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Rural Electrification Associations

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In this decision, the AUC granted FortisAlberta’s requested alterations to rural electrification associations (“REAs”) service areas that overlapped with the municipal franchise areas granted to FortisAlberta. However, the AUC decided not to order an immediate transfer of existing REA facilities and customers in the annexed (formerly overlapping) areas in the absence of a municipal bylaw requiring those customers to connect to FortisAlberta. In the AUC’s view, in the absence of such a bylaw, existing REA facilities in the formerly overlapping areas would eventually transition to FortisAlberta because of the altered service areas.

Legislative Scheme

The AUC explained that the municipalities’ authority, including that relating to the purported grant of exclusivity in the MFAs, was conferred under the provisions of the Municipal Government Act (“MGA”). The AUC’s authority relating to the approval of such agreements is founded in the provisions of the Electric Utilities Act (“EUA”), and its authority relating to service area designations is conferred by the provisions of the HEEA.

Municipalities’ authority to govern

The AUC provided an overview of the following relevant provisions of the MGA dealing with municipalities’ authority to govern:

• MGA section 3 sets out the purposes of a municipality, including subsection 3(b): “to provide services, facilities or other things that, in the opinion of council, are necessary or desirable for all or a part of the municipality.”

• MGA sections 5 and 6 set out the general powers, duties, and functions of a municipality.

• MGA section 7 provides the municipal council its general jurisdiction to pass bylaws, including with respect to:

(a) the safety, health and welfare of people and the protection of people and property;

…

(f) services provided by or on behalf of the municipality; and

(g) public utilities.

• MGA section 8 sets out further specific municipal powers under bylaws.

• MGA section 9 provides guidance in interpreting the broad power to pass bylaws, including:

  • to give broad authority to municipal councils and to respect their right to govern in whatever way they consider appropriate; and

  • enhance the ability of councils to respond to present and future issues in their municipalities.

Municipalities’ authority relating to non-municipal utility service

Section 45 of the MGA allows a municipality to, by agreement, grant a right to provide a “utility service” within the municipality.

Where a utility service is provided under section 45 of the MGA, section 46 authorizes a municipality to prohibit other persons from providing the same or a similar utility service.

Section 1(1) of the MGA defines “public utility” as follows:

1(1)(y) “public utility” means a system or works used to provide one or more of the following for public consumption, benefit, convenience or use:

…

(vii) electric power;

…

and includes the thing that is provided for public consumption, benefit, convenience or use;

The AUC explained that the definition of “public utility” in Section 1(1) of the MGA applies throughout the MGA. Division 3, Section 28 defines the following terms for the purposes of that division only:

28 In this Division,

(b) “municipal public utility” means the system or works of a public utility operated by or on behalf of a municipality or a subsidiary of a municipality within the meaning of section 1(3) of the Electric Utilities Act other than under an agreement referred to in section 45;

(c) “municipal utility service” means a utility service provided by a municipal public utility;

(d) “non-municipal public utility” means the system or works of a public utility operated by or on behalf of a person under an agreement referred to in section 45;

(f) “utility service” means the thing that is provided by the system or works of a public utility.

Commission’s Authority Relating to Municipal Grants of Rights to Distribute Electricity

MGA section 45 allows a council to grant a right to a person to provide a utility service in the municipality for up to 20 years. Under MGA Section 45(3), before such an agreement is made, amended or renewed, it must be approved by the AUC.

Section 139 of the EUA likewise provides that the right to distribute electricity granted by a municipality has no effect unless approved by the AUC, except where made to a municipal subsidiary.

Subsection 139(2) of the EUA provides that the AUC may approve the granting of such a franchise where the AUC “… determines that the grant is necessary and proper for the public convenience and to properly serve the public interest.”

Section 140 of the EUA places specific limits on the Commission’s approval of grants under Section 139, namely:

140 The Commission shall not approve a grant under section 139 unless

(a) it is a term of the grant that the grant does not prevent the Crown from exercising that right,

(b) the person seeking the grant has satisfied the Commission that the proposed scheme for the distribution of electricity is reasonable and sufficient, having regard to the general circumstances, and

(c) the Commission is satisfied that the grant is to the general benefit of the area directly or indirectly affected by it.

Service area boundaries

Section 101 of the EUA grants an exclusive right to the owner of an electric distribution system in whose service area a property is located to serve persons wishing to obtain electricity for use on their property.

Under section 29(1) of the HEEA, the AUC has authority to alter the boundaries of an electric distribution system service area “… when in its opinion it is in the public interest to do so.”

Subsections 29(2) and 29(3) of the HEEA impose constraints on the Commission’s authority to alter service area boundaries where the owner of the electric distribution system is a local authority. The Commission cannot reduce the service area of a local authority without its consent, and it must grant an application to enlarge the service area unless it finds compelling reasons in the public interest not to do so.

Section 26 of the HEEA authorizes the Commission to approve the operation of an electric distribution system in the service area of another electric distribution system in certain circumstances, as follows:

26 Notwithstanding section 25, the Commission may approve the construction or operation of an electric distribution system in the service area of another electric distribution system if the Commission is satisfied that it is for the purpose of providing service to a consumer in that service area who is not being provided service by the distribution system approved to distribute electric energy in that service area.

Section 32 of the HEEA sets out the Commission’s authority to, among other things, order the transfer of facilities associated with an REA’s electric distribution system where that REA has its service area reduced by an order under section 29.

Contract Law Principles Not Determinative

The AUC rejected arguments that contract law principles and more particularly, the provisions of the wire owner agreements entered into by REAs and FortisAlberta, were determinative of this application.

The AUC explained that:

(a)     section 7 of the Roles, Relationships and Responsibilities Regulation (the “Regulation”) provides the framework to facilitate the overlapping provision of electric distribution service to customers in a single geographic region;

(b)     the Regulation provides that owners of electric distribution systems with overlapping service areas, such as FortisAlberta and an REA, must integrate operations under a contract; and

(c)     the Regulation creates a legislatively mandated contract that must be in place between owners of electric distribution systems if they operate in overlapping service areas.

In this case, the AUC found that there was nothing in the Regulation that ousted or limited the AUC’s statutory responsibility to determine an application made under section 29 of the HEAA based on public interest considerations. Parties cannot contract out of legislation, and more particularly cannot, by agreement, preclude or limit the AUC’s consideration of the public interest in its determination of an application made under section 29 of the HEEA.

The AUC concluded that the terms of relevant agreements might be a factor considered by the AUC in its assessment of the public interest, but are not determinative of that assessment.

Public Interest Considerations

Under HEEA section 29, the AUC may alter the boundaries of the service area of an electric distribution system or order that an electric distribution system cease to operate in a service area when, in its opinion, it is in the public interest to do so.

The AUC determined that the alteration of the REA service areas as requested by FortisAlberta was in the public interest. This was because, in the AUC’s opinion, granting the applied-for alteration of boundaries:

(a)     harmonized the service areas to reflect the boundaries governed by the MFAs and was consistent with the AUC’s previous approval of those agreements;

(b)     best supported the public policy objective of avoiding unnecessary duplication of facilities;

(c)     was most consistent with the legislated purpose of municipalities and REAs; and

(d)     best supported or gave effect to the broad public policy goals of the MGA as a whole and the intent of the legislature in establishing and empowering municipalities.

The AUC explained that its determination of the public interest in any proceeding is dependent on the specific circumstances. In this case, the AUC took guidance from Decision 2012-181 and Decision 2009-062, in which it articulated the public interest test in similar circumstances. The AUC found the following considerations relevant to its general public interest determination:

(a)     whether the application is in the public interest by having regard to its social and economic effects; and

(a)     assessment of the public interest requires it to have regard for the statutory context under which the application has been brought in order to determine whether the requested relief “benefits the segment of the public to which the legislation is aimed” while minimizing or mitigating any potential adverse effects to an acceptable degree.

Consideration of Applicable Transitional Provisions

The AUC was not satisfied that it was necessary or in the public interest to effect an immediate transfer of the subject facilities and customers.

The AUC was satisfied that it was in the public interest to align the REA service area approvals with the applicable MFAs and the associated municipal boundaries. However, the AUC found that it was not clear that the intention of the affected municipalities was to effect an immediate transfer of all affected facilities and REA customers to FortisAlberta.

The AUC supported this conclusion based on the following:

(a)     no municipality actively intervened in this proceeding;

(b)     there was no evidence that the affected municipalities required or even supported the immediate transfer of existing facilities and customers; and

(c)     there was no evidence that any of the affected municipalities had sought to enforce FortisAlberta’s exclusivity through the passing of a bylaw under section 46 or any other provision of the MGA.

The AUC considered if no bylaw were passed by an affected municipality requiring existing REA members in its boundaries to connect to FortisAlberta. The AUC noted under such a scenario, each of those existing REA members would, in any event, cease purchasing electric distribution service from the REA at the earliest of:

(a)     the existing REA member electing to transfer to FortisAlberta;

(b)     a change in customer (for example, there is a change in ownership at the site, and the existing customer is no longer the same REA member who originally required electric distribution service at the site);

(c)     the affected REA requesting the transfer of facilities and REA customer to FortisAlberta; or

(d)     the affected REA refusing to continue to serve the existing REA member.

The AUC, therefore, approved the affected REAs’ ability to continue to provide electric distribution service to the existing REA members with existing facilities in the annexed (formerly overlapping) areas. The AUC granted this approval until one of the events contemplated above necessitated the transfer of facilities and customers to FortisAlberta.