Review Application – Denied
In this decision, the AUC considered an application by the Office of the Utilities Consumer Advocate (“UCA”) requesting a review of Decision 22357-D01-2018 regarding EPCOR Energy Alberta GP Inc.’s (“EPCOR”) 2018-2021 Energy Price Setting Plan (the “Original Decision”).
The AUC denied the request for review on the basis that the UCA failed to demonstrate that an error of fact, law or jurisdiction was apparent on the face of the Original Decision or otherwise existed on a balance of probabilities.
Background
The Original Decision considered EPCOR’s application for approval of its 2018-2021 Energy Price Setting Plan (“EPSP”) in Proceeding 22357 (the “Original Proceeding”).
In the Original Decision, the AUC hearing panel approved EPCOR’s proposed EPSP, which established the pricing of electricity for its regulated rate option (“RRO”) customers in the distribution service areas of EPCOR Distribution and Transmission Inc. (“EDTI”) and FortisAlberta Inc. (“Fortis”). The EPSP approved by the hearing panel included the following elements:
(a) a descending clock auction format for the procurement of energy;
(b) procurement of approximately 50 percent of the forward market energy products for each month through full-load strips, provided for by a standardized contract for the full-load product through the Natural Gas Exchange;
(c) procurement of the remaining 50 percent by way of fixed block products (either 7X24 flat blocks or 7X16 peak blocks); and
(d) a method for calculating the risk margin, referred to as commodity risk compensation (“CRC”), based on competitive-market-determined prices calculated as the difference between the weighted-average procurement price of the full-load portfolio and the weighted-average procurement price of the fixed block portfolio.
Legislation
RRO providers, including EPCOR, are governed by the Electric Utilities Act (“EUA”) and the Regulated Rate Option Regulation. Section 103 of the EUA requires the owner of a distribution system to prepare a regulated rate tariff for the purpose of recovering prudent costs of providing electricity services to eligible customers.
Section 5 of the Regulated Rate Option Regulation provides for a determination of a risk margin. Risk margin, pursuant to section 1(l), means “the just and reasonable financial compensation that an owner’s regulatory authority approves for the owner based on the financial risks (i) that remain with the owner, and (ii) that are associated with the supply of electricity services to regulated rate customers.”
Section 6(1) of the Regulated Rate Option Regulation sets out the matters to be considered by the AUC when considering approval of a regulated rate tariff:
(a) a regulated rate tariff, including the risk margin described in section 5, must provide the owner with a reasonable opportunity to recover the prudent costs and expenses incurred by the owner [s 6(1)(a)];
(b) a regulated rate tariff must allow for a reasonable return for the obligation on the owner to provide electricity services [s 6(1)(b)(i)];
(c) the risk margin described in section 5 must not be considered as a part of that reasonable return [s 6(1)(b)(i)];
(d) a risk margin must provide the owner with just and reasonable financial compensation for the risks described in section 5 [s 6(1)(c)];
(e) a regulated rate tariff must not impede the development of an efficient electricity market based on fair and open competition in which neither the market nor the structure of the Alberta electric industry is distorted by unfair advantages of any electricity market participant [s 6(1)(d)]; and
(f) the price setting plan must ensure that the procurement risk of acquisition remains with the owner [s 6(1)(f)].
Alleged Grounds for Review
The UCA asserted that the hearing panel committed several errors of law, fact and/or jurisdiction with respect to findings contrary to sections 6(1)(b), 6(1)(d) and 6(1)(f) of the Regulated Rate Option Regulation. Specifically, the UCA asserted that the hearing panel made the following errors:
(a) approving a risk margin as part of EPCOR’s reasonable return, contrary to section 6(1)(b)(ii) of the Regulated Rate Option Regulation;
(b) concluding that EPCOR would remain responsible for the procurement of 100 percent of the energy required to satisfy its obligations as an RRO provider, such that the procurement risk of acquisition remained with EPCOR, contrary to section 6(1)(f) of the Regulated Rate Option Regulation; and
(c) failing to consider whether smaller entities may be at a disadvantage in supplying full-load product and whether entities with a physical position have an advantage, contrary to section 6(1)(d) of the Regulated Rate Option Regulation.
The AUC Review Process
Pursuant to section 10 of the Alberta Utilities Commission Act (“AUCA”), the AUC has authority to review its own decisions. AUC Rule 016: Review of Commission Decisions (“Rule 016”) sets out the process for considering an application for review.
Section 6(3)(a) of Rule 016 provides that the AUC may grant a review where the existence of an error of fact, law or jurisdiction is either apparent on the face of the decision or otherwise exists on a balance of probabilities that could lead the AUC to materially vary or rescind the decision.
The AUC review panel reiterated the following principles from previous review decisions:
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decisions are intended to be final; a review should only be granted in those limited circumstances described in Rule 016;
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the review process is not intended to provide a second opportunity for parties with notice of the application to express concerns about the application that they chose not to raise in the original proceedings; and
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findings of fact and inferences of fact made by the hearing panel are entitled to considerable deference, absent an obvious or palpable error.
Ground 1: The AUC Erred in its Determination of the Risk Margin Contrary to Section 6(1)(b)(ii)
Section 6(1)(b)(i) requires that a regulated rate tariff allow for a reasonable return for the obligation to provide electricity services. Pursuant to section 6(1)(b)(ii), the risk margin must not be considered as part of the reasonable return. This risk and return framework is applied to the services of EPCOR, as an RRO provider.
The review panel found that the hearing panel’s assessment of the risk margin under EPCOR’s EPSP proposal did not contravene section 6(1)(b)(ii) and was made after weighing the evidence and argument before it. The review panel concluded that there was no reviewable error that was apparent on the face of the record or otherwise existed on a balance of probabilities that could lead the AUC to materially vary or rescind the decision.
Ground 2: The AUC Erred in Concluding that EPCOR’s EPSP was Consistent with Section 6(1)(f)
Section 6(1)(f) of the Regulated Rate Option Regulation requires that a regulated rate tariff ensures that the procurement risk of acquisition remains with the owner.
With respect to the hearing panel’s finding that the EPSP complied with section 6(1)(f) of the Regulated Rate Option Regulation, the review panel concluded that the UCA did not show that an error of fact, law or jurisdiction was either apparent on the face of the Original Decision or otherwise existed on a balance of probabilities that could lead the AUC to materially vary or rescind the Original Decision. In coming to this conclusion, the review panel found that:
(a) contrary to the UCA’s assertions, the hearing panel’s statutory analysis demonstrated the linkages among the statutory provisions and specifically identified who bore the financial risk associated with meeting the monthly load obligations;
(b) based on this analysis, the hearing panel found that the procurement risk of acquisition remained with EPCOR and that the CRC methodology, also known as the risk margin, did not violate section 6(1)(f); and
(c) the UCA failed to establish that the hearing panel’s conclusions or statutory analysis in finding that the EPSP was consistent with section 6(1)(f) resulted in an error of fact, law or jurisdiction that was apparent on the face of the decision or on a balance of probabilities.
Accordingly, the UCA’s request for review on this ground was denied.
Ground 3: The AUC Erred in Approving the EPSP in Contravention of Section 6(1)(d)
Section 6(1)(d) of the Regulated Rate Option Regulation requires that a regulated rate tariff does not impede the development of an efficient market for electricity based on fair and open competition in which neither the market nor the structure of the Alberta electric industry is distorted by unfair advantages of any participant.
With respect to the hearing panel’s finding that the EPSP complied with section 6(1)(d) of the Regulated Rate Option Regulation, the review panel concluded that the UCA did not show that an error of fact, law or jurisdiction was either apparent on the face of the Original Decision or otherwise existed on a balance of probabilities that could lead the AUC to materially vary or rescind the Original Decision. In coming to this conclusion, the review panel found that:
(a) upon weighing the evidence, the hearing panel found that a number of physical and financial suppliers may participate in the auction;
(a) the hearing panel determined that the plan was structured, with a full-load strip product, with the goal to ensure that prices were set in the competitive market;
(b) in coming to its findings, the hearing panel weighed the evidence of all the parties in relation to the potential acquisition process; and
(c) the UCA failed to establish that the hearing panel’s findings resulted in an error of fact, law or jurisdiction that was apparent on the face of the decision or on a balance of probabilities.
Accordingly, the UCA’s request for review on this ground was denied.
Decision
The AUC denied the review application based on its determination that the UCA failed to demonstrate that an error of fact, law or jurisdiction was apparent on the face of the Original Decision or otherwise existed on a balance of probabilities.
