Rates – Electricity
The Alberta Electric System Operator (“AESO”) applied for approval of a new bulk and regional rate design (the “Proposed Rate Design”).
In the AESO’s view, the current rate design does not recognize that an increasing amount of transmission is driven by investments to accommodate the flow of in-merit energy. The AESO also asserted that there was cross-subsidization resulting from the coincident peak (“12CP”) billing determinant charge avoidance.
More specifically, the AESO proposed changes to the demand transmission service rate (“Rate DTS”), the demand opportunity service rate (“DOS”), the export opportunity service (“XOS”) and export opportunity merchant service (“XOM”) rates, and certain payment in lieu of notice (“PILON”) provisions in its terms and conditions. A mitigation strategy for customers materially impacted by the Proposed Rate Design was also included as part of the application.
The AUC denied the application for the Proposed Rate Design (and the alternative rate designs proposed by some interveners), except for the PILON waiver applicability to sites that have not increased contract capacity in the last five years pursuant to s. 5.3(6) of the PILON terms and conditions.
The AUC accepted that the proposed changes to s. 5.3(6) of the PILON terms and conditions will aid in incenting market participants to recontract at a level that reflects their current use of the system. The AUC directed the AESO to file a compliance filing to reflect the approved changes to s. 5.3(6) of its PILON terms and conditions by January 15, 2023.
The AUC directed the AESO to re-file its bulk and regional and Rate DOS rate design application, taking into account the guidance, directions and findings provided in this decision, by January 31, 2025.
Finally, the AUC directed the continuing operation of the current rate design until further order or direction by the AUC.
Electric Utilities Act, SA 2003, c E-5.1 – ss. 14, 30, 121.
Transmission Regulation, Alta Reg 86/2007 – ss. 15(1)(e)(f), 47.
The AUC found that the Proposed Rate Design sends the following inappropriate price signals to customers:
(a) charges based on average cost causation (which does not reflect their locational dependence or when they were caused), which invalidates the relationship between the costs and consumption;
(b) an avoidable 12CP charge to collect historical or “sunk” transmission costs; and
(c) greatly increased all-hours energy charges to collect sunk transmission costs, which penalize the most efficient users of the system and may encourage system avoidance by them, and dissuade the use of surplus off-peak capacity.
The AUC was of the view that inappropriate signals result in a rate design that may not be durable, predictable, or stable. The AUC found that the focus of cost recovery must shift from broadly relying on cost causation principles to inform the development of price signals and fair rates to a more narrow application of cost causation focused on the efficient use of surplus off-peak transmission capacity as well as fairness in sunk cost recovery.
The AUC directed the AESO to avoid using the 12CP charge in the next rate design and, instead, propose billing determinants that more broadly reflect on-peak consumption and are more difficult to avoid. The AUC also determined that there was a significant risk that rate DTS could be cannibalized by the proposed modernized Rate DOS. The AUC therefore found that the proposed modernized Rate DOS is not just and reasonable.
The AUC agreed with certain parties that the design proposed by the AESO’s expert results in an excessive primary charge for Rates XOS and XOM because the energy charge component of the AESO’s Proposed Rate Design for Rate DTS is carried through mechanically, which is contrary to the rate principles specific to opportunity services. Accordingly, the AUC denied the proposed changes to Rates XOS and XOM.
The AUC determined that the amendments to s. 5.3(6) of the PILON terms and conditions, as proposed by the AESO, will incentivize market participants to recontract at a level that reflects their current use of the system. The AUC therefore found the amendments to be just and reasonable and approved them.
Since the AUC denied the Proposed Rate Design, it was unnecessary to make any findings regarding the mitigation of rate impacts to consumers at this time.