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FortisAlberta Inc. 2021 Annual Performance-Based Regulation Rate Adjustment, AUC Decision 25843-D01-2020

Link to Decision Summarized

Rates – Performance-Based Regulation

In this decision, the AUC considered the 2021 annual performance-based regulation rate (“PBR”) adjustment filing from FortisAlberta Inc. (“Fortis”). The AUC approved the 2021 distribution rates, options and riders corresponding rate schedules, the 2021 system access service (“SAS”) rates and Fortis’ 2018 going-in rates and 2018 K-bar. The AUC also approved the customer and retailer terms and conditions (“T&Cs”) for electric distribution service and the customer contribution schedules and fee schedule. The approvals were effective as of January 1, 2021


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”).

Fortis’ 2020 PBR rates had been approved on an interim basis in Decision 24876-D01-2019.

PBR Rate Adjustments

PBR Indices and Annual Adjustments

(a) I-X Index

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

(b) Y and Z Factor Materiality Threshold

As Fortis did not apply for any new Y factor cost items or any Z factors, it did not calculate a Y and Z factor materiality threshold.

(c) Y and Z Factors

The AUC approved the applied for Y factor refund amount of $1.5 million. Fortis did not apply for any Z factor adjustments in 2021

(d) Q Value

The Consumers’ Coalition of Alberta (“CCA”) objected to Fortis’ applied for Q value of negative 2.14 percent. Given the AUC’s findings regarding Fortis’ billing determinant forecast, discussed below, the AUC denied Fortis’ applied for Q and approved a Q of negative 1.33 percent.

(e) K-Bar Factor

Fortis applied for a 2021 K-bar funding amount of $74.3 million, calculated as its 2021 required K-bar and adjustments to 2018 through 2020 K-bar amounts inclusive of carrying costs. Adjustments to 2018 through 2020 amounts were proposed to account for the approved 2016 and 2017 Alberta Electric System Operator (“AESO”) contribution capital tracker amounts, an update to the depreciation rate for AESO contributions, the actual 2019 cost of debt, and to reflect the final approved purchase price for the Crowsnest Pass and Fort Macleod distribution systems in accordance with Decisions 23961-D01-2019 and 23972-D01-2020.

The AUC took issue with Fortis’ billing determinants and, accordingly denied the applied for 2021 K-bar funding amount and approved a 2021 K-bar funding amount $71.5 million. This amount would be subject to a further true up for the 2021 actual approved cost of debt.

(f) K Factor for Type 1 Capital Funding

Fortis did not apply for any Type 1 capital funding for 2021. The AUC found Fortis’ calculation of its 2016 and 2017 K factor true-up amounts to have been reasonable. The 2021 K factor true-up refund amount of $1.2 million was approved.

(g) AESO Contributions Hybrid Deferral

Fortis applied for a 2021 AESO contributions hybrid deferral refund amount (“CHDRA”) of $25.8 million. This amount included the calculated 2021 capital funding for AESO contributions subject to the hybrid deferral account as well as several adjustments to the 2018 through 2020 amounts.

The AUC found that Fortis had complied by the directions made in Decision 23505-D01-2018 related to the 2021 AESO CHDRA and that Fortis had made appropriate adjustments in its calculations as required. Given the findings regarding Fortis’ billing determinant forecast discussed below, the AUC denied Fortis’ applied for 2021 AESO CHDRA and approved a 2021 AESO CHDRA of $26.2 million.

(h) Adjustment to the Depreciation Rate for the AESO Contributions

In response to a direction in Decision 24932-D01-2020, Fortis adjusted the depreciation rate used for its AESO contributions from 3.63 to 2.56 percent. The AUC approved the applied-for adjustments to the depreciation rate for Fortis’ AESO contributions

(i) Forecast Billing Determinants and Variance Analysis

Fortis provided detailed 2021 billing determinant forecasts based on the same methodology approved in Decision 24876-D01-2019, with the exception that it adjusted the forecasts to account for the impacts of the COVID-19 pandemic and coinciding low oil price environment.

The AUC found that the 2021 billing determinants were derived using the approved forecast methodologies, but with refinements to the forecast. The AUC noted that as per Decision 20414-D01-206 (Errata), no such changes to the forecasting methodology could be implemented unless otherwise ordered by the AUC.

Regarding the use of the Canadian Mortgage and Housing Corporation (“CMHC”) report, Fortis replaced the bank and conference Board of Canada (“BCBC”) forecasts for the Edmonton and Calgary regions with the lower CMHC forecasts. The AUC denied Fortis proposal to adjust its forecast for the number of housing starts and corresponding billing determinants using the CMHC report.

Regarding the use of quotients to adjust the forecast for the small general service, general service, and oil and gas rate classes, the AUC accepted Fortis’ calculation of the quotients based on the ratio of 2020 year-to-date actual billing determinants as temporary modifications to Fortis’ approved forecasting methodologies. The AUC found that Fortis did not calculate and apply quotients for all billing determinant categories for the rate classes where the use of quotients was proposed, and further found that they should be applied consistently.

Fortis was directed to, in its next annual PBR rate application, comment on the extent to which actual billing determinants throughout the billing determinants throughout the pandemic period should inform its 2022 billing determinant forecast. Further Fortis was to assess whether adjustments to its forecasting methodology, or the data used in the forecast, were necessary to develop forecasts that were as accurate as predictable.

While the variance for the exterior lighting rate class was significant, a new forecasting methodology had been applied for 2020 which was expected to reduce variances in the future.

2021 PBR Rates

Distribution Rates

Fortis provided bill impact schedules reflecting the 2021 rates that would go into effect on January 1, 2021. The AUC rejected a request from Obsidian Energy to dismiss any request for rate increases, noting that the total bill increase for a typical Rate 44/45 – Oil & Gas Service is estimated at 2.5 percent. The AUC accepted a Fortis proposal to mitigate the rate increase for the irrigation rate class to 10 percent by using the transmission adjustment rider to defer the collection of transmission-related revenue.

The AUC accepted the general principles and methodologies utilized by Fortis for calculating its 2021 PBR rates. Fortis’ 2021 PBR rates were approved on an interim basis effective January 1, 2020.

System Access Service Rates

Fortis indicated that its proposed 2021 system access service (“SAS”) rates reflected the rates applied for by the AESO in Proceeding 26054. The SAS payments forecast for distribution connected customers increased from the $634.458 million included in 2020 PBR rates, to $671.359 million for 2021. Fortis updated its 2021 Balancing Pool adjustment rider to align with the AESO’s Rider F rate of $2.3/MWh. The AUC approved the 2021 SAS rates as filed.

Other Matters

Terms and Conditions of Service

The AUC approved Fortis’ customer T&Cs, retailer T&Cs, customer contributions schedules and fee schedule.

Rate Schedule Wording Amendment for Municipal Assessment and Franchise Fee Riders

The AUC approved the applied-for wording changes made by Fortis as filed.

Financial Reporting Requirements and Senior Officer Attestation

The AUC found that Fortis complied with the financial reporting requirements, except for the ROE adjustment schedule. Fortis was directed to provide a ROE adjustment schedule for the years 2018 through 2020 as a post-disposition document in this proceeding.

Earning Carryover Mechanism Amounts in Rule 005 Reporting

The AUC found that Fortis’ existing Rule 005 reports contain the necessary information to allow any party to calculate the ROEs with the ECM included if desired. The AUC therefore found there to be limited value in having Fortis refile its Rule 005 report and denied a request to include earning carryover mechanism amounts.

Finalizing the Going-In Rates and Associated 2018 Capital Factors

The AUC approved Fortis’ going-in rates and 2018 capital factor, K-bar, provided in this proceeding, as final.

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