Revenue Deficiency – Potential Rate Shock
In this decision, the AUC approved the application from Direct Energy Regulated Services (“DERS”) to adjust its 2020 interim rates for its default rate tariff (“DRT”) and regulated rate tariff (“RRT”).
Particulars of the Application
As part of its application, DERS requested approval of the DRT non-energy rates, the DRT return margin charge, the DRT charge for certain energy costs, the DRT monthly charge for labour related to gas procurement, and RRT non-energy related rates.
The DRT and RRT non-energy rates were applied on a per-site per day basis. The DRT return margin charge, the DRT charge for certain energy costs, and the DRT monthly charge for labour related to gas procurement were all included as part of DERS’ monthly gas cost flow-through rate, which was applied on a per gigajoule (“GJ”) basis.
In its application, DERS requested the approval of the 2019 final rates and charges approved in Decision 25255-D01-2020 as the updated interim rates for 2020, effective September 1, 2020. DERS requested these updated interim rates “in order to minimize, to the extent possible, the rider that DERS expected would be required to true-up 2020 rates.” It further requested that these updated interim rates be in effect until final rates are approved for DERS in its upcoming 2020-2022 DRT and RRT application.
Based on the timing associated with processing the application, the AUC addressed DERS’ request based on revising interim rates effective October 1, 2020. The analysis provided by DERS in support of the application was calculated on an implementation date of September 1, 2020, and the AUC considered that the analysis would not materially change if it was based on an implementation date of October 1, 2020.
The AUC acknowledged DERS’ submission that the conservative revenue deficiency for 2020 would likely be greater than the previously estimated $9.3 million, once the impacts resulting from the COVID-19 global pandemic are fully known. The AUC found that the revenue deficiency is probable, based on the expected decrease in site numbers and gas consumption numbers between 2019 actuals and the 2020 estimates, as provided by DERS.
Based on DERS’ statement that the 2020 estimates were based on the forecast assumptions approved by the AUC in approving the final 2019 DRT and RRT revenue requirements, the AUC was satisfied that no material contentious items needed to be excluded.
The AUC considered that claims of financial hardship or inability to continue to provide safe utility operations were not applicable in this case.
The AUC found that allowing DERS to recover a portion of the conservatively estimated revenue deficiency, to help ease potential rate shock for 2020, is an acceptable balance to help alleviate what could be a significant revenue deficiency for 2020, especially when the final impact of the COVID-19 pandemic on DERS’ 2020 costs was unknown.
The AUC considered that while the main purpose of the interim rate increase is not to send a price signal to customers, the requested interim rate increase does send a message to customers that the cost of being a DRT and RRT customer of DERS is expected to increase in 2020. The AUC considered that this price signal should be made known to customers, in order to allow customers to make informed choices about their electricity and gas providers.
The AUC considered it inappropriate to apply the DRT and RRT non-energy charge interim rate increases on an across-the-board basis in this case, because DERS had separate rate classes with differing site numbers. Consequently, these various rate classes were assigned different percentages of the revenue requirements, which in turn resulted in different non-energy rates.
The AUC approved the updated DRT and RRT interim rates/charges as requested by DERS effective October 1, 2020. The interim rates/charges will be in place until 2021 and beyond until they are replaced by final rates for the applicable year, or until such time as the AUC approves updated interim rates/charges.