Rates – RRO Non-Energy Tariff
In this decision, the AUC considered the 2017-2020 regulated rate option (“RRO”) non-energy tariff application (the “Application”) filed by ENMAX Energy Corporation (“EEC”). The main issue in the Application was the new methodology for allocating billing and customer care (“B&CC”) costs, which the AUC denied. The AUC made findings on other matters such as inflation, site count, bad debt, hearing cost reserve account, terms and conditions and the proposed amendment and reopener provision. The AUC directed EEC to submit a compliance filing by May 1, 2020, incorporating the AUC’s directions.
Cost Allocation Methodology
EEC proposed a new allocation methodology to allocate B&CC costs commencing in January 2018. The new allocation method would use the following drivers to allocate B&CC expenses: interaction reason record handle time (“IRR handle time”); “contract account proportion”; and proportion of total direct B&CC operating expenses. The new allocation methodology would have two steps, a primary allocation and a secondary allocation.
The primary allocation would apply the B&CC costs to all customer categories. Customer categories that comprise multiple service categories would require a secondary allocation to determine the costs associated with each individual service category.
The AUC noted it had an underlying concern with the primary allocation results for single-service category customer groups being used to allocate the B&CC costs of multiple service category customer groups, particularly the RRO and municipal customer category. The AUC’s concern was related to the relatively small proportion of B&CC costs associated with single-service category customers being used to allocate the majority of B&CC costs that reside in the multiple service category customer groups. The AUC found that sufficient evidence was not provided to alleviate the AUC’s concern.
The AUC noted it had no confidence in the results of the analysis supporting the secondary allocation and the assumption on which the secondary allocation was based. Consequently, the AUC found it was unable to approve EEC’s proposed secondary allocation methodology.
The AUC considered the shortcomings that needed to be analyzed further, including the reliability of the IRR handle time data given the decline in RRO site counts, adjustments to IRR handle time to account for issues that were the subject of the Market Surveillance Operator’s investigation, and whether EEC’s analysis on the allocation of costs to multiple service categories was equal to the relative amount of interaction time to customers with only one service category.
The AUC found that based on these shortcomings, EEC did not establish that its methodology would result in just and reasonable RRO rates. As a result, the AUC rejected the new B&CC allocation methodology. The AUC directed EEC to use its current B&CC cost allocation methodology and file the resulting cost allocations and corresponding rates in the compliance filing to this decision.
Inflation
To develop its 2020 revenue requirement, EEC used a 2.0 percent inflation factor based on the Alberta real Gross Domestic Product (“GDP”) growth rate from the Calgary and Region Economic Outlook.
The AUC noted that, as a forecast instrument, it is conceivable that the Alberta real GDP growth rate captures the aggregate net effect on revenue requirement adequately. Generally speaking, however, it is likely that a quantity index, like the Alberta real GDP growth rate, would not be as good an estimator for the prospective change in per unit costs of inputs under general, changing economic conditions; a theoretically more sound choice for such an estimator is likely to be a price index under the same general and changing economic conditions.
The AUC found that EEC had not established a sufficient basis for changing to the Alberta real GDP growth rate as an escalator in the determination of its forecast revenue requirements. The AUC directed EEC, in its compliance filing, to base its 2020 labour escalation rate on the Alberta average wage rate increase for all industries forecast in the Fall 2019 Calgary and Region Economic Outlook, to a maximum of 2.0 percent. The AUC directed EEC to use the Alberta consumer price index estimate as its non-labour inflation factor from the Fall 2019 Calgary and Region Economic Outlook, to a maximum of 2.0 percent, as the inflation factor in determining its forecast revenue requirement for 2020.
RRO Site Counts
A “site” is defined by EEC as a single service received by a customer so that a single customer may consist of more than one site. The RRO site count is the total number of residential or commercial customer sites in the Calgary area that receive RRO service from EEC. EEC included the actual RRO site counts for 2017 and 2018 and used a forecasting methodology to determine the 2019 and 2020 forecast RRO site counts.
The AUC considered that updating the site count data to produce site count values for 2019 and 2020 that reflect the most up-to-date information was something that could be done fairly easily as part of the compliance filing. The AUC, therefore, directed EEC as part of the compliance filing, to update the RRO monthly site count data for 2019 and 2020 by using actual data for all months where such data is available, and to incorporate this actual data in deriving the forecast for the remaining months.
Non-Energy Revenue Requirements
Bad Debt
EEC’s bad debt cost comprises debt resulting from billed amounts that are uncollectable from specific customers. Bad debt as a percentage of revenue is based on actuals for 2017 and 2018, and forecasts for 2019 and 2020.
EEC noted that bad debt increased in 2018 due to higher than forecast energy prices compared to 2017 and a one‐time increase for credit loss allowance that resulted from a change to the impairment methodology for accounts receivable. EEC submitted that this change was required by the International Financial Reporting Standard 9 (“IFRS 9”), which was effective January 2018, and replaced the International Accounting Standard 39 (“IAS 39”).
The AUC found that EEC did not provide sufficient reasons to change its accounting treatment of bad debt, in simply stating that it was required to adopt IFRS 9. EEC did not adequately explain why the change to IFRS 9 was required for RRO service or how it would benefit EEC and its customers. The AUC directed EEC in the compliance filing, to continue to use its current methodology for calculating bad debt, and to revise its bad debt forecast accordingly.
Hearing Cost Reserve Account
The proposed hearing cost reserve account funding related to EEC’s anticipated terms and conditions amendment application, AUC Code of Conduct reviews and assessments, and other regulatory proceedings and costs. In addition, EEC proposed to use funds from the hearing cost reserve account to offset the costs of an audit directed by the AUC.
The AUC noted that the hearing cost reserve account is a way to ensure that hearing costs are recovered in rates in a fair and equitable manner. The AUC approved the continuation of the hearing cost reserve accounts for 2017-2020 for EEC’s RRO non-energy tariff. The AUC noted that customers should only pay the AUC-approved costs for participation in regulatory proceedings, and the use of hearing cost reserve accounts permits the recovery of any AUC-approved regulatory costs that parties incur during these proceedings.
Terms and Conditions
The AUC reviewed the changes to EEC’s terms and conditions, which incorporated the requirements in section 3.4.2 – Service Guarantees of Rule 003: Service Standards for Energy Service Providers. In particular, the AUC reviewed the definition of “Permissible Disconnection Period,” the changes to section 8.5 – Disconnection Other Than For Safety Reasons, and the changes to section 8.7 – Service Guarantee. The AUC found that the proposed changes to these sections accurately reflect the requirements of Section 3.4.2 of Rule 003. The AUC, therefore, approved EEC’s terms and conditions.
Amendment and Reopener
EEC stated that material changes in applicable law or policies or rules having the effect of law may occur and may result in additional material costs or benefits not provided for in its non-energy tariff. EEC, therefore, requested that the AUC approve a non-energy tariff reopener provision by which affected parties, including EEC, may respond to any of these material circumstances.
The AUC found that EEC had not demonstrated the need to include a reopener provision in its non-energy RRO tariff. EEC could not provide any past examples where it would have applied to use such a reopener provision if one had been in place. Additionally, while EEC provided some recent examples of potential changes that may affect the RRO, these examples were not described in sufficient detail, and EEC did not explain how these examples could result in additional material costs or benefits not provided for in the 2017-2020 non‐energy tariff. Consequently, the AUC denied EEC’s request that the AUC approve a non-energy tariff reopener provision.
Order
The AUC ordered that EEC submit a compliance filing, responding to the orders and directions of the AUC as set out in this decision by May 1, 2020.
