Electricity – Gas – Rates
Applications
This decision deals with the 2023 cost-of-service (“COS”) applications from two natural gas distribution facility owners (“DFOs”), ATCO Gas and Pipelines Ltd. (“ATCO Gas”) and Apex Utilities Inc. (“Apex”). The rates approved for 2023 on a forecast cost basis will also serve as going-in rates for the third term of performance-based regulation (“PBR”) that will commence on January 1, 2024.
Decision
The AUC accepted the hybrid methodologies put forward by ATCO Gas and Apex, which use mechanistic and non-mechanistic approaches to arrive at their respective 2023 forecasts. The AUC did however direct adjustments to the applied-for escalation factors. Specifically, both ATCO Gas and Apex are to: (1) use their actual labour cost increases for the period 2019-2020 in calculating their inflation escalators; and (2) reduce their proposed customer growth escalator by 15 percent. The AUC further directed both ATCO Gas and Apex to recalculate their respective 2023 forecasts under the mechanistic approach to reflect the escalation factors approved in this decision.
The AUC found that ATCO Gas’s and Apex’s 2023 operating and maintenance (“O&M”) and capital additions forecasts to be reasonable for 2023, subject to the incorporation of the approved escalation factors and the following O&M and respective capital disallowances.
Applicable Legislation
AUC Decision 20414-D01-2016 – 2018-2022 Performance-Based Regulation Plans for Alberta Electric and Gas Distribution Utilities
AUC Bulletin 2021-04: Stakeholder consultations to evaluate performance-based regulation in Alberta and to determine process to establish 2023 rates for distribution facility owners
AUC Decision 26356-D01-2021 – Evaluation of Performance-Based Regulation in Alberta
Pertinent Issues
Rates for the electric and natural gas distribution utilities under the AUC’s jurisdiction are currently set according to the PBR plans established in Decision 20414-D01-2016 (Errata). These plans are effective from January 1, 2018, to December 31, 2022, and apply to the four large electric distribution facility owners (“DFOs”) in Alberta and the two large natural gas DFOs in Alberta, ATCO Gas and Apex. Under both the previous (PBR1) and current (PBR2) plans, each utility’s rates (or revenue-per-customer in the case of the two gas DFOs) are adjusted annually.
The AUC issued Bulletin 2021-04 where it expressed its intention to engage the DFOs and consumer groups to assess the approach to distribution rate regulation in Alberta following the expiration of the current PBR2 plans in 2022. The AUC initiated two related streamlined processes: (i) a review and assessment of legacy PBR performance; and (ii) a COS review to establish 2023 rates. Decision 26356-D01-2021 related to the former process, in which the AUC, inter alia, determined that it would proceed with a one-year COS review based on the 2023 forecast costs. Because 2023 is an intervening COS rebasing year that falls between two PBR terms (i.e. between PBR2 and PBR3, the latter commencing in 2024), the approach taken by the AUC in reviewing these applications involved examining not only those issues typically encountered in traditional COS or rate base rate-of-return regulation proceedings but also the types of issues more likely to require scrutiny during the rebasing process under PBR.
Unlike the PBR2 rebasing approach, which used the notional revenue requirement on which to base the going-in rates, each utility was allowed to develop its 2023 revenue requirement forecast in this proceeding. The utilities bore the onus of demonstrating and supporting the reasonableness of the elements comprising its revenue requirement.
The AUC examined issues related to the identification and quantification of efficiencies, escalation factors, 2023 forecast O&M, 2023 forecast capital additions and IT costs.
The AUC largely accepted the hybrid methodologies approach applied. Specifically, under the mechanistic approach, the utilities forecast costs by calculating the average of actual costs incurred in the 2018 to 2020 period and then escalating that average by certain proposed escalation factors such as inflation and customer growth. Under the non-mechanistic approach, the utilities forecast from the bottom up, which is a traditional way to forecast costs under COS regulation.
