Electricity – Rates
In this decision, the AUC approved an application from Direct Energy Regulated Services (“DERS”) requesting approval of a negotiated settlement agreement (“NSA”) reached with respect to its 2020-2022 default rate tariff (“DRT”) and regulated rate tariff (“RRT”) application.
DERS performs the natural gas DRT and electricity RRT functions in the service territories of ATCO Gas and Pipelines Ltd. (“ATCO Gas”) and ATCO Electric Ltd., respectively. On December 21, 2021, DERS filed an application for approval of its DRT and RRT revenue requirements and associated rates for 2020-2022. Following the notice of application issued by the AUC, the Consumers’ Coalition of Alberta (“CCA”) and the Office of the Utilities Consumer Advocate (“UCA”) filed submissions.
On January 29, 2021, the AUC directed parties to proceed to mediation in an effort to reach a settlement of the application and to conclude the mediation no later than April 1, 2021. Following a notification from DERS on April 1, 2021, that a verbal agreement had been reached, DERS filed the NSA on April 23, 2021. The NSA consisted of a signed agreement between the parties and six appendixes to the signed agreement.
Statutory and Rule Requirements for Approval of a Negotiated Settlement Agreement
Section 8 of Rule 018: Rules on Negotiated Settlements sets out rules and requirements associated with negotiated settlements. Rule 018 requires that the AUC assess whether the settlement results in rates and terms and conditions that are just and reasonable and intervene if it determines that a unanimous settlement is patently against the public interest or contrary to law.
Fairness of the Negotiated Settlement Process
The AUC found that parties had enough opportunity and information to participate meaningfully in the negotiated settlement process. Further given the well-developed record, the period of two months of negotiations, along with the fact that no concerns were raised regarding the negotiated settlement process and the involvement of the two qualified mediators in the negotiations, as directed by the AUC, the AUC was satisfied that the negotiated settlement process was fair.
The AUC is required to determine if the NSA is in the public interest. This includes a determination of whether the resulting rates are just and reasonable. Section 8(2) of Rule 018 required the AUC to intervene if it determines that a unanimous settlement is patently against the public interest or contrary to law.
The AUC noted that the NSA represents a unanimous agreement reached through a negotiation process involving both the CCA and the UCA. This fact, and the fact that the CCA and the UCA collectively represent the interests of a majority of DERS’ RRT and DRT customers, supported the AUC’s finding that the NSA is in the public interest.
Analysis of Five Principal Aspects in the NSA
(a) Revised revenue requirement forecasts, inputs and assumptions;
The AUC noted that the DRT and RRT revenue requirements are based on forecast costs and revenues. Many of the inputs used to calculate the revised revenue requirements were the subject of updated information provided through DERS’ IR responses. DERS stated that the net result is a reduction to aggregate DRT and RRT revenue requirements relative to the original application. The AUC noted the reduction to aggregate DRT and RRT revenue requirements and that the rates in the NSA are derived from the agreed-upon revenue requirements by an allocation method that had been approved by the AUC most recently in Decision 24237-D01-2019.
The AUC determined that the increase in rates, compared to 2019 approved rates, resulting from the revenue requirements in the NSA is reasonable because the impact on rates is minimal.
(b) Bad debt deferral account and late payment charge deferral account;
DERS and interveners agreed to implement deferral accounts for bad debt and late payment charge. They further agreed that the forecast of $25,072,500 for 2021 and $21,062,000 for 2022 on bad debt and late payment charge would be subject to deferral account treatment.
The bad debt deferral account includes an incentive mechanism that results in DERS carrying some risk. The mechanism limits DERS’ risk exposure to exceptionally high bad debt and allows DERS to profit from and share the benefits of exceptionally low bad debt. The incentive mechanism also benefits customers by shielding them from high bad debt.
The AUC recognized that differing assumptions factoring into bad debt forecasts would lead to wide-ranging results. The AUC considered that the incentive mechanism, which provides both risk or reward to DERS and its customers, is an appropriate solution to approach the uncertain outcomes.
(c) Revised DRT and RRT revenue requirements and Revised DRT and RRT rate schedules
DERS advised that some of the revised revenue requirement inputs are interdependent, and because they were agreed to in the aggregate for both DRT and RRT, they are not in all cases consistent with the corresponding figures in the revised revenue requirement models. In the case of any inconsistency, the parties agreed that the figures in the revised revenue requirement models prevail.
The AUC considered the revised DRT and RRT 2020 rates to be final and that 2021 and 2022 rates are final, subject to the finalization of the bad debt and late payment charge deferral accounts.
(d) Commitments for future action.
The AUC acknowledged that the parties agreed to future actions, including actions to ensure that information on bad debt expense and late payment charge revenue is up to date and that all parties are informed of up-to-date information.
Findings on Rates for Gas Cost Flow-Through Rate
The DRT energy-related rates affecting DERS’ gas cost flow-through rate (“GCFR”) filings are the fixed monthly dollar amount related to procurement labour, and the working capital, credit charges, energy-related bad debt and late payment charge are on a $/GJ basis. In addition to the GCFR, DERS applies for approval of Rider F in its required monthly filings. One of the inputs to Rider F is the DRT return margin, which is a rate requested in DERS’ non-energy applications.
The AUC reviewed the DRT energy-related rates and approved these rates as inputs to DERS’ monthly gas filings, on a final basis, with certain exceptions. The Commission considered that the DRT energy-related rates not subject to deferral account treatment are final for 2020, 2021 and 2022. The DRT energy-related rate is final for 2020, and the 2021 and 2022 rates are approved on a final basis, subject to the finalization of the bad debt and late payment charge deferral accounts.
Approval of the NSA
The AUC found that the settlement will result in just and reasonable rates and, accordingly, approved the NSA.
Matters Outside of the NSA
Finding – Compliance with Decision 24237-D01-2019
In Decision 24237-D01-2019, the AUC issued directions requiring DERS to file further information, detail, and an explanation regarding its cost allocation methodology in certain areas, what costs are included in which cost categories. DERS was further directed to provide a more detailed variance reporting on prior years’ actual and approved corporate service costs and what corporate services DERS required, and how these were allocated.
The AUC was satisfied that additional information submitted by DERS in response to these directions clarified outstanding issues and uncertainties. Accordingly, the AUC found that DERS complied with the directions.
True-up of Interim Rates
As DERS operated under approved interim rates in 2020 and continues to operate under interim rates in 2021, the interim rates should be trued up to the final rates for 2020 and 2021 approved by the AUC in this decision. DERS was directed to file a separate application for the true-up of the approved 2020 and 2021 rates after it has completed billing on interim rates for service up to June 30, 2021.