ISO Rules – Line Losses – Permission to Appeal – Dismissed
In this decision, the Alberta Court of Appeal (“ABCA”) considered applications by Capital Power Corporation (“Capital Power”), ENMAX Energy Corporation (“ENMAX”), and TransAlta Corporation (“TransAlta”) (collectively, the “Applicants”) for permission to appeal AUC Decision 790-D02-2015, which considered complaints regarding the ISO line loss rule and methodology.
The ABCA found that the AUC’s decision that it could order a remedy or relief to correct for the payment and receipt of unlawful line loss charges and credits did not raise questions of law or jurisdiction which required an appeal to the ABCA. Therefore, the ABCA dismissed the applications for permission to appeal.
Line Losses and Calculating Loss Factors
In Alberta, with respect to line losses and the ISO line loss rule, the ABCA set out the following background:
When electricity is transmitted across a transmission line, not all of the electricity generated from a power plant will reach load consumers. Some of it will be lost as heat along the way. The difference between the amount of energy put onto the system and the amount of energy ultimately received for consumption is referred to as transmission line losses.
The owner of the generating unit that produced the electricity, or the owner of the output of that generating unit through a Power Purchase Arrangement (“PPA”), pays the cost of this lost energy, allocated to each based on the methodology set out in the Line Loss Rule.
While the Alberta Electric System Operator (“AESO”) can accurately measure system-wide losses sustained over time, attributing those losses to individual generating units is more complex. Line losses for each generating unit are influenced by a number of related factors, including: the amount of electricity produced by all other generating units; their locations relative to load and to each other; the amount of load on the system at any time; and the capacity of the transmission line(s) linking generating units to the rest of the system.
The AESO employs a model to estimate line losses for each generating unit, rather than attempting to physically measure each unit’s line losses. The methodology generates a loss factor for each unit, which, in turn, is used to determine whether a generating unit adds to or reduces system-wide losses on a net basis.
Generating units that cause losses on a net basis are issued an invoice whereas generating units that reduce (i.e., save or avoid) losses are given credits.
Brief History of the Line Loss Rule Complaint
The genesis of the ISO line loss rule saga dates to 2005 when the AESO proposed a new methodology for calculating line losses. Milner first filed its complaint with the AUC’s predecessor, the Alberta Energy and Utilities Board (the “EUB”), on August 17, 2005, in respect of the ISO Rule 9.2: Transmission Loss Factors, implemented on January 1, 2006.
The EUB dismissed Milner’s complaint. However, the EUB’s decision was successfully appealed to the ABCA. The ABCA directed the AUC to reconsider whether the Line Loss Rule contravened section 19 (now section 31) of the Transmission Regulation, as alleged by Milner.
In the time between the EUB decision, and the ABCA remitting the decision to the AUC for determination, the Line Loss Rule, the Transmission Regulation, and the 2003 version of the Electric Utilities Act (the “2003 EUA”) in force at that time had all been updated, amended or refiled in some form. On June 11, 2012, Milner submitted a second complaint, on a without prejudice basis, in respect of the re-filed line loss Rule. ATCO also submitted a complaint on the same date.
Proceeding 790: Phase 1
The AUC set up a two-phase process to re-hear Milner’s complaint: Phase 1 to consider if the Line Loss Rule contravened the Transmission Regulation, and Phase 2 (if necessary) to determine the remedy if a contravention was found.
In the Phase 1 decision (Decision 2012-104), a majority of the AUC panel found that the Line Loss Rule contravened section 19 of the Transmission Regulation and upheld Milner’s initial complaint as valid. The AUC found that the Line Loss Rule, as amended, was unjust, unreasonable, unduly preferential, arbitrarily and unjustly discriminatory, and inconsistent with and in contravention of the 2003 EUA and the relevant portions of the Transmission Regulation. The AUC later confirmed these principal findings in a review and variance hearing, resulting in Decision 2014-110. These findings and decisions comprised Phase 1 of Proceeding No. 790.
Proceeding 790: Phase 2 Module A
The AUC considered Phase 2 of Proceeding 790 in three modules. In Module A (Decision 790-D02-2015), the AUC determined that it had the jurisdiction to grant relief to correct for the payment of transmission line loss charges found to be unlawful in it’s the Phase 1 decisions. The AUC’s findings included the following:
(a) the non-compliant provisions of the ISO line loss rule remained in effect and continued to be non-compliant with the EUA and the Transmission Regulation uninterrupted from January 1, 2006, when the line loss rule came into effect (the “Line Loss Rule”);
(b) Milner’s complaint had continued uninterrupted since August 17, 2005;
(c) the complaints against the Line Loss Rule satisfied the statutory requirements for the AUC to grant relief from January 1, 2009, forward, under either version of the EUA;
(d) the complaint in respect of the Line Loss Rule was regarding the line loss charge components of the ISO tariff, and therefore those components of the ISO tariff were similarly unjust, unreasonable, unduly preferential, arbitrarily and unjustly discriminatory, and inconsistent with and in contravention of the EUA and the relevant portions of the Transmission Regulation, since 2006;
(e) any remedy the AUC might grant through a tariff-based remedy would not constitute retroactive ratemaking; and
(f) the AUC had jurisdiction to grant a tariff-based remedy or relief under either the 2003 Electric Utilities Act or, if applicable, it could also do so under the 2007 Electric Utilities Act.
No Appeal of Decision that Line Loss Rule Was Unlawful
No appeal was brought following the AUC’s determinations in Phase I that the Line Loss Rule was unlawful. The ABCA considered this to mean that the AUC’s finding that the rule was unlawful was accepted by all market participants. Therefore, the ABCA found that, as of April 2014, following the release of the AUC’s review and variance decision:
(a) all market participants were aware that the Line Loss Rule was unlawful; and
(b) all market participants were aware that the unlawful Line Loss Rule had continued in effect since January of 2006.
Asserted Grounds for Appeal
The Applicants argued that the AUC erred in law and jurisdiction because it engaged in impermissible retroactive ratemaking, by finding that it had jurisdiction to adjust the line loss charges retroactively to January 1, 2006, the date the Line Loss Rule came into effect.
Test for Permission to Appeal
Section 29(1) of the AUCA provides that an appeal lies from a decision of the AUC on a question of jurisdiction or a question of law if a judge of the ABCA grants permission to appeal. The ABCA set out the following principles applicable to the applications for permission to appeal:
(a) the Applicants must show that the AUC’s decision raised significant unanswered questions of law or regarding the AUC’s jurisdiction;
(b) alternatively, the Applicants must show that the AUC erred in its application of settled legal principles or that it exceeded its jurisdiction;
(c) unless there was a question or problem of practical importance requiring an answer, permission to appeal ought not to be granted because there is no basis for an appeal;
(d) a question of law or jurisdiction is a question that raises doubt about a proposition of law or the taking of jurisdiction; and
(e) unless there existed a question of law or jurisdiction which had not already been authoritatively answered, no appeal lies.
No Question of Law or Jurisdiction on Which Appeal Should Be Granted
The ABCA held that the AUC’s application of the rule against retroactive ratemaking was not so much a question of law but a question of whether a strict application of the rule in the circumstances of the case achieves sound utility regulation. The ABCA concluded that, therefore, the question raised by the Applicants did not raise questions of law or jurisdiction for which permission to appeal should be granted.
Standard of Review
The ABCA determined that the AUC’s decision would be reviewable on the reasonableness standard, notwithstanding the AUC was deciding a jurisdictional question. The ABCA found that the AUC’s decision did not turn on a question of law. It turned on the AUC’s application of the law to the facts.
The ABCA found that, although the AUC was engaged in deciding a jurisdictional question, this did not automatically mean that its “decision raised a question or doubt about the AUC’s jurisdiction.”
AUC Decision Was Reasonable
The ABCA found that the AUC reasonably concluded that a retroactive or retrospective remedy was in the public interest.
The ABCA found the AUC decision was not only based on a thorough canvassing of public interest considerations, but also a decision which contained a defensible legal analysis of the issue of whether the Commission’s adjustment of charges previously paid or avoided constituted impermissible retroactive ratemaking.
The ABCA found the AUC’s interpretation of its legislation a reasonable response to look at providing some relief to those who had borne more than the cost that the Electric Utilities Act required them to bear, particularly given the AUC’s mandate to ensure that the charges were compliant, not just going forward, but at all times.
The ABCA found that the AUC’s decision that it could order a remedy or relief to correct the payment and receipt of unlawful line loss charges and credits did not raise questions of law or jurisdiction which required an appeal to the ABCA. Therefore, the ABCA dismissed the applications for permission to appeal.