Canada: No Complaint To Complaint Based Regulation: Alberta Utilities Commission Decision 26717-D01-2022

On March 2, 2022, the Alberta Utilities Commission (AUC) issued a decision exempting Calgary District Energy Inc. (CDHI) and the Downtown District Energy Centre (DDEC) from certain provisions of the Public Utilities Act and certain reporting requirements contained in AUC Rule 005 relating to annual reporting requirements for public utilities.¹ The effect of the decision was to allow the DDEC, which offers district energy services in the form of thermal energy to customers in downtown Calgary, to continue to operate as it has since commencing operation in 2010, while remaining subject to AUC oversight on a complaint basis.²

District Energy Service

CDHI owns and operates the DDEC which provides thermal energy, in the form of central heating and hot water services, to commercial, municipal and residential buildings in downtown Calgary. The DDEC is centrally located and uses a combined heat and power generating unit and four high-efficiency boilers to heat water that is then distributed to customers through a network of insulated underground pipes.

The DDEC was originally constructed and operated by ENMAX Corporation (ENMAX) and in April 2021 the AUC approved the sale of the DDEC to CDHI.³ Prior to the sale, and due to municipal ownership of ENMAX, the DDEC was statutorily exempted from a large portion of the Public Utilities Act and for this reason was not subject to AUC oversight and regulation. As a result, the AUC did not have a direct role in regulating the operation of the DDEC or in setting rates charged to DDEC customers. Upon the sale of the DDEC, this exemption no longer applied and both CDHI and the DDEC became subject to the entirety of the Public Utilities Act and AUC oversight.

Exemption Application

Following the sale of the DDEC, CDHI brought an application requesting an order pursuant to sections 8 and 9 of the Alberta Utilities Commission Act and section 79 of the Public Utilities Act, declaring that certain specific provisions of the Public Utilities Act and AUC Rule 005 relating to: periodic filing of rate schedules and financial reports as well as the manner in which public utilities are required to maintain certain utility accounts and make annual financial and operational reports; and the need for AUC approval of any change in rates as being just and reasonable, do not apply to CDHI and the DDEC. In place of some of the requisite filings, CDHI proposed to annually file specified key financial and operational metrics with the AUC.

In seeking this relief, CDHI noted that the requested exemptions were in the public interest and represented a flexible and proportionate form of light-handed regulation that was responsive to the unique nature of district energy services. The AUC would, under express provisions in the Public Utilities Act, retain oversight of the services provided by CDHI and the DDEC on a complaint basis. The AUC agreed.

Decision Allowing Complaint Based Regulation

In approving the application,⁴ the AUC first considered a jurisdictional argument made by the sole intervener in the application.⁵ Specifically, the Commission dismissed arguments that a departure from prospective economic regulation in respect of CDHI and the DDEC would necessarily frustrate the purpose of the Public Utilities Act. In doing so, the AUC indicated that protecting the public interest and upholding the legislative scheme under the Public Utilities Act does not necessitate that a public utility must be subject to prospective economic regulation.⁶ The AUC went on to conclude that under the Public Utilities Act it has “broad authority to exempt any public utility, or its owner, from the application of the act, entirely or in part”;⁷ and that it would not benefit the public interest to require prospective economic regulation of any entity meeting the definition of public utility where it is established that such regulation is not necessary to protect sophisticated customers in a competitive environment, and in light of other available regulatory mechanisms.⁸

Having dismissed the jurisdictional argument, the AUC first considered whether the light-handed, or complaint based, regulation proposed by CDHI would interfere with the establishment of just and reasonable rates. After concluding that the annual reporting framework proposed by CDHI in the application provided sufficient information to facilitate the AUC's general supervision, the AUC approved that framework.⁹ The AUC then went on to find that CDHI operates in an environment that is sufficiently competitive that its customers have a degree of choice about their service provider that is not present in a traditional monopolistic industry; that the service agreements under which CDHI provides district energy services are based on mutually agreeable terms negotiated between sophisticated commercial parties; and that CDHI customers retain the ability to raise a complaint to the AUC in respect of rates or service.¹⁰ The AUC considered that these factors - taken together - are sufficient to ensure that the rates paid by CDHI customers will be just and reasonable.¹¹

The AUC then considered whether regulation of CDHI and the DDEC on a complaint basis would affect the safety, reliability and integrity of the service offered by CDHI and by the incumbent natural gas franchise holder. Regarding CDHI customers, the AUC acknowledged and relied on the fact that the DDEC has been operating for over ten years and would continue to do so under the same service agreements and that there is no evidence to suggest that granting the application will result in any change to the safety or reliability of service offered to customers of the DDEC.¹² Further, the AUC highlighted that with the sale of the DDEC, the DDEC and CDHI were now subject to the AUC's general oversight.¹³ Regarding the incumbent gas utility, the AUC was not persuaded that approving the application would somehow harm existing gas utility customers - concluding that no quantitative evidence was presented substantiating any potential harm.¹⁴ The AUC went on to conclude that it accepts that the incumbent gas utility may lose some customers to the DDEC, but that any impact would be immaterial due to the relatively small size of the DDEC's operations.¹⁵

The AUC found that granting the relief requested by CDHI was in the public interest. Indicating that it was satisfied that the degree of regulation CDHI proposed, in conjunction with the conditions imposed in the decision, is sufficient to ensure the protection of current and future customers of the DDEC and the public at large. It concluded its decision by acknowledging that in the case of CDHI and the DDEC a complaint-based approach to regulation, in conjunction with periodic reporting, allows the AUC to effectively oversee the operations of the DDEC and respond to concerns as they arise, in a manner that is proportionate to the unique circumstances of CDHI and the DDEC.¹⁶.

Footnotes

1 Alberta Utilities Commission Decision 26717-D01-2022, Calgary District Heating Inc., Exemption from Provisions of the Public Utilities Act, March 2, 2022, https://www2.auc.ab.ca/Proceeding26717/ProceedingDocuments/26717_X[]_26717-D01-2022%20CDHI%20Exemption%20from%20Provisions%20of%20the%20Public%20Utilities%20Act_000069.pdf, [Decision 26717-D01-2022].

2 Stikeman Elliott LLP was counsel to CDHI in respect of its application before the AUC.

3 Alberta Utilities Commission Decision 26163-D01-2021, ENMAX Corporation and Calgary District Heating Inc., Applications for Disposition of the Downtown District Energy Centre and Transfer of the Combined Heat and Power Generating Unit, April 19, 2021, https://www2.auc.ab.ca/Proceeding26163/ProceedingDocuments/26163_X%5b%5d_26163-D01-2021%20ENMAX%20Disposition%20of%20DDEC%20and%20Transfer%20of%20CHP%20Unit_000070.pdf

4 The AUC denied one portion of CHDI's requested relief. Specifically, the AUC dismissed CDHI's request for an exemption to section 92 of the Public Utilities Act on the basis that it was not necessary to pre-emptively exempt CDHI and the DDEC from application of this provision of the Public Utilities Act.

5 ATCO Gas intervened and opposed the application.

6 Decision 26717-D01-2022 at paragraph 25.

7 Decision 26717-D01-2022 at paragraph 26.

8 Decision 26717-D01-2022 at paragraph 26.

9 Decision 26717-D01-2022 at paragraph 38.

10 Decision 26717-D01-2022 at paragraph 39.

11 Decision 26717-D01-2022 at paragraph 39.

12 Decision 26717-D01-2022 at paragraph 44.

13 Decision 26717-D01-2022 at paragraph 44.

14 Decision 26717-D01-2022 at paragraph 48.

15 Decision 26717-D01-2022 at paragraph 49.

16 Decision 26717-D01-2022 at paragraph 50.

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