Markets – Enforcement
Application
AUC enforcement staff (“Enforcement Staff”) filed an application with the AUC alleging that Salt Box Coulee Water Supply Company Ltd. (“Salt Box”), a public utility pursuant to the Public Utilities Act (“PUA”), committed two contraventions of Decision 24295-D02-2020 (the “Decision”).
Decision
The AUC found that Salt Box committed the two alleged contraventions of the Decision by:
- Failing to file audited financial statements contrary to the AUC’s direction in the Decision despite having collected funds from its customers for this purpose (“Contravention 1”); and
- Charging monthly fees and rate riders to unconnected lot owners contrary to the rates and Terms and Conditions (“T&Cs”) of service approved in the Decision (“Contravention 2”).
The AUC held that it will consider penalties for these contraventions during a second phase of this proceeding, in which it will receive further submissions to determine the appropriate relief.
Pertinent Issues
Salt Box owns and operates a water utility that serves customers in four subdivisions west of Calgary. The water utility is a “public utility” as defined in the PUA, making Salt Box an “owner of a public utility” as defined in the PUA. As a result, the AUC has authority to fix Salt Box’s just and reasonable rates, and T&Cs.
The Enforcement Staff filed this application after investigating Salt Box. This investigation was promoted by a series of complaints from residents in communities served by Salt Box about the fees they were being charged and a referral from the AUC advising that Salt Box had failed to file audited financial statements for 2020, as directed by the AUC in the Decision.
Contravention 1: Did Salt Box fail to file audited financial statements contrary to the Commission’s direction in Decision 24295-D02-2020?
In the Decision, the AUC directed Salt Box to provide the AUC and interveners with audited financial statements for its most recent fiscal year (which was 2020) by November 1, 2021, as a post-disposition document. The AUC also approved the establishment of an audit rate rider allowing Salt Box to collect the audit cost from its customers in the amount of $15,000. Salt Box requested, and the AUC approved, a deadline extension for completing the audit to December 7, 2021, which deadline Salt Box failed to meet.
In this Phase 1 proceeding Salt Box did not deny that it failed to file audited financial statements with the AUC and, instead, described the challenges it encountered in trying to comply with this direction. As a result, the AUC found that Salt Box failed to file audited financial statements contrary to the AUC’s direction in Decision 24295-D02-2020 and concluded that Contravention 1 was proved on a balance of probabilities.
Contravention 2: Did Salt Box charge monthly fees and rate riders to unconnected lot owners contrary to the rates and terms and conditions of service approved in Decision 24295-D02-2020?
The AUC was of the view that Contravention 2 contained two components: (i) did Salt Box charge monthly fees to unconnected lot owners; and, (ii) if yes, whether charging monthly fees and rate riders to unconnected lot owners was contrary to the T&Cs of service approved in Decision 24295-D02-2020. The AUC clarified that, for the purposes of this decision, it used the term “unconnected lot” to refer to a parcel of land without an established service connection to Salt Box’s water distribution system, resulting in the unconnected lot being unable to take delivery of water on demand.
Charging Fees to Unconnected Lot Owners
Enforcement Staff alleged that Salt Box charged certain customers fees for the time period prior to connecting to the Salt Box water system or charged lots that were never connected, providing invoices issued by Salt Box in support of these allegations.
Salt Box did not dispute that it issued the invoices in question, including the fact that it charged some lots for the period prior to connecting and that it also charged fees to unconnected lots. Based on this, the AUC found that Salt Box charged monthly fees and rate riders to the unconnected lot owners.
Is Charging Fees to Unconnected Lot Owners Contrary to Decision 24295-D02-2020?
Enforcement Staff submitted that it was unlawful for Salt Box to charge any fees or riders to an owner of an unconnected lot because an owner of an unconnected lot did not receive “water service” and was, therefore, not “a customer” as defined in Decision 24295-D02-2020.
In response, Salt Box did not argue that an owner of an unconnected lot meets the definition of “customer” but asserted that it was reasonable for unconnected lot owners to pay fees because these fees secure prospective “water availability” access for lot owners.
The AUC reviewed the relevant T&Cs, examined whether the owner of an unconnected lot is a customer within the meaning of Decision 24295-D02-2020 and the T&Cs, and assessed whether there were other reasons that would allow Salt Box to charge fees to owners of unconnected lots within its service area.
After considering the T&Cs in their entirety, and in light of the larger regulatory context, the AUC was satisfied that owners of unconnected lots are not “customers” of Salt Box, and that Salt Box was not authorized to charge any rates or fees to those persons. In addition, a review of the T&Cs as a whole did not reveal any indication that a “water availability” charge (or other charge to unconnected customers for the right to access the system in the future) was contemplated by the panel in Proceeding 24295.
In the AUC’s view, Decision 24295-D02-2020 strongly suggested an intent to calculate and apply rates to reflect the number of individuals actually receiving a supply of potable water, which was consistent with an interpretation of the T&Cs that excludes unconnected lots from the definition of “customer.”
The AUC concluded that, since the T&Cs did not authorize Salt Box to charge any fees to unconnected owners, there were no other reasons that would allow Salt Box to charge fees to owners of unconnected lots within its service area. The AUC dismissed Salt Box’s arguments that its water licence is a commodity that could be sold at a market value by observing that, Salt Box, as a public utility, is subject to the PUA. Public utilities are subject to regulation because they are monopoly providers of an essential public service and some of the purposes of regulation are to ensure that a public utility cannot refuse to serve customers, and cannot charge unjust or unreasonable rates for the service it does provide. As the owner of a regulated public utility, Salt Box cannot conduct its operations as though it sells water in a purely competitive environment.
The AUC concluded that charging monthly fees or rate riders to unconnected lot owners is contrary to Decision 24295-D02-2020 and the T&Cs.
Remedy for the Contraventions Found in this Decision
A second phase of this proceeding will follow to determine what sanctions Salt Box shall face for contravening the Decision. The AUC requested that Enforcement Staff file its Phase 2 application on the record of this proceeding within 60 days of the release of this decision. Further, as set out in Decision 28021-D01-2023, Salt Box was prohibited from charging monthly fees or rate riders to owners of unconnected lots. Accordingly, the AUC will consider whether Salt Box’s rates require adjustment in a future proceeding, subject to Salt Box first providing its 2020 audited financial statements.
