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EPCOR Energy Alberta GP Inc. 2021-2024 Energy Price Setting Plan, AUC Decision 26316-D01-2021

Link to Decision Summarized

Regulated Rate Option – Energy Price Setting Plan

In this decision, the AUC considered the request from EPCOR Energy Alberta GP Inc. (“EPCOR”) for approval of its 2021-2024 energy price setting plan (“EPSP”). The AUC denied all recommendations submitted by interveners and did not approve the EPSP and accompanying illustrative energy charge model as filed.

Improvements to Market Monitoring

EPCOR submitted that the data and analyses provided in the application demonstrate that the descending clock auctions conducted under its 2018-2021 EPSP generated substantial interest and participation from suppliers. EPCOR noted that the data confirms that the Alberta wholesale electricity market is sufficiently robust to facilitate strong competition in the descending clock auctions leading to competitive market prices.

The CCA submitted that EPCOR’s application did not fully address whether the descending clock auctions under the 2018-2021 EPSP were competitive. It made a number of recommendations on what auction information should be monitored by EPCOR during the term of the 2021-2024 EPSP and reported in future applications. The Office of the Utilities Consumer Advocate (“UCA”) submitted that there are a number of areas in which EPCOR’s market monitoring could be improved, which would have provided more valuable insight into the competitiveness and operation of the 2018-2021 EPSP and its suitability for use going forward.The AUC rejected the recommendations and requests submitted by the CCA. The AUC found that the inclusion of information regarding auction participation levels in future application, as suggested by the CCA, was not proven to be beneficial and, if concerns about the competitiveness of the auctions were to arise, the Market Surveillance Administrator would initiate a review.

For the 2018-2021 EPSP period up to December 15, 2020, EPCOR provided information about the number of units of each energy product offered across all auction sessions by suppliers, with the suppliers broken down by their classification of physical suppliers or financial suppliers. It also reported the number of units of each energy product won by these suppliers. The CCA recommended that EPCOR be instructed to provide the disaggregated information as incentives for suppliers who have physical load positions separately from those who do not, may be different. The AUC denied this recommendation as there is now clear and convincing empirical evidence demonstrating that both suppliers with a physical position and suppliers with a purely financial position participate in the auction sessions and no benefit in filing the additional information has been demonstrated.

The CCA and UCA recommended that additional metrics be calculated and reported in order to assess the competitiveness of auction sessions.The AUC rejected the recommendation that EPCOR monitor and report five metrics for all three energy products (flat, peak, and full-load). Parties argued that using five metrics would allow for a better assessment of the competitiveness of the auctions, but no party raised significant concerns with the overall competitiveness of the auctions. In particular, no party submitted that EPCOR stop using the descending clock auctions because they are uncompetitive. The AUC therefore did not consider this suggestion related to auction competitiveness to be warranted.

EPCOR provided information about the number of bids that specified switches from one energy product to another. The AUC denied the recommendation that EPCOR monitor the nature and timing of switching behaviour. It found that the argument that the utility of the simultaneous procurement descending clock auction in large part depends on the auction eliciting significant switching behaviour. The AUC found that concerns regarding the low level of switching indicating that competition in the auctions may not be robust are not justified. Consequently, the AUC found it unnecessary for EPCOR to monitor the nature and timing of switching behaviour.

Proposed Amendments to the 2021-2024 EPSP

The proposed 2021-2024 EPSP included the flexibility for EPCOR to modify the calculation of the auction starting prices for the flat and peak energy products by adjusting the respective multipliers within a range of 1.15 to 1.25. The UCA, CCA and other interveners requested that the EPSP only be approved following certain amendments.

Interveners requested that EPCOR lower the ranges for the auction starting prices and that an alternate ending to the auctions be implemented “based on a threshold of excess capacity or a residual supply index. Once this threshold is reached, all remaining offers would declare a [sic] offer with offers paid as bid.” The AUC denied both requests. It found that the suggestions were not well developed and that not all circumstances had been considered in the suggestion.

It was further requested that EPCOR revise the range and duration of the auction rounds from two to 15 minutes to a range of one to six minutes. The AUC again found that the submitted arguments supporting this suggestion were not sufficient to justify the amendments. The AUC considered that EPCOR would not jeopardize its interest in ensuring that its auctions are successful by arbitrarily changing the auction round length to discourage participation. The AUC also agreed with EPCOR that the flexible auction length of two to 15 minutes provided in EPCOR’s 2021-2024 EPSP allows EPCOR to respond to participants requesting longer auctions and promoted regulatory efficiency.

The proposed 2021-2024 EPSP included a provision for EPCOR to modify the price decrement algorithm by adjusting the reduction factors within a range of values greater than 0.85 and less than or equal to 1. The AUC denied the recommendation that the flexibility of the price decrement algorithm be changed to allow a smaller range of 0.95 to 0.97. Again, the AUC found that the interveners did not provide sufficient evidence to justify changing the range from 0.85 to 1 to 0.95 to 0.97 and did not demonstrate a sufficient benefit to justify the change.

Term of the 2021-2024 EPSP and Generic Proceeding

EPCOR indicated that it intended to procure energy and calculate monthly energy charges under the 2021-2024 EPSP from May 1, 2021, until June 30, 2024.

Interveners submitted that EPCOR’s proposal to continue using a descending clock auction is similar to the approach used by ENMAX Energy Corporation. Given the similarities, it was suggested that the timing of EPSP providers’ applications, who have implemented or are intending to implement similar auctions, should be aligned. This was suggested to consider consolidating similar auctions with potential for administrative savings and benefits to competition. The UCA also submitted that there is considerable regulatory efficiency in aligning the timing of EPSP applications.

The UCA strongly recommended that the AUC initiate a generic proceeding well in advance of the expiry of the EPSPs. EPCOR argued that there are significant disadvantages with combining its auctions with other regulated rate option (“RRO”) providers. It stated that these include increased costs because the most cost-effective approach for one provider may be different from another provider. EPCOR argued that the disadvantages outweigh any potential benefit.

The AUC denied both the recommendation to align expiry dates of the EPSP of the RRO providers or to establish a generic proceeding. It noted that there are at least four months between the approval of an EPSP and the first month under which monthly electric energy charges calculated under that EPSP are effective. Accordingly, aligning the expiry dates could lead to energy rates being calculated under one EPSP for less than 12 months, which does not support regulatory efficiency and would increase the regulatory burden.

The AUC found that other issues raised by the  interveners would not be solved by aligning the proceedings or establishing a generic proceeding. The associated disadvantages would outweigh any benefit of implementing these recommendations. The AUC further repeated that interveners raised no serious concerns regarding the competitiveness of the auctions provided for in the 2018-2021 EPSP, which led the AUC to question how a generic proceeding would increase competition.

The AUC determined that the procurement method proposed by EPCOR for the 2021-2024 EPSP meets the requirement of RRO providers outlined in Section 4(1) of the Regulated Rate Option Regulation. Section 4(1) required RRO providers to, with reasonable transparency, use a fair, efficient and openly competitive acquisition process to ensure that the resulting prices for the supply of electric energy are just, reasonable, and electricity market-based.

Load Forecasting Model Separate from EPSP

Similar to the 2018-2021 EPSP, EPCOR’s 2021-2024 EPSP includes a clause permitting EPCOR to file any improvement to its load forecasting method or significant changes to the inputs to that method, with the AUC for acknowledgment.

In response to an AUC question concerning changes of the clause from the one approved in the 2018-2021 EPSP, EPCOR stated that it could file the load forecasting method as a stand-alone document, incorporated by reference into the 2021-2024 EPSP. It would still be maintained and allowed to evolve separately. This could eliminate the need for EPCOR to refile the EPSP document after each change to the load forecasting method. The AUC agreed that filing the load forecasting methodology as a separate document is beneficial and directed EPCOR to revise its 2021-2024 EPSP by removing the load forecasting method and filing it as a stand-alone document.

Retention of a Backstop Supplier and Changes to the Illustrative Energy Charge Model

EPCOR was directed to file a newly executed backstop agreement once the successful backstop supplier was selected, for acknowledgment as a confidential post-disposition document. The filing must include a document that sets out any differences between the new and the executed backstop agreement in place for the 2018-2021 EPSP. The AUC also directed EPCOR to make specific changes to its originally filed illustrative energy charge model to correct an error and a manual entry oversight identified by EPCOR.

Natural Gas Exchange Monthly Auction Hosting Fee

The AUC accepted that EPCOR included the new Natural Gas Exchange (“NGX”) flat monthly auction hosting fee of $12,500 per month as part of the NGX trading charges and transaction fees. The AUC also approved EPCOR’s proposal to include up to four months of the new NGX monthly auction hosting fees as part of the energy charges for the first month under the 2021-2024 EPSP.

Procurement Conduct Agreement

The AUC accepted that EPCOR did not provide a procurement conduct agreement as part of its 2021-2024 EPSP for several reasons, including that it is unchanged from the agreement approved as part of the previous EPSP.

Monthly Energy Rate Reporting and Attestation Letter

EPCOR proposed submitting monthly acknowledgment filings consistent with the form and process approved for the monthly filings under previous EPSP, consisting of a forecast performance report, attestation letter, and the energy charge model.

The AUC found that the information that EPCOR proposed to file as part of the monthly filings for the energy charges determined following the 2021-2024 EPSP is substantially similar to what has been filed under the 2018-2021 EPSP. The AUC approved EPCOR’s proposal to submit monthly acknowledgment filings.

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