Review and Variance – Denied – Regulated Rate Tariff – Energy Price Setting Plans
Pursuant to sections 6(2)(a)(i) and (ii) of AUC Rule 016: Review and Variance of Commission Decisions, the Office of the Utilities Consumer Advocate (“UCA”) sought a review and variance of AUC Decision 2941-D01-2015.
Decision 2941-D01-2015 concerned Regulated Rate Tariffs (“RRT”) and Energy Price Setting Plans (“EPSP”) for Direct Energy Regulated Services (“Direct Energy”), ENMAX Energy Corporation (“ENMAX”) and EPCOR Energy Alberta GP Inc. (“EPCOR”), the three regulated rate option providers in the province (collectively the “RROs”).
The UCA sought the review and variance of Decision 2941-D01-2015 on the grounds that ongoing third party monitoring of the RRO procurement activities under each of their EPSPs was not required. The UCA raised the following grounds in support of its application:
(a) The hearing panel erred in finding the current role of the Independent Advisor (“IA”) is limited to providing technical advice (“Ground A”);
(b) RROs are not incented to provide the lowest regulated rate option consistent with legislative requirements (“Ground B”);
(c) The reporting of information through transparent monthly filings is not a sufficient substitute for third party monitoring and oversight (“Ground C”);
(d) The oversight by the Market Surveillance Administrator (“MSA”) is not an adequate solution to obtain the lowest regulated rate (“Ground D”); and
(e) The MSA’s State of the Market Report (the “MSA Report”) provides new facts, which were not previously placed in evidence, which could lead the AUC to materially vary or rescind the decision (“Ground E”).
With respect to Ground A, the UCA submitted that the AUC’s characterization of the involvement of an independent market expert (“IME”) from the IA as “limited to providing technical advice” was an error of fact. The UCA submitted that the IA exercises a considerably greater authority and discretion with respect to EPSPs in applying its expertise in monitoring the electricity market to set target prices.
The RROs submitted that the UCA’s submissions on the expertise of the IA supported the AUC’s conclusion that the IA’s role was primarily technical in function. The RROs submitted that the AUC appropriately considered the role of the IA under the EPSPs, and that the UCA simply took a statement out of context to characterize it as an error of fact.
The AUC agreed with the RROs, finding that the reference to the IA’s role was ancillary to the finding that an IME was not required, and that the statement should not have been interpreted in isolation from the balance of the AUC’s findings in Decision 2941-D01-2015. The AUC dismissed Ground A of the UCA’s review and variance application.
With respect to Ground B, the UCA submitted that the absence of an externally imposed mandate to minimize rates would result in the RROs not being incented to achieve the lowest base energy charge (“BEC”) for its ratepayers. The presence of competitive affiliates in conjunction with higher regulated rate option rates effectively made the regulated rate option a “price ceiling” or “price to beat”, which in turn raises rates for all customers compared with a wholly competitive market. Competitive affiliates of the RROs provided an incentive to encourage RROs to have higher rates incenting customers to enroll with the RROs’ competitive affiliate, and thereby earn a larger return or achieve other benefits. The AUC’s failure to provide an incentive for lower regulated rate option rates resulted in a mechanistic pricing mechanism, which may be susceptible to being deduced and manipulated by other market participants.
The AUC noted that the UCA, in its submissions acknowledged that RROs are not required to provide the lowest regulated rate. The UCA’s concern was rather with the lack of motivation on the part of RROs to provide the lowest regulated rate. The AUC held that the AUC properly interpreted the requirements of the Regulated Rate Option Regulation, which did not require EPSPs to seek the lowest possible price, noting specifically that the AUC considered that the mandatory 120-day price setting window may cause upward pressure on rates. The AUC noted that the original hearing panel appropriately considered the evidence before it, and sufficiently tested the EPSPs, as well as rates and other incentives. The AUC held that its role in a review and variance was not to re-weigh the evidence previously decided. The UCA’s submissions were essentially a re-statement of its submissions in the original proceeding.
With respect to Ground C, the UCA submitted that oversight through monthly reporting was not an appropriate substitute for real-time oversight and monitoring by an IME. The UCA submitted that monthly reports would provide little auditable information, showing only general bid and offer ranges for transactions made at a particular time of day. The UCA also submitted that the ex-post facto nature of monthly reporting effectively shifted the onus on to customers to object to the calculation of energy charges through trades for any given month.
The AUC held that the hearing panel did not make any finding that the monthly findings were a monitoring mechanism, but simply a review mechanism. Monitoring occurred during the activity in question, while reviewing occurred after the fact. The hearing panel only made a finding with respect to the latter. In any event, the UCA’s submissions on Ground C did not demonstrate a reasonable possibility that the information from a monitoring arrangement would be superior to a monthly report. Monthly reports would allow parties to check the accuracy of calculations, and to identify any potential trends. For these reasons, the AUC also dismissed Ground C. Ground C did not raise a reasonable possibility that the hearing panel committed an error of fact, law or jurisdiction.
With respect to Ground D, the UCA submitted that oversight by the MSA was not an adequate solution to obtain the lowest regulated rates. The AUC accordingly erred by relying on the MSA’s investigative and surveillance function as justification to support its findings. The UCA submitted that while the MSA encourages RROs to comply with market based prices under the Regulated Rate Option Regulation, a market-based price was not the same as the lowest price. The UCA also submitted that DERS and ENMAX conducted large volumes of their respective trades through over-the-counter transactions, and that the MSA’s ability to review such transactions were only on an ex post facto basis. This arrangement was not a sufficient substitute for third-party monitoring of the RROs procurement practices.
The AUC noted its previous determination that the Regulated Rate Option Regulation did not require RRO providers to procure at the lowest possible rate. Therefore, the hearing panel had not committed an error in finding that the MSA provides appropriate oversight of the RROs’ procurement activities. The AUC dismissed Ground D.
With respect to Ground E, The UCA submitted that given the timing of the MSA Report, parties did not have adequate time to consider the effects of the MSA report on the original decision. The UCA further submitted that the MSA Report provided new facts, which were not previously placed in evidence, which could lead the AUC to materially varying or rescinding its decision.
The AUC found that, although the MSA Report was released near the close of the proceeding, the information was public prior to the end of the proceeding. The AUC also relied on the fact that the MSA Report was a quarterly report, and it was reasonable for all parties to have expected the report to be issued at the time that it was.
The AUC further found that the MSA Report did not contain any information that would lead it to materially varying or rescinding the decision. Therefore the AUC dismissed Ground E.
