Performance Based Regulation – Asset Disposition – Timing of Rate Base Adjustments – Leave to Appeal – Denied
AUC PBR Asset Disposition Decision
Fortis Alberta Inc. (“Fortis”) acquired land (the “Land”) and contemplated using it for construction of a centralized inventory facility. However, upon review, Fortis determined a decentralized inventory model would be more efficient and therefore no longer needed the Land. Fortis applied to the AUC requesting approval to sell the Land.
In its decision consenting to Fortis’ disposition of the Land (the “AUC Decision”), the AUC also held the Land could remain in the rate base until the next rate base adjustment in 2017, in accordance with Fortis’ Performance Based Regulation (“PBR”) plan.
In the AUC Decision, the AUC noted that during an applicable PBR term, “the starting rate base reflected in the going in rates is not adjusted to keep track of actual events except in extraordinary circumstances.” The AUC held that no such extraordinary circumstances existed in this case to warrant adjustment of the rate base earlier than prescribed under Fortis’ PBR plan.
The Appeal
The Utilities Consumer Advocate (“UCA”) appealed to the ABCA under section 29(1) of the Alberta Utilities Commission Act (the “AUCA”), on the grounds that the AUC erred in its determination of the date the Land must be removed from the rate base (the “Removal Date”).
The UCA submitted that the Removal Date is the date the Land could no longer be considered used or useful, and that the AUC did not have the discretion to permit an asset to remain in the rate base any longer. The UCA submitted that the Removal Date should be in 2011, when Fortis completed construction of a different facility on nearby land.
In its decision, the ABCA denied the UCA leave to appeal (the “ABCA Decision”).
Leave to Appeal under AUCA Section 29(1)
AUCA section 29(1) provides for an appeal from the AUC to the ABCA on questions of law or jurisdiction only.
The ABCA listed the following factors it considers on such an appeal application:
a) whether the point on appeal is of significance to the practice;
b) whether the point raised is of significance to the action;
c) whether the appeal is prima facie meritorious;
d) whether the appeal will unduly hinder the progress of the action; and
e) the standard of appellate review that would be applied should leave be granted.
The ABCA first considered the applicable standard of appellate review of the AUC Decision, should leave be granted.
The Court noted that a question involving the AUC’s ratemaking authority, goes to the core of its mandate and expertise, and that the applicable standard of review is reasonableness. This finding requires a high threshold be met for leave to be granted.
Parties’ Submissions re Asset Removal from Rate Base
The UCA submitted that:
a) an asset must always be removed from the rate base as soon as it is no longer used or required to be used by the utility; and
b) therefore, the AUC was unreasonable in its determination of a Removal Date after the Land was no longer an asset required to be used to provide utility services.
Fortis distinguished the authorities relied on by the UCA regarding cost of service regulated entities, noting that Fortis is a utility subject to a PBR Plan, which, the ABCA agreed, “severs the link between Fortis’ rates and the rate base itself.”
ABCA Decision
The ABCA rejected the UCA’s argument, and held that the AUC did not unreasonably exercise its discretion in allowing the value of the Land to remain in the rate base until the next re-basing, pursuant to Fortis’ PBR plan.
The ABCA held that the question as to whether something was “extraordinary circumstances” was not a question of law or jurisdiction and fell squarely within the core of the AUC’s mandate, and therefore, dismissed the UCA’s application.
