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FortisAlberta Inc. Decision on Application for Review and Variance of Decision 25916-D01-2021 2022 Phase II Distribution Tariff Application, AUC Decision 26757-D01-2021

Link to Decision Summarized

Review and Variance – Costs

In this decision, the AUC approved the application from FortisAlberta Inc. (“FortisAB”) for review and variance (“R&V”) of Decision 25916-D01-2021 regarding FortisAB’s 2022 Phase II distribution tariff application (the “Decision”) on the grounds related to the Alberta Electric System Operator (“AESO”) contribution costs. All other grounds for review were denied.

Background

The review application concerns the hearing panel’s findings in Section 6 of the Decision regarding FortisAB’s distribution cost allocation and rate design as FortisAB’s service area overlaps with the service areas of rural electrification associations (“REAs”), who provide electrical service to their cooperative members. Specifically, FortisAB was concerned with the AUC’s findings questioning whether costs incurred by FortisAB as a result of integrated operations with REAs should be borne by their customers through the distribution tariff and how these costs should be removed from rates charged to FortisAB’s distribution customers.

The review application primarily related to findings regarding areas where FortisAB and certain REAs’ service areas overlap. FortisAB also alleged that the AUC relied on the wrong evidence when denying a proposal to reallocate shared system costs among small capacity rate classes.

Review Panel Findings

Questions of Law

Subsequent to the amendment of Rule 016: Review of Commission Decisions, errors of law can no longer provide the basis for a review application. While FortisAB raised issues as errors of fact or mixed fact and law, the review panel found that two grounds constitute allegations of errors of law, and therefore are outside the scope of Section 5 of Rule 016. The two grounds were FortisAB’s claim that the AUC acted in breach of natural justice and procedural fairness; and that the AUC failed to consider, or misinterpreted Section 122 of the Electric Utilities Act (“EUA”).

Section 2 of Rule 016

FortisAB submitted that considering the importance of the alleged errors, their implications, and their relevance to the AUC’s central ratemaking function and the overarching regulatory compact if the review panel finds that any of the alleged errors are errors of law, it should exercise its discretion under Section 2 of Rule 016 to review the Decision on its own motion.

The review panel found that the basis of the request for review based on an error of law on its own motion does not justify the exercise of its discretion under Section 2 of Rule 016. It further agreed with the submission from EQUS REA that in the circumstances of this application, it should be left to the Court of Appeal of Alberta to address errors of law.

Section 5(1)(a) of Rule 016

As a preliminary matter, the AUC held that some of FortisAB’s submissions were made on the basis that the hearing panel improperly weighed evidence. The AUC found that it was not the review panel’s task to retry the application and second guess the weight assigned to evidence by the hearing panel. FortisAB’s request to review some of the findings by the hearing panel on this bases was consequently denied.

(a)     The AUC erred in finding that it does not have authority to approve the type of costs titled ‘FortisAB costs to serve REAs under integrated operations’:

The review panel noted that going forward, consistent with Ball v Imperial Oil Resources Limited, the AUC may consider a ground alleging a failure to consider relevant evidence to be an error of law, and therefore outside the scope of Rule 016. Despite this, for the purposes of this proceeding, the review panel was prepared to consider FortisAB’s ground as an error of mixed fact and law.

The review panel found that the hearing panel did not err in its interpretation of the nature of the costs ordered removed from FortisAB’s revenue requirement. The review panel found that the hearing panel was aware of the facts and circumstances and considered FortisAB’s submissions that its distribution assets were built, and the associated costs were incurred, to serve FortisAB customers. The hearing panel therefore did not err in failing to consider FortisAB’s evidence.

FortisAB’s second claim was that the hearing panel made the errors of fact, or mixed fact and law, in finding that the proper avenue for FortisAB to recover its costs to serve REAs was under the process set out in the Roles, Relationships and Responsibilities Regulation (“3R Regulation”). The AUC disagreed.

The review panel found that FortisAB’s submission that the hearing panel should have made express reference in the Decision to the recent arbitration awarded between itself and EQUS, or to its term, to be an allegation that the hearing panel failed to address a central concern raised by the parties in its reasons. Lack of sufficiency of reasons would, if proven, be a breach of procedural fairness. The AUC noted that it has previously characterized errors in process as errors in law, and Rule 016 specifies that no review is available on errors of law. As such, these are not grounds for which review is available, and the application for review on this ground is dismissed.

With regard to FortisAB’s argument that the hearing panel ignored clear and uncontested evidence that FortisAB could only have a reasonable opportunity to recover the costs to serve REAs if such costs were confirmed to be reasonable under its own tariff, the review panel noted that this argument was made in the original proceeding and that re-arguing the same point and suggesting that different conclusions could be or should have been reached does not amount to a reviewable error.

The review panel found that FortisAB did not demonstrate that an error of fact exists on a balance of probabilities in respect of its allegation that the hearing panel failed to consider or misapprehended evidence regarding the status of the integrated operation agreement negotiation and arbitrations, as was required by Section 5(1)(a) of Rule 016. FortisAB’s request for review on this ground was therefore denied.

With respect to the unintended circumstances, FortisAB argued that the hearing panel erred when it failed to discharge its legislated duty under Section 122 of the EUA by directing FortisAB to remove from its revenue requirement an estimate of its costs to serve REAs under integrated operations for 2023. FortisAB emphasized that it is legislatively required to incur these costs to provide safe and reliable distribution service to its ratepayers. As a result of the Decision, FortisAB can no longer recover these costs within the ratemaking framework. FortisAB argued that this was not considered in the Decision.

Overall, the review panel noted that there was insufficient clarity regarding the alleged error to allow the review panel to determine if the ground alleged is an error of mixed fact and law or an error of law. With respect to FortisAB’s allegation that the hearing panel failed to consider all the evidence on the consequences of increased regulatory/business risk and capital market reactions, including expectations of higher rates of return, the review panel found that FortisAB did not demonstrate that an error of mixed fact and law exists on a balance of probabilities. FortisAB’s request for a review on this ground was therefore denied.

(b)     The AUC erred in finding that ‘even if the AUC had the authority to approve the FortisAB costs to serve REAs under integrated operations as part of FortisAB’s tariff, it would decline to do so as it would be contrary to the public interest’:

In the Decision, the hearing panel stated that even if it had the authority to include the FortisAB costs to serve REAs under integrated operations in FortisAB’s tariff, the inclusion would be contrary to the public interest.

The review panel denied FortisAB’s request for a review on this ground for two reasons. First, the review panel agreed with the position of the Utilities Consumer Advocate (“UCA”) that the hearing panel’s findings in question were obiter dicta. Given that these findings are unnecessary to the Decision, they do not constitute an error material to the Decision.

Next, it appears to the review panel that FortisAB argues, in relation to the second and third alleged errors, that the hearing panel made a finding based on no supporting evidence. These are allegations of errors of law and therefore outside the scope of Rule 016. The application for review on these grounds was dismissed.

(c)      The AUC erred in fact by relying on the wrong evidence to deny FortisAB’s proposed reallocation of shared system costs among small capacity rate classes:

FortisAB proposed to reallocate a portion of costs among its small capacity customer rate class. The hearing panel denied the proposal in Section 4.6 of the Decision. The hearing panel found that FortisAB provided insufficient evidentiary support to justify the proposed reallocation of costs between small capacity rate classes.

The review panel agreed with arguments made by FortisAB and the UCA supporting the presence of an error of fact. However, the AUC found that the error was not material to the Decision and denied a review on this ground.

(d)     The AUC erred in fact by including AESO contribution costs in the revenue removal:

FortisAB submitted that the hearing panel erred in fact in finding that it did not have authority to approve AESO contribution costs allocated to REAs, totaling $1.188 million in 2017. FortisAB submitted that the alleged error results in an internal inconsistency in the Decision, which is a material error and should be corrected.

FortisAB alleged that the hearing panel did not apply the correct legal standard to a set of facts. This indicated an error of mixed fact and law.

The review panel found that FortisAB provided sufficient evidence and rationale in the review proceeding to demonstrate that AESO contribution costs allocated to REAs could be transmission costs associated with AESO tariff amounts, and part of FortisAB’s legislated system access service (“SAS”) obligations.

The review panel was persuaded that an error of mixed fact and law where the legal principle is not readily extricable, which is material to the decision, exists on a balance of probabilities. Accordingly, a review on this ground was allowed.

In the Decision, the hearing panel noted that the cost for services provided to the REAs by FortisAB are part of FortisAB’s distribution tariff due to express statutory language.

The hearing panel denied a new section of terms and conditions of service that would allocate and recover AESO contribution costs from REAs for transmission upgrades to support REA electricity supply requirements. The review panel held that if it were to find that AESO contribution costs allocated to REAs are SAS costs, properly within FortisAB’s distribution tariff, the review panel would also have to assess who should bear these costs under the AUC’s duty to set a just and reasonable tariff. This included examining whether these costs should be flowed through to REAs.

The review panel found that the evidence demonstrated that AESO contribution costs allocated to REAs are a result of FortisAB providing SAS to REAs. The review panel determined that AESO contribution costs allocated to REAs are SAS costs and are properly part of FortisAB’s distribution tariff. As a result, the Decision will be varied accordingly.

The review panel further found that since AESO contribution costs allocated to REAs result from FortisAB arranging for the provision of SAS to REAs, it is just and reasonable for these costs to be flowed through to REAs, just as other SAS costs are because REA members obtain SAS through FortisAB.

Decision

The AUC allowed the application for review and variance of Decision 25916-D01-2021 to the extent it related to the AESO contribution costs and varied the hearing panel’s findings in the Decision.

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