Tariff – Rates
In this decision, the AUC denied the application from AltaLink Management Ltd. (“AML”) for review and variance of Decision 26509-D01-2022 (Corrigenda). AML requested that the AUC review and vary its findings to allow AML to refund $120 million of surplus accumulated depreciation to the Alberta Electric System Operator (the “Tariff Refund”). The AUC denied the application as the request, and the proposal to credit the amount to Alberta’s electricity customers to reduce their electricity bills from July to September 2022 would not result in a just and reasonable tariff.
AML’s proposal would result in an average Alberta residential customer receiving a bill reduction of $5 per month in July, August, and September 2022. After that, their electricity bills would be higher for the next 46 years than would otherwise be the case. The AUC characterized AML’s proposal as a loan rather than a refund since refunds do not have to be paid back by the person that receives them. Unlike a refund, Alberta’s electricity customers will have to return the $120 million plus carrying charges to AML. It is currently expected that Alberta electricity customers would pay AML back $251.6 million through increased electricity rates, including approximately $85 million in expected profit to AML ’s owners.
The AUC’s Review Process
Typically, the AUC review process has two stages. In the first stage, a review panel decides if there are grounds to review the original decision (the “Preliminary Question”). If a review panel decides to review the decision, it moves to the second stage where it decides whether to confirm, vary, or rescind the original decision (the “Variance Question”). In this proceeding, the review panel decided on the Preliminary Question and the Variance Question in one proceeding pursuant to Section 6(2) of Rule 016.
Timing of the Review Application
AML applied for review and variance outside the 30-day deadline set out in Rule 016: Review of Commission Decisions. AML relied on events that occurred or continued to occur after the 30-day deadline, and the AUC exercised its discretion under s. 3(3) of Rule 016 to consider the application.
Decision on the Preliminary Question
To support its review application, AML submitted that the economic conditions that existed when Decision 26509-D01-2022 (Corrigenda) was issued, no longer apply. AML cited, among other things, the ongoing invasion of Ukraine and the recent rise in oil and gas commodity prices and resulting increases in energy costs for Albertans. AML also referred to the tight electricity supply market and upward pressure on electricity prices for Albertans, and increasing levels of inflation and increasing interest rates as constituting materially changed circumstances.
The review panel was satisfied that the recent economic and geopolitical developments outlined by AML amount to changed circumstances material to Decision 26509-D01-2022 and allowed the review application on this basis.
Decision on the Variance Question
The review panel found that AML’s proposal does not result in a just and reasonable tariff and denied AML’s request to refund $120 million in accumulated depreciation in 2022 for the following reasons:
(a) The long-term costs of AML’s refund proposal outweigh the short-term benefits. This was a concern that was also noted by the Consumers’ Coalition of Alberta. AMLs current proposal to refund $120 million of accumulated depreciation in 2022 provides AML with an estimated additional $251.6 million in revenue requirement over the years 2022-2067.
(b) AML’s proposal to refund $120 million of accumulated depreciation in 2022 provides an average residential customer approximately $5 per month of rate relief for each of July, August, and September 2022. The review panel does not agree with AML that this amounts to “significant additional support” to average residential customers, particularly in view of the burden that would be imposed on them in the future.
(c) A small percentage of the refund would be allocated to residential customers and small commercial customers. In particular, approximately $19 million (or roughly 16 per cent) of the total $120 million refund would flow through to customers identified as residential and approximately $12 million (or roughly 10 per cent) would flow through to small commercial customers. These allocations contradict AML’s stated reasons for the refund, which focused on the financial hardship facing residential and small commercial customers.
(d) Industrial Power Consumers Association of Alberta, a representative of large industrial customers, stated that it was “prepared to accept the AUC’s original Decision on this matter and move on to initiatives that can help save customer dollars in the long-term.”
(e) AML’s analysis that shows a benefit to Alberta electricity customers resulting from its proposal is incomplete and flawed. AML relies on a 20 per cent interest rate, based on credit card debt, to show a net benefit of $80 million to all Alberta’s customers over 46 years resulting from its proposal. There is no evidence on the record that demonstrates a substantial majority of Alberta electricity customers are facing debt rates of 20 per cent, or that credit card interest rates apply to the larger consumers of electricity who would receive the majority of AML’s refund.
(f) The review panel rejected the assertions of AML and Patrick Bowman (on behalf of the Office of the Utilities Consumer Advocate) that an immediate refund in 2022 results in a just and reasonable tariff to past, present, and future customers. The review panel found that the refund would not be fair to future customers. There is no persuasive reason why future customers should pay higher electricity rates for 46 years given the modest relief in 2022.
(g) As applied for, AML’s refund proposal (in the current review & variance application) increases its revenue requirement by an additional $3.4 million in the years 2022-2023 compared to its previous refund proposal. This incremental benefit to AML is inconsistent with AML’s statement that the refund is “overwhelmingly in the public interest.”
(h) AML’s portrayal of Alberta’s economic circumstances ignores the province’s recovery from the COVID-19 pandemic and the economic growth experienced in Alberta over the first three months of 2022, which is expected to continue. The review panel disagreed with AML’s argument that Alberta’s economy has materially deteriorated since the time of AML’s appl
ication update in early September 2021, or from the issuing of Decision 26509-D01-2022 (Corrigenda) on January 19, 2022.
The AUC found that AML’s proposal would not result in a just and reasonable tariff. While it would provide Alberta’s current electricity customers with modest relief on their electricity bills, the proposal would immediately require Alberta’s electricity customers to pay back its “refund” with interest and other carrying charges over the next 46 years. Accordingly, the AUC denied AML’s request to vary the original decision.