2013
–
2014
G
ENERAL
T
ARIFF
A
PPLICATION
TO THE
A
LBERTA
U
TILITIES
C
OMMISSION
A
PPLICATION
V
OLUME
1
July 30, 2012 1
Contents
FORWARD-LOOKING INFORMATION ADVISORY... I 1. INTRODUCTION ... 1-1 1.1 Application Overview ... 1-2 1.1.1 Technical Aspects of the Application ... 1-2 1.2 Overview of Revenue Requirement ... 1-2 1.3 Overview of Key Aspects of Application ... 1-5 1.3.1 Cost Drivers ... 1-6
1.3.2 Credit Metric Support through the High Build Cycle ... 1-7
1.3.3 Consolidated FTE Forecasts ... 1-8
1.3.4 EPC Competitive Procurement Process (CPP) ... 1-8
1.3.5 Depreciation and Salvage Study ... 1-8 1.4 Tariff/Rate Applied For ... 1-8 1.5 2012 Management Update ... 1-9 1.6 Other Approvals (Deferral and Reserve Accounts) Requested ... 1-9
1.6.1 List of Deferral and Reserve Accounts being requested ... 1-9
1.6.2 Reconciliation of Existing Reserve Accounts ... 1-10
1.6.3 Reconciliation of Existing Deferral Accounts ... 1-10
1.7 Organizational Structure ... 1-10 1.7.1 AltaLink Ownership Structure ... 1-10 1.7.2 AltaLink Organizational Structure ... 1-10 1.8 Forecasting Methodology/Process and Key Assumptions ... 1-10 1.8.1 Forecast Overview ... 1-10 1.8.2 General Assumptions ... 1-11 1.8.3 Forecasting Methodologies ... 1-12 1.8.4 Economic Parameters ... 1-17 1.8.5 Labour Overview ... 1-17 1.9 Operational Performance ... 1-40 1.9.1 Reliability ... 1-41 1.9.2 Safety ... 1-48 1.9.3 Efficiencies ... 1-53 1.10 Business Improvements ... 1-55 1.11 Major Issues and Policy Changes ... 1-60 1.12 Terms and Conditions ... 1-61 1.12.1 Terms and Conditions ... 1-61 2. COMMISSION DIRECTIVES ... 2-1 3. TRANSMISSION REVENUE REQUIREMENTS ... 3-1 3.1 Summary ... 3-2
July 30, 2012 2 3.2 Aggregate Revenue Requirements ... 3-2 3.3 Direct Assign Capital Deferral Account Included in Revenue Requirement ... 3-2 3.4 Transmission Revenue Requirement Schedules ... 3-2 4. TRANSMISSION FUEL COSTS (N/A) ... 4-1 5. TRANSMISSION OPERATING COSTS ... 5-1 5.1 Overview – Total Operation and Maintenance Costs ... 5-2 5.1.1 Overview ... 5-2 5.1.2 Changes in Operation ... 5-2 5.2 Direct Operation and Maintenance ... 5-2
5.2.1 Summary of Direct Operating and Maintenance ... 5-2
5.2.2 USA 560 - Supervision and Engineering ... 5-2
5.2.3 USA 561 - Operation and Maintenance Control Centre Operations ... 5-6
5.2.4 USA 562 - Station Equipment Maintenance ... 5-13
5.2.5 USA 563 - Overhead Line Expense ... 5-22
5.2.6 USA 564 - Underground Line Expenses... 5-26
5.2.7 USA 566 - O&M Misc Transmission ... 5-27
5.2.8 USA 567 – Right-of-Way Payments ... 5-44
5.2.9 USA 569 – Operation and Maintenance of Structures ... 5-47
5.2.10 USA 571.1 – Vegetation Management ... 5-47
5.2.11 USA 575 – Operations and Management IT Support ... 5-57
5.3 Allocated Administrative & General ... 5-61 5.4 Taxes Other Than Income Taxes ... 5-61
5.4.1 USA 408.1: Transmission Linear Property Tax ... 5-61
5.5 Transmission Manpower – Full Time Equivalents (FTEs) ... 5-62 5.6 Transmission Operation and Maintenance Schedules ... 5-63 6. TRANSMISSION DEPRECIATION ... 6-1 6.1 Summary ... 6-2 6.2 Depreciation of Computer Software – Non SAP ... 6-3 6.3 Transmission Depreciation Schedules ... 6-3 7. TRANSMISSION INCOME TAXES ... 7-1 7.1 Summary ... 7-2 7.2 Income Tax Rates ... 7-3 7.3 Timing/Temporary Differences ... 7-3 7.4 Treatment of DAIC for Tax Purposes ... 7-3 7.5 Deferral Account ... 7-7 7.6 Transmission Income Tax Schedules ... 7-9 8. TRANSMISSION REVENUE OFFSETS ... 8-1
July 30, 2012 3 8.1 Summary ... 8-2
8.1.1 Fixed Contracts ... 8-2 8.1.2 Variable Labour Contracts ... 8-3 8.1.3 Lease Revenue and Other ... 8-4 8.2 Transmission Revenue Offset Schedules ... 8-4 9. TRANSMISSION RETURN ON RATE BASE ... 9-1 9.1 Summary ... 9-2 9.2 Capital Structure ... 9-2 9.3 Return on Equity ... 9-2 9.4 Embedded Cost of Debt ... 9-2 9.5 Long-Term Debt Deferral Account ... 9-2 9.6 Amortization of Deferred Financing Fees ... 9-3 9.7 Credit Rating Reports ... 9-3 9.8 Transmission Return on Rate Base Schedules ... 9-3 10. TRANSMISSION RATE BASE ... 10-1 10.1 Summary ... 10-2 10.2 Capital – Direct Assign... 10-3 10.2.1 Overview ... 10-3
10.2.2 Direct Assign Capital Forecasting Approach ... 10-4
10.2.3 AltaLink’s Base Plan DA Capital Expenditures and Additions ... 10-5
10.2.4 Identification of Uncertainties ... 10-6 10.2.5 Probabilistic Forecasting Approach ... 10-8
10.2.6 Application of the Uncertainty Forecasting Approach ... 10-9
10.2.7 Scenario Models ... 10-9
10.2.8 Probabilistic Forecasting Methodology ... 10-10
10.2.9 DA Capital Forecast GTA Test Period 2013 - 2014 ... 10-11
10.3 Capital Replacement and Upgrades ... 10-12 10.3.1 Actual/Approved Variance ... 10-13 10.3.2 CRU Forecast Methods ... 10-15
10.3.3 Application of Risk Management & Context of AltaLink’s CRU Forecast ... 10-16
10.3.3.2.2 Future State ... 10-36
10.3.3.2.3 Notifications & Deficiencies Analyses - Conclusions ... 10-42
10.3.4 Capital Maintenance Business Cases ... 10-42
10.4 Information Technology Capital Costs ... 10-43 10.5 Facility Capital Costs ... 10-44 10.6 EPC Relationship Agreement Competitive Procurement Process (CPP) ... 10-44 10.6.1 CPP: Overview ... 10-44 10.6.2 Evaluation Criteria and Application ... 10-48 10.6.3 The Evaluation Team ... 10-49
July 30, 2012 4
10.6.4 Two Parties entered into binding Agreements to provide EPC services for the next 5 years ... 10-49
10.6.5 Risk and Reward Model ... 10-51 10.6.6 Project Allocation ... 10-52 10.6.7 Fairness Advisor Participation ... 10-53
10.6.8 Opportunity to Apply Risk and Reward to Selected Projects with PPS in Place Prior to April 30, 2012
10-53
10.7 Transmission Rate Base Schedules ... 10-54 11. TRANSMISSION NECESSARY WORKING CAPITAL ... 11-1 11.1 Summary ... 11-2 11.2 Allowance for Working Capital ... 11-3 11.3 Transmission Necessary Working Capital Schedules ... 11-4 12. DISTRIBUTION REVENUE REQUIREMENTS - (N/A) ... 12-1 13. DISTRIBUTION RETAIL REVENUE- (N/A) ... 13-1 14. DISTRIBUTION COST OF SALES- (N/A) ... 14-1 15. DISTRIBUTION OPERATION COSTS- (N/A) ... 15-1 16. DISTRIBUTION DEPRECIATION- (N/A) ... 16-1 17. DISTRIBUTION INCOME TAXES- (N/A) ... 17-1 18. DISTRIBUTION REVENUE OFFSETS- (N/A) ... 18-1 19. DISTRIBUTION RETURN ON RATE BASE- (N/A) ... 19-1 20. DISTRIBUTION RATE BASE- (N/A) ... 20-1 21. DISTRIBUTION NECESSARY WORKING CAPITAL- (N/A) ... 21-1 22. ISOLATED OPERATING COSTS- (N/A) ... 22-1 23. GENERAL OPERATION & MAINTENANCE- (N/A) ... 23-1 24. COMMON OPERATIONS- (N/A) ... 24-1 25. CORPORATE ADMINISTRATION AND GENERAL ... 25-1 25.1 Summary ... 25-2 25.2 Administrative and General Expenses ... 25-2
25.2.1 USA 920 - Administrative and General Salaries ... 25-3
25.2.2 Corporate Finance ... 25-4 25.2.3 Corporate Development ... 25-7 25.2.4 Human Resources ... 25-7 25.2.5 Communications ... 25-8 25.2.6 Customer Service ... 25-9 25.2.7 Legal and Regulatory ... 25-9
25.2.8 USA 921 - Administration Corporate / Office Supplies and Expenses ... 25-10
25.2.9 USA 922 - Administrative Expense Transferred - credit ... 25-11
25.2.10USA 923 - Outside Service Employed ... 25-12
July 30, 2012 5 25.2.12USA 925 - Injuries and Damages ... 25-16
25.2.13USA 926 - Employee Pension and Benefits ... 25-16
25.2.14USA 928 - Commission Expenses (Hearing Costs) ... 25-17
25.2.15USA 930.1 - General Advertising Expenses ... 25-20
25.2.16USA 930.2 - Miscellaneous General Expenses ... 25-21
25.2.17USA 931: Rents (Other Than Head Office) ... 25-21
25.2.18USA 931.1 - Head Office Rent ... 25-23 25.2.19USA 934 - IT G&A Expenses ... 25-24 25.2.20USA 935 - General O&M Expenses ... 25-30 25.3 Corporate Costs ... 25-33 25.4 Corporate Manpower – Full Time Equivalents (FTEs) ... 25-34 25.5 Corporate Administration and General Schedules ... 25-34 26. GENERAL CORPORATE PROPERTY PLANT AND EQUIPMENT - (N/A) ... 26-1 27. COST FUNCTIONALIZATION - (N/A) ... 27-1 28. FINANCING ... 28-1 28.1 Summary ... 28-2 28.2 Credit Metric Support ... 28-2 28.2.1 Requested Relief ... 28-2
28.2.2 Commission’s Findings in Decision 2011-453 and Other Precedents ... 28-2
28.2.3 Relevant Changes in Circumstances ... 28-3
28.2.4 Request for Additional Credit Metric Support ... 28-5
28.2.5 Maintaining Credit Ratings is in the Interest of Ratepayers ... 28-14
28.2.6 Requested Relief to Support Credit Metrics ... 28-15
28.2.7 Conclusion... 28-20 28.3 Financing Plan ... 28-21
28.3.1 2011-2012 Compliance Filing Forecast ... 28-21
28.3.2 2011 Actual Results and 2012 Management Update ... 28-21
28.3.3 2013-2014 GTA Forecast ... 28-22
28.3.4 Forecast Medium-Term Note (MTN) Interest Rates ... 28-23
28.3.5 Request for an Exemption Order For a Class of Long-Term Debt Transactions... 28-23
28.3.6 Forecast Short-Term Borrowing Rates ... 28-24
28.3.7 Credit Facilities... 28-25 28.4 Credit Rating Reports ... 28-26 28.5 Financing Schedules ... 28-26 29. NO COST CAPITAL... 29-1 29.1 Summary ... 29-2 29.2 Self Insurance Reserve ... 29-2 29.3 Future Income Tax ... 29-2 29.4 Pension/Post Retirement Benefit ... 29-2 29.5 Rainbow Reserve ... 29-3
July 30, 2012 6 29.6 Hearing Cost Reserve ... 29-3 29.7 No Cost Capital Schedule ... 29-3 30. AFFILIATE TRANSACTIONS ... 30-1 30.1 Summary ... 30-2 30.2 Affiliate Transaction Schedules ... 30-2 31. SUPPLEMENTARY INFORMATION ... 31-1 31.1 Summary ... 31-2 31.1.1 Intervener Engagement Process ... 31-2 31.2 Annual Report of Finances and Operations ... 31-2 31.3 Quality of Service Reports ... 31-2 31.4 Other Matters ... 31-2 31.5 Accounting Policies ... 31-2 31.6 2012 Management Update ... 31-9 31.7 Reserve Accounts ... 31-11 31.8 Deferral Accounts ... 31-12
31.8.1 New Deferral Account Requests ... 31-12
31.8.2 Continuance of Deferral Accounts being requested ... 31-13
31.8.3 Discontinuance of Long-Term Debt Deferral Account ... 31-13
July 30, 2012 7
List of Figures
Figure 1.2-1 - Drivers of Revenue Requirement Changes for 2013-2014 ... 1-3 Figure 1.3.1-1 - Total Capital Expenditures ($M) ... 1-6 Figure 1.3.1-2 - Total Capital Additions ($M) ... 1-7 Figure 1.9.1-1 - Transmission Delivery Point Outage Duration (SAIDI)... 1-43 Figure 1.9.1-2 - Transmission Delivery Point Outage Frequency (SAIFI) ... 1-44 Figure 1.9.1-3 - Transmission Restoration Time (SARI) ... 1-45 Figure 1.9.2-1 - AltaLink All Injury Frequency Rate (AIFR) ... 1-49 Figure 1.9.2-2 - AltaLink Lost Time Severity Rate (LTSR) ... 1-50 Figure 1.9.2-3 - AltaLink Vehicle Accident Frequency Rate (VAFR) ... 1-50 Figure 1.9.3-1 - AltaLink Transmission O&M Expense & Sustaining Capital per Gross Fixed Asset ... 1-54 Figure 1.9.3-2 - AltaLink Transmission O&M Expense per Gross Fixed Asset ... 1-54 Figure 1.9.3-3 - Capital Labour per Sustaining & Direct Assign Capital Expenditure ... 1-55 Figure 1.9.3-4 - AltaLink Operating FTEs per $10M Rate Base (Mid-Year) ... 1-55 Figure 5.2.4-1 - Substation Equipment Repairs 2003-2014 ... 5-19 Figure 5.2.7-1 - Operating FTEs per $10M Rate Base (Mid-Year) ... 5-35 Figure 5.2.7-2 - Maintenance Scheduling Order Volume ... 5-38 Figure 5.2.7-3 – USA 566 - Work Related Safety Incidents ... 5-41 Figure 5.2.7-4 Safety Training (E-Learning & Classroom) Levels... 5-42 Figure 5.2.10-1 – Minimum Expenditure to Achieve Stable VM Program (Direct Brushing Costs) ... 5-51 Figure 5.2.10-2 – USA 571.1 Priority Sites as Per Fall Air Patrols Since 2000 ... 5-52 Figure 5.2.10-3 – USA 571.1 Priority Sites Identified as per Fall Air Patrols – 2005 to 2012 ... 5-52 Figure 10.2.7-1 - Probability Outcomes Example ...10-10 Figure 10.3.3-1 – Asset Risk Management Process ...10-19 Figure 10.3.3-2 – Risk Identification Example ...10-21 Figure 10.3.3.1.1-1 – Bathtub Curve ...10-23 Figure 10.3.3.1.1-2 – Age Profile Wood Pole Lines ...10-24 Figure 10.3.3.1.1-3– Age Profile High Voltage Circuit Breakers ...10-24 Figure 10.3.3.1.1-4 – Age Profile Transformers ...10-25 Figure 10.3.3.1.1-5 – Age Profile P&C Equipment ...10-25 Figure 10.3.3.1.2-1– Transformer Age Profile Current Replacement Rate ...10-27 Figure 10.3.3.1.2-2 – Transformer Age Profile - 10 Replacements/Yr ...10-27 Figure 10.3.3.1.2-3 – Circuit Breaker Age Profile – 15 Replacements/Yr ...10-28 Figure 10.3.3.1.2-4 – Wood Pole Line Age Profile – 64 km Rebuild/Yr ...10-29 Figure 10.3.3.1.2-5 – Wood Pole Line Age Profile – 122 km Rebuild/Yr ...10-29 Figure 10.3.3.1.2-6 – Cumulative Transformer Replacements Based on ASL ...10-30 Figure 10.3.3.1.2-7 – Cumulative Transformer Expenditures Based on ASL ...10-30 Figure 10.3.3.1.2-8 – Cumulative Breaker Replacements Based on ASL ...10-31 Figure 10.3.3.1.2-9 – Cumulative Transformer Expenditures Based on ASL ...10-31 Figure 10.3.3.1.2-10 – Cumulative Wood Pole Line Rebuilds Based on ASL ...10-32 Figure 10.3.3.1.2-11 – Cumulative Wood Pole Line Expenditures Based on ASL ...10-32 Figure 10.3.3.2.1-1 – Circuit Breaker Notification Trend ... 10.34 Figure 10.3.3.2.1-2 – Transmission Line Deficiencies Trend ... 10.35 Figure 10.3.3.2.1-3 – Cumulative Transmission Line Deficiencies ... 10.36
July 30, 2012 8
Figure 10.3.3.2.2-1 – Circuit Breaker Replacement Programs ... 10.37 Figure 10.3.3.2.2-2 – Circuit Breaker Notification Growth ... 10.38 Figure 10.3.3.2.2-3 –Investment to Address Notifications ... 10.39 Figure 10.3.3.2.2-4 –Transmission Line Deficiencies Identified and Completed ... 10.40 Figure 10.3.3.2.2-5 –Transmission Line Deficiencies Trending Forecast ... 10.41 Figure 10.3.3.2.2-6 –Transmission Line Deficiencies Investment ... 10.42 Figure 10.6.1-1 - CPP Steps Diagram ...10-48 Figure 10.6.5-1 - Risk/Reward Mechanism/Model ...10-52 Figure 25.2.19-1 – Service Desk Call Volumes ...25-28 Figure 25.2.19-2 – Creation of User Account Volumes ...25-29 Figure 25.2.19-3 – Business Applications Response Volumes ...25-29 Figure 28.2.3-1 – Base DA Capital Plan and Uncertainty Adjusted Capital Plan Comparison ... 28-4 Figure 28.2.4.3-1 – FFO/Debt Ratio ... 28-7 Figure 28.2.4.5-1 – Stand-Alone FFO/Debt Ratio ...28-10 Figure 28.2.4.5-2 – Stand-Alone FFO/Debt Ratio ...28-11 Figure 28.2.4.5-3 – Stand-Alone FFO/Debt Ratio ...28-12 Figure 28.2.4.6-1 – CWIP to Total Capitalization ($M) ...28-14
July 30, 2012 9
List of Tables
Table 1.2-1 - Overview Forecast Changes in Revenue Requirement for 2013 and 2014 ... 1-4 Table 1.8.2-1 - AltaLink’s Forecast Rate Assumptions ... 1-11 Table 1.8.5.2-1 - Actual O&M Vacancy Rate ... 1-22 Table 1.8.5.3-1 - 2012-2014 IBEW Base Pay Increases ... 1-24 Table 1.8.5.3-2 - 2012-2014 UUWA Base Pay Increases ... 1-24 Table 1.8.5.3-3 - Calculation of Non-union Base Pay Annual Increase ... 1-25 Table 1.8.5.3-4 - 2013-2014 Non-union Base Pay Increases... 1-25 Table 1.8.5.3-5 - Calculation of Executive Base Pay Annual Increase ... 1-26 Table 1.8.5.3-6 - 2013-2014 Executive Total Base Pay Increases ... 1-26 Table 1.8.5.4-1 - STIP ($M) ... 1-27 Table 1.8.5.4-2 - STIP Pay Levels – As a % of Base Pay ... 1-27 Table 1.8.5.4-3 - AltaLink 2012 STIP Non-union Employees ... 1-27 Table 1.8.5.4-4 - AltaLink 2012 STIP Union Employees... 1-27 Table 1.8.5.4-5 - AltaLink 2011 STIP Final Results (Non-union employees) ... 1-29 Table 1.8.5.5-1 - LTIP ($M) costs included in the revenue requirement ... 1-31 Table 1.8.5.5-2 - Actual Total Costs including cost incurred by Shareholder (1) ($M) update ... 1-31
Table 1.8.5.5-3 - LTIP Customer Goals ... 1-31 Table 1.8.5.5-4 - Shareholder/Customer Goals ... 1-32 Table 1.8.5.5-5 - LTIP Target Levels... 1-32 Table 1.8.5.5-6 – LTIP Plan 2012 - January 1, 2012– December 31, 2014 ... 1-33 Table 1.8.5.7-1 – 2010 - 2014 Benefit and Other Compensation Costs by Component ($M) ... 1-35 Table 1.8.5.7-2 - Supplemental Pension Plan (SPP) ($M) ... 1-36 Table 1.8.5.7-3 - Post Retirement Benefits (PRB) ($M) ... 1-37 Table 1.8.5.7-4 – Perquisites and Signing Bonus (PSB) ($M) ... 1-37 Table 1.8.5.8-1 - Wellness Fund ($M) ... 1-37 Table 1.8.5.8-2 - Outstanding Contribution Awards ($M) ... 1-38 Table 1.8.5.8-3 - Severance Costs ($M) ... 1-38 Table 1.8.5.8-4 - Relocation Expense ($M) ... 1-39 Table 1.8.5.8-5 - Calculation of Relocation Expense ... 1-39 Table 1.8.5.9-1 - Attraction and Retention Bonus Expense ($M) ... 1-40 Table 1.9.1-1 - Significant Outages in 2011 (Top 10 Events Ranked by MW-Minutes Lost) ... 1-41 Table 1.9.1-2 - Reliability Performance and Expected Range ... 1-46 Table 1.9.2-1 - Safety Performance Expected Range ... 1-51 Table 1.10-1 – Recent Business Improvements - System Operations ... 1-56 Table 1.10-2 – Recent Business Improvements - Asset Management ... 1-57 Table 1.10-3 – Recent Business Improvements - Information Technology ... 1-58 Table 1.10-4 – Recent Business Improvements - Procurement ... 1-60 Table 5.2.2-1 - USA 560 - Operation & Maintenance Supervision & Engineering ($M) ... 5-2 Table 5.2.2-2 - USA 560 - Operation & Maintenance Supervision & Engineering Forecast Increase ($M) . 5-3 Table 5.2.2-3 - USA 560 - Operation & Maintenance Supervision & Engineering Labour ... 5-3 Table 5.2.2-4 - USA 560 - Operation & Maintenance Supervision and Engineering FTEs ... 5-3 Table 5.2.2-5 - USA 560 - Operation & Maintenance Supplies & Engineer FTE Additions ... 5-4
July 30, 2012 10 Table 5.2.2-6 - USA 560 - Operation & Maintenance Supervision & Engineering Contracted Manpower Forecast Increase ($M) ... 5-5 Table 5.2.2-7 - USA 560 - Operation & Maintenance Supervision & Engineering GOE Forecast Increase ($M) ... 5-6 Table 5.2.3-1 - USA 561 - Operation & Maintenance Control Centre Operations ($M) ... 5-7 Table 5.2.3-2 - USA 561 - Operation & Maintenance Control Centre Operations Forecast Increase ($M) . 5-7 Table 5.2.3-3 - USA 561 - Operation & Maintenance Control Centre Operations Labour Forecast Increase ($M) ... 5-8 Table 5.2.3-4 - USA 561 - Operation & Maintenance Control Centre Operations FTEs ... 5-8 Table 5.2.3-5 - USA 561 - Operation & Maintenance Control Centre Operations FTE Additions ... 5-9 Table 5.2.3-6 - USA 561 - Operation & Maintenance Control Centre Operations ... 5-12 Table 5.2.3-7 - USA 561 - Operation & Maintenance Control Centre Operations GOE Forecast Increase ($M) ... 5-13 Table 5.2.4-1 - USA 562 - Operation & Maintenance Station Equipment Expense ($M) ... 5-14 Table 5.2.4-2 - USA 562 - Operation & Maintenance Station Equipment Expense Forecast Increase ($M)5-14 Table 5.2.4-3 - USA 562 - Operation & Maintenance Station Equipment Expense Labour Forecast
Increase ($M) ... 5-15 Table 5.2.4-4 – USA 562 - AltaLink Substation Maintenance Forecast (Hours) ... 5-16 Table 5.2.4-5 – USA 562 - AltaLink Protection & Control Maintenance Forecast (Hours)... 5-16 Table 5.2.4-6 – USA 562 - AltaLink Telecom Maintenance Forecast (Hours) ... 5-16 Table 5.2.4-7 - USA 562 - Operation & Maintenance Station Equipment Expense FTEs ... 5-16 Table 5.2.4-8 - USA 562 - Operation & Maintenance Station Equipment Expense FTE Additions ... 5-17 Table 5.2.4-9 - USA 562 - Operation & Maintenance Station Equipment Expense Contracted Manpower Forecast Increase ($M) ... 5-20 Table 5.2.4-10 - USA 562 - Operation & Maintenance Station Equipment Expense GOE Forecast Increase ($M) ... 5-21 Table 5.2.4-11 - USA 562 - AltaLink Vehicle Fleet ... 5-22 Table 5.2.5-1 - USA 563 - Operation & Maintenance Transmission Line Work Quantities ... 5-23 Table 5.2.5-2 - USA 563 - Operation & Maintenance Overhead Line Expense ($M) ... 5-23 Table 5.2.5-3 - USA 563 - Operation & Maintenance Overhead Line Expense Forecast Increase ... 5-24 Table 5.2.5-4 - USA 563 - Operation and Maintenance Overhead Line Expense Labour Forecast Increase ($M) ... 5-24 Table 5.2.5-5 - USA 563 - Operation & Maintenance Overhead Line Expense FTEs ... 5-24 Table 5.2.5-6 - USA 563 - Operation and Maintenance Overhead Line Expense Contract Manpower Forecast Increase ($M) ... 5-25 Table 5.2.5-7 - USA 563 - Operation & Maintenance Overhead Line Expense GOE Forecast Increase ($M)5-26 Table 5.2.5-8 – USA 563 - AltaLink Vehicle Fleet ... 5-26 Table 5.2.7-1 - USA 566 - O&M Miscellaneous Transmission Expense ($M) ... 5-28 Table 5.2.7-2 - USA 566 - O&M Miscellaneous Transmission Expense Forecast Increase ($M)... 5-28 Table 5.2.7-3 - USA 566 - O&M Miscellaneous Transmission Expense Labour Forecast Increase ($M) ... 5-29 Table 5.2.7-4 - USA 566 - O&M Miscellaneous Transmission Expense FTEs ... 5-29 Table 5.2.7-5 - USA 566 - O&M Miscellaneous Transmission Expense FTE Additions... 5-30 Table 5.2.7-6 – USA 566 - AltaLink Major Assets Volume ... 5-36 Table 5.2.7-7 USA 566 – Value & Volume of Materials and Services Purchases (non EPC) for 2011-2012 5-39
July 30, 2012 11 Table 5.2.7-8 - USA 566 - O&M Miscellaneous Transmission Expense Contract Manpower Forecast Increase ($M) ... 5-43 Table 5.2.7-9 - USA 566 - O&M Miscellaneous Transmission Expense GOE Forecast Increase ($M)... 5-44 Table 5.2.8-1 – USA 576 - Annual Structure Payment Expenses ($M) ... 5-45 Table 5.2.8-2 – USA 567 - Annual Structure Payments Compensation Rates ... 5-46 Table 5.2.8-3 – USA 567 - 5 Year Forecast, Annual Structure Payments ($M) ... 5-47 Table 5.2.10-1 - USA 571.1 - Operation & Maintenance of Vegetation Management ($M) ... 5-49 Table 5.2.10-2 - USA 571.1 - Operation & Maintenance of Vegetation Management Forecast Increase ($M) ... 5-49 Table 5.2.10-3 – USA 571.1 – Operation & Maintenance of Vegetation Management Volumes and Costs – All In ... 5-50 Table 5.2.10-4 - USA 571.1 Operation & Maintenance Vegetation Management Labour Expense
Additions ($M) ... 5-53 Table 5.2.10-5 - USA 571.1 - Operation & Maintenance of Vegetation FTEs ... 5-53 Table 5.2.10-6 - USA 571.1 - Operation & Maintenance of Vegetation FTE Additions ... 5-53 Table 5.2.10-7 – USA 571.1 Operation & Maintenance of Vegetation Management Contract Manpower Forecast Increase ($M) ... 5-54 Table 5.2.10-8 – USA 571.1 Contracted Manpower - Volume of Work by Work Type (m2) ... 5-56
Table 5.2.10-9 - Workload Liability – Brushing ($M) ... 5-57 Table 5.2.10-10 – USA 571.1 Operation & Maintenance of Vegetation Management GOE Forecast
Increase ($M) ... 5-57 Table 5.2.11-1 - USA 575 - Operation & Maintenance IT Support ($M) ... 5-58 Table 5.2.11-2 - USA 575 – Operation & Maintenance IT Support Forecast Increase ($M) ... 5-58 Table 5.2.11-3 - USA 575 - Operation & Maintenance IT Support Labour Forecast Increase ($M) ... 5-59 Table 5.2.11-4 - USA 575 - Operation & Maintenance IT Support FTEs ... 5-60 Table 5.2.11-5 - USA 575 - Operation & Maintenance IT Support FTE Additions ... 5-60 Table 5.2.11-6 - USA 575 - Operation & Maintenance IT Support Contract Manpower Forecast Increase ($M) ... 5-61 Table 5.2.11-7 - USA 575 - Operation & Maintenance IT Support GOE Forecast Increase ($M) ... 5-61 Table 5.4.1-1 – Property and Business Tax Forecast ($M) ... 5-62 Table 5.4.1-2 – Property Forecast ($M) ... 5-62 Table 7.1-1 - AltaLink’s Aggregate Income Taxes ($M) ... 7-2 Table 7.2-1 - Income Tax Rates ... 7-3 Table 8.1.1-1 - FortisAlberta Transmission Revenue Offset Forecast ($M) ... 8-3 Table 8.1.1-2 - TransAlta Transmission Revenue Offset Forecast ($M) ... 8-3 Table 8.1.2-1- Services to AILP and AHLP Transmission Revenue Offset Forecast ($M) ... 8-4 Table 8.1.3-1 - Lease and Other Transmission Revenue Offset Forecast ($M) ... 8-4 Table 10.1-1 - 2013-2014 Forecast Capital Expenditures ($M) ... 10-2 Table 10.2.1-1 - DA Capital Forecast – Uncertainty Adjusted... 10-4 Table 10.2.3-1 - DA Capital Forecast – Base Plan ... 10-6 Table 10.2.7-1 - Models ... 10-9 Table 10.2.9-1 - DA Capital Expenditures (Base versus Uncertainty Adjusted) ...10-11 Table 10.2.9-2 - DA Capital Additions (Base versus Uncertainty Adjusted) ...10-12 Table 10.3-1 – 2010-2014 CRU Capital Expenditures Forecast ($M) ...10-13
July 30, 2012 12 Table 10.3.1-1– 2011-2012 CRU Capital Expenditures ($M) ...10-14 Table 10.3.3-1 – 2011 Reduced CRU Project, Capital Expenditures ($M) ...10-17 Table 10.3.3-2 – 2011-2012 CRU Project, Capital Expenditures ($M) ...10-18 Table 10.3.3.1-1 – CRU Forecast Method Comparison - Volume of Replacements (Avg/yr) ...10-22 Table 10.3.3.1-2 – CRU Forecast Method Comparison - Capital Expenditures ($M) (Avg/yr) ...10-22 Table 10.3.3.1.1-1 – Major Asset Average Service Life and Current Age ...10-26 Table 10.3.3.1.3-1 – Comparative Results ...10-33 Table 10.3.3.2.3-1 –Comparative Results ...10-42 Table 10.4-1 - IT Capital Expenditure Overview ($M) ...10-43 Table 10.5-1 - Facilities Capital Expenditures ($M) ...10-44 Table 10.6.4-1 - Summary of Key CPP Terms ...10-50 Table 11.2-1 - Lead Lag Study Summary Results ... 11-3 Table 11.2-2 – Dollar Impact of Changes in Lead Lag Study ... 11-3 Table 25.2.1-1 - USA 920 - Administrative and General Salaries ($M) ... 25-3 Table 25.2.1-2 - USA 920 - Administrative and General Salaries Labour Forecast Increase ($M) ... 25-3 Table 25.2.1-3 - USA 920 - Administrative and General Salaries FTEs ... 25-3 Table 25.2.1-4 - USA 920 - Administrative and General Salaries FTE Additions ... 25-4 Table 25.2.8-1 – USA 921 – Per FTE Costs ...25-11 Table 25.2.8-2 - USA 921 - Office Supplies and Expenses ($M) ...25-11 Table 25.2.8-3 - USA 921 - Office Supplies and Expenses Forecast Increase ($M) ...25-11 Table 25.2.10-1- USA 923 - Outside Services Employed ($M) ...25-12 Table 25.2.10-2 - USA 923 - Outside Services Employed Contracted Manpower Forecast Increase ($M)25-12 Table 25.2.11-1 - USA 924 – Insurance Premiums ($M) ...25-13 Table 25.2.11-2 - Commercial Insurance Premiums ($M) ...25-13 Table 25.2.11-3 - Replacement Cost Values for Property and Boiler/Machinery ($M) ...25-14 Table 25.2.11-4 - Property and Boiler/Machinery Premiums as a Percentage of Total Insurance Premiums ($M) ...25-15 Table 25.2.11-5 - Property and Boiler Premium Increases as a Percentage of Total Premium Increase ($M) ...25-15 Table 25.2.12-1 - USA 925 – Injuries and Damages ($M) ...25-16 Table 25.2.13-1 - USA 926 - Employee Pensions and Benefits ($M) ...25-17 Table 25.2.14-1 - USA 928 - Commission Expenses ($M) ...25-17 Table 25.2.14-2 – USA 928 - Cost Orders & Expenses, 2010-2012 Management Update ...25-19 Table 25.2.15-1 - USA 930.1 - General Advertising Expenses ($M) ...25-20 Table 25.2.16-1 - USA 930.2 - Miscellaneous General Expenses ($M) ...25-21 Table 25.2.16-2 - USA 930.2 - Miscellaneous General Expenses Forecast Increase ($M) ...25-21 Table 25.2.17-1 - USA 931 - Rents (Other Than Head Office) ($M) ...25-22 Table 25.2.17-2 - USA 931 - Rents (Other Than Head Office) Forecast Increase ($M) ...25-23 Table 25.2.18-1 - USA 931.1 - Head Office Rent ($M) ...25-23 Table 25.2.18-2 - USA 931.1 - Head Office Rent Forecast Increase ($M) ...25-24 Table 25.2.19-1 - USA 934 - IT General & Administrative Expense ($M) ...25-25 Table 25.2.19-2 – USA 934 – IT General & Administrative Expense Forecast Increase ($M) ...25-25 Table 25.2.19-3 – USA 934 – IT General & Administrative Expense Labour Forecast Increase ($M) ...25-26 Table 25.2.19-4 – USA 934 – Operation & Maintenance IT Support FTEs ...25-26
July 30, 2012 13 Table 25.2.19-5 - Attributes of Managed versus Outsourcing Services ...25-27 Table 25.2.19-6 - USA 934 - IT General & Administrative Expense Contract Manpower Forecast Increase ($M) ...25-27 Table 25.2.19-7 - USA 934 - IT General & Administrative Expense GOE Forecast Increase ($M) ...25-30 Table 25.2.20-1- USA 935 - Maintenance of General Plant ($M) ...25-31 Table 25.2.20-2 - USA 935 - Maintenance of General Plant Forecast Increase ($M) ...25-31 Table 25.2.20-3 - USA 935 -Maintenance of General Plant Labour Forecast Increase ($M) ...25-31 Table 25.2.20-4 - USA 935 - Maintenance of General Plant FTEs ...25-32 Table 25.2.20-5 - USA 935 - Maintenance of General Plant FTE Additions ...25-32 Table 25.2.20-6 - USA 935 - Maintenance of General Plant Contract Manpower Forecast Increase ($M)25-32 Table 25.2.20-7 - USA 935 - Maintenance of General Plant GOE Forecast Increase ($M) ...25-33 Table 28.3.1-1- AltaLink 2011-2012 Compliance Filing Forecast New Debt Issues ...28-21 Table 28.3.2-1 – AltaLink 2011 Debt Issues / 2012 Management Update ...28-22 Table 28.3.3-1 - 2013-2014 GTA Forecast AltaLink Long-Term Debt Issues ...28-22 Table 28.3.6-1 - Forecast Short-Term Borrowing Rate ...28-25 Table 28.3.7-1 – 2011 – 2012 Compliance Filing Forecast Credit Facility Amounts ...28-25 Table 28.3.7-2 – 2013-2014 GTA Forecast Credit Facility Amounts ...28-26 Table 31.6-1 – Comparison of 2012 Approved Revenue Requirements to 2012 Management Update .31-10
TABLE OF CONTENTS
APPENDIX 1 2010-2011 DEFERRAL ACCOUNTS RECONCILIATION APPLICATION
1. Application
2. Directives
3. Long-Term Debt
4. Taxes Other Than Income Tax
5. Annual Structure Payments
6. Other Costs Associated With Short Term Debt (OCASTD)
7. Income Taxes
8. Direct Assigned Capital Deferral Account (DACDA)
9. 2006 – 2010 Uniform System of Accounts (USA)
10. 2011 IFRS Deferral Income Tax Alberta Fit
APPENDIX 2 RESOURCING/COMPENSATION/PENSION
Appendix 2-A FTE Headcount Summary
Appendix 2-B FTE Additions
Appendix 2-C Job Descriptions
Appendix 2-D 2011 Non-Unionized Employee Compensation Review (Mercer)
Appendix 2-E Analysis of Union Rates of Pay (Align HR Consulting)
Appendix 2-F Cost Implications of DC to DB Pension Conversion (Mercer)
Appendix 2-G Salary Escalation Projections (Mercer)
Appendix 2-H Health and Dental Benefit Cost Trends (Mercer)
Appendix 2-I Post Retirement Benefits Expense Forecast (Mercer)
Appendix 2-J Summary of 2010 DB Pension Plan Actuarial Valuation (Mercer)
Appendix 2-K 2012 AltaLink Benefits Relative Value Study (Mercer) APPENDIX 3 INSURANCE (PREMIUMS AND SELF INSURANCE RESERVE (SIR))
Appendix 3-A Commercial Insurance
Appendix 3-B Self Insurance Reserve (SIR) Policy
Appendix 3-C 2011-2012 Compliance Filing Directive #16 Response
APPENDIX 4 CREDIT RATING REPORTS
Appendix 4-A DBRS Rating Report May 22, 2012
Appendix 4-B DBRS Rating Report Feb 15, 2012
Appendix 4-C DBRS Rating Report Feb 15, 2011
Appendix 4-D S&P Rating Report June 15, 2012 Appendix 4-E S&P Rating Report Nov 2, 2011 Appendix 4-F S&P Rating Report Nov 30, 2010 Appendix 4-G S&P Rating Report May 19, 2010
Appendix 4-H S&P Liquidity Descriptors for Global Corporate Issuers Sep 28, 2011 Appendix 4-I S&P Standardizes Liquidity Descriptors for Global Corporate Issuers
July 2, 2010
Appendix 4-J S&P Business Risk/Financial Risk Matrix Expanded May 27, 2009 Appendix 4-K S&P Global Credit Portal Feb 15, 2012
APPENDIX 5 INTEREST/SPREADS
Appendix 5-A Government of Canada Yield Forecast
Appendix 5-B Current AltaLink, L.P. Credit Spreads
Appendix 5-C 2013- 2014 Other Costs Associated with Short-Term Debt (OCASTD)
Forecast
Appendix 5-D 2012 Management Update: Other Costs Associated with Short-Term
Debt (OCASTD) APPENDIX 6 FINANCIAL REPORTING
Appendix 6-A(i) 2010 AltaLink Report on Operations and Finances
Appendix 6-A(ii) 2011 AltaLink Report on Operations and Finances – Variance between July 30, 2012 and May 10, 2012
Appendix 6-A(iii) 2011 AltaLink Report on Operations and Finances July 30, 2012 Appendix 6-A(iv) 2011 AltaLink Report on Operations and Finances May 10, 2012 Appendix 6-A(v) AML 2011 Operational Statistics of Report on Finance and
Operations
Appendix 6-B(i) 2011 AltaLink Annual Information Form
Appendix 6-B(ii) 2010-11 AltaLink Financial Statements. Please see Appendix 6-A for Financial Report
APPENDIX 7 LEAD/LAG STUDY APPENDIX 8 DEPRECIATION STUDY
Appendix 8-A Depreciation Study Final Report May 2012
Additional Working Paper documents have only been filed as Excel documents due to their voluminous nature:
Appendix 8-B Service Life Data.xlsx
Appendix 8-C Net Salvage data.xlsx
Appendix 8-D 2013-2014 Balance Files.xlsx
APPENDIX 9 TAXES OTHER THAN INCOME TAXES
Appendix 9 AltaLink 2013-2014 Property Tax Forecast (AEC International)
APPENDIX 10 EPC RELATIONSHIP AGREEMENT COMPETITIVE PROCUREMENT PROCESS (CPP)
Appendix 10-A Fairness Advisor Terms of Reference
Appendix 10-B Fairness Advisor Proposal - Rates
Appendix 10-C Fairness Advisor Engagement Letter (Fully Executed) Appendix 10-D-1 AltaLink Interim Fairness Letter - Final
Appendix 10-D-2 AltaLink Interim RFP Fairness Report
Appendix 10-D-3 AltaLink Interim Negotiations Fairness Report Appendix 10-D-4 Fairness Report - AltaLink
Appendix 10-E RFQ Evaluation Criteria - Signed
Appendix 10-H RFQ Evaluation Process - Signed
Appendix 10-I Firms Receiving RFQ
Appendix 10-J AltaLink Request for Qualifications (RFQ) Appendix 10-K Conflict of Interest Form
Appendix 10-L RFQ Recommendation Memo
Appendix 10-M RFP Evaluation Criteria - Signed
Appendix 10-N RFP Evaluator Scoresheet
Appendix 10-O RFP Evaluation Protocol - Signed
Appendix 10-P RFP Evaluation Process - Signed
Appendix 10-Q RFP - Redacted
Appendix 10-R RFP Recommendation Memo
Appendix 10-S Negotiation Protocol – Final - Signed
Appendix 10-T Burns and McDonnell Overview Slide
Appendix 10-U SNC Lavalin Overview Slide
APPENDIX 11 AESO PROJECT SUPPORTING MATERIAL
Appendix 11 AESO Acknowledgement Letter to AltaLink July 4, 2012
APPENDIX 12 ANNUAL STRUCTURE PAYMENTS
Appendix 12-A Annual Structure Payments for Transmission Lines (SERECON)
Appendix 12-B Vegetation Management (Ecological Solutions)
APPENDIX 13 BUSINESS CASES
Appendix 13-A CRU Business Cases
Appendix 13-B IT
Appendix 13-C Facilities
APPENDIX 14 TERMS AND CONDITIONS OF SERVICE
Appendix 14 AltaLink Terms and Conditions
APPENDIX 15 INTER-AFFILIATE CODE OF CONDUCT FILING
Appendix 15 AltaLink Annual Compliance Report to the AUC for the 2011
Reporting Period APPENDIX 16 INTERVENER ENGAGEMENT MATERIALS
Appendix 16-A AML 2013-2014 GTA Overview June 2012
Appendix 16-B CPP GTA 2013-14 Stakeholder Session – June 6-12
APPENDIX 17 CREDIT RATINGS - EXPERT EVIDENCE OF STEVEN FETTER APPENDIX 18 OPTICAL GROUND WIRE (OPGW)
Appendix 18 Response to AUC Decision 2011-453 Directive No. 29
Appendix A AESO Telecommunications Plan Technical Comparison of Microwave
Appendix 19-A PWC Report – Direct Assign Capital Forecast Probabilistic Modelling Appendix 19-B Base Plan Direct Assign Project Descriptions
Appendix 19-C 2011 – 2014 Direct Assign Capital Projects Expenditures and Additions
Appendix 19-D Capital Projects Escalation Rate
Appendix 19-E AESO Acknowledgement
APPENDIX 20 APPLICATION FOR EXEMPTION ORDER
Appendix 20-A DBRS Rating Report May 22, 2012
Appendix 20-B S&P Rating Report June 15, 2012
Appendix 20-C Public Utilities Act Sections 101(2)(a)(ii) and 101(d)(i) Appendix 20-D Public Utilities Act section 101(4)
Appendix 20-E AEUB Decision U96059
Appendix 20-F AEUB Decision 2004-024
Appendix 20-G AEUB Order U2001-097
Appendix 20-H AEUB Order U2006-106
Appendix 20-I AEUB Decision 2006-099
Appendix 20-J AEUB Decision 2004-035
Appendix 20-K AEUB Order U2003-057
Appendix 20-L AEUB Order U2003-094
Appendix 20-M AUC Decision 2010-073
FORWARD-LOOKING INFORMATION ADVISORY
1. This Application and any document incorporated or deemed to be incorporated by reference herein contains or may contain certain statements or disclosures that may constitute forward-looking information under applicable securities laws. All statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that AltaLink anticipates or expects may or will occur in the future (in whole or in part) should be considered forward-looking information. In some cases, forward-looking information can be identified by terms such as “anticipate”, “believe”, “contemplate”, “continue”, “could” “enable”, “expect”, “forecast”, “future”, “intend”, “may”, “plan”, “potential”, “will” or other comparable terminology. Forward-looking information presented in such statements or disclosures may, without limitation, relate to: applications to the Alberta Utilities Commission (AUC) for approval of, among other things, AltaLink’s revenue requirements (including deferral and reserve
accounts; capital structure and return-on-equity; financing plans; treatment of costs for applicable test periods including deemed income taxes, operating expenses, depreciation, capital costs for Direct Assign Projects and maintenance programs financing costs related to long-term debt and short-term borrowing; and projected growth in AltaLink’s rate base and assets under construction); transmission system expansion forecasts; the anticipated direct assignment of transmission development projects to AltaLink from the Alberta Electric System Operator (AESO) (as defined in AltaLink’s Annual Information Form (AIF) dated April 27, 2012 for the year ended December 31, 2011 or any new annual information form filed with applicable securities regulatory authorities for a subsequent financial year of AltaLink during the test period of this Application pursuant to approved Need Applications (as defined in the AIF) or, in the case of Critical Transmission Infrastructure (as defined in the AIF), AltaLink’s eligibility to submit Facility Applications (as defined in the AIF) pursuant to designations by the Government of Alberta or competitive bidding processes; the timing and development of transmission projects and the anticipated capital costs of such projects; business strategy, plans and
objectives of management for future operations; forecast business results; the achievement of certain operational and performance measures and the resulting effect on compensation of executive officers; and anticipated financial performance or condition of AltaLink.
2. Various factors or assumptions are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking information. These factors and assumptions include, but are not limited to:
• no changes in the legislative and operating framework for Alberta’s electricity market that are adverse to AltaLink (for example refer to “REGULATED TARIFF REVENUE” and “ELECTRICITY
TRANSMISSION IN ALBERTA in AltaLink Management’s discussion and analysis of financial
condition and results of operations dated February 23, 2012 for the year ended December 31, 2011 or any new annual management discussion and analysis filed with applicable securities regulatory authorities for a subsequent financial year of AltaLink corresponding to a test year of this Application (the Annual MD&A) and “THE TRANSMISSION BUSINESS –
Transmission Services”; “-Tariff Regulation”; and “-Transmission System Planning and Development” in the AIF);
• decisions from the AUC concerning outstanding tariff and other applications that are consistent with past regulatory practices and decisions and are obtained in a timely
July 30, 2012 ii manner (for example, refer to “REGULATED TARIFF REVENUE”, “ELECTRICITY TRANSMISSION IN
ALBERTA” and “MAJOR CAPITAL PROJECTS” in the Annual MD&A and “GENERAL DEVELOPMENT OF THE TRANSMISSION BUSINESS” and “THE TRANSMISSION BUSINESS – Tariff Regulation”; and
“-Transmission System Planning and Development” in the AIF);
• approved rate-of-return and deemed capital structures for AltaLink’s transmission business that are sufficient to foster a stable investment climate (for example, refer to “REGULATED
TARIFF REVENUE” in the Annual MD&A and “GENERAL DEVELOPMENT OF THE TRANSMISSION
BUSINESs” and “THE TRANSMISSION BUSINESS – Tariff Regulation”; and “-Transmission System Planning and Development” in the AIF);
• a stable competitive environment;
• AltaLink obtaining sufficient capital on acceptable terms to finance its transmission system expansion; and
• no significant event occurring outside the ordinary course of business such as a natural disaster or other calamity.
3. These assumptions and factors are based on information currently available to AltaLink including information obtained by AltaLink from third-party industry analysts. In some occurrences, material assumptions and factors are presented or discussed elsewhere in this Application, or in other documents incorporated or deemed to be incorporated by reference herein, in connection with the statements or disclosure containing the forward-looking information. AltaLink cautions readers and prospective investors that the foregoing list of material factors and assumptions is not exhaustive.
4. The forward-looking information in statements or disclosures in this Application, or in other documents incorporated or deemed to be incorporated by reference herein, is based (in whole or in part) upon factors which may cause actual results, performance or achievements of AltaLink to differ materially from those contemplated (whether expressly or by implication) in the forward-looking information. These factors are based on information currently available to AltaLink including information obtained by AltaLink from third-party industry analysts. Actual results may differ materially from those predicted by such forward-looking statements. While AltaLink does not know what impact any of these differences may have, its business, results of operations, financial condition and its credit stability may be materially adversely affected. Factors that could cause actual results or outcomes to differ materially from the results expressed or implied by forward-looking statements include, among other things:
• the risks associated with being subject to extensive regulation including risks associated with AUC action or inaction;
• the risk that the AUC does not provide specific relief to sustain AltaLink’s credit metrics over a growth period characterized by large multi-year transmission facility projects; • the risk that transmission projects are not directly assigned to AltaLink by the AESO or that
AltaLink is not designated for filing a Facility Application;
• the risk that AltaLink is not able to arrange sufficient, cost-effective financing to repay maturing debt and to fund capital expenditures and other obligations;
July 30, 2012 iii • the risks that the actual costs of completing a transmission project significantly exceed
estimated costs;
• the risks to AltaLink’s facilities posed by severe weather, other natural disasters or catastrophic events and AltaLink’s limited insurance coverage for losses resulting from these events;
• the potential for service disruptions and increased costs if AltaLink fails to maintain and improve its aging asset base; and
• the risks associated with forecasting AltaLink’s revenue requirements and the possibility that AltaLink could incur operational, maintenance and administrative costs above those included in AltaLink’s approved revenue requirement.
5. AltaLink cautions that the above list of risk factors is not exhaustive. Other factors, which could cause actual results, performance or achievements of AltaLink to differ materially from those contemplated (whether expressly or by implication) in the forward-looking statements or other forward-looking information, are disclosed in AltaLink’s publicly filed disclosure documents, which may be incorporated or deemed to be incorporated by reference in this Application, including those disclosed under “RISK MANAGEMENT” in (i) the current Annual MD&A,, or (ii)
AltaLink Management’s discussion and analysis of financial condition and results of operations for the interim period ended March 31, 2012 or for a subsequent interim period of AltaLink that is filed with applicable securities regulatory authorities during the test period of this Application and “RISK FACTORS” in AltaLink’s current AIF. Risk factors that could lead to such differences
include, without limitation, legislative and regulatory developments that could affect costs or revenues, the speed and degree of competition entering the market, global capital markets activity, timing and extent of changes in prevailing interest rates, currency exchange rates, inflation levels and general economic conditions in geographic areas where AltaLink operates, results of financing efforts, changes in counterparty risk and the impact of accounting standards issued by standard setters.
6. All forward-looking information herein is given as of the date of this Application. AltaLink is not obligated to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable laws. Because of these risks, uncertainties and assumptions, prospective investors should not place undue reliance on these forward-looking statements. Any forward-looking information contained in this
Application, or in other documents incorporated or deemed to be incorporated by reference herein, is expressly qualified by this statement.
1.
INTRODUCTION
7. Section 1 of AltaLink’s Application addresses the following:
1.1 Application Overview
1.2 Overview of Revenue Requirement
1.3 Overview of Key Aspects of Application 1.4 Tariff/Rate Applied For
1.5 2012 Management Update
1.6 Other Approvals (Deferral and Reserve Accounts) Requested
1.7 Organizational Structure
1.8 Forecasting Methodology/Process and Key Assumptions
1.9 Operational Performance
1.10 Business Improvements
1.11 Major Issues and Policy Changes
1.1
Application Overview
8. In this 2013-2014 General Tariff Application (Application or GTA), AltaLink Management Ltd. (AltaLink or AML), in its capacity as General Partner of AltaLink, L.P. (ALP), is applying1
• AltaLink’s revenue requirements of:
to the Alberta Utilities Commission (AUC or Commission) for approval of:
o $500.5M for 2013 and o $655.5M for 2014;
• the 2013 and 2014 Transmission Facility Owner (TFO) Tariff as set out in Section 1.4 and including the Terms and Conditions of Service pursuant to which the AESO will use AltaLink’s transmission facilities;
• AltaLink’s deferral accounts for the 2013-2014 test period as requested in Sections 7.5 and 31.8;
• AltaLink’s reserve accounts for the 2013-2014 test period as requested in Section 31.7; • an Exemption Order for Long-Term Debt Applications as outlined in Section 28.3.5 and
requested in Appendix 20; and
• the reconciliation of AltaLink’s 2010 and 2011 deferral accounts as requested in Appendix 1. 9. AltaLink is the largest TFO in Alberta’s electricity industry, with the transmission business
representing approximately half of the total kilometres of transmission lines used in Alberta’s high-voltage electricity transmission system. AltaLink’s transmission system is interconnected and operates synchronously (i.e. on the same phase and frequency) with the North American western interconnected system. The transmission business serves approximately 212,000 square km in the southern half of Alberta and includes approximately 12,000 km of high-voltage transmission lines and approximately 280 substations, transmitting electric energy at voltages up to 500 kV from generation plants to the major load centres, cities and large industrial plants throughout central and southern Alberta. AltaLink’s transmission facilities are used to supply electricity to most major urban centres in Alberta, serving approximately 85% of Alberta’s population. More information about Alberta’s electricity industry and AltaLink’s transmission business is available in the 2011 Annual Information Form (Appendix 6-B (i)).
1.1.1 Technical Aspects of the Application
10. Most of the capitalized words and phrases used throughout this Application have the meanings ascribed to them in the Glossary and Abbreviations of Terms in Appendix 21.
11. In all tables and schedules in the Application, totals may not add due to rounding.
1.2
Overview of Revenue Requirement
Revenue Requirement
12. In this Section, AltaLink sets out the primary factors driving the increases in revenue
requirement for 2013 and 2014. In addition, AltaLink provides a brief overview of some of the key aspects of the Application.
13. This section contains an explanation of the primary factors driving the forecast increases in AltaLink’s revenue requirement (please refer to the following Table 1.2-1 for further context
respecting these factors). Approximately 95% of the combined revenue requirement increase over the 2012 Adjusted Revenue Requirement2
14. The following Figure 1.2-1 illustrates the approximate percentage increase of total revenue requirement for each test year that is driven by System Growth and Maintenance. As mentioned above, the largest factor driving the forecast increase is the projected increase in direct assign projects required to meet the Alberta transmission system needs.
for 2013 and 2014 is attributable to System Growth and Maintenance. The costs associated with System Growth and Maintenance are predominantly driven by the System Capital costs associated with two types of capital-related activities. The first and largest activity is the work associated with the AESO’s Direct Assign Projects necessary to meet Alberta’s need for additional transmission system capacity; the second is the work necessary to maintain AltaLink’s existing transmission assets. This is the same as the 2011-2012 levels from the previous tariff application (2011-2013 GTA) when 95% of the increase applied for was due to System Growth and Maintenance.
Figure 1.2-1 - Drivers of Revenue Requirement Changes for 2013-2014
The following Table 1.2-1 sets out further details and provides context to the various cost groupings.
Table 1.2-1 - Overview Forecast Changes in Revenue Requirement for 2013 and 2014
15. AltaLink’s 2013 forecast represents an increase of $113.8M (29.4%) over the 2012 Adjusted Revenue Requirement. The 2014 forecast represents a $155.0M (31.0%) increase over 2013 forecast levels.
$ Millions % Chg Revenue Requirement - 2012 Compliance, April 10th Filing (2011-12 GTA) $ 392.6
Provision for Deferral Accounts $ (5.9)
2012 Adjusted Revenue Requirement (management update) $ 386.7
System Growth & Maintenance System Capital
System expansion $ 78.1
Existing system maintenance $ 24.9
Change in System Capital $ 103.0 26.6%
Operating costs related to System Capital
Taxes other than income tax $ 2.0
Annual Structure Payments $ 2.3
Self Insurance Reserve and insurance premiums $ (1.0)
Brushing $ 0.0
Change in Operating costs related to System Capital $ 3.4 0.9% System Support Operating Costs
Labour $ 4.8
Contractor services $ 1.3
Hearing Cost Reserve $ (0.6)
Other expenses $ 1.9
Change in System Support Operating Costs $ 7.4 1.9%
Change in Revevue Requirement from 2012 levels $ 113.8 29.4% Total Revenue Requirement - 2013 FORECAST $ 500.5
System Growth & Maintenance System Capital
System expansion $ 125.8
Existing system maintenance $ 14.2
Change in System Capital $ 139.9 28.0%
Operating costs related to System Capital
Taxes other than income tax $ 3.1
Annual Structure Payments $ 3.6
Self Insurance Reserve and insurance premiums $ 1.6
Brushing $ 0.2
Change in Operating costs related to System Capital $ 8.6 1.7% System Support Operating Costs
Labour $ 4.4
Contractor services $ 0.9
Hearing Cost Reserve $ 0.5
Other expenses $ 0.8
Change in System Support Operating Costs $ 6.5 1.3%
Change in Revevue Requirement from 2011 levels $ 155.0 31.0% Total Revenue Requirement - 2014 FORECAST $ 655.5
2013 FORECAST: Revenue Requirement changes due to:
System Growth and Maintenance
16. System Growth and Maintenance primarily captures the cost associated with directly assigned projects, driven by the identification of the need for future transmission projects. This category also captures those costs associated with the maintenance and network related costs that are directly attributable to AltaLink’s existing assets. The increase in the forecast 2013 rate base is $1.0 billion over the rate base reflected in the 2012 Management Update. 70% of this increase is due to Direct Assign Construction Work in Progress (DA CWIP). The 2014 rate base is an increase of $1.4 billion over the 2013 forecast rate base, 41% of which is due to DA CWIP. For further details with respect to the impact of system growth on rate base please refer to Section 10, GTA Schedule 10-1. Please refer to Section 31, GTA Schedule 31.2A for a summary of the amounts comprising AltaLink’s total rate base.
17. The delays in the expansion of needed major transmission infrastructure are placing increased performance pressures upon AltaLink’s aging assets. As the new infrastructure is placed in service, these aging assets must be maintained and optimized with increasingly complex solutions and configurations to allow AltaLink to mitigate power system risk and deliver the necessary reliability that ratepayers require. This needed System Growth and Maintenance is reflected in AltaLink’s 2013 – 2014 revenue requirement and comprises $106.4M or
approximately 94% of the requested increase for 2013 over the 2012 Adjusted Revenue Requirement levels (please see Table 1.2-1 above). For 2014, System Growth and Maintenance requirements comprise $148.5M or 96% of the requested increase over 2013 forecast revenue requirement. Various other costs associated with the System Growth and Maintenance include those operating costs (Operating Costs Related to System Capital) that are linked to the assets including taxes other than income taxes, Annual Structure Payments (right-of-way payments), insurance costs, and brushing (vegetation management costs). These costs account for approximately 5% year over year increases over the test period. Operating Costs Related to System Capital are set out and explained in Section 5 and Section 25 of this GTA.
System Support Operating Costs
18. The balance of the increase in the forecast revenue requirement for 2013 through 2014 is driven by the System Support Operating Costs (as reflected in Table 1.2-1). These costs account for $7.4M (6.5%) of the requested increase for 2013 over the 2012 Adjusted Revenue Requirement and $6.5M (4.2%) of the requested 2014 increase over the 2013 forecast levels.
19. System Support Operating Costs reflect costs that are required to support the ongoing operation of the transmission business and include such cost elements as operating salaries and wages, contractor services, regulatory hearing related funding requirements and general operating costs. The increase in the operating labour costs reflects the increase in the volume of Full Time Equivalents (FTEs) required to support the technical, compliance and administrative
requirements of the expanding system and, as explained in Section 1.8.5, also reflects market compensation for existing FTEs.
20. AltaLink’s forecast revenue requirement is detailed in Section 3 of this Application.
1.3
Overview of Key Aspects of Application
Cost Drivers 1.3.1 Section
Credit Metric Support through the High Build Cycle 1.3.2
Consolidated FTE Forecasts 1.3.3
Engineering, Procurement and Construction (EPC) Contracts 1.3.4
Depreciation and Salvage Study 1.3.5
New probabilistic DA Capital forecast methodology 1.8.3.2 and 10.2
1.3.1 Cost Drivers
22. As explained in Section 1.2 above, the predominant cost drivers associated with the change in revenue requirement are the number and size of the projected AESO direct assign transmission projects. The following Figure 1.3.1-1 and Figure 1.3.1-2 illustrate the total capital expenditures and total additions to rate base AltaLink is forecasting to execute during this test period. The impact on revenue requirement attributed to these levels of capital expenditures and additions is summarized in Section 1.2 (Table 1.2-1) under the heading System Capital and described in Section 10. Please refer to Section 31, GTA Schedule 31.2B for a summary of AltaLink’s total capital expenditures and capital additions during this GTA period.
Figure 1.3.1-2 - Total Capital Additions ($M)
23. The balance of the cost drivers reflected in revenue requirement are predominantly related to operating expenses and are summarized in Table 1.2-1 above and further explained in detail in Section 5 and Section 25.
1.3.2 Credit Metric Support through the High Build Cycle
24. Ratepayers have told AltaLink that reliability is their most important issue. Reliability is AltaLink’s most important issue as well. AltaLink’s key focus is on reliability, both with respect to system performance and the construction of new assets in order to meet ratepayers needs. As
explained in Section 28 of this Application, as a result of unprecedented large build cycle facing AltaLink, AltaLink is requesting the AUC’s approval of specific measures required to provide credit metric support to enable AltaLink to maintain its current A-category debt credit ratings. To date, ratepayers have benefitted from AltaLink’s unfettered access to low cost debt financing through the various cycles in the debt capital markets. A credit downgrade during this growth period would translate into a higher weighted average cost of capital (WACC) for AltaLink and therefore result in higher financing related costs for ratepayers for many years to come. 25. In Decision 2011-453, the Commission confirmed the need for AltaLink to maintain its
A-category ratings3
26. Section 28 of this Application describes how AltaLink, assuming the provision of the required credit metric support, plans to finance the large transmission system growth and maintain its current debt credit ratings. Based on the foregoing, AltaLink requests the Commission’s approval of the following measures to provide necessary credit metric support to maintain AltaLink’s current A-Category credit ratings:
• continuation of the Future Income Tax (FIT) method used in the calculation of the federal component of income taxes included in AltaLink’s revenue requirement;
• approval of the Future Income Tax (FIT) method used in the calculation of the provincial component of income taxes included in AltaLink’s revenue requirement;
• delay in the determination with respect to the FIT account balance, in the manner provided in Decision 2007-012;
• continued approval of CWIP in rate base in respect of all AESO direct assign projects; and • the approval of a temporary increase of 2% in the deemed common equity ratio to 39% for
2013 and 2014.
1.3.3 Consolidated FTE Forecasts
27. AltaLink’s FTE forecast includes both operating and capital FTEs. The forecast is described in the Application, both in terms of existing FTEs and additional FTEs that will be required through the test years. The FTE forecast:
• is described in terms of total operating and capital FTE headcounts by Uniform System of Accounts (USA) (Appendix 2-A: FTE Headcount Summary); and
• is identified in terms of capital and operating FTEs, by job classification (job titles) (Appendix 2-B: FTE Additions).
28. The Application also includes
• job descriptions for additional operating FTEs forecast (Appendix 2-C: Job Descriptions); and • descriptions of business need for transmission and corporate operating FTE additions by
USA activity code (Section 5: Transmission Operating Costs and Section 25: Corporate Operating Costs).
1.3.4 EPC Competitive Procurement Process (CPP)
29. The process and timelines for the transition to the competitive procurement of EPC services were established in the previous tariff application (2011-2013 GTA). With the independent fairness advisor (KPMG) monitoring each step, AltaLink went to market and completed the execution of this CPP in April 2012. The result was the selection of two providers of EPC services on market competitive contract terms. Refer to Section 10.6 for further details of the process.
1.3.5 Depreciation and Salvage Study
30. In the development of the depreciation expense component of revenue requirement, AltaLink has engaged Gannett Fleming Inc. to prepare a full and comprehensive depreciation and salvage study. Please refer to Section 6 of this Application for the details regarding this matter.
1.4
Tariff/Rate Applied For
31. AltaLink is applying for tariffs that reflect the revenue requirement for the 2013-2014 test years: • the 2013 revenue requirement is forecast at $500.5M; and
• the 2014 revenue requirement is forecast at $655.5M.
32. The 2013 revenue requirement reflects certain prior period adjustments relating to the true-up of certain reserve and deferral accounts (please see Section 1.2 for a summary of forecast revenue requirement).
33. The tariffs, if approved as filed in this Application, would translate into 12 equal monthly billings as follows:
• 2013: $41,707,972 • 2014: $54,628,641
34. AltaLink expects the proceeding schedule for this GTA to reflect an early to mid-2013 decision by the AUC. AltaLink therefore anticipates submitting a 2013 Interim Rate Application for interim refundable rates based on the contents of this GTA in this latter half of 2012.
1.5
2012 Management Update
35. In Section 31.6, AltaLink has included a high level 2012 Management Update to provide a bridge from the 2012 revenue requirement per AltaLink’s 2011-2012 Compliance Filing4
36. For further reference, a comparison of the 2010 approved revenue requirement to the 2010 actuals and the 2011 Approved revenue requirement
to the 2012 forecast contained in this Application.
5
1.6
Other Approvals (Deferral and Reserve Accounts) Requested
to the 2011 actuals can be found in the respective Reports on Finance and Operations in Appendix 6 of this Application.
1.6.1 List of Deferral and Reserve Accounts being requested
37. AltaLink is requesting two new deferral accounts, the continuation of five previously approved deferral accounts and the discontinuation of one previously approved deferral account. 38. In Section 7.5, AltaLink requests deferral account treatment for any impacts of a change in the
treatment of DAIC amounts expensed for income tax purposes.
39. In Section 31.8, AltaLink requests that Rider I Default Risk receive deferral account treatment commencing in the 2013 -2014 test period.
40. In Section 31.8, AltaLink requests continued deferral account treatment for 2013 and 2014 for: • Taxes Other Than Income Tax;
• Annual Structure Payments;
• Other Costs Associated with Short-Term Debt; • Direct Assign Capital; and
• International Financial Reporting Standards (IFRS) to the extent that future Canadian ASB pronouncements may impact upon the Commission’s Rule 026.
41. In Section 31.8.2, AltaLink requests the discontinuation of deferral account treatment for 2013 and 2014 for:
• Long-Term Debt.
42. In Section 31.7, AltaLink requests that reserve account treatment be continued for 2013 and 2014 for:
4Proceeding ID No. 1734, Application No. 1608178 (pending AUC approval at the time of this Application).
5 For the purposes of this Application, the 2011 Approved and 2012 Approved revenue requirements are based on
• Hearing Costs; and • Self Insurance.
43. Rainbow & Capitalized G&A Tax: AltaLink is not requesting funding of this reserve account in the 2013 and 2014 test period. However, in the event that AltaLink’s request for a reserve account for Capitalized G&A Tax expense in the 2011-2012 Compliance Filing is not approved, AltaLink requests a deferral account treatment instead.
1.6.2 Reconciliation of Existing Reserve Accounts
44. In Section 31.7, AltaLink is requesting, as part of this GTA, the reconciliation and disposition of the following two reserve accounts with respect to adjustments for actual results and forecast funding/expense requirements in this test period:
• the Self-Insurance Reserve (SIR) per Section 25.2.6; and • the Hearing Cost Reserve (HCR) per Section 25.2.8.
1.6.3 Reconciliation of Existing Deferral Accounts
45. Please see Appendix 1 for AltaLink’s application for the reconciliation of the 2010 and 2011 deferral accounts for the following:
• Long-Term Debt Taxes Other Than Income Tax • Annual Structure Payments
• Other Costs Associated with Short-Term Debt • Income Taxes
• Direct Assigned Capital
• 2006-1010 Uniform System of Accounts
1.7
Organizational Structure
1.7.1 AltaLink Ownership Structure
46. Please refer to Attachment 1.7A for AltaLink’s ownership structure.
1.7.2 AltaLink Organizational Structure
47. Please refer to Attachment 1.7B for the organization charts as of December 31, 2012 for Vice Presidents and above and their direct reports.
1.8
Forecasting Methodology/Process and Key Assumptions
1.8.1 Forecast Overview
48. In Decision 2011-453, the Commission expressed concern with AltaLink’s use of its management update forecast as the baseline for its requested test year forecasts and that AltaLink would be best to develop its forecasts from an assumed zero-base, which seeks to re-assess the resources and costs required to fulfill its statutory duties on an annual basis, without assuming that costs are simply incremental to the actual costs of the preceding year.
49. AltaLink has presented the forecast for this GTA in a manner that it believes is clear, understandable, is consistent with the Uniform System of Accounts/Minimum Filing
Requirements (USA/MFR) Consensus document and is in accordance with Decision 2011-453. 50. AltaLink further enhanced its forecast for this Application by implementing a zero-based
approach for the 2012 Management Update. This involved having each department assess all activities required to be performed in order to meet the objectives necessary to fulfilling its statutory duties and business obligations during the test period. These departmental re-assessments established the FTE and contractor levels required to carry out the forecast
workloads, as well as the general operating expenses. These levels then formed the basis for the forecast portion of the 2012 Management Update.
51. The impact of activity drivers was specifically assessed for each department. The specific activities that will have to be undertaken in the test years as a result of the drivers were
considered and need duration (short term or on-going), type (FTE or contractor) and amount of resources required to perform the identified activities were quantified so that the causal relationship between the specific activity drivers and the need for resources within each department could be determined. When drivers caused needs for on-going activities, new FTEs were forecast to be included when either there were not enough current resources to perform the workload or new resources were required to perform a new activity. Explanations of the need for all forecast FTE additions are included in the write-ups for each department in Sections 5.2 and 25.2.
52. The 2012 Management Update was prepared using a zero-based approach and formed the
baseline for forecasting the test years. The forecasts for the 2013 and 2014 test years are described in this GTA by USA Activity Codes.
1.8.2 General Assumptions
53. AltaLink’s forecast is based on the assumptions outlined in the following Table 1.8.2-1. Table 1.8.2-1 - AltaLink’s Forecast Rate Assumptions
Assumption 2013 2014
Labour Escalation
Salaries and Wages (Labour) 4.81% 4.81%
Union 4.50% 4.50% Non-union 5.25% 5.25% Executive 3.25% 3.25% Contractor 4.81% 4.81% General Inflation 2.30% 2.30% Capital Escalation 4.0% 4.0% Vacancy 3.0% 3.0% Interest Rates
Long-Term Please see
Section 28.3
Please see Section 28.3
54. Forecasts were prepared by each department using constant 2012 dollars and inflationary increases were subsequently added to the forecasts by the Budgets and Forecasts group. AltaLink has used a general inflation rate of 2.3% for each of the 2013 and 2014 test years for this GTA. This is based on the Alberta Government’s Economic Outlook for the test years as described in Section 1.8.4 of this Application. This general inflation rate is applied to operating expenses other than those for which a specific inflation rate is applicable.
55. Other expenses such as salaries, benefits, vegetation management, contracted manpower, insurance, property taxes, Annual Structure Payments and capital projects have escalation factors that have been specifically forecast as described below:
• Salary and benefits escalation is based on analysis which is discussed in Section 1.8.5; • Vegetation management escalation is addressed in Section 5.2.10 and in Appendix 15; • In certain cases, contracted manpower costs are based on the forecast of market rates in
specific contractor categories. Where specific market rate information was not available at the time of forecast, those areas of contracted manpower are adjusted similarly to labour escalation;
• General Operating Expense escalation is based on general inflationary rates and usage rates. Office expense, staff expense and building-related costs are escalated using the general inflation rates noted above;
• Annual structure payments and details of escalation can be found in Section 5.2.8 and in Appendix 15.1 of the GTA;
• Property and business taxes as well as insurance costs are escalated based on industry specific rates, as described in Sections 5.4 and 25.2.5 of this Application; and
• Capital project forecasts were escalated as provided in Section 10 of this Application.
1.8.3 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
