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EPCOR Distribution and Transmission Inc. Correction of 2020 and 2021 Maximum Investment Levels, AUC Decision 26648-D01-2021

Link to Decision Summarized

Rates – Maximum Investment Levels


In this decision, the AUC partially approved the request made by EPCOR Distribution & Transmission Inc. (“EPCOR”) to correct its 2020 and 2021 maximum investment levels (“MILs”).

EPCOR’s corrected MILs for qualifying projects beginning July 30, 2021, and onward were approved. For qualifying projects undertaken before that date, the AUC noted that EPCOR may choose to refund amounts accrued due to its error in the calculation of its 2020 and 2021 MILs. However, the AUC did not approve the tariff changes that would result from addressing the error for 2020 and 2021 as applied for by EPCOR.

Background

EPCOR applied to the AUC to correct its MILs. EPCOR explained that an error initially discovered and addressed in its 2019 annual performance-based regulation (“PBR”) rate adjustment filing was inadvertently carried forward into the 2020 and 2021 annual PBR filings. This error, remedied by EPCOR in this filing, resulted in corrected 2020 and 2021 MIL amounts.

Analysis

Retroactively Changing MILs

EPCOR’s MIL amounts for 2020 and 2021 had previously been finalized by the AUC. Accordingly, the AUC found that ordering a refund and allowing EPCOR to earn a return on the marginal investment for the period of January 1, 2020, to July 29, 2021, would constitute impermissible retroactive ratemaking.

EPCOR’s application would result in a refund of money to developers and others. In return, EPCOR would have an opportunity to invest incrementally in its distribution system. However, the AUC considered that allowing EPCOR to true up and earn a return on a past error is counter to sound ratemaking practices. Approval of this application as filed could result in an incentive for other distribution utilities to search through finalized rates in an attempt to benefit from an error to change rates or earn a higher return on its capital investment.

Conclusion

Because of its concerns with retroactive ratemaking, the AUC approved EPCOR’s corrected MILs for qualifying projects beginning July 30, 2021. For projects undertaken from January 1, 2020, to July 29, 2021, where EPCOR invested in accordance with the MILs approved in Decision 24882-D01-2019 or Decision 25866-D01-2020, the AUC could not approve the tariff changes that would result in EPCOR adjusting its MILs retroactively.

The AUC acknowledged EPCOR’s submission that expensing the marginal investment would harm EPCOR and lead to additional expenses in 2021 that were not considered in the establishment of its PBR rates. Therefore, as EPCOR has been making investments in accordance with its finalized terms and conditions of service in 2020 and 2021, it is under no obligation to provide refunds and expense the resulting marginal investment from projects undergone on or prior to July 29, 2021.

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