Interim Rates – RRO Non-Energy
In this decision, the AUC approved ENMAX Energy Corporation’s (“EEC”) ‘s regulated rate option (“RRO”) non-energy charges for 2021.
The AUC approved a COVID-19 deferral account for EEC’s bad debt expenses, RRO site counts, final notice fees, and late payment charges. Considering the effects of the pandemic and financial situation that has been imposed on many customers, the AUC noted its goal to avoid rate increases and keep rates stable for customers. Given the approval of a deferral account for EEC’s bad debt expense, the AUC would keep rates stable for 2021 by approving an adjusted forecast for EEC’s 2021 bad debt expense.
The AUC denied EEC’s proposal to change how billing and customer care (“B&CC”) costs are allocated. Also, it disallowed the proposed increase to shared services costs and a proposed cost increase resulting from the movement of EEC’s RRO operations from ENMAX Power Corporation (“EPC”) to EEC.
The AUC approved a non-labour escalation factor of 1.8 per cent and a 0.0 per cent salary escalation factor for both bargaining unit and management and profession employees; final 2021 non-energy rates of $0.2201 per day for residential customers, and $0.1975 per day for small commercial customers, subject to any adjustments necessary for disposition of the COVID-19 deferral account.
Issues Examined in This Decision
COVID-19 Deferral Account
(a) Request for Deferral Account Treatment for Bad Debt Expense
EEC requested a forecast bad debt expense of $4.5 million for 2021, more than double the approved bad debt forecasts for 2019 and 2020. EEC submitted that deferral account treatment of bad debt expense would protect both EEC and its customers from the risk of over-or under-recovery of bad debt expense due to the pandemic.
The AUC agreed with EEC that there is no consensus on when the economic conditions will recover from the economic downturn. The AUC noted that on the balance of the evidence provided, it was difficult to determine with any precision a reasonable bad debt expense forecast for 2021. The AUC found that the increased bad debt is directly related to the COVID-19 pandemic and that the effects of the pandemic are beyond EEC’s control. The AUC approved deferral account treatment for EEC’s 2021 bad debt expense.
(b) Request for Deferral Account Treatment for Site Counts
EEC proposed to include its 2021 forecast RRO site count in its COVID-19 deferral account. Following an information request from the AUC, EEC provided updated site counts and a comparison of those updated numbers to its original forecasts. EEC stated that there was a less aggressive downward trend in RRO sites compared to the original forecast.
The AUC found that the information provided by EEC shows that the rate of decline in RRO site counts was impacted by the COVID-19 pandemic and health measures implemented in Alberta. The AUC approved the inclusion of RRO site counts in the COVID-19 deferral account for the purpose of calculating the daily administration charge.
(c) Request for Deferral Account Treatment for Other Cost Items
EEC proposed to include administration costs and call center costs in its COVID-19 deferral account. The AUC found that EEC had not clearly explained what the noted costs include. The proposal to include administration costs and call center costs failed the deferral account test of materiality, uncertainty or difficulty in forecasting, and the direct relation of incremental costs to the COVID-19 pandemic. The AUC denied EEC’s proposal to include administration costs and call center costs in its COVID-19 deferral account.
EEC also proposed that if it identifies other cost categories that are materially affected by the pandemic, it may apply to include those costs in the deferral account when the deferral account is reconciled. The AUC denied this proposal, noting that the only items that may be included in EEC’s 2021 COVID-19 deferral account are those that are approved in this decision.
(d) Restricting the COVID-19 Deferral Account to Only Pre-Existing RRO Customers
The Office of the Utilities Consumer Advocate (“UCA”) and InterGroup expressed concerns with the possibility that deferral account treatment for bad debt could create an incentive for EEC’s competitive retailer to drop sites to the RRO.
The AUC found that there was not enough evidence to support either the UCA’s premise or EEC’s position supporting the contrary. The AUC accordingly dismissed the UCA’s argument in this regard. However, the AUC noted its interest in exploring the statistics further in a future proceeding, relating to the number of customers dropped by EEC’s competitive retailer and taken up by EEC’s RRO during various time periods and economic circumstances. The AUC directed EEC to provide evidence on these statistics in its next RRO non-energy tariff application.
(e) Disposition of COVID-19 Deferral Account
EEC stated that it would apply for the disposition of its 2021 COVID-19 deferral account “once the disruption caused by the pandemic is materially reduced, and actual costs are available and have been finalized.” The AUC agreed with concerns raised by interveners that basing the disposition of the deferral account on a material reduction in the disruption caused by the pandemic unnecessarily creates significant uncertainty for customers and the AUC. The AUC directed EEC to file for disposition of its COVID-19 deferral account once it has actual site count and bad debt figures for 2021.
Bad Debt Expense
The AUC repeated that there was no consensus at the time of this decision on when economic conditions would recover. This makes it difficult to determine a reasonable forecast for EEC’s 2021 bad debt expense. The AUC denied EEC’s requested increase in its forecast for bad debt expense, subject to the finalization of bad debt expense in the disposition of the COVID-19 deferral account in a future application.
Billing and Customer Care Allocation
ENMAX proposed changes to the primary and secondary allocators for B&CC revenue cycle operations for the subfunctions of revenue cycle operations, bill production, and payment and collections costs (third party and fees). The proposed changes to EEC’s B&CC allocation methodology result in an increase in B&CC costs allocated to the RRO from $8.3 million to $9.2 million.
The AUC assesses an allocation method to ensure that it allocated costs accurately and does not shift costs to regulated customers. Accordingly, the AUC was not prepared to approve piecemeal changes to the B&CC methodology that result in costs of approximately $900,000 allocated to the RRO. The AUC denied EEC’s proposal to adopt new cost allocators for B&CC costs for 2021 and directed EEC to file B&CC cost forecasts determined using the existing methodology as part of its application for disposition of the COVID-19 deferral account.
Corporate and Shared Services Costs
Shared services costs are costs charged by ENMAX Corporation to its various business units, including EEC as the RRO provider. For 2021, EEC proposed to allocate an amount of $1.436 million to the RRO for shared service costs, an increase of approximately $180,000 over the approved 2020 costs.
The AUC found that EEC’s request for $1.436 million was not reasonably supported. The AUC approved the continuation of the previously approved shared services amount of $1.256 million. This is a reduction of approximately $180,000 to the applied-for forecast costs for shared services, and this reduction includes the disallowance of $60,000 allocated to the centralization of safety, environment, and support services.
Restructuring of ENMAX Corporation
As of January 1, 2021, the task to support the RRO was moved from EPC to EEC. EEC provides the RRO service to customers and provides non-regulated or competitive electricity services. EEC noted that the manner in which the management and financial services costs were determined had not changed, and there is no material impact on its proposed revenue requirement. The difference between the $502,000 forecast and the $462,000 that would have been allocated to the RRO business unit by EPC was due to a change in the level of staff members performing the tasks.
The AUC approved $462,000 for management and financial services, as proposed by the Consumers Coalition of Alberta (“CCA”) and the UCA. This amount would have been allocated applying the previously approved common costs allocation model. The AUC approved RRO operational costs in the amount of $1.537 million.
Salary and Non-Labour Escalation Factors
(a) Non-Labour Escalation Factor
EEC proposed to escalate its non-labour costs by 1.9 per cent. It noted the total cost increase is $0.1 million for 2021. The AUC approved the non-labour escalator proposed by the UCA. The UCA proposed to use the 2021 1.8 per cent Alberta consumer price index (“CPI”) forecast that includes information from the Fall of 2020. This was the most recently available outlook at the time EEC filed its application.
(b) Salary Escalation Factor
EEC’s 2021 forecast increase for the cost of labour is 2.0 per cent and 3.0 per cent for bargaining unit employees (“CUPE”) and management and professional (“MP”) salary increases, respectively. EEC’s 2.0 per cent bargaining unit forecast increase for 2021 is based on information from ATCO Electric, ATCO Power, and Capital Power.
The UCA proposed to use for 2021 the forecast Alberta average wage rate increase for all industries from the Calgary and Region Economic Outlook 2020-2025 (Fall 2020), which is the most recent outlook and a better proxy for the current economic conditions. The AUC accepted this evidence and directed EEC to update its bargaining unit salary increase from 2.0 per cent to 0.0 per cent, as part of EEC’s application for disposition of the COVID-19 deferral account.
The AUC determined that EEC’s position on a 3.0 per cent MP salary escalator for 2021 is discordant with actual salary information available, particularly because there has been a salary freeze by ENMAX Corporation in 2020. The AUC found a 0.0 per cent increase for 2021 MP staff to be reasonable.
Final Notice Fees, Late Payment Charges and Customer Resolution Fees
The AUC approved the inclusion of 2021 final notice fees and late payment charges in EEC’s COVID-19 deferral account. It approved 1.8 per cent as the escalation factor for 2021 customer resolution costs, consistent with the non-salary escalation factor approved in this decision.
Final 2021 Non-Energy Rates and the Need for Compliance Filing to this Decision
EEC was directed to maintain final non-energy rates for 2021 at the level of EEC’s 2020 final non-energy rates. Accordingly, the AUC approved final 2021 daily non-energy administration charges of $0.2201 per day for residential customers, and $0.1975 per day for small commercial customers, subject to adjustments necessary for disposition of the COVID-19 deferral account