Rates – Utility Payment Deferral Program
In this decision, the AUC approved an application from ENMAX Energy Corporation (“ENMAX”) for a 2020 non-energy COVID-19 deferral account. A deferral account balance of $1.268 million was approved for collection between December 1, 2021, to May 31, 2022, through a rate rider in the amount of 0.0468 per site per day for residential and commercial classes.
Background
The 2020 final non-energy rates approved by the AUC for ENMAX on July 16, 2020, did not include any forecast costs arising from the COVID-9 pandemic. ENMAX applied to set up a non-energy deferral account to recover the incremental costs it incurred between June 19, 2020, and December 31, 2020, because of the COVID-19 pandemic and to collect the balance in that deferral account.
Generally, if the AUC approves rates as final, they are not subject to future revisions, except for limited circumstances, such as an appeal of the final rates. Regulated rate option (“RRO”) providers may apply for deferral accounts as part of a non-energy rate application when there is difficulty in establishing a reasonable forecast for items such as expenses and revenue. If a deferral account is approved, the non-energy rates are not approved as final rates because the balance in the deferral account will have to be settled at a later date. ENMAX did not request a non-energy COVID-19 deferral account for 2020 in its 2017-2020 non-energy application as the pandemic had not yet arrived.
Issues
Should ENMAX be Permitted to Establish a 2020 Non-Energy COVID-19 Deferral Account
Applications for deferral accounts as part of a non-energy rate application require that the applicant shows that there is difficulty in establishing a reasonable forecast for items such as expenses and revenue. If a deferral account is approved, it is not known if the balance will be collected from or refunded to customers. The AUC has the authority to approve cost recovery through a deferral account pursuant to Section 6 of the Regulated Rate Option Regulation. Section 6 also sets out that any cost or expense approved by the AUC to be recovered by the RRO provider must be prudent and reasonable.
The AUC determined that the COVID-19 pandemic and the related uncertainty and difficulty in forecasting pandemic-related costs justified deviation from traditional deferral account criteria. The pandemic itself, the state of emergency declared by the Government of Alberta on March 17, 2020, and the severe economic downturn that resulted are all factors that could not have been reasonably known or forecast by ENMAX when it submitted its 2017-2020 non-energy application in 2018.
In considering the fairness of ENMAX’s request for the deferral account, the AUC noted that ENMAX, as an RRO provider, must provide service to customers who cannot contract with competitive retailers. As a result, the RRO’s ability to adapt to market forces and adjust its fees is limited. Because of the pandemic, ENMAX incurred RRO costs in excess of one million dollars in 2020, and its only mechanism to recover costs is through AUC-approved rates.
The AUC approved the 2020 COVID-19 deferral account for the period June 19, 2020, to December 31, 2020.
The AUC noted that the Utility Payment Deferral Program Act was enacted on May 12, 2020, allowing the deferral of customers’ utility bill payments, as well as financial support to regulated rate providers and other regulated and competitive entities so these service providers would have money to pay, for example, distributors. The AUC found that the utility payment deferral program (“UPDP”) rate rider should reflect the unpaid amounts from March 18 to June 18, 2020. To address the gap between June 19 and July 15, 2020, and the inability of RRO providers to recover COVID-19 related costs for that period, the AUC revised the start date to June 19, 2020, stating: “Amending the date to June 19, 2020, for the COVID-19 deferral account will allow for the reasonable recovery of cost impacts that were not associated with the deferral period under the UPDP”.
The July 28, 2021 ruling, setting June 19, 2020, as the commencement of the COVID-19 deferral account, was not challenged by ENMAX. Exceptions to the rule against retroactive ratemaking were commented on in detail in Decision 790-D02-2015, including the exceptions of deferral accounts and the knowledge exception. The AUC determined that there was no error in applying the knowledge exception here. The knowledge exception refers to circumstances where parties to the rate proceeding know (or ought to know) that rates were subject to change, at first instance to July 16, 2020, and then to June 19, 2020, after the UPDP decision was issued.
The AUC determined that a contrary direction would result in either ENMAX or its customers having no means of adjusting for COVID-19 pandemic-related costs not included in UPDP costs between June 19 and July 15, 2020.
Should the AUC Approve the Balance in the Deferral Account and the Associated Rate Rider?
ENMAX calculated and reported the balance in the deferral account as $1.240 million. The most significant applied-for elements are a collection of $1.071 million from customers for bad debt and a refund of $57,000 to customers for billing and customer care.
(a) Balance in the Deferral Account
The AUC did not approve administrative costs of $46,000 requested by ENMAX. It found that it could not approve this cost category as there was no specific approved forecast for the administrative costs. Regarding the incremental bad debt expense, an issue regarding the nature of bad debt arose. The question the AUC sought to answer was: when could a bill sent to a customer be written off as uncollectible?
ENMAX submitted that the bad debt expense is not incurred when electricity is consumed when a bill is issued nor when payment is due. This is because ENMAX does not know whether the bill will be paid at those times. It incurs the bad debt expense when a bill remains unpaid 60 days after payment is due. The AUC found this explanation for the calculation of its bad debt expense reasonable and appropriate. It is the difference between the actual bad debt expense and the forecast bad debt expense. The AUC approved the balance of $1.071 million for the bad debt expense deferral.
The Utilities Consumer Advocate (“UCA”) took issue with the costs associated with billing and customer care (“B&CC”). The actual B&CC costs for 2020 were $0.40 million less than the forecast, but only $0.056 million of the $0.40 million is attributable to the deferral account period. The UCA stated that this was simply a matter of shifting costs from earlier in the year to later in the year. It argued that if ENMAX is allowed to rely on the cost amounts shifted to later in the year to offset the savings that would otherwise accrue to customers through the deferral account, this would result in double counting.
The AUC found that the UCA failed to demonstrate how there was double counting. The AUC agreed with submissions from ENMAX that the incurred B&CC costs, in this case, involved a timing issue, neither ENMAX nor the UCA can change when the costs are incurred. The time at which costs are incurred determines if the costs are eligible for deferral account treatment.
The AUC was concerned with a discrepancy in the actual B&CC costs for 2018. The AUC could not trace the $8,992,609 ENMAX used as the actual B&CC costs for 2018 to the $8,883,000 approved in a previous decision. ENMAX’s use of $8,992,609 instead of $8,883,000 resulted in a lower refund amount for the B&CC cost deferral account and a corresponding higher amount in the overall deferral account to be collected from ENMAX’s RRO customers. The AUC used the $8,883,000 previously approved and approved a refund of B&CC costs in the amount of $74,000.
The AUC approved a total deferral account balance of $1.268 million.
(b) Rate Rider Period and Associated Rate Rider Amount
The AUC determined that a six-month period of the rate rider is acceptable, as suggested by the UCA. From December 1, 2021, until May 31, 2022, the AUC approved a rate rider of 0.0468 per site per day for the residential rate class and the commercial rate class.
