Review and Variance –Disposition – Rates
The Office of the Utilities Consumer Advocate (“UCA”) applied for a review of the AUC’s Decision 20271-D01-2015, which granted approval for the disposition and removal of a parcel of land owned by FortisAlberta Inc. (“FAI”) from FAI’s rate base in its next revenue requirement application.
The UCA sought the review pursuant to section 6(2) of Rule 016: Review and Variance of Commission Decision (“Rule 16”) based on the following alleged errors:
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The AUC erred by failing to consider whether the land that was the subject of FAI’s application continued to be used for utility service after Q1 of 2011;
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The AUC erred by failing to apply the correct onus or standard of proof on FAI by accepting a level of evidence as sufficient in the decision, while stating that the same level of evidence would be insufficient in the future;
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The AUC erred by failing to determine the date when the parcel of land was no longer used or required to be used for utility service;
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The AUC erred by failing to give effect to the directions of the Supreme Court of Canada, requiring that assets that have no utility purpose be removed from rate base and customer rates; and
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The AUC erred by expressly or impliedly relying on Decision 2012-237 (the “PBR Decision”) as a basis on which not to apply directions of the Supreme Court of Canada, requiring that assets that have no utility purpose be removed from rate base and customer rates.
FAI owned a parcel of land in High River, Alberta, adjacent to other buildings owned by FAI. The AUC had previously approved an FAI application to replace its existing service centre using a portion of the parcel of land which is the subject of this decision. Construction of the replacement facility by FAI was completed in Q1 of 2011. FAI later applied to dispose of the excess portion of the parcel of land.
As part of FAI’s disposition application, FAI submitted that the parcel was not actively used in the provision of utility service, but had been held for potential future expansions for growth of service requirements in Southern Alberta. FAI submitted that it did not foresee any future need for the remaining portion of the parcel and requested permission to dispose of the property.
As FAI was under performance based regulation (“PBR”) for a fixed five year term, it proposed to remove the net book value of the parcel from rate base at the time of FAI’s next rate base determination, at the end of its PBR term. The next opportunity for FAI to remove its parcel of land from rate base was therefore on December 31, 2017.
The UCA submitted that the AUC hearing panel accepted that the evidence provided by FAI in its disposition application would not be sufficient to support the findings that the AUC hearing made nonetheless. The UCA submitted that this was an inconsistent and unfair position, noting that the standard and the onus of proof should not be “moving targets” in proceedings before the AUC.
FAI submitted in reply that it met both the onus and standard of proof, pointing to the fact that it presented evidence that warranted the approval on a balance of probabilities.
The AUC held that the UCA had not demonstrated that the hearing panel failed to consider the time at which the parcel of land was not used or required to be used for utility service. The AUC noted that the hearing panel turned its attention to this question, and expressed concern about the length of time that FAI took to determine that the parcel was no longer required in 2015.
The AUC held that there was no support for the allegation that the AUC hearing panel used a standard of proof or burden of proof different from the balance of probabilities, and further found that the AUC hearing panel correctly applied the standard.
With respect to the ground that the AUC hearing panel failed to give effect to directions from the Supreme Court of Canada regarding removal of non-utility assets from rate base, the UCA submitted that the direction to remove the assets at the time of FAI’s next revenue requirement application was at odds with recent jurisprudence. The UCA submitted that assets no longer used or required to be used must be removed from rate base and customer rates immediately, and not at some future date. The UCA submitted that the principle underlying the regulatory treatment of this asset was material to the rates paid by consumers, and that such treatment amounts to a windfall for FAI contrary to the principles of PBR.
In response to the UCA, FAI submitted that there was no detriment to ratepayers arising from the original decision, and submitted that the effect of the UCA’s request was to re-open the PBR going-in rates.
The AUC held that FAI remains under the PBR framework, and noted that under PBR, the company’s revenue is largely decoupled from costs, and that adjustments to going-in rates are not to be made to reflect actual events throughout the PBR term of 2012 to 2017.
The AUC held that the PBR framework did not trump the directions from the Supreme Court of Canada, but rather that the directions by the AUC hearing panel were not inconsistent with such jurisprudence. The AUC found that the UCA’s submissions did not accurately reflect the way that the AUC establishes just and reasonable rates under PBR, since rates are not actually tied to rate base until its next revenue requirement application in 2017. Therefore, the removal or addition of assets from rate base throughout the term has no impact on rates throughout the term, unless one of the specific flow-through mechanisms in the PBR framework applies. The AUC noted that the very essence of the PBR framework creates incentives for regulated companies to produce long-run efficiency gains through lower costs.
The AUC further dismissed the UCA’s ground of review, noting that the hearing panel considered adjusting FAI’s rate base, but declined to do so, holding that such adjustments were warranted only in exceptional circumstances. The AUC therefore concluded that the UCA had not demonstrated that the hearing panel committed an error of law or jurisdiction as it relates to the application of jurisprudence for removing non-utility assets from rate base.
The AUC accordingly concluded that the UCA had not raised a reasonable probability that the hearing panel’s reasons disclosed an error which could lead the AUC to materially vary or rescind the decision in questions. The AUC therefore declined to review Decision 20271-D01-2015.
