Tariffs – Cost Allocation
In this decision, the Alberta Court of Appeal (“ABCA”) considered the applications from FortisAlberta Inc. (“FortisAB”), EQUS REA Ltd. (“EQUS”), and the Alberta Federation of Rural Electrification Associations (“AFREA”) for permission to appeal AUC Decision 25916-D01-2021 regarding FortisAB’s 2022 Phase II distribution tariff application.
The ABCA granted permission to appeal to EQUS and FortisAB. The application from the AFREA was denied. Granting the application from the AFREA would have resulted in the duplication of questions. The ABCA noted that the AFREA has the option to participate in the appeals as an intervener.
The central issues identified by the AUC in Decision 25916-D01-2021 (the “Decision”) and the issues raised in the applications filed in this proceeding were:
(a) whether FortisAB’s proposed distribution cost allocation and resulting percentages provide for a just and reasonable allocation of FortisAB’s distribution costs among its customer rate classes and Rural Electrification Associations (“REAs”) interconnected with its distribution system;
(b) whether there are costs FortisAB incurs as a result of integrated operations with REAs that should not be borne by FortisAB’s customers through its distribution tariff; and
(c) if confirmed, when and how these costs should be removed from the rates charged to FortisAB’s distribution customers.
In the Decision, the AUC approved FortisAB’s proposed allocation of distribution costs comprising its revenue requirement but held that FortisAB could not recover distribution costs associated with the REAs from their customers. The AUC determined that it does not have the authority to approve distribution costs associated with the REAs. The AUC consequently directed that the REA-related costs must be removed from the rates charged to FortisAB’s distribution customers at the time of its 2023 application.
Proposed Grounds of Appeal
FortisAB’s proposed grounds of appeal were that:
(a) the AUC erred in law or jurisdiction in finding that it does not have authority to approve the REA-related costs for recovery from FortisAB’s own customers under its tariff; and
(b) the AUC erred in law or jurisdiction in finding that even if it had the authority to approve the FortisAB REA-related costs, it would decline to do so as it would be contrary to the public interest.
EQUS’ proposed grounds of appeal were that:
(a) the AUC erred in law or jurisdiction in determining and approving FortisAB’s calculation of its costs of integrated operations with REAs; and
(b) the AUC erred in law or jurisdiction in ordering that a portion of FortisAB’s costs of providing electric distribution service be allocated to and recovered from REA members and that a portion of REA costs of providing electric distribution service to their members be allocated to and recovered from FortisAB’s customers.
The AFREA‘s proposed grounds of appeal were that:
(a) the AUC erred in law or jurisdiction in interpreting the relevant statutory authorities and failed to respect the negotiation and arbitration processes set out in the Roles, Relationships and Responsibilities Regulation;
(b) the AUC erred in law or jurisdiction in failing to observe the requirements of procedural fairness by allowing untested facts and improperly limiting argument during the hearing; and
(c) the AUC erred in law or jurisdiction by deciding an issue which was res judicata.
The ABCA held that the applications of FortisAB and EQUS underscore that the AUC’s decision is capable of being interpreted in many ways and has raised concerns leading to uncertainty as to what was determined, what was intended, the impact going forward and, most importantly, whether it was within the jurisdiction of the AUC.
FortisAB argued that the Decision contradicts subsection 122(2) of the Electric Utilities Act (“EUA”), as it does not provide for a reasonable opportunity to recover prudently incurred costs and expenses associated with invested capital. FortisAB also submitted that the alternative method of doing so suggested in the Decision – arbitration -was a meaningless exercise.
EQUS submitted that the decision to allow some of the FortisAB costs to be included is beyond the jurisdiction of the AUC and in direct contradiction to the AUC’s April 2020 decision, where it held that it did not have the authority to approve the REA Charge as REAs are not “customers” under the EUA and that such charges could be addressed through integrated operations agreements or arbitration with the REAs. EQUS argued that costs related to integrated operations are properly dealt with in accordance with the negotiation and arbitration processes in the Roles, Relationships and Responsibilities Regulation.
EQUS supported FortisAB’s application but sought to broaden the questions to include whether the AUC has any jurisdiction to consider the costs of integrated operations between the electrical utility and an REA.
The ABCA found that the issues raised by FortisAB and EQUS meet the requirements of the test for permission to appeal. The issues raised are of significance to the parties and to the practice and raise arguments that could benefit from appellate review and comment. Permission to appeal was granted to both FortisAB and EQUS on their proposed grounds of appeal.
As the grounds proposed by the AFREA were covered by those put forward by EQUS, the ABCA found it unnecessary and duplicative for the AFREA to have permission to appeal in its own right. The ABCA however noted that if the AFREA wishes to participate in the appeal, it could do so as an intervener.