L8. Telephone: 403-592-8845. Fax: 403-592-4406. Website: Contents 1 Decision .. 1. 2 Procedural summary .. 2. 3 Background .. 4. 4 Rebasing .. 6. The importance of going-in rates .. 7. Rebasing method to set the new going-in rates .. 8. Phase II, depreciation, and other COS studies .. 16. Efficiency carry-over mechanism .. 18. 5 Productivity offset (X factor) .. 22. Setting the X factor .. 22. Revised TFP growth studies .. 22. Objectivity, consistency and transparency of TFP growth studies .. 24. Sample of comparative firms in the TFP growth study .. 26. Assumptions pertaining to measuring input growth and study calculation methods .. 29. Output measure .. 32. Time period .. 35. Stretch factor .. 38. Commission determination on the X factor for the 2018-2022 PBR plans.