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Office of the Utilities Consumer Advocate Decision on Preliminary Question Application for Review of Decision 26212-D01-2021 2022 Generic Cost of Capital, AUC Decision 26508-D01-2021

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Review and Variance

In this decision, the AUC denied the application from the Office of the Utilities Consumer Advocate (“UCA”) to review and vary Decision 26212-D01-2021 (the “Original Decision”). The Original Decision approved the return on equity (“ROE”) and set the deemed equity ratios for specific Alberta utilities.


The UCA was an intervener in proceeding 26212-D01-2021 in which a ROE of 8.5 per cent and a deemed equity ratio of 37 per cent (39 per cent for Apex Utilities Inc.) was approved for 2022 on a final basis.

In this decision, the members of the AUC panel who authored the original decision are referred to as the “Hearing Panel”. The members of the AUC panel considering the review application are referred to as the “Review Panel”. In this proceeding, the Review Panel considered the preliminary question of whether there are grounds to review the original decision.

In its application, the UCA argued that an error of fact, law or jurisdiction is either apparent on the face of the decision or otherwise present on a balance of probabilities that required that the AUC materially vary or rescind Decision 26212-D01-2021. The UCA also argued that circumstances material to the decision had changed and could require the AUC to alter its decision. The AUC did not find that there was an error of fact, law or jurisdiction and was further not convinced that circumstances material to the decision had changed, requiring a variance.

Procedural Fairness

The UCA alleged that the process followed by the Hearing Panel was procedurally unfair. The UCA argued that it had a legitimate expectation that (i) it would be allowed to put in proper evidence, and (ii) parties would be able to test and reply to the evidence filed by others.

The Review Panel noted that the responsibility for determining a fair ROE, as was the goal in Decision 26212-D01-2021, lies solely with the AUC. Accordingly, that AUC is required to give notice to, and hear from, interested parties. It is not required to follow the same process in arriving at its final determination in every proceeding. The AUC can adopt a process that it considers best suited to the circumstances of the proceeding.

The Review Panel noted that the Original Decision lists several different approaches that have been used over the years to determine a fair ROE. The Review Panel found there was an insufficient basis for the UCA to form a legitimate expectation regarding the process followed by the AUC.

In the Original Decision, the Hearing Panel adopted a menu-based approach. This differed from previous methods precisely because of the extensive dislocations to general economic activity, significant uncertainties of key economic indicators caused by the pandemic, and unprecedented government/initiated responses. Accordingly, the Review Panel did not see a reasonable basis for any party to claim that it had legitimate expectations that any one process would be followed in preference to another. This is especially the case as no single process had been followed in every proceeding before the pandemic arose and began disrupting many types of commercial and institutional activities worldwide.

The UCA argued that the Hearing Panel’s process was unfair as it represented, through both its express words and by implication, that further process would be established prior to issuing a determination. The Review Panel disagreed; it found that any uncertainties that may have arisen from the early proceeding letters were later clarified and disposed of as the hearing panel issued its letter acknowledging submissions of parties.

The Review Panel also found that the UCA’s claim that its legitimate expectations of being able to (i) submit “proper” evidence and (ii) test and reply to the evidence of other parties as part of a comprehensive generic cost of capital (“GCOC”) proceeding were ignored (or otherwise unfairly denied) by the Hearing Panel was without basis. The Review Panel determined that the Hearing Panel was aware of the facts and issues affecting the fair return that is set in the ROE and the deemed equity ratio. The Review Panel determined that there was no basis to depart from the currently approved ROE and equity thickness.

The Review Panel found that the Hearing Panel allowed parties an opportunity to make adequate representations in writing when it invited both substantive and process comments. Further, there was no prohibition on providing evidence.

With regard to UCA arguments regarding no right of reply, the Review Panel noted that the Hearing Panel notified all parties of their opportunity to comment, but no party had a right to reply. The Review Panel determined that the Hearing Panel’s procedural decision that it possessed all the information it required to determine whether to extend the currently approved parameters without further process was fair. Accordingly, the AUC did not find an error of law on the basis of procedural fairness.

Grounds Related to Fact

The UCA alleged that the Hearing Panel’s conclusions in the original decision relied on a material error of fact. Specifically, that market data remains in a state of flux and that the Hearing Panel’s finding that the evidence would be clouded by an “unusual degree of uncertainty” was premised on an incorrect and misleading interpretation of a disclaimer by the Bank of Canada.

The Review Panel found that the Hearing Panel’s determination regarding evidence filed was not based on an incorrect interpretation of the Bank of Canada evidence. The Review Panel found that that the UCA did not demonstrate the existence of an error as required for a review and variance.

Changed Circumstances

The UCA submitted that there is now evidence that markets are stabilizing and that uncertainties that may have existed at the time of the original decision will not persist through 2022. In arguing this, the UCA relied on information from the Bank of Canada from March and April of 2021. The UCA argued that if conditions are stabilizing, the rationale for declining to hold an intensive GCOC process is no longer applicable.

The Review Panel found that publications cited by the UCA indicated that uncertainty remains elevated and that pandemic-related uncertainty persists. Further, the sections relied upon, and the included statement regarding a possible third wave of infections brought a new dimension of uncertainty. The Review Panel found that the UCA did not demonstrate the existence of changed circumstances material to the decision, which occurred since its issuance, that could lead the AUC to materially vary or rescind the original decision.

Grounds Related to Errors of Law or Jurisdiction

The UCA argued that while the AUC is required to consider capital attraction, financial integrity, and comparable investments when determining a fair ROE, the Hearing Panel in the original decision was guided by different factors: the unsettled nature of capital markets; the need for certainty and stability; and regulatory efficiency. The UCA argued that the factors relied upon are irrelevant to determining a fair ROE.

The Review Panel noted that the menu-based approach, which was adopted by the AUC after it determined that the pandemic rendered the prior, more intensive approach impractical, if not unfeasible, resulted in an extension of the approved 2020 return and equity ratios to the end of 2021. The Review Panel also noted that there is no prescribed approach or methodology to set a fair return, which the UCA does not dispute. The Review Panel found that the Hearing Panel did not apply an incorrect legal test, and there was no error of law or jurisdiction.

The UCA also submitted that the hearing panel failed to consider any supporting evidence in making the original decision. It argued that an error of law existed because, while a few parties commented on current and future economic conditions, there was no evidentiary support provided for these comments. In the alternative, if the comments are evidence, such evidence was neither questioned nor tested and was insufficient to support the decision.

The Review Panel found that there was relevant evidence on the record. The AUC can consider all evidence that is relevant. The AUC is not obliged to consider the same evidence in each proceeding. The AUC also noted that as an expert tribunal, it is not limited to considering only the evidence brought by parties.

The UCA argued that the Hearing Panel erred in extending the previously approved ROE and equity ratios to the end of 2022 without conducting a full proceeding. It argued that this amounted to a refusal to exercise the statutory mandate given to the AUC by the Gas Utilities Act, Electric Utilities Act, and Public Utilities Act.

The Review Panel noted that even in prior GCOC proceedings that followed an intensive process, the AUC had accepted the parameters of the prior term as a point of departure for the next term. In those previous proceedings, after finding that some indicators signaling upward pressure on parameters were offset by other indicators signaling downward pressure, they simply maintained the status quo. The Review Panel concluded that the Hearing Panel properly exercised its statutory obligation using an abbreviated process. The abbreviated process was justified in the circumstances.

The application for review was dismissed.

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