Regulated Rate Option – Rates – Compliance Filing
Direct Energy Regulated Services (“DERS”) submitted its compliance filing pursuant to the AUC’s directions made in Decision 2957-D01-2015, requesting approval of its 2012-2016 default rate tariff (“DRT”) and regulated rate tariff (“RRT”).
In Decision 2957-D01-2015, the AUC made a number of directions to DERS. Any directions not addressed in this summary were either complied with as filed, or are applicable to future applications. The AUC determined that DERS fully complied with all directions made in 2957-D01-2015, with the exception of direction 4, direction 12, direction 13, directions 16 and 17, and direction 32, which are summarized below.
Actual Costs
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Direction 4 – The Commission directed DERS to use the actual amounts for 2012, 2013 and 2014, with the exception of the amounts for the annual incentive program, the long-term incentive scheme and the share award scheme.
(The “Actual Costs Direction”)
With respect to the Actual Costs Direction, the AUC questioned DERS as to why it used bond rates of 4.95 percent in its compliance filing for 2012 values compared with rates of 5.56 in its original application. DERS did not provide an explanation for updating the bond rate. The AUC also questioned DERS as to why it used deemed tax rates of 25.00 percent in its compliance filing, compared with 26.50 percent respectively in its initial application. DERS stated that the updated tax rate was reflective of changes to the actual tax rate for 2012 and subsequent years.
Accordingly, the AUC found that DERS applied the correct tax rate, but that DERS had provided insufficient evidence for the bond rate of 4.95 percent. The AUC therefore approved the bond rate of 5.56 percent for 2012, and an actual tax rate of 25.00 percent for 2012 and subsequent years. The AUC held that DERS did not fully comply with the Actual Costs Direction, but that no further action was required by DERS.
Labour Costs
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Direction 12 – The Commission directed DERS to submit information similar in format to the attachment to the response to AUC-DERS-030, showing the components of the labour costs by department. The Commission also directed DERS to show the three-year average for the years from 2012 to 2014 for each component and department. The Commission directed DERS to inflate the resulting three-year average amounts for the years 2012-2014 by 1.92 per cent and show the results separately for the DRT and the RRT in columns entitled “2015 Forecast.” The Commission directed DERS to inflate the figures in the columns entitled “2015 Forecast” by 2.95 per cent and show the results separately for the DRT and the RRT in columns entitled “2016 Forecast.” The Commission directed DERS to include the resulting total costs in the “2015 Forecast” and “2016 Forecast” columns as the forecast amounts for labour costs for each year, allocated appropriately between the “Labour (Gas Procurement)” and “Labour by Department” cost categories for the DRT and in the “Labour by Department” cost category for the RRT.
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Direction 13 – The Commission directed DERS, to submit a second attachment similar in format to the attachment to the response to AUC-DERS-030, showing the components of the labour costs by department for 2012, 2013 and 2014 for the DRT and the RRT separately. The Commission directed DERS to include the resulting total costs for 2012, 2013 and 2014, allocated appropriately between the “Labour (Gas Procurement)” and “Labour by Department” cost categories for the DRT and in the “Labour by Department” cost category for the RRT.
(Collectively, the “Labour Costs Directions”)
DERS submitted revised labour costs that, it submitted, reflected the AUC’s Labour Costs Directions. DERS indicated that some of the labour amounts for DRT and RRT service did not correspond to amounts included in other schedules in the application. DERS noted that the reason for the differing amounts was due in part to the costs included for a new vendor manager (required to comply with Direction 31 given in Decision 2957-D01-2015), and the internal labour costs for its energy price setting plan (“EPSP”) that were not included in the schedules.
The AUC held that the total amount of labour costs that were reclassified, resulting in the schedules not corresponding, amounted to 0.2 percent of 2013 revenue requirement and 0.5 percent of 2014 revenue requirement. As such the AUC did not consider either of the reclassifications to be significant, and would not materially affect non-energy rates for 2013 and 2014. Accordingly, the AUC approved these reclassifications as filed. However, the AUC directed DERS to file updated supplemental schedules detailing the labour components corresponding to labour amounts in the revenue requirement schedules as part of its next interim rate true-up application.
The AUC held that DERS did not fully comply with the Labour Costs Direction, but that no further action was required by DERS.
Working Capital
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Direction 16 and Direction 17 – The Commission directed DERS to update the working capital costs forecasts for 2015 and 2016 to incorporate the more recent information on the record, and also the revisions to the other applicable factors that are used in the forecast of working capital. This updated information included the forecast gas and electricity prices, and the rate of return and debt/equity figures as approved in Decision 2191-D01-2015. The Commission also directed DERS to incorporate all other applicable updated forecasts for 2015 and 2016. The Commission directed DERS to include supporting calculations for the weighted average cost of capital figure it uses for 2015 and 2016
(Collectively, the “Working Capital Directions”)
With respect to the Working Capital Directions, DERS submitted that it had updated its working capital forecasts as directed, noting that the changes reflected the updated weighted average cost of capital used in its compliance filing. DERS however noted that it did not update its working capital schedules for 2015 and 2016, noting that no specific direction was given by the AUC with respect to working capital schedules for those years.
The AUC held that, despite not having issued a specific direction to update the working capital amounts for 2015 and 2016, the AUC expected such items to be included as part of DERS’ compliance filing. The AUC also noted that its other directions made in proceeding 2957 would clearly impact such working capital forecasts, including updates to site count forecasts and commodity curves, and that such updates for 2015 and 2016 would apply to the “other applicable factors that are used in the forecast of working capital” noted in Direction 16. The AUC however, incorporated the amounts for 2015 and 2016 as submitted by DERS in the DRT and RRT revenue requirement schedules.
The AUC held that DERS did not fully comply with the Working Capital Directions, but that no further action was required by DERS.
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Direction 32 – The Commission directed DERS to include the necessary supporting evidence and analysis to allow for full and thorough testing of its proposed internal EPSP costs.
(The “Internal EPSP Costs Direction”.)
DERS had originally included internal labour costs associated with the development, implementation and administration of its EPSP in the amount of $57,200 per month, which the AUC directed DERS to include as part of its non-energy RRT and DRT application. DERS indicated that it would cease collecting these costs once its final 2016 non-energy rates are in place. In its compliance filing, DERS requested monthly forecast costs of $50,016 for its EPSP, the majority of which ($48,862) was on account of labour.
DERS submitted that the 3.35 full time equivalent employee positions were required for its EPSP, since its EPSP requires tracking and reporting to manage the EPSP on an ongoing basis and to ensure the correct target price is set for procurement. DERS also explained that since the requirement for procurement occurs on every business day throughout the year, more than one position was required to address the need.
The AUC held that the full time equivalent positions and costs associated with DERS’ EPSP were reasonable, and approved such costs as filed. However, the AUC determined that the costs for staff-related expenses and its forecasting system costs were not adequately supported, but the AUC approved them on the basis that DERS incurred costs in these categories in 2013 and 2014, and that the monthly forecasts for 2016 were much lower than actual costs in 2013 and 2014. Accordingly, the AUC approved the monthly internal EPSP costs of $50,016 as reasonable.
The AUC held that DERS did not fully comply with the Internal EPSP Costs Direction, but that no further action was required by DERS.
True-up of Interim Rates
DERS requested a true-up for its interim rates, noting that it has been collecting interim rates for DRT and RRT services with respect to return margin, DRT energy related “other” and “labour” charges, as well as non-energy charges for DRT and RRT rates. DERS proposed to collect or refund its resulting true-up amounts between May 1, 2016 and December 31, 2016.
The AUC held that it would not accept a true-up as proposed by DERS, pointing to a flaw in the methodology used by DERS to calculate its total true-up amount. The AUC determined that DERS is at risk for the volume of gas associated with DRT return margin and energy-related “other” costs. The AUC noted that if the actual volume of gas is greater than forecast, the result would be a higher return margin and revenue for DRT service. The AUC also noted that DERS was at risk for the number of sites associated with interim charges, and that if the number of sites is larger than forecast, it results in more non-energy revenue, as well as the inverse.
The AUC held that the methodology proposed by DERS for calculating the true-up did not account for these risks over the time period, since DERS used a mixture of actual and forecast information in its true-up.
The AUC determined that the DRT energy “labour” charges were reasonable, on the basis that these charges were unaffected by the problems identified by the AUC. However, for purposes of transparency and efficiency, the AUC directed DERS to include all of its true-ups in one application, and thereby declined to approve these costs as part of the decision.
The AUC ordered that DERS’ RRT schedules, as well as the terms and conditions were approved on a final basis, effective April 1, 2016. The AUC approved DERS’ DRT revenue requirement as follows:
The AUC approved DERS’ RRT revenue requirement on a final basis as follows:
The AUC also approved the following costs for DERS:
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A default rate tariff return margin charge of $0.035 per gigajoule, effective April 1, 2016;
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A charge for energy costs of $0.023 per gigajoule effective April 1, 2016; and
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A monthly labour charge for gas procurement of $38,675, effective April 1, 2016.
The AUC directed DERS to file an application for its true-up figures for RRT, DRT, DRT return margin and DRT energy costs for the period of January 1, 2012 to March 31, 2016.
