Direct Energy Regulated Services

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Decision 20349-D01-2015

Direct Energy Regulated Services

Adjustment to the Return Amount Collected Through

the Energy Charge

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Alberta Utilities Commission Decision 20349-D01-2015

Direct Energy Regulated Services

Adjustment to the Return Amount Collected Through the Energy Charge Proceeding 20349

July 22, 2015

Published by the:

Alberta Utilities Commission

Fifth Avenue Place, Fourth Floor, 425 First Street S.W. Calgary, Alberta

T2P 3L8

Telephone: 403-592-8845 Fax: 403-592-4406 Website: www.auc.ab.ca

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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 2015... 5

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Decision 20349-D01-2015 (July 22, 2015) • 1

Alberta Utilities Commission Calgary, Alberta

Direct Energy Regulated Services

Adjustment to the Return Amount Collected Through Decision 20349-D01-2015

the Energy Charge Proceeding 20349

1 Introduction

1. On April 14, 2015, Direct Energy Regulated Services (DERS) filed an application with the Alberta Utilities Commission in response to a Commission’s direction in Decision 2941-D01-2015.1_{Decision 2941-D01-2015 set out the Commission’s findings with respect to DERS}

2014-2018 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’ non-energy 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.

258. 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 2014-2018 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 2011-2014. 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.”2

3. 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

Decision 2941-D01-2015: Direct Energy Regulated Services, 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 1610120-1, March 10, 2015.

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Adjustment to the Return Amount Collected Through the Energy Charge Direct Energy Regulated Services

2 • Decision 20349-D01-2015 (July 22, 2015)

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-D01-2015.

4. The Commission issued a notice of application on April 15, 2015. 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, 2015. 5. 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, 2015.

8. 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-D01-2015, which explained that the return was based on 2013 adjusted revenue information:

206. Following the calculations used by the board in Decision 2006-107 and Decision 2006-108, 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

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Decision 20349-D01-2015 (July 22, 2015) • 3

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-2015APR29-001.4

4 Commission findings

15. In Section 4.2 of Decision 2957-D01-2015,5_theCommission rejected DERS’ forecast

amounts for 2012, 2013 and 2014 and, with the exception of three cost components previously determined in Decision 2012-343,6_{directed DERS to use actuals instead for these forecast}

amounts over these years.7_{Consistent with the Commission’s findings in Decision}

2957-D01-2015 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’ 2012-2016 regulated rate tariff (RRT) forecasts because these forecasts were not approved.

16. Therefore, in consideration of Decision 2957-D01-2015 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 2014.

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Proceeding 2957: Direct Energy Regulated Services Limited Default Rate Tariff (DRT) and RRT application.

4_{Exhibit 20349-X0010.}

5_{Decision 2957-D01-2015: Direct Energy Regulated Services 2012-2016 Default Rate Tariff and Regulated Rate}

Tariff, Proceeding 2957, Application 1610155-1, July 7, 2015.

6_{Decision 2012-343: Direct Energy Regulated Services, 2012-2014 Default Rate Tariff and Regulated Rate Tariff,}

Proceeding 1454, Application 1607696-1, December 21, 2012.

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4 • Decision 20349-D01-2015 (July 22, 2015)

17. In order to determine the portion of the return amount collected through DERS’ non-energy 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 2014

18. The Commission notes that DERS was on interim non-energy RRT rates for 2012, 2013

and 2014. The interim non-energy RRT rates for these three years were the same as the final approved non-energy RRT rates for 2011. The interim non-energy rates were approved in Decision 2010-317.8_{Using information from Decision 2010-317 and from the initial 2009-2011}

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 2011. 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 equity component of working capital (charge per site per day)

Rate class Cents per day per site

Residential (E1) $0.0030 Small General (E2) 0.0111 Large General (E3) 0.0654 Oilfield (E4) 0.0151 Farm (E5) 0.0063 Lighting (E6) 0.0007 Irrigation (E7) 0.0173

19. 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 2014.10_{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.

8_{Decision 2010-317: Direct Energy Regulated Services 2009/2010/2011 Default Rate Tariffs and Regulated Rate}

Tariffs Compliance Filing, Proceeding 468, Application 1605840-1, July 8, 2010.

9

This initial application was assigned Proceeding 149, Application 1600749-1.

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Decision 20349-D01-2015 (July 22, 2015) • 5

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 1.75 0.90 2.65 Collected through the non-energy rates 0.18 0.18

Total 1.93 2.83

Approved – all-in return 2.83 2.83

Shortfall (0.90) 0.00

21. 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 2012-2014 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 2015. These charges are to be filed with the Commission five business days prior to August 1, 2015. 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.

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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 20349-X0022). On July 21, 2015, DERS retracted its response, maintaining that it agreed with the calculations compiled by the Commission (Exhibit 20349-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 email, on the same day, stating that it had reviewed the Commission’s calculations and assumptions and confirmed that they appeared to be correct (Exhibit 20349-X0024).

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6 • Decision 20349-D01-2015 (July 22, 2015)

5 Order

23. It is hereby ordered that:

(1) Direct Energy Regulated Services 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 2015.

Dated on July 22, 2015.

Alberta Utilities Commission

(original signed by)

Henry van Egteren Commission Member

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Decision 20349-D01-2015 (July 22, 2015) • 7

Appendix 1 – Proceeding participants

Name of organization (abbreviation) counsel or representative

Company

Direct Energy Regulated Services (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

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8 • Decision 20349-D01-2015 (July 22, 2015)

Appendix 2 – Calculation of equity component of return on working capital for 2011 and allocation to rate classes

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Appendix 2 -

Calculation of return component

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Decision 20349-D01-2015 (July 22, 2015) • 9

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

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Direct Energy Regulated Services 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 5.2.3 - Appendix 4 of Decision 2010-317)

2011 forecast approved working capital - adjustments $ 2,312,000 (Line 24, Schedule 5.2.3 - Appendix 4 of Decision 2010-317)

6,725,000 $

2011 approved rate of return on working capital 7.09% (Line 18 and Line 25, Schedule 5.2.3 - Appendix 4 of Decision 2010-317)

2011 forecast approved working capital $ 476,802.50

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 $ 245,328.00 51.43%

Debt component of 2011 forecast approved working capital $ 231,657.42 48.57%

476,985.42

$ 100.00%

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 6.2 - Appendix 4 of Decision 2010-317) Energy Costs: Working Capital $ 19,400 $ 8,100 $ 1,600 $ 200 $ 8,100 $ 100 $ 100 $ 37,600 (Line 77, Schedule 6.2 - Appendix 4 of Decision 2010-317) 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 1,369,745 154,854 5,095 3,133 273,671 115,468 679 1,922,645 (Lines 17-23, Schedule 3.2.1 - Appendix 4 of Decision 2010-317)

Average number of sites 114,145 12,905 425 261 22,806 9,622 97 160,261

# of days 365 365 365 365 365 365 214 (Lines 8-14, Schedule 7.2 - Appendix 4 of Decision 2010-317)

Equity share of W/C - charge per site per day $ 0.0030 $ 0.0111 $ 0.0654 $ 0.0151 $ 0.0063 $ 0.0007 $ 0.0173 This is the after-tax amount.

Adjustment to the Return Amount Collected Through the Energy Charge

Direct Energy Regulated Services Appendix 2 - Calculation of return component of interim daily non-energy RRT rates for 2012, 2013 and 2014 Page 1 of 1

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Direct Energy Regulated Services

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 E1 2012 2013 2014 2012 2013 2014 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 $0.0030

Actual Residential Site Days 42,942,521 41,392,336 38,968,665 $130,115 $125,418 $118,074

Small General E2 2012 2013 2014

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 $0.0111

Actual Small General Site Days 4,727,208 4,505,505 4,757,882 $52,467 $50,006 $52,807

Large General E3 2012 2013 2014

Large General Adminstration Revenue $98,913 $94,922 $91,035

Daily Large General Admin Charge Actual $0.585 $0.585 $0.585 $0.0654

Actual Large General Site Days 169,082 162,260 155,615 $11,058 $10,612 $10,177

Oilfield E4 2012 2013 2014

Oilfield Administration Revenue $27,392 $27,261 $25,486

Daily Oilfield Admin Charge Actual $0.254 $0.254 $0.254 $0.0151

Actual Oilfield Site Days 107,843 107,327 100,339 $1,628 $1,621 $1,515

Farm E5 2012 2013 2014

Farming Administration Revenue $2,462,103 $2,393,295 $2,461,830

Daily Farm Admin Charge Actual $0.303 $0.303 $0.303 $0.0063

Actual Farm Site Days 8,125,752 7,898,663 8,124,851 $51,192 $49,762 $51,187

Lighting E6 2012 2013 2014

Lighting Adminstration Revenue $72,866 $59,194 $113,989

Daily Lighting Admin Charge Actual $0.044 $0.044 $0.044 $0.0007

Actual Lighting Site Days 1,656,035 1,345,321 2,590,657 $1,087 $883 $1,701

Irrigation E7 2012 2013 2014

Irrigation Administration Revenue $5,328 $5,089 $4,377

Daily Irrigation Admin Charge Actual $0.338 $0.338 $0.338 $0.0173

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 20349-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

Adjustment to the Return Amount Collected Through the Energy Charge

Direct Energy Regulated Services Appendix 3 - Calculation of DERS' non-energy return for 2012, 2013 and 2014 Page 1 of 1

Direct Energy Regulated Services

Decision 20349-D01-2015