Alberta’s Court of Appeal affirmed the Alberta Utilities Commission’s ability to limit the recovery of legal costs in non-rate-setting proceedings.

Background

ATCO Gas and Pipelines Ltd. and ATCO Electric Ltd. (ATCO Utilities) had participated in two proceedings before the Alberta Utilities Commission. The first proceeding was a Utility Asset Disposition Proceeding (UAD Proceeding) in which the commission invited industry participants to make submissions on the ramifications of the Supreme Court's decision in Stores Block.

Stores Block had changed the regulatory landscape, as it effectively upended what had been long-standing rate-making practice insofar as it allowed utility shareholders to take the full benefit of an appreciated asset (land) even though the asset had originally formed part of the rate base on which rates had been calculated and paid by ratepayers. The commission held that ATCO Utilities was not entitled to recover its legal costs for the initial stages of the UAD Proceeding.

The second proceeding was a Performance-Based Reform Proceeding (PBR Proceeding). PBR is part of the overall utility sector reform, the intent of which is to devise incentives to encourage Alberta utilities to become more efficient. The purpose of the PBR proceeding was to allow the commission to consider applications for approval of multi-year PBR plans. Consequently, while the PBR Proceeding did involve rates, it was not a “traditional” rate hearing. In the PBR Proceeding, the commission awarded ATCO Utilities its legal costs in accordance with the scale of costs plus an additional 20%.

The regulatory compact and the opportunity to recover costs

The court examined the argument that the so-called regulatory compact means a utility has a “right” to recover its costs because of its “obligation to serve.” From a utility’s perspective it is rational that a utility would be able to flow through the costs of mandatory regulatory proceedings to its rate base. However, the court held that the regulatory compact did not guarantee full recovery of all costs but instead afforded the utility an “opportunity” to recover prudently incurred expenses.

The court affirmed the commission’s decision relating to costs for several reasons:

  • the Alberta Utilities Commission Act grants the commission discretionary authority over costs;
  • the legislation does not provide for full recovery of legal costs by Alberta utilities;
  • policy reasons, such as ensuring utilities incur reasonable expenses, support the commission’s ruling;
  • the regulatory compact cannot trump the statutory scheme adopted by the legislature;
  • the disputed legal costs were not incurred in rate-setting hearings; and
  • not awarding or limiting legal costs does not improperly reduce rate of return.

Conclusion

It is important that Alberta utilities are aware they may not be able to flow through the legal costs of non-rate-making regulatory proceedings to their rate base.

Link to decision.