Gas Utilities – Terms and Conditions
In this decision, the AUC approved changes made by ATCO Gas to its gas settlement process, associated changes to its Retailer Terms and Conditions (“T&Cs”) for Gas Distribution Service, and adjust its tolerance zones based on distribution system balancing requirements rather than maintaining alignment with those of NGTL. The AUC denied the request to recover its Imbalance Reporting Information System (“IRIS”) upgrade costs through its Load Balancing Deferral Account (“LBDA”). It directed ATCO Gas to cover these costs using the indexing (I-X) mechanism under performance-based regulation (“PBR”).
Details of the Application and Procedural Background
ATCO Gas applied to change from an “in kind” to a financial settlement process. ATCO Gas would use the average gas price on the day of use to determine retailers’ financial accounts. This change would eliminate the need for retailers to purchase gas from or sell gas to ATCO Gas to balance their accounts. To implement the changes, ATCO Gas proposed changes to its Retailers T&Cs for Gas Distribution Service and to adjust its tolerance zones based on distribution system balancing requirements rather than maintaining alignment with those of NGTL. As well, ATCO Gas must upgrade its IRIS. The costs to perform this upgrade were estimated at $170,000, and it requested recovery of these costs through its LBDA. ATCO Gas advised that its support for the proposed changes was contingent upon the ability to recover these costs.
Discussion of Issues and AUC Findings
Changes to the Gas Settlement Process Methodology
The AUC determined that the “in kind” settlement process employed by ATCO Gas at the time of the application is vulnerable to price differentials due to the lag between the initial gas allocation from ATCO Gas to retailers and the settlement adjustment.
The AUC supported the implementation of the new settlement process. It found that the new settlement process would eliminate the price fluctuations between the day-of-use price and the prices used for each of the settlement intervals. The new settlement process, the associated changes to ATCO Gas’s Retailer T&Cs for Gas Distribution Service, and the removal of the requirement for its imbalance window to match the transmission balance zone of NGTL to effect this change was approved.
Recovery of the IRIS Upgrade Costs
IRIS is ATCO Gas’s program that contains retailer accounts and is used by retailers and ATCO Gas to monitor the daily imbalance between gas supply and customer consumption, to issue gas supply nominations, and to administer imbalance purchases/sales. ATCO Gas estimated that the IRIS upgrade costs to implement the process change are approximately $170,000 and sought to recover those costs through its LBDA.
ATCO Gas stated that the IRIS upgrade costs should not be recovered through the I-X mechanism under PBR because the change is not required to maintain service quality for its customers or to generate efficiencies for ATCO Gas. Rather, because the proposed changes are for the benefit of retailers and their customers, the decision to recover the costs through the LBDA would be consistent with cost causation principles.
The AUC found that recovery of this IRIS upgrade should be covered by the I-X mechanism under PBR. The AUC noted that ATCO Gas submitted no evidence to support why it could recover the IRIS upgrade costs for previous updates under the I-X mechanism but was now seeking to recover the $170,000 IRIS upgrade costs outside of the PBR funding mechanism.
Investigation of ATCO Gas’ Forecasting Methodology
The Consumers’ Coalition of Alberta (”CCA”) raised concerns regarding the estimations that make up ATCO Gas’ LBDA balance. Rather than randomly fluctuating, the forecasts tended to be only in one direction, leading to retailers being overcharged.
The AUC noted that if ATCO Gas’ initial forecasting methodology is flawed in a way that results in bias against the gas retailers, the proposed changes to the gas settlement process may not fully address significant overcharges of the retailers. It noted that it did not have the evidence to determine if the forecasts are biased, as alleged by the CCA. However, the AUC found a review of the methodology to be warranted.
To review the efficiency of the changes proposed to the settlement process, the AUC ordered that ATCO Gas submit a review of the operation of the financial gas settlement process one year after its implementation. This review should demonstrate if the changes have eliminated the issues surrounding retailer cash flow volatility and have removed potential forecasting bias against retailers. ATCO Gas was also required to provide a review of the accuracy of its daily forecast settlement system.
The AUC directed ATCO Gas to implement the changes approved in this decision as soon as practicable and no later than the first day of use for the first of the month following the date of this decision. The financial gas settlement process would then commence in the corresponding Settlement Run 1 based on that day of use.