EPCOR Energy Services (Alberta) Ltd.

Transcription

1 Alberta Energy and Utilities Board Decision EPCOR Energy Services (Alberta) Ltd Regulated Rate Option Settlement Agreement December 20, 2002

2 ALBERTA ENERGY AND UTILITIES BOARD Decision : EPCOR Energy Services (Alberta) Ltd Regulated Rate Option Settlement Agreement Application No Published by Alberta Energy and Utilities Board Avenue SW Calgary, Alberta T2P 3G4 Telephone: (403) Fax: (403) Web site:

3 Contents 1 INTRODUCTION Application and Process Background ENERGY PRICE SETTING PLAN Views of SPPA Views of EESAI Views of the Board Review of SPPA s Status as a Party to the Agreement Review of the Negotiated Settlement Flow-Through vs. Hedged RROT Specifics of the 2003 Plan Conclusion on 2003 Settlement Agreement and 2003 Plan EESAI RRO Communication with Customers SUMMARY OF BOARD DIRECTIONS BOARD ORDER APPENDIX 1 COMPARISON OF 2002 AND 2003 RROT SETTLEMENT AGREEMENTS APPENDIX 2 BILL COMPARISON APPENDIX RRO SETTLEMENT AGREEMENT AND ATTACHMENT ENERGY PRICE SETTING PLAN Tables Table 1. Comparison of Energy Charges for Q1 (2002 vs. 2003) i

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5 ALBERTA ENERGY AND UTILITIES BOARD Calgary Alberta EPCOR ENERGY SERVICES (ALBERTA) LTD. Decision REGULATED RATE OPTION Application No SETTLEMENT AGREEMENT File No INTRODUCTION 1.1 Application and Process The Alberta Energy and Utilities Board (the Board) received an application from EPCOR Energy Services (Alberta) Inc. (EESAI) dated September 20, 2002 (the Application), for final approval of a Negotiated Settlement Agreement (the 2003 Settlement Agreement) regarding the energy component of its 2003 Regulated Rate Option Tariff (RROT or RRO) for customers in the Aquila Networks Canada (Alberta) Ltd (Aquila) service territory. The Application is filed pursuant to sections 49 and 56 of the Electric Utilities Act, R.S.A. 2000, c. E5 as amended (EU Act) for the test year The Energy Application is also filed pursuant to the Regulated Rate Option Regulation (AR 132/2001) (RROR) and the Roles, Relationships and Responsibilities Regulation (AR 86/2000) (RRRR). (The RROR and the RRRR are collectively referred to as the Regulations). The method of determining the energy component of the EESAI RROT has been for the company to follow an Energy Price Setting Plan. The initial Energy Setting Plan for ( Plan) was approved in Decision At the same time, the Board approved a Consultation Agreement between EESAI and six RROT customer groups referred to in the Plan as the Consultation Parties 1. The Consultation Agreement provided for ongoing consultations between EESAI and the Consultation Parties in respect of implementing the Plan and amending it from time to time in the future. Decision approved the energy price setting method for calendar year 2001 (the 2001 Plan) that were in the Plan. After negotiating with the Consultation Parties, EESAI filed an updated 2002 Energy Price Setting Plan for calendar year 2002 (the 2002 Plan) that was approved by the Board in Decision The negotiated Energy Price Setting Plans specify the minimum amount and type of electricity contracts that EESAI must purchase in the open wholesale market to determine EESAI s RROT energy rate for RROT customers in Aquila s service territory. Under the Plans, EESAI will provide all required RROT energy at the same wholesale contract prices that are found in the market. EESAI is responsible for all risk of price differences or volume differences between forecast and actual RRO consumption. No entrance or exit fees are payable for entrance or exit from the EESAI RROT. 1 The six Consultation Parties include the Alberta Association of Municipal Districts and Counties, the Alberta Irrigation Projects Association, the Alberta Urban Municipalities Association, the Consumers Coalition of Alberta, the First Nations and the Public Institutional Consumers of Alberta. 1

6 2003 RRO Settlement Agreement EESAI The 2003 Application addresses further modifications to the Plan, by amending the 2002 Plan. Specific amendments to the 2002 Plan for 2003 include the addition of monthly energy contracts to the RRO energy product portfolio, provision for quarterly price adjustments, modifications to hedging cost rates and, provision for possible changes to energy loss factors used in determining customer energy usage. 2 EESAI indicated that it had already commenced energy procurement under the 2003 Plan by the time it filed the Application. The Board issued a Notice of Application on October 22, 2002 in major daily and community weekly newspapers throughout the Aquila service territory, providing an opportunity to file interventions regarding the Application by November 8, The Senior Petroleum Producers of Alberta (SPPA) filed an intervention opposing approval of the Settlement Agreement. The Board issued the following schedule for hearing the Application: Notices of Intervention November 8, 2002 Board Information Requests to EESAI November 5, 2002 Responses from EESAI November 13, 2002 Information Requests (IRs) to EESAI November 20, 2002 IR Responses from EESAI November 27, 2002 Parties were asked to inform the Board of their desire to produce intervener evidence by November 29, No party chose to produce such evidence, and subsequently the Board issued the following schedule for written argument and reply argument: Final Argument December 6, 2002 Reply Argument December 12, 2002 The Board received EESAI and SPPA reply arguments on December 12, Accordingly, for purposes of this Decision, the Board considers that the record of this hearing closed on December 12, (Click here to return to Table of Contents) 1.2 Background A summary of the establishment of the EESAI RROT Energy Supply Plans up to approval of the 2002 Plan is provided in Decision , and is reproduced here for convenience. On November 22, 2000, EESAI filed with the Board its Energy Price Setting Plan ( Plan). The Plan established a framework for procuring a supply of electric energy and establishing the energy charge under EESAI s RROT for the RRO Transition Period. At the same time, EESAI also filed with the Board a Consultation Agreement between EESAI and six RROT customers groups referred to in the Agreement as the Consultation Parties. The six Consultation Parties include the 2 EESAI is not directly responsible for the establishment of energy loss rates used in load settlement calculations. In this instance, all of the affected RROT customers are distribution customers of Aquila. The Agreement specifies that the loss rates would be amended to match the determinations arising from the current Aquila General Rate Application. 2

7 2003 RRO Settlement Agreement EESAI Alberta Association of Municipal Districts and Counties, the Alberta Irrigation Projects Association, the Alberta Urban Municipalities Association, the Consumers Coalition of Alberta, the First Nations 3 and the Public Institutional Consumers of Alberta. The Consultation Agreement also provided for ongoing consultations between EESAI and the Consultation Parties in respect of implementing the Plan and amending it from time to time in the future. Following a public hearing that took place on November 23 and 24, 2001, the Board issued Decision approving EESAI's Energy Price Setting Plan. On November 29, 2000, EESAI filed with the Board a comprehensive negotiated settlement agreement between EESAI and the Consultation Parties in respect of all outstanding RROT matters for the RRO Transition period, including Terms and Conditions of Service and EESAI s billing costs, as well as a return margin applicable to all components of EESAI's RROT as appropriate compensation for services provided and risks undertaken. On November 30, 2000, the Government of Alberta enacted the Regulated Rate Option Amendment Regulation, AR 250/2000 (RROAR) that provided for the establishment of a Prescribed RRO Energy Charge (Prescribed Charge) for 2001 by the Minister. On December 1, 2000, EESAI filed with the Board an augmented negotiated settlement agreement between EESAI, the Consultation Parties and the Senior Petroleum Producers of Alberta (SPPA) which revised certain of the Terms and Conditions of Service and made SPPA a party to the comprehensive negotiated settlement filed with the Board on November 29, In accordance with the provisions of the Plan, EESAI participated in the Market Achievement Plan (MAP) auction on December 4 and 5, 2000 and conducted a number of Requests for Offers (RFO) rounds in December 2000 and early January On December 20, 2000, the Government of Alberta approved Ministerial Order 80/2000 setting the Prescribed Charge (i.e. the prescribed amount to be charged for electric energy under an RRO tariff in 2001) at $110 / MWh. On December 22, 2000, the Board issued Decision approving what it termed a legislatively augmented settlement agreement. Among other things, the Board concluded that the RROAR prevented it from allowing EESAI to collect a return margin on the energy and non-energy components of EESAI's RROT during 2001 which had been agreed-to by EESAI, the Consultation Parties and SPPA. On December 29, 2000, the Board issued Decision approving EESAI's RRO Terms of Conditions of Service on a final basis and EESAI's RRO Rates for 2001on an interim basis. On May 14, 2001, EESAI filed with the Board a letter reporting the "discovered" energy charge resulting from the implementation of the Plan that would be applicable to the first half of The discovered energy charges ranged from $124/MWh for the Lighting class to $162/MWh for the Residential, Farm and Commercial classes, significantly higher than the $110/MWh prescribed charge. 3 For the purposes of the 2001 and 2002 Settlement Agreements, the First Nation parties are comprised of the Ermineskin and Montana Nations 3

8 2003 RRO Settlement Agreement EESAI On July 12, 2001, the RROAR was repealed and replaced with the Regulated Rate Option Regulation, AR 132/2001 (RROR) on July 12, As with the RROAR, the RROR allows parties to make application to the Board for a review of the Prescribed Charge. On July 18, 2001, EESAI initiated discussions with the Consultation Parties respecting the amount to be recovered from EESAI s RROT customers commencing in 2002 in respect of the difference between the Prescribed Charge and EESAI s approved RROT rates in At the same time, EESAI initiated discussions with the Consultation Parties respecting amendments and adjustments for the 2002 calendar year to the Energy Price Setting Plan Method approved by the Board in Decision To assist with the settlement discussions, EESAI and the Consultation Parties agreed to retain the services of an independent Advisor, and the Board appointed a neutral observer. The parties met on eight separate occasions during August, September and October All discussions were conducted in accordance with the provisions of IL 98-04, which sets out the Board s Guidelines for Negotiated Settlements. The settlement agreement respecting the RRO Collection Shortfall in 2001 and other areas of agreement for 2001 was filed on October 9, 2001, as was the 2002 Settlement Agreement respecting amendments and adjustments for the 2002 calendar year to the Energy Price Setting Plan Method. The 2002 Settlement Agreement including the 2002 Plan was approved in Decision The present application to approve the 2003 Settlement Agreement seeks further amendments and adjustments to the previously approved 2002 Plan for Details of the Application are provided below. (Click here to return to Table of Contents) ENERGY PRICE SETTING PLAN EESAI filed the Application requesting approval of the 2003 Settlement Agreement a negotiated settlement between itself and the Consultation Parties to implement the 2003 Plan.. EESAI stated that the 2003 Settlement Agreement had been negotiated in accordance with section 9 of the Consultation Agreement, and in accordance with the Board s Negotiated Settlement Guidelines (IL-98-04). EESAI submitted that the Application was just and reasonable and in the public interest. In accordance with the Consultation Agreement and the 2001 Plan and 2002 Plan, certain commercially sensitive information was excluded from the 2003 Plan as disclosure of the information could adversely affect EESAI s ability to acquire energy supplies for RROT customers and/or the costs to EESAI to acquire those supplies. 4

9 2003 RRO Settlement Agreement EESAI Key elements to the 2003 Plan included 4 : The parties agreed upon the acquisition of a certain amount of monthly products to be purchased for The resulting RRO Energy Charge would continue to be adjusted quarterly, with a true-up mechanism to account for differences between the forecast and actual cost of monthly products acquired for the portfolio. The parties agreed upon the mechanism that would defer a change in the quarterly RRO Energy Charge of less than 5% for Residential and Farm Service customers. Deferred amounts are carried forward to the next quarter. The parties agreed to revise the energy charge scheduled approved by the Board for 2002, to reflect updated line loss factors and a reduction in the hedge cost multiplier from to Procurement of electricity contracts for customers in the Aquila service area was agreed to be undertaken in conjunction with procurement of electricity contracts for other EPCOR RRO customers. The parties agreed that the return margin of 3.75% on customers bills would remain in effect during EESAI noted that the Board had requested that the parties consider including in the 2003 Plan a Pool Price flow-through rate to RRO customers. 5 EESAI stated that they agreed that the inclusion of monthly energy contracts, and the continued use of a quarterly price adjustment was responsive to the Board s direction to provide customers with the option of an energy rate based on shorter-term energy hedge strategies. EESAI also noted that larger RRO customers would have access to Pool Price flow-through products on an unregulated basis. (Click here to return to Table of Contents) 2.1 Views of SPPA SPPA submitted that it acted as the representative of oilfield customers who receive RRO service from EESAI or who otherwise qualify for that service. SPPA submitted that its members had a direct material interest in the RRO service provided by EESAI. It noted that it was neither advised of nor invited to participate in the 2003 negotiated settlement process in spite of having been a signatory to EESAI s non-energy cost negotiated settlement application in 2001, and having participated in the hearing with regards to the 2001 energy procurement application. SPPA noted section 2.1 and 3.1 of the Board s Negotiated Settlement Guidelines: 2.1 All parties with an interest must be given the opportunity to participate fully and have their respective interests properly addressed. 3.1 Proper notice is a prerequisite to ensuring that all parties with an interest in the issues to be negotiated have an opportunity to participate in the settlement negotiations. The Board requires confirmation (included in the settlement agreement) that proper notice was provided by the applicant to all interested parties. The form and manner of the notice should conform to all the principles governing notice in the Board's Rules of Practice. Parties may seek Board direction with respect to publication and service of notice. 4 5 An item-by-item comparison of the 2002 Plan and the 2003 Plan is attached as Appendix 1. Decision

10 2003 RRO Settlement Agreement EESAI SPPA also noted section 2.3 of the Negotiated Settlement Guidelines: 2.3 The information provided during the negotiated settlement process should be available to all parties having an interest in the issues to be negotiated. SPPA noted that the Negotiated Settlement Guidelines required that all interested parties be invited to participate in negotiated settlements, and that information provided during the negotiated settlement process be provided to all interested parties. SPPA stated that there was no Board decision preventing SPPA members from participating in the EESAI RRO negotiation process, or stating that they were not interested parties within the meaning of the Negotiated Settlement Guidelines. SPPA noted that it had initially withdrawn from the settlement discussions around the 2001 Plan due to a conflict of interest arising out of the MAP auction. SPPA submitted that the conflict has not existed since the MAP auction. SPPA stated that it never intended to give up its right to participate in future RRO proceedings or negotiated settlements. It stated that this was clear from its active participation in the 2001 and 2002 RRO energy proceedings. It also argued that EESAI clearly knew that the basis of SPPA's earlier withdrawal from the settlement discussions was no longer an issue. It stated that if it had been notified of the settlement negotiations it could have brought the issue of being a proper party to negotiations before the Board prior to the filing of the settlement application. SPPA also noted that no information had been submitted regarding the dissenting views in negotiated settlement filed by EESAI as was required by section 10.3 of the Negotiated Settlement Guidelines. SPPA submitted that EESAI had not complied with several sections of the Negotiated Settlement Guidelines, and that the Board could not approve the Application under those circumstances, because due process had not been followed. SPPA submitted that approving the Application in the absence of all interested parties being afforded the opportunity to participate would be a denial of natural justice, and a failure of the Board to adhere to its own process which would be an error of law and jurisdiction. SPPA submitted that its participation would have affected the settlement outcome. Specifically, SPPA argued that it would have supported the provision of a Pool Price flow-through rate, it would have made different recommendations regarding hedging strategy and the inclusion of super-peak products, and it would have been aware of the Pool trading charge price change. SPPA noted that the Board had previously dealt with the issue of negotiated settlements that were not unanimous. SPPA noted that: The extent of opposition to the settlement will, however, be one factor the Board will take into account in determining whether the settlement should be approved. 6 SPPA noted that in that case, regarding the TFO settlement agreement, all parties opposed to the settlement had been invited to the negotiations and were given the opportunity to know the issues. It argued that EESAI had not provided notice of negotiations, and had not 6 Decision , p. 17 6

11 2003 RRO Settlement Agreement EESAI provided information as the nature of the energy procurement plan on the basis of confidentiality. SPPA stated that EESAI and the Consultation Parties were withholding information in such a way as to create a commercial advantage for those with the information. SPPA also argued that EESAI s position made the development of the competitive retail market framework more difficult, contrary to section 6 (d) of the EU Act. SPPA stated that the public interest couldn t be served by precluding members of the public from participation in the negotiation process. With regards to a flow-through rate, SPPA noted that the AAMDC, one of the Consultation Parties, had taken a position in argument in the AE 2003 RRO energy procurement proceeding that energy prices have stabilized, in that a Pool Price flow-through RRO rate would be in the public interest. 2.2 Views of EESAI EESAI noted that the Board approved the Consultation Agreement dated November 23, 2000 in Decision The Consultation Agreement between provided for ongoing consultations between EESAI and the Consultation Parties in respect to both implementing the Plan and amending and adjusting the energy prices enacted set up in the Plan from time to time. EESAI stated that it had followed the process set out in the Plan, which contemplated discussions between EESAI and the Consultation Parties and no others for consideration of amendments to the Plan. It noted that such discussions had been undertaken for the 2002 Plan, which had been subsequently approved by the Board. EESAI submitted that all such negotiations had been carried out in accordance with the Board s Negotiated Settlement Guidelines. EESAI noted that each of the Consultation Parties was given notice of and participated in discussions and received comprehensive information. EESAI submitted that the Consultation Parties unanimously accepted the 2003 Settlement Agreement, and that EESAI therefore had nothing to report to the Board with regards to dissenting opinions regarding the Settlement. EESAI submitted that, by definition arising in the Plan, the Consultation Parties are the only parties with an interest in the discussions concerning possible amendments and adjustments to the Plan. EESAI noted that the Board in Decision approved the Plan. EESAI argued that if SPPA wished to be included as a party with an interest in those discussions, it could have applied for a review and variation on Decision EESAI noted that, in accordance with the 2002 Plan, it began discussions with the Consultation Parties prior to July 31, As required by the approved Plan, an independent advisor was retained to advise on energy acquisition. A Board observer was also present for all but the first consultation meeting. It stated that all discussions were conducted in accordance with the provisions of the Board s Negotiated Settlement Guidelines. EESAI submitted that approval of the 2003 Plan was in the public interest. It stated that the 2003 Plan built on the extensive experience gained by EESAI, the Consultation Parties and the independent adviser from developing and implementing the Plan and the 2002 Plan. It noted that the resulting rates would offer customers a high degree of stability. It stated that 7

12 2003 RRO Settlement Agreement EESAI quarterly adjustments would reflect seasonal market conditions. It noted that customer deferral accounts were not anticipated. EESAI noted that SPPA was not a party to the negotiations that culminated in the agreement concerning the 2002 Plan. EESAI noted that the Board approved the 2002 Plan in Decision even though TransCanada Energy objected on the basis that the settlement excluded certain interveners that were potential participants in the energy market EESAI noted that the Board determined in Decision and again in Decision that the same negotiation process that EESAI and the Consultation Parties had followed in this instance was consistent with the public interest. EESAI submitted that 2003 Settlement Agreement was reasonable and fair to all interested parties because it was negotiated with the assistance of an independent advisor and Board observer, and was signed by representatives of each of the Consultation Parties. It stated that the feedback received from customers indicated that they did not want to be exposed to significant unexpected changes in electricity prices. With regards to providing a flow-through rate to customers, EESAI stated that it and the Consultation Parties had carefully considered such a rate in response to the Board s directions in Decision , 7 and had agreed that the best course of action would be to proceed with a single RRO rate that included a significant component of monthly contract prices. It stated that this decision was based on: Very few mass-market customers (residential or farm) have asked EESAI for a pool price flow-through rate. The Consultation Parties have consistently supported a hedged rate. Assuming that a market for such a product existed, retailers could provide a flow-through rate on a competitive basis, as they have for larger customers such as oil and gas RRO customers. EESAI remains concerned about adverse customer reaction if a severe price hike were to be passed-through to customers on regulated pool price flow-through rates. EESAI is also concerned about added customer confusion that could be created by the offering of a second RRO rate. The EESAI billing system cannot yet accommodate pool price flow-through to any significant number of customers. EESAI is concerned with the prospect that extensive true-ups associated with a pool price flow-through rate (and necessitated by relatively infrequent meter readings) could lead to customer dissatisfaction and confusion. EESAI stated, that within the context of maintaining confidential commercially sensitive information as required by the 2003 Negotiated Settlement Agreement and previous agreements that its submission was complete and adequate to support for the Application. EESAI noted that it had stated why it could not provide SPPA with information it considered of a confidential and commercially sensitive nature as specified in the 2003 Plan. EESAI argued that this satisfied its obligation under paragraph 29(1)(c) of the Rules of Practice. EESAI argued 7 Decision : EPCOR Energy Services (Alberta) Inc., Regulated Rate Option Tariff, Part F: 2001 Outstanding Matters 8

13 2003 RRO Settlement Agreement EESAI that SPPA had not disputed those reasons nor offered any evidence to support the reasonableness, relevance, or materiality of its request for confidential information. Finally EESAI submitted that SPPA had used argument to submit evidence in this case. EESAI asked the Board to disregard the SPPA material regarding the effect that SPPA could have had on the negotiated settlement process because it was evidence rather than argument. (Click here to return to Table of Contents) 2.3 Views of the Board Review of SPPA s Status as a Party to the Agreement The Board notes that the Application requests approval of a settlement agreement between EESAI and the Consultation Parties that would further modify the Plan by amending the 2002 Plan. The 2002 Plan was itself an amendment to the initial Plan approved in Decision The consultation process followed by EESAI and the Consultation Parties leading to the 2001 and 2002 Plans was specifically provided for in the Consultation Agreement and the Plan and approved by the Board in Decision The Board notes that Part 6 of the EU Act and the Negotiated Settlement Guidelines issued by the Board in 1998 (Information Letter IL 98-04) governs Negotiated Settlements. In Decision, , 8 the Board determined that the following principles applied to a review of a negotiated settlement filed for approval pursuant to section 67 of the EU Act. The settlement process must be fair and open to interested parties and sufficient information must be made available to understand the issues being negotiated. All parties should be provided an opportunity to participate and have their interests considered. In determining the acceptability of a settlement, the Board will consider whether the agreement is in the public interest, is reasonable and fair to all interested parties, has a well-substantiated rational basis, and is complete and adequate to support the application. When presented with a settlement, the Board will not approve it in part if the agreement is contingent on the Board accepting the entire settlement. If the Board rejects the settlement, it will provide reasons outlining the areas causing concern. Applicants have the onus of providing sufficient evidence and rationale to support the settlement. The Board must therefore determine whether the settlement process leading to the 2003 Plan was fair and open to interested parties and whether sufficient information was available to the parties, in light of SPPA s intervention. SPPA contended that pursuant to sections 2.1 and 3.1 of the Negotiated Settlement Guidelines it should have been given notice and an opportunity to participate in the settlement discussions leading to the agreement on the 2002 Plan. SPPA interpreted the Guidelines to mean that all interested parties including its members had to be invited to the negotiations because they were RRO customers. SPPA stated that the guidelines required EESAI to provide all interested parties with the information exchanged during the negotiation process. SPPA said that it never gave up the right to participate and only voluntary 8 Decision Northwestern Utilities Limited Approval Of Rates, Tolls, Charges, And Terms And Conditions Of Service For Core Customers, And Approval Of Amendments To The North Core Agreement, Issued December 22,

14 2003 RRO Settlement Agreement EESAI withdrew from the process in 2001 due to a conflict of interest that has not existed since the MAP auction had taken place. The Board understands that SPPA has not been involved in the negotiated settlement process that led to the 2003 Plan because it is not a signatory of the Consultation Agreement approved by the Board with the initial Plan. The question for the Board is whether SPPA should have been involved in the negotiations leading to the 2003 Plan even though it was not a party to the Consultation Agreement and Plan. The Consultation Agreement and Plan set out the parties that were to be included in negotiations to determine any modifications that were required in the period. SPPA was not one of those parties. Accordingly, the Board is of the view that unless there is a legal requirement or compelling reasons to have included SPPA, SPPA s argument must fail. In Decision , 9 the Board reviewed and interpreted the statutory provisions relevant to the negotiated settlement and the Negotiated Settlement Guidelines and concluded that the Legislature had contemplated that not all interested persons would be parties to negotiated settlements. The Board also concluded that for a settlement to be negotiated, it needed not be signed by all persons having an interest in the issue. The Board added that that this interpretation was consistent with common sense and the practical difficulties associated with achieving true unanimity in relation to some of the issues that can arise under the EU Act. The Board recognized that electric tariff applications are especially problematic in that sense because they affect a broad public and it would be unreasonable to expect that every member of that public should be a party to a negotiated settlement. 10 In the present case, SPPA submitted that it was not a party to the Plan because it withdrew from the negotiations due to a potential conflict of interest related to the MAP auction. However, the Board in Decision recognized that SPPA, the only party in active opposition to the 2001 Shortfall Settlement, had not participate in negotiations because of a perceived conflict of interest due to the potentially competitive self-retailer status of several of its members. The Board found, for the reasons set out in Decision , that including SPPA in the negotiations leading up to either the Plan or the 2001 Shortfall Settlement would have required EESAI and the Consultation Parties to disclose commercially sensitive information to a party in a position of conflict of interest, to the potential detriment to RRO-eligible customers. In Decision , 12 the Board dismissed a motion by SPPA to disclose the information kept confidential. The Board reiterated that SPPA withdrew from the negotiations that led to the Plan because of a potential conflict of interest. Specifically, the Board found that the interest of some SPPA members in pursuing the self-retailing option placed them in a situation 9 Decision TransAlta Utilities Corporation 2001 Transmission Facility Owner Tariff And Negotiated Settlement, issued January 12, Decision Decision EPCOR Energy Services (Alberta) Inc Regulated Rate Option Tariff Part F: 2001 Outstanding Matters, issued June 26, Decision ATOC Electric Ltd. & EPCOR Energy Services (Alberta) Inc Regulated Rate Option Outstanding Matters Reasons For Denial Of Motion By Senior Petroleum Producers Association, issued March 8,

15 2003 RRO Settlement Agreement EESAI where information disclosed during the negotiations and the implementation of the resulting Plan could have been used by some SPPA members to the detriment of customers choosing the RRO. Critical to the Board s consideration of the SPPA motion in Decision was the recognition that the Plan approved in Decision was effectively the result of a negotiated settlement between EESAI and many of its customers. For those reasons, the Board denied SPPA s motion to disclose the confidential information sought by SPPA. In both Decisions and the Board took note of the status of SPPA members as self-retailers, as defined by the EU Act, and found that SPPA was in a potential conflict of interest situation with the parties to the Consultation Agreement and Plan. The Board considers that these reasons extend well past concerns related only to the MAP auction since self-retailers may participate in and influence the market at any time. Accordingly, the Board finds that SPPA has not provided any compelling reason for the Board to vary its determination that SPPA was in a potential conflict of interest situation and conclude that SPPA should have been included as a party to the 2003 settlement negotiations leading to the 2003 Plan. As noted in Decision ,...the Board is satisfied that including SPPA in the negotiations leading up to either the original 2001Plan (the Plan) or the 2001 Shortfall Settlement would have required EESAI and the Consultation Parties to disclose commercially sensitive information to a party in a position of conflict of interest, to the potential detriment to RRO-eligible customers. (Parenthesis added) The Board considers that the same logic would eliminate SPPA as a party to the 2003 settlement negotiation process. In addition in Decision , 13 the Board indicated that: The Board notes that the customers represented by SPPA are large oilfield customers with multiple accounts that when aggregated make SPPA members interests not necessarily representative of other small oilfield accounts eligible for the RRO. Therefore, the Board considers that the interests of such small oilfield accounts might coincide better with those of the other small customers that were party to the 2002 Settlement Agreement. 14 For these reasons, the Board concludes that SPPA did not need to be included as a party to the 2003 negotiations leading up to the 2003 Plan. Accordingly, there was no need for EESAI to send a notice and provide SPPA with an opportunity to participate in the negotiations leading to the 2003 Plan. In addition, the Board finds that the process followed by EESAI has been fair and open, that sufficient information has been exchanged and that all parties have been provided with an opportunity to participate. The Board notes that six Consultation Parties were involved and that they are the same parties that were involved in the 2001 Plan and the 2002 Plan. The Consultation Parties represent a wide cross-section of potential RRO customers with a long 13 Decision EPCOR Energy Services (Alberta) Inc Regulated Rate Option Tariff Part D: Updated 2002 Electric Energy Supply Plan, issued November 14, Decision , p

16 2003 RRO Settlement Agreement EESAI record of representing the interests of the citizens of Alberta. The Consultation Parties support the approval of the 2003 Plan and EESAI noted that there was no dissention on any particular issue. Finally, the participation of an independent advisor and a Board observer during the negotiations provides the Board with the assurance that the negotiation process leading to the 2003 Plan has been open and fair. (Click here to return to Table of Contents) Review of the Negotiated Settlement The Board will now address the remainder of the principles applying to a negotiated settlement, taking into account that this is a contested settlement. In Decision , the Board recognized that three types of settlements were possible when parties attempted to resolve issues: a unanimous or consensus settlement, an unopposed settlement where parties do not object to the settlement but do not express overt support for it, or a contested settlement. The Board concluded that its process, policies, and examination of consensus settlements would be similar in nature to its review of unopposed settlements. However, in the case of contested settlements, the Board said that the applicable process and policy would be different and a more intensive review process would be required. The Board will now consider whether the agreement is in the public interest, is reasonable and fair to all interested parties, has a well-substantiated rational basis, and is complete and adequate to support the application. The Board provided a detailed discussion of the basis on which it would provide approval for the 2002 Plan and 2002 Settlement Agreement for EESAI in Decision : The Board notes that the 2002 Settlement Agreement and 2002 Plan proposed by EESAI and the Consultation Parties on October 9, 2001 provided an energy procurement and price-setting framework for the RRO customers in UNCA s service territory. Due to the confidential nature of the framework, exact details with respect to acquisition amounts, strategies, and timings remain unknown to the Board, except to the Board s observer. 15 However, on a similar basis as for 2001, the rates that would ultimately be paid by RRO tariff customers in 2002 would be determined by the cost of electricity purchased by the means set out in the 2002 Settlement Agreement and 2002 Plan. As under the original Plan, all pool price and volume risk would continue to be borne by EESAI. Like the Plan, the Board understands that the 2002 Settlement Agreement and 2002 Plan for electric energy acquisition were developed by EESAI in collaboration with a number of parties representing the majority of the RRO eligible customers in the EESAI service area. Presumably, oil and gas customers and industrial customers who might be eligible for the RRO for a portion of their load were not included as Consultation Parties due to perceived conflicts of interest since they could perhaps disadvantage the Consultation Parties customers through the competition to purchase available electricity while having full knowledge of the RRO procurement strategies. 15 The Board panel and staff working on this Decision are not privy to the confidential discussions and material although the Board observer had access to this material. 12

17 2003 RRO Settlement Agreement EESAI The Board understands that this collaboration was undertaken through confidential negotiations among the parties and aided by an independent energy market expert with a Board staff observer present. The Board notes that essentially the same parties, that signed the original Plan, also signed the 2002 Settlement Agreement and 2002 Plan. Like the Plan, the 2002 Settlement Agreement and 2002 Plan provided a general framework for the strategy to be used by EESAI in purchasing electricity on behalf of the RRO customers. As in the Plan, all specific information as to the volume, timing or strategy of electric energy acquisition was deleted from the filed version of the 2002 Settlement Agreement and 2002 Plan. This information was deleted to maintain its confidentiality so as not to affect the bidding behavior of potential suppliers and competitive purchasers of electric energy. The Board was asked to approve, on this basis, the 2002 process by which EESAI and the Parties would acquire energy and set the price RRO customers would pay for energy. The Board panel has only been provided with and viewed the filed version of the Agreement and 2002 Plan (Appendix 3) and has not been privy to the confidential sections. The Board notes that EESAI requested approval of the Agreement and 2002 Plan pursuant to section 67(1) of the Electric Utilities Act (EU Act). Section 67(1) reads as follows: 67(1) Where a settlement has been negotiated under this Part of an issue that is within the ordinary jurisdiction of the Board, the Board may approve the settlement. (2) Subject to subsection (3), the Board may require a party to provide to it any documents or information relating to the settlement that it considers appropriate. (3) The Board shall not receive or consider any submission, position, evidence or information provided by a party on a without prejudice or confidential basis in the course of negotiating a settlement under this Part, without the express consent of that party. However, the Board notes that Section 56 of the EU Act also provides some guidance in analyzing such arrangements. Section 56 reads as follows: 56(1) The owner of an electric distribution system may apply to the Board for approval of any financial arrangement to manage financial risk associated with the pool price that is intended to have effect after December 31, (2) An application under subsection (1) may be part of or separate from an application under section 49. (3) When considering an application under subsection (1), (a) the Board must decide if the arrangement is prudently made, and (b) the Board may, where it considers it appropriate, decide if the arrangement is the result of a fair and competitive process carried out in accordance with rules that may be established by the Board. 13

18 2003 RRO Settlement Agreement EESAI (4) The Board may approve the arrangement and impose conditions on its approval. (5) On approval of an arrangement being given, the owner of the electric utility is entitled to recover, in accordance with any conditions imposed under subsection (4), the costs and expenses specified in the arrangement as part of the costs that it may recover under section 52(1)(c). (6) This section does not apply if the electric distribution system is not an electric utility. The Board notes that EESAI is not the owner of a distribution utility or an electric utility. However, EESAI in the prior application considered that section 56 criteria could be used in the evaluation of EESAI s proposal. The Board continues to be of the view that it would be reasonable to adopt the section 56 criteria in evaluating the 2002 Plan. The Board considers that it must decide if the 2002 Settlement Agreement and 2002 Plan are prudent. The Board also considers it appropriate, for the purposes of this Decision, to ensure that the energy purchased through the 2002 Plan is the result of a fair and competitive process. If so, the prices paid for that energy would be appropriate to use to set the levels of the energy prices to be charged in EESAI s RRO tariff. The Board does not consider that there have been significant revisions to the Plan, which would necessitate a fuller process than has been undertaken in the current process before it disposes of the Application for approval of the 2002 Settlement Agreement and 2002 Plan. Having considered all of the evidence and argument in the prior approval of the Plan, as well as the 2002 Settlement Agreement and 2002 Plan, the Board is of the view that the 2002 Settlement Agreement and 2002 Plan will arrive at prudent electricity price hedging products. The Board is also of the view that the Agreement and 2002 Plan will result in fair and competitive acquisition of electricity price hedging products in today s electricity market. The Board agrees that prudent costs will be paid by EESAI for electric energy if it follows the 2002 Settlement Agreement and 2002 Plan in its procurement of energy supply for its RRO customers. The Board accepts the views of Consultation Parties who represent a wide cross-section of potential RRO customers that the 2002 Settlement Agreement and the 2002 Plan should be approved. These Parties are well known to the Board with a long record of representing the citizens of Alberta. Involvement by customers in the design of the acquisition strategy and in the implementation of the acquisition of the electricity supply portfolio is appropriate and has been fair. The Board accepts that the 2002 Settlement Agreement and 2002 Plan represent a prudent balance between stability and risk, given the state of evolution of the electricity market in Alberta. The Board also considers that there is a high degree of urgency to the approval of the 2002 Settlement Agreement and 2002 Plan, to allow EESAI surety when it accesses the market to purchase electrical energy for RRO customers. Further, this urgency appears justified in order to protect the interests of consumers as EESAI and the Consultation 14

19 2003 RRO Settlement Agreement EESAI Parties agreed that the 2002 Plan reflects the most appropriate framework for responding to the current pricing environment and that it was important to implement the 2002 Plan as soon as possible. Consequently, the Board considers it appropriate to deal expeditiously with these matters and will approve the 2002 Settlement Agreement and 2002 Plan as requested by the Consultation Parties and EESAI. Accordingly, the Board approves the 2002 Settlement Agreement and 2002 Plan The 2003 Plan is similar to the 2002 Plan approved in that decision. The Plan involves the same parties and the same negotiation process leading to an agreement of all aspects of the 2003 Plan. The Consultation Parties have recommended the approval of the 2003 Plan. The Board has considered all the evidence filed with the application and is satisfied that the negotiation process has led to an agreement that is fair and reasonable, has a well-substantiated rational basis and is complete and adequate to support the application. The remaining question is whether the 2003 Plan satisfies the public interest test. To make that determination, the Board will address the concerns expressed by SPPA regarding the results of the 2003 Plan, as well as any changes in the regulatory or commercial environment that may indicate that the 2003 Plan is not in the public interest. (Click here to return to Table of Contents) Flow-Through vs. Hedged RROT SPPA stated in argument that it would have proposed the use of a flow through rate for the RRO, similar to that which was recently approved for ATCO Electric in Decision It also stated that would have proposed a different hedging strategy for the EESAI RRO portfolio. The Board is of the view that there is not sufficient evidence to explore the latter issue in this proceeding, but further, given the inclusion of the independent advisor to the RRO negotiations and the experience of the Consultation Parties, that the Consultation Parties and EESAI have been able to design a price hedging strategy that is satisfactory to the majority of EESAI RRO consumers. With respect to the desirability of a flow-through RRO energy charge, the Board made a number of relevant findings in the ATCO Electric 2003 RRO decision: In the final analysis, the Board considers that the matter of whether to approve a flowthrough or a hedged program for the 2003 RROT is fully within the Board s discretion within the existing framework of the EUA and the Regulations. The Board considers that the adoption of either approach in 2003 would be fully consistent with the legislation and Alberta Government policy.. The Board considers the crux of the SPPA concern with the continued use of a hedge program by EESAI for its RROT to be the potential effect on the development of the commercial electricity market. Presumably SPPA s primary concern in this matter is that its members may somehow be disadvantaged. In that regard the Board notes that in a very significant respect the EESAI RRO has been significantly different from the ATCO Electric RRO. The EESAI RROT has never had 15

20 2003 RRO Settlement Agreement EESAI a provision for entrance and exit fees for people wishing to enter or exit the regulated rate. The risk of any difference between forecast and actual RRO consumption has been and continues to be borne by EESAI. In Decision regarding gas rates and also in Decision regarding ATCO Electric rates, the Board considered that the use of entrance and exit fees was undesirable from the perspective of encouraging a commercial energy market. However, there is no such difficulty arising from the EESAI RROT. Further, the lack of an exit fees diminishes the potential harm that has been claimed by SPPA. As the Board previously noted in Decision : The Board notes SPPA s indication that: During the course of 2001, several SPPA Members elected to withdraw their accounts from the RRO. In the absence of exit fees, more members would have withdrawn. 16 The Board is not sure whether SPPA members withdrew to go on a spot or monthly flow-through of electricity purchase basis or whether they withdrew to hedge their loads for longer, more favourable terms than the hedging provided by the RROT. In any event, the Board considers that the ability of customers to choose to hedge or not to hedge is part of the essence of the Customer Choice environment that is available to at least a limited extent to all RRO customers. The Board notes that the customers represented by SPPA are large oilfield customers with multiple accounts that when aggregated make SPPA members interests not necessarily representative of other small oilfield accounts eligible for the RRO. Therefore, the Board considers that the interests of such small oilfield accounts might coincide better with those of the other small customers that were party to the 2002 Settlement Agreement. Certainly, the Board recognizes that SPPA members would have the ability to self-retail if they want shorter-term product than that which is represented in the RRO portfolio. Therefore, the Board is not persuaded that SPPA s recommendation to eliminate hedging for the oil and gas RRO load should be implemented. The Board is of the view that the members of SPPA are sophisticated customers with the capacity to contract for any product they may require or to generate electricity for their own use. The lack of any exit fee on the EESAI RROT provides SPPA members with the flexibility to accept the RRO rate or to find another type of product that is preferable. The Board is of the view that SPPA members are in no way significantly disadvantaged by the adoption of a hedged rate for the majority of EESAI RRO customers for In regard to the potential impact of delay in the development of the commercial electricity market for small RRO customers in 2003 due to the continued hedging of EESAI s RRO energy supply, the Board notes that EESAI and the Consultation Parties agreed that Two Year Product should not be included in the energy portfolio acquired under the 2003 Plan. Further, no Three Year Product was acquired under the 2002 Plan approved by the Board. Accordingly, the Board recognizes that it could approve a switch to a flow through portfolio in 2004 if such a change was determined to be in the public interest. 16 SPPA response to BR-SPPA-1(b) 16