Review and Variance Phase II
Background
In this decision, the AUC considered Direct Energy Regulated Services’ (“DERS”) application for review (the “Review Application”) of Decision 21568-D01-2016 (the “Decision”). Decision concerned DERS’ 2012-2016 default rate tariff (“DRT”) and regulated rate tariff (“RRT”) non-energy compliance filing true-up application.
The AUC decided to vary the Decision for the reasons summarized below.
Decision Subject to Review
In the Decision, the AUC directed that DERS apply interest, in accordance with AUC Rule 023: Rules Respecting Payment of Interest (“Rule 023”), “as part of each of the true-up amounts.” The true-up amounts consisted of the over-collection of $2.0 million through its DRT interim rates, the over-collection of $1.4 million for the DRT energy-related “labour” costs, the over-collection of $21.2 million for the DRT energy-related “other” costs, the under-collection of $6.8 million through its RRT interim rates, and the under-collection of $4.2 million for the DRT return margin.
Phase I Review Decision
On March 10, 2017, the AUC released Decision 22282-D01-2017, granting DERS’ request to review certain findings in the Decision regarding the requirement that DERS pay interest in accordance with Rule 023. Rule 023 provides for the payment of interest on adjustments of utility rates, tolls, charges or other costs upon AUC approval.
Phase II Review
In the Phase II review proceeding, DERS submitted that:
(a) the AUC incorrectly applied Rule 023;
(b) interest pursuant to Rule 023 is not normally applied when interim rates are made final;
(c) the AUC only departs from this principle in exceptional circumstances; and
(d) no such exceptional circumstances existed to warrant the application of the rule.
Rule 023 Not Applicable
Section 3 of Rule 023 states:
3 Application for payment of interest
(1) A utility may request that the Commission approve the payment of interest on adjustments of utility company rates, tolls or charges or other costs or charges administered within the Commission’s jurisdiction.
(2) The Commission shall, when considering a request received under Section 3(1) of these rules, consider the following:
…
The AUC found that:
(a) the operative provisions in Section 3(2) of Rule 023 require that a utility request pursuant to Section 3(1) that the AUC approve the payment of interest;
(b) DERS made no such request; and
(c) for this reason, Rule 023 could not be relied upon to direct the calculation of interest.
Determining Compensation to Ratepayers for Over-Collected Amounts
Notwithstanding this finding, the AUC considered whether, in determining just and reasonable rates, ratepayers should be compensated for the fact that during the period when interim rates were in effect, DERS over-collected funds of $13.6 million.
The AUC found that:
(a) the net amount over-collected by DERS was available to DERS to use, at no cost, for the purposes of funding its operations;
(b) regardless of whether or how DERS used these funds, they were available to DERS to use and the final rates for that period should account for this amount of no cost capital; and
(c) recognition of an adjustment in principal will result in just and reasonable rates for these years, given the quantum of the over-collection and the length of time over which interim rates were in place.
Given the above, the AUC considered whether DRT customers should be compensated for the loss of the use of the $20.8 million of DRT over-collection, given that the over-collection occurred for a lengthy period of some three years, as contemplated by the AUC panel in the Decision.
The AUC found that:
(a) it was reasonable to account for the cost of the funds over-collected from DRT customers, in establishing just and reasonable rates; and
(b) to be consistent, it was also reasonable to consider the impact of the under-collection of funds from RRT customers over the same period.
Accordingly, the AUC directed DERS:
(a) to submit a compliance filing to include interest calculated using the Bank of Canada bank rate plus 1½ percent, applied to the net over-collection amounts for the DRT;
(b) to apply interest to the period from January 2012 to June 30, 2017, which is the end of the approved rider period for the refund of the DRT over-collections; and
(c) as part of the compliance filing, to compare the resulting interest amount in total to the $2.2 million interest amount calculated in accordance with the DRT net over-collection as set out in Table 1 of Decision 22174-D01-2017 and submit a proposal to deal with the difference between these two amounts.
