Rates – Performance-Based Regulation
In this decision, the AUC considered the 2022 annual performance-based regulation (“PBR”) rate adjustment filing from Apex Utilities Inc. (“AUI”). The 2019 and 2020 rates that were previously approved on an interim basis were approved as final. The AUC approved 2022 distribution rate schedules, effective January 1, 2022, on an interim basis. AUI’s special charges and terms and conditions of service (“T&Cs”), respectively, were also approved as filed, effective January 1, 2022, on a final basis.
Background
AUI submitted its 2022 annual PBR rate adjustment filing to the AUC, requesting approval of its 2022 gas distribution service rates, special charges, billing determinants, T&Cs and corresponding rate schedules, to be effective January 1, 2022, on an interim basis.
The PBR framework approved in Decision 20414-D01-2016 (Errata) provides a rate-setting mechanism based on a formula that adjusts rates annually by means of an indexing mechanism that tracks the rate of inflation (“I”) that is relevant to the prices of inputs the utilities use, less a productivity offset (“X”). Apart from specifically approved adjustments, a utility’s revenues are not linked to its costs during the PBR term.
In Decision 20414-D01-2016 (Errata), the AUC approved the continuation of certain PBR rate adjustments to enable the recovery of specific costs where certain criteria have been satisfied. These include an adjustment for some flow-through costs that should be recovered from, or refunded to, customers directly (“Y factors”), and an adjustment to account for the effect of exogenous and material events for which the distribution utility has no other reasonable cost recovery or refund mechanism within the PBR plan (“Z factor”). However, in place of the capital tracker mechanism employed in previous-generation PBR plans, the AUC divided capital funding into two categories: Type 1 and Type 2 capital. For Type 1 capital, the AUC approved a modified capital tracker mechanism with narrow eligibility criteria, with the revenue requirement associated with any approved amounts to be collected from ratepayers by way of a “K factor” adjustment to the annual PBR rate-setting formula. For Type 2 capital, the AUC approved a K-bar mechanism that provided an amount of capital funding for each year of the next-generation PBR plan based, in part, on capital additions made during the previous PBR term.
AUI’s 2021 PBR rates were approved on an interim basis in accordance with the PBR framework in Decision 25867-D01-2020.
PBR Rate Adjustments
2022 PBR Indices and Annual Adjustments
AUI’s 2021 PBR plan provided a rate-setting mechanism based on a formula that adjusts revenue-per-customer annually, through an indexing mechanism plus specifically approved adjustments.
(a) I-X index
AUI calculated its 2022 I-X index to be 1.46 percent. The AUC approved the 2022 I factor of 1.76 percent and the resulting I-X index as calculated by AUI.
(b) Y and Z factor materiality threshold
AUI calculated the Y and Z materiality threshold to be $0.55 million for 2022. The AUC approved the Y and Z factor materiality threshold.
(c) Y factor and Z factor
AUI applied for a Y factor amount of $1.7 million inclusive of carrying costs. AUI did not apply for any Z factor adjustment in 2022. The AUC approved the Y factor as filed.
(d) Q Value
The AUC was satisfied with AUI’s provided calculations and approved the 2022 Q value of 0.05 percent.
(e) K-bar factor and K factor
AUI applied for the 2022 K-bar funding of $14.13 million, calculated as its 2022 required K-bar funding of $14.57 million and 2020 K-bar true-up credit of $0.43 million.
K factor is used to recover the Type 1 capital funding that provides additional funding above that provided in base rates for projects that meet the specific criteria established. AUI did not apply for any K factor rate adjustments for 2022.
The AUC approved AUI’s 2022 total K factor of $14.13 million. The 2022 K-bar is subject to a true-up for the 2022 actual approved cost of debt.
Forecast Billing Determinants and Variance Analysis
AUI provided detailed 2022 billing determinant forecasts. AUI submitted that its forecasted 2022 billing determinants were based on the same methodology approved in Decision 25867-D01-2020. The billing determinant forecast was approved, as applied for.
2022 PBR Rates
Distribution Rates and Rate Riders
The AUC approved AUI’s 2022 PBR rates effective January 1, 2022, on an interim basis. The AUC found that the 2022 proposed rates are unlikely to result in rate shock to AUI’s customers, who would experience bill impacts between 2.8 percent and 6.8 percent, excluding the commodity charge. Due to the rebasing process taking place in 2023, the AUC directed AUI to true-up the placeholders remaining in its 2022 distribution rates in a future proceeding to establish the 2023 rates, such as a compliance filing to the rebasing application.
AUI’s special charges and standard contribution amounts set out in its 2022 special charges schedule were also approved.
Other Matters
Terms and Conditions of Service
AUI filed revisions to its T&Cs concerning the natural gas utility service rules and the retailer distribution service rules. The changes would reflect updates to business practices and provide clarity to customers. The AUC approved the changes.
Financial Reporting Requirements and Senior Officer Attestation
The AUC reviewed the financial information provided by AUI and was satisfied that it has complied with the financial reporting requirements set out in Decision 20414-D01-2016 (Errata).
Finalizing 2019 and 2020 Interim Rates
The AUC determined that all outstanding placeholders from 2019 and 2020 have been trued up, and there are no further outstanding matters relating to the calculation of the rates. The AUC approved AUI’s request to finalize 2019 and 2020 interim rates.
