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Direct Energy Regulated Services 2019 Default Rate Tariff and Regulated Rate Tariff (AUC Decision 24237-D01-2019)

Link to Decision Summarized

Default Rate Tariff – Regulated Rate Tariff – Revenue Requirement


Direct Energy Regulated Services (“DERS”) applied for approval of its 2019 default rate tariff (“DRT”) and regulated rate tariff (“RRT”) revenue requirements and rates. The AUC generally approved the application, requiring certain changes.

DERS is a business unit of Direct Energy Marketing Limited (“DEML”) and performs the natural gas DRT and electricity RRT functions in the service territories of ATCO Gas and Pipelines Ltd. and ATCO Electric Ltd., respectively.

Customer care and billing and customer information system

The AUC found that the 2019 fair market value (“FMV”) estimates of $3.7247 per site per month for customer care and billing services (“CC&B”) services and of $1.14 per site per month for the customer information system (“CIS”) were reasonable.

Merchant fees costs

The AUC found that DERS methodology to forecast the number of customers who pay their bills by credit card, the total amount of the bills paid by credit card, and the fees charged by the credit card companies, more accurately reflected merchant fee costs, compared to alternate methodologies considered. In addition, the AUC approved a multiplier of 1.1598 to be used in DERS’ forecast for its 2019 merchant fees.

Working capital costs

The AUC directed corrections for the DRT and RRT schedules. In addition, the AUC noted revisions would be required in the working capital schedule, to account for findings and directions related to customer operations costs, merchant fees costs, corporate services costs, and other administration costs. The change in these costs would also change the 2019 overall revenue requirements for the DRT and the RRT, which would require the lead lag calculations to be updated and incorporated into the working capital schedules and would require the budget payment plan figures to be updated. The deemed income tax schedules would also require updating.

Regulatory costs

The AUC approved the continuation of the hearing cost reserve accounts for 2019 for the DRT and the RRT. The AUC considered that customers should only pay the AUC-approved costs for participation in regulatory proceedings.

Because the cost claim for this 2019 DRT and RRT application was filed in October 2019 in Proceeding 24957 and a 90-day deadline for the decision to be issued on the cost claim would result in the decision being issued in 2020, this meant that DERS would not be authorized to pay any of the approved costs for this proceeding from its hearing cost reserve account until 2020. Accordingly, the AUC held that the $0.850 million forecast payments for 2019 for this proceeding should be removed from the hearing cost reserve account for 2019 and may be included as part of the hearing cost reserve account for 2020.

Other administration costs

The AUC was not prepared to test DERS’ decision to incur costs for a benchmarking study to set the FMV for customer care and billing services for 2020, nor for the services of a consultant to assist in selecting a new CC&B service provider. Accordingly, the AUC held it was not reasonable to approve any of the forecast costs associated with these activities for inclusion in the 2019 DRT and RRT revenue requirements. The AUC accordingly directed DERS, in the compliance filing to this decision, to reduce the other administration costs for 2019 by $415,000, allocated between the DRT and the RRT.

Corporate services costs

The AUC found that DERS did not provide the required more detailed information about corporate services costs. The AUC requires information regarding how costs are allocated from Centrica plc, of which DEML is a subsidiary, to North America Home (“NAH”) and additional information regarding how costs are allocated from NAH to the Canadian line of business.

AUC Order

The AUC ordered that:

(a)      DERS will submit a compliance filing to this decision to reflect the AUC’s findings and directions, on or before January 8, 2020;

(b)      the DRT rate schedules and RRT schedules for DERS, as set out in appendices to the decision are approved on an interim basis, effective January 1, 2020;

(c)      the DRT return margin charge of $0.045 per gigajoule for DERS is approved on an interim basis, effective January 1, 2020;

(d)      the DRT charge of $0.010 per gigajoule for the energy-related portion of credit charges, working capital, bad debt and late payment charges for DERS is approved on an interim basis, effective January 1, 2020;

(e)      the DRT monthly amount of $30,334 for labour related to gas procurement for DERS is approved on an interim basis, effective January 1, 2020;

(f)      the DRT rate schedules for DERS, as set out in appendices to the decision, are approved on an interim basis, effective April 1, 2020;

(g)       the RRT rate schedules for DERS, as set out in an appendix to the decision, are approved on an interim basis, effective April 1, 2020;

(h)      the terms and conditions of DRS for DERS, as set out in an appendix to the decision, are approved, effective December 5, 2019; and

(i)      the terms and conditions of regulated rate service for DERS, as set out in an appendix to the decision, are approved, effective December 5, 2019.

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