Permission to Appeal – Cost Claim
FortisAlberta Inc (”Fortis”), a public utility, applied for permission to appeal from a decision of the AUC dated April 17, 2020. The ruling related to what were said by Fortis to be costs claims that were properly to be included in a distribution tariff presented for approval to the AUC by Fortis.
In that decision, the AUC found that it did not have the statutory authority to approve, under the Phase II Distribution Tariff Application (“DTA”) process followed by Fortis, a form of “recovery” by Fortis of what was described by Fortis as “integrated distribution system costs”. The AUC mentioned that those costs were also described by Fortis with the more elaborate name “REA (Rural Electrification Association) Wire Owner — Integrated System Charges.” The costs in question (the “Disputed Costs”) were said by Fortis to arise for Fortis in their overlapping and linked operations with each rural electrification association (”REA”).
The respondents argued that the Legislature established and has maintained as the structure for intervention and reconciliation respecting overlapping costs as between a public utility like Fortis and each REA what are called “integrated operations agreements” (”IOAs”) under the Electric Utilities Act and the Roles, Relationships and Responsibilities Regulation (”3R Regulation”) under that Act. The respondents further submitted, and the AUC agreed, that the Disputed Costs are covered by the IOAs and that is the exclusive arrangement within which to address them. The IOAs are subject to an arbitration process — a process which, the Court noted, appears to be by consensus even more flexible than what is set out in the 3R Regulation.
Fortis requested permission to appeal on the following question:
Did the AUC err in ruling that it does not have the authority to approve the recovery of the Distribution Costs that [Fortis] proposed to allocate to, and to recover from, REAs?
The Court stated that Fortis argued that it needed guidance from the Court about the meaning of the relevant legislation, asking the Court to provide “clarity” so that all participants in the DTA would better understand the criteria for determining what sort of costs are eligible under the DTA process. Put another way, the inclusion of the Disputed Costs in the DTA process would, in Fortis’ submission, mean that the expert and impartial AUC would be able to ensure that a consistent and balanced approach to address tariff items would exist across the board. Fortis further stated that the AUC is well equipped and informed to determine what are just and reasonable rates. The AUC would, under this approach, not merely determine the eligibility of costs and expenses for Fortis as a public utility vis-à-vis its customer base, but could also address the universe of Fortis costs including those related to the relationship between Fortis with each REA.
Fortis filed its DTA under s 102(2)(a) of the Electric Utilities Act on January 17, 2020.
Section 102(1) and (2) of the Electric Utilities Act reads as follows:
102(1) Each owner of an electric distribution system must prepare a distribution tariff for the purpose of recovering the prudent costs of providing electric distribution service by means of the owner’s electric distribution system.
(2) The owner of the electric distribution system must apply for approval of its distribution tariff
(a) to the Commission,
(b) to the council of a municipality, if the owner is a municipality or a subsidiary of a municipality
(i) that does not have an affiliated retailer that provides retail electricity services outside the service area of the municipality, and
(ii) that does not provide electric distribution service outside the service area of the municipality either on its own behalf or on behalf of another owner,
(c) to the board of directors of the association, if the owner is a rural electrification association. [Emphasis added.]
The Court noted that in the words of s 102, the DTA was to have largely focused on what Fortis should be allowed to recover for “prudent costs” for providing electricity services provided by it by means of its “electric distribution system”. Fortis and the REAs, strongly differed on whether s 102(2)(a) is intended to allow the AUC to authorize Fortis to “recover” from anyone but its “customers”.
The Court wrote that the REAs argued that the Legislature has maintained as the structure for intervention and reconciliation respecting overlapping costs via the arrangements for creation and review of the IOA under the Electric Utilities Act and the 3R Regulation. They argued that the proposed extension of the authority for the AUC to being one that could summarily override what the IOAs say or do not say on this topic, is not only unnecessary, it would undermine the purpose and effectiveness of the IOAs and the 3R Regulation and render the role of arbitrators nugatory.
The Court noted that another key legislative feature is section 122(1) of the Electric Utilities Act which guides the AUC in assessing a tariff including a distribution tariff and which provides in part as follows:
Costs and expenses recovered under a tariff
122(1) When considering a tariff application, the Commission must have regard for the principle that a tariff approved by it must provide the owner of an electric utility with a reasonable opportunity to recover
(b) other prudent costs and expenses associated with isolated generating units, transmission, exchange or distribution of electricity or associated with the Independent System Operator if, in the Commission’s opinion, they are applicable to the electric utility,
(h) any other prudent costs and expenses that the Commission considers appropriate, including a fair allocation of the owner’s costs and expenses that relate to any or all of the owner’s electric utilities.
Decision of the AUC
In its reasons, the AUC noted Fortis’ submissions regarding broad jurisdiction given to the AUC under s 85(1) of the Public Utilities Act, RSA 2000, c P-45, and ss 8 and 11 of the Alberta Utilities Commission Act. It also noted Fortis’ argument grounded on s 122 of the Electric Utilities Act as to what would constitute legitimate expenses including under the basket clause of s 122(1)(h) of that Act.
After describing the developments respecting the EQUS-Fortis IOA, and considering the overall scheme, the AUC concluded that the 3R Regulation and the IOAs were the proper locations for reconciliations about shared costs between each REA and Fortis:
39 While the word “cost(s)” is not in the Roles, Relationships and Responsibilities Regulation, 2003, the Commission considers that “an agreement between owners respecting the integrated operation of their electric distribution systems in a single geographic region,” on a plain and ordinary reading, read in its entire context, and consistent with the scheme of the relevant acts and regulations, includes any costs or charges associated with that integrated operation. This is supported by a review of the legislative scheme, the absence of the phrase “integrated operation agreement” in the Electric Utilities Act, as well as the provisions in the IOAs themselves, in which the parties agreed (or the arbitrator approved) provisions addressing costs.
The AUC went on to quote provisions of the EQUS-Fortis IOA and noted again the pendency of arbitration as to that IOA on the very subject of cost allocation. The AUC also found that EQUS REA Ltd. was not a “customer” of Fortis as defined in s 1(1)(h) of the Electric Utilities Act which reads: “‘customer’ means a person purchasing electricity for the person’s own use”. Explaining this conclusion, the AUC noted the link of that language to provisions dealing with an “electric distribution system” and “electric distribution service”. The latter “service” under the definition in the Electric Utilities Act meant the service required to transport electricity to “customers” or from a generation facility to the interconnected system by means of an “electric distribution system”.
The Court noted that the AUC effectively found that the Legislature had disposed of the idea that a distribution tariff for Fortis could include costs it claimed to incur as a result of its contractual relationships with the REAs who were not customers. The AUC also found that the language of s 122 of the Electric Utilities Act did not cover the new form of cost claim pressed by Fortis. As a result, the AUC found that it did “not have the authority to approve the applied-for allocated distribution costs as part of Fortis’s distribution tariff”.
The Court noted that Fortis submissions as to the prima facie merits included that, as background to its complaint to the AUC, that it was being forced to contribute more than its share to the costs of operations provided in service areas covered by each REA and linked to Fortis. Fortis alleged that each REA utilized the Fortis electricity distribution system more than Fortis used the respective REA system. Fortis said that this inequity was reflected in the inability of Fortis to charge the REAs for their unrequited share of the Disputed Costs.
The Court wrote that Fortis contended that the AUC had jurisdiction under the distribution tariff process to make an authoritative statement somehow leading to making each REA contribute to Fortis for the Disputed Costs arising from the REA being interconnected with the Fortis system. On this premise, the shared costs suffered by each REA would then presumably be passed through to customers of each REA. Fortis further suggested that this would mean that those customers would then ultimately be paying a more accurate share of the costs of their electrification services and would be more equitably sharing common costs with Fortis customers. To avoid ‘tariff shock’ for REA customers, Fortis did not propose to phase in 100% of the thus newly recognized shared costs.
The Court noted the REAs’ argument that Fortis’ submission in its DTA imagined a novel AUC authority which would upset the longstanding status quo governed by the IOA arrangements. The REAs argued that Fortis was proposing the creation, without the blessing of clear legislative approval, of an overarching AUC power to impose terms such as would otherwise be negotiated within IOAs or arbitrated. The REAs further argued that Fortis had to persuade AUC of the validity of this theory and Fortis failed to do so. The Court noted that this position for the respondents was compelling.
The Court wrote that the REAs did not dispute that Fortis can try to persuade AUC to approve a tariff which Fortis considers reasonable for Fortis to operate viably and profitably, viz “prudent costs”. But they argued that the DTA process ultimately provides Fortis the opportunity to validate its own tariff to recover prudent costs from its own customers. The REAs noted that they are not customers of Fortis. Put another way, the REAs argued that the Fortis approach here is a semantical sleight of hand asking the AUC to re-balance expenses as between electricity suppliers without deferring to the IOA contracts and the 3R Regulation.
In the Court’s view, it was not arguable that the AUC was incorrect in attaching significance to the fact that the REAs were not customers of Fortis or that the AUC misconceived the indicia from the legislation about where to find the harmony in and between the statutes and the 3R Regulation.
The application for permission to appeal was dismissed.