ATCO seeks to delay regulatory hearing on excess profits for appeal process

A prominent Alberta utility is seeking to delay a hearing on appropriate remedies for gas and electricity rates the province's utilities regulator says were neither reasonable nor justified.

ATCO Utilities, in a letter sent late last month to the Alberta Utilities Commission, disagrees with the commission's ruling and says it’s premature to proceed until appeal processes are complete.

"(The decision) seemed to change the rules after the fact," Melanie Bayley, president of ATCO Electric, said in an interview. "We disagree that rates weren't fair and justified."

ATCO Gas delivers natural gas to 1.3 million customers -- about 82 per cent of Alberta homes and businesses. ATCO Electric delivers power to about 230,000 customers in north and east-central Alberta.

In June 2023, Alberta’s Utilities Consumer Advocate asked the commission to look into profits made by the two companies in 2021 and 2022.

Like other Alberta utilities, the companies operate under a series of five-year agreements with the regulator that permit them to make a rate of profit within an agreed-upon range.

If actual profits exceed that range, the utility must prove they came from increased efficiency or greater productivity. If it can't, the regulator may conclude the design of the five-year deal is flawed.

It may then reopen the deal and consider what should be done about the under- or overpayment.

In a May ruling, the commission found ATCO Electric and ATCO Gas recorded profit margins in 2021 and 2022 that were up to 26 per cent above the two-year threshold that may trigger a review.

The commission also found the companies benefited from reduced capital and operations expenditures. It ruled the companies couldn't adequately explain the reductions.

It calculated ATCO Electric had a total of $387 million in capital budget savings over 2018-22 that it couldn't link to any service improvements. ATCO Gas had savings of $252 million over the same period, with another $21 million in 2022 operational savings.

"The result is rates that were not just and reasonable in those years because customers were required to pay rates without receiving the benefit of more efficient utility service," the commission wrote.

"Customers paid more than what was reasonably required for the provision of safe and reliable utility service."

ATCO disputes the savings figures, which the commission is reviewing. Those amounts don't represent a potential refund.

During the hearings, ATCO Gas and ATCO Electric maintained the unexplained cost savings came from initiatives such as organizational realignment, prioritization of projects and maintenance, meter replacement, equipment standardization and income tax deductions.

Bayley said the companies weren't asked to track those kinds of impacts in previous agreements with the commission.

"The manner in which we were expected to track those costs wasn't known to us until last year, when it was too late," Bayley said.

"It's difficult if not impossible to attribute cost savings to any one of those initiatives or to track them in real time."

Still, the commission wanted details. It said ATCO's explanations were "high level, unsubstantiated and insufficient in proportion to the otherwise unquantified or unexplained cost savings."

It concluded that many of the savings resulted from the companies choosing not to pursue projects. Others were due to cost savings from COVID-related factors such as supply chain disruptions.

"The savings cannot be attributed to utility-driven efficiency gains," the commission wrote.

Bayley said all savings were passed on to consumers in a subsequent agreement with the commission, which began in 2023.

"Consumers today are paying much lower rates."

ATCO Utilities has asked the commission to reconsider its ruling. ATCO has also asked the Alberta Court of Appeal for leave to appeal it.

Bayley said the commission's ruling, if it stands, has implications much wider than ATCO rates.

"The (commission) changed the requirements of the ratemaking plan, and it did so retroactively. That creates significant uncertainty for utilities and investors.

"It's just common sense that you know the rules before you operate under them."

The commission is set to begin the second phase of its investigation, which considers remedies.

"The commission considers that an appropriate remedy may be in the nature of refunds to the ATCO Utilities’ customers that relate to the quantum of savings," its decision says.

But ATCO argues that this phase should be paused until its appeals can be heard. It says those appeals could result in the need to redo parts of the hearing or remove the need for one at all.

"The practical consequences of any such scenarios, in terms of the potential regulatory inefficiency and expenditure of unnecessary time and resources, outweigh the impacts associated with holding the ... proceeding in abeyance," it says in a July 10 letter to the commission.

Groups including the Utilities Consumer Advocate, the City of Calgary, the Industrial Power Consumers of Alberta and the Consumers Coalition of Alberta have all registered their intention to participate in a hearing on possible remedies.

The commission is expected to deliver a decision on its review by Aug. 1. The Court of Appeal could take until 2025 to decide whether or not to hear ATCO's request for a review.

This report by The Canadian Press was first published July 19, 2024.