Ensuring efficiency in the distribution of electricity and natural gas in Alberta

The AUC uses performance-based regulation (PBR) to encourage gas and electric distribution companies to find efficiencies and reduce costs while delivering safe and reliable utility service to Albertans. PBR helps keep distribution utility rates lower for customers than they may have been using a traditional cost-of-service model by providing utility companies greater incentives to become more cost-conscious and to improve operational efficiencies.

Alberta distribution utility companies have been under performance-based regulation since 2013. With the current PBR term (2018-2022) set to end this year, 2023 represents a rebasing or a “reset” year, where each distribution utility company was required to submit a one-year cost-of-service application to the AUC.

The AUC reviewed those applications and re-evaluated each utility’s level of expenses, re-aligned the revenue they require to operate with customer rates and ensured customers shared in the cost savings realized by the utilities through operational efficiencies implemented during the last PBR term.

During a PBR term, distribution utilities that are successful in achieving operational efficiencies and lowering the costs of providing utility service may be able to earn more than their approved rate of return, subject to certain limits which, if triggered, can lead to a review of the PBR plan.

Meanwhile, customer distribution rates are updated annually to incorporate an inflation factor and reset every five years to reflect cost savings.

Rebasing years are important. They provide the opportunity to share utility efficiencies with customers that were gained during a five-year PBR term through lower distribution rates than if utilities were under cost-of-service regulation without incentives to decrease costs.

The AUC recently issued three decisions for the 2023 cost of service reviews for six regulated utility distribution companies:

• 26617-D01-2022, issued June 20
• 26615-D01-2022, issued July 28
• 26616-D01-2022, issued September 1

The new performance-based regulation term (PBR 3) is set to commence in 2024 with the parameters for the new PBR plans currently being considered in Proceeding 27388.