Rates for the electric and natural gas distribution facility owners (“DFOs”) under the jurisdiction of the AUC are currently regulated under performance-based regulation (“PBR”) plans established in Decision 20414-D01-2016 (Errata). At the end of the PBR term, utility revenues and costs are commonly realigned for the benefit of the customers and utilities. To the extent a utility was successful in achieving efficiencies that resulted in cost savings during a PBR plan, relinking of revenues and costs should reflect these realized savings in rates, thereby benefitting customers following the completion of the PBR plan.
Given that less than two years remain in the current performance-based regulation term, the AUC wishes to engage the DFOs and customer groups to structurally assess the approach to distribution rate regulation in Alberta following the expiration of the PBR plans on December 31, 2022. Accordingly, the AUC initiated two streamlined related processes: (i) review and assessment of legacy PBR performance; and (ii) a cost of service review to establish 2023 rates.
Evaluation of PBR in Alberta
The majority of regulated DFOs in Alberta have had rates set under a PBR framework since 2013. Given the near-term completion of the present PBR plans, the AUC saw merit in evaluating the experience acquired with PBR and identifying successes and shortcomings of the first and second PBR plans.
On January 28, 2021, the City of Calgary requested that, as sufficient experience and information are now available to conduct a review, the AUC initiate a review of PBR to assess whether PBR should be continued beyond 2022 and if so, on what terms.
The AUC will gather input and feedback related to the evaluation of PBR in Alberta through its eFiling System under Proceeding 26356. This will be a streamlined, rather than a traditional, proceeding with the primary purpose of facilitating stakeholder input.
Cost of Service Review to Establish 2023 Rates
The AUC found it necessary to, following the end of the active PBR plans in 2022, review the DFOs’ costs and revenues to achieve three objectives:
· to identify efficiencies achieved by the DFOs during the 2018-2022 PBR term and pass the benefits on the customers;
· to realign the DFOs’ costs and revenues and examine the DFO’s forecast costs and rates to ensure they are reflective of the economic situation in Alberta; and
· to assess actual DFO costs in the 2018-2022 PBR term for the purpose of approving the 2023 opening rate base and to ensure forecasts are justified based on the prior-period actuals.
The AUC determined to proceed with a one-year cost of service review based on 2023 forecast costs, including the assessment of prudence of actual costs incurred by the DFOs in the 2018-2022 PBR term. It also decided that the rates approved for 2023 under this cost of service review could be used as going-in rates for subsequent PBR terms after considering the PBR evaluation initiative. This would further enhance regulatory efficiency.
The AUC recognized the potential for significant regulatory burden associated with conducting a cost of service review of the six DFO applications. It is looking to employ alternatives to a traditional review of a utilities’ forecast costs. The AUC is looking to adopt a process that requires a year or less of process time and provides certainty to DFOs and customers through prospective ratemaking. The AUC started Proceeding 26354 to determine streamlined alternatives to the traditional line-by-line review of forecast costs.