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ATCO Electric Ltd. 2021 Annual Performance-Based Regulation Rate Adjustment, AUC Decision 25864-D01-2020

Link to Decision Summarized

Rates – Performance-Based Regulation


In this decision, the AUC considered the 2021 annual performance-based regulation (“PBR”) rate adjustment filing from ATCO Electric Ltd. (“AE”). The AUC approved the 2021 options and riders, the 2021 system access service (“SAS”) rates and the customer terms and conditions (“T&Cs”) for electric distribution service. The AUC further approved the stand-alone schedules of Available Company Investment and Supplementary Service Charges. Finally, subject to the filing of post-disposition documents reflecting adjustments related to the IT common matters refunds, the AUC approved AE’s 2018 going-in rates and 2018 K-bar.

Background

The PBR framework approved in Decision 20414-D01-2016 (Errata) provides a rate-setting mechanism based on a formula that adjusts rates annually by means of an indexing mechanism that tracks the rate of inflation (“I”) that is relevant to the prices of inputs the utilities use, less a productivity offset (“X”).

In Decision 20414-D01-2016 (Errata), the AUC approved the continuation of certain PBR rate adjustments to enable the recovery of specific costs where certain criteria have been satisfied. These include an adjustment for certain flow-through costs that should be recovered from, or refunded to, customers directly (“Y factors”), and an adjustment to account for the effect of exogenous and material events for which the distribution utility has no other reasonable cost recovery or refund mechanism within the PBR plan (“Z factor”).

ATCO Electric’s 2020 PBR rates were approved on an interim basis in accordance with the AUC PBR framework in Decision 24881-D01-2019.

PBR Rate Adjustments

PBR Indices and Annual Adjustments

The 2020 PBR plan for AE provided a rate-setting mechanism based on a formula that adjusted rates annually through an indexing mechanism plus specifically approved adjustments.

(a) I-X index

AE calculated its 2021 I-X index to be 2.12 percent. The AUC approved the 2021 I factor and the resulting I-X index as calculated by AE.

(b) Y and Z factor materiality threshold

AE calculated the Y and Z materiality threshold to be $3.64 million for 2021. The AUC approved the Y and Z factor materiality threshold.

(c) Y factor

AE applied for a Y factor amount of $3.055 million. The AUC approved the Y factor as filed.

(d) Z factor

AE applied for a Z factor adjustment of negative $0.051 million in 2021 to reflect the AUC direction in Decision 25071-D01-2020. The AUC approved this adjustment as filed.

(e) Q Value

The AUC was satisfied with AE’s provided calculations and approved the 2021 Q value of -4.71 percent. AE was directed to continue providing Q value calculations in future PBR rate adjustment filings

(f) K-bar factor

AE applied for a 2021 K-bar funding amount of $60.8 million. As well, AE’s 2018, 2019 and 2020 interim K-bar adjustments resulted in a collection of $0.2 million for 2018, and refunds of $0.8 million for 2019, and $1.0 million for 2020.

Given findings related to IT common matters refunds, the AUC approved AE’s 2021 K-bar and prior year K-bar true-ups, subject to the filing of post-disposition documents as directed with relation to distribution rates.

(g) K Factor for Type 1 Capital

AE did not apply for Type 1 capital funding for 2021.

(h) Carrying Costs

In response to an AUC information request, AE updated its calculation of carrying charges related to its Y factor, 2018 and 2019 base revenue true-ups, 2018 and 2019 K-bar true-ups and a Z factor true-up, and proposed a carrying cost collection of $0.029 million. The AUC was satisfied with the calculations but noted that the carrying costs could be affected by the AUC directions related to IT common matters refunds.

(i) Forecast Billing Determinants and Variance Analysis

AE provided detailed 2021 billing determinant forecasts. AE submitted that its forecasted 2021 billing determinants were based on the same methodology approved in Decision 24881-D01-2019. The billing determinant forecast was approved as applied for.

2021 PBR Rates

Distribution Rates

The AUC approved AE’s calculations of its 2021 PBR rates, subject to its directions regarding the recalculation of the IT common matters refunds and the use of revised carrying charges on IT common matters refunds. Because of Decision 26170-D01-2020, the AUC noted that these rates would not be charged to customers effective January 1, 2021.

System Access Service Rates

AE indicated that its proposed 2021 SAS rates reflected the rates approved in the AESO 2020 Independent System Operator tariff, approved in Decision 25175-D02-2020. As a result, the SAS payments forecast for distribution-connected customers increased from the $322.0 million included in 2020 PBR rates, to $350.5 million for 2021. The AUC reviewed the calculations and approved the 2021 SAS rates as filed.

Rider E – Facilities Charge Agreements

As previously directed by the AUC, AE confirmed that it had removed Rider E from the price schedules in Appendix G filed with this application as it no longer formed part of AE’s regulated service offering.

Other Matters

IT Common Matters Refunds

AE had calculated its capital adjustments for rebasing purposes related to the IT common matters placeholder using a four-year average to determine the adjustment to the notional 2017 revenue requirement. The AUC found that these amounts should have been averaged across the years 2015 and 2016 because the IT master services agreements (“MSA”) had not been in effect in 2013 and 2014. The AUC found that using a two-year average better aligned with the AUC’s findings in the IT Common Matters Decision. AE was therefore directed to recalculate its 2017 notional revenue requirement, K-bar and 2021 PBR rates to reflect the use of a two-year (2015 and 2016) average of its capital adjustments related to the IT common matters refunds.

The AUC approved AE’s IT common matters refund adjustments directed in this decision as final, subject to the filing of post-disposition documents directed with regards to distribution rates.

Carrying Costs on IT Common Matters Refunds

The AUC did not agree with AE’s argument that WACC should be used for capital and Rule 023 for O&M. The IT common matters refunds resulted from both O&M and capital; consequently, the use of WACC on both capital and O&M amounts to determine carrying costs would not be unreasonable in the circumstances.

The AUC directed AE to reflect carrying costs on IT common matters refunds using WACC for both the capital and O&M refunds in the filing of post-disposition documents as directed with regards to distribution rates.

Terms and Conditions of Service

The AUC denied the proposed revisions to Section 14.1.1(d) of the customer T&Cs. The AUC stated that the proposed change in wording, which shifted a required permanent disconnection to a discretionary disconnection after 12 months, did not add clarity for customers in determining when their service connection would be considered permanently disconnected. The AUC and AE’s customers should expect that a permanent disconnection would not occur if the customer was paying idle service charges and without consultation with that customer. This was adequately addressed in Section 14.1.3(a). The AUC revised the clean version of the customer T&Cs provided by AE to reflect its denial of AE’s proposed revisions to Section 14.1.1(d).

The AUC approved AE’s customer T&Cs, Schedule of Available Company Investment, and Schedule of Supplementary Service Charges, as set out in an appendix to the decision.

Financial Reporting Requirements and Senior Officer Attestation

The AUC was satisfied that AE had complied with the financial reporting requirements.

Finalizing the Going-In Rates and Associated 2018 Capital Factors

The AUC set the going-in rates for the 2018-2022 PBR plans based on a notional 2017 revenue requirement that was calculated using the actual pre-2017 costs, adjusted as required for anomalies. The resulting 2018 going-in rates and associated 2018 capital factors (K-bar and K factors) were interim because they contained certain items that were either placeholders or subject to review and variance proceedings.

AE updated its interim notional 2017 revenue requirement and its 2018 base K-bar amount to reflect the 2017 net rate base adjustment related to its 2016 Regional Municipality of Wood Buffalo Wildfire Z factor in accordance with Decision 25071-D01-2020.

The AUC approved AE’s going-in rates and 2018 capital factor, K-bar, provided in this proceeding, as final, subject to the filing of post-disposition documents reflecting adjustments related to the IT common matters refunds decision.

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