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Alberta Electric System Operator – Decision on 2020 Rider A1 Extension Application, AUC Decision 25670-D01-2020

Link to Decision Summarized

Criteria for Extension of Duplication Avoidance Tariff


In this decision, the AUC approved the extension of Rider A1 for the period January 1, 2022, to December 31, 2041.

Background

The Alberta Electric System Operator (“AESO”) filed an application with the AUC, requesting an extension of Rider A1 to its Independent System Operator (“ISO”) tariff. The rider was originally approved for the Dow Fort Saskatchewan plant complex (“Dow”) by the Alberta Energy and Utilities Board, predecessor to the AUC for a period of 24 years, ending in December 2021. In the current application, the AESO requested the approval of a 20-year extension, from January 1, 2022, to December 31,2041.

Rider A1 is a transmission Duplication Avoidance Tariff (“DAT”) originally adopted to provide Dow with system access service in response to Dow’s credible opportunity to construct a physical bypass of existing transmission facilities. Rider A1 was designed to keep Dow neutral between the cost of using existing transmission facilities or building its physical bypass option.

Extension of Rider A1

As part of the original Rider A1 application approved in 1998, Dow made two monetary contributions totalling $5,071,038 to the AESO related to the costs of the physical facilities. A schedule was also created for Dow to pay ongoing operating and maintenance (“O&M”) costs over a 24-year period, ending on December 31, 2021. The monthly payment approved for Rider A1 varied from a high of $72,115 in 1999, to a low of $19,361 in 2021.

As part of the extension the AESO included the incremental loss factor and a schedule of monthly O&M payments from Dow to the AESO for the period from January 1, 2022, to December 31, 2041. These monthly payments gradually increase from $21,037 in 2022, to $30,647 in 2041. The AESO submitted that an extension to the rider was reasonable, because had the facilities contemplated in Decision U98125 been constructed, they would have had a service life of 40 – 60 years.

The AESO explained that its proposed form of Rider A1 extension continues the original 24-year operating cost payment schedule to December 31, 2041, and that Dow has agreed to set those payments according to the same methodology used in 1998. This methodology was based on the estimated O&M costs, spare parts inventory, overhead, and losses that the virtual transmission assets would have incurred.

Findings

The AUC applied the criteria previously applied in applications for the extension of a DAT. That is, the extension of the term of the DAT should be: (i) by agreement of the parties; (ii) with notice to the AUC and interested parties; and (iii), reasonable.

The AUC was satisfied that the first two criteria were met. The AESO and Dow agreed on the terms of an extension to submit the application, and by its filing, both the AUC and interested parties have had notice. With respect to the reasonableness of the extension, the AUC found that the factors considered when the initial bypass was granted provided some guidance:

  • Would the statutory provisions under the Electric Utilities Act (“EUA”)in effect allow Dow to bypass the EUA’s requirements to obtain transmission service from the distribution owner as set out in Section 5 of the EUA?

  • Was Dow’s physical bypass option economically viable?

  • Would the rider prevent the unnecessary construction of redundant facilities and shelter transmission customers from the costs of absorbing stranded assets?

  • Was the rider amount no more attractive, than was reasonably required, to avoid duplicate facilities?

Applying these principles to the extension requested, the AUC found that:

(a) Pursuant to section 117(1) of the EUA, an industrial system designation (“ISD”) order issued by the AUC includes a condition specifying that the electric energy produced from and consumed by the subject industrial system is exempt from the operation of the EUA. Accordingly, the granting of the ISD confirms that Dow satisfies the statutory prerequisites for an exemption.

(b) The bypass rate was approved on the basis that a bypass facility would have been economically viable and if it had been built, it would have been in service for roughly 40 to 60 years. The extension reflects the end of the 40-year period and on this basis, the AUC found the extension to reasonably represent a viable bypass option.

(c) The AUC accepted the AESO’s evidence that the rate negotiated is reasonably reflective of the remaining O&M costs and is no greater than reasonably required.

The AUC therefore approved the extension of Rider A1.

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