By: Nigel Bankes
PDF Version: Important AUC Decision on the Treatment of Customer Contributions: Getting the Price Signals Right
Decision Commented On: AUC Decision 26061-D01-2021, Commission-Directed Examination of Distribution Facility Owner Payments under the Independent System Operator Tariff Customer Contribution Policy (23 April, 2021)
This decision has a long and complicated history arising most immediately out of Decision 22942-D02-2019 dealing with the Alberta Electric System Operator’s (AESO) 2018 tariff (for ABlawg comment on some aspects of that decision see here) as well as the AUC’s subsequent variance decision: Decision 24932-D01-2020.
This decision by the Alberta Utilities Commission (the Commission or the AUC) grapples with what are known in utility parlance as contributions in aid of construction (CIAC). Here is a straightforward example of a CIAC. Suppose that you live on an ordinary city block where the costs to tie in your house for utility service will be approximately the same for your house as would be for any other house on the block. You would not expect to pay extra to be tied in, and that this cost would simply be part of the utility’s general rate base. But suppose that you live on an acreage and some distance from the main distribution lines (gas, electricity, or water). In that case, it is entirely possible that you may be asked for a CIAC representing the actual incremental cost of the tie-in (or perhaps that amount above the cost of a standard tie-in). This is fair to other utility customers since your tie-in costs are more than the average and might not make economic sense to the utility, and it avoids inappropriate cross- subsidization. Since you have covered the capital costs of the tie-in, these costs do not form part of the utility’s rate base on which it is entitled to earn a return even if the utility owns that tie-in.