Contents
1
INTRODUCTION
1.1
The Applicant
1.2
Approvals Sought
1.3
Regulatory Process and Participants
2
BACKGROUND
2.1
Overview of OATT Principles
2.2
Interim OATT
3
APPROACH TO THE DECISION
4
OATT APPLICATION - KEY ISSUES
4.1
Radial Lines
4.2
Discount Rate for Exports
4.3
FERC Compliance
4.4
Reasonableness of Rates, Tolls and Charges
5
OTHER ISSUES
5.1
True-Up
5.2
Assessment
5.3
Standards of Conduct
5.4
Review of OATT
6
SUMMARY OF FINDINGS
Order
1. INTRODUCTION
1.
Maritime Electric Company, Limited ("Maritime Electric") filed an
application with the Island Regulatory and Appeals Commission (the "Commission") seeking approval of an Open Access Transmission Tariff
("OATT") for the period beginning January 1, 2017 (the "Application"). The
Application is made pursuant to section 20(1) of the
Electric Power Act,
R.S.P.E.I. 1988, Cap. E-4 (the "Act"), which requires a public utility to
submit proposed rates, tolls and charges to the Commission for review and
approval.
2.
Maritime Electric submitted that the OATT is intended to update the
Interim OATT (as hereinafter defined) which has been in effect since June
30, 2008. In particular, the OATT is intended to update the text of the
Interim OATT document to reflect changes in the electric power industry
generally since 2006. These changes relate largely to subsequent Orders made
by the United States Federal Energy Regulatory Commission ("FERC"). The OATT
also updates the charges for various services based on 2014 cost data.
1.1
The Applicant
3.
Maritime Electric owns and operates a fully integrated system
providing for the purchase, generation, transmission, distribution and sale
of electricity throughout Prince Edward Island. The company's head office is
located in Charlottetown, Prince Edward Island, with generating facilities
located in Charlottetown and Borden-Carleton.
4.
Maritime Electric has contractual entitlement to capacity and energy
from New Brunswick Power's Point Lepreau Nuclear Generating Station, and an
agreement for the purchase of capacity and system energy from New Brunswick
Power delivered via submarine cables. The cables are leased from the
Province of Prince Edward Island. Maritime Electric also purchases wind
powered energy through contracts with the PEI Energy Corporation.
1.2
Approvals Sought
5.
Maritime Electric is seeking approval of the OATT as filed with the
Commission. The OATT is intended to update and revise certain aspects of the
Interim OATT. As part of the Application, Maritime Electric has filed a
"red-line" version of the OATT which identifies the proposed changes to the
Interim OATT.
6.
Maritime Electric was originally seeking to have the OATT implemented
effective January 1, 2017. However, as a result of delays due to the filing
of interrogatories, the parties to the application seeking time to meet and
discuss the application, to consult experts, and prepare, Maritime Electric
now seeks to have the OATT effective on the first day of the first month
after the Commission has issued its decision.
7.
Maritime Electric has made several changes to the proposed OATT since
it was filed with the Commission in July 2016. These changes relate to:
-
The penalty structure for energy imbalances contained in Schedule 4
of the OATT;
-
The transmission planning process set out in Attachment K of the
OATT;
-
Updating the New Brunswick-PEI interconnection costs to include the
costs arising from the recent submarine cable project; and
-
Correcting an incorrect reference to the "Transmission Provider's
rules" in Schedule 10 of the OATT.
8.
Maritime Electric filed an amended OATT with the Commission at the
commencement of the hearing on March 19, 2018 which incorporates the above
changes.
1.3
Regulatory Process and Participants
9.
The Application was filed with the Commission on July 8, 2016. On
August 9, 2016, the Commission issued Order
UE16-07 which dealt with certain
procedural matters, including public notice, requests for intervenor status
and hearing dates.
10.
A Notice of Application was also published in local newspapers and
posted on the Commission's website. At that time, the hearing was scheduled
to commence on October 17, 2016.
11.
On September 22, 2016, a technical briefing was held in the
Commission's main hearing room. Notice of the technical briefing was
published and interested members of the public were invited to attend. The
purpose of the technical briefing was to provide an introduction to OATT
philosophies and principles for the benefit of the Commission, Commission
staff and all interested parties.
12.
During the technical briefing, information was presented by employees
of Maritime Electric as well as William K. Marshall, P. Eng., who authored
an expert report on behalf of Maritime Electric.
In accordance with the process used by other utility commissions in
Canada, cross-examination of the presenters was not permitted.
The parties were advised that cross-examination of the presenters
would be permitted, including cross-examination on matters brought up during
the briefing, at the full hearing of the Application.
However, those present were invited to ask questions with respect to
the information provided.
13.
The technical briefing was recorded and a transcript was provided to
the parties and made available on the Commission website.
14.
Following the technical briefing, the Commission received written
comments from one member of the public, namely Roger King.
15.
The Commission received a request for intervenor status from the City
of Summerside Electric Utility ("Summerside Electric"). Summerside Electric
was granted full intervenor status with respect to the Application.
The PEI Energy Corporation also requested and received intervenor
status. However, the PEI Energy
Corporation subsequently withdrew that request and did not appear as an
intervenor on the Application.
16.
On September 27, 2016, a pre-hearing conference was held. Counsel for
both Maritime Electric and Summerside Electric were present.
At the pre-hearing conference, counsel for Summerside Electric
expressed concern about the October 17, 2016 hearing date, as additional
time was required for Summerside Electric to review the Application and
retain expert witnesses.
17.
The Commission considered the concerns raised by Summerside Electric
and agreed to adjourn the hearing. The Commission also suggested that it may
be beneficial for the parties to engage in a stakeholders' session to
facilitate the exchange of information and identify any contentious issues
between the parties. The parties agreed that a stakeholders' session would
be beneficial. At the conclusion of the pre-hearing conference, it was
agreed that the parties would participate in a stakeholders' session and
propose a timeline for next steps, including the exchange of any
interrogatories, the filing of any pre-filed evidence, and proposed hearing
dates.
18.
The stakeholders' session was held on November 29, 2016. As the
session was intended, in part, to facilitate settlement between Maritime
Electric and Summerside Electric, Commission staff did not attend.
19.
Following the stakeholders' session, the parties engaged in various
exchanges of information between December 2016 and May 2017. Although the
information was not exchanged in the form of interrogatories, it was filed
with the Commission and forms part of the record in the Application.
20.
On April 26, 2017, a further pre-hearing conference was held.
Summerside Electric agreed to file any pre-filed evidence it intended to
rely on by May 31, 2017.
21.
On May 31, 2017, counsel for Summerside Electric filed an expert
report prepared by William H. Dunn, Jr., as well as certain information
exchanged between Maritime Electric and Summerside Electric between December
2016 and May 2017.
22.
On June 7, 2017, a further pre-hearing conference was held to deal
with any outstanding issues prior to having the matter set down for full
hearing. This was followed by a
meeting of counsel on August 8, 2017.
23.
During the course of the meeting, counsel for the parties confirmed
that no further interrogatories were required. Summerside Electric advised
that it intended to file a report prepared by Mr. Jonathan Erling, an expert
in cost allocation, and agreed to provide this report by September 8, 2017.
As a result of consultations with counsel, the hearing was scheduled to
begin on October 30, 2017.
24.
On September 8, 2017, counsel for Summerside Electric advised the
Commission that it would not be filing a report from Mr. Erling.
25.
On October 6, 2017, counsel for Summerside Electric requested an
adjournment of the hearing. The request was due to the timing of the expert
report of Bob Fagan, the expert witness retained on behalf of Commission
staff. Although Mr. Fagan's report was expected by September 30, 2017, it
was not received until October 10, 2017.
26.
The Commission considered Summerside Electric's request and agreed to
adjourn the hearing for one week to account for the delay in receiving Mr.
Fagan's report. Counsel for Summerside Electric advised that its earliest
availability for a hearing was late November or early December. As a result,
the hearing was re-scheduled to begin on November 28, 2017.
27.
On November 10, 2017, Commission staff received a memorandum from Mr.
Fagan. The memorandum was in relation to a review of the Interconnection
Lease Agreement and Debt Collection Agreement entered into by Maritime
Electric with respect to the new submarine cables. Mr. Fagan was asked by
Commission staff to review the agreements and advise what, if any, impact
they had on the OATT and FERC compliance.
28.
On November 17, 2017, a copy of this memorandum was provided to the
parties due to its possible relevance to the Application. As the memorandum
was provided less than two weeks before the scheduled hearing, the
Commission suggested that the hearing should be adjourned to allow the
parties and their experts time to review the memorandum.
29.
On December 6, 2017, another preliminary hearing was held at the
request of the Commission. The purpose of the preliminary hearing was to
address all outstanding procedural issues, including the witnesses to be
called, the record in the Application and proposed hearing dates.
30.
During the course of the preliminary hearing, counsel for Summerside
Electric requested the opportunity to ask further questions of Maritime
Electric and file a report prepared by Mr. Erling.
31.
The Commission agreed to accommodate Summerside Electric's requests.
However, timelines were implemented to ensure there were no further delays
in having the Application heard.
32.
On December 15, 2017, the Commission received the additional
questions from Summerside Electric. On January 26, 2018, Maritime Electric
filed its response to these questions.
33.
On February 9, 2018, the Commission received the expert report and
resume of Mr. Erling on behalf of Summerside Electric.
34.
The hearing of the Application commenced on March 19, 2018 and
concluded on March 21, 2018. During that time, the Commission heard from a
panel of Maritime Electric employees, namely John Gaudet (President and
Chief Executive Officer), John Cunniffe (Senior Engineer, Corporate
Planning), Angus Orford (Vice President, Corporate Planning, Energy Supply)
and Bob Younker (Director, Corporate Planning).
35.
The Commission also heard from Bob Ashley (Chief Administrative
Officer) and Greg Gaudet (Director of Municipal Services) on behalf of
Summerside Electric.
36.
The Commission also received evidence from four expert witnesses,
namely:
-
William K. Marshall, P. Eng. of WKM Energy Consultants Inc. on behalf
of Maritime Electric;
-
William H. Dunn, Jr. of Sunset Point, LLC on behalf of Summerside
Electric;
-
Jonathan Erling, P. Eng. of KPMG on behalf of Summerside Electric;
and
-
Robert M. Fagan of Synapse Energy Economics, Inc. on behalf of
Commission staff.
37.
Each expert witness filed a report and curriculum vitae with the
Commission in advance of the hearing. Prior to the hearing, the parties
agreed that the experts were qualified to speak to the opinions stated in
their reports. The Commission agreed, and all experts were determined to be
qualified.
2
BACKGROUND
2.1
Overview of OATT Principles
38.
An OATT defines the terms, conditions and price for access to an
electric utility's transmission system. In Prince Edward Island, Maritime
Electric is the provider of transmission services, providing service to
itself, Summerside Electric and merchant wind power developers.
39.
In circumstances where a utility is both the provider of transmission
services and a user of those services, an OATT is intended to ensure that
all users of the transmission system have non-discriminatory access to the
system. In Prince Edward Island, this means that third party users are
intended to have access to the transmission system on the same terms and
conditions as Maritime Electric.
40.
The OATT filed by Maritime Electric is intended to comply with the
FERC pro forma tariff. Although FERC has no direct jurisdiction outside of
the United States, it has significant influence on the implementation and
design of transmission tariffs by utilities in Canada. FERC's influence is
primarily due to the reciprocity requirements that it imposes on foreign
entities that seek market access in the United States.
41.
Under the FERC pro forma tariff, the transmission provider is
responsible for providing the transmission delivery services known as
Network Integration Transmission Service and Point-to-Point Transmission
Service to all users on a non-discriminatory basis and at rates based on the
cost of providing the service.
42.
The FERC pro forma tariff also requires that the transmission
provider make certain Ancillary Services available at regulated rates.
Ancillary Services are support services that range from the actions
necessary to effect and balance a transfer of electricity between buyer and
seller, to services that are necessary to enable the transmission system to
be operated reliably.
43.
Maritime Electric's proposed OATT closely resembles the New Brunswick
Power OATT, which was approved by FERC in November 2015.
2.2
Interim OATT
44.
In 2003, the Commission was directed by the Government of Prince
Edward Island to inquire into, and report on, certain matters relating to
electricity generation and transmission access in PEI. As a result of that
inquiry, the Commission concluded that the establishment of a FERC compliant
OATT was necessary. Maritime Electric was ordered to file a proposed OATT
for approval by the Commission on or before November 30, 2006 (Order
UE06-02).
45.
Upon receipt of the proposed OATT, a stakeholder review process was
conducted at the request of Maritime Electric. In the course of the
stakeholder review, there was disagreement between Maritime Electric and
Summerside Electric with respect to certain aspects of the proposed OATT.
46.
Maritime Electric ultimately filed an amended OATT with the
Commission in October 2007.
Following consultation with stakeholders, the Commission determined that it
would be in the best interests of all parties to approve the amended OATT on
an interim basis, pursuant to section 20(3) of the
Act.
47.
The amended OATT was approved on an interim basis, effective June 30,
2008 (the "Interim OATT"). Commission Order
UE08-03 reads as follows:
1.
The October 3, 2007 Open Access Transmission Tariff filed by the
Company is approved effective June 30, 2008 as an interim tariff rate for
the transmission of electricity by the Company and the collection of which
rates are, until a final rate is set, subject to such commercial collection
agreements as the Company and its OATT customers may from time to time agree
upon;
2.
The Company and the City make additional filings of evidence or
argument as follows:
i.
The City is to file written evidence by expert witnesses by March 31,
2008 on the remaining points at issue, and written evidence of non-expert
witnesses by April 15, 2008; and
ii.
The Company is to file a reply to all evidence presented by May 15,
2008;
3.
The Commission may adjust the interim tariff or deal with collection
thereof pending consideration of evidence filed by the City and the Company
and any hearing which may result.
48.
Following the approval of the Interim OATT, the disagreement between
Maritime Electric and Summerside Electric continued, giving rise to a number
of administrative and legal proceedings. Maritime Electric advised that the
legal proceedings concluded in early 2015.
49.
In July 2016, Maritime Electric filed this Application which is
intended to update and revise the Interim OATT. Maritime Electric seeks
final approval of the OATT as filed, pursuant to section 20(1) of the
Act.
3
APPROACH TO THE DECISION
50.
This is an application for approval of rates, tolls and charges
pursuant to section 20(1) of the
Act. In accordance with the preamble to the
Act, the Commission must be satisfied that the rates, tolls and charges set
out in the OATT are reasonable, publicly justifiable and non-discriminatory.
51.
In addition to the rates, tolls and charges, the Commission must also
determine whether the OATT is generally compliant with FERC principles. In
doing so, the Commission must first consider and decide upon the specific
concerns raised by Summerside Electric. Once a decision is made with respect
to these issues, the Commission must then consider the OATT as a whole and
determine whether it is generally compliant with FERC principles.
4
OATT APPLICATION - KEY ISSUES
52.
Summerside Electric initially raised four issues with the OATT filed
by Maritime Electric. The issues related to:
-
Radial lines;
-
Penalties for scheduling imbalances;
-
Transmission planning process; and
-
Discounts for exporters of electricity.
53.
At the outset of the hearing, the parties advised the Commission that
an agreement had been reached with respect to the penalties for scheduling
imbalances and the transmission planning process. As a result, Maritime
Electric agreed to amend the OATT as follows:
-
Schedule 4 of the OATT was amended to incorporate the same imbalance
energy schedule as exists in the New Brunswick Power OATT; and
-
Attachment K of the OATT was amended to state that the meeting of the
Transmission System Users Group will occur before the baseline plan is
developed, and that Maritime Electric will provide Summerside Electric with
30 days notice in advance of the meeting.
54.
As a result, the only issues left to be decided by the Commission
relate to whether the costs relating to radial lines should be included or
excluded from the OATT, and whether Maritime Electric should continue to
offer a discounted rate for off-Island exporters.
55.
As counsel for Summerside Electric noted during the hearing, the
outstanding issues have less to do with FERC compliance and more to do with
ensuring the OATT is fair, reasonable, justifiable and transparent.
4.1
Radial Lines
56.
A radial line is a line that branches off higher voltage transmission
lines to serve local load. A radial line is not looped, and energy
predominantly travels in only one direction on the line from generation
sources to end users. Radial lines are generally not used for bulk power
transmission and typically serve some - but not all - customers.
57.
There are a number of radial lines which exist in the Prince Edward
Island system. The radial lines were identified by Mr. William Dunn in his
report and were generally accepted by all witnesses as being properly
classified as radial.
58.
Maritime Electric has included all radial lines in the OATT as filed
with the Commission. As a result of including radial lines in the OATT, the
cost to maintain and upgrade the lines will be shared by all transmission
system users on a pro rata basis.
59.
Summerside Electric challenges the inclusion of radial lines in the
OATT. Summerside Electric argues that the load customers (namely, Maritime
Electric and Summerside Electric) should each pay for only the costs of the
radial lines used by them. Summerside Electric's argument, if accepted,
would result in Summerside Electric paying for the cost of the T-11
transmission line which serves Summerside, and Maritime Electric paying for
all other radial lines in the Province.
60.
The Commission is required to determine whether radial lines should
properly be included or excluded from the OATT.
Position of Maritime Electric
61.
Maritime Electric views radial lines as being part of the
transmission system in this Province. As Summerside Electric wants the
benefit of the transmission system, it must also share the costs of the
system on a pro rata basis. From Maritime Electric's perspective, Summerside
Electric cannot simply pick and choose which aspects of the transmission
system it pays for.
62.
Maritime Electric also has concerns about the rate implications of
excluding radial lines from the OATT. If radial lines are excluded, Maritime
Electric argues that transmission system users will not be paying comparable
rates for comparable service. Instead, Summerside Electric will pay a lower
rate for transmission due to its geographic proximity to the submarine
cables and high voltage lines. According to Maritime Electric, this is
contrary to the "postage stamp" philosophy which is generally applied to
electric rates in this Province.
The "postage stamp" philosophy for electrical rates gets its name from the
postal system where a letter can be sent anywhere in the country for one
flat rate; e.g. letters mailed within Prince Edward Island are charged the
same postal rate as letters mailed from Prince Edward Island to British
Columbia.
63.
Maritime Electric retained Mr. William Marshall to assist with the
proposed amendments to the Interim OATT. Mr. Marshall is a professional
engineer and was qualified to provide expert evidence with respect to
transmission tariffs. Mr. Marshall both prepared a written report and gave
oral testimony before the Commission.
64.
Mr. Marshall acknowledged that under the Interim OATT, the 69 kV line
from the Sherbrooke terminal station to Summerside (commonly known as T-11)
was charged to Summerside Electric. Mr. Marshall viewed this approach as
being incorrect and recommended to Maritime Electric that the charge be
reversed in the OATT.
65.
According to Mr. Marshall, FERC does not mandate whether radial lines
to local load are allocated to distribution or transmission. He agreed that
the OATT would be FERC compliant regardless of whether radial lines were
included or excluded.
66.
Mr. Marshall, at the request of Maritime Electric, undertook a review
of the transmission tariffs in other Canadian jurisdictions. He determined
that in Canada, most transmission tariffs do not assign costs of radial
lines to distribution. Instead, radial lines are generally included with all
interconnected lines so that all end use customers within a jurisdiction
have the same transmission component cost recovered through their rates.
This is in line with the public policy objective that all citizens (and
ratepayers) be treated equally.
67.
Mr. Marshall explained that there are at least three different
approaches to rate design used in North America. These include postage stamp
rates, distance based rates, and flow-based pricing. Although postage stamp
rates are not mandatory, they are utilized by the vast majority of American
and Canadian utilities.
68.
Mr. Marshall acknowledged that the use of a postage stamp rate does
not dictate that radial lines have to be included in the OATT. He explained
that the postage stamp philosophy requires the utility to come up with a
rate and charge that rate to all users regardless of geography.
69.
During the hearing, Mr. Bob Younker confirmed that in its
distribution system, Maritime Electric applies postage stamp rates and
charges the same energy cost to all ratepayers - regardless of geography.
However, the monthly service charge is two dollars more for rural customers.
Mr. Younker explained that this is a holdover from the previously
statutorily mandated rates of New Brunswick plus ten percent, and that the
matter would be addressed in the course of the next general rate
application. According to Maritime Electric, this is the only deviation from
postage stamp rates at the distribution level.
Position of Summerside Electric
70.
Summerside Electric views the inclusion of radial lines in the OATT
as being unfair and unreasonable. Summerside Electric argues that the radial
lines - with the exception of T-11 - serve only Maritime Electric customers
and are of no benefit to Summerside Electric. With this in mind, Summerside
Electric argues that the appropriate question to ask is "Who should pay for
what?"
71.
Summerside Electric retained Mr. William Dunn to review the OATT as
filed by Maritime Electric. Mr. Dunn is an engineer and was qualified to
provide expert evidence with respect to transmission tariffs. Mr. Dunn
prepared a written report and gave oral testimony before the Commission.
72.
Mr. Dunn disagrees with the inclusion of radial lines in the OATT. He
submits that transmission customers should pay for the facilities providing
service to them. In the opinion of Mr. Dunn, Summerside Electric should bear
the cost of T-11 (which provides service only to Summerside Electric), while
Maritime Electric customers should bear the cost of all other radial lines.
73.
In support of his position, Mr. Dunn states that this will ensure
fairness, as each customer pays for the cost of the facilities that serve
that customer. It will also ensure equitable sharing of upgrade costs as
loads increase as Summerside Electric will pay for the cost of upgrading
T-11, while Maritime Electric customers will pay for the cost of upgrading
all other radial lines.
74.
Mr. Dunn further states that there is precedent for excluding radial
lines based on previous FERC dockets and other Canadian jurisdictions.
According to Mr. Dunn, the FERC Seven Factor Test and Mansfield Test are
determinative of the issue.
75.
Mr. Dunn is of the opinion that all radial lines must be removed for
the OATT to be FERC compliant.
76.
Summerside Electric also relied on the expert opinion of Mr. Jonathan
Erling in support of their position that radial lines should not be included
in the OATT. Mr. Erling is a professional engineer and partner at KPMG
(Toronto). He was qualified to provide expert evidence with respect to cost
allocation and rate design.
77.
Mr. Erling is of the opinion that the costs of radial or line
connection assets should be excluded from the OATT. He proposes that the
cost of the radial lines should be directly charged to the two wholesale
load customers (namely, Maritime Electric and Summerside Electric) on a
line-by-line basis. In particular, Mr. Erling proposes that the cost of T-11
should be direct charged to Summerside Electric and the costs of all other
radial lines should be direct charged to Maritime Electric. According to Mr.
Erling, this is the fairest approach and would best reflect each customer's
contribution to transmission system costs.
78.
As an alternative, a "second-best approach" would be to put the costs
of the radial lines into a pool that is separate from that used for core
network assets. According to Mr. Erling, this would allow the creation of a
separate tariff for the use of Maritime Electric connection assets versus
Maritime Electric network assets.
79.
In support of his opinion, Mr. Erling relied on Ontario practices
with respect to cost allocation and rate design. During the hearing, Mr.
Erling acknowledged that the Ontario transmission system and market are not
comparable to Prince Edward Island. Mr. Erling explained that in Ontario,
there is a competitive market for generation. There are four separate
companies providing transmission services and approximately 70 regulated
distribution companies. Unlike the PEI market, there are "many players" in
the Ontario market.
80.
Mr. Erling also recognized a number of population and geographic
differences between Prince Edward Island and Ontario. He agreed that the
population of Ontario is significantly greater than that of PEI, that
Ontario is approximately 92 times larger than PEI, and that the peak load in
Ontario is approximately 86 times larger than the peak load in PEI.
Position of Synapse
81.
Commission staff retained the services of Bob Fagan, a mechanical
engineer and energy economics analyst with Synapse Energy Economics, Inc.,
to review the OATT and provide an opinion with respect to FERC compliance.
82.
Mr. Fagan provided a written report that was filed with the
Commission in advance of the hearing. Mr. Fagan was the lead author of the
report. In preparing the report, Mr. Fagan had assistance from Max Chang,
who reviewed FERC dockets, and Spencer Fields, who assisted with
quantitative materials. Both Mr. Chang and Mr. Fields were listed as
co-authors of the report. In addition to the report, Mr. Fagan also gave
oral evidence before the Commission. The parties agreed that Mr. Fagan was
qualified to speak to his opinions as an expert witness.
83.
According to Mr. Fagan, there are a number of ways to treat the cost
allocation of transmission assets. FERC will generally defer to the local
regulator, provided the overarching requirement for service comparability
and non-discriminatory access are met. As explained by Mr. Fagan in his
report:
As long as the overarching issue of
service comparability and non-discriminatory access is met, FERC OATT
compliance is not dependent on the exact mechanism used by PEI to allocate
transmission costs. There are a number of different ways to treat the cost
allocation of transmission assets that would maintain service comparability
and non-discriminatory access.
84.
Mr. Fagan explained that, in theory, the OATT could exclude radial
lines and still be FERC compliant. However, in his opinion, all radial lines
should be included in the OATT.
85.
In support of his opinion, Mr. Fagan explained that the inclusion of
radial lines in the OATT will ensure that similarly situated transmission
customers, namely Maritime Electric and Summerside Electric, pay the same
rate for transmission. If Summerside Electric's proposed treatment of radial
lines is accepted, there will be rate differentials between Summerside
Electric and Maritime Electric customers for similar service. As explained
by Mr. Fagan:
The proposed allocation of all 69 kV
radial lines serving MECL and SE load into the network rate results in a
uniform rate for all transmission system users. In particular, it allows
similarly situated load customers (SE and MECL) to see the same rate for
transmission. SE's proposed removal of radial lines from the OATT rate
introduces rate differentials between SE and MECL customers for similar
service.
[...]
We recommend approval of the
inclusion of all radial line costs in MECL's proposed OATT, thereby
establishing a uniform transmission rate structure for similarly situated
load customers.
86.
Mr. Fagan is of the opinion that the Seven Factor Test and the
Mansfield Test are not determinative of whether radial lines should be
included in the OATT; instead, the tests are guides to assist in the proper
allocation of costs.
87.
Mr. Fagan also spoke to the cost implications of removing the radial
lines from the OATT. According to Mr. Fagan, removing radial lines from the
OATT would result in Maritime Electric customers paying approximately
$232,000 more annually, with corresponding decreases of $60,000 for
Summerside Electric and $172,000 for the West Cape wind farm.
Commission Findings
88.
The Commission finds that it is fair and reasonable to include all
radial lines in the OATT.
89.
The Commission did not find the evidence of Mr. Dunn to be persuasive
on the issue of radial lines. In support of his opinion, Mr. Dunn relied on
the Seven Factor Test, the Mansfield Test and previous FERC dockets.
However, Mr. Dunn admitted that the Seven Factor Test and the Mansfield Test
were used for guidance only and were not determinative of whether radial
lines should be included in the OATT. Mr. Dunn and Mr. Marshall both
acknowledged that they were not aware of any instances in which a Canadian
regulator applied the Seven Factor Test or the Mansfield Test.
90.
Instead, Mr. Dunn and Mr. Marshall agreed with the evidence of Mr.
Fagan that whether radial lines are included in the OATT is a matter to be
determined by the Commission. FERC will defer to the decision of the local
regulator as long as the overarching issue of service comparability and
non-discriminatory access is met. The previous FERC dockets cited by Mr.
Dunn are not binding on the Commission.
91.
Although Mr. Erling provided insightful evidence, his opinion was
based on the experience in Ontario and premised on the Ontario transmission
system. However, the Ontario transmission system is not comparable to the
transmission system in this Province for the reasons acknowledged by Mr.
Erling.
92.
The Commission finds that the inclusion of all radial lines in the
OATT is consistent with the principle of comparable rates for comparable
service. This is not only a requirement of FERC, this principle has also
been adopted and applied to electric rates in this Province since at least
1991.
93.
As explained by Maritime Electric, a "postage stamp rate" for
electricity transmission is one that does not vary according to the location
of the buyer or the seller, just as postage stamps for letters are typically
at a fixed price, regardless of their origin and destination.
94.
The Public Utilities Commission (predecessor to the Island Regulatory
and Appeals Commission) considered the matter in Order E91-1 which dealt
with the issue of different electricity rates for rural versus urban
customers. The Public Utilities Commission found that fairness and equity
required uniform rates for each rate group regardless of their geographic
location.
95.
The inclusion of radial lines in the OATT will ensure that
transmission customers pay comparable rates for comparable service. To find
otherwise would result in Summerside Electric paying lower rates simply
because of its geographic location. The Commission does not view
differential rates based on geography to be fair, reasonable or justified.
Instead, all users of the transmission system must bear the cost of the
transmission system on a pro rata basis, regardless of location.
96.
The Commission also feels it is prudent to address the recent
decision of the New Brunswick Energy and Utilities Board ("NBEUB") in Matter
No. 271 ("Decision No. 271"). During the hearing, there was some
disagreement among the parties as to how the NBEUB treated radial lines in
Decision No. 271. Although a decision of the NBEUB is not binding on the
Commission, the Commission would like to clarify its understanding of
Decision No. 271 and the implications for the present Application.
97.
Decision No. 271 dealt with an application by New Brunswick Power for
approval of a Class Cost Allocation Study ("CCAS") methodology. It is a
widely accepted regulatory principle that a utility's costs should generally
be shared between customer classes on the basis of cost causation. A CCAS is
a method by which a utility's revenue requirement is apportioned between
rate classes.
98.
In Decision No. 271, the NBEUB directed New Brunswick Power to
allocate sole use transmission facilities to the rate class of customers
served by those facilities (i.e. wholesale, industrial or distribution
customers) when implementing its CCAS methodology. Decision No. 271 dealt
only with the issue of the CCAS methodology to be used by New Brunswick
Power. The Decision did not alter the OATT and did not direct that radial
lines be removed from the New Brunswick OATT.
99.
The parties do not dispute that the New Brunswick OATT, as it
currently exists, includes radial lines. The New Brunswick OATT was approved
by FERC and serves as the basis for the OATT as filed by Maritime Electric.
The Commission does not, therefore, view the CCAS methodology set out in
Decision No. 271 as being relevant to the issue of whether radial lines
should or should not be included in the OATT.
4.2
Discount Rate for Exports
100.
The OATT as filed includes a discounted transmission rate for
electricity exports when the submarine cables are unconstrained. The
proposed discount policy is set out in Schedules 7 and 8 of the OATT, and
states as follows:
Reservations for off-Island
electricity exports will be discounted to off-Peak rates during periods when
transmission path(s) for export are unconstrained.
101. The Interim OATT contains a similar discount which applies only to
wind generators. According to Maritime Electric, the discount in the Interim
OATT arose from the stakeholders sessions which occurred in 2007. At that
time, Maritime Electric viewed the wind generators as paying a
disproportionate share of the total transmission costs. Maritime Electric
estimated that if another large wind generator came online, wind generators
would be paying for one-half of the total transmission system cost.
102. According to Maritime Electric, the discount for wind generators in
the Interim OATT was intended to result in a fair sharing of transmission
system costs between wind generators and load customers. It was also
intended to further provincial government policy of increasing wind exports.
103.
Mr. Marshall, in reviewing the Interim OATT, advised Maritime
Electric that the discount must be offered to all off-Island exporters on a
non-discriminatory basis (not just wind exporters) to ensure the discount is
consistent with FERC principles.
Position of Maritime Electric
104. Maritime Electric does not view the rate charged for off-Island
exports as being a true "discount"; instead, exporters are not charged the "premium" peak rate during periods when the cables are unconstrained.
According to Mr. Marshall, the costs are fully allocated and exporters are
not subsidized, as suggested by Mr. Erling.
105.
According to Mr. Marshall, the discount policy encourages wind
generation on the Island for off-Island export. As this will increase
transmission usage, it will reduce transmission rates to the benefit of all
transmission customers.
106. During the hearing, Maritime Electric's panel of witnesses explained
that without the discount, the West Cape wind farm would be paying $1.5
million in transmission costs. As a result of the discount, West Cape's
actual transmission costs are in the range of $1.0 million. Although
Summerside Electric views this as foregone revenue, Maritime Electric views
the discount as generating $1.0 million in transmission revenue which would
otherwise be paid for by the remaining transmission customers.
107. In support of its position, Maritime Electric referred to Commission
Order UE09-06. In Commission Order UE09-06, issued on July 30, 2009,
Maritime Electric applied to reduce the transmission charges in the Interim
OATT by fourteen to nineteen percent, depending on the transmission service
provided. According to Maritime Electric, this reduction in transmission
charges was a direct result of Phase 2 of the West Cape wind farm coming
online.
108.
In his report and oral evidence, Mr. Marshall explained that the
discount for off-Island exports is FERC compliant as it is offered to all
exporters (not just wind generators), and is therefore offered on a
non-discriminatory basis.
109.
Mr. Marshall also provided a table which summarized the various
discounts for export offered in other Canadian provinces. In Ontario, for
example, some exporters pay only sixteen percent of the rate charged to
other load customers. In contrast, exporters in Prince Edward Island pay
approximately eighty percent of the rate charged to other transmission
customers. Mr. Marshall submitted that the rate of discount included in the
OATT is, therefore, reasonable.
Position of Summerside Electric
110.
Summerside Electric views the discount as a subsidization of wind
exporters at the expense of the other transmission users. According to
Summerside Electric, the discount was intended as an incentive to develop
wind farms in the Province. The incentive has now been in place for ten
years and should not continue in perpetuity. It suggests that if the
discount is to remain in the OATT, Maritime Electric must provide cost
justification for the discount.
111. Mr. Dunn disagrees with Mr. Marshall's conclusion that the discount
will reduce transmission rates for the remaining transmission customers.
Instead, Mr. Dunn views it as a matter of subsidizing wind exporters, with
the remaining transmission customers being required to make up the
difference and cover the cost of the discount.
112. Mr. Dunn does not suggest that the discount is contrary to FERC
requirements. Instead, it is his opinion that Maritime Electric has not
provided any justification for the discount.
113.
According to Mr. Erling, the discount is an "obvious element of
unfairness in the proposed OATT" and amounts to "arbitrary favoritism". Mr.
Erling suggests that the discount is not supported by any principles of cost
causality. He further states that MECL has not demonstrated that the
discount is necessary for the investment in or continued operation of wind
farms, or that there is a net societal benefit from offering the discount.
According to Mr. Erling, the discount should not be approved unless
additional supporting evidence is provided by Maritime Electric.
Position of Synapse
114.
Mr. Fagan agrees with the position of Maritime Electric and Mr.
Marshall. According to Mr. Fagan, the FERC pro forma tariff allows for
discounts for transmission service as long as those discounts are made
available to users on a non-discriminatory basis. The discount proposed by
Maritime Electric is non-discriminatory as it includes the discount
structure transparently for both firm and non-firm point-to-point service.
According to Mr. Fagan, the Commission has the discretion to implement a
discount as long as the rates and service offerings are non-discriminatory.
115. According to Mr. Fagan, offering a discount equivalent to the
non-firm rate for power is in keeping with basic economic principles. Mr.
Fagan explained that as the transmission system has excess capacity,
exporters can use the transmission system without imposing any marginal
costs on the system. As a result, the transmission revenue generated from
exporters is passed on to the load customers, who will ultimately pay lower
transmission charges. Further, as exporters do not impose additional costs
on the system and are simply using the excess capacity, Mr. Fagan concludes
that it is "completely reasonable" to charge exporters a lower transmission
rate.
116. With respect to the duration of the discounted rate, Mr. Fagan is of
the opinion that it would be appropriate for the discount to remain in place
so long as the transmission system has excess capacity and exporters use the
system without imposing marginal costs.
Commission Findings
117. The Commission approves the discount for off-Island exports as
included in Schedules 7 and 8 of the OATT. In doing so, the Commission finds
that the discount is fair, reasonable and justified.
118. The Commission does not accept the argument of Summerside Electric
that there is no justification for the continuation of the discount. The
Commission views Summerside Electric's interpretation of the discount as an
"incentive" as being an overly narrow interpretation which fails to consider
the economic rationale for offering a discount to exporters.
119.
As explained by Mr. Fagan, exporters use excess capacity and do not
impose marginal costs on the transmission system. As a result, the use of
the system by exporters benefits the load customers by generating
transmission revenue that would not otherwise be collected. This
transmission revenue is then passed on to load customers, who ultimately pay
lower transmission costs.
120. In addition, Maritime Electric presented evidence of the transmission
revenue generated from wind generators. According to Maritime Electric, West
Cape pays approximately $1.0 million in transmission costs annually. As a
result of West Cape's contribution to the transmission revenue requirement,
the remaining transmission customers pay less for transmission service.
Maritime Electric's argument is supported by the reduction in transmission
rates that occurred after Phase 2 of the West Cape wind farm came online in
2009.
121. In determining that the discount is fair and reasonable, the
Commission has considered the discount rates charged by utilities in other
jurisdictions. The discount provided to PEI exporters is significantly less
than that offered in other Provinces, such as Ontario, Quebec and Alberta.
122. The Commission does acknowledge Summerside Electric's concern that
the discount, once approved, may exist in perpetuity. That is not, however,
the Commission's intent.
123. The Commission's approval of the discount for off-Island exporters is
based on the transmission system in its current state, which has excess
capacity. Should circumstances change in the future such that there is no
longer excess capacity, the discount may no longer be fair, reasonable or
justified. This is a matter which can be considered and addressed during
subsequent reviews of the OATT (discussed following).
4.3
FERC Compliance
124. The Commission does not have jurisdiction to grant approval of the
OATT on behalf of FERC; such approval can only be obtained directly from
FERC. However, as part of this Application, the Commission must be satisfied
that the OATT as filed is generally consistent with FERC requirements.
125. A FERC compliant OATT will ensure that transmission system users in
Prince Edward Island have continued reciprocity with New Brunswick Power,
which operates under a FERC approved OATT. Maintaining reciprocity with New
Brunswick is in the public interest because it ensures transmission system
users in this Province can access competitively priced energy. As supply is
also possible from parties other than New Brunswick Power, a FERC compliant
OATT will ensure that transmission system users can obtain energy from the
least cost supplier. A FERC compliant OATT will also allow on-Island
generators, such as wind exporters, to market their supply in the United
States.
Position of Maritime Electric
126. Maritime Electric views the OATT as being FERC compliant. In support
of its position, Maritime Electric states that it has modelled the OATT on
the New Brunswick OATT which has obtained FERC approval.
127.
According to Mr. Marshall, the OATT as filed by Maritime Electric is
at least 99% identical to the New Brunswick OATT. During the hearing, Mr.
Marshall explained that the differences between the New Brunswick OATT and
the Maritime Electric OATT are immaterial. As explained by Mr. Marshall, the
differences are as follows:
-
Initial allocation of available transmission capacity: Section 2.1 of
the New Brunswick OATT deals with the allocation of transmission capacity.
In New Brunswick, the allocation of transmission capacity is ranked based on
the net present value of the reservation. In Prince Edward Island, there is
no need for an initial allocation because there is no constraint on the
system. As a result, the initial allocation provision was not included in
the OATT filed by Maritime Electric.
-
Treatment of penalties for reservation exceedances: In accordance
with FERC Order 890, the treatment of penalties should be handled in the
transmission contract and need not be in the OATT. However, FERC also
directs that the OATT must be open and transparent. As a result, Maritime
Electric chose to include the penalties in the OATT to ensure transparency.
New Brunswick Power does not include its penalties in its OATT.
-
Real power losses:
In New Brunswick, real power losses are set at 3.3
percent, which is the annual transmission loss on the New Brunswick system.
In the Maritime Electric OATT, the real power losses are based on the
monthly system average losses. The average loss factor for each month is
posted on the Maritime Electric website.
-
Transmission system users group: The Maritime Electric OATT defines
the "Transmission System Users Group" in sections 1.50 and 12.7. Because the
Transmission System Users Group is unique to Prince Edward Island, the
definition is not included in the FERC pro forma tariff or the New Brunswick
OATT.
-
Hourly discounts: The hourly discounts included in Schedule 8 to the
Maritime Electric OATT are not included in the New Brunswick OATT.
Position of Summerside Electric
128. Although Summerside Electric has raised concerns about the discount
for exporters, Mr. Dunn did not allege that the discount was contrary to
FERC principles. However, Mr. Dunn is of the opinion that the radial lines
must be removed for the OATT to be FERC compliant.
129.
Mr. Erling acknowledged that he was not knowledgeable with respect to
FERC requirements and could not provide an opinion about whether the OATT is
FERC compliant. Mr. Erling advised that he would defer to the opinion of Mr.
Fagan as to whether the OATT is compliant with FERC.
Position of Synapse
130.
Mr. Fagan was retained on behalf of Commission staff to determine
whether the OATT is FERC compliant. In his report, Mr. Fagan concluded that
the OATT was generally FERC compliant. However, he recommended that
adjustments be made with respect to penalties for scheduling imbalances and
the transmission planning process. Maritime Electric adopted the amendments
as suggested by Mr. Fagan and filed an amended OATT with the Commission on
March 19, 2018.
131. At the hearing, Mr. Fagan confirmed that the OATT complies with FERC
principles of non-discriminatory access to the transmission system and
comparable pricing for comparable services.
Commission Findings
132. The Commission finds that the OATT as filed is compliant with FERC
principles.
133. In making this finding, the Commission relies on the expert opinions
of Mr. Marshall and Mr. Fagan, both of whom are experts in transmission
tariffs and agree that the OATT is FERC compliant. The Commission also notes
that Summerside Electric's expert witness, Mr. Erling, acknowledged that he
would accept Mr. Fagan's opinion as to whether the OATT is FERC compliant.
134.
Although Mr. Dunn was of the opinion that radial lines had to be
removed for the OATT to be FERC compliant, his opinion was based on FERC
dockets which are not binding on this Commission. Mr. Dunn's opinion also
overlooks the fact that the New Brunswick OATT, which has been approved by
FERC, includes radial lines.
4.4
Reasonableness of Rates, Tolls and Charges
135. The primary purpose of the OATT is to clearly establish the rates,
tolls and charges for transmission service in the Province. Notwithstanding
the implications for users of the transmission system, the rates, tolls and
charges as set out in the OATT were not a contentious issue in the
Application.
136.