Decision 20753-D02-2015

Alberta Electric System Operator 2015 ISO Tariff Update December 21, 2015

Alberta Utilities Commission

Decision 20753-D02-2015

Alberta Electric System Operator

2015 ISO Tariff Update

Proceeding 20753

December 21, 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

Decision 20753-D02-2015 (December 21, 2015) • i

Contents

1 Introduction and process ...................................................................................................... 1

2 Background ........................................................................................................................... 3

3 Details of the application ...................................................................................................... 3

4 Commission findings ............................................................................................................. 5

5 Order ...................................................................................................................................... 7

Appendix 1 – Proceeding participants ........................................................................................ 9

Decision 20753-D02-2015 (December 21, 2015) • 1

Alberta Utilities Commission

Calgary, Alberta

Alberta Electric System Operator Decision 20753-D02-2015

2015 ISO Tariff Update Proceeding 20753

1 Introduction and process

1. On August 18, 2015, the Alberta Electric System Operator (AESO) filed an application with the Alberta Utilities Commission, pursuant to sections 30 and 119 of the Electric Utilities

Act, SA 2003, c. E-5.1, seeking approval of its 2015 Independent System Operator (ISO) tariff

update.

2. The Commission issued notice of the application on August 20, 2015, requesting that any statements of intent to participate (SIP) be filed by August 31, 2015. In response to the notice,

SIPs were received on or before August 31, 2015, from:

AltaLink Management Ltd. (AltaLink)

Alberta Direct Connect Consumers Association (ADC)

British Columbia Hydro and Power Authority (BC Hydro)

3. An additional SIP was received from the Consumers’ Coalition of Alberta (CCA) on September 3, 2015.

4. In its SIP, AltaLink indicated that it would fully participate in this proceeding.1 The ADC responded in its SIP that it supported the AESO’s application and stated: “Having the 2015 tariff

update implemented as soon as possible minimizes the Rider C amount providing a more

accurate price signal for DTS [demand transmission service] customers and also benefits all

customers by minimizing future AESO deferral account reconciliations.”2 BC Hydro stated that

its participation includes fully understanding the Fort Nelson transmission service (FTS) rate

calculation used in the application.3 Finally, the CCA stated it would like the opportunity to test

the application with a process of written information requests (IRs) before commenting on its

position regarding the application.4

5. On September 8, 2015, the Commission issued a process and schedule letter that established an interrogatory process and requested registered participants in the proceeding to

provide comments on the need for further process by October 13, 2015. The Commission also

requested that participants provide comments with respect to whether they had an objection to

the approval of the AESO 2015 ISO tariff update, on an interim basis. Comments were due by

September 11, 2015.5

1 Exhibit 20753-X0011.

2 Exhibit 20753-X0012.

3 Exhibit 20753-X0013.

4 Exhibit 20753-X0014.

5 Exhibit 20753-X0015.

2015 ISO Tariff Update Alberta Electric System Operator

2 • Decision 20753-D02-2015 (December 21, 2015)

6. Comments regarding approval of the AESO’s 2015 ISO tariff update on an interim basis were received from AltaLink and BC Hydro, both of whom submitted that they had no objection

to the approval of the AESO 2015 ISO tariff update on an interim basis.6

7. The Commission issued IRs to the AESO on September 22, 2015, that were responded to on October 6, 2015.

8. No party provided comments with respect to the need for further process.

9. On October 13, 2015, the AESO filed a letter in which it identified the need for a minor revision to its 2015 forecast revenue requirement set out in the application for its transmission

must-run (TMR) service. The revision to the forecast also affected the updated 2015 voltage

control component for Rate DTS and Rate FTS. The AESO advised that it would take “the

necessary steps to revise its 2015 updated forecast revenue requirement for TMR to $3.0 million,

including by obtaining the necessary approval from the ISO board, and will be filing a further

submission to address the required minor revisions as soon as possible, and in any event no later

than October 27, 2015.”7

10. On October 23, 2015, the AESO filed amendments to their original application relating to TMR service and the rate for the voltage control component of Rate DTS and Rate FTS.

11. Parties were provided an opportunity to provide comments on the revision and to identify the need for further process. The Commission advised that, as a result of the revised application,

it may not be in a position to issue a final decision by the November 16, 2015 date requested by

the AESO in its IR responses.8 Therefore, the Commission requested participants to provide

comments on whether or not they had an objection to the approval of the revised AESO 2015

ISO tariff update, on an interim basis. Comments on all of these matters were due by

November 2, 2015.

12. The only party to provide comment was the CCA, which stated it had reviewed the application and the responses to IRs and, having done so, determined that there was no need for

further process with respect to the application.9 The Commission considers the close of record

for this proceeding to be November 2, 2015.

13. On November 9, 2015, the Commission issued a letter advising that it would proceed to a decision on this proceeding without any further notice or process and, on November 16, 2015,

issued an interim decision approving the revised AESO 2015 ISO tariff update, on an interim

basis.10

14. In reaching the determinations set out within this decision, the Commission has considered all relevant materials comprising the record of this proceeding. References in this

decision to specific parts of the record are intended to assist the reader in understanding the

Commission’s reasoning relating to a particular matter and should not be taken as an indication

6 Exhibits 20753-X0016 and 20753-X0017.

7 Exhibit 20753-X0022.

8 Exhibit 20753-X0020, AESO-AUC-2015SEP22-002.

9 Exhibit 20753-X0028.

10 Decision 20753-D01-2015: Alberta Electric System Operator, 2015 ISO Tariff Update - Interim Approval,

Proceeding 20753, November 16, 2015.

http://efiling.auc.ab.ca/Proceeding20753/SitePages/ViewIssuedDisposition.aspx?DispositionID=46803

2015 ISO Tariff Update Alberta Electric System Operator

Decision 20753-D02-2015 (December 21, 2015) • 3

that the Commission did not consider all relevant portions of the record with respect to this

matter.

2 Background

15. The background and details regarding the application were provided in the Commission’s interim decision; however, they have been reproduced below for the benefit of the reader.

16. In Decision 2010-606,11 the Commission approved the AESO’s proposed methodology to complete annual tariff update filings. The AESO included a 2011 tariff update in its compliance

filing pursuant to that decision and the 2011 tariff update was subsequently approved by the

Commission in Decision 2011-275.12 The AESO did not file a tariff update application in 2012 in

response to the Department of Energy’s request that the Commission limit increases in the

current rates or charges for transmission and distribution service.13 The request was lifted on

January 29, 2013.

17. The AESO’s most recent major tariff application was filed on July 17, 2013, by which the AESO sought approval from the Commission for the 2014 ISO tariff. Following a

compliance filing process, the Commission approved the current form of the 2014 ISO tariff,

effective July 1, 2015, by way of Decision 3473-D01-2015.14 The 2014 ISO tariff approved in

that decision reflected costs and billing determinants for the 2014 calendar year.

18. The AESO has filed this 2015 annual tariff update application to reflect costs and billing determinants for the 2015 calendar year.

3 Details of the application

19. The AESO requested that the Commission approve its 2015 annual tariff update application, including the amounts set out in its revised Appendix C15 to the application and the

proposed 2015 ISO tariff set out in revised Appendix E16 to the application.17

20. The AESO requested that the application be approved effective January 1, 2016; however, if the timing of the application did not permit the granting of final approval prior to

January 1, 2016, the AESO requested that the Commission approve the application on an interim

basis effective January 1, 2016. The AESO also requested that the Commission issue its

approval, whether on an interim or final basis, on or before November 1, 2015, to provide the

AESO with adequate time to program and test the rates in the AESO’s billing system in advance

11

Decision 2010-606: Alberta Electric System Operator, 2010 ISO Tariff, Proceeding 530, Application

1605961-1, December 22, 2010. 12

Decision 2011-275: Alberta Electric System Operator, Compliance Filing Pursuant to Decision 2010-606 and

2011 Tariff Update, Proceeding 1074, Application 1607003-1, June 24, 2011. 13

Bulletin 2012-03, Government of Alberta request regarding electricity rates, March 13, 2012. 14

Decision 3473-D01-2015: Alberta Electric System Operator, 2014 ISO Tariff Compliance Filing Pursuant to

Decision 2014-242 – Module 1, Proceeding 3473, Application 1610935-1, issued June 2, 2015 (followed by

errata issued June 17, 2015). 15

Exhibit 20753-X0027. 16

Exhibit 20753-X0025. 17

Exhibit 20753-X0002, application, paragraph 9.

2015 ISO Tariff Update Alberta Electric System Operator

4 • Decision 20753-D02-2015 (December 21, 2015)

of the January 1, 2016 effective date.18 In its IR responses, the AESO clarified that Commission

approval, whether on an interim or final basis, by November 16, 2015, would be the latest date

that would allow the AESO enough time to program and test the rates in its billing system.19

21. The AESO noted that the updated rates proposed in the application would apply on a go-forward basis only, commencing from the effective date approved by the Commission.20

22. The AESO stated that the 2015 updated forecast costs represented an increase of $74.9 million, or 4.1 per cent, over the 2014 recorded costs. The increase primarily resulted from

a forecast increase of $136.5 million, or 9.8 per cent, in wires costs reflecting recent applications

for transmission facility owner tariffs. The wires costs increase was offset by decreases in other

forecast cost components, with the decreases in ancillary services and losses reflecting a forecast

decrease in the pool price.21

23. The AESO submitted that although deferral account riders and later reconciliations allow the AESO to recover variances between base rate revenue and actual costs, use of deferral

accounts generally provides imprecise and delayed allocation of costs. It is, therefore, preferable

to update rates to reflect significant changes in costs, as set out in its 2015 ISO tariff update

application.22

24. In accordance with the methodology approved in Decision 2010-606, the AESO’s 2015 ISO tariff update uses the rate calculation methodology approved by the Commission in Decision

3473-D01-2015 in conjunction with the AESO’s 2014 ISO tariff application. Specifically, the

AESO used the 2014 rate calculations provided in Appendix B of the AESO 2014 ISO tariff

compliance filing as the template for the 2015 rate calculations.23 The rate calculations use the

following inputs:

2015 forecast revenue requirement

functionalization of wires costs approved for 2015 in Decision 2013-42124

2015 forecast billing determinants prepared by the AESO25

25. The AESO’s 2015 forecast costs were approved by the AESO board on December 18, 2014, and the board decision document was provided as Appendix A26 to the application.

26. The methodology approved in Decision 2010-606 also includes updating investment amounts approved in the most recent comprehensive tariff application, reflecting an escalation

factor. Therefore, the AESO has updated the composite inflation index used for developing the

point of delivery cost function to 2015, using additional Statistics Canada cost index values and

the most recent Conference Board of Canada forecast of the Alberta consumer price index.

18

Exhibit 20753-X0002, application, paragraph 10. 19

Exhibit 20753-X0020, AESO-AUC-2015SEP22-002. 20

Exhibit 20753-X0002, application, paragraph 11. 21

Exhibit 20753-X0002, application, paragraph 13. 22

Exhibit 20753-X0002, application, paragraph 14. 23

Exhibit 20753-X0002, application, paragraph 53. 24

Decision 2013-421: Alberta Electric System Operator, 2014 ISO Tariff Application and 2013 ISO Tariff Update

Negotiated Settlement – Cost Causation Study, Proceeding 2718, Application 1609765-1, November 27, 2013. 25

Exhibit 20753-X0002, application, paragraph 54. 26

Exhibit 20753-X0007.

2015 ISO Tariff Update Alberta Electric System Operator

Decision 20753-D02-2015 (December 21, 2015) • 5

The AESO applied the resulting escalation factor to the 2014 Rate DTS maximum investment

levels to determine the 2015 Rate DTS maximum investment levels.27

27. The AESO submitted that the tariff updates proposed in the application are just and reasonable28 and consist of formulaic updates to the AESO’s annual revenue requirement, based

on the AESO’s updated forecast costs for 2015; rate rider, and maximum investment level

amounts using the rate calculation methodology already approved by the Commission in

Decision 3473-D01-2015; and the investment amounts approved in Decision 3473-D01-2015.29

28. No parties objected to the application.

4 Commission findings

29. In response to AESO-AUC-2015SEP22-003, the AESO provided a table demonstrating how close the forecast billing determinants for the first eight months of 2015 were tracking

relative to actual 2015 results. The response showed an average variance of 0.5 per cent.30

30. Amendments to TMR service and the rate for the voltage control component of Rate DTS and Rate FTS were approved by the ISO board on October 22, 2015, for the 2015 forecast

revenue requirement, and resulted in an increase in revenue requirement from the AESO’s

original application of $3 million. A summary of the changes provided in the AESO’s

October 23, 2015 revised application letter is as follows:31

1. Column A of Table 2-2 from the AESO’s application (AESO 2015 Forecast

Revenue Requirement ($000,000)) is amended as follows: [footnote removed]

Original Application

As Amended

Line No. 27 – Transmission Must Run (TMR)

Line No. 33 – Subtotal Other Ancillary Services

Line No. 34 – Total Ancillary Services

Line No. 56 – Total Revenue Requirement

-

34.6

165.1

1,895.5

3.0

37.6

168.1

1,898.5

2. Table 3-4 from the AESO’s application (Increase (Decrease) for 2015 Rate DTS

Components) is amended as follows: [footnote removed]

Proposed

(1 Oct 2015)

Current

(1 Jul 2015)

Increase

(Decrease)

Voltage Control – Original Application ($/MWh) $0.00 $0.00 NA

Voltage Control – As Amended ($/MWh) $0.05 $0.00 NA

31. In Decision 2010-606, the Commission stated that it considered an annual revenue requirement and rate update may benefit customers by limiting potential misallocations that

27

Exhibit 20753-X0002, application, paragraphs 84-87. 28

Exhibit 20753-X0002, application, paragraph 88. 29

Exhibit 20753-X0002, application, paragraph 6. 30

Exhibit 20753-X0020, AESO-AUC-215SEP22-003(b). 31

Exhibit 20753-X0024, page 1.

2015 ISO Tariff Update Alberta Electric System Operator

6 • Decision 20753-D02-2015 (December 21, 2015)

might occur if the AESO were to rely exclusively on Rider C to allocate periodic revenue and

cost imbalances to its customers.32

32. The AESO’s 2015 forecast costs were approved by the AESO board on December 18, 2014,33 and the AESO’s 2015 ISO tariff update uses the rate calculation methodology approved

by the Commission in Decision 3473-D01-2015, the AESO’s 2014 ISO tariff application.

33. The Commission considers that the AESO’s 2015 tariff update, including the AESO board approved costs for 2015 related to ancillary services, transmission line losses, and the

AESO’s own administration and updated TFO revenue requirements for 2015, is consistent with

the tariff update approach approved in Decision 2010-606.

34. The Commission approves the AESO’s updated forecast 2015 revenue requirement in its amended application, provided in Appendix C – with Amendments,34 and approves the 2015 ISO

tariff update as filed, provided as Appendix E35 of the amended application.

32

Decision 2010-606, paragraph 547. 33

Exhibit 20753-X0002, application, paragraph 24. 34

Exhibit 20753-X0027. 35

Exhibit 20753-X0025.

2015 ISO Tariff Update Alberta Electric System Operator

Decision 20753-D02-2015 (December 21, 2015) • 7

5 Order

35. It is hereby ordered that:

(1) The Alberta Electric System Operator’s 2015 ISO tariff update application is

approved effective January 1, 2016.

Dated on December 21, 2015.

Alberta Utilities Commission

(original signed by)

Mark Kolesar

Vice-Chair

(original signed by)

Bill Lyttle

Commission Member

(original signed by)

Henry van Egteren

Commission Member

2015 ISO Tariff Update Alberta Electric System Operator

Decision 20753-D02-2015 (December 21, 2015) • 9

Appendix 1 – Proceeding participants

Name of organization (abbreviation) counsel or representative

Alberta Electric System Operator (AESO)

AltaLink Management Ltd. (AltaLink) Alberta Direct Connect Consumers Association (ADC) British Columbia Hydro and Power Authority (BC Hydro)

Alberta Utilities Commission Commission panel M. Kolesar, Vice-Chair B. Lyttle, Commission Member H. van Egteren, Commission Member Commission staff

C. Wall (Commission counsel) C. Strasser S. Karim D. Ward

1 Introduction and process2 Background3 Details of the application4 Commission findings5 OrderAppendix 1 – Proceeding participants