Electricity – Rates
In this decision, the AUC considered the application from ATCO Electric Ltd. (“AE”) and ATCO Pipelines Ltd. (together, the “ATCO Utilities”) in response to the AUC’s direction regarding their respective treatment of the deferred amounts resulting from the 2021 rate relief approved in Decision 26170-D01-2020.
The AUC approved a collection for the 2021 deferred amounts related to the ATCO Utilities’ 2021 distribution rates beginning January 1, 2022, and the implementation of a 12-month shortfall rider (Rider S) to collect outstanding depreciation expense balances from 2018 to 2020 effective July 1, 2021, for ATCO Gas and Pipelines (“ATCO Gas”) The AUC also approved carrying costs on the 2021 deferred amounts.
Introduction and Background
In Decision 26170-D01-2020, the AUC approved a rate freeze in respect of the ATCO Utilities’ 2020 electricity and gas rates. This deferral of the 2021 distribution rates increase did not extend to flow-through charges, rate riders of the 2021 electric transmission access rates, and went into effect on January 1, 2021.
In response to directions issued by the AUC in Decision 26170-D01-2020, the ATCO Utilities filed the application subject to the current decision to address the collection of the 2021 deferred amount from their respective electricity and gas distribution customers.
The Magnitude of 2021 Deferred Amounts
The ATCO Utilities estimated the 2021 deferred amounts, prior to carrying costs, to be $62 million for AE and $53 million for ATCO Gas (net of Rider S) by the end of 2021. These amounts will be captured in a deferral account and recorded monthly.
The ATCO Utilities calculated the estimated 2021 deferred amounts by comparing the rates that have been in place for 2017 to the interim rates approved in Decision 26170-D01-2020 for both utilities. The deferred amounts were calculated using the forecast billing determinants as approved in their respective 2021 annual performance-based regulation (“PBR”) rate adjustment decisions.
ATCO Gas indicated that its approved 2021 PBR rates included approval of the collection of depreciation expenses balances of approximately $74 million from 2018 to 2020 through Rider S in 2021 and 2022. The total impact of the 2021 rate deferral for ATCO Gas was estimated to be $91 million on December 31, 2021, before carrying costs.
The AUC was satisfied with the calculations used to determine the estimated 2021 deferred amounts. The AUC was also satisfied by the methodology proposed by the ATCO Utilities that will determine the actual 2021 deferred amounts on a monthly basis using actual customer billing determinants. This method will reflect the revenue they would have collected if the 2021 distribution rates had been in place.
The Effective Date and the Time Period for Collection of 2021 Deferred Amounts Through Customer Rates
The AUC reviewed multiple collection period scenarios provided by the ATCO Utilities. It determined that the collection by each utility should begin as soon as possible to balance the effects of rate shock and intergenerational inequity and to reduce carrying costs. In response to an AUC information request, the ATCO Utilities provided estimated customer bill impacts for different collection scenarios over different time periods between 2020 and 2025.
Each of the ATCO Utilities was directed to, as part of their 2022 annual PBR rate adjustment filings, submit their individual plans to implement and collect the 2021 deferred amounts starting January 1, 2022. They were further directed to provide the forecasted customer rate impacts and any rate shock mitigation proposals to ensure there is no rate shock on customer bills as a result of the distribution rate increases over the two-year periods starting January 1, 2022, and January 1, 2024.
While it preferred that the 2021 deferred amounts be collected over a two-year period, the AUC noted that, because of rate shock mitigation, the collection period might need to be longer upon review of each of the ATCO Utilities Implementation plans.
Carrying Costs Applied to the 2021 Deferred Amounts
In situations such as the one in this application, where there is a lag between the time when costs are incurred, and when those costs are recovered through the implementation of the necessary rate adjustment, the AUC can approve the payment of interest on adjustments of utility costs or rates.
The AUC determined that applying the interest rate according to Rule 023 to determine the carrying costs is reasonable and an established method. The AUC had approved this method for the calculation of similar deferred amounts in previous PBR rate adjustment decisions. The ATCO Utilities were directed to apply Rule 023 to calculate the carrying costs for their respective 2021 deferred amounts as part of their respective 2022 annual PBR rate adjustment filings.
The ATCO Utilities were ordered to submit their respective individual plans to implement and collect the 2021 deferred amounts beginning on January 1, 2022, as part of its 2022 annual PBR rate adjustment filing.