Negotiated Settlement Agreement – Revenue Requirement
In this decision, the AUC approved the 2021-2022 negotiated settlement agreement (“NSA”) for EPCOR Energy Alberta GP Inc. (“EPCOR”)’s 2021-2022 non-energy regulated rate tariff (“RRT”). EPCOR, the Consumers’ Coalition of Alberta (“CCA”) and the Office of the Utilities Consumer Advocate (“UCA”) are signatories to the NSA.
The NSA did not address two issues, as they were not settled in negotiations:
Amounts from March 18, 2020, to June 18, 2020, included in EPCOR’s COVID-19 deferral account. The AUC directed EPCOR to revise its COVID-19 deferral account to exclude the COVID-19 amounts from March 18, 2020, to June 18, 2020, and to reflect a credit of $130,000 to EPCOR’s customers.
The forecast credit costs included as part of EPCOR’s non-energy revenue requirement. The AUC directed EPCOR to exclude credit costs of $0.69 million for 2021 and $0.70 million for 2022 from its revenue requirements.
The NSA, excluding the unresolved issues, resulted in reductions to EPCOR’s applied-for revenue requirement of $3.75 million in 2021 and $1.83 million in 2022, or 8.0 percent and 4.4 percent, respectively.
Summary of the NSA
In the application for approval of the NSA, EPCOR forecast RRT allocated costs of $46.65 million in 2021 and $41.85 million in 2022. Beyond the adjustments to the RRT revenue requirement, the parties agreed that for 2022, the AUC should approve deferral accounts for late payment charges, retail connection fees, and bad debt.
The bad debt deferral account was agreed to include a risk-sharing mechanism that requires EPCOR to refund 75 percent of the difference between the actual bad debt expense and $5,460,000 to customers under EPCOR’s next non-energy RRT if the bad debt expense is less than $5,460,000. If EPCOR’s bad debt expense is greater than $5,460,000, but less than $6,500,000, EPCOR will recover 75 percent of the difference between the actual bad debt expense and $5,460,000 from customers. If EPCOR’s bad debt expense exceeds $6,500,000, EPCOR will recover 75 percent of $1,040,000, and EPCOR will also recover 50 percent of the difference between actual bad debt expense and $6,500,000 from customers in EPCOR’s next non-energy RRT.
Statutory and Rule Requirements for Approval of an NSA
NSAs are subject to Section 132(1)(a) of the Electric Utilities Act (“EUA”) and AUC Rule 018: Rules on Negotiated Settlements. The negotiated settlement process (“NSP”) serves to provide a less complicated and less costly alternative to traditional regulation. However, the AUC retains the jurisdiction and obligation to protect the public interest to ensure the process leading to the NSA is fair and reasonable. Further, the NSP does not replace a review by the AUC to determine what is in the public interest. The AUC also maintains discretion regarding the control of rates.
AUC Evaluation of the NSA
The AUC will approve negotiated settlements if it is satisfied that the process resulting in the NSA was fair, and that the NSA serves the public interest.
Is the NSA in the Public Interest, Including Whether or Not it Will Result in Rates that are Just and Reasonable?
The AUC determined that the NSP met the requirements set out in Rule 018. Section 8(2) of Rule 018 requires that the AUC intervenes if it determines that a unanimous settlement is against the public interest. In determining if this is the case, the AUC considered whether the NSA would lead to just and reasonable rates.
The NSA represents a unanimous agreement reached through a negotiation process involving both the CCA and the UCA that collectively represent the interests of a majority of EPCOR’s RRT customers. The AUC noted that the NSA resulted in reductions to EPCOR’s applied-for revenue requirement of $46.65 million in 2021 and $41.85 million in 2022 by approximately $3.75 million in 2021 and $1.83 million in 2022, or 8.0 percent and 4.4 percent, respectively. The AUC was persuaded that the NSA would lead to rates that are just and reasonable and is not contrary to the public interest
Excluded Matters Outside of the NSA
(a) Should the AUC approve EPCOR’s applied-for COVID-19 deferral account, including deferral amounts between March 18, 2020, and June 18, 2020?
The AUC approved EPCOR’s COVID-19 deferral account for recovery of amounts between June 19, 2020, and December 31, 2020. As a result of the inclusion of amounts from this period, rather than the period from March 18, 2020, to June 18, 2020, the total COVID-19 deferral account amount approved will reflect a balance of $130,000 to the credit of customers.
In the AUC approved NSA, the parties agreed that the deferral account amounts from June 19, 2020, to December 31, 2020, will be included in the revenue requirement. EPCOR argued that the deferral account amounts from March 18, 2020, to June 18, 2020, were driven by COVID-19 and the start of the Utility Payment Deferral Program (“UPDP”) deferral period. As a result, EPCOR argued that these amounts should also be included in the COVID-19 deferral account.
EPCOR’s forecast non-energy costs for 2020 were approved on a final basis for the COVID-19 pandemic, and the forecast costs did not take account of costs that would be incurred because of the pandemic. EPCOR argued that notwithstanding the presumption against retroactive ratemaking, its final forecast costs should be increased because of the knowledge exception to the rule against retroactive ratemaking.
The AUC denied EPCOR’s request to include costs from March 18 to June 18, 2020. The AUC noted that the announcement from the Government of Alberta from March 18, 2020, regarding the COVID-19 pandemic and the AUC’s Bulletin 2020-08 of the same date gave notice that the legal and regulatory framework may change to give effect to the allowable costs recovered under the UPDP, and not to costs excluded from recovery under the UPDP.
(b) Should the AUC approve EPCOR’s applied-for non-energy credit costs?
EPCOR’s application included a request to recover $0.69 million and $0.70 million in non-energy credit costs associated with providing financial security to the distribution system for 2021 and 2022, respectively. EPCOR confirmed that the methodology for these costs has not changed from previous applications, and the costs related to maintaining the forecast net financial security amounts to EPCOR Distribution and Transmission Inc. (“EDTI”) and FortisAlberta Inc. (“FortisAB”).
In Decision 24839-D01-2019, the AUC approved the arrangement between EEA and FortisAB for EEA to provide regulated rate option (“RRO”) service in the FortisAB distribution service area, including the provision on the posting of financial security.
The UCA raised the concern that the recovery of these costs paid to the distribution utilities is contrary to applicable rules, specifically Section 8(1) of the Distribution Tariff Regulation. The UCA argued that the provision of security outlined in Section 8(1) applies to retailers and that EPCOR is an RRO provider, not a retailer, in the context of Section 8(1). It further submitted that the credit costs are not necessary to provide RRO service and should be removed from EPCOR’s revenue requirement.
The AUC interpreted the applicable sections of the EUA and the Distribution Tariff Regulation as only requiring the security deposits from retailers and not regulated rate providers.
EPCOR relied on its obligation as an RRO provider to provide financial security, set out in the terms and conditions of EDTI and FortisAB. The AUC determined that the terms and conditions of service impose a requirement on EPCOR as an RRO provider to pay a security requirement that is inconsistent with legislative requirements in the EUA and the Distribution Tariff Regulation. As a result of this finding, the AUC encouraged EEA, in discussions with distribution utilities, to amend the agreement and/or apply to the AUC for approval of an amendment of the arrangements of RRO service from Decision 24839-D01-2019.The AUC concluded that Section 8 of the Distribution Tariff Regulation does not apply to RRO providers and that such a security deposit does not conform with the plain meaning of a retailer in the EUA and the financial security provisions that apply to retailers in Section 8 of the Distribution Tariff Regulation. EPCOR was directed to exclude $0.69 million for 2021 and $0.70 million for 2022 related to credit costs from its revenue requirement for 2021-2022.
Compliance with Previous Directions
The AUC was satisfied that EPCOR had complied with all outstanding directions.
The AUC approved EPCOR’s NSA for the 2021-2022 non-energy related rate tariff, as filed. The requests to include in EPCOR’s revenue requirement COVID-19 costs between March 18, 2020, and June 18, 2020, and non-energy credit costs were denied.