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Posted in: Practice & Procedure | Ratemaking | Ontario

Sep 23, 2020

OEB Upholds Decision Eliminating Hydro One’s Seasonal Rates

By Fred D. Cass

The Ontario Energy Board has dismissed a motion to review and vary its 2015 decision that Hydro One Networks Inc. eliminate its seasonal customer class and move existing seasonal customers to one of three Hydro One residential rate classes on the basis of density. The OEB’s September 17, 2020 decision on the motion is available here.

As noted by the OEB, customers in Hydro One’s seasonal class receive electricity service at premises that are not occupied long enough during the year to meet the current requirements for Hydro One’s year-round residential distribution rate classes. The seasonal class is defined largely on the basis of the number of months of occupancy per year. By contrast, Hydro One’s other residential classes are density-based, defined by their geographic location and the number of customers per kilometre of distribution line. Although seasonal customers occupy their dwellings for less than the full year, the distribution system assets that meet their need for electricity service have to be maintained by Hydro One on a year-round basis.

In its 2015 decision regarding Hydro One’s distribution rates, the OEB found that Hydro One had developed the technical capability to implement and maintain density-based rates for its non-seasonal residential classes. The OEB said that it considered the relative use of distribution assets to be a significant and predominant cost causality driver for the establishment of residential rate classes. The OEB’s view was that the existence of density-based rate classes had eroded justification for the retention of the seasonal class and it found that the seasonal class should be eliminated for rate setting purposes.

The OEB recognized that the elimination of the seasonal class would cause rate impacts for certain seasonal customers and it directed Hydro One to bring forward a plan for the elimination of the seasonal class. Hydro One prepared a Report on Elimination of the Seasonal Class, which was updated in 2016 and again in 2019. The OEB decided that it would treat a section of the 2019 Report, entitled “Alternative Approach to Elimination of the Seasonal Class,” as a motion to review the 2015 decision. Subsequently, an OEB panel found that the threshold for a motion to review and vary was met on two grounds: these two grounds related to the OEB’s decision to move to all-fixed residential rates and the introduction of distribution rate protection.

On the motion to review and vary, Hydro One submitted that the seasonal class customers should be maintained in their own rate class and that their distribution rates should continue the transition to a fully fixed charge. Hydro One submitted that this would provide the approximately 70,000 seasonal customers who would move to the R1 (medium density) residential class with benefits similar to those they would receive under the approach contemplated by the 2015 decision, while avoiding the very large negative impacts to the approximately 78,000 seasonal customers who would move to the R2 (low density) residential class under the approach contemplated by the 2015 decision. Hydro One also submitted that this approach would not result in any seasonal customer impact mitigation costs, which were estimated to be significant.

The OEB said that none of the submissions on the merits of the motion had led it to conclude that the decision to move seasonal customers into rate classes that more accurately reflect their relative use of distribution assets was incorrect. The OEB referred to submissions by parties regarding the bill impacts that would flow from the elimination of the seasonal class, but said that the fact there are impacts associated with the elimination of the seasonal class does not render incorrect the decision to eliminate the class in order to achieve a more accurate reflection of the relative use of distribution assets by customers. While the decision to move to all-fixed distribution rates would result in the elimination of subsidies between high volume and low volume customers within a certain density classification, the OEB said this change in residential rate design did not in any way affect the principle underlying the 2015 decision that seasonal customers should be in the same class as other residential customers with similar use of distribution assets. As for the mitigation costs cited by Hydro One, the OEB found that these are a reflection of the magnitude of existing cross subsidies, which the 2015 decision aimed to eliminate.

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