Rates – Performance-Based Regulation
In this decision, the AUC considered the 2022 annual performance-based regulation (“PBR”) rate adjustment filing from ENMAX Power Corporation (“EPC”). The AUC approved the updates to EPC’s distribution tariff terms and conditions (“T&Cs”). EPC’s request to recover or refund the transmission access charge deferral account (“TACDA”) amounts related to the historical errors for 2015 through 2019 was denied. The 2020 TACDA true-up and associated TAC Rider was approved subject to providing the clean version of supporting schedules showing the removal of the TACDA amounts related to the historical errors for years 2015 through 2019. The AUC also denied the Type 1 capital placeholder for 2022 K factor adjustments.
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.
EPC’s most recent annual rate filing dealing with 2021 PBR rates was approved on an interim basis in Decision 25865-D01-2020. The present application is the last annual PBR rate adjustment filing in the current 2018-2022 PBR term. In 2023, rates will be established based on a cost-of-service review of the distribution utilities’ forecast costs. This review will also serve as rebasing for the next PBR term for Alberta distribution utilities that will commence in 2024.
PBR Rate Adjustments
PBR Indices and Annual Adjustments
The 2021 PBR plan for EPC provided a rate-setting mechanism based on a formula that adjusted rates annually through an indexing mechanism plus specifically approved adjustments.
(a) I-X index
EPC calculated its 2022 I-X index to be 1.46 percent. The AUC approved the 2022 I factor of 1.76 percent and the resulting I-X index as calculated by EPC.
(b) Y and Z factor materiality threshold
EPC calculated the Y and Z materiality threshold to be $1.94 million for 2022. The AUC approved the Y and Z factor materiality threshold as applied for.
(c) Y factor and Z factor
EPC applied for a Y factor amount of $1.86 million inclusive of carrying costs. EPC did not apply for any Z factor adjustment in 2022. The AUC approved the Y factor as filed.
(d) Q Value
The AUC was satisfied with EPC’s calculations and approved the 2022 Q value of 1.47 percent.
(e) K-bar factor and K factor
EPC applied for 2022 K-bar funding of $35.70 million, K-bar true-ups from 2020 and 2021 and associated carrying charges. ENMAX calculated its 2020 K-bar true-up as -$0.96 million and the 2021 K-bar true-up of -$1.01 million and associated carrying costs totaled -$0.06 million. No party objected to ENMAX’s applied-for K-bar funding.
The AUC approved the net 2022 K-bar Funding of $33.67 million, including true-ups and carrying charges subject to a true-up for the 2022 actual approved cost of debt.
The K factor is used to recover the Type 1 capital funding that provides additional funding above that provided in base rates for projects that meet the specific criteria established by the AUC. Projects in this category can be approved on a placeholder basis. EPC has three Type 1 capital placeholders for the cost recovery of 90 percent of the management-approved internal 2019, 2020, and 2021 forecasts associated with the relocation of EPC’s infrastructure following the City of Calgary’s Green Line Light Rail Transit (“LRT”) Project. The corresponding approved revenue requirement figures were $1.02 million for 2019, $1.25 million for 2020, and $1.78 million for 2021.
In this proceeding, EPC requested approval of a Type 1 capital placeholder for the amount of $2.0 million, associated with the Green Line LRT Project. However, as the AUC determined in Decision 26589-D01-2021 that the Green Line LRT Project does not qualify for Type 1 capital tracker treatment, the request for Type 1 capital placeholder in this proceeding was denied.
Forecast Billing Determinants and Variance Analysis
In Decision 23355-D01-2020, EPC was directed to provide an analysis of its 2020 forecast billing determinant with actual 2020 billing determinants with a variance of five percent or more. EPC submitted that all classes but the residential rate class, experienced a variance of negative five percent due to diminished demand caused by the COVID-19 pandemic. The residential rate class experienced a positive variance, also due to the COVID-19 pandemic.
The AUC determined that these variances from forecasts can be reasonably expected and do not generally call the predictive value of the methodology used to generate the forecasts into question. The AUC found that the methodology employed and the resulting 2022 forecast billing determinants were reasonable.
TACDA True-up
In the current PBR plan, TACDA amounts are considered to be a part of the Y factor and are treated as a dollar-for-dollar flow-through of the Alberta Electric System Operator (“AESO”) tariff charges.
Treatment of Identified TACDA Errors
In the original application for this proceeding, EPC identified an issue with the calculation of its TACDA balances and riders. EPC had misinterpreted the TACDA schedules template, which led to a form of double counting. EPC submitted later that the errors affect its TACDA balances and TAC riders stretching back to 2015. EPC indicated that its errors caused it to under-recover in some years and to over-recover in others. As a result of the error, EPC sought approval for a net collection of $10.27 million associated with the revised historical TACDA amounts for the period 2015 to 2019.
The AUC noted that generally, ratemaking must be prospective. Past financial results can only be used to forecast future expenses. The AUC noted that deferral accounts are one of the established exceptions to prohibited retroactive or retrospective ratemaking.
The AUC took issue with the time it took EPC to identify the issue and its cause. While EPC stated it had adequate internal control review processes and supervisory systems in place, it took nearly six years to identify the misinterpretation and related impacts on annual TACDA true-up amounts. The AUC also agreed with an argument made by the Consumers’ Coalition of Alberta that noted that there appeared to be a lapse in accounting oversight in addition to the calculation errors.
The AUC had previously stipulated that it approved flow-through treatment for AESO-related costs because the utility cannot control them. In this case, the error was mathematical and made in comparing the forecast to actual costs. The accuracy of such a comparison is entirely within the control of EPC. Therefore, the SAS deferral true-up should not include the utility’s calculation errors. The AUC determined that the request to recover the TACDA amounts related to the historical errors for years 2015 through 2019 is not strictly prohibited as retroactive ratemaking but is an unacceptable use of the TACDA. The request was denied.
2020 TACDA True-Up
The AUC determined that the 2020 TACDA schedules are consistent with the harmonized framework previously approved by the AUC. The AUC found the amounts comprising the 2020 annual TACDA true-up, without the amounts related to the historical errors for years 2015 through 2019, to be reasonable. The AUC approved a net refund of $0.92 million and corresponding rider rates, contingent on EPC providing a clean version of its 2020 TACDA schedules and 2022 PBR rates schedules in a compliance filing to this decision.
PBR Rates
Distribution Rates
EPC was directed to remove the TACDA amounts related to the errors for years 2015 through 2019 from the 2020 TACDA true-up and the applied-for placeholder for the Green Line LRT Project. EPC was also directed to update its Balancing Pool Rider to reflect the currently approved AESO Rider F. As a result, while the AUC was satisfied with the rate calculation method, EPC’s 2022 PBR rate calculations needed to be revised.
EPC was directed to file a compliance filing to this decision by December 10, 2021, consistent with the directions provided in this decision, including a revision of the rate calculations.
DAS Adjustment Rider
EPC proposed a distribution access service (“DAS”) true-up Rider of $0.10 million, effective January 1, 2022, to March 31, 2022. The AUC determined that the proposed DAS Rider adjustment is consistent with EPC’s historical practice approved by the AUC and therefore approved the adjustment for 2022.
Balancing Pool Adjustment Rider
EPC’s application did not include an update needed following the AUC’s approval of the Alberta Electric System Operator’s (“AESO”) 2022 Rider F charge. As a result, EPC was directed to update its application to include the approved 2022 Rider F in a compliance filing.
Other Matters
AESO Contributions Hybrid Deferral Account
Changes to historical AESO contribution amounts made by EPC are captured in a deferral account and subject to true-up. Further, incremental capital funding for new AESO contributions is provided through the K-bar.
EPC applied for capital additions to the rate base of $0.03 million in 2020 and $0.10 million in 2021. EPC also applied for a true-up of 2020 hybrid deferral account amounts collected in 2021, as the cost of debt for 2020 was available at the time of this application. This resulted in a 2020 deferral account true-up refund of $0.08 million, and a 2021 deferral account true-up refund of $0.49 million. The total adjustment for the AESO contribution hybrid deferral account is a refund of $0.59 million, including associated carrying costs. The AUC approved this adjustment refund.
Terms and Conditions of Service
EPC proposed a modification to its customer T&Cs to allow all retailers, in addition to the default supplier and regulated rate provider, to request EPC to de-energize and re-energize a customer site. Further, retailer T&Cs were amended to allow all retailers to request EPC to de-energize and re-energize a customer site. The AUC found these amendments reasonable and approved them.
Financial Reporting
The AUC reviewed the financial information provided by EPC and was satisfied that EPC complied with the financial reporting requirements.
