Forecasting Methodologies

56. As described in Section 1.8.1, AltaLink assessed all activities required to be performed in each department in order to meet its objectives over the test period. Activities and associated costs were forecast within the following departments:

• Chief Executive Officer • Chief Financial Officer • Chief Operating Officer • Projects

• Customer Service

• Communications and Stakeholder Engagement • Legal and Regulatory

• Corporate Development • Human Resources

57. Departments were provided guidelines by the Finance department to ensure that common

forecasting processes were followed, including the consistent and appropriate use of USA Activity Code numbers. An overview of the guidelines is provided in Section 1.8.3.3. 58. When departments provided their forecasts, the roll-up for the overall company was then

59. After forecasts from each department were developed and submitted to the Budgets and Forecasts group, the department forecasts were adjusted to include certain corporate costs, such as benefits and inflation.

60. The Budgets and Forecasts group performed a review to provide consistency, completeness and to eliminate errors or duplication.

61. Having re-assessed all activities in all departments to build up the 2012 Management Update from an assumed zero-base, AltaLink utilized this 2012 Management Update for its 2013-2014 forecast baseline.

62. Each department forecast the overall level of activity in each of the test years using an assumed zero-base and considered the incremental change in activity and associated costs from the 2012 Management Update to 2013, and from 2013 to 2014. Please see Section 1.5 (Management Update) for more information on the 2012 Management Update.

USA Activity Code Definitions

63. For the purpose of preparing the departmental forecasts, the activities were forecast

corresponding to a USA Activity Code number based on the definitions in the USA Consensus documents that accompanied the Alberta Energy and Utilities Board’s (EUB/Board) Bulletin 2006-25.

64. Each department identified the different activities to be performed in the undertaking of AltaLink’s business by USA category.

Forecasting by USA Activity Codes

65. AltaLink reviewed its forecast for the test years in comparison to the 2011 actuals and the 2012 Management Update, which costs had been captured by USA Activity Code, as a reasonableness confirmation of the forecast. AltaLink also performed basic ratio analysis to determine whether the forecast differences from year to year are reasonable taking into consideration any

anticipated increase or decrease in forecast activities.

66. AltaLink analyzed its forecasts, as described by USA Activity Code, by considering the level of forecast costs for specific USA Activity Codes in each test year compared to the overall operating costs for each test year in order to test the reasonableness of its forecast. Department heads responsible for departmental forecasts compared their forecasts for each USA Activity Code change year to year and provided explanations for increases and decreases in costs for different USA Activity Codes based on anticipated changes in activity levels.

Forecasting Capital Costs

67. Once the activities in the test years were forecast, the activities were assessed to determine which activities were capital costs in accordance with the Capitalization Policy.

68. All directly attributable internal labour costs and costs in support of capital projects were included in the capital program in accordance with the Capitalization Policy. No indirectly attributable internal labour costs or costs in support of capital projects were included in the capital program in accordance with the Capitalization Policy and in accordance with IFRS. Operating labour reflects only labour that is operating expense related.

Testing the Reasonableness of the Forecast

69. The 2011 actuals and 2012 Management Update serve as a background against which the

general reasonableness of the USA-based 2013 and 2014 forecasts are prepared.

70. The 2011 actuals and 2012 Management Update were examined alongside capital and operating

expenses in the 2011-2012 Compliance Filing. AltaLink has considered variances between the last GTA forecast and the 2011 actuals and the 2012 Management Update. These variances are explained in Section 31.6 of the GTA.

71. AltaLink identified the level of expenditures attributed to each USA Activity Code compared to the total operating expenses for each test year as a means to assess consistency and range of reasonableness.

1.8.3.1

Operating Cost Forecast Preparation

72. AltaLink forecasted general operating expense line items as reflected in the MFR Schedules 5 and 25.

73. The departmental labour, contracted manpower and supporting costs forecasts for this GTA were developed by considering the activities expected to be undertaken by USA Activity Code. 74. As identified in Section 1.3 of the GTA, a number of external and internal factors operated as

activity drivers for this GTA test period resulting in increased resource requirements. Examples of activity drivers include the planned addition of new transmission facilities in the test years, the increasing technological sophistication of the transmission facilities, and increased industry standards and financial accounting standards which must be maintained. While these activity drivers generally require increased labour resources due to increased Operation and

Maintenance (O&M) activities, opportunities for improving efficiencies were identified and forecast. For example, higher AltaLink staff numbers and accounting transaction volumes are driving increased activity levels in the Human Resource and Finance departments. Both

departments found ways to handle these increased workloads without needing additional FTEs or contractors. Sections 5.2 and 25.2 contain descriptions of how various cost drivers affect the number of FTEs required in the USA specific subsections.

1.8.3.2

Capital Forecast Preparation

75. AltaLink’s forecast capital expenditures include:

• Costs in respect of projects directly assigned by the AESO and projects forecast to be assigned by the AESO (collectively, “Direct Assign Projects”), detailed in Section 10.2; • Capital replacement and upgrades (CRU), detailed in Section 10.3; and

• General capital expenditures, including those related to information technology and facilities, detailed in Section 10.4 and Section 10.5.

76. AltaLink has changed its Direct Assign Projects capital forecasting approach to incorporate the impacts of identifiable uncertainties through a probabilistic assessment methodology. The result is the Uncertainty Adjusted DA Capital forecast. Full details are provided in Section 10.2.

77. Capital expenditures are comprised of those charges that are directly attributable to the capital projects and Allowance for Funds Used During Construction (AFUDC). Costs that are directly attributable to capital projects are either charged directly to the project via SAP timesheets or

work orders or are charged indirectly via Directly Attributable, Indirectly Charged Costs (DAIC) accounting. DAIC accounting involves pooling all IFRS compliant costs that are directly

attributable to capital projects that are not directly charged to projects and allocating this DAIC pool across all capital projects.

78. Section 10 outlines the process for the preparation of the capital forecast.

79. AltaLink’s capital cost escalation rates used within the capital forecast are in Section 10.2. 80. AFUDC is calculated in accordance with AUC requirements.

1.8.3.3

Forecast Guidelines

81. This Section discusses guidelines and parameters that were applied from an overall corporate perspective for this GTA. The AltaLink USA Definitions Document was utilized in the

development of the GTA test year forecast. The objective of these parameters was to ensure consistency across the organization. The guidelines consisted of the following:

1. Forecast costs are to be recorded in the same cost elements as are used to record current actuals.

2. Benefits are to be forecast at the department level. Benefits are forecasted separately through the Human Resources Department and loaded into the forecast of each department by the Finance Department.

3. General inflation will be applied to appropriate cost items by the Finance Department and therefore all costs should be forecast without the impact of inflation. Specific escalations (e.g. brushing, salaries/wages, etc.) will be provided by certain departments.

4. Labour:

• use current 2012 base salaries for all GTA years;

• for new staff, assume a salary comparable to similar current positions or similar market positions;

• all new FTEs have an assumed July 1st starting date (mid-year);

• operating staff additions must be justified with a job description and an analysis of the need for the FTE; and

• employees who are replacing those who retire are not to be considered as new employees but replacements.

5. General internal office supplies will be forecast through the Facilities Department and not in individual departments.

6. Building and station utility costs and furniture requirements are to be forwarded to the Facilities Department and not to be forecast in individual departments. The Facilities Department will assess the requests and develop a consolidated forecast.

7. All electronic equipment and software needs and upkeep should be provided to the Information Technology (IT) Department where it will be assessed, forecast and ultimately procured.

8. Freight and courier charges for field maintenance work should be forecast in applicable departments.

9. Any affiliate charge-outs will be captured at the corporate level through Miscellaneous Revenue. Miscellaneous Revenue is forecast by the Operations and Finance Departments. 10. Staff Retirements:

• Forecast retirement based on conversations with potential retirees; and

• Treat retirements as replacements and not as new staff using the mid-year rule to maintain consistency with other hiring assumptions.

11. Staff expenses – Departments forecast for specific items and expenditures. 12. All benefit information will be forecast at the corporate level.

13. Regulatory Commission Expenses (Hearing Cost Reserve) – Reflects the funding forecast requirements related to hearing cost reserve.

14. All external legal costs, including those forecast for inclusion in Regulatory Hearing Cost Reserve, will be forecast by the Regulatory department. This will include specific department legal issues, land and general litigation.

15. Small damage claims (up to $100,000 per annum) will be forecast in the Finance Department.

16. Vegetation Management – costs associated with vegetation management are forecast in terms of specific activities, trimming, mowing, slashing/removal, and application of herbicide.

17. Contracted manpower – contracted manpower forecasts are prepared by each department.

1.8.3.4

Forecast consolidation and review

82. Once the departmental reviews were completed, the forecasts were consolidated and

submitted for review by the Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer.

83. The overall review of the consolidated forecast was focused on eliminating overlapping costs (duplicated activities forecast in two or more areas). The forecast numbers were assessed and any discrepancies or omissions were identified for follow-up.

84. The Chief Executive Officer, Chief Operating Officer and Chief Financial Officer met with the Senior Vice Presidents responsible for each department to review and discuss costs including the factors driving those costs. The forecasts were challenged to see if there were areas where the departments could reduce costs in their forecast.

85. Changes from prior year forecasts were discussed. Activity drivers that resulted in increased resource requirements were assessed. Industry developments were considered in the context of AltaLink’s forecasts.

86. Some examples of industry developments include:

• The large number of new transmission infrastructure projects forecast for the test years; • The impact of the increased rate base on operations and maintenance activities;

• Increased industry standards such as the AESO’s increased reliability standards and changing AESO rules.

87. In addition, as transmission assets age, there is an increased amount of maintenance required. Aging assets continues to be an activity driver for AltaLink. The Executive review was thorough and resulted in the forecast submitted within this Application.