Regulatory Law Chambers logo

FortisAlberta Inc. 2022 Annual Performance-Based Regulation Rate Adjustment, AUC Decision 26817-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 FortisAlberta Inc. (“FortisAB”). The AUC approved the 2022 distribution rates, options and riders, and corresponding rate schedules, the 2022 system access service (“SAS”) rates, and the customer terms and conditions (“T&Cs”) for electric distribution service. The AUC further approved customer contribution schedules and fee schedules.

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.

FortisAB’s 2021 PBR rates were approved on an interim basis in accordance with the PBR framework in Decision 25843-D01-2020.

PBR Rate Adjustments

PBR Indices and Annual Adjustments

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

(a)     I-X index

FortisAB calculated its 2021 I-X index to be 1.46 percent. The AUC approved the 2021 I factor of 1.76 and the resulting I-X index as calculated by FortisAB, as filed.

(b)     Y and Z factor materiality threshold

FortisAB did not calculate a Y and Z factor materiality threshold as it did not apply for any new Y factor cost items or Z factors.

(c)      Y factor

FortisAB applied for a Y factor amount of $0.8 million inclusive of carrying costs. The AUC approved the Y factor as filed.

(d)     K-bar factor and K factor

The AUC approved FortisAB’s applied-for 2022 K-bar funding of $84.5 million. In addition to its 2022 K-bar amount, this amount includes FortisAB’s 2020 and 2021 K-bar true-ups for the actual cost of debt, as well as carrying costs.

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

(e)     AESO Contributions Hybrid Deferral Account

The AUC accepted FortisAB’s proposed hybrid deferral account treatment for the AESO Contributions Program. The AUC approved deferral account treatment of projects that received permits and licenses prior to December 31, 2017, and had already been reviewed by the AUC.

The AUC approved FortisAB’s applied-for 2022 AESO contributions hybrid deferral amount of $13.1 million.

(f)       Q Value

The AUC was satisfied with FortisAB’s provided calculations and approved the 2021 Q value of 1.01 percent.

Forecast Billing Determinants and Variance Analysis

The AUC approved FortisAB’s proposal to discontinue the use of adjustment factors and return to its approved billing determinant forecast methodology. The AUC found that FortisAB’s 2022 forecasts do not differ significantly from the actuals experienced in the first six months of 2021. FortisAB’s forecast 2022 billing determinants were developed using the same methods as previously approved by the AUC in decisions 2012-237, 2013-07220 and 24876-D01-2019.

2020 Transmission Access Charge Deferral Account True-up

In the current PBR plan, transmission access charge deferral account true-up (“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.

Total Net True-up Amount

FortisAB applied for a net 2020 TACDA refund of $12.81 million to customers. This included a refund for all components of the TACDA aside from the border customer deferral. FortisAB indicated that in 2020, the total payments pertaining to service to its border customer suppliers were $0.57 million, while the receipts from the Power Pool were $0.28 million, resulting in a collection of $0.29 million.

The AUC approved the net refund of $12.81 million.

2022 Base Transmission Adjustment Rider and Effective Period

FortisAB calculated the 2022 base transmission adjustment rider (“TAR”) by adding the 2020 TACDA true-up components and related carrying costs by rate class and divided these amounts by the forecast 2022 base transmission charges. The total net true-up amount results in a refund, but Rider J across individual rate classes and rural electrification association (“REA”) wire owners will result in a collection from some customer classes and REA wire owners. The AUC approved the application of the 2020 annual TACDA true-up through a 2022 base TAR across 12 months.

2022 PBR Rates

System Access Service Rates

FortisAB indicated that its proposed 2022 SAS rates reflected the latest forecast of AESO volumes and prices. FortisAB forecast its 2022 transmission costs to be $738.8 million for distribution-connected customers. The 2022 Balancing Pool adjustment Rider was also updated to align with the AESO’s Rider F rate of $2.20 per megawatt-hour. The AUC reviewed the calculations and approved the 2021 SAS rates as filed.

Distribution Rates

The AUC noted its consideration of the extraordinary economic realities facing Alberta. As a result of the circumstances, it found it reasonable for rate increases of the magnitude (10.3 percent) that would be experienced by Rate 61 customers to be mitigated.

The AUC approved FortisAB’s calculations of its 2022 PBR rates on an interim basis, effective January 1, 2022. As a result of the rebasing process taking place in 2023, the AUC directed FortisAB to true-up the placeholders remaining in its 2022 distribution rates in a future proceeding to establish the 2023 rates.

Other Matters

Utility Payment Deferral Program Rate Rider

Under the Utility Payment Deferral Program (“UPDP”), enrolled electricity customers deferred payment of approximately $65.8 million in electricity bills. Of this amount, approximately $57.1 million was collected from enrolled electricity customers between June 19, 2020, and June 18, 2021. The AUC approved the collection of the remaining uncollected bill amounts of $8,776,854.70 by the AESO through rate Rider L in Decision 26684-D01-2021, which applied to all entities that receive SAS, with the exception of the City of Medicine Hat and BC Hydro at Fort Nelson, British Columbia.

Distribution-Connected Generation Credit – Option M

Distribution-connected generation (“DCG”) credits are the payments that FortisAB, among others, provides to DCG connected to its distribution systems. These credits are calculated and paid pursuant to provisions within its tariff. In FortisAB’s distribution tariff, this is referred to as Option M and this cost is recovered from ratepayers as part of its collection of SAS costs. In Decision 26090-D01-2021, the Commission determined that the Rate Demand Transmission Service portion of the DCG credit mechanism were to be diminished over a four-year transition period until they are discontinued in 2026.

FortisAB added the multipliers prescribed by the AUC into its rate schedules but did not account for the effects of the multipliers on its SAS cost forecast. FortisAB’s SAS cost forecast assumed that DCG credits were paid as if the AUC prescribed multiplier did not exist. FortisAB stated that it took this approach to limit the regulatory burden necessary to incorporate the multipliers in its SAS cost forecast. FortisAB proposed to assume no effect of the multiplier on its SAS cost forecasts in 2022 and, and then in 2024 and 2025 assume a multiplier of zero in its SAS cost forecast. The AUC accepted this approach and directed its application by FortisAB in future SAS cost forecasts.

Terms and Conditions of Service and Fee Schedules

FortisAB complied with the AUC’s directions to make specific changes to the T&Cs of service. The AUC approved FortisAB’s filed customer and retailer T&Cs, customer contribution, and customer fee schedules as part of its 2022 distribution tariff on a final basis.

Financial Reporting Requirements

The AUC was satisfied that FortisAB had complied with the financial reporting requirements.

Related Posts

Judd v Alberta Energy Regulator, 2024 ABCA 154

Judd v Alberta Energy Regulator, 2024 ABCA 154

Link to Decision Summarized Download Summary in PDF Appeal – Production of Records Application Michael Judd ("Appellant") appealed a decision by the Alberta Energy Regulator (“AER”) that denied his...