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ATCO Electric Ltd. 2022 Annual Performance-Based Regulation Rate Adjustment, AUC Decision 26849-D01-2021

Link to Decision Summarized

Rates – Performance-Based Regulation

In this decision, the AUC considered the 2022 annual performance-based regulation (“PBR”) rate adjustment filing from ATCO Electric Ltd. (“AE”). The 2019 and 2020 rates that were previously both approved on an interim basis were approved as final. The AUC approved 2022 distribution rates, options and riders, and corresponding rate schedules on an interim basis. The AUC also approved the 2022 system access service (“SAS”) rates as filed. The stand-alone schedules of Available Company Investment and Supplementary Service Charges were also approved.

The AUC further approved AE’s proposed plan to collect the 2021 deferred amount associated with a deferral of its 2021 distribution rates increase and AE’s 2020 annual transmission access charge deferral account (“TACDA”) true-up as well as AE’s 2020 Balancing Pool adjustment.


AE requested approval of its 2022 electric distribution rates and transmission SAS rates, options and riders, and corresponding rate schedules, to be effective January 1, 2022, on an interim basis. AE additionally requested approval of its billing determinants and schedules of Available Company Investment and Supplementary Service Charges effective January 1, 2022. AE also included a request that its Balancing Pool Adjustment Rider B, 2020 annual TACDA true-up amounts be collected/refunded through Rider G and interim Rider J, effective January 1, 2022, in its application. AE’s final request was approval of the calculation of its 2019 and 2020 going-in revenue and K-bar amounts on a final basis resulting in final rates for those years.

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”).

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 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.

AE’s 2021 PBR rates were approved on an interim basis in accordance with the PBR framework in Decision 25864-D01-2020. However, as a result of Decision 26170-D01-2020, AE’s 2021 distribution rates were maintained at the 2020 levels. In the current application, AE proposed to collect the majority of the amounts associated with the 2021 distribution rate increase deferral in 2022.

PBR Rate Adjustments

PBR Indices and Annual Adjustments

AE’s 2021 PBR plan provided a rate-setting mechanism based on a formula that adjusted rates annually through an indexing mechanism plus specifically approved adjustments.

(a)     I-X index

AE calculated its 2022 I-X index to be 1.46 percent. The AUC reviewed AE’s calculation of the 2022 I factor and found it to be consistent with the methodology set out in Decision 20414-D01-2016 (Errata). Accordingly, the 2022 I factor of 1.76 per cent and the resulting I-X index of 1.46 per cent were approved.

(a)     Y and Z factor materiality threshold

AE calculated the Y and Z materiality threshold to be $3.69 million for 2022. The AUC approved the Y and Z factor materiality threshold.

(b)     Y factor and Z factor

AE applied for a Y factor amount of $7.741 million, and an additional carrying charge related to the deferral account and K-bar true-ups of $0.077 million to be refunded to customers. AE did not apply for any Z factor adjustments in 2022. The AUC approved the Y factor as filed.

(c)      Q Value

The AUC was satisfied with AE’s provided calculations and approved the 2022 Q value of 0.414 percent.

(d)     K-bar factor and K factor

AE applied for the 2022 K-bar funding of $75 million. AE’s 2020 and 2021 K-bar true-ups for the actual cost of debt resulted in refunds of $2.3 million for 2020 and $2.2 million for 2021. The AUC approved the applied-for K-bar funding, subject to a further true-up for the 2022 actual approved cost of debt, as well as the K-bar true-up refunds of $2.3 million for 2020 and $2.2 million for 2021.

AE did not apply for any K factor rate adjustments for 2022.

Forecast Billing Determinants and Variance Analysis

AE provided detailed 2022 billing determinant forecasts. AE submitted that its forecasted 2022 billing determinants were based on the same methodology approved in Decision 25864-D01-2020.

In Decision 25864-D01-2020, the Commission directed ATCO Electric to continue to provide information on any variances from forecast to actual billing determinants by rate class and identify the cause of variances larger than ± five per cent on an annual basis. There were variances larger than ± five per cent for the small general service, irrigation, rural electrification association (“REA”) farm and irrigation, large general service, oilfield and street light rate classes in 2020. The AUC found that variances from forecasts such as those described by AE for 2020 may reasonably be expected for current purposes. Such occurrences do not generally call into question the predictive value of the methodology used to generate such forecasts and AE was directed to continue to provide information on any variances from forecast to actual billing determinants by rate class and to identify the cause of variances larger than ± five per cent on an annual basis.

The billing determinant forecast was approved, as applied for.

2020 TACDA True-Up

Total Net True-Up Amount

TACDA amounts are considered to be a part of the Y factor and are treated as a dollar-for-dollar flow-through of the Alberta Electric System Operator (“AESO”) tariff charges.

AE’s application and schedules were considered to be consistent with the harmonized framework approved in Decision 3334-D01-2015, and the AUC found the resulting amounts to be reasonable. The AUC approved a net refund of $1.720 million.

Rider G Rate and Effective Period

AE proposed to apply the 2020 annual TACDA true-up by way of a Rider G. To smooth rates over time and promote rate stability, AE proposed Rider G to be in effect over a 12-month period from January 1, 2022, to December 31, 2022. The AUC found AE’s use of Rider G to collect the 2020 TACDA true-up amounts over a 12-month period to be reasonable because using a separate rider facilitates better tracking of these flow-through costs. The AUC approved Rider G as part of the 2022 PBR rates.

Inclusion of TACDA True-Up in the Annual PBR Rate Adjustment Filing

There will be no annual PBR rate adjustment filings in 2022 and 2023 due to the rebasing process taking place between the current and the next PBR term. The annual TACDA true-up applications for 2021 and 2022 may therefore be filed under stand-alone proceedings until annual PBR rate adjustment filings resume in the next PBR term. Under this approach, the AUC directed AE to file its 2021 and 2022 annual TACDA true-up applications by September 10 of 2022 and 2023, respectively.

2022 PBR Rates

System Access Service Rates

AE indicated that its proposed 2022 SAS rates reflected the rates approved in the AESO 2021 Independent System Operator tariff, approved in Decision 26054-D01-2020. The SAS payments forecast for distribution-connected customers increased from $356.8 million, included in 2021 PBR rates, to $383.4 million for 2022. This increase in forecast SAS payments reflects an increase of 7.44 per cent in the transmission SAS rate. The AUC reviewed AE’s calculations of the proposed 2022 SAS rates and the underlying assumptions and found them to be reasonable. The AUC approved the proposed 2022 SAS rates.

Distribution Rates: 2022 PBR Rates Including 2021 Deferred Amount (Rider J)

AE’s 2022 rates bill impact schedules reflected impacts of 10 percent or more for several rate classes. These bill impacts are at or near the AUC’s rate shock threshold. The bill impacts arise from the 2022 rates considered in this decision as well as AUC approvals and directions in decisions 26170-D01-2020 and 26360-D01-2021 relating to the 2021 deferred amount.

To keep bill impacts below 10 percent, AE proposed to collect $42.1 million in 2022, while the remaining balance of $21.8 million would be recovered in 2023. The remaining balance carried forward into 2023 would only apply to rate classes experiencing a bill impact of at least 10 percent. AE indicated it would true-up any differences in collected revenue arising from the difference between forecast and actual billing determinants in future applications.

The AUC evaluated this scenario and other possibilities and found that AE‘s proposed approach ultimately minimizes the overall costs to ratepayers and in the case of AE’s proposed implementation of Rider J specifically, minimizes intergenerational inequity. AE’s 2022 PBR rates, including the use of an interim Rider J, were approved on an interim basis.

Rider E – Facilities Charge Agreements

AE removed Rider E from its price schedules effective January 2021 because Rider E no longer forms part of AE’s regulated service offering. AE confirmed that, as directed by the AUC, all contractual amendments required to remove the remaining customer services from regulated service under Rider E would be executed by December 31, 2021.

Other Matters

Distribution-Connected Generation Credit – Rate D32

Distribution-connected generation (“DCG”) credits are the payments that AE, among others, provides to DCG connected to its distribution systems. These credits are calculated and paid pursuant to provisions within AE’s tariff. In AE’s distribution tariff, this credit is defined in the price schedule for Rate D32. This cost is recovered from ratepayers as part of SAS costs.

In Decision 26090-D01-2021, the AUC determined that the AESO rate demand transmission service (“DTS”) portions of the DCG credit mechanism are to be diminished over a four-year transition period until they are discontinued in 2026. AE was directed to calculate the DTS portion of Rate D32 in the same way that it otherwise would have, but then reduce the value of the DTS portion of the DCG credit by applying a multiplier to it before finalizing and issuing the credit.

AE added the prescribed multipliers into its rate schedules but did not account for the effects of the multipliers on its transmission access cost forecast, and the SAS cost forecast assumed that DCG credits were paid as if the multiplier did not exist.

AE proposed to forecast its SAS billing determinants in a consistent manner at this point and consider making adjustments to its forecast beginning in 2023, once the multiplier is at a lower percentage. The AUC accepted AE’s proposed approach.

Terms and Conditions of Service and Other Rate Schedules

AE adjusted its maximum investment levels and supplementary service charges schedules by the 2022 I-X index. The AUC found that these changes were consistent with Decision 20414-D01-2016 (Errata) and approved them. AE did not apply for changes to its terms and conditions

Financial Reporting Requirements and Senior Officer Attestation

The AUC determined that AE had complied with all financial reporting requirements.

Finalizing 2019 and 2020 Interim Rates

The AUC approved AE’s 2019 and 2020 rates on a final basis because all outstanding K factor and Y factor adjustments have been trued up, and no outstanding matters remained.

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