Performance-Based Regulation Rate Adjustment
ATCO Electric Ltd. (“ATCO”) applied to the AUC for approval of its 2016 annual performance-based regulation (“PBR”) rate adjustment filing, requesting approval of its electric distribution services rates, transmission system access services (“SAS”) tariff billing determinants and amended terms and conditions, to be effective January 1, 2016 on an interim basis.
(See the EPCOR Distribution & Transmission Inc. case in this report regarding the PBR framework, as described by the AUC.)
ATCO’s PBR rates were originally approved in Decision 2012-237, Decision 2013-461 and Decision 2014-354.
2016 Updates to I Factor and I-X Mechanism
As part of ATCO’s submissions, it filed an update to its I Factor of 2.06 percent based on data vector v79311387 from Statistics Canada Table 281-0063 to calculate Alberta average weekly earnings figures, as the previous Statistics Canada tables had been terminated. Together with ATCO’s X Factor of 1.16 percent approved in Decision 2012-237, ATCO requested approval of its I-X index value of 0.90 percent for 2016.
No parties objected to ATCO’s updated calculations, and the AUC approved ATCO’s 2016 I Factor and resulting I-X mechanism for 2016 as filed, finding the calculations to be reasonable.
2016 Rate Base Adjustments
ATCO requested two adjustments to its 2012 forecast revenues used in its 2012 going-in rates, and its base rates for 2013, 2014 and 2015. ATCO submitted that each adjustment for 2012 through 2014 was as a result of the AUC directions in Decision 20026-D01-2015 related to the impact of the 2011 Slave Lake fires on rate base and the consequences flowing from AUC directions in Decision 2011-485. ATCO submitted that its 2015 adjustment reflects ATCO’s purchase of the Delburne West rural electrification association (“REA”), calculated as of 2015.
ATCO submitted that the total value of all four adjustments escalated by the I-X mechanism for each year resulted in a net increase to rate base of approximately $1.7 million.
The AUC approved ATCO’s proposed increases related to the 2011 Slave Lake fires as filed, finding them to be consistent with the directions given in Decision 20026-D01-2015.
With respect to the AUC’s direction in Decision 2011-485, the AUC held that it would approve the proposed reductions on an interim basis, as it noted that the scope of ATCO’s proposed reductions were at the time under consideration as part of Proceeding 3378. Therefore, the AUC directed ATCO to address any variance through a subsequent rate adjustment in a future PBR rate adjustment filing to give effect to any decision reached in Proceeding 3378.
The AUC approved ATCO’s proposed increase in rate base arising from the purchase of the Delburne West REA as filed, finding that the adjustment proposed was equal to the purchase amount approved in Decision 2014-354.
Y Factor
ATCO requested the following 2016 Y Factor amounts:
ATCO also requested the inclusion of a refund of $0.129 million for carrying charges for the above charges and credits, to be refunded over the period of January 1, 2016 to December 31, 2016.
ATCO submitted that its 2016 forecast for intervener costs was based on 2014 actual costs inflated by the I-X mechanism. The AESO load settlement forecast was based on load settlement charges for 2015. The income tax deductible capital cost deferral account and the deduction of deferrals for income taxes were calculated using an average of 2013 and 2014 capital repair costs.
The AUC approved each of the Y Factors for intervener hearing costs, AESO load settlement costs, income tax deductible capital cost deferral account costs and the deduction of deferrals for income taxes amounts as filed, holding that the accounts were previously approved as Y Factors, and that the methodologies were reasonable and consistent with previous PBR filings.
With respect to the 2011 Slave Lake fire adjustments, the AUC noted that it approved a $6.6 million Y Factor placeholder in respect of the $23.191 million that was charged to ATCO’s reserve for injuries and damages account, and was directed to address any true-ups required in this 2015 PBR rate adjustment filing. However, in Decision 2014-297, the AUC determined that the costs would be treated as a capital addition instead of through the reserve for injuries and damages account. Therefore, the AUC ordered these Y Factor collections refunded, and included these in rate base instead in Decision 20026-D01-2015. The AUC held that ATCO’s calculations for the Y Factor adjustments, including carrying costs and set offs for rate base adjustments, were reasonable and therefore approved them as filed.
The AUC determined that ATCO had complied with the direction in Decision 2014-169 related to the Evergreen 2014 going-in true up, and that the costs were reasonably calculated. However, because the scope of such costs was still being considered under Proceeding 3378, the AUC approved these costs on an interim basis.
With respect to the costs of the Warwick and Stry REAs, the AUC held that while each account qualified for Y Factor treatment as the acquisitions were the subject of an AUC order, the AUC determined that ATCO had applied incorrect equity ratios of 39 percent equity, 10 percent preferred equity, and a return on equity of 8.75 percent for each of Warwick and Stry REA. Accordingly, the AUC reduced the Warwick and Stry REA Y Factor amounts by $0.102 million and $0.167 million respectively. The AUC therefore approved recalculated Y Factor amounts for Warwick and Stry REA of $0.788 million and $1.286 million respectively.
K Factor Placeholder
ATCO requested a K Factor placeholder in the amount of $48.2 million for 2016, equal to 100 percent of the 2016 K Factor forecast in ATCO’s 2016-2017 PBR capital tracker application. ATCO submitted that a 100 percent placeholder was appropriate since the criteria for capital tracker treatment are well established, and virtually all of ATCO’s capital tracker amounts were approved in its prior PBR capital tracker application.
The Office of the Utilities Consumer Advocate (“UCA”) submitted that ATCO had not demonstrated the quantum or need for 100 percent of interim rates, citing Decision 2005-102, and argued that a placeholder of 90 percent would promote rate stability and ease rate shock, while still providing funding to ATCO. The Consumers’ Coalition of Alberta (“CCA”) supported the UCA’s proposal.
The AUC agreed with the submission of the UCA and CCA, holding that a 90 percent placeholder for K Factor amounts would provide ATCO with adequate funding, and maintain rate stability. The AUC also held that a 90 percent placeholder was reasonable, as certain issues related to ATCO’s 2014-2015 capital tracker application were still being considered under Proceeding 20555.
2016 Billing Determinants
ATCO submitted that it uses regional service installations projections to forecast its billing determinants, using a forecast customer count and a regression model with historical data. ATCO submitted that this methodology was approved in its previous PBR rate adjustment filing in Decision 2014-354.
ATCO explained that the variances from its prior forecasts were caused by existing customers reducing their demand, change in climate, customer cancellations, and changes to in-service dates, the purchases of REAs, and the resulting transfer of customers.
The CCA expressed concerns that ATCO was not flowing through the pro rata share of revenue differences of K, Y and Z Factors across rate classes, and recommended that the 2016 rates be adjusted accordingly.
The AUC held that ATCO’s 2016 billing determinants forecast was reasonable and consistent with its previously approved PBR applications. The AUC found that the variances from forecasts could not have been reasonably expected by ATCO, and did not undermine the validity of ATCO’s forecasting model.
Rate Riders
With respect to rate riders, ATCO proposed no changes to its existing six rate riders for:
(a) Municipal adjustments;
(b) Balancing Pool adjustment;
(c) Special facilities charges;
(d) Temporary adjustments;
(e) Interim adjustments; and
(f) SAS quarterly charges.
There were no objections to ATCO’s continued use of rate riders.
In response to a filing by the Alberta Electric System Operator (“AESO”) that sought an amendment to the AESO’s Balancing Pool Consumer Allocation Rider, ATCO proposed to revise its requested Rider B to correspond with the AESO’s requested Balancing Pool Consumer Allocation Rider for 2016.
ATCO submitted that while its interim adjustments account has a balance of zero, it proposed to maintain it for future charges or refunds approved by the AUC in the future.
The AUC approved each of the six rate riders, finding that each rider was necessary to address flow-through or AUC-directed items. The AUC noted that it will reassess the continuing need for rate riders at the time of ATCO’s next PBR rate adjustment filing.
Financial Reporting Requirements
As directed by the AUC in Decision 2012-237, ATCO submitted a copy of its Rule 005: Annual Reporting Requirements of Financial and Operational Results (“Rule 005”) filing, which included, among other items, the equity thickness, return on equity figures and a confirmation that the assumptions and calculations in the application were accurate and complete.
The AUC determined that ATCO’s Rule 005 filing was compliant with its direction in Decision 2012-237, and approved this portion of the application as filed.
2016 Rates
ATCO requested approval of its SAS rates for 2016, to be effective on January 1, 2016. ATCO submitted that its SAS rates were reflective of the rate proposed by the AESO in its 2015 tariff for demand transmission service. ATCO applied a scaling approach to its 2015 rates approved in Decision 2014-354 in order to calculate the 2016 SAS rates. ATCO noted that this methodology has been consistently applied since its 2005-2006 general tariff application.
There were no objections to ATCO’s calculation of the 2016 SAS rates.
ATCO submitted that the bill impacts for the proposed 2016 distribution rates would be as follows:
The AUC noted that it considers 10 percent to be a threshold that is indicative of rate shock, and found that the bill impacts as calculated by ATCO would be less than 10 percent for all rate classes. While the AUC noted that these impacts did not account for the change to the Balancing Pool rider which ATCO had changed in response to the AESO’s filing, it held that the magnitude of the change would not affect its finding in this regard. The AUC therefore found that ATCO’s 2016 PBR rate calculations were reasonable, and approved ATCO’s 2016 PBR rates on an interim basis, effective January 1, 2016.
The AUC approved ATCO’s proposed 2016 SAS rates on an interim basis, holding that the calculations were reasonable and were consistent with past SAS rate applications.
Amendments to Price Schedules, and Terms and Conditions
ATCO proposed a number of changes to its price schedule, including the following:
(a) The addition of a footnote to all price schedules;
(b) The removal of price schedule D22 (Small General Service – Energy Only);
(c) Wording changes to price schedules D31 (Large General Service/Industrial – Distribution Connected) and D32 (Generator Interconnection and Standby Power – Distribution Connected) to clarify the transmission ratchet calculation;
(d) A wording change to Rider A (Municipal Assessment) to accommodate the franchised communities proposal to charge farm customers a franchise tax, and to be consistent with Rider B (Balancing Pool Adjustment); and
(e) A wording addition to the Rider S (System Access Service Adjustment) availability description to clarify that customers on an isolated industrial areas rate are exempt.
There were no objections to ATCO’s proposed changes to its price schedules.
The AUC considered the changes to be largely of an administrative nature, with the exception of removing price schedule D22. The AUC noted that, while rate D22 did not currently have any customers, the elimination of this rate may impact ATCO’s customers. Therefore, the AUC declined to issue a determination on removing price schedule D22 at the time of the decision.
The AUC otherwise approved all of ATCO’s proposed changes as filed.
ATCO also proposed a number of substantive and administrative changes to its terms and conditions. However, the AUC determined that, aside from the administrative changes, substantive changes were outside the approved scope of the proceeding, and the AUC therefore declined to rule on the proposed substantive changes in this decision.
Accordingly, the AUC ordered as follows:
(a) ATCO’s 2016 distribution rates as set out in Appendix 4 of the decision were approved on an interim basis, effective January 1, 2016;
(b) ATCO’s 2016 Balancing Pool Rider B was approved, effective January 1, 2016; and
(c) ATCO’s terms and conditions of service for customers and retailers as set out in Appendices 5 and 6 respectively, were approved, effective January 1, 2016.
