Regulatory Process and Participants
Overview of OATT Principles
APPROACH TO THE DECISION
OATT APPLICATION - KEY ISSUES
Discount Rate for Exports
Reasonableness of Rates, Tolls and Charges
Standards of Conduct
Review of OATT
SUMMARY OF FINDINGS
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
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.
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.
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.
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
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.
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
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.
Maritime Electric filed an amended OATT with the Commission at the
commencement of the hearing on March 19, 2018 which incorporates the above
Regulatory Process and Participants
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.
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.
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.
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.
The technical briefing was recorded and a transcript was provided to
the parties and made available on the Commission website.
Following the technical briefing, the Commission received written
comments from one member of the public, namely Roger King.
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.
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.
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
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.
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.
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.
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.
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.
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.
On September 8, 2017, counsel for Summerside Electric advised the
Commission that it would not be filing a report from Mr. Erling.
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.
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.
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.
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.
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.
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.
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.
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.
On February 9, 2018, the Commission received the expert report and
resume of Mr. Erling on behalf of Summerside Electric.
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).
The Commission also heard from Bob Ashley (Chief Administrative
Officer) and Greg Gaudet (Director of Municipal Services) on behalf of
The Commission also received evidence from four expert witnesses,
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
Jonathan Erling, P. Eng. of KPMG on behalf of Summerside Electric;
Robert M. Fagan of Synapse Energy Economics, Inc. on behalf of
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
Overview of OATT Principles
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.
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.
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.
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.
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.
Maritime Electric's proposed OATT closely resembles the New Brunswick
Power OATT, which was approved by FERC in November 2015.
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
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.
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
The amended OATT was approved on an interim basis, effective June 30,
2008 (the "Interim OATT"). Commission Order
UE08-03 reads as follows:
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
The Company and the City make additional filings of evidence or
argument as follows:
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
The Company is to file a reply to all evidence presented by May 15,
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.
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.
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
APPROACH TO THE DECISION
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.
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.
OATT APPLICATION - KEY ISSUES
Summerside Electric initially raised four issues with the OATT filed
by Maritime Electric. The issues related to:
Penalties for scheduling imbalances;
Transmission planning process; and
Discounts for exporters of electricity.
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.
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.
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.
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.
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.
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.
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.
The Commission is required to determine whether radial lines should
properly be included or excluded from the OATT.
Position of Maritime Electric
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.
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
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.
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.
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.
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.
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.
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.
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
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
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.
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.
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.
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.
Mr. Dunn is of the opinion that all radial lines must be removed for
the OATT to be FERC compliant.
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.
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.
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.
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.
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
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.
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.
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
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.
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.
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: