Public Utilities Act – Ordinary Course of Business
In this decision, the AUC approved the disposition by ENMAX Corporation of the Downtown District Energy Centre (“DDEC”) and the transfer of related approvals from ENMAX Independent Energy Solutions Inc. (“EIES”) to Calgary District Heating Inc. (“CDHI”).
Introduction and Process
ENMAX Corporation (“ENMAX”) is the owner and operator of the DDEC, which provides district energy to municipal, commercial and residential buildings in downtown Calgary. The DDEC contains a 3.3 megawatt (“MW”) natural gas-fueled combined heat and power generating unit (“CHP unit”) owned by EIES, a subsidiary of ENMAX.
Application to Dispose of the DDEC
Background
ENMAX is a designated owner of a public utility for the purposes of sections 101 and 102 of the Public Utilities Act (“PUA”) pursuant to Section 1(1) of the Public Utilities Designation Regulation. ENMAX owns and operates the DDEC, which is itself a public utility within the meaning of Section 1(i) of the PUA. ENMAX, wholly owned by the City of Calgary, operates the DDEC on an unregulated basis pursuant to Section 78(2) of the PUA. Section 78(2) exempts a public utility owned or operated by a municipality from the application of Part 2 of the PUA unless the public utility is brought under the act by a bylaw of the municipality.
CDHI is a wholly-owned subsidiary of Atlantica Sustainable Infrastructure plc., which owns and operates a portfolio of assets that includes electricity generation, storage and transmission facilities in various jurisdictions. ENMAX filed a letter provided by CDHI confirming that CDHI supports ENMAX’s applications before the AUC. CDHI also confirmed that it understood that it had agreed to purchase a public utility and would accept full regulatory responsibility for the DDEC under Part 2 of the PUA. CDHI acknowledged that under its ownership, the DDEC would no longer be eligible for the exemption in Section 78(2) of the PUA. However, CDHI stated that it intended to bring an application before the AUC in the future seeking exemptions from certain provisions of the PUA to obtain regulatory treatment consistent with complaint-based regulation.
Approval of Dispositions Outside of the Ordinary Course of Business
Section 101(2)(d)(i) of the PUA requires the AUC to approve the sale or disposition of property by the owner of a designated public utility when made outside of the ordinary course of business.
The AUC noted that the DDEC is the only district energy facility operated by ENMAX and that that the sale of an asset that itself constitutes a public utility is a relatively unusual occurrence. The AUC, therefore, agreed with ENMAX’s view that the sale of the DDEC is outside of the ordinary course of ENMAX’s business and requires approval under Section 101(2)(d)(i) of the PUA.
AUC Jurisdiction to Grant Exemptions from the Approval Provision
Under Section 101(4) of the PUA, the AUC has jurisdiction to grant an exemption from the requirement to obtain approval under Section 101(2) regarding a specific transaction or class of transactions. Among other factors, when considering whether to grant an exemption, the AUC is required to consider if the exemption would undermine the ability of a public utility to provide safe and reliable service at just and reasonable rates.
ATCO Gas argued that the operation of the DDEC within its service area has policy implications for the utility system that had not been addressed. ATCO Gas intervened, in part, to assert that the unique characteristics of the transaction warrant a broader review than the AUC would ordinarily apply to the sale of an asset. The AUC accepted that the circumstances of this transaction are unique, particularly as it constitutes the sale of a public utility to an owner that is a new entrant to the Alberta utility sector. In these circumstances, and given the concerns cited by ATCO Gas, the AUC considered it prudent to review the transaction to ensure that any potential harm arising from the disposition of the DDEC is understood and considered. The AUC therefore did not exercise its discretion to exempt the transaction from the application of Section 101(2) of the PUA.
Evaluation Under the No-Harm Test
In its consideration regarding the approval of a disposition application that is outside the ordinary course of business under Section 101 (2) of the PUA, the AUC and its predecessor have traditionally applied a “no-harm” test. This test considers the disposition in the context of both potential financial impacts and service level impacts, in terms of both quantity and quality, to customers.
The “no-harm” test has been reviewed in several board, AUC and court decisions. The AUC has generally applied the no-harm test to consider potential harm to customers served by the property that is the subject of a proposed transaction, as well as customers of any regulated affiliate of a public utility that is a party to the transaction. In this proceeding, the AUC requested that parties address the question of which customers should be considered if the AUC were to apply the no-harm test with respect to customers of the DDEC as well as customers that receive regulated utility service from ENMAX Power Corporation (“EPC”), which is a subsidiary of ENMAX.
ATCO Gas submitted that the AUC should also consider harm to ATCO Gas’ past, present and future customers, arguing that the existence and potential expansion of DDEC service may contribute to upward pressure on the rates paid by ATCO Gas customers. Further, ATCO Gas submitted that beyond the traditional no-harm test, the AUC’s review of the transaction should address the DDEC’s history and future operations. ATCO Gas argued that the AUC should take a broad view of the transaction given the unique circumstances of a municipally-owned entity disposing of a public utility to a non-municipal owner and the fact that there is uncertainty around the future regulatory treatment of the DDEC given CDHI’s intent to seek exemptions to certain provisions of the PUA.
Should the disposition be approved, ATCO Gas requested that the AUC impose conditions on CDHI regarding disclosure of the rates paid by DDEC customers and any plans to expand DDEC service. ATCO Gas also requested that the AUC’s approval of the disposition be subject to a condition that any change or expansion to DDEC service would require the approval of the AUC.
The AUC was not satisfied that the circumstances of this proceeding were sufficiently unique to warrant a departure from the well-established no-harm test, which has evolved over time to reflect the AUC’s statutory mandate and which has been acknowledged by both the Court of Appeal and Supreme Court of Canada. The AUC acknowledged the concerns raised by ATCO Gas relating to potential harm to its customers arising from the past and current operation of the DDEC, as well as harm that may arise if DDEC service is expanded in the future. However, the AUC found that ATCO Gas’ concerns are speculative and that ATCO Gas failed to establish any connection between these concerns and the transaction that is the subject of this proceeding.
The AUC questioned the relevance of the impacts to ATCO Gas customers for the AUC’s application of the no-harm test. In any event, the AUC agreed with ENMAX that there was no evidence in this proceeding to suggest that ATCO Gas or its customers would suffer any incremental harm if the DDEC was owned by CDHI. The impacts asserted by ATCO Gas were speculative and related to the existence of the DDEC rather than its disposition.
The AUC found that the evidence before it in this proceeding demonstrated that there would be no impacts on the safety or quality of utility service because of the transaction. The AUC was satisfied that CDHI, through its parent company, has sufficient expertise to provide the same level and quality of service to DDEC customers as they currently experience under ENMAX. The AUC also accepted that there would be no impacts to regulated customers of EPC, as the DDEC business has been operated by ENMAX on a standalone basis, separate and apart from the core regulated utility function carried out by EPC. The AUC also found that approval of the disposition would not result in any financial harm to the customers of the DDEC or EPC. The AUC noted that the transaction costs would be borne by ENMAX and would not be recovered from ratepayers.
Application to Transfer Power Plant Approval and Connection Order
The DDEC contains a 3.3 MW natural gas-fueled CHP unit, which operates pursuant to Power Plant Approval 23243-D04-2018 and is connected to the Alberta Interconnected Electric System (“AIES”) via EPC’s 25-kilovolt distribution system pursuant to Connection Order 26110-D02-2020. The power plant approval and connection order are held by EIES. ENMAX, on behalf of EIES, requested that the AUC authorize the transfer of Power Plant Approval 23243-D01-2018 and Connection Order 26110-D02-2020 from EIES to CDHI to reflect the change of ownership that would be affected by the transaction.
The AUC approved the transfer of the power plant approval and connection order to CDHI. The AUC noted it would issue a new power plant approval and connection order upon receipt of written confirmation that the ownership transfer was completed and, accordingly, required that this information be filed no more than seven days after the transaction closed by ENMAX or CDHI. CDHI confirmed that upon the transaction closing, it would become the owner of a public utility and will accept full regulatory responsibility for the DDEC under Part 2 of the PUA. The AUC considers this commitment by CDHI to include sections 101, 102 and 109 of the PUA. Therefore, effective from the closing of the transaction until the AUC declares otherwise, the AUC directed CDHI to conduct itself as though it were a designated owner of a public utility under the Public Utilities Designation Regulation.
