This article was originally published in Blakes Bulletin on Energy - March, 2006
On February 9, 2006, the Supreme Court of Canada decided this question for ATCO Gas & Pipelines Ltd. (ATCO). The decision identifies the limits on the powers of ATCO’s regulator, the Alberta Energy and Utilities Board (the Board), to distribute the net gain realized on an asset sale by ATCO, but has broader significance for utility regulators, utilities and ratepayers across the country.
ATCO applied to the Board for approval of its sale of utility land and buildings. According to ATCO, the property was no longer used or useful for the provision of utility services and the sale would not harm customers. ATCO requested approval of the sale and its retention of the proceeds of sale in excess of net book value plus the costs of disposition. The City of Calgary opposed ATCO’s proposed disposition of the sale proceeds to shareholders.
The Board adopted a two-step approach: first, it considered whether the sale should be approved; second, if the Board decided to approve the sale, then it would deal with the allocation of the sale proceeds and any other relevant issues.
AEUB Decisions and the Court of Appeal
The Board approved the sale in Decision 2001-78, employing its 4-part "no harm" test. It concluded that there would be cost savings to the customers and that there would be no impact on the level of service to customers as a result of the sale. The Board then held that it had jurisdiction to approve the disposition of net sale proceeds. It concluded that any appreciation in the value of the assets remaining after full cost recovery is to be shared by shareholders and customers. As a result, from the gross proceeds of $6.5 million, $4.07 million was allocated to customers.
ATCO appealed the ruling on the grounds that the Board did not have jurisdiction to allocate the proceeds of sale and that the proceeds belonged to shareholders. The Alberta Court of Appeal held that there was no express or implied authority in the governing legislation, case law or through the "regulatory compact" empowering the Board to allocate the net proceeds from the sale of assets, from a sale of property formerly used in the provision of services to customers when no harm to the public was found at the time the Board approved the sale. It vacated the Board’s decision and referred the matter back to the Board.
Decision of the Supreme Court of Canada
The City of Calgary appealed to the Supreme Court of Canada.
Bastarache, J. (for the majority) held that the Board did not have the prerogative to decide on the distribution of the net gain from the sale of assets of a utility. The Board’s seemingly broad powers to make any order and to impose any additional conditions that are necessary in the public interest has to be interpreted within the entire context of the statutes which are meant to balance the need to protect consumers as well as the shareholders proprietary rights, as recognized in a free market economy. The limits of the powers of the Board are grounded in its main function of fixing just and reasonable rates and in protecting the integrity and dependability of the supply system. The power to allocate sale proceeds was absent from the explicit language of the legislation. It could not be implied from the statutory regime as necessarily incidental to the explicit powers and the doctrine of jurisdiction by necessary implication did not apply, as the evidence did not establish that there was a practical necessity for the Board to allocate the proceeds.
The fact that the utility was given the opportunity to make a profit on its services and a fair return on its investment in its assets should not stop the utility from benefiting from the sale of assets. The Supreme Court of Canada reiterated that customers do not have a property interest in the utility; the payment of rates for utility service do not pass an ownership interest in the utility’s assets or control of the utility’s assets to the customer.
The Supreme Court of Canada held that the Board misdirected itself by confusing the interests of the customers in obtaining safe and efficient utility service with an interest in the underlying assets owned only by the utility. Although public utilities have a "public interest" aspect, which is to supply the public with a necessary service, this does not change the private nature of the utility. The Board’s decision was set aside and the matter referred back to the Board for approval of the sale of the property, recognizing that the proceeds of the sale belong to ATCO alone.
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