+ RMA Rural Municipalities
of Alberta

Resolution 7-19F

Utility Distribution Rates in Rural Communities and Public Facilities

Date:
November 1, 2019
Expiry Date:
December 1, 2022
Active Status:
Active
Sponsors:
MD of Greenview
District:
4 - Northern
Year:
2019
Convention:
Fall
Category:
Energy
Status:
Intent Not Met
Vote Results:
Carried as Amended
Preamble:

WHEREAS the Alberta Utilities Commission (AUC) regulates Alberta’s investor-owned utilities (electric, gas, water) and certain municipally-owned electric utilities to ensure that customers receive safe and reliable service at just and reasonable rates; and

WHEREAS the AUC also regulates the routes, tolls and tariffs of energy transmission through utility pipelines and electric transmission and distribution lines; and

WHEREAS companies who propose to construct or rebuild electric generation, transmission or distribution facilities in Alberta must apply to the AUC for siting approval; and

WHEREAS when reviewing the utility’s application, the AUC considers the social and environmental impacts, as well as any economic implications for the ratepayers; and

WHEREAS distribution charges cover the cost of delivering electricity from transmission system to its destination; and

WHEREAS due to lower population density and greater distance between consumers, distribution charges are significantly higher in rural and northern areas; and

WHEREAS distribution charges for the average home in Alberta range from 24-52% of the customer’s bill, but in rural and northern areas distribution charges can exceed that 52%, which leads to significantly higher utility bills overall; and

WHEREAS transmission charges for the average home in Alberta range from 13-23% of the customer’s bill, but in rural and northern areas these transmission charges can exceed 23%, again leading to higher utility bills; and

WHEREAS public facilities are charged based on commercial rates based on peak demand consumption, which significantly increases the cost to operate such facilities;

Operative Clause:

THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta (RMA) requests the Government of Alberta review regulatory requirements relating to transmission and distribution rates of utility companies;

FURTHER BE IT RESOLVED that RMA requests the Government of Alberta review the requirement that public facilities are charged commercial rates and bills based on peak demand.

Member Background:

Transmission and Distribution Charges

The transmission charge recovers the costs incurred to safely and reliably plan Alberta’s transmission grid and transport electricity via the transmission grid from where it is generated to the distribution system. Transmission charges for residential customers are based on their energy consumption during the billing period. Transmission charges are approved and regulated by the Alberta Utilities Commission (AUC). Monthly transmission charges paid by the average residential customer with 600kWh of consumption ranged from $19.75 (in EPCOR’s service area) to $24.82 (ATCO’s service area). Transmission charges are highest in ATCO’s area followed by Fortis Alberta’s service area.

The distribution charges cover the costs incurred from distribution companies (which is often different from the retail provider) to bring electricity from the transmission system to its destination. It includes the cost for building, operating and maintaining the distribution system (poles, wires, etc.). The charges are composed of a fixed fee based on the number of days in the billing period and a variable component based on usage. Distribution charges are regulated by the AUC for Calgary (ENMAX), Edmonton (EPCOR) and for Fortis Alberta and ATCO Electric. Distribution rates for Lethbridge, Red Deer, Cardston, Fort McLeod, Ponoka and Crowsnest Pass are approved by the municipal governments. This cost is higher in rural and northern areas because of the low population density and longer distances between consumer sites. For example, according to the Alberta Utilities Consumer Advocate, in 2018 monthly distribution charges paid by the average residential consumer with 600kWh consumption ranged from $21.58 (in ENMAX’s service area) to $81.24 (in ATCO’s service area).

Electrical company service areas in Alberta.  ATCO services primarily Northern Alberta, and parts of Eastern Alberta.  FORTIS ALBERTA services Southern and Western Alberta.  These areas see both the highest transmission charges and distribution charges in the Province.

Electrical company service areas in Alberta.  ATCO services primarily Northern Alberta, and parts of Eastern Alberta.  FORTIS ALBERTA services Southern and Western Alberta.  These areas see both the highest transmission charges and distribution charges in the Province.

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.

RMA Background:

16-18F: Demand Meters and Rate Riders

THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta request that the Alberta Utilities Commission create a separate rate class for municipal buildings and recreational facilities and require that all demand meters are reset and billed accordingly on a monthly basis.

DEVELOPMENTS: Based on this resolution, the RMA was contacted about participating Electric System Distribution Inquiry and the RMA has submitted their intention to provide input during this process. Currently, the RMA is awaiting additional information regarding phase II proceedings and will bring the intent of this resolution forward at this time. This resolution is assigned a status of Intent Not Met.

Government Response:

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
Development:

RMA appreciates that Alberta Energy and the Alberta Utility Commission (AUC) is aware of customer concerns over transmission and distribution system costs, especially in rural Alberta. The resolution is requesting that the Government of Alberta review the regulatory requirements relating to transmission and distribution rates of utility companies. The Alberta Electric System Operator (AESO) determines the tariff design to cover system costs, which is approved by the AUC. In 2021, the RMA Board met with the Associate Minister of Natural Gas and Electricity. During this meeting, the Associate Minister stated that the Government of Alberta had no plans to review regulatory requirements relating to transmission and distribution rates of utility companies as it was under the mandate of the AUC.

The second part of the resolution is requesting the Government of Alberta review the requirement that public facilities are charged commercial rates and bills based on peak demand. In 2021, the AESO reached out to RMA to discuss proposed changes to the Independent System Operator (ISO) tariff, which consists of the rates, terms, and conditions that apply to persons who receive system access service from the transmission system. The AESO recovers bulk system costs based on a 12 coincident-peak (CP) methodology. Due to recent peak rate increases, 12 CP no longer incentivizes the drivers of transmission costs to adjust with changes occurring in the landscape of Alberta’s electricity system. Further, the AESO has reported an increase of large industrial electricity consumers avoiding consumption during peak rate hours, which has shifted a larger portion of costs to consumers who are not necessarily able to avoid using electricity during peak times. According to the AESO, the current ISO tariff rate design should be updated to address these changes while still providing clear and stable price signals to consumers to support effective business decisions. Even with these proposed changes to the ISO tariff.

The AESO and the AUC have not indicated that a unique rate class will be created for public facilities, or that rates will be determined on any bases other than how the customers use energy and, accordingly, drive costs for the system. The final report from the AESO is scheduled to be published in early Fall.

RMA assigns this resolution as Intent Not Met but will continue to participate in the AESO General Tariff Application hearing to ensure that rural concerns are being addressed. Based on the outcome of the hearing process, RMA staff will update the status of this resolution.

Provincial Ministries:
Energy
Provincial Boards and Organizations:
AUC
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