In a recent decision concerning Union Gas Limited (Union), the
Ontario Energy Board (OEB) ruled that a utility has a duty to
disclose, as part of its rate application, any contemplated
corporate reorganizations that have a "real prospect" of
proceeding, even if the utility's board has not yet granted
The issue arose in an application to the OEB for approval to
transfer a controlling interest in Union to a limited partnership.
The purpose of the transaction was to generate $50 million in tax
savings for Union's parent, which in turn would reduce
Union's annual revenue requirement by approximately $1.3
million. As part of the application, Union requested the cost
reduction not be factored in to its rates until after the expiry of
its Incentive Rate Mechanism Plan (IRM Plan) in 2012. Under the IRM
Plan, which was approved by the OEB in January 2008, Union's
rates are set by a formula that is tied to the cost of inflation
and a productivity-improvement factor.
A number of intervenors objected to Union's proposed
treatment of its cost reductions. In particular, the intervenors
argued that if Union had disclosed the transaction in a timely
fashion, the cost reductions would have been factored into the IRM
Plan. In support of their position, the intervenors pointed to an
internal Union memorandum from August 2007 that quantified the tax
savings of the reorganization. In response, Union argued the
reorganization was "just a gleam in somebody's eye"
in August 2007 and did not need to be disclosed until the plan
received final approval from Union's board in September
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In siding with the intervenors, the OEB stated that regulated
utilities have a duty to disclose "all relevant information
relating to Board proceedings it is engaged in" and should err
on the side of inclusion. Where information is not disclosed, the
utility will bear the burden of establishing that "there is no
reasonable possibility that withholding the information would
impair a fair outcome in the proceeding." With respect to
Union, the reorganization should have been disclosed in the IRM
Plan proceeding because the tax benefits had been quantified and
there was a "real prospect" that it would occur. The
panel rejected Union's arguments on the ground that it was not
believable that a sophisticated organization like Union would leave
$50 million on the table.
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