Price Setting Plan
In this decision, the Alberta Utilities Commission (“AUC”) denied the application by Direct Energy Regulated Services (“DERS”) to recover $318,968 from its regulated rate option (“RRO”) customers for amounts DERS deemed were undercharged between August 2020 and April 2021 for distribution line loss factors (“DLLFs”). These amounts were included as part of the calculation of the monthly energy charges in accordance with DERS’ approved energy price setting plan (“EPSP”) approved in Decision 24296-D01-2019 and Decision 24296-D02-2020.
DERS submitted its application citing Section 17 of the Regulated Rate Option Regulation as the legislation authorizing the recovery of the undercharged DLLFs. Section 17 sets out that an RRO provider can collect specific unrecovered amounts that have been incurred in the 12 months preceding the date of the bill in which they are being recovered. DERS explained that the undercharges were a result of an unforeseen forecasting error. This forecasting error was a result of a change to the distribution tariff of ATCO Electric Ltd. (“AE”) without a corresponding update to AE’s distribution line loss factor.
In Decision 24747-D01-2021, the AUC approved the elimination of Option H(b) from AE’s distribution price schedules. DERS submitted that this affected how AE calculates and allocates its distribution line losses to retailers. Despite this change and the resulting rise in actual DLLFs allocated to DERS by AE, the approved distribution line losses by rate class for the AE distribution services area have not changed. DERS used the unchanged distribution line losses to calculate monthly energy charges for August 2020 to April 2021. This resulted in an undercharge to its RRO customers.
The AUC determined that the primary issue of the application was if the amount described by DERS qualify as an undercharge that can be recovered from RRO customers pursuant to Section 17 of the Regulated Rate Option Regulation.
The AUC determined that this was not the case. It determined that DERS did not make any errors on its customer’s bills. Further, DERS is compensated for any forecast errors related to DLLFs through the risk margin it receives.
Does the Use of Forecast Line Losses in Accordance with the Approved EPSP Result in an Undercharge?
The AUC determined that the use of forecast DLLF percentages as approved in the EPSP do not result in an incorrect rate calculation or other error of any kind if the actual DLLF percentages are higher than the forecast. Accordingly, there is no error constituting an undercharge pursuant to Section 17 of the Regulated Rate Option Regulation.
When calculating the monthly RRO energy charges for the period in question, the forecast DLLF percentages included as inputs to those calculated energy charges were derived in accordance with the EPSP. DERS’ forecast DLLF percentages for each rate class were the same for every month and were calculated using the most recently approved distribution line losses by rate class for AE’s distribution service area. As a result, the DLLF percentages were calculated in accordance with the approved EPSP, and consequently, there was no error in energy charges.
Section 17 should be interpreted to relate to errors associated with customers’ bills and not differences between forecast and actual distribution line losses.
Is Section 5(3)(d) of the Regulated Rate Option Regulation Relevant?
DERS argued that Section 5 of the Regulated Rate Option Regulation is not relevant to its application because the risk recovered by the risk margin does not include the type of risk that materialized. It stated that the risk that materialized was a regulatory decision that ensured that DERS’ forecast methodology would be incapable of achieving its intended purpose.
Following a plain read of section 5 and considering the provisions of the Regulated Rate Option Regulation, the AUC determined that the risk of distribution line losses is to be included in the risk margin of DERS as part of its regulated rate tariff. DERS, as the RRO provider, bears the risk associated with differences between forecast and actual distribution line losses allocated to it. Consequently, DERS also receives compensation for this risk through the risk margin. It is a risk DERS is exposed to in providing RRO service, and DERS’ exposure to that risk was contemplated by the legislature in section 5(3)(d) of the Regulated Rate Option Regulation.
The AUC determined that the forecast risk can be considered as part of DERS’ risk compensation under Section 5 of the Regulated Rate Option Regulation. The AUC, therefore, found that the approval of the application would be inconsistent with section 5(3)(d) and section 5(5) of the Regulated Rate Option Regulation.
Is Section 3(2) of the Regulated Rate Option Regulation Relevant?
The AUC found that DERS’ application does not qualify under Section 17 of the Regulated Rate Option Regulation. Section 3(2) is relevant, and the application would be in violation of section 3(2) because it amounts to a true-up. The AUC stated that the nature of RRO energy charges is that they are set in advance and considered to be final when they are acknowledged by the AUC. Accordingly, the RRO providers are not permitted to adjust these charges after the fact. The purpose of sections 3(2) and 6(2) are for true-ups, rate riders or similar accounts or devices. The risk for distribution line losses was contemplated to be included in the risk margin of DERS as part of its regulated rate tariff, and therefore these losses are prohibited from true-up in sections 3(2) and 6(2) of the Regulated Rate Option Regulation.
To What Extent Should an RRO Provider Bear the Responsibility for Monitoring Items Included in the EPSP?
The AUC found that the RRO provider is required to monitor items included in the EPSP to ensure that the forecasting method remains relevant. This includes the responsibility to monitor distribution line losses.
The AUC further found that there was no requirement that DERS determined that the forecast error is permanent before making an application to the AUC to change the DLLF percentage forecast method. DERS could have applied to change the DLLF percentage forecast method at any time to mitigate its forecast risk. The decision to wait and determine if the forecasting error is permanent supports that the change to the DLLF percentage was a component of DERS’ forecast risk that remained with DERS as an owner under the Regulated Rate Option Regulation.
The AUC denied the application of DERS to recover $318,968 from its RRO customers for amounts deemed to be undercharged between August 2020 and April 2021 for distribution line loss factors.