Water Rates
In this decision, the AUC found pursuant to Section 43 of the Municipal Government Act (“MGA”) that certain water rates charged to Imperial Enterprises Inc. (“Imperial”) from January 1, 2019, to present, were discriminatory.
Introduction
In Decision 22785-D01-2018, the AUC ruled that the Town of Devon (“Devon”) had improperly imposed an increase in water rates charged to Imperial. The AUC found that the increased rates were established by resolution and not by bylaw, as required by the statutory framework set out in the MGA. The subject of this proceeding was a subsequent appeal from Imperial that Devon’s bulk water service rates that came into effect on January 1, 2019, were discriminatory.
Devon owns and operates a municipal water utility system that treats water from the North Saskatchewan River, and then delivers potable water to customers through its distribution system. In addition to providing water to metered customers on its distribution system, Devon provides bulk water to two independent entities:
(a) Imperial, which purchases water from Devon and either resells or delivers the water to its consumers through facilities owned by Imperial; and
(b) Sprucedale Water Co-op (“Sprucedale”), which provides water to its members through its own distribution system that is connected to Devon’s water distribution system.
Devon also sells bulk water from its own bulk station through key lock accounts and coin-operated dispensers.
Water Rates, Utility Bylaw and the Appeal Application
On November 13, 2018, Devon passed two bylaws, Bylaw 919/2018 Water Rates Bylaw (“Water Rates Bylaw”), which set rates for water services provided by Devon commencing January 1, 2019, and Bylaw 917/2018 “Amending Bylaw to Utility Bylaw 836/2010 & Amendment Bylaw 903/2017” (“Utility Bylaw”), which governs utility service in Devon.
The complaint by Imperial related specifically to the rates set by Devon for bulk water services, which is reproduced below from Schedule A of the Water Rates Bylaw (Section 1 has not been reproduced herein):
2 Bulk Water Service Rates
The charges for unmetered and bulk water shall be computed and rendered monthly as follows:
(a) Keylock Accounts
(i) Monthly Charge – When water is supplied during any month, a monthly charge of $10.00 per month shall apply.
(ii) Water Commodity Charge – A commodity charge of $4.75 per cubic meter of water supplied.
(iii) Sprucedale Water Co-op – A commodity charge of $2.72 per cubic meter of water supplied.
(b) Coin-operated Water Dispenser
(i) Commodity Water Charge – A commodity charge of $4.75 per cubic meter.
(c) Private Bulk Water Stations
(i) Metered Consumption – A commodity charge of $4.75 per cubic meter.
(ii) Basic Monthly Charge A basic monthly charge based on service pipe size per section 1(a) of this Schedule.
Imperial paid a basic monthly charge of $48.67 for its incoming 100 millimetres (mm) water line under Schedule A, sections 1(a) and 2(c)(ii) of the Water Rates Bylaw, plus a commodity charge of $4.75 per cubic metre (m3) under Section 2(c).
In its appeal, Imperial submitted that the commodity charge of $4.75/m3 was discriminatory, and the private bulk water service rate was directed only at Imperial, as it is the only private business selling bulk water in Devon. Imperial stated it has operated a bulk water station since 2003, and its commodity charges had been increasing since July 2015.
Further, Imperial submitted that Devon is selling bulk water from its own competing facility for the same price as it sells to Imperial and that Devon must have known this would put it out of business. Imperial noted that bulk water was also provided to Sprucedale, at a rate of $2.72/m3.
Imperial stated Devon is “unfairly competing,” in that:
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Devon sets the price on wholesale bulk water.
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Devon sets the price on retail bulk water and is able to set that price without the need for profit or consideration of operating costs.
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Devon set the price of retail bulk water to the same price they charge themselves for it.
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It is unknown whether or not Devon charges themselves for the incoming line charge, which occurs monthly for Imperial, or if Devon has accurate cost accounting for the maintenance and operation of their bulk station.
Imperial submitted that it is in the same or similar class as Sprucedale, and should be afforded the same rates.
The AUC’s Authority
The AUC noted that its authority to deal with this matter is set out in Section 43 of the MGA, which states:
Appeal
43(1) A person who uses, receives or pays for a municipal utility service may appeal a service charge, rate or toll made in respect of it to the Alberta Utilities Commission, but may not challenge the public utility rate structure itself.
(2) If the Alberta Utilities Commission is satisfied that the person’s service charge, rate or toll
(a) does not conform to the public utility rate structure established by the municipality,
(b) has been improperly imposed, or
(c) is discriminatory,
the Commission may order the charge, rate or toll to be wholly or partly varied, adjusted or disallowed.
Discrimination
In assessing an appeal under Section 43(2)(c) of the MGA, the AUC had previously held that discrimination could arise in two circumstances:
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First, when a utility fails to treat all its users equally where no reasonable distinction can be found between those favoured and those not favoured.
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Second, when a utility treats all its users equally where differences between users would justify different treatment.
In determining whether Devon’s bulk water service rate was discriminatory, the AUC considered whether there was a reasonable distinction between Imperial and other customers, and whether this distinction supported different treatment.
AUC Findings
The Commission found that Imperial’s water rates were discriminatory because while the Water Rate Bylaw distinguished between private bulk water stations and other customers, it was not apparent based on a plain reading of either the Utility Bylaw or the Water Rate Bylaw that the differing treatment between customers was supported. The AUC considered the water rates discriminatory given:
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The difficulty in identifying the distinction between the characteristics of different customer classes in both the Water Rate Bylaw and Utility Bylaw.
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The lack of distinguishing factors between a metered water customer under subsections 1(a) and (b) of Schedule A and the bulk water customers under Section 2 in the Water Rate Bylaw.
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The lack of transparency of water volume differences in charging water rates under the Water Rate Bylaw and Utility Bylaw.
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The insufficient language in the Water Rate Bylaw to support different rates charged to Imperial under Section 2(c) of Schedule A compared to other rates charged under Section 2.
First, the AUC noted there was a lack of distinction between the characteristics of different customers under the Utility Bylaw and the Water Rates Bylaw that addressed water utility rates. Devon’s attempt to draw distinctions between customers as “retail”, “wholesale” and “bulk” was not supported by the Utility Bylaw or Water Rates Bylaw, which had no definitions for these classes of customers.
Second, the AUC examined the Water Rates Bylaw and found the only distinction provided in Section 1 of Schedule A was metered service pipe size. A plain reading of both bylaws did not set out distinguishing characteristics to differentiate Imperial as a customer who was charged differently than customers who paid metered water rates under Section 1(b), or customers who paid bulk water service rates under the different categories of Section 2 of Schedule A of the Water Rates Bylaw. The fact that Imperial is charged a basic monthly charge under the “Metered Service Pipe Size” further confused the treatment of Imperial.
Third, the AUC had concerns with the submissions of Devon on distinguishing between classes of customers based on water volume, which was not clearly reflected in the Water Rates Bylaw or the Utility Bylaw.
Based on Devon’s submissions, there were no limits imposed on any retail customer in the normal course of operations unless there was a separate customer agreement in place. Devon also confirmed that no water volume limits were placed on Imperial. It was not apparent to the AUC how “no limitations or restrictions as to rates of flow or annual volumes” is reflected in the bulk water service rates charged to Imperial given the much lower commodity charge for metered water rate customers. Further, it appeared that the only limit to the receipt of water volumes were the limitations imposed by the capacity of the distribution system to provide that supply. Devon did not highlight any specific capacity limitations or constraints that may be exceeded to support the commodity charge levied on Imperial.
For these reasons, the AUC found that Devon’s submissions on water volumes as a reason why Imperial was charged a different bulk water service rate was not persuasive nor was water volume a distinguishing factor in differentiating the commodity charges to Imperial under the private bulk water stations rate included in the Water Rate Bylaw.
Fourth, with respect to different customer rates charged under Section 2 of the Water Rates Bylaw, Devon submitted that “… customers accessing the Devon bulk water fill station pay all costs associated with their volume taken through the commodity charge …” However, the AUC noted that Imperial was subject to a separate basic monthly charge based on the size of its service line.
Imperial was charged a fixed and variable rate for bulk water service under Section 2(c) of the Water Rates Bylaw. Other bulk customers were not charged a basic monthly charge under Section 2 of the Water Rates Bylaw. However, under the Water Rates Bylaw, Imperial paid the same commodity charge as other bulk customers, which included all costs of providing service.
In addition, Imperial paid a basic monthly charge, which included demand costs. Thus, it appeared that Imperial was paying for the demand cost twice, suggesting discriminatory treatment of Imperial.
Based on the AUC’s findings, it could not identify a reasonable distinction between Imperial and other customers sufficient to justify the differential rates charged to Imperial.
The AUC found water commodity charged to Imperial under Section 2(c)(i) of Schedule A of the Water Rate Bylaw to be discriminatory.
Relief
Pursuant to Section 43 of the MGA, if a person’s rate is found to be discriminatory, the AUC may order the rate to be wholly or partly varied, adjusted or disallowed. Applying its discretion to determine the relief to Imperial, the AUC found that Imperial should have been charged a commodity rate of $1.55/m3. Imperial’s basic monthly charge remained unchanged as a result of this decision.
As a result, the AUC directed that Devon recalculate Imperial’s bulk water service rates based on a commodity charge of $1.55/m3, effective January 1, 2019. It further ordered that Devon shall refund the difference of $4.75/m3 and $1.55/m3 in commodity charges to Imperial, for all water volumes consumed from January 1, 2019, to the date of the issuance of this decision.
