Electricity – Rates
Application
In September 2022, the AUC established Proceeding 27658 to examine the standards of service and the associated maximum investment levels (“MILs”) for residential services. Proceeding 27658 progressed in two phases: the first phase established the MILs for 2023, and the second phase addressed MILs for 2024 and future years thereafter, considering the following principles: the affordability of connecting to the electric grid; what is a prudent level of investment by utilities for those services; and, the proper allocation of costs between new or upgrading customers, developers and existing customers. The AUC set 2023 MILs in Decision 27658-D01-2022, which concluded the first phase of Proceeding 27658. This decision dealt with the second phase of the proceeding.
Decision
The AUC held that it remains just and reasonable to allow electric distribution utilities to invest in new residential customer connections up to a prescribed maximum MIL amount. The AUC approved a residential MIL of $3,016 for all four electric distribution utilities for 2024, to be escalated annually by I-X for the remainder of the 2024-2028 performance-based regulation (“PBR”) term. For MILs related to street lighting installed in a new development, the AUC found that the MIL should be paid to the municipality where the new development was constructed.
Pertinent Issues
A MIL is the maximum dollar amount that a distribution utility can invest in a new customer service connection and add to its rate base. The distribution utility pays some or all of the costs incurred in the connection of a new customer up to the maximum amount allowed and, in turn, capitalizes these costs and recovers the investment over time through the rates it charges to customers. To the extent that connection costs exceed the MIL, these costs are borne directly by the connecting customer, rather than being socialized across customers through rates.
Should MILs be Retained?
The AUC provided an overview of MILs and endorsed, in general, the 10 MILs principles established by precedent. The AUC found that, while MILs are not required by the statutory scheme, they are a proportionate way to compensate the distribution utilities for operational and ownership responsibilities incurred in relation to new customer-related connection infrastructure. The AUC also considered the regulatory compact but concluded that the regulatory compact does not dictate a particular outcome with respect to MILs. The AUC examined the statutory scheme established by the Electric Utilities Act (“EUA”) and concluded that the statutory scheme does not require the MILs to be available to utilities, nor a particular methodology for calculating MILs. The AUC, however, found some support in the statutory scheme for the principle that some basic level of utility investment in new customer-related connection infrastructure was merited. The AUC also found it unnecessary to decide whether the elimination of MILs entirely would be contrary to the statutory scheme since the MILs were retained.
The AUC determined that balancing provision of service with the recovery of costs associated with that service under the regulatory compact favours a basic level of investment by distribution utilities in the connection infrastructure that they will ultimately own and operate.
What Principles Should Govern MILs Going Forward?
The AUC established the following principles that should govern the setting of residential MILs:
(a) MILs should be consistent, transparent and simple to administer;
(b) MILs should ensure new customers are not imposing costs on other customers for which they should not be responsible;
(c) MILs should provide price signals to customers and developers to incent the most cost efficient connections possible for their current and future needs; and
(d) MILs should subsidize a service connection at a basic level of service, and not premium levels of service. Basic service is the level of service that a typical Albertan requires to light their homes and power their electronics and household appliances.
The AUC applied these four principles and determined that MILs should be set to cover a reasonable estimate of the cost to provide a basic electrical service connection, which corresponds to 100-amp, overhead service.
Quantum of MILs for the 2024-2028 PBR Term
By taking the average of the cost estimates to provide 100-amp service of all four distribution utilities, the AUC determined that the MIL for 2024 for each electric distribution utility will be $3,016 per lot, to be escalated by I-X for the duration of the PBR term. The AUC stated that as a consequence of the application of the four principles and the guidance provided in this decision the distribution utilities should be able to provide better information in the future relevant to the calculation of MILs. Accordingly, the AUC noted that the determinations in this decision may need to change in the future, based on further evidence provided.
Miscellaneous
The AUC recognized that design standards may impact new connection costs and advised that it may choose to explore the issue of standards further in a future proceeding. The AUC also found that a municipality where new street lights are installed and operated is entitled to receive the corresponding MIL.
