Regulated Rate Tariff – Non-Energy
In this decision, the AUC considered EPCOR Energy Alberta GP Inc.’s (“EPCOR”) 2018-2020 non-energy regulated rate tariff (“RRT”) for service in the EPCOR Distribution & Transmission Inc. (“EDTI”) and FortisAlberta Inc. (“Fortis”) service territories.
The AUC approved EPCOR’s forecast customer site counts, operating costs, corporate services costs, property taxes, hearing cost deferral account, and depreciation expense subject to certain directions which EPCOR was directed to address in a compliance filing.
The AUC approved EPCOR’s terms and conditions effective October 4, 2018.
Forecast Revenue Requirement and Monthly Non-Energy Charges
EPCOR’s applied-for non-energy RRT revenue requirements for the 2018 to 2020 test period are set out in Table 1 below:
Table: Forecast non-energy RRT revenue requirements for 2018 to 2020
Table: Forecast monthly non-energy charges for 2018 to 2020
Customer Information System Project
EPCOR proposed a new customer information system (“CIS”) to replace its existing customer billing (Utility Information System or UIS), and its relationship management (Customer Relationship Management or “CRM”) systems, with a single integrated system. Subject to Board approval, EPCOR anticipated that the CIS project would commence on September 4, 2018, and take 18 to 24 months to complete.
The AUC approved the forecast costs related to the CIS project included in EPCOR’s revenue requirement, on an interim refundable basis, finding that:
(a) the CIS project was required for the provision of utility service because the program would provide support to EPCOR’s customer service and billing functions; and
(b) the timing of the CIS project was reasonable given that the existing information systems were at the end of their useful life.
The AUC directed EPCOR to:
(a) include a proposal to true-up its costs related to the CIS project as part of its next RRT non-energy application;
(b) confirm that EPCOR Utilities Inc. (“EUI”) secured a fixed-price contract and to include a detailed update on the vendor selection process, the vendor selected, and the contracts signed with the selected vendor in its compliance filing to this decision; and
(c) include, in its compliance filing, a proposal for an asset usage fee that allocated CIS costs to the RRT, based on the functions necessary to serve RRT customers and then based on the forecast site counts.
Customer Service Consultant Costs
EPCOR’s customer service consultants (“CSC”) are the contact centre personnel who answer calls and respond to customer questions. The costs for this category include salaries and benefits, as well as related costs such as training, telephone, and supplies. EPCOR’s forecast CSC costs, allocated to RRT for the test period were $2.86 million in 2018, $2.82 million in 2019, and $3.52 million in 2020. This represented an increase from an updated 2017 forecast of $2.68 million, which was higher than the AUC approved amount of $2.54 million for 2017.
The AUC accepted that experienced CSCs were needed to work on the CIS project because they had the best knowledge of the service requirements and existing processes and that new hires would be required to backfill positions. However, it was not clear to the AUC that this warranted an increase in CSC costs from past forecasts beyond an inflation adjustment.
The AUC noted that the service level agreement between EPCOR and EUI provided that EPCOR would apply an hourly fee for all hours worked, inclusive of fully burdened salaries. The AUC considered that if experienced CSCs were replaced by new hires because the experienced CSCs were required on the CIS project, then the costs for experienced CSCs would be removed from the CSC revenue requirement. Subsequently, these costs would be allocated to the CIS project to ensure there was no double counting for any amounts paid by EUI.
The AUC found that it was not reasonable for EPCOR to enter into a contract whereby its experienced employees provide services to another entity, unless the fees paid for those services at a minimum cover EPCOR’S cost of replacing those experienced employees.
Accordingly, the AUC directed EPCOR to remove any costs associated with additional training for new hires replacing any EPCOR staff, including CSCs, as well as any costs associated with decreased performance or efficiency resulting from those experienced resources being replaced by new hires, e.g., increased call-handling times.
Mid-Term Incentive Program Costs
Participating EUI group management employees, including the management of EPCOR, were eligible for a mid-term incentive (“MTI”) program. The MTI program was created in 2010 and applied only to senior management. It was set using two performance metrics:
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net income; and
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the compounded annual growth rate for property, plant, and equipment.
The AUC denied EPCOR’s requested MTI program costs for 2018, 2019 and 2020. The AUC found that there was insufficient evidence that the MTI costs were required to provide Regulated Rate Options (“RRO”) electricity services. Therefore, a change in the treatment of the costs of the MTI program was not warranted. EPCOR did not seek recovery of any of RRT’s share of MTI costs in its 2014-2015 and 2016-2017 RRT applications.
Business Development Costs
The AUC found that there was insufficient evidence to conclude that business development costs were required to provide RRO electricity services. Therefore, the AUC found that recovery of these costs was not warranted.
The AUC directed EPCOR, in its compliance filing, to exclude any business development costs for 2018, 2019 and 2020.
Bad Debt
The AUC approved the bad debt expense percentages for 2018-2020 as proposed in EPCOR’s application. The AUC found that these percentages were consistent with EPCOR’s previously approved bad debt expense methodology. The percentages for the rate class related to Fortis’ oil and gas customers was also calculated consistently with EPCOR’s methodology and, therefore, found to be reasonable.
Asset Retirement and Depreciation
The AUC denied EPCOR’s proposal to reduce the depreciation period for its existing information management and customer relationship assets being replaced by the CIS.
The AUC recommended that when the date of replacement of the old assets with the new CIS program assets was known, EPCOR should file a proposal on how the net book value of the retiring assets should be treated for regulatory purposes.
Under-forecasting Site Counts
The AUC found that an adjustment to site counts was not warranted. The AUC directed EPCOR to include in its compliance filing, updated site count forecasts based on the most recently available site counts. The AUC acknowledged that as RRO prices reached the rate cap, a reasonable assumption was that some non-RRT customers may migrate back to RRT service and fewer customers would leave RRT service for competitive retail alternatives. However, the effect of the rate cap and any potential migration back to the RRO was uncertain. Given the implementation of a rate cap, the AUC found it reasonable for EPCOR to update its site count forecasts accounting for more recent actual data.
Oil and Gas Rate Increase
The AUC approved the increase in oil and gas monthly non-energy rates.
The AUC was satisfied that the increase in monthly non-energy charges for the oil and gas rate class was due to inclusion of a bad debt expense for this rate class. The AUC approved EPCOR’s calculation of a bad debt forecast for the oil and gas rate class. With respect to oil and gas customers’ total bill, this increase did not constitute rate shock because the increase was less than one percent.
Price Schedule and Terms and Conditions
The AUC directed EPCOR to file updated price schedules in its compliance filing that reflected the approved revenue requirement and other approvals granted by the AUC in this decision.
The AUC approved EPCOR’s changes to its terms and conditions indicating the changes provided additional clarity regarding billing due dates and the disconnection process for non-payment.
Summary
The AUC approved EPCOR’s forecast customer site counts, operating costs, corporate services costs, property taxes, hearing cost deferral account, and depreciation expense subject to certain directions which EPCOR was directed to address in a compliance filing.
The AUC approved EPCOR’s terms and conditions effective October 4, 2018.
