Transfer of Service – Exit Charge
In this decision, the AUC determined that FortisAlberta Inc. (“FortisAB”) may levy exit charges, as defined in Section 7.5 of its terms and conditions of service (“T&Cs”), on one of its existing consumers (the “Consumer”) in connection with a request to transfer its electric distribution service from FortisAB to EQUS REA Ltd. (“EQUS”). The AUC determined that FortisAB may levy the charges when it transfers its service to EQUS; however, FortisAB must use the amount it receives from EQUS for the transferred facilities as the value of the salvaged facilities for the purposes of calculating the exit charges.
Background
In rural Alberta, electric distribution service is generally provided by two public distribution utilities, FortisAB and ATCO Electric Ltd., or by a rural electrification association (“REA”). The geographic service areas of the public distribution utilities and the REAs overlap. A person receiving electric distribution service from FortisAB or EQUS has the ability to change their electric distribution service provider such that they may become a member of EQUS or a customer of FortisAB. As part of such a change, facilities required to serve the customer can be transferred between FortisAB and EQUS pursuant to the provisions of an integrated operation agreement (“IOA”).
Application
EQUS complained that FortisAB had levied exit charges on Jayson Schwab and 2033698 Alberta Ltd., operating as Sunny Beah R.V. Resort, in response to requests to transfer electric distribution service to EQUS. EQUS sought the following orders and relief:
(i) A declaration that the Distribution Customer Exit Charges proposed to be levied by FortisAB against J. Schwab and the Sunny Beach R.V. Resort do not apply and are not lawful, valid or applicable.
(ii) A declaration that all T&Cs applying to the transfer to EQUS of J. Schwab’s and the Sunny Beach R.V. Resort’s services and FortisAB’s distribution assets to respectively serve them are governed exclusively by the IOA.
As the Sunny Beach R.V. Resort abandoned its transfer request, the AUC limited its determinations to the request of J. Schwab.
Discussion of Issues
As a preliminary matter, the AUC noted three transactions are required for a Consumer to cease receiving electric distribution service from FortisAB and to start receiving it from EQUS: (1) the Consumer would discontinue receiving electric distribution service from FortisAB and disconnect from FortisAB’s distribution system; (2) FortisAB would transfer facilities to EQUS pursuant to the provisions in the IOA, and the Consumer’s request to have its facilities transferred; and (3) the Consumer would enroll as a member of EQUS and connect to EQUS’s distribution system.
Does the IOA Exclusively Govern Each Transaction in the Process to Transfer the Consumer’s Electrical Distribution Service from FortisAB to EQUS
The AUC noted that if the IOA exclusively governs the transaction in the process to transfer the Consumer’s service, the AUC does not have the jurisdiction to assess what charges FortisAB can levy on the Consumer.
The AUC determined that the IOA does not exclusively govern each transaction in the process of transferring the service. Rather, the T&Cs govern the terms and conditions applicable to the Consumer when it chooses to discontinue receiving service from FortisAB. As the AUC has the authority to approve FortisAB’s T&Cs under the Electric Utilities Act (“EUA”), it can authorize terms and conditions (including exit charges) that apply when a customer chooses to discontinue receiving service from the respective utility, in this case, FortisAB.
The AUC decided in Decision 21148-D01-2016 that FortisAB had a duty under Section 105(1)(k) of the EUA to connect and disconnect customers in accordance with its approved tariff, regardless of the transfer provisions of the IOA. The AUC determined that the circumstances of the present case are similar and held that when the Consumer transfers its service, FortisAB has a duty to disconnect the Consumer in accordance with its approved tariff.
The AUC decided that the IOA contains a provision for payments between FortisAB and EQUS when a transfer of facilities occurs, but additional payments from a customer to either of them, such as exit charges, are not prohibited. The payment for transferred facilities included in the IOA does not relieve a customer of obligations assumed by obtaining electric distribution service from either FortisAB or EQUS. This, and how a disconnection may occur, is governed by the T&Cs.
As a result, the AUC determined that the IOA cannot specify or prohibit the T&Cs FortisAB may impose on its customers when they choose to disconnect from FortisAB’s service. The IOA does not exclusively govern each transaction in the process to transfer the Consumer’s service from FortisAB to EQUS.
Do FortisAB’s Current T&Cs Permit FortisAB to Assess Exit Charges on the Consumer?
FortisAB relied on Section 7.5 regarding Charges Related to Permanent Disconnection of its T&Cs to levy the exit charges. FortisAB argued that the request by the Consumer to transfer its service to EQUS constitutes a wish to “permanently disconnect” its point of service. The definition of “permanent disconnection” in the T&Cs means “the cessation of Electricity Services resulting from removal of facilities…”.
As mentioned in the previous section of this decision, the AUC found that FortisAB will disconnect the Consumer when its service is transferred to EQUS.
Concerning the permanent disconnection, the AUC also considered if the cessation would result from the removal of facilities. FortisAB submitted that when the Consumer is transferred, FortisAB would physically remove and salvage its meter(s).
In this regard, the AUC determined that the removal of the meter constitutes the removal of facilities within the meaning of a permanent disconnection. The AUC found the transfer of facilities to EQUS is equivalent to the removal of facilities that would satisfy the definition of “permanent disconnection” even though the facilities, except for the meter, are not physically removed. The intent of the permanent disconnection provision in FortisAB’s T&Cs is that electricity service from FortisAB is ceased on a permanent basis.
The AUC found that the Consumer’s request to transfer its service to EQUS constitutes a “wish to permanently disconnect its point of service” for the purposes of Section 7.5 of FortisAB’s T&Cs, which allows FortisAB to assess exit charges.
Did FortisAB Properly Calculate the Exit Charges in Accordance with its T&Cs, and are the Resultant Exit Charges Just and Reasonable?
When a customer requests to connect to FortisAB’s system, FortisAB usually constructs new facilities. To pay for the new facilities, generally, FortisAB invests in new facilities up to the maximum amounts established in its tariff. The investments are then included in FortisAB’s rate base and depreciated over the lifetime of the assets, while a rate of return is earned on the undepreciated amount. The investment amount is intended to be recovered through the customer’s rates over a defined period. Alternatively, if the costs exceed FortisAB’s investment amount, the customer is required to pay a customer contribution.
The exit charges provided for in FortisAB’s T&Cs serve to prevent FortisAB and other ratepayers from financial harm in the case that a customer decides to discontinue receiving service before the end of its investment term. When the Consumer transfers its service to EQUS, FortisAB will receive a payment from EQUS for the facilities that are transferred to EQUS.
The AUC considered whether the exit charges assessed by FortisAB should take into account the payment it will receive from EQUS. It was not convinced by FortisAB’s submission that the payment from EQUS under the IOA and the customer’s exit charge serve different purposes, do not necessarily relate to the same facilities, and should both be recovered. The AUC found that this position is inconsistent with how FortisAB accounts for the assets. It determined that the compensation FortisAB will receive from EQUS must be taken into account to calculate the exit charges payable by the Consumer, as “value of any facilities that may be salvaged” under Section 7.5(c) of the T&Cs.
The AUC held that FortisAB must reduce the exit charges by the payment it receives from EQUS for the transferred facilities. This payment must only be used to offset exit charges applicable to facilities that were subject to investment by FortisAB when the Consumer’s service was constructed or upgraded.
Clarification of FortisAB T&Cs
The AUC determined that FortisAB’s T&Cs require modification to clarify the applicability of the definition of “permanent disconnection” and associated exit charges. Modifications are also required to ensure that the method by which exit charges are calculated expressly contemplates the circumstances that can occur when a FortisAB customer transfers its service to an REA. FortisAB was directed to file an application proposing changes to the T&Cs on this issue by February 28, 2022.
Decision and Order
ForitsAB was directed to recalculate the exit charges assessed to Jayson Schwab. In the recalculation, FortisAB must consider the payment it will receive from EQUS for the facilities that will be transferred. FortisAB was also required to file a post disposition document showing the recalculated charges and an application proposing amended T&Cs to clarify the related sections of the T&Cs.
