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					ALBERTA ENERGY AND UTILITIES BOARD
CALGARY, ALBERTA


THE CITY OF RED DEER
PART A: INTERIM APPROVAL OF                                                     Decision 2001-26
2001 FINANCING COSTS FOR THE                                             Application No. 2001089
2000 DISTRIBUTION POOL PRICE DEFERRAL ACCOUNT                                     File No. 3500-2


The Alberta Energy and Utilities Board (the Board) received an application (the Application)
dated March 16, 2001 from The City of Red Deer (Red Deer), requesting interim approval for
estimated 2001 monthly payments to finance the outstanding year-end balance in Red Deer’s
2000 Distribution pool price deferral account (the Red Deer deferral account). The Application
has been submitted in accordance with Section 4(3) of the Deferral Accounts Deficiency
Correction Regulation, AR 240/2000, dated November 28, 2000, amended by the Deferral
Accounts Deficiency Correction Amendment Regulation, AR 6/2001, dated January 17, 2001
(Deferral Accounts Regulation).

In relation to a “municipal owner of an electric distribution system” such as Red Deer, Section
1(a)(iii) of the Deferral Accounts Regulation defines “deferral account” as follows:

       In respect of a municipal owner of an electric distribution system, a reconciliation
       account for 2000 established for the same purpose that a deferral account referred
       to in subclause (i) or (ii) is established.

Red Deer’s 2000 pool price deferral account represents a reconciliation account for 2000
established in accordance to Section 1(a)(iii) of the Deferral Accounts Regulation.

Pursuant to Section 4(3) of the Deferral Accounts Regulation, Red Deer submitted that its
estimate of the 2000 year-end balance in the Red Deer deferral account, before adjustments, was
$12,518,307 with the derivation of the estimate shown in Schedule A of the Red Deer
Application. Red Deer noted that its annual Forecast Pool Price and annual Forecast DISCO
Entitlement was contained within its Council-approved 2000 budget. Red Deer also submitted
that since Red Deer’s forecasts are performed on an annual basis, forecast figures presented in
Schedule A were allocated to the months by weighting annual figures on actual monthly volumes
purchased where appropriate and, as a result, are for illustrative purposes only.

According to Note 4 of Schedule A in the Red Deer Application, actual Unit Obligation Values
(UOVs) included Temporary Suspension Regulation (TSR) adjustments calculated by the Power
Pool in relation to the Wabamun 4 generating unit. In the Application1 and Note 6 of Schedule A,
Red Deer submitted that its calculation was based on the formula approved by the Board in
Decision 2000-312 for TransAlta Utilities Corporation’s (TransAlta) pool price deferral account. 3


       1
           p.1
       2
           p.8

                                                             EUB Decision 2001-26 (April 24, 2001) • 1
PART A: INTERIM APPROVAL OF
2001 FINANCING COSTS FOR THE
2000 DISTRIBUTION POOL PRICE DEFERRAL ACCOUNT                                                The City of Red Deer




Red Deer submitted that a net hedging benefit partly offset the pool price and entitlement impact
component of the Red Deer deferral account. Red Deer’s net hedging benefit amounted to
$7,276,761, representing the financial benefit of entering into hedging contracts between
January 1, 2000 and December 31, 2000, net of hedging contract costs.

Red Deer submitted that it did not institute any rate increases or rate riders in 2000 to address the
higher than forecast costs of power purchases. Red Deer also noted that Municipal Consent and
Access Fees (MCAF) were not included in its estimate of the deferral account balance.

Thus, after adjusting for the net hedging benefit, Red Deer submitted that its estimate of the net
outstanding Red Deer deferral account year-end balance was $5,241,546 (i.e., $12,518,307-
$7,276,761).

Section 4(4) of the Deferral Accounts Regulation prescribes the Bank of Canada bank rate plus
1.5% as the rate for the calculation of the payments of the cost of financing the amounts in the
deferral accounts on an interim basis. Red Deer requested Board approval of the proposed
monthly 2001 finance payment calculation using the actual monthly Bank of Canada rate plus
1.5% multiplied by Red Deer’s estimated balance in the Red Deer deferral account of
$5,241,546.

Thus, Red Deer calculated that for the month of January 2001, using the actual average Bank of
Canada bank rate of 5.93%, the January payment would be $32,454 (calculated as
(5.93%+1.50%) x $5,241,546 / 12). 4

Section 4(6) of the Deferral Accounts Regulation directs that any amount payable to an electric
distribution system owner under Section 4 is to be paid by the Balancing Pool Administrator out
of the Balancing Pool. Pursuant to Section 4(5) of the Deferral Accounts Regulation, the amount
collected by means of the interim monthly payments will be adjusted once the Board has made a
final determination of the amount that is payable in 2001 to Red Deer in respect of the cost of
financing the finalized amounts in Red Deer’s deferral account in 2001.

The Board, in a letter dated March 22, 2001, provided notice that the Board may approve the
financing cost payments to Red Deer. These payments would be on an interim refundable basis
for the monthly interest charges.

The Board requested interested parties to submit any objections or comments, regarding interim
approval of the Application, to the Board by 4:00 PM March 30, 2001.




        3
          The deferral account formula set out in Decision 2000-31 is the same formula set out in page 12 of
Decision 2000-3, the TransAlta Utilities Corporation 1999/2000 Electric Tariff Application Refiling.
        4
          Note that the average January Bank Rate of 5.93% is rounded to the nearest two decimal places.

2 • EUB Decision 2001-26 (April 24, 2001)
PART A: INTERIM APPROVAL OF
2001 FINANCING COSTS FOR THE
2000 DISTRIBUTION POOL PRICE DEFERRAL ACCOUNT                                           The City of Red Deer


Vie ws of the Board
The Board notes that in its letter to interested parties dated March 22, 2001, the Board provided
notice that it may approve the financing cost payments to Red Deer. The Board also requested
interested parties to submit any objections or comments, regarding interim approval of the
Application, to the Board by 4:00 PM March 30, 2001. The Board notes that it did not receive
any objections or comments from parties with respect to the Application.

The Board notes that, in compliance with sections 1(a)(iii) and 4(3) of the Deferral Accounts
Regulation, Red Deer has submitted a deficit amount of $5,241,546 to be used as its estimate of
the outstanding 2000 Red Deer deferral account year-end balance.

The Board notes that Red Deer has included the flow through of lower entitlements from the
temporary suspension of the Wabamun 4 generating unit in its estimate of the outstanding
deferral account year-end balance. 5 The Board further notes that Red Deer’s calculation for the
Red Deer deferral account is based on the formula approved by the Board in Decision 2000-31 6
for TransAlta’s pool price deferral account, which was originally set out in Decision 2000-3,
TransAlta’s 1999/2000 Electric Tariff Application Refiling. 7 This formula uses actual UOVs for
the purpose of calculating the actual DISCO entitlement values. In addition, the Board notes that
actual UOVs from October 1 to December 31, 2000, as calculated by the Power Pool, include
Wabamun 4 TSR adjustments. Thus, during the October 1 to December 31, 2000 period, the
actual entitlements that Red Deer received from the Power Pool, and on which its estimate is
based, reflect interim TSR relief for Wabamun 4. Accordingly, for the above reasons, the Board
accepts as appropriate Red Deer’s inclusion of the interim TSR relief for Wabamun 4 within its
estimate of the Red Deer deferral account for the purposes of this interim decision.

The Board notes that, as prescribed in Section 4(4) of the Deferral Accounts Regulation, Red
Deer in the Application8 calculated the January payment based on an average Bank of Canada
bank rate of 5.93%, which represented the effective Bank of Canada bank rate for the month of
January.

The Board notes that the Bank of Canada bank rate has the potential to change during a given
month. For example, the Bank of Canada bank rate decreased from 5.25% to 5.00% on April 17,
2001, following the Application dated March 16, 2001. For the purpose of preserving the spirit
of the Deferral Accounts Regulation, the Board considers the appropriate interest rate to use for
the deferral accounts is a calculated monthly average Bank of Canada bank rate for the month in
question. The Board notes that Red Deer has employed this methodology in its calculation of the
January payment in the Application.



        5
          The temporary suspension of TransAlta Utilities Corporation’s Wabamun 4 was approved in Decision
2000-68 dated November 3, 2000.
        6
          p.8
        7
          p.12
        8
          p.2, footnote 4

                                                                    EUB Decision 2001-26 (April 24, 2001) • 3
PART A: INTERIM APPROVAL OF
2001 FINANCING COSTS FOR THE
2000 DISTRIBUTION POOL PRICE DEFERRAL ACCOUNT                                  The City of Red Deer


The Board has determined that Red Deer’s monthly interest charges are to be calculated using
the average Bank of Canada bank rate for the month in question plus 1.5 per cent on the
submitted balance of $5,241,546. The amount of $5,241,546 represent s Red Deer’s estimate of
the amount in the Red Deer deferral account, which the Board accepts as appropriate for the
purposes of this interim refundable monthly finance payment decision.

The Board considers that Red Deer’s Application for interim approval for estimated 2001
monthly payments to finance the outstanding year-end balance in the Red Deer deferral account
has been filed in conformance with the Deferral Accounts Regulation.

Accordingly, for all of the above reasons, the Board considers it appropriate to approve, on an
interim refundable basis, Red Deer’s application for estimated 2001 monthly payments to
finance the Red Deer deferral account.

The Board will address the finalization of the 2001 cost of financing the 2000 deferral account
balance, pursuant to Section 4(1) of the Deferral Accounts Regulation, in an upcoming hearing
that will address the application for the principal amount of the 2000 deferral accounts.

THEREFORE the Board orders Red Deer to submit to the Balancing Pool Administrator on a
monthly basis in 2001 its calculated interim monthly finance payment regarding the Red Deer
deferral account, based on a calculation utilizing the average Bank of Canada bank rate for the
month in question plus 1.5 per cent, multiplied by the submitted balance of $5,241,546, and
divided by 12.

Pursuant to Section 4(6) of the Deferral Accounts Regulation, the calculated monthly amount
owing to Red Deer is to be paid by the Balancing Pool Administrator out of the Balancing Pool.

Dated in Calgary, Alberta on April 24, 2001.

ALBERTA ENERGY AND UTILITIES BOARD

(Original signed “N. W. MacDonald”)

N. W. MacDonald, P.Eng.
Presiding Member

(Original signed “A. J. Berg”)

A. J. Berg, P.Eng.
Member

(Original signed “R. G. Lock”)

R. G. Lock, P.Eng.
Member

4 • EUB Decision 2001-26 (April 24, 2001)