Permission to Appeal – Denied
In this decision, the Alberta Court of Appeal (“ABCA”) considered the applications of ENMAX Energy Corporation (“ENMAX”), TransCanada Energy Ltd. (“TCE”) and Capital Power Corporation (“Capital Power”) (collectively, the “Applicants”) for permission to appeal Decision 790-D06-2017 (the “Invoicing Decision”). In the Invoicing Decision, the AUC determined that the power generators who paid the unlawful line loss charges would be the parties ordered to pay more or be reimbursed by the independent system operator (“ISO”), which operates as the Alberta Electric System Operator (“AESO”).
The ABCA denied the applications for permission to appeal the Invoicing Decision, finding there was nothing it could usefully add or correct. There was no question of law or jurisdiction which required the ABCA’s intervention.
Transmission line loss charges are charged to power producers to recover the cost of transmission line losses which take place when electricity is transmitted over lengthy alternating current transmission lines. The AESO recovers the cost of transmission line losses through the ISO tariff. In 2015, the AUC decided it could order a retroactive or retrospective tariff-based remedy to correct for a decade of overpayments and underpayments of unlawful line loss charges.
In Decision 790-D03-2015, issued prior to the Invoicing Decision, the AUC determined that going forward from January 1, 2017, the previous methodology for calculating transmission line losses should be replaced with a new methodology as directed by the AUC. The ABCA noted that Decision 790-D03-2015 had not been challenged by the Applicants.
In the subsequent Invoicing Decision, the AUC decided which power generators were going to be charged for not paying their fair share of the transmission line losses over the period in which the unlawful line loss rule was in effect and which generators were to be credited for paying more than their fair share of the transmission line losses over that same period. The AUC decided that the power generators (or holders of power purchase agreements) who paid the unlawful line loss charges would be the parties ordered to pay more or be reimbursed by the AESO. The AUC ordered the AESO to issue final invoices to the same parties which received the original invoices for line losses during the period, January 1, 2006 to December 31, 2016.
In tariff terms, those power generators which received supply transmission service (“STS”) on the Alberta interconnected system when the charges were incurred would be the parties receiving invoices for additional line loss charges or credits for line loss charges previously paid.
The Applicants were all former holders of power purchase agreements which were surrendered to the Balancing Pool in 2016. The problem presented in 2016 was that several significant power generators surrendered their power purchase agreements and assigned their STS contracts to the government funded Balancing Pool. There was a provision in the ISO tariff which permitted assignments of STS. This provision stipulated that when such assignments take place, the ISO must apply to the account of the assignee all obligations of the assignor associated with system access service, “including any and all retrospective adjustments due to deferral account reconciliation or any other adjustments.”
Grounds of Appeal
The Applicants sought permission to appeal the Invoicing Decision on the ground that the AUC erred in law in ordering the AESO to invoice or credit those entities which held STS contracts at the time the losses occurred and not to the entities which held STS contracts at the time the invoices were ultimately issued.
Specifically, the Applicants’ proposed grounds of appeal were as follows:
(a) the AUC unreasonably declined to apply the terms of the ISO tariff in determining whom the AESO must invoice;
(b) the AUC’s interpretation of the assignment provision of the ISO tariff was both incorrect and unreasonable;
(i) incorrect in that it ignored the ordinary and plain meaning of the text of the assignment provision; and
(ii) unreasonable in that it departed from past decisions regarding the treatment of assignments under the ISO tariff. The interpretation contradicted findings the AUC made in its decision on its jurisdiction to order a remedy to correct for the payment of unlawful transmission line loss charges and it was based on unsupported findings that the interpretation argued by the Applicants would not promote fair, efficient, and open competition.
The overriding question sought to be determined by the ABCA was whether section 15(2) of the ISO tariff prevented or ought to prevent the AUC from directing the ISO to invoice prior holders of power purchase arrangements and former recipients of transmission system access service after they have assigned their power purchase arrangements and their transmission system access service agreements to another market participant.
In seeking permission to appeal, the Applicants pointed to the assignment and novation provision in the ISO tariff which was approved by the AUC and had been a part of the ISO tariff since 2003. Section 15(2) of the ISO tariff stated:
2(1) A market participant may assign its agreement for system access service or any rights under it to another market participant who is eligible for the system access service available under such agreement and the ISO tariff, but only with the consent of the ISO, such consent not to be unreasonably withheld.
(2) The ISO must apply to the account of the assignee all rights and obligations associated with the system access service when a system access service agreement for Rate DTS, Demand Transmission Service, Rate FTS, For Nelson Demand Transmission Service, or Rate STS, Supply Transmission Service, has been assigned in accordance with subsection 2(1) above, including any and all retrospective adjustments due to deferral account reconciliation or any other adjustments. [Emphasis added by the ABCA.]
In the Invoicing Decision, the AUC decided that section 15(2) of the ISO tariff did not prevent it from ordering the ISO to invoice those who held STS contracts at the time the unlawful line loss charges were assessed (i.e., the assignor, not the assignee). This determination was based on the AUC’s finding that to assess the assignee would conflict with the purposes of the Electric Utilities Act and the Transmission Regulation.
The ABCA set out the following provisions from the Electric Utilities Act and Transmission Regulation.
Section 5 of the Electric Utilities Act which sets out the purposes of the act including providing for “rules so that an efficient market for electricity based on fair and open competition can develop in which neither the market nor the structure of the Alberta electric industry is distorted by unfair advantages of government owned participants or any other participant.”
Subsections 17(a) and (d) of the Electric Utilities Act, which impose a duty on the AESO to operate the power pool in a manner that promotes the fair, efficient and openly competitive exchange of electric energy and to manage and recover the costs of transmission line losses.
Subsection 31(1)(a) of the Transmission Regulation, which authorizes the AESO to make rules to reasonably recover the cost of transmission line losses by establishing loss factors for generating units, importers and exporters based on their respective locations and their respective contributions to transmission line losses.
Finally, section 116 of the Electric Utilities Act, which makes the ISO tariff subject to regulation by the AUC and section 121 of the Act which requires the AUC to ensure, when approving a tariff, that the tariff is not unduly preferential, arbitrary or unjustly discriminatory or inconsistent with or in contravention of the Act or any other Act or any law.
Regarding sections 116 and 121 of the Electric Utilities Act, the ABCA found that these provisions provide that the AUC is the final arbiter of how the ISO tariff will be applied.
Test for Permission to Appeal
The parties agreed that the test for permission to appeal regarding these applications ought to be:
(a) whether the appeal was prima facie meritorious;
(b) whether the question of law and/or jurisdiction was of significance to the practice;
(c) whether the question of law and/or jurisdiction was of significance to the action itself;
(d) whether permitting an appeal would unduly hinder the progress of the AUC’s proceedings; and
(e) the standard of appellate review which would likely be applied if permission to appeal was granted.
The ABCA described that test under section 29 of the Alberta Utilities Commission Act as being much simpler; namely, whether there was a question of law and/or jurisdiction which merits or requires an answer from the ABCA. The ABCA found that the factors which the parties agreed ought to be considered in determining whether the test was met, while not exhaustive, were certainly relevant considerations. The ABCA confirmed, however, that other considerations might also be relevant.
Standard of Review
The ABCA suggested that the standard of review that would apply would be reasonableness. As consistently recognized by the courts, a specialized tribunal interpreting its home statute in an area that is core to its mandate is a matter which attracts a standard of review of reasonableness (citing McLean v British Columbia (Securities Commission), 2013 SCC 67 at para 21, citing Dunsmuir v New Brunswick, 2008 SCC 9 at para 54, and Alberta (Information and Privacy Commissioner) v Alberta Teachers’ Association, 2011 SCC 61 at para 34). The ABCA found that this presumption of reasonableness was even stronger when the AUC is interpreting a tariff provision which it approved in the first place.
Importance of the Question to the Parties
The ABCA noted there was potential for the transfer of tens or even hundreds of millions of dollars from one power generator or utility customer to another. However, in the ABCA’s view, it was important that no new charges were levied. Rather, the charges already levied and paid were to be distributed more fairly and in accordance with the Electric Utilities Act and Transmission Regulation.
Significance of the Question to the Practice
The ABCA found that if the Invoicing Decision was unduly preferential, arbitrary, unjustly discriminatory, or inconsistent with or in contravention of the Electric Utilities Act or Transmission Regulation, then the question could be of significance to the practice.
The unanimous view of the AUC was that this matter went on long enough. In January of 2018, AUC Chairman, the late Willie Grieve, Q.C., notified participants that the AUC would not review the impugned decisions because it would prolong market uncertainty. He expected that the permission to appeal process would proceed expeditiously.
The ABCA found that granting permission to appeal would further hinder the progress of the AUC’s proceedings. While this consideration might not be sufficient to justify a denial of permission to appeal, the ABCA acknowledged that industry participants would have to wait for the remedy to which they have been found to be entitled pending an appeal.
The ABCA found that the AUC’s proceedings, having already taken more than a decade to complete, at the very least, may be a reason to apply heightened scrutiny to the issue of whether there was a compelling question of law or jurisdiction which required a decision by the ABCA.
Did the Question Merit an Opinion from the ABCA?
The ABCA considered whether the AUC’s interpretation of section 15(2) of the ISO tariff was an unreasonable departure from past practices.
The ABCA found that the AUC not being able to dictate ultimate liability was not a reason for the AUC to refrain from making an order that was consistent with prior practice and which attempted to reward those who utilized the transmission system in a manner which reduced losses and charged those who utilized the transmission system in a manner which increased line losses.
In the Invoicing Decision, the AUC found that the ISO tariff was “subordinate to the AUC’s statutory obligation to safeguard the fair, efficient and openly competitive operation of the market and to ensure that rates are just and reasonable.”
The ABCA found that there was support in the Electric Utilities Act for the AUC’s finding that an ISO tariff provision cannot prevent it from discharging its mandate to ensure that the ISO and its tariffs and rules were consistent with the purposes and dictates of the Electric Utilities Act and that those purposes may require a finding by the AUC that a particular ISO tariff provision which it approved could not have been intended to apply in circumstances such as those which presented themselves in this case.
The ABCA found that there was little merit to the Applicants’ argument that the AUC’s decision that section 15(2) of the ISO tariff was inapplicable to the surcharges and refunds ordered as a consequence of its finding that the ISO’s line loss charges were unlawful was erroneous or unreasonable.
The ABCA found no question of law was raised by the AUC’s acknowledgment that it could only determine who to invoice, not who would bear ultimate responsibility. The question of law was whether section 15(2) prevented or ought to prevent the AUC from directing the AESO to invoice the holders of transmission system access service who paid the unlawful transmission line loss charges.
The ABCA further found that the Applicants’ argument that the AUC’s interpretation of section 15(2) of the ISO tariff promoted fair, efficient, and open competition lacked evidentiary support and failed to raise a question of law. The ABCA found that the AUC is a specialized tribunal and its views on what will or will not promote fair, efficient and open competition must be accorded great deference and can be made without direct evidence.
The ABCA denied the Applicants permission to appeal the Invoicing Decision.
The ABCA indicated there was nothing it could usefully add or correct. There was no question of law or jurisdiction which required the ABCA’s intervention.