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Court of Appeal Confirms the AUC's Authority to Award Costs

05-Dec-14

By Michael Barbero

On December 2, 2014 the Court of Appeal released its decision in ATCO Gas and Pipelines Ltd. v. Alberta (Utilities Commission), 2014 ABCA 397. Chief Justice Fraser, along with Justice Côté, dismissed ATCO's appeal of the Commission's costs award (Justice Martin dissenting in part). The decision affirms the Commission's authority to exercise discretion in awarding costs to both interveners and utilities.

FACTS
ATCO Gas and Pipelines Ltd. and ATCO Electric Ltd. (collectively "ATCO"), appealed two cost decisions issued by the Alberta Utilities Commission ("Commission"). The decisions related to ATCO's involvement in the Utility Asset Disposition Proceeding ("UAD") and the Performance-Base Reform Proceeding (PBR). Both proceedings were initiated by the Commission. Neither was a rate setting hearing. The UAD proceeding considered the implications of the Supreme Court of Canada's decision in ATCO Gas and Pipelines Ltd. v. Alberta (Energy and Utilities Board). The PBR proceeding examined performance-based regulation as part of a broader initiative by the Commission to reform utility regulation in Alberta.

The UAD proceeding commenced April 2, 2008 and was suspended on November 28, 2008. It resumed on October 17, 2012. The Commission awarded ATCO a significant portion of legal costs incurred after October 17, 2012, but nothing for costs incurred prior. In relation to the PBR Proceeding, the Commission awarded ATCO its legal costs in accordance with the scale of rates set out in AUC Rule 022, plus an additional premium of 20%. ATCO had applied for recovery of its actual legal costs incurred in each proceeding, which included legal fees well in excess of the AUC's scale of rates.

ATCO appealed both decisions on the grounds that, as a regulated public utility, it enjoyed a general right of recovery from its rate payers of all "prudently incurred" costs. This was said to be based on the "regulatory compact", under which a public utility undertakes to serve all customers in its service area in return for being granted the opportunity to earn a reasonable return on its prudent investment and to recover its prudently incurred expenses.

ISSUE
The issue on appeal was limited to whether or not the Commission had the statutory authority to make cost related rules, and further to award or deny costs incurred by utilities.

ANALYSIS
Chief Justice Fraser undertook a detailed review of the facts behind each proceeding. Finding that the appropriate Standard of Review was reasonableness, the Chief Justice concluded that the Commission's decision regarding costs was reasonable in the circumstance. The Chief Justice provided six reasons for this conclusion:

  1. The Act granted the Commission discretionary authority over costs. Section 21 of the Alberta Utilities Commission Act ("Act"), gives the Commission the authority to award costs. Properly interpreted this section applies to both applicants, including regulated utilities, and interveners. Consequently, the Commission possessed the necessary statutory authority to make the costs orders that it did.
  2. The legislation does not provide for full recovery of legal costs by ATCO. The Court went on to note that none of the relevant legislation created an entitlement to legal costs on the part of ATCO. The Court rejected ATCO's argument that section 4(3) of the Roles, Relationships and Responsibilities Regulation created such a right, and expressly noted no such entitlement existed under the Electric Utilities Act.
  3. Policy reasons support the discretion in favour of the Commission. The Chief Justice noted that without the ability to regulate legal costs, the Commission would be unduly restricted in its ability to govern its proceedings, and there would be no incentive for utilities to hold legal costs in check.
  4. The "regulatory compact" cannot trump the statutory scheme adopted by the legislature. Having earlier discussed the "regulatory compact" in her reasons, the Chief Justice noted that the terms of the "regulatory compact" are subject to change and modification through legislation. A prior entitlement, if one existed, under the "regulatory compact" is defeated by the current legislation which leave the award of costs in the discretion of the Commission.
  5. The disputed legal costs were not incurred in rate setting hearings. The Court noted the proceedings at issue were not rate setting hearings. Because of this fact, the Commission's conclusion that it would be unfair to download costs onto the Alberta consumers was entirely appropriate.
  6. Not awarding or limiting legal costs does not improperly reduce the rate of return. The Court concluded that not passing on legal costs does not have a significantly negative impact on a utility's rate of return.

Justice Côté provided additional reasons while concurring in the result. Justice Côté expressed concern at the "principles" being suggested by the Commission as they related to rate hearings. However, given that neither proceeding was in fact a rate hearing, Justice Côté's reservations became moot, allowing him to concur in the reasons of the Chief Justice.

Justice Martin provided reasons dissenting in part. Justice Martin found that section 21 of the Act did not give the Commission the authority to deny the recovery of prudent expenses by a utility. Justice Martin expressed particular concern with the fact that the Commission invited ATCO to participate and then "arbitrarily decided" that the cost of their participation would not be recoverable.

Justice Martin held that the Commission had erred in law by denying ATCO's costs in part in the UAD proceeding. He agreed with the majority in dismissing the appeal in relation to the PBR proceeding, citing the Commission's award of "prudently incurred costs" as appropriate.

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