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1 Decision D Adjustment to the Return Amount Collected Through the Energy Charge July 22, 2015

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3 Alberta Utilities Commission Decision D Adjustment to the Return Amount Collected Through the Energy Charge Proceeding July 22, 2015 Published by the: Alberta Utilities Commission Fifth Avenue Place, Fourth Floor, 425 First Street S.W. Calgary, Alberta T2P 3L8 Telephone: Fax: Website:

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5 Contents 1 Introduction CCA comments DERS reply comments Commission findings Order... 6 Appendix 1 Proceeding participants... 7 Appendix 2 Calculation of equity component of return on working capital for 2011 and allocation to rate classes... 8 Appendix 3 Calculation of DERS non-energy return collected in 2012, 2013 and List of tables Table 1. Rate class equity component of working capital (charge per site per day)... 4 Table 2. Summary of the collection of DERS return ($/MWh after-tax), effective August

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7 Alberta Utilities Commission Calgary, Alberta Adjustment to the Return Amount Collected Through Decision D the Energy Charge Proceeding Introduction 1. On April 14, 2015, (DERS) filed an application with the Alberta Utilities Commission in response to a Commission s direction in Decision D Decision 2941-D set out the Commission s findings with respect to DERS energy price setting plan (EPSP). In that decision, the Commission provided the following direction with respect to the amount of return currently collected through DERS nonenergy rates at paragraphs 257 and 258: 257. Accordingly, the Commission approves the following all-in after tax return amounts based on Dr. Evans report, as updated by Mr. Dalton: $2.83/MWh (megawatt hour) for DERS; 2.44/MWh for EEC [ENMAX Energy Corporation]; and $2.51/MWh for EEA [EPCOR Energy Alberta GP Inc.]. Because these amounts are considered all-in, in order to determine how much should be collected through the energy charge, it is necessary for the Commission to know how much is currently being collected through the non-energy charges of the three RRO (regulated rate option) providers, expressed as a $/MWh amount. The Commission is aware that DERS collects some of its return through its non-energy charge, as represented by the equity component of necessary working capital The Commission directs DERS and EEA, as part of their compliance filings, and EEC, as part of its filing of a new proposal for its EPSP, to file information that shows how much of their current return is being collected through their non-energy rates, and express this figure as a $/MWh amount. The Commission further directs the RRO providers to provide an explanation for the volume used in the calculation for $/MWh in their non-energy rates. 2. On April 15, 2015, DERS filed an update to its application, revising an attachment to its original application. In the updated application, DERS provided a calculation of the $/MWh current return amount that was collected through its non-energy rates for each of the years DERS added that this amount is embedded in the Working Capital component of the Administrative Fee that DERS charges on a per site basis, not as a $/MWh This decision provides the Commission s determinations on the updated after-tax return amount to be included in DERS monthly energy charge on a go-forward basis. This amount must reflect the combination of the return amount collected through the energy charges and the 1 2 Decision 2941-D :, ENMAX Energy Corporation and EPCOR Energy Alberta GP Inc. Regulated Rate Tariff and Energy Price Setting Plans Generic Proceeding: Part B Final Decision, Proceeding 2941, Application , March 10, Exhibit X0005. Decision D (July 22, 2015) 1

8 non-energy rates to arrive at the total all-in after-tax return of $2.83/MWh, as approved by the Commission in Decision 2941-D The Commission issued a notice of application on April 15, In the notice, the Commission stated that it intended to use the information provided in response to the Commission s direction to update and determine the portion of the reasonable return amount for DERS that is collected through its energy charge in an expedited manner. Prior to making its determinations on the adjustment to the return amount collected through the energy charge, the Commission invited parties to submit any information requests (IRs) to DERS by April 29, On April 16, 2015, the Commission received a statement of intent to participate (SIP) from the Consumers Coalition of Alberta (CCA). 6. On April 29, 2015, the Commission issued IRs to DERS. The CCA did not submit IRs to DERS. 7. DERS responded to the Commission IRs on May 13, 2015, and submitted revisions to its IR responses on May 26 and May 27, On June 4, 2015, the Commission set out further process steps on the adjustment of the return amount through the energy charge and invited closing comments and reply comments from parties, which were due on June 10, 2015, and June 16, 2015, respectively. The Commission received comments from the CCA, and reply comments from DERS. 9. The Commission considers the record for this proceeding to have closed on July 8, 2015, with DERS submission of an additional revised response to an information request. 10. In reaching its determinations with respect to the portion of the return amount DERS will collect through its energy charge, the Commission has considered all relevant materials comprising the record of this proceeding with respect to the adjustment of return, including the submissions provided by each party. Accordingly, references in this decision to specific parts of the record are intended to assist the reader in understanding the Commission s reasoning related to a particular matter and should not be taken as an indication that the Commission did not consider all relevant portions of the record with respect to a particular matter. 2 CCA comments 11. The CCA submitted that in recognizing the total return of $2.83/MWh to be collected by DERS, the Commission should consider paragraph 206 of Decision 2941-D , which explained that the return was based on 2013 adjusted revenue information: 206. Following the calculations used by the board in Decision and Decision , Mr. Dalton, using the adjusted revenue information for the year 2013 and assuming an income tax rate of 25 per cent, calculated the following after-tax return amounts: EEA - $2.51/MWh; DERS - $2.83/MWh; EEC - $2.44/MWh. Mr. Dalton reiterated that the final calculations should be based on forward looking revenue projections exclusive of return amounts, LAFs [local access fees] and MFFs [municipal franchise fees]. The before tax return amounts will need to be calculated by grossing up the after-tax return amounts for the income tax effects or payment in lieu of taxes (PILOT), where appropriate. In its argument, the UCA, also assuming a 25 per cent tax 2 Decision D (July 22, 2015)

9 rate, converted the after-tax return amounts to the following pre-tax amounts: EEA - $3.35/MWh; DERS - $3.77/MWh; EEC - $3.25/MWh. [footnotes omitted] 12. Since the Commission used the 2013 information to fix DERS total return amount, the calculation of the return that is being collected through the non-energy charge should also use the same underlying 2013 billing determinants for determination of DERS non-energy amount. If different year site counts and volume data other than the 2013 adjusted information on which the Commission based the approved $2.83/MWh numbers are used, there would be a mismatch between the total return dollars per MWh determined by the Commission and the amount calculated as being collected through the non-energy charge on a $/MWh basis. 13. In the CCA s view, if the Commission considers that a year or set of years, other than 2013, is reasonable, then the total return of $2.83/MWh would need to be revised to reflect the calculation of return dollars for DERS based on that year s or years forecasts for revenues and billing determinants. The calculation of the return that is being collected through the non-energy charge, expressed as a $/MWh charge, should also use the billing determinants applicable to the corresponding year or set of years. 3 DERS reply comments 14. In its reply, DERS maintained that it has accepted the risk on all elements of its non-energy costs in Proceeding 2957; 3 therefore, the calculation of the current return amount that is collected through its non-energy rates should be based on the forecast working capital for 2012 through 2016, divided by the forecast load for the same years. DERS provided this forecast information in Attachment DERS-AUC-2015APR Commission findings 15. In Section 4.2 of Decision 2957-D , 5 the Commission rejected DERS forecast amounts for 2012, 2013 and 2014 and, with the exception of three cost components previously determined in Decision , 6 directed DERS to use actuals instead for these forecast amounts over these years. 7 Consistent with the Commission s findings in Decision 2957-D on the use of actuals for 2012 to 2014 revenue requirements, the Commission does not agree with DERS view that the non-energy return calculation should be based on DERS regulated rate tariff (RRT) forecasts because these forecasts were not approved. 16. Therefore, in consideration of Decision 2957-D and the record of this proceeding, the Commission finds it reasonable that the portion of the return amount collected through DERS non-energy rates also be determined based on actuals for the period 2012 to Proceeding 2957: Limited Default Rate Tariff (DRT) and RRT application. Exhibit X0010. Decision 2957-D : Default Rate Tariff and Regulated Rate Tariff, Proceeding 2957, Application , July 7, Decision :, Default Rate Tariff and Regulated Rate Tariff, Proceeding 1454, Application , December 21, Decision 2957-D , paragraph 78. Decision D (July 22, 2015) 3

10 17. In order to determine the portion of the return amount collected through DERS nonenergy rates in 2012, 2013 and 2014, the Commission considered the following information included on the record of this proceeding: the daily non-energy RRT rates charged by DERS in 2012, 2013 and 2014 the amount of the daily non-energy RRT rates charged to DERS customers in 2012, 2013 and 2014 attributed to the return component the actual number of RRT sites billed daily by DERS in 2012, 2013 and 2014 the actual RRT energy sales in 2012, 2013 and The Commission notes that DERS was on interim non-energy RRT rates for 2012, 2013 and The interim non-energy RRT rates for these three years were the same as the final approved non-energy RRT rates for The interim non-energy rates were approved in Decision Using information from Decision and from the initial default rate tariff (DRT) and RRT application, 9 the Commission is able to calculate the return component of the final daily non-energy RRT rates in Details of the Commission s calculations are included in Appendix 2 to this decision, and the resulting amounts are included in the following table: Table 1. Rate class Rate class equity component of working capital (charge per site per day) Cents per day per site Residential (E1) $ Small General (E2) Large General (E3) Oilfield (E4) Farm (E5) Lighting (E6) Irrigation (E7) In response to DERS-AUC-2015APR29-001(n) in this proceeding, DERS provided information related to the actual number of RRT sites billed by DERS on a daily basis in 2012, 2013 and Using this information, the information from Table 1 and the total energy sales for each of 2012, 2013 and 2014, the Commission calculated the actual amount of return DERS collected through its non-energy rates in 2012, 2013 and 2014, expressed in $/MWh. Details of these calculations are included in Appendix 3 to this decision. The resulting amount is $0.18/MWh Decision : 2009/2010/2011 Default Rate Tariffs and Regulated Rate Tariffs Compliance Filing, Proceeding 468, Application , July 8, This initial application was assigned Proceeding 149, Application Exhibit X0018, DERS-AUC-2015APR29-001(n) Final, July 8, Decision D (July 22, 2015)

11 20. Details of the adjustment required to DERS after-tax return amount to be included in its monthly energy charges are shown in the following table: 11 Table 2. Summary of the collection of DERS return ($/MWh after-tax), effective August 2015 Return component Current Adjustment Resulting amounts Collected through the energy charge Collected through the non-energy rates Total Approved all-in return Shortfall (0.90) The Commission disagrees with the CCA s recommendation that the Commission use the corresponding information from 2013 to determine DERS non-energy return amount. While the CCA s approach would result in matching of the total return dollars in MWh and the adjustment to be collected, the Commission considers that any adjustment to the after-tax return amount collected through DERS energy charge starting in August 2015, must take into account the actual amounts approved for collection through the non-energy charge. As stated above, the Commission finds that using DERS actuals for the period is reasonable for determining the portion of the return amount collected through DERS non-energy rates. 22. Based on the foregoing, the Commission approves an adjustment of $0.90/MWh to the after-tax return component of DERS energy charge, effective with the monthly energy charges for August These charges are to be filed with the Commission five business days prior to August 1, The total approved after-tax return amount to be included in the energy charge is $2.65/MWh, and this will be effective until the Commission otherwise directs. 11 On July 20, 2015, the Commission issued a letter to DERS requesting it to confirm the correctness of Commission staff calculations of DERS non-energy return. DERS submitted its response on the same day, stating that it disagreed with the return on equity and return on debt assumptions used in the Commission s calculations (Exhibit X0022). On July 21, 2015, DERS retracted its response, maintaining that it agreed with the calculations compiled by the Commission (Exhibit X0023). On July 21, 2015, the Commission contacted the CCA to inquire whether the CCA had further comments on the Commission s calculations. The CCA replied via , on the same day, stating that it had reviewed the Commission s calculations and assumptions and confirmed that they appeared to be correct (Exhibit X0024). Decision D (July 22, 2015) 5

12 5 Order 23. It is hereby ordered that: (1) shall reflect an after-tax return amount of $2.65/MWh as part of its monthly energy charges, to be included in its monthly energy charges for August Dated on July 22, Alberta Utilities Commission (original signed by) Henry van Egteren Commission Member 6 Decision D (July 22, 2015)

13 Appendix 1 Proceeding participants Name of organization (abbreviation) counsel or representative Company (DERS) Company Consumers Coalition of Alberta (CCA) Alberta Utilities Commission Commission panel H. van Egteren, Commission member Commission staff L. Desaulniers (Commission counsel) B. Clarke D. Mitchell C. Pham C. Arnot C. Burt Decision D (July 22, 2015) 7

14 Appendix 2 Calculation of equity component of return on working capital for 2011 and allocation to rate classes (return to text) Appendix 2 - Calculation of return component (consists of 1 page) 8 Decision D (July 22, 2015)

15 Appendix 3 Calculation of DERS non-energy return collected in 2012, 2013 and 2014 (return to text) Appendix 3 - Calculation of DERS non-energy return (consists of 1 page) Decision D (July 22, 2015) 9

16 Appendix 2 - Calculation of return component of interim daily non-energy RRT rates for 2012, 2013 and 2014 Page 1 of 1 Regulated Rate Tariff Calculation of equity component of return on working capital for 2011 and allocation to rate classes 2011 Forecast approved non-energy rates composition Equity component of working capital 2011 forecast approved working capital - expense items $ 4,413,000 (Line 17, Schedule Appendix 4 of Decision ) 2011 forecast approved working capital - adjustments $ 2,312,000 (Line 24, Schedule Appendix 4 of Decision ) $ 6,725, approved rate of return on working capital 7.09% (Line 18 and Line 25, Schedule Appendix 4 of Decision ) 2011 forecast approved working capital $ 476, Breakdown of approved rate of return for 2011 Debt: 62% X 5.56% 3.44% (ID 149: Exhibit 18.01, Response to AUC-DERS-065 (a)) Equity 38% X 9.60% 3.65% (ID 149: Exhibit 18.01, Response to AUC-DERS-065 (a)) 7.09% Equity Component of 2011 forecast approved working capital $ 245, % Debt component of 2011 forecast approved working capital $ 231, % $ 476, % RRT Allocation of 2011 Approved Revenue Requirement for Working Capital Small Large Residential General General Oilfield Farm Lighting Irrigation E1 E2 E3 E4 E5 E6 E7 Total Non-energy Costs: Working Capital $ 225,600 $ 93,500 $ 18,100 $ 2,600 $ 94,600 $ 4,400 $ 600 $ 439,400 (Line 61, Schedule Appendix 4 of Decision ) Energy Costs: Working Capital $ 19,400 $ 8,100 $ 1,600 $ 200 $ 8,100 $ 100 $ 100 $ 37,600 (Line 77, Schedule Appendix 4 of Decision ) Total - Working Capital $ 245,000 $ 101,600 $ 19,700 $ 2,800 $ 102,700 $ 4,500 $ 700 $ 477,000 Equity Share Percentage 51.43% 51.43% 51.43% 51.43% 51.43% 51.43% 51.43% 51.43% Equity Share - Dollars $ 126,011 $ 52,256 $ 10,132 $ 1,440 $ 52,822 $ 2,314 $ 360 $ 245,335 After-tax revenue requirement 2011 Approved # of total sites 1,369, ,854 5,095 3, , , ,922,645 (Lines 17-23, Schedule Appendix 4 of Decision ) Average number of sites 114,145 12, ,806 9, ,261 # of days (Lines 8-14, Schedule Appendix 4 of Decision ) Equity share of W/C - charge per site per day $ $ $ $ $ $ $ This is the after-tax amount. Decision D (July 22, 2015)

17 Appendix 3 - Calculation of DERS' non-energy return for 2012, 2013 and 2014 Page 1 of 1 Calculation of return amount collected through non-energy rates and expressed in $/Mwh RRT Actual Administration Revenue Return component of daily rates return from rate classes throughout the year Actual Administration Revenue $ 16,384,836 $ 15,786,800 $ 15,292,003 Weighted Simple Residential E Average Average Residential Administration Revenue $12,238,619 $11,796,816 $11,106,070 Daily Residential Admin Charge Actual $0.285 $0.285 $0.285 $ Actual Residential Site Days 42,942,521 41,392,336 38,968,665 $130,115 $125,418 $118,074 Small General E Small General Administration Revenue $1,479,616 $1,410,223 $1,489,217 Daily Small General Admin Charge Actual $0.313 $0.313 $0.313 $ Actual Small General Site Days 4,727,208 4,505,505 4,757,882 $52,467 $50,006 $52,807 Large General E Large General Adminstration Revenue $98,913 $94,922 $91,035 Daily Large General Admin Charge Actual $0.585 $0.585 $0.585 $ Actual Large General Site Days 169, , ,615 $11,058 $10,612 $10,177 Oilfield E Oilfield Administration Revenue $27,392 $27,261 $25,486 Daily Oilfield Admin Charge Actual $0.254 $0.254 $0.254 $ Actual Oilfield Site Days 107, , ,339 $1,628 $1,621 $1,515 Farm E Farming Administration Revenue $2,462,103 $2,393,295 $2,461,830 Daily Farm Admin Charge Actual $0.303 $0.303 $0.303 $ Actual Farm Site Days 8,125,752 7,898,663 8,124,851 $51,192 $49,762 $51,187 Lighting E Lighting Adminstration Revenue $72,866 $59,194 $113,989 Daily Lighting Admin Charge Actual $0.044 $0.044 $0.044 $ Actual Lighting Site Days 1,656,035 1,345,321 2,590,657 $1,087 $883 $1,701 Irrigation E Irrigation Administration Revenue $5,328 $5,089 $4,377 Daily Irrigation Admin Charge Actual $0.338 $0.338 $0.338 $ Actual Irrigation Site Days 15,763 15,056 12,950 $273 $260 $224 total return for the year total return collected in any one year $247,821 $238,562 $235,686 $722,068 total energy sales ( Source: Exhibit X0010) 1,417,376 1,362,708 1,332,252 4,112,336 return collected through non-energy charges in $/MWh $0.17 $0.18 $0.18 $0.18 $0.18 Decision D (July 22, 2015)