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EPCOR Distribution & Transmission Inc. 2021 Annual Performance-Based Regulation Rate Adjustment, AUC Decision 25866-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 EPCOR Distribution & Transmission Inc. (“EPCOR”). The AUC determined that:

(a) The 2021 distribution rates, options and riders and corresponding rate schedules set out in the decision, were approved effective January 1, 2021.

(b) The 2021 system access service (“SAS”) rates as filed and set out in the decision, were approved effective January 1, 2021.

(c) The distribution connection service (“DCS”) terms and conditions (“T&Cs”) and EPCOR’s T&Cs for electric distribution access service (“DAS”), as set out in the decision, were approved effective January 1, 2021.

(d) 2021 distribution tariff policies set out in the decision were approved effective January 1, 2021.

(e) EPCOR’s 2018 going-in rates and 2018 K-bar, provided in this proceeding, were approved as final.

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”).

EPCOR’s 2020 PBR rates had been approved on an interim basis in Decision 24882-D01-2019.

PBR Rate Adjustments

PBR Indices and Annual Adjustments

(a) I-X Index

The AUC approved the 2021 I factor of 2.42 percent and the resulting I-X index of 2.12 percent.

(b) Y and Z Factor Materiality Threshold

EPCOR did not provide a calculation for Y and Z materiality threshold in its application. In the prior PBR rate update application, EPCOR’s 2020 Y and Z factor materiality threshold was calculated as $1.72 million. By applying the 2021 I-X index of 2.12 percent to the 2020 materiality threshold, the AUC calculated EPCOR’s 2021 Y and Z factor threshold as $1.76 million. EPCOR was directed to provide a Y and Z factor threshold calculation in its future annual PBR rate adjustment application.

(c) Y and Z Factors

EPCOR applied for a Y factor amount of $11.80 million, which was approved by the AUC. EPCOR did not apply for a Z factor adjustment in 2021.

(d) Q Value

The AUC reviewed EPCOR’s calculations and approved the 2021 Q value of -1.06 percent. EPCOR was directed to continue providing Q value calculations in its future annual PBR rate adjustment filings.

(e) K-Bar Factor

The AUC approved EPCOR’s 2021 K-bar of $30.93 million. EPCOR’s 2021 K-bar will be subject to true-up for the 2021 actual approved cost of debt.

(f) K Factor

EPCOR did not apply for any Type 1 capital funding for 2021.

Forecast Billing Determinants and Prior Year Variance Analysis.

EPCOR indicated that its 2021 billing determinants forecast was based on the methodology approved in Decision 24882-D01-2019 and throughout the PBR regime, except for the Direct Connect (“DC”), Customer Specific (“CS”) and Customer Specific, Totalized (“CST”) rate classes. To forecast its 2021 DC, CS and CST customer rate classes, EPCOR used a three-year average of energy and demand. It based its forecast on a three-year model to even out deviations in a give year.

(a) DC Customer Rate Class

The AUC found the one-year actual method of forecasting for the DC rate class to be preferable. For regulatory efficiency, the AUC did not require EPCOR to change its billing determinants forecast for the DC rate class. EPCOR was directed to address the issue of the apparent declining consumption trend and comment on the most accurate forecasting method for the DC rate class given the declining trend and customer information available, in future PBR rate adjustment filings.

(b) CST and CS Customer Groups

The AUC found EPCOR’s methodology and billing determinants, to have been reasonable and approved the methodology and the resulting 2021 forecast billing determinants as filed.

(c) 2019 Billing Determinants Variance Analysis

The DC and CST rate class energy variances were the most significant of the variances at -14.7 percent and -27.8 percent and could, if the variance level remains, require increased scrutiny by the AUC in future annual rate update applications. In addition to continuing to provide information on variance from forecast to actual billing determinants by rate class and to identify the cause of variances larger than five percent, EPCOR was directed to comment on whether large variances appearing for multiple years would require a more accurate forecasting method, a change in rate structure, or both.

True-Ups for 2018 and 2019

The AUC found EPCOR’s calculations and explanations of the 2018 and 2019 true-ups to have been reasonable. The AUC approved the inclusion of these true-up amounts in EPCOR’s 2021 PBR rates.

2021 PBR Rates

Distribution Rates

The AUC found EPCOR’s calculation methods of its 2021 rates to have been consistent with previously accepted methodologies during the current PBR term. The AUC approved EPCOR’s 2021 PBR rates.

System Access Service Rates

EPCOR indicated that its proposed 2021 system access service (“SAS”) rates would reflect the rates approved in the Alberta Electric System Operator’s (“AESO”) 2020 Independent System Operator (“ISO”) tariff. EPCOR assumed a pool price of $55.28 per MWh and an operating reserve of 5.90 percent for 2021, based on EPCOR’s actual 2019 monthly average operating reserve percentage. The proposed 2021 SAS rates and 2021 Balancing Pool Rider G were approved.

Customer Specific Rates

(a) CS42 2020 Base Rate

The AUC approved the 2020 base rate for the CS42 customer as $1,215.44 per day on an interim basis.

(b) CS49 Rate True-Up and Base Rate

The AUC approved the CS49 true-up daily rate of $33.70 and 2021 updated daily base rate of $379.10 as calculated by EPCOR.

Other Matters

Terms and Conditions of Service

EPCOR amended its distribution terms and conditions (“T&Cs”) in accordance with the I-X mechanism. EPCOR adjusted its maximum investment levels (“MILs”) and specific customer contributions by the I-X mechanism for 2021 in its customer DCS T&Cs. The AUC reviewed and approved the revised MILs and specific customer contributions provided in Schedule A of the DCS T&Cs for 2021.

Financial Reporting Requirements and Senior Officer Attestation

The AUC was satisfied that the financial information provided by EPCOR met the financial reporting requirements.

Finalizing the Going-In Rates and Associated 2018 Capital Factors

The AUC was satisfied that EPCOR’s notional 2017 revenue requirement and 2018 capital factor schedules had been calculated correctly and were in alignment with previously issued AUC directions. The AUC approved EPCOR’s 2018 going-in rates and 2018 capital factor, K-bar, provided in this proceeding, as final.

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