Tariff – Electricity
In this decision, the AUC denied the application from the University of Calgary (“U of C”) to receive a duplication avoidance tariff (“DAT”) from ENMAX Power Corporation (“EPC”).
The U of C explained that its first stage application would address whether a bypass avoidance rate was required to respond to a bypass threat. The AUC accepted the staged approach proposed by the U of C to prevent the need for EPC to prepare an application if this Stage 1 application did not advance further. The AUC ruled that the focus of the first stage application was to test the credibility of the threat of bypass.
DATs have generally been granted in response to an end-user customer’s ability and threat to construct its own facilities to bypass the existing system to reduce its regulated utility charges. These facilities could cause harm to the regulated utility, and to its other customers, by reducing the regulated utility’s revenues without an equivalent decrease to its costs.
In considering DAT applications, the predecessor of the AUC, the Alberta Energy and Utilities Board (“the Board”), had typically considered the following criteria:
(a) The bypass avoidance rate is required to respond to a credible bypass threat;
(b) The bypass avoidance rate must exceed the long-run incremental cost of service;
(c) The bypass avoidance rate is no more attractive than is reasonably required to avoid duplicate facilities; and
(d) The cost of offering the bypass avoidance rate is appropriately shared between other utility customers and the utility shareholders.
Details of the Application
The U of C submitted a DAT application on the premise that it could construct additional facilities (“cable upgrades”). The cable upgrades would result in a greater interconnection of its main campus electrical loads. The U of C submitted that if the cable upgrade were constructed, all six connections to the EPC distribution system would be totalized under one Rate Code D600 – Large Distributed Generation Account, rather than the two currently billed under D600.
The U of C submitted that with the cable upgrades in place, four of its current connections to EPC’s distribution system could become redundant and not be utilized during normal operations. These connections would be retained for use in situations where the two primary connections were unable to fully supply the main campus’s electrical load.
Had the cable upgrade been in place in 2019, the U of C estimated that it would have saved $4.4 million in electric utility costs in that year. It estimated the cost to construct to be around $880,735 and the cost to maintain the cable upgrades to be approximately $500 per month. It submitted that the cable upgrade would be economical.
The AUC noted that an applicant might be eligible to receive specialized tariff treatment in the form of a DAT in circumstances where the threat of the bypass is credible and where preventing it through a demonstration of benefits is in the public interest.
The AUC stated that the underlying inquiry at this stage of the application should focus on whether a credible bypass proposal exists, and if so, whether it poses a threat in the form of harm to other customers, such that it is in the public interest to mitigate that harm by developing a DAT. This inquiry should also assess whether the construction of facilities that do not result in the stranding of existing regulated utility assets consists of a credible bypass, and furthermore, one that poses a threat, triggering the need for specialized tariff treatment to avoid construction of the proposed facilities.
Does the U of C’s Proposal Result in a Credible Bypass of Distribution Facilities?
The AUC could not conclude that the cable upgrades comprise a credible proposal to bypass the distribution system.
The U of C submitted that the cable upgrade would constitute a bypass of the distribution system. With the installation of the cable upgrades, the four connections billed under the D410 account would be retained for use as backup supply during abnormal situations. The U of C would pay a dedicated facilities’ charge for these connections. The AUC noted that additional information supplied in information request responses presented a conflicting view on whether all existing regulated assets would be retained and used by the U of C.
The U of C submitted that if its load were to grow above the limit that can be supplied by the two D600 feeders, one or more of the existing D410 feeders would have to be used during normal operations, even with the cable upgrades installed. The U of C’s maximum load at the time of the application was 22 megawatts, and the capacity of the two D600 feeders 26 megavolt-amperes.
The AUC found it unclear whether the proposed cable upgrade would result in the U of C being able to construct alternate facilities to meet its own electricity requirements, thereby eliminating its need for some or all the existing regulated utility facilities that previously served the customer. The AUC was not persuaded that existing primary feeders becoming backup feeders or feeders not used during normal operations eliminated the need for regulated distribution facilities to meet the U of C’s electricity requirements. If substantially all the existing regulated facilities are still required to provide service to a customer, then a bypass of the interconnected electric system has not occurred. The U of C did not provide suitable evidence on this point to allow the AUC to decide that its facilities, as proposed, constitute a bypass of EPC’s distribution system.
Does the Proposal Cause Harm to a Regulated Utility or to its Customers?
The U of C submitted calculations detailing how the cable upgrades would reduce the amounts it pays annually for its electric utility services, as well as how EPC’s charges from the Alberta Electric System Operator (“AESO”) could change if the cable upgrades were constructed.
While estimating that the cable upgrades would reduce its electric utility costs by $4.4 million annually, the U of C also estimated that the cable upgrades could increase EPC’s charges from the AESO by up to $560,000 annually. The AUC could not rely on the U of C’s calculations, as they contained material errors related to the calculation of its estimated savings and the calculation of the change in EPC’s transmission system access service charge from the AESO. The U of C also submitted that the cable upgrades would increase its annual distribution charges, resulting in increased distribution revenue to EPC. This would be inconsistent with the purpose of granting a DAT.
As a result, the AUC could not conclusively determine how EPC’s revenues and costs would be affected if the cable upgrades were constructed or if EPC’s distribution customers or all customers of the transmission system in Alberta would be harmed by the construction of the cable upgrades. It was, therefore, unable to conclude that, even if it were credible, the proposed bypass would constitute a threat to EPC or its other customers.
Is There Material Benefit from the Development of a DAT?
For a DAT to be in the public interest, there must be a material benefit associated with its approval that warrants the effort that is required by all parties to develop, approve and implement the DAT. The benefits can take various forms, including the minimization of potential revenue loss to a regulated utility and the prevention of stranded assets. The U of C requested that its DAT contain a one-time payment to EPC of $880,735 and monthly payments of $500.
The AUC acknowledged that the specific terms of a DAT fall outside the scope of the Stage 1 application. The AUC did, however, not view the potential benefits from the development of a DAT to be sufficiently material in this case to warrant the advancement of the application.
The AUC denied the application from the U of C for a duplication avoidance tariff.