Retroactive Ratemaking – Exception
In this decision, the AUC approved the existing water services rates of Sage Water Services Corp. (“Sage Water”), as interim rates, effective November 19, 2020.
Introduction and Background
On June 28, 2019, the AUC received an application from Sage Water requesting approval for final water rates. Sage Water indicated that it operates an investor-owned potable water utility with a small customer base. Sage Water had not previously applied for or received Commission approval of water rates charged to its customers. Sage Water subsequently filed a second application on July 31, 2019, requesting approval of interim water rates effective July 1, 2019. In both applications, Sage Water proposed to change the rate structure from a flat monthly fee to one that is based on a combination of a fixed fee and a variable fee based on consumption. On August 21, 2020, Sage Water filed a revised application with the AUC for approval of interim water rates effective July 1, 2019, through March 31, 2023.
On October 16, 2020, the AUC issued a ruling that Sage Water is an “owner of a public utility” for purposes of the Public Utilities Act and subject to the authority of the Commission.
Sage Water provides water service to the Prince of Peace Lutheran School, the Prince of Peace Harbour, the Prince of Peace Manor and the Prince of Peace Condominium Village (the “Village”), located in Rocky View County (“RVC”), on the east side of Calgary, Alberta.
Interim Water Rates and Effective Date
Sage Water submitted that it had been operating at a loss since July 1, 2019, and that operating losses and subsequent operating cash shortfalls were wholly covered by Sage Properties.
Sage Water proposed the interim water rates proposed to reduce the operating losses provisionally until a water line to connect the area to the RVC water reservoir located in Conrich, Alberta, could be constructed and an agreement could be reached with RVC to bill customers directly for water. Sage Water expects the water line to be constructed by December 2021 or earlier.
The AUC noted the rule against retroactive ratemaking. Utility regulators cannot retroactively change, or substitute a rate previously charged. Courts have found limited exceptions to the rule against retroactive ratemaking, namely: interim rate orders, deferral accounts, null decisions, knowledge and misconduct. The AUC noted that with the possible exception of knowledge, none of those circumstances are present here.
The knowledge exception to the rule against retroactive ratemaking applies where the parties that would be subject to a rate that would otherwise be considered a retroactive rate, had knowledge that the rate may change. The notice of application for Sage Water’s interim rates proceeding was issued on September 24, 2020. The AUC stated that this was the earliest date that Sage Water’s ratepayers arguably had knowledge that Sage Water’s rates may be subject to change. However, this date preceded October 16, 2020, the date on which the AUC confirmed that Sage Water is a public utility subject to the jurisdiction of the AUC. Given the short period between October 16, 2020, (the date by which there was both notice and jurisdiction), and the date on which this decision was issued, the AUC considered it reasonable that Sage Water’s interim water rates will come into effect on November 19, 2020. Sage Water was directed to apply the approved interim rates effective that date.