In 2011, the Alberta Utilities Commission ("AUC")
issued its decision in the Generic Cost of Capital
("GCOC") proceeding. In 2013, the AUC issued its decision
in the Utility Asset Disposition ("UAD") proceeding. Both
decisions considered the issue of "stranded assets".
Stranded assets are those utility assets that, while still in
service, become incapable of being used because of some
extraordinary event. The existence of stranded assets, in the
context of a regulated utility, gives rise to an important
question: who bears the loss of the asset which is not fully
depreciated but which is incapable of use? The AUC, in the
aforementioned decisions, concluded that utility shareholders, and
not ratepayers, bear the risk of holding stranded assets.
Five electric utilties (FortisAlberta Inc., AltaLink Management
Ltd., Enmax Power Corporation, EPCOR Distribution and Transmission
Inc. and ATCO Electric Ltd.) and two gas utilities (AltaGas
Utilities Inc. and ATCO Gas and Pipelines Ltd.) appealed the
On September 18, 2015, Justice Paperny, with Watson J.A. and
Rowbotham J.A. concurring, dismissed the appeals in their entirety.
Justice Paperny's reasons canvassed the context from which the
appeals arose, the reasonableness of the AUC's decision in the
UAD proceeding and the duty of fairness in relation to the GCOC
In holding that the AUC's decisions were reasonable the
Court of Appeal made the following findings. First, the Court of
Appeal rejected the argument that the legislation governing
ratemaking created a distinction between reasonable return on
investment and recovery of prudent capital investment, the latter
being guaranteed as of right to the utilities.
Second, and related to the first point, the Court of Appeal
rejected the Appellants' definition of the Regulatory Compact
as being "overly broad". The Regulatory Compact involves
a utility being granted the right to provide a service in a
particular area with an opportunity to earn a reasonable rate of
return and recover prudently incurred costs. The utilities'
view that the Regulatory Compact meant a utility was
"guaranteed" full recovery of all costs was found to be
Third, the Court of Appeal rejected the argument that the
AUC's decision imparted an excessive expense on the utilities
and was therefore unfair. In rejecting this claim, the Court of
Appeal pointed to the symmetrical treatment of gains and losses
(i.e. shareholders exclusively benefit from any gain on the
disposition of assets and exclusively bear, therefore, the risk of
Lastly, the Court of Appel held that the AUC had the legislative
imperative to exercise discretion on cost recovery, citing the
"expert and policy role" of the AUC in fulfilling its
legislative mandate and one-hundred plus years of oversight.
Consequently, the AUC's rejection of the interpretation put
forward by the electric utilities, that the legislation mandated
the recovery of "prudent costs", was reasonable. The
Court of Appeal, in finding the AUC's decision and approach to
be reasonable, held that all the legislation mandates is a
reasonable opportunity to recover prudently incurred costs.
The utilities' filed a second set of appeals alleging lack
of procedural fairness on the part of the AUC's handling of the
GCOC proceeding. The Court of Appeal rejected this position,
finding that the parties had repeated opportunities to raise issues
and make submissions.
The decision confirms that if a statute provides a regulator
with discretion in the interpretation of its home statute then the
court will generally defer to the regulator's interpretation.
Applied to the present facts, the decision stands for the
proposition that what constitutes a prudent and reasonable cost
incurred by a utility will be established by the AUC and, so long
as the AUC's decision is justifiable and transparent, it is
unlikely to be interfered with by a reviewing court.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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