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EPCOR Distribution & Transmission Inc. 2022 Annual Performance-Based Regulation Rate Adjustment, AUC Decision 26852-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 EPCOR Distribution & Transmission Inc. (“EPCOR”). The AUC approved 2022 distribution rates, options and riders, and corresponding rate schedules on an interim basis. The 2022 system access service (“SAS”) rates were approved as filed. The AUC also approved the distribution connection service (“DCS”) terms and conditions (“T&Cs”) and EPCOR’s T&Cs for electric distribution access service (“DAS”) and 2022 distribution tariff policies, on a final basis. The AUC also approved a Rider J for the recovery of amounts under the 2020 transmission access charge deferral account (“TACDA”).

Background

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 certain 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.

EPCOR’s 2021 PBR rates were approved on an interim basis in accordance with the PBR framework in Decision 25862-D01-2020.

PBR Rate Adjustments

PBR Indices and Annual Adjustments

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

(a)     I-X index

EPCOR 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 EPCOR.

(b)     Y and Z factor materiality threshold

EPCOR calculated the Y and Z materiality threshold to be $1.82 million for 2022. The AUC approved the Y and Z factor materiality threshold as filed.

(c)      Y factor and Z factor

EPCOR applied for a Y factor amount of $12.61 million, inclusive of carrying costs. The AUC approved the Y factor as filed. During the course of the proceeding, amounts were changed. This included the Alberta Electric System Operator (“AESO”) customer contributions. The AUC however held that the change in regulatory accounting treatment of new AESO customer contributions would be reflected in distribution facility owner (“DFO”) rates as part of the upcoming DFO cost-of-service rebasing process for 2023. As a result, the AUC approved the originally applied for Y factor of $12.61 million. EPCOR did not apply for any Z factor adjustments to be included in its 2022 PBR rates.

(d)     Q Value

The AUC was satisfied with EPCOR’s calculations and approved the 2022 Q value of 0.12 percent, as filed.

(e)     K-bar factor and K factor

EPCOR applied for 2022 K-bar funding of $35.1 million. The AUC found that the calculation of the 2022 K-bar amount followed the methodology set out in Decision 22394-D01-2018. The AUC noted that the 2022 K-bar amount is subject to a further true-up for the 2022 actual approved cost of debt.

EPCOR did not apply for K factor rate adjustments for 2022.

Forecast Billing Determinants and Prior Year Variance Analysis

EPCOR indicated that its 2021 billing determinants forecast was based on the methodology approved in Decision 25866-D01-2020 and throughout the PBR regime, except for the Direct Connect (“DC”), Customer Specific (“CS”) and Customer Specific Totalized (“CST”) rate classes. To forecast its 2022 DC, CS, and CST customer rate classes, EPCOR used a three-year average of energy and demand. It based its forecast on a three-year model to even out deviations in a given year.

The AUC was of the view that variances from forecasts noted by EPCOR for 2020 may reasonably be expected for current purposes. The AUC however noted that the DC and CST rate class energy variances continue to be the most significant of the variances at -13.5 percent and -35.27 percent respectively, and may require increased scrutiny in future annual rate update applications.

The AUC found EPCOR’s methodology and billing determinants to have been reasonable and approved the three-year average methodology in calculating the 2022 rates for the DC and the CST rate classes and the resulting 2022 forecast billing determinants, as filed.

True-Ups for 2022

The AUC found EPCOR’s calculations and explanations of the 2020 true-ups to be reasonable. The AUC approved the inclusion of the $5.84 million true-up refund amounts in EPCOR’s 2022 PBR rates.

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 AESO tariff charges. Annual TACDA true-up schedules are based on the harmonized framework approved by the AUC for distribution utilities in Decision 3334-D01-2015.

The AUC considered EPCOR’s application and schedules 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 $0.06 million

Rider J Rate and Effective Period

EPCOR proposed to apply the 2020 annual TACDA true-up by way of a Rider J. The AUC found EPCOR’s use of Rider J to collect the 2020 TACDA true-up amounts to be reasonable because using a separate rider facilitates better tracking of these flow-through costs. The AUC approved Rider J as part of the 2022 PBR rates.

2022 PBR Rates

System Access Service Rates

EPCOR indicated that its proposed 2022 SAS rates reflect the rates approved in the AESO 2021 Independent System Operator tariff, approved in Decision 26054-D01-2020. EPCOR’s calculations of the proposed 2022 SAS rates, the underlying assumptions, and 2022 Balancing Pool Rider G were found to be reasonable and consistent with its past SAS rate applications. The AUC approved the proposed 2022 SAS rates and 2022 Balancing Pool Rider G.

Customer Specific Rates

EPCOR did not apply for any new proposed CS customer rates. Contrary to AUC directions, EPCOR did not include the true-up of the CS42 rate to reflect the 2020 actual weighted average cost of capital (“WACC”) rate in this application. EPCOR showed that the 2020 WACC rate true-up required a refund of $38,049.26 to the customer, translating to a daily rate refund of $104.24. A per-day adjustment to the CS42 rate was determined as an acceptable method of implementing the 2020 WACC true-up. The daily refund of $104.24 to the CS42 customer was approved.

Distribution Rates

The AUC approved EPCOR’s 2022 PBR rates effective January 1, 2022, on an interim basis until the approved levels of all remaining placeholders have been determined by the AUC. These 2022 rates will be finalized following such approvals, and any required true-up adjustments will be made in accordance with directions subsequently provided by the AUC.

Terms and Conditions of Service

The AUC approves EPCOR’s customer DCS T&Cs and retailer DAS T&Cs including amendments in accordance with the I-X mechanism proposed by EPCOR. EPCOR adjusted its maximum investment levels (“MILs”) and specific customer contributions by the I-X for 2021 in its customer DCS T&Cs.

Financial Reporting Requirements and Senior Officer Attestation

The AUC reviewed the financial information provided by EPCOR and was satisfied that it has complied with the financial reporting requirements.

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