Performance-Based Regulation Rate Adjustment
FortisAlberta Inc. (“Fortis”) applied to the AUC for approval of its 2016 annual performance-based regulation (“PBR”) rate adjustment filing, requesting approval of its 2016 rates, 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.)
Fortis’ PBR rates were originally approved in Decision 2012-237, Decision 2013-464 and Decision 2014-351.
2016 Updates to I Factor and I-X Mechanism
As part of Fortis’ 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 Fortis’ X Factor of 1.16 percent approved in Decision 2012-237, Fortis requested approval of its I-X index value of 0.90 percent for 2016.
No parties objected to Fortis’ updated calculations, and the AUC approved Fortis’ 2016 I Factor and resulting I-X mechanism for 2016 as filed, finding the calculations to be reasonable.
Y Factor Adjustments
Fortis applied for the following Y Factor adjustments as part of its 2016 PBR application:
Fortis submitted that it forecasted the AUC assessment fees, and hearing cost reserves for interveners based on prior year approved forecasts. Fortis submitted that it applied the I-X mechanism to update prior year forecasts for AESO load settlement costs and farm transmission credit costs. With respect to property tax costs, its forecasts were based on average percentage changes for the last three years, multiplied by the actual total paid in the prior year. For business taxes, it adjusted prior year actual values for inflation.
For the purchases of the Kingman and VNM Rural Electrification Associations (“REA”), Fortis proposed to collect the revenue requirement for each REA as a Y Factor for 2016. However, Fortis proposed to incorporate the REAs into base rates, in a manner similar to ATCO Electric Ltd., as approved in Decision 2014-044.
The Office of the Utilities Consumer Advocate (“UCA”), among others, submitted that Fortis’ purchase of the Kingman and VNM REAs were not the result of a direction from the AUC to include them as a Y Factor, and by that fact, did not satisfy the requirement that a Y Factor charge be the subject of an AUC direction.
The AUC held that in order for the Kingman and VNM REA acquisitions to qualify for Y Factor treatment, Fortis bore the burden of demonstrating that the AUC directed Fortis to acquire the REAs in question. The AUC held that Fortis had done so, by successfully applying to the AUC for the acquisition of each REA. The AUC therefore dismissed the UCA’s argument. The fact that Fortis did not seek specific direction to include the REA acquisition cost as Y Factor at the time of acquisition.
The AUC found that Fortis’ calculations for its 2016 Y Factor charges were adequately supported and properly calculated. The AUC accordingly approved Fortis’ 2016 Y Factor charges as filed. The AUC also approved the inclusion of the Kingman and VNM REAs into rate base for 2017, to be escalated by the I-X mechanism.
K Factor Adjustments
Fortis proposed to collect a K Factor placeholder for 2016 in the amount of $71.5 million, equal to 100 percent of its forecast 2016 K Factor amounts in its 2016-2017 PBR capital tracker application on an interim basis. However, in response to an information request from the AUC, Fortis indicated that it would be supportive of a 2016 K Factor placeholder at 90 percent of its forecast 2016 K Factor amounts in its 2016-2017 PBR capital tracker application.
The AUC determined that a 2016 K Factor placeholder at 90 percent of Fortis’ forecast 2016 K Factor amounts in its 2016-2017 PBR capital tracker application, on an interim basis, would provide a reasonable level of funding to Fortis on a timely basis and would reduce the potential for rate shock.
Therefore, the AUC approved Fortis’ K Factor placeholder for 2016 in the amount of $64.372 million on an interim basis.
Rate Riders
Fortis proposed to continue collection of the following four distribution riders:
(a) Rider A-1 municipal assessment rider;
(b) Municipal franchise fee riders;
(c) Distribution adjustment rider; and
(d) Rider E, customer specific facilities.
Fortis also proposed to continue collection of the following three transmission riders:
(a) Balancing Pool allocation rider;
(b) Base transmission adjustment rider; and
(c) Quarterly transmission adjustment rider.
While Fortis noted that it did not require a distribution adjustment rider for 2016, Fortis submitted that it could be required in the future to accommodate true-ups not associated with K, Y, and Z Factors.
No party objected to Fortis’ continued use of its rate riders.
The AUC held that the transmission and distribution riders were necessary to address flow-through or AUC directed items such as Y Factors, and thereby approved the riders as applied for by Fortis.
Financial Reporting Requirements
As directed by the AUC in Decision 2012-237, Fortis 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 Fortis’ Rule 005 filing was compliant with its direction in Decision 2012-237, and approved this portion of the application as filed.
2016 PBR Rates and Bill Impacts
Fortis provided bill impacts reflecting its proposed rates in response to an AUC information request, as follows:
The UCA argued that the AUC, for 2015, approved rates that resulted in a bill increase of 30 percent for irrigation customers in Decision 2014-351. The UCA argued that a bill increase of 30 percent followed by a bill increase of, what it calculated as approximately, 19 percent was unacceptable.
In response, Fortis provided a mitigation strategy which would limit the impact to a 10 percent increase for the December 2015 to January 2016 time period by allocating a disproportionate amount of the 2016 K Factor placeholder reduction for irrigation customers.
The UCA stated that such mitigation would result in cross-subsidization. The UCA was, however, supportive of strategies that would limit bill impacts to 10 percent.
The AUC held that it normally considers an increase of 10 percent or more to constitute rate shock, and that the 2016 PBR rates proposed by Fortis would result in a bill impact of 19.5 percent for the irrigation rate class. Therefore the AUC found that such an increase would constitute rate shock, and that a mitigation strategy was required. The AUC held that Fortis’ proposed mitigation strategy through the allocation of the K Factor placeholder was appropriate, since the K Factor was an interim placeholder, and therefore would not constitute cross-subsidization at this time. Accordingly, the AUC approved Fortis’ proposal to limit rate impacts, to irrigation classes, to 10 percent by re-allocating the 2016 K Factor.
Revenue to Cost Ratios
The CCA raised concerns about overcharging residential customers since Fortis had not adjusted its revenue to cost ratios to achieve a value in the 95 to 105 percent range.
Fortis argued that the next opportunity to revise revenue to cost ratios was in its next Phase II tariff application, which it noted typically occurs once every four years. Fortis also noted that its last Phase II tariff was implemented on January 1, 2015. Fortis suggested that it may be more feasible to consider the synchronization of its next Phase II tariff application with the beginning of its next PBR term.
The AUC held that changes to the revenue to cost ratios were outside the scope of the current application, and should be considered as part of the next Phase II tariff application. However, the AUC noted that the CCA will have the opportunity to raise this issue as part of the next generation of PBR plans in Proceeding 20414.
Terms and Conditions
Fortis applied for amendments to its terms and conditions of service to incorporate changes to fee tables, escalation factors and other administrative items. There were no objections to Fortis’ proposed changes.
The AUC held that the changes to the terms and conditions to reflect the change in service fees were consistent with the AUC’s directions in Decision 2013-270, and approved the changes as filed, effective January 1, 2016.
Accordingly, the AUC ordered that the Fortis’ 2016 rates, options and riders, set out in Appendix 5 of the decision be approved effective January 1, 2016 on an interim basis. The AUC also approved Fortis’ customer and retailer terms and conditions of service effective January 1, 2016.
