In this decision, the AUC approved EPCOR Distribution & Transmission Inc.’s (“EPCOR”) updated 2021 customer specific (“CS”) distribution access service (“DAS”) rate for an existing customer CS24.).
The CS rate class consists of customers with annual energy demands over 5000 kilowatts (“kW”). EPCOR identified modifications required to accommodate the changes requested by customer CS24. EPCOR used the same methodology to calculate the rate in this application as had been used and approved for a previous CS customer, in Decision 26120-D01-2020.
Calculation of the 2021 CS24 Rate
EPCOR’s cost-of-service calculation included three components: incremental equipment and installation activities; cost of existing assets to provide service; and allocated operating, maintenance and general (“OM&G”) costs. While standby service was not required for the customer site, it was requested by the customer. EPCOR requested that the customer provide a capital contribution for any new assets required to provide standby service. Capital assets dedicated for the customer as well as assets shared with other sites would be installed to provide standby service for CS24. The cost of dedicated assets would be charged exclusively to the customer requiring them. The cost of shared assets would be allocated proportionally based on minimum contracted demand.
EPCOR categorizes assets installed during the first year of a CS rate as incremental assets. Thus, for CS24, the assets installed in 2021 were incremental assets for the purposes for calculating the customer’s 2021 CS rate. In this application, the capital costs of dedicated incremental assets were entirely assigned to the customer.
To calculate the revenue requirement associated with the capital-related costs included in the CS rate, EPCOR used a 2021 estimated weighted average cost of capital (“WACC”) rate of 6.06 per cent.
EPCOR allocated OM&G costs associated with the incremental and existing assets using a ratio of 1.851 per dollar of capital costs. EPCOR calculated the ratio between total OM&G costs and capital costs based on the amounts filed in its 2010-2011 Phase II compliance filing.
The AUC noted that the cost-of-service methodology used by EPCOR to calculate the CS24 rate adjustment was the same as the methodology most recently confirmed in Decision 26120-D01-2020. The AUC found the proposed CS24 rate update reasonable and approved the CS24 rate of $576.39 per day, effective May 1, 2021.
EPCOR was directed to true up any differences if the actual effective date for the revised CS24 rate differs from the effective date contemplated in this decision. The CS24 rate would also be trued up to reflect the 2021 actual cost of debt when this became available.
EPCOR was reminded of the direction to examine the relevance of using capital costs to allocate OM&G costs in its next Phase II application. EPCOR was directed to consider whether the use of a static OM&G allocation ratio that is unchanged during the performance-based regulation term resulted in the efficient and fair allocation of OM&G costs across all of EPCOR’s customers. Alternatively, if there was a need for another mechanism to efficiently and fairly address material differences between the incremental OM&G costs incurred by EPCOR as new customers are added to the CS rate class.
The AUC emphasized that, in approving this application, it did not permit the recovery by EPCOR of any amount payable by the customer from other customers in the event of default or bankruptcy of CS24.