Decision 2008-057 FortisAlberta Inc. 20082009 Negotiated Settlement

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					                                            Decision 2008-057




FortisAlberta Inc.
2008/2009 Negotiated Settlement Agreement Refiling

July 16, 2008
ALBERTA UTILITIES COMMISSION
Decision 2008-057: FortisAlberta Inc.
2008/2009 Negotiated Settlement Agreement Refiling
Application No. 1568045
Proceeding ID. 26

July 16, 2008


Published by
       Alberta Utilities Commission
       Fifth Avenue Place, 4th Floor, 425 - 1 Street SW
       Calgary, Alberta
       T2P 3L8

       Telephone: (403) 592-8845
       Fax: (403) 592-4406

       Web site: www.auc.ab.ca
Contents
1   INTRODUCTION .............................................................................................................1

2   BACKGROUND................................................................................................................1

3   ISSUES...............................................................................................................................2

4   DISCUSSION OF ISSUES................................................................................................2
    4.1 2008 Return on Equity Placeholder Update................................................................ 2
    4.2 2009 Return on Equity Placeholder Update................................................................ 3
    4.3 2008/2009 United Utility Workers’ Association of Canada Wage Placeholder Update3

5   ORDER ..............................................................................................................................6




                                                                                            AUC Decision 2008-057 (July 16, 2008) • i
ALBERTA UTILITIES COMMISSION
Calgary Alberta


FORTISALBERTA INC.                                                             Decision 2008-057
2008/2008 NEGOTIATED SETTLEMENT                                          Application No. 1568045
AGREEMENT REFILING                                                             Proceeding ID. 26


1         INTRODUCTION

FortisAlberta Inc. (FAI) filed an application (Application) on April 11, 2008 with the Alberta
Utilities Commission (AUC or the Commission) respecting the updating of certain cost items
that were held as placeholders in its approved 2008/2009 Negotiated Settlement Agreement (FAI
NSA).

FAI’s revenue requirement for 2008 and 2009 was negotiated with customer representatives and
was approved by the Alberta Energy and Utilities Board in Decision 2008-011 dated
February 12, 2008. The negotiated revenue requirement included a number of deferral accounts
and placeholder items which were subject to change as actual results became available.

The Application proposed to finalize two of FAI’s outstanding placeholder items: its union wage
increases for 2008 and 2009, and to update the return on equity (ROE) for both 2008 and 2009
based on the results of the Commission’s approved 2008 generic ROE that is now available.

If approved in accordance with the Application, the above items would increase FAI’s previously
approved 2008 revenue requirement by $1.8 million and its previously approved 2009 revenue
requirement by $2.1 million. The Application proposed that these amounts be collected from
customers through rates to be implemented commencing January 1, 2009 based on an application
to be filed later in 2008. There would be no change to customer rates in 2008.


2         BACKGROUND

Notice of the Application was issued on April 16, 2008.

Statements of Intent to Participate (SIPs) were filed by the Consumers’ Coalition of Alberta
(CCA), the Public Institutional Consumers of Alberta (PICA) and the Office of the Utilities
Consumer Advocate (UCA).

CCA and PICA indicated that they had combined efforts in this proceeding, and made
submissions as the Consumer Group (CG) to achieve efficiencies and avoid unnecessary
duplication.

In their SIPs and attached comments, parties identified certain concerns and objections to the
Application and requested certain clarifications or changes be made.




                                                                  AUC Decision 2008-057 (July 16, 2008) • 1
2008/2009 Negotiated Settlement Agreement Refiling                                          FortisAlberta Inc.



The Commission therefore set out the following process:

Process Step:                                          Deadline:
FAI response to items raised in SIPs                   May 7, 2008 at 4:00 pm
Argument                                               May 21, 2008 at 4:00 pm
Reply Argument (if necessary)                          June 2, 2008 at 4:00 pm

In their Arguments, parties were requested to indicate any remaining objections to the
Application (which might or might not be modified by FAI’s responses due on May 7, 2008) and
to indicate any counter proposals.

Argument was received on May 21, 2008 from both CG (CG Argument) and from FAI (FAI
Argument). Reply Argument was received on June 2, 2008 from FAI (FAI Reply) only.

On June 23, 2008, the Commission, having determined that additional information was required,
issued information requests to FAI and responses were received on June 26, 2008 (IR
Responses).

The Commission considers that the record for this proceeding closed on June 26, 2008.


3            ISSUES

      •   2008 Return on Equity Placeholder Update (2008 ROE Update)

      •   2009 Return on Equity Placeholder Update (2009 ROE Update)

      •   2008 / 2009 United Utility Workers’ Association of Canada (UUWA) Wage Placeholder
          Update


4            DISCUSSION OF ISSUES

4.1          2008 Return on Equity Placeholder Update
The issues raised by CG with respect to FAI’s 2008 ROE Update were summarized in the CG
Argument as follows:

          In its April 29, 2008, submission, the CG expressed concern there was inadequate support
          in the 2008 Revenue Requirement financial schedules to confirm whether all the impacts
          associated with the updating of the 2008 ROE placeholder amount of 8.51% with the
          8.75% rate approved in Order 2007-347 for 2008 had been taken into account. In
          particular, CG recommended FAI file “a revised set of financial schedules showing all
          impacts associated with the 2008 update to the 8.51% ROE as per the 2008-2009 NSA.”
          [CG Submission, April 29, 3008, p.2] Based on a review of the requested and
          subsequently filed 2007-2008 excel-based Revenue Requirement model included in the
          May 7, 2008, Supplementary Filing, it appears Fortis has satisfactorily reflected the
          changes arising from updating the 2008 ROE placeholder rate.




2 • AUC Decision 2008-057 (July 16, 2008)
2008/2009 Negotiated Settlement Agreement Refiling                                          FortisAlberta Inc.



Based on the excerpt from CG’s Argument above, it appears that CG is now satisfied with FAI’s
update to the 2008 ROE placeholder amount. The Commission has reviewed the material filed
by FAI and is satisfied that the 2008 ROE Update has been properly calculated and approves an
increase in revenue in respect of the 2008 ROE Update of $1.0 million, based on an update to
FAI’s 2008 ROE from 8.51% to 8.75%, to be deferred for collection in 2009 as proposed by
FAI.

4.2          2009 Return on Equity Placeholder Update
FAI’s 2009 ROE is a deferral amount to be finalized when the Commission sets the ROE for
2009. The ROE placeholder was set at 8.51% in the FAI NSA. FAI proposed to update the 2009
ROE, on an interim basis, to 8.75%. This would add $1.2 million to FAI’s 2009 revenue
requirement. In both its SIP and in the CG Argument, CG opposed FAI’s proposal and submitted
that it was premature to make any changes to the 2009 ROE placeholder at this time.

In FAI’s response to the SIPs, dated May 7, 2008 (FAI Response to SIPs), and in the FAI
Argument, FAI submitted that the use of the 2008 ROE for 2009 (on an interim basis) may
provide a more accurate estimate of the ROE impact in 2009. However, FAI also indicated that if
the Commission thought it better to not update the 2009 ROE placeholder at this time, FAI
would be content to maintain the 8.51% level for 2009 placeholder purposes.

The Commission agrees with CG that the 2009 ROE placeholder amount should remain at the
agreed level of 8.51% until such time as the 2009 ROE level is approved.

4.3          2008/2009 United Utility Workers’ Association of Canada Wage Placeholder
             Update
FAI’s Application indicated that the ratified UUWA contract resulted in an increased revenue
requirement of $0.8 million in 2008 and $0.9 million in 2009. FAI indicated that this resulted
from two main items:

      1) A 5.5% negotiated wage increase in 2008 instead of the 5.0% placeholder amount; and
      2) A one-time additional wage increase of $1.10 per hour for Power Line Technicians
         (PLTs) to reflect current market conditions for PLTs.

In addition, FAI indicated that the UUWA contract included a one-time wage increase of $1.00
per hour to replace the PLT lunch reimbursement program. FAI indicated that this item had
essentially no net impact on the operating expenses.

In its SIP, CG requested additional information regarding the impacts of the wage adjustment in
2008 and further evidence to support the revenue increase in 2008 and 2009. CG also noted that
the allocation between capital and operating labour was not clear. In response, FAI provided
computations and allocation details in the FAI Response to SIPs.

CG also requested additional information regarding impacts on short-term incentive pay
computations and pension amounts. FAI addressed these items in the FAI Response to SIPs and
indicated that the short-term incentive payments in the 2008 and 2009 revenue requirements are
at the target level. FAI also indicated that the benefit loading expense remained relatively flat as
a large portion of the annual costs are fixed in nature.


                                                                    AUC Decision 2008-057 (July 16, 2008) • 3
2008/2009 Negotiated Settlement Agreement Refiling                                     FortisAlberta Inc.



In the CG Argument, CG noted that, based on the FAI Response to SIPs, while the net labour
expense increase was $0.82 million in 2008 and $0.94 million in 2009, the gross increase was
actually $2.6 million in 2008 and $3.2 million in 2009. CG indicated that the difference between
the net and the gross labour increases were primarily related to labour costs capitalized. CG
indicated that it continued to be concerned about the lack of details in support of the requested
amounts.

CG also pointed out that, given that the negotiated wage increase in 2009 was equal to the
placeholder amount at 5.0%, it was not clear if the 0.5% wage increase impact shown in 2009
reflected the 2008 increase. In the FAI Reply, FAI clarified that the wage increase for 2009 did
include the impact of the 0.5% higher-than-forecast wage increase for 2008.

CG submitted that FAI should be directed to provide additional computations and supporting
detail for the various components of the gross wage increase amounts. In the FAI Reply, FAI
submitted that CG’s request for further data by way of its Argument was both late and
inappropriate. FAI also submitted that CG sought inappropriate levels of detail, regarding the
amounts here, in the context of the NSA’s overall salaries and wages and revenue requirement
levels.

CG also submitted that FAI should confirm that none of the true-up amounts now sought for
recovery relate to non-Association members. FAI confirmed this in the FAI Reply.

With regard to the replacement of FAI’s lunch reimbursement program, the UCA, in its SIP
dated April 29, 2008, requested confirmation that the revenue requirement for the lunch
reimbursement program had been removed. This was subsequently confirmed in the FAI
Response to SIPs and the FAI Argument.

CG, in its SIP, submitted that there was no evidence that the one-time wage adjustment of $1.00
per hour was cost-neutral compared to the PLT lunch reimbursement program. In the FAI
Response to SIPs, FAI provided details and computations which it submitted showed that the
replacement of the previous PLT lunch reimbursement program with an hourly wage adjustment
of $1.00 had no material impact on operating expense.

In the CG Argument, CG submitted that the $1.00 per hour increase for PLTs in lieu of the lunch
reimbursement program was, including capitalized amounts, a net cost to customers. CG
submitted that FAI has not provided persuasive evidence to support this change and that this
requested increase should be denied. In the FAI Reply, FAI stated that there had always been
both an operating and a capital component to the existing lunch reimbursement program. FAI
submitted that the out-of-pocket costs of the lunch program were formerly included in general
operating expense, and that such amounts have been removed as part of the refiling. FAI
submitted that this reduction plus the effect of capitalization have rendered the net cost effect of
the change as essentially nil. FAI submitted that there is no material effect on overall costs from
the change in the lunch reimbursement program, but rather a change in the line items where such
costs are recorded.

No reply argument was received from either CG or UCA. The Commission is therefore unaware
if CG or UCA had any further objections to FAI’s proposed updating of the UUWA wage
placeholder.


4 • AUC Decision 2008-057 (July 16, 2008)
2008/2009 Negotiated Settlement Agreement Refiling                                        FortisAlberta Inc.



After reviewing the FAI Argument and FAI Reply, the Commission remained unclear as to
whether the lunch reimbursement program change was cost-neutral on a gross basis (before
capitalization). The Commission was also unclear as to why the incremental overtime and
standby expenses and FAI’s Short Term Incentive Plan expenses appeared to be high in relation
to the negotiated incremental increases in wages.

On June 23, 2008, the Commission issued information requests on these topics to FAI and the IR
Responses were received on June 26, 2008.

In IR Reponses, FAI clarified that the UUWA negotiation had increased the rate for all standby
pay. The Commission is satisfied that that this explains why the overtime & standby expense
appeared to be a high percentage of the incremental wage increases negotiated. FAI also
provided figures to demonstrate that the incremental amount of FAI’s Short Term Incentive Plan
was at the appropriate proportion to the incremental increase in gross loaded labour that had been
negotiated. The Commission is satisfied with this explanation.

Regarding the lunch reimbursement program, FAI provided an analysis for the lunch
reimbursement program change that, as requested, reflected consequential impacts on overtime
& standby expense and on FAI’s Short Term Incentive Plan. The net impact on operating
expenses rose from the approximately $0 presented in the FAI Response to SIPS to
approximately $100,000 per year which FAI described as essentially cost neutral. FAI also
submitted that the negotiated change to the lunch reimbursement program was fully eligible as a
deferral amount. The Commission is satisfied that this negotiated change is eligible for deferral
account treatment.

In the Commission’s view, the substantive issues regarding the overall UUWA wage placeholder
update is whether or not the cost increases reflect those items directly attributable to the wage
negotiation, whether the increases were within the scope of the agreed deferral account and were
not unreasonable. After reviewing the material provided by FAI, the Commission is satisfied that
FAI has appropriately updated the UUWA placeholder to reflect the actual forecast costs of its
wage settlement. The Commission does not find any of the components of the wage negotiation
to be unreasonable. The Commission approves the proposed increase in FAI’s 2008 revenue
requirement of $0.8 million, to be deferred to 2009, and an increase in FAI’s 2009 revenue
requirement of $0.9 million. The Commission also approves FAI’s proposal to reflect these
amounts in an application that it will file later in 2008 for rates to be implemented commencing
January 1, 2009.




                                                                  AUC Decision 2008-057 (July 16, 2008) • 5
2008/2009 Negotiated Settlement Agreement Refiling                                   FortisAlberta Inc.



5            ORDER

IT IS HEREBY ORDERED THAT:

(1)      FortisAlberta Inc.’s approved revenue requirement for 2008 is increased by $1.8 million
         to be deferred for collection in 2009.

(2)      FortisAlberta Inc.’s approved revenue requirement for 2009 is increased by $0.9 million.
         The approved forecast revenue for 2009, including the $1.8 deferred from 2008, therefore
         increases by $2.7 million from $280.8 million to $283.5 million.


Dated in Calgary, Alberta on July 16, 2008.

ALBERTA UTILITIES COMMISSION




(original signed by)


Willie Grieve
Chair


(original signed by)


Carolyn Dahl Rees
Commissioner




6 • AUC Decision 2008-057 (July 16, 2008)

				
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