Utility Distribution Rates in Rural Communities and Public Facilities

Alberta Energy

• The Alberta Utilities Commission (AUC) is responsible for setting just and reasonable distribution and transmission tariffs.
• The department refers this resolution to the AUC for further explanation.

Additional Background

• Alberta Energy is aware of customers’ concerns over transmission and distribution system costs, especially in rural Alberta.
• The Government of Alberta’s Transmission Regulation has determined that the percentage of consumer load is responsible for transmission system costs. The Alberta Electric System Operator (AESO) determines the tariff design to cover system costs, which is approved by the AUC.
• On an annual basis, the AESO submits the General Tariff Application for approval. If organizations such as the Rural Municipalities of Alberta are concerned about the transmission tariff the rural and northern areas are paying, they are encouraged to intervene during AESO’s General Tariff Application hearing to the AUC. Consumer groups representing various types of consumers regularly intervene in this annual hearing to present their views.
• Alberta Energy will be reviewing transmission policy associated with the Transmission Regulation expiration in 2021, although tariff design is outside of the scope of that review.
• Distribution costs are incurred in the delivery of electricity and natural gas directly to a customer’s home. These costs include connecting and disconnecting customers, building new services, operating, and maintaining the distribution infrastructure, replacing distribution infrastructure that is at the end of its service life, sending distribution charges to the retailer, providing meter reading services and implementing technology to maintain safe and reliable service.
• Distribution costs are recovered through distribution charges on a customer’s utility bill that is provided to the customer by their retailer. Distribution charges for investor-owned and certain municipally owned distribution companies are regulated by the AUC.
• Since 2013, the AUC has used performance-based regulation to regulate distribution costs in Alberta. The central goal of performance-based regulation is to mimic competitive forces and better promote efficiency within utilities, ultimately lowering distribution costs for customers. The AUC is currently in its second generation of performance-based regulation, with each generation lasting five years. The AUC believes that this form of regulation has helped keep costs lower than they otherwise would have been.
• The Rural Municipalities of Alberta stated in its fall 2019 resolutions that it has been invited to participate in the AUC-Ied Distribution Inquiry.

Alberta Utilities Commission

Commercial Rates for Public Facilities

• Public facilities such as community halls are billed at the commercial rate, which is higher than that of the residential rate. Additionally, the rates are based on peak demand, where the accounts are billed for the highest rate of electricity usage for a period of time. These factors increase the costs of electricity for public facilities.
• The RMA noted that public facilities are classified as commercial operations in distribution company rate classes and experience commercial rates for the consumption of electricity. As part of this commercial treatment billing rates are based on peak demand generally measured over a one-year period.

AUC background

• Depending on consumption patterns some commercial electric service rates could result in a lower bill than a residential consumer using the same amount of power. Put another way, public facilities being billed with a commercial rate may result in bills higher than that of the residential rate, depending on the pattern in which energy is consumed.
• Rate treatment by AUC-regulated distribution providers such as Fortis Alberta and ATCO Electric is based on rate classes. Rate classes are determined by assessing consumption patterns and magnitude and grouping similar users together. Facilities or uses that have comparable consumption levels and patterns, and comparable load levels (capacity demanded) are grouped together.
• The overarching goal in rate class determination is to ensure that each group or class of electricity consumer pays the reasonable costs that that class creates. This is linked to the central principle of utility rate determination, that utility users pay the reasonable cost of the service being provided to them. This approach and structure also ensures that one rate class does not subsidize another and that each class fairly pays the costs attributable to its members.
• The regulatory principle here is designing rates based on cost causation. Deviating from this approach requires consumers outside the favoured rate class to pay and subsidize the additional costs that are not properly assigned to the favoured rate class.
• In practice, the long-established and refined cost-causation approach results in classes such as residential, small general service, large general service/industrial, oilfield, farm service, lighting service, irrigation, etc. Many classes are based on peak demand, as peak demand determines the capacity of service (in layman’s terms, the thickness of the wire and capacity or caliber of related equipment) that must be provided and maintained to ensure reliability. If a particular customer required the system to be constructed to handle its peak demand, but the rate structure was designed to ignore the peak demand for that customer, other customers in the utility’s service territory would be required pay for the additional costs associated with building the system to handle the peak.
• At this time the AUC does not contemplate, nor would current provincial legislative structure permit, a socialized system where customers would ultimately bear the costs of cross-subsidization that would level rates among the different service providers across the province. Similarly, the AUC does not contemplate the creation of unique rate classes on bases other than how the customers in the rate classes use energy and, accordingly, cause costs for the system.
• Determining the rates for each regulated electricity distribution provider in Alberta is a two-step process:
  • In the first step, or Phase 1, all of the utility’s reasonable costs are determined. This is carried out through an in-depth, evidence-based public AUC process. Representatives of various consumer classes can and do take part. At the end of Phase 1, the AUC issues a decision with reasons outlining what the utility’s reasonable costs are.
  • In the second step, or Phase 2, the costs are attributed to various rate classes. This too is done through an in-depth, evidence-based public AUC proceeding process. Representatives of various consumer classes can and do take part. This process determines rate classes and the terms and conditions of those classes.
• Any affected party can seek to take part in either phase of a distribution utility’s rate-setting in the AUC’s evidence-based, public proceedings.
• The RMA notes it was contacted about participating in the AUC’s Distribution System Inquiry. Those conversations and interactions with the AUC also included encouragement for the RMA and/or its members to participate in various Phase 2 proceedings of distribution providers in which rate classes and their terms and conditions are determined.
• The AUC continues to encourage the RMA and/or its members to take part in electric distribution utility Phase 2 proceedings in which rate classes are determined.
• In this regard, FortisAlberta has recently filed a Phase 2 tariff application. This is being assessed by the AUC under proceeding 25201. The AUC is also assessing ATCO Electric’s Phase 2 application received in July 2019, although that process (AUC proceeding 24747) is far more advanced. Intervening parties in that proceeding include the Utilities Consumer Advocate, the Consumers’ Coalition of Alberta, the Industrial Power Consumers of Alberta, and the Alberta Federation of REAs.
• The AUC encourages the RMA or its members to take part in the Fortis Phase 2 proceedings