Review and Variance – Denied – Regulated Rate Tariff – Energy Price Setting Plans
Direct Energy Regulated Services Inc. (“DERS”) and EPCOR Energy Alberta GP Inc. (“EPCOR”) both applied for a review and variance of Decision 2941-D01-2015. In Decision 2941-01-2015, the AUC considered, through a generic proceeding, all of the elements of the energy price setting plans (“EPSP”) for all three regulated rate option (“RRO”) providers, including the reasonable return component of their respective regulated rate tariffs (“RRT”).
Both DERS and EPCOR raised alleged errors of fact, law or jurisdiction in their grounds for review, as well as concerns regarding procedural fairness in Decision 2941-D01-2015.
Procedural Fairness
With respect to procedural fairness grounds, DERS and EPCOR alleged that the hearing panel was in breach of the duty of procedural fairness by failing to provide notice to the parties that it would make findings in respect of whether investors were inherently risk averse or risk neutral, and whether the RRO providers would receive compensation for price variability.
The AUC held that the hearing panel provided adequate notice of the issues related to the risk margin, citing the hearing panel’s release of the final issues list for the proceeding, and each of DERS and EPCOR had a reasonable opportunity to file evidence on the appropriate methodology for the risk margin and commodity risk compensation. The AUC also found that EPCOR had specifically discussed commodity risk compensation and risk aversion in its information request responses to the AUC, and found that ECPOR was not denied an opportunity to make submissions on the issues of risk compensation and risk aversion.
The AUC held that neither DERS nor EPCOR established that there was a breach in procedural fairness or in legitimate expectation, and denied the application for review on this ground.
Errors of Fact, Law, or Jurisdiction
Interpretation of Section 6(1)(a) of the Regulated Rate Option Regulation
DERS and EPCOR raised two grounds of review in respect of section 6(1) of the Regulated Rate Option Regulation:
(a) The hearing panel erred in finding DERS and EPCOR are only to recover risk-related costs and expenses, instead of just and reasonable compensation for bearing financial risk as well as risk-related costs and expenses; and
(b) The hearing panel erred in failing to provide DERS and EPCOR with an opportunity to earn just and reasonable compensation in relation to the risk margin.
The AUC held that the hearing panel did not commit an error in its interpretation of section 6(1)(a) of the Regulated Rate Option Regulation, holding that the hearing panel considered both provisions in its analysis, as well as section 6(1)(b)(ii). The AUC determined that the hearing panel’s interpretation or the standard to be applied was reasonable and consistent with a contextual reading of the Electric Utilities Act. The AUC also noted that the hearing panel held a generic proceeding for a specific reason, that being to look at different approaches than previously employed by the RRO providers in the past. The AUC noted that it should not be a surprise to any party that the hearing panel later adopted a different approach.
The AUC summarized DERS and EPCOR’s contention as being that, in order to comply with the relevant legislation, the hearing panel ought to have quantified each specific element of commodity risk. Instead, the AUC noted the hearing panel’s approach as considering all of the elements of commodity risk in approving a two-part compensation formula.
The AUC reiterated that section 103(1) of the Electric Utilities Act requires a RRO provider to prepare an RRT for the purpose of recovering the prudent costs of providing electricity to eligible customers. The onus is on the RRO provider to justify the RRT as just and reasonable, and includes the RRO provider’s proposed risk margin.
The AUC determined that the methodology for calculating the risk margin was submitted on the record by the UCA, and considered all risk elements (although the selected methodology did not consider each element separately).
In dismissing DERS’ and EPCOR’s request for a review on this ground, the AUC cited the Alberta Court of Appeal’s reasons in EPCOR v Alberta (Energy and Utilities Board) stating that the AUC “is free to accept or reject evidence presented by the parties and, as an expert tribunal, it is entitled to use its expertise to arrive at different conclusions than the parties.” Therefore, the AUC ruled that it was well within the hearing panel’s discretion to accept the UCA’s proposed methodology, and to reject those applied for by DERS and EPCOR.
Accordingly, the AUC held that DERS and EPCOR had not shown that an error in fact, law or jurisdiction was obvious on the face of the decision or had been shown to exist on a balance of probabilities.
The AUC further rejected EPCOR’s submission that the hearing panel made findings in respect of whether RRO investors were risk averse or risk neutral. The AUC noted the hearing panel’s lengthy discussion of financial risk consisting of some 300 paragraphs of discussion and reasons. The AUC found that the hearing panel was not under a duty to alert the parties that it was considering a part of the hearing record. The parties were afforded a reasonable opportunity to file evidence, make argument and reply before the hearing panel on any issue raised in the course of the proceeding. The AUC noted that the hearing panel did not have a responsibility to ensure that the hearing participants each addressed every issue raised in the proceeding.
The AUC agreed with EPCOR and DERS that past decisions generally assumed that public utility companies were risk averse. However, the AUC distinguished EPCOR and DERS from “public utility companies”, since they are RRO providers. EPCOR and DERS are not considered monopolies, but are regulated under the Regulated Rate Option Regulation as part of a competitive market. The AUC also noted that neither EPCOR nor DERS’ RRO service are capital intensive like transmission and distribution utilities, finding therefore that the hearing panel did not commit an error in finding that RRO investors are risk neutral, not risk averse.
Deferral accounts or True-Ups
DERS submitted that the hearing panel erred in approving an RRT and EPSP methodology that uses, provides for, or contemplates the use of deferral accounts, true-ups, rate riders or other similar adjustment mechanisms.
The AUC determined that the hearing panel did not err in approving its rolling 12-month price methodology, as the hearing panel noted specifically that although historical data is used, it is applied prospectively. No settlement or reconciliation would occur at the end of the period. The AUC held that the hearing panel appropriately considered whether the approved methodology resulted in a deferral account based on the evidence before it. DERS had not raised a reasonable possibility that the alleged error of fact or law could reasonably lead the Commission to materially vary or rescind the decision.
Interpretation of Section 6(1)(d) of the Regulated Rate Option Regulation
DERS and EPCOR submitted that the hearing panel erred in approving a commodity risk compensation that would impede the development of an efficient market based on fair and open competition, and in approving an RRT that is unduly preferential, arbitrary and unjustly discriminatory.
DERS argued that the hearing panel fundamentally misconstrued the purpose of the Electric Utilities Act in its interpretation of economic efficiency, and failed to properly apply principles of statutory interpretation, by referring to extrinsic aids instead of the words used in the Electric Utilities Act and the Regulated Rate Option Regulation.
EPCOR made similar submissions, arguing that the hearing panel approved a commodity risk compensation that fails to provide just and reasonable financial compensation as required under the Regulated Rate Option Regulation.
The AUC characterized the complaints of DERS and EPCOR as being that the hearing panel did not give them enough money. The AUC determined that it had already considered these arguments in respect of commodity risk compensation, and concluded that the hearing panel did not err in its approach. The AUC further dismissed the arguments in respect of errors in statutory interpretation. The AUC noted that the hearing panel stated that economic efficiency was a key component of a competitive market for electricity in Alberta. In support of its statements, the hearing panel cited past AUC decisions, including Decision 2011-226, which refers to Hansard materials. The AUC found that the hearing panel did not undertake an exercise in statutory interpretation, but rather a review of its own decisions, which it applied in its reasons. The AUC therefore dismissed this ground of review, finding that DERS and EPCOR had not raised a reasonable possibility that the hearing panel committed an error of fact, law or jurisdiction that could reasonably lead the AUC to materially vary or rescind its findings in Decision 2941-D01-2015.
Conclusion
The review panel, in accordance with the findings above, found that DERS and EPCOR had not raised a reasonable possibility that the hearing panel committed an error of fact, law or jurisdiction that could reasonably lead the AUC to materially vary or rescind its findings in Decision 2941-D01-2015. The AUC dismissed the applications for review.
