Regulatory Law Chambers logo

ATCO Gas and Pipelines 2020 GRA Phase II, AUC Decision 25428-D01-2020

Link to Decision Summarized

Rates


In this decision, the AUC addressed Phase II of a 2020 general rate application (“GRA”) filed by ATCO Gas, a distribution division of ATCO Gas and Pipelines Ltd (“ATCO Gas”). The AUC approved ATCO Gas’:

(a) cost-of-service study (“COSS”), except for the request to change the currently approved methodology of allocating service costs based on cost-per-service to a methodology solely based on service length data;

(b) rate design, including the proposal to add three new rates: (i) an Ultra-High-Use delivery rate; (ii) an Alternative Technology and Appliance (“ATA”) delivery rate; and (iii) a Producer Receipt Rate; and

(c) customer, retailer and producer terms and conditions of service (“T&Cs”), subject to the AUC’s directions in Appendix 3 to this decision.

Cost-of-Service Study

In Decision 22394-D01-2018, the AUC directed the distribution utilities, including ATCO Gas, to base their Phase II studies “on cost data preceding 2018 and reflect any approved updated depreciation parameters.” In accordance with this direction, ATCO Gas undertook for the present application the 2017 COSS based on the actual 2016 costs. This was the last year for which the AUC has reviewed and approved ATCO Gas’s actual costs.

ATCO Gas Proposals

The AUC approved ATCO Gas’ proposal to remove the transmission function from its COSS given its annual recovery through Rider T.

The AUC found ATCO Gas’ proposal to update its space study to recognize that certain offices and warehouses house centralized groups that serve all of ATCO Gas’ customers reasonable. The AUC, approved ATCO Gas’s proposed changes to its functionalization step using the results of the updated space study.

The AUC found ATCO Gas’ proposal to be reasonable as it provides its irrigation customers more flexibility to pump water outside the irrigation season, reduces the field work to turn on and off service, and also would not impact the amount of costs allocated to ATCO Gas’ irrigation customers. The AUC approved ATCO Gas’ proposed changes to the irrigation customer cost allocation methodology.

The AUC found it premature to change the currently approved methodology of allocating service costs based on cost per service to being solely based on service length data, as there may be other factors to consider, such as service size. The AUC directed ATCO Gas in the compliance filing to this decision to revert to the currently approved cost-per-service methodology. Further, the AUC directed ATCO Gas to, in its next Phase II application, incorporate of service size and any other relevant factors, in its Phase II study.

The AUC noted InterGroup Consultants Ltd.’s concerns with the increased replacement cost for the T00320/T00248 meters and accepted ATCO Gas’ explanation that a calculation error resulted in an incorrect cost for ATCO Gas South meters. As a result, the AUC directed ATCO Gas in the compliance filing to this decision to update the meter study to correct the discovered error in the data.

Rate Design

ATCO Gas stated that, consistent with previous applications, its rate design proposal incorporated accepted rate design principles commonly used for utility ratemaking purposes. These principles are sometimes conflicting, and a balance must be achieved to obtain a fair and acceptable rate design for the utility’s customers.

Revenue-to-cost Ratios

The AUC found that changes proposed by ATCO Gas in its application were consistent with the AUC’s long-standing desire to have each rate group’s revenue-to-cost ratio at 100 percent, except in the event that other considerations, principally rate shock, temporarily prevent one or more rate group’s revenue-to-cost ratios from being 100 percent. Based on ATCO Gas’ analysis demonstrating rate changes from a decrease of 1.9 percent to an increase of 2.5 percent for various rate groups, the AUC agreed that rate changes arising from this application, in isolation, are unlikely to cause rate shock.

Rate Design Changes Proposed by Parties

Several changes to the currently approved rate design were proposed by ATCO Gas in its application, as well as by the Office of the Utilities Consumer Advocate (“UCA”) and the City of Calgary (“Calgary”) in their submissions.

1. ATCO Gas Proposal to Increase the Amount of Customer-Related Charges Collected Through the Fixed Charge for the Mid-Use Rate Group

The AUC accepted ATCO Gas’ reasons for the proposed increase in the amount of Mid-Use Rate group customer-related costs collected through the fixed charge, and approved the increase with the proposed limitations in the current application of 40 percent and 60 percent in the North and South, respectively.

2. ATCO Gas Proposals for Changes to the High-Use Rate Group

ATCO Gas proposed to divide the existing High-Use Rate group into two rate groups (a new High-Use Rate group and an Ultra-High-Use Rate group). It proposed to modify the language in the High-Use Rate schedule to remove the requirement for customer consent prior to switching customers out of the High-Use Rate group, and to implement a minimum billing demand for the new High-Use Rate group and the Ultra-High-Use Rate group.

The AUC noted the small expected bill impacts associated with the proposal to divide the existing High-Use Rate group into two new High-Use Rate groups, and was of the view that cost causation is an important rate design principle that should be reflected in rates to the extent practicable, while balancing other relevant rate design principles. Accordingly, the AUC approved the division of the existing High-Use Rate group into the suggested two groups. In its compliance filing to this decision, ATCO Gas was directed to reflect the two new rate groups and associated calculations.

The AUC found the proposal to introduce minimum billing demands and the supporting explanation to constitute sound rate design. The AUC accepted the logic provided by ATCO Gas with respect to the need to modify the language used in the rate schedules regarding customers switching from the High-Use Rate group to a rate group intended for customers that consume less than 8,000 GJ/year.

3. UCA Proposal to Address Lack of Homogeneity in the Low-Use Rate Group by Splitting the Rate Group or Revising Cost Allocations

The AUC considered that dividing the Low-Use Rate group, as suggested by the UCA along residential and commercial class lines appeared to be reasonable, but did not rule out divisions based on another basis at the time.

The AUC directed ATCO Gas to perform a full assessment of the splitting of the Low-Use Rate group, including identification of all the resulting impacts to all rate groups. The results of the assessment and any recommendations should be shared with and fully vetted by all potential stakeholders. The assessment, and the method and results of the consultation with affected rate groups and other interested parties was to be included in ATCO Gas’ next Phase II application. ATCO Gas was also directed to include a cost estimate to implement the rate group split and any costs to monitor and maintain the two new rate groups on a go-forward basis.

4. ATCO Gas Proposal for a New Rate Group – ATA Delivery Service Rate Group

While ATCO Gas indicated the ATA delivery service rate was designed on Low-Use cost methodologies accepted by the AUC and modified to meet the needs of ATA customers, several factors may impact rate design in future Phase II applications. The AUC agreed that ATCO Gas could not understand the impact of this rate until it implemented it and collected data from ATA delivery service customers. The AUC also accepted ATCO Gas’ request to escalate 2020 notional rates by I-X, since there is potential for the ATA rate to vary significantly year-over-year due to the variations in billing determinants, given the expected small number of ATA customers. Escalation by I-X would provide for more stable customer rates.

The AUC approved ATCO Gas’ proposal to implement the ATA delivery service rate on a pilot basis. ATCO Gas was directed to provide a detailed analysis of the ATA delivery service rate as part of its annual PBR rates adjustment filing one year following the implementation, and in its next Phase II application.

5. ATCO Gas Proposal for a New Rate Group – Producer Receipt Rate Group

The AUC approved the Producer Receipt Rate to be included in ATCO Gas’ price schedules, on a pilot basis. ATCO Gas was directed to provide a detailed analysis of the Producer Receipt Rate, including but not limited to the uptake of customers in the rate group and costs of facilities for serving these customers. This analysis should first be provided as part of its annual PBR rates adjustment filing one year following the Producer Receipt Rate implementation, and then in its next Phase II application.

6. Emergency Delivery Service

ATCO Gas proposed to discontinue this rate group, explaining that it was originally made available as a backup rate in the event of a retailer failure to supply gas, but no customers had used the rate to date and there was no anticipated future need. The AUC accepted ATCO Gas’ proposal and directed that ATCO Gas implement the change in its rate design and rates.

7. Unmetered Gas Light Service

The AUC accepted ATCO Gas’ reasons for its proposal to close the Unmetered Gas Light Service Rate group to new customers and to continue to provide the existing unmetered gas light customers with this service until their gas light connections reached the end of their service lives. The proposal was approved and ATCO Gas was directed to implement the change in its terms and conditions of service.

Implementation and Effective Date of Restructured Rates

The AUC directed ATCO Gas to file a compliance filing by February 1, 2021, reflecting the findings, directions and conclusions of this decision. Following finalization of ATCO Gas’ 2020 Phase II methodologies in the compliance filing, implementation of the revised rate design and correspondingly updated PBR rates could take place as part of ATCO Gas’ next annual PBR rate adjustment filing.

However, in the event the volatility effect of the approved Phase II revenue per customer and corresponding rates was minimal and ATCO Gas is in a position to apply the findings of this decision in the course of 2021, implementation of the new rate structure could take place as part of the proceeding dealing with the implementation of ATCO Gas’ 2021 PBR rates, deferred as a result of Decision 26170-D01-2020.

Customer, Retailer and Producer T&Cs

ATCO Gas proposed certain changes to its customer and retailer T&Cs. The AUC was satisfied with the revisions made. ATCO Gas was directed to finalize its customer, retailer and producer T&Cs, as provided in this decision and in Appendix 2, as part of its compliance filing to this decision.

Related Posts

Judd v Alberta Energy Regulator, 2024 ABCA 154

Judd v Alberta Energy Regulator, 2024 ABCA 154

Link to Decision Summarized Download Summary in PDF Appeal – Production of Records Application Michael Judd ("Appellant") appealed a decision by the Alberta Energy Regulator (“AER”) that denied his...