Consultation on improvements to rates proceedings for transmission utilities

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Improvements to cost-of-service rates proceedings for transmission utilities

The AUC remains dedicated to increasing the efficiency and reducing the regulatory burden of rates proceedings. In pursuit of these objectives, the AUC has undertaken a review of it approach to processing transmission utility cost-of-service rate applications.

On September 12, 2024, the AUC held a consultation with transmission utilities and intervener groups to receive their feedback on potential improvements. The AUC conducted a more detailed analysis of potential improvements following the consultation, including a review of the submissions from stakeholders, and selected a number of improvements for implementation. The AUC notes that the success of this initiative in reducing regulatory burden and enhancing efficiencies can only be achieved with the cooperation of all parties.

Effective immediately, the Commission is implementing the following for all cost-of-service transmission utility rates proceedings.

Updating capital business case thresholds

Currently, applicants are required to provide business cases for capital projects with total expenditures that exceed $500,000 (as per Bulletin 2006-25), or $100,000 for smaller utilities. These thresholds were set nearly twenty years ago and have not been updated to keep pace with inflation. This raises the concern that time, effort and resulting costs are potentially being spent to justify and investigate cost increases that are marginal and no longer material in today’s dollars. Accordingly, the Commission is raising the business case thresholds outlined in 2006-25, considering party submissions from the September 12, 2024, consultation session and inflationary effects, as follows:

Piloting materiality thresholds for testing the revenue requirement for capital expenditures

The AUC understands the importance of cost-effective, timely and proportionate regulation. In an effort to advance these principles, the AUC has decided to pilot a materiality threshold for certain capital expenditures. Materiality thresholds create a more effective and efficient regulatory process by focusing examination on material issues and by avoiding the time, effort and resulting costs to investigate marginal cost differences.

Materiality thresholds will be used to test variances between approved, actual, and forecast capital expenditures, and will be applied at the program level. This materiality threshold will apply only to existing reoccurring programs. All new programs requiring a business case will be considered material. For existing reoccurring programs, the threshold will vary depending on the total forecast revenue requirement of the utility as follows:

Variances below these thresholds will generally not be expected to be explained by the applicant nor questioned by the Commission or other parties. However, a review of expenditures or issues below the materiality threshold may be permitted if the expenditure or issue is precedent setting or invokes regulatory accounting principles, adherence to Commission rules or previous directions. Any request for an exception to examine expenditures below these thresholds must be made in advance, and supported by a compelling explanation of the rationale, precedent, or principle at stake. Absent a Commission direction or ruling allowing for an exception, information requests or other materials purporting to examine expenditures below these materiality thresholds will be excluded from the record of the proceeding and any related costs claimed may be disallowed.

As noted above, this and other materiality thresholds are intended to focus proceedings on material issues to ensure that regulatory processes are proportional and focused on scrutinizing those matters that can make a meaningful difference for customers. Actions by an applicant to re-categorize expenditures for the apparent purpose of avoiding scrutiny could result in the Commission directing a full examination of all expenditures, regardless of materiality or threshold or such other measures as the Commission determines appropriate in the circumstances. The Commission expects such action will not be necessary.

Reaffirming operations and maintenance materiality thresholds

The AUC will continue to use the operations and maintenance (O&M) materiality thresholds originally established in Bulletin 2020-25, with no changes to the thresholds at this time. To enhance accessibility and ensure consistency, the AUC is including the materiality thresholds in this communication for ease of reference, consolidating the O&M, business case and capital thresholds into a single source for stakeholders.

As per Bulletin 2020-25, O&M materiality thresholds apply to transmission cost of service applications and are used to test variances between approved, actual, and forecast O&M costs. Materiality thresholds are applied to O&M accounts at the uniform system of account and prime account level and the threshold varies depending on the total forecast revenue requirement of the utility as follows:

The conditions and guidelines established for O&M materiality thresholds in Bulletin 2020-25 remain fully applicable.

Intervener evidence to be filed following the negotiated settlement process

Recently, and at the request of parties, the AUC has established process schedules for general tariff and general rate applications that provide for the filing of intervener evidence prior to the commencement of negotiations. However, the AUC is concerned that the filing of intervener evidence before negotiations can lead to inefficiencies. Specifically, parties may expend time and costs preparing information requests on intervener evidence and preparing rebuttal evidence on issues that are ultimately resolved through a settlement, rendering these efforts unnecessary if the settlement is approved by the AUC. This approach can also extend the overall processing time for an application, delaying its resolution.

Accordingly, the AUC has decided to adopt a consistent scheduling practice whereby intervener evidence is filed after the negotiated settlement process, and only if parties fail to reach a full settlement. Going forward, the Commission has determined that intervener evidence filed on the record of the proceeding should be limited to issues that remain with the AUC to be decided because parties were unable to settle them through the negotiated settlement process. For clarity, these changes are not intended to restrict the information that parties may exchange off the public record during negotiations.

In addition to reducing unnecessary effort on settled issues, the AUC is of the view that this approach provides a number of benefits, including:

• Allowing negotiations to start earlier in the process.
• Giving interveners greater flexibility in terms of the issues they wish to pursue in the adjudicative process, should negotiations be unsuccessful.
• The negotiated settlement process may give interveners a greater understanding of the issues, allowing them to refine and/or clarify their evidence and positions before filing intervener evidence.

Applicants to provide notice of an upcoming application filing for general tariff and general rate applications

The AUC will require applicants to file a notice 60 days in advance of submitting their applications. Applicants will create new proceeding numbers on the eFiling System for each new application and will submit their 60-day notices on the respective records of each new proceeding. The AUC will not issue formal notice until after an application is filed on the record of a new proceeding, and the deadline to file statements of intent to participate will be set in the AUC’s notice.

This initiative aims to support all parties, including the Commission, in effectively planning resources for and coordinating the upcoming round of applications as well as other ongoing and future proceedings. By providing advance notice, parties will have greater visibility into anticipated application timelines, allowing them to allocate resources and prepare more efficiently. This approach reflects the AUC’s commitment to enhancing the procedural efficiency and predictability of regulatory processes.

Applicants to hold pre-application technical sessions and provide preliminary issues lists

The AUC will require applicants to hold pre-application technical sessions and to prepare and file a proposed preliminary issues list with their applications. These improvements were proposed by stakeholders during the September 12, 2024, consultation session. The Commission agrees that these improvements will enhance the framing of applications and proceedings, provide a clearer understanding of issues, enable interveners to retain experts earlier, and streamline the process of finalizing issues lists.

Applicants will schedule and host these technical sessions and the Commission requests that internal staff with technical knowledge of the application be present to address questions from Commission staff and interveners. Interveners are expected to use this opportunity to gain insight into the application and should prepare their resources accordingly. Additionally, applicants should use these sessions as an opportunity to present their preliminary issues lists and to potentially receive questions and input on the issues list from Commission staff and interveners. Together, these measures are designed to improve the clarity of issues and reduce time spent setting and refining issues lists.

Elimination of transcripts for optional pre-information request technical sessions

Pre-information request (IR) technical sessions are typically an optional process step that is initiated at the request of an applicant or intervener. These sessions allow AUC staff and interveners to verbally ask questions of the applicant to get a better and more complete understanding of the application and the issues, with an aim of streamlining the subsequent IR process.

The Commission has decided that pre-IR technical sessions will remain optional. However, based on feedback received during the September 12, 2024, consultation session, the AUC will not require these sessions to be transcribed, and transcripts of these sessions will not be filed on proceeding records. Any party proposing a pre-IR technical session is expected to plan these sessions in a manner that avoids creating process delays. The Commission will consider whether the pre-IR technical session will allow for a reduction in the total number of IRs or otherwise improve the effectiveness of the proceeding in deciding whether the benefit of the requested pre-IR technical session outweighs the costs and time associated with the same.

Process for setting filing dates and preliminary schedules for upcoming general tariff and general rate applications

The AUC is expecting multiple applications from transmission utilities in 2025. Processing multiple, overlapping applications within a condensed timeframe raises concerns around resource planning and adequacy for all parties, and the potential for process delays.

To address these challenges, parties indicated during the September 12, 2024, consultation session that they would collaborate under a utility-led initiative to establish reasonably spaced filing dates and preliminary process schedules for the upcoming applications. The AUC understands that this initiative will include collaboration among utilities and interveners to align schedules based on resource availability, schedule constraints, and the status of upcoming applications.

The AUC is supportive of this initiative and would like AUC staff to actively participate in meetings and discussions, offering feedback grounded in AUC rates proceeding metrics, prior experience with process schedules, and internal scheduling considerations. While AUC staff will not formally approve any schedules developed, their involvement will help ensure proposed timelines are practical and consistent with AUC standards, principles, and procedural norms. The Commission will also require utilities to include the preliminary schedules developed through this initiative in their upcoming applications. The Commission hopes this initiative will help minimize the risk of misaligned timelines and enhance overall process efficiency.

Length of test periods

The Commission has decided to mandate a minimum of three-year test periods for all general tariff and general rate applications. However, the Commission acknowledges that such a change might require a longer notice period to allow utilities time to prepare three-year forecasts as part of their applications. The Commission also recognizes the uncertainties and heightened workload associated with ongoing market and policy changes. As a result, the requirement to file three-year test periods will not apply until after the current round of general tariff and general rate applications is complete in early 2026.

The decision to mandate minimum three-year test periods reflects the Commission’s commitment to streamlining regulatory processes and reducing the administrative burden on utilities and interveners. By mandating minimum three-year test periods, the Commission aims to enhance the overall efficiency, predictability and sustainability of its regulatory framework and environment while ensuring that rate-setting processes remain fair and transparent, which will benefit customers and the regulated utilities that serve them.

Any questions related to this initiative should be directed to Nicole Morter at nicole.morter@auc.ab.ca or by telephone at 403-592-4413.

Alberta Utilities Commission