In ATCO Gas and Pipelines Ltd v. Alberta (Utilities Commission) (ATCO Costs), the Alberta Court of Appeal considered the relationship between the common law concept of the “regulatory compact” and the statutory discretionary authority granted to the Alberta Utilities Commission (AUC or Commission) with respect to legal costs. Under ATCO Costs, the AUC has the authority to limit or deny the legal costs of a utility for its participation in a generic proceeding. It is far from clear, however, that the same power extends to legal costs incurred in rate-setting hearings.
The appellants—ATCO Gas and Pipelines Ltd. and ATCO Electric Ltd. (collectively, the ATCO Utilities)—participated in two generic AUC proceedings. The AUC initiated the first proceeding—the Utility Asset Disposition Proceeding (UAD Proceeding)—in April 2008 to consider the implications of the Supreme of Court of Canada’s decision in ATCO Gas and Pipelines Ltd. v. Alberta (Energy & Utilities Board) (Stores Block). The AUC initiated the second proceeding—the Performance-Based Reform Proceeding (PBR Proceeding)—in February 2010 to assist the Commission with its initiative to reform utility rate regulation in Alberta.
The AUC issued its costs decisions for both proceedings on February 20, 2013 (collectively, the Costs Decisions). With respect to the UAD Proceeding, the AUC awarded legal costs to the ATCO Utilities in accordance with the Scale of Costs under AUC Rule 022 for the period after October 17, 2012. ATCO Utilities was not awarded legal costs for the period between the start of the UAD Proceeding on April 2, 2008, and the suspension of the proceeding on November 28, 2008. For the PBR Proceeding, the Commission awarded legal costs to ATCO Utilities in accordance with Rule 022, plus an additional 20 per cent. Neither of the costs decisions awarded all of the legal costs claimed by the ATCO Utilities.
The ATCO Utilities filed motions seeking leave to appeal both of the Costs Decisions. Justice C.M. Conrad of the Alberta Court of Appeal granted leave to appeal both decisions on the following question: “Did the Commission err in law or jurisdiction by denying or limiting recovery of the Appellants’ claimed regulatory costs and by treating the costs of or incidental to any hearing or other proceeding of the Commission differently than other costs?”
ALBERTA COURT OF APPEAL DECISION
The panel that heard the costs appeal—Chief Justice C.A. Fraser, Justice J.E.L. Côté and Justice P.W.L. Martin—rendered three separate sets of reasons. This bulletin deals primarily with the reasons of Chief Justice Fraser, with which Justice Côté concurred in the result. Justice Martin dissented in part.
According to the ATCO Utilities, the costs decisions disclosed errors of jurisdiction because the AUC has no authority to limit the legal costs of regulated utilities to the amounts in the Scale of Costs set out in Rule 022, much less deny legal costs. The ATCO Utilities argued that the Commission must, in accordance with both the statutory regime in effect in Alberta and the regulatory compact, award all legal costs for all proceedings before the Commission, provided the prudence standard is satisfied.
Chief Justice Fraser determined that the issue on appeal was not a question of true jurisdiction. Rather, the issue centered on the AUC’s interpretation of its home statute, the Alberta Utilities Commission Act (Act). Therefore, the appropriate standard of review was reasonableness.
Chief Justice Fraser found that the AUC’s interpretation of the Act was reasonable for six reasons:
- Section 21(1) of the Act—which states that the Commission “may order by whom and to whom its costs and any other costs of or incidental to any hearing or other proceeding of the Commission are to be paid”—provides the Commission with discretionary authority over the recovery of its own costs, as wells as the legal costs of interveners and applicants.
- There is nothing in the relevant legislation that entitles Alberta utilities to full recovery of their legal costs.
- Unless the AUC has the authority to regulate legal costs, the parties to its proceedings would have no incentive to minimize those costs.
- The regulatory compact cannot trump the statutory scheme adopted by the legislature. With regard to this point, Chief Justice Fraser wrote that the regulatory compact has never guaranteed full recovery of all costs. Rather, the concept affords utilities an “opportunity” to earn a reasonable return on their prudent investments (capital costs) and to recover its prudently incurred expenses (operating costs). Further, even if the regulatory compact did guarantee recovery of all prudent legal costs, any claimed “right” to legal costs under the concept must give way to a contrary legislative intent. In other words, the fact that the Act provides the AUC with discretion over legal costs “trumps” arguments invoking the regulatory compact.
- The disputed legal costs were not legal costs incurred in rate-setting hearings. It was in relation to this point that Chief Justice Fraser noted that that the AUC gave the ATCO Utilities “the gift of standing in the UAD Proceeding.” The Commission did not promise that this gift would include allowing them to recover their legal costs from their ratepayers.
- Not awarding or limiting legal costs does not improperly reduce the utility rate of return. When the AUC sets a rate of return in an individual case, it knows how it has treated, or will be treating, the issue of legal costs and whether they will be fully or partly recoverable as part of the rate base. Thus, this is necessarily taken into account in determining the rate of return.
For his part, Justice Martin agreed with the ATCO Utilities’ submission that section 21 of the Act does not express an intention by the legislature to “displace the fundamental tenet, that a regulated utility is entitled to recover its prudently incurred expenditures.” Justice Martin observed that the AUC had asked the ATCO Utilities to assist in resolving matters of serious concern to the regulation of the industry in the UAD Proceeding. Therefore, the ATCO Utilities were entitled to recover the prudently incurred costs arising from their participation, and the AUC erred in law by arbitrarily denying all costs. However, Justice Martin dismissed the appeal related to the PBR Proceeding on the basis that the legal costs awarded by the AUC for that proceeding were those that it found to be prudently incurred.
Chief Justice Fraser concluded her reasons by noting that the court did not receive argument on what limits, if any, would apply to the exercise of the Commission’s discretionary cost authority. In particular, she declined to consider the question of whether the AUC would be acting unreasonably if it denied a regulated utility its legal costs incurred in a rate of return hearing.
As to the question of whether the AUC could limit or deny legal costs in the context of a rate of return hearing, the following points are worth noting. First, Chief Justice Fraser’s reasons for findings that the AUC’s interpretation of the Act was reasonable included the fact that the UAD Proceeding and the PBR Proceeding were not rate-setting hearings. This point appears to have carried considerable weight with Justice Côté who confessed to having “grave misgivings” about whether the Commission’s statutory discretion over costs provides “a satisfactory or sufficient model to deal with rate hearing expenses.”
With regard to the broader implications of ATCO Costs, it is important to note that Chief Justice Fraser’s reasons focus heavily on the historical and statutory framework of the AUC, and on the AUC’s statutory authority specifically with regard to legal costs. Thus, ATCO Costs may have limited application in decisions regarding other aspects of the AUC’s statutory discretion, or in relation to the powers of different regulators.