Canadian Electricity Association Post CAMPUT Workshop Performance Based Regulation in Alberta

Utility Industry-Alberta Mix of public and private utilities Gas distribution and Gas Transmission utilities Electric distribution and Electric Transmission utilities Gas production is not regulated Electric generation is not regulated With the exception of default rates, retail functions are deregulated. Canadian Electricity Association-Post CAMPUT Workshop 2

History of PBR in Alberta EPCOR Water has operated under a PBR plan approved by its regulator, the City of Edmonton since 2001 ENMAX has operated under PBR since 2009 Alberta Utilities Commission established PBR for ATCO Electric, FortisAlberta, and EPCOR electric distribution utilities; and ATCO Gas and AltaGas natural gas distribution utilities effective January 1, 2013 Canadian Electricity Association-Post CAMPUT Workshop 3

PBR Principles Principle 1. A PBR plan should, to the greatest extent possible, create the same efficiency incentives as those experienced in a competitive market while maintaining service quality. Principle 2. A PBR plan must provide the company with a reasonable opportunity to recover its prudently incurred costs including a fair rate of return. Principle 3. A PBR plan should be easy to understand, implement and administer and should reduce the regulatory burden over time. Principle 4. A PBR plan should recognize the unique circumstances of each regulated company that are relevant to a PBR design. Principle 5. Customers and the regulated companies should share the benefits of a PBR plan. Canadian Electricity Association-Post CAMPUT Workshop 4

Nature of PBR Canadian Electricity Association-Post CAMPUT Workshop 5

Going In Rates 2012 approved rates with “corrections” AUC Regulated Utilities X=0.96%+0.20% Z factor requires an impact of 40 basis points to ROE Re-opener, no off ramp ROE exceeded by 500 basis points for one year, or 300 basis points for two consecutive years Efficiency Carry Over Mechanism to strengthen incentives in latter years of PBR No Earnings Sharing Mechanism Service Quality Penalties to be determined case by case Canadian Electricity Association-Post CAMPUT Workshop 6

Capital Tracker Utilities are in a particularly intensive capital period 1.outside the normal course of ongoing operations 2.replacement of existing capital assets or required by an external party 3.material effect on company’s finances Canadian Electricity Association-Post CAMPUT Workshop 7

How’s it Working? Too early to tell! Canadian Electricity Association-Post CAMPUT Workshop 8

Canadian Electricity Association-Post CAMPUT Workshop 9