[2010] N.W.T.J. No. 91

2010 NWTSC 92

Northwest Territories Supreme Court

J.Z. Vertes J.

November 24, 2010

The Northwest Territories Public Utilities Board ("the Board") is established pursuant to the Public Utilities Act, R.S.N.W.T. 1988, c. 24 (Supp.) ("the Act") to regulate public utilities in the Northwest Territories. It has the jurisdiction to supervise the operations of utility companies, to approve municipal franchise agreements, and to fix rates for utility services. The Act requires the Board to set rates for utility services on a prospective basis; in other words, the Board does not have the authority to retroactively change rates. The Board can take into account past experience in setting the current rates, but it cannot design a future rate so as to enable the utility to recover a past loss or rectify for customers some past overcompensation of the utility. In either case, the Board would be engaged in retroactive or retrospective ratesetting.

This case concerned the treatment of stock handling charges by Northland Utilities (Yellowknife) Limited and Northland Utilities (NWT) Limited ("the applicants"). In February 2008 the applicants filed their respective rate applications for 2008 - 2010. Up to that time, stock handling charges had been capitalized as part of the company's rate base and the capitalized amount was added back to the pool of capital cost allowances. As the review of their rate applications went on, the applicants became aware that these stock handling charges could be claimed as tax deductions. The applicants decided in early 2008 to claim these deductions on their 2007 tax returns. They then amended their 2008 - 2010 rate filings to include the projected benefit of similar deductions in the test years. The Board issued a direction that any resulting income tax savings had to be "flowed through" to the applicants' customers. The applicants sought a review of the Board's direction on the basis that it breached the principal against retroactive ratesetting and thus was outside the Board's jurisdiction.

As the matter under consideration related to whether the Board had the jurisdiction to issue the direction, the court held that the appropriate standard of review was correctness. The court noted that there are strong policy reasons which disfavour retroactive ratemaking, which creates a lack of certainty for utility customers because if a regulator can retroactively change rates then customers can never be assured of a finality of the rates they paid for utility services. The court concluded that by taking the refunds away from the applicants and by passing them on to the customers the Board was in effect restating the applicants' rate base and revenue requirement for that year. This constituted retoractive ratemaking. Accordingly, the Board exceeded its jurisdiction and its direction was set aside.