Great Lakes Power Limited v. Ontario Energy Board, 2010 ONCA 399
DATE: 20100603
DOCKET: C51267
COURT OF APPEAL FOR ONTARIO
Doherty, Simmons and Epstein JJ.A.
BETWEEN
Great Lakes Power Limited
Appellant
and
Ontario Energy Board
Respondent
Alan H. Mark and Christine Kilby, for the appellant
Glenn Zacher and Patrick G. Duffy, for the respondent
Heard: April 29, 2010
On appeal from the order of the Divisional Court (J. M. Wilson, S. N. Lederman and K. E. Swinton JJ.), dated July 21, 2009.
By the Court:
[1] The appellant, Great Lakes Power Limited, is an electricity distributor. The rate it is entitled to charge its customers for electricity is set by the respondent, the Ontario Energy Board, under s. 78(3) of the Ontario Energy Board Act, 1998 S.O. 1998, c. 15, Sched. B.
[2] In 2002, the utility applied to the Board for approval of its proposed rates for that year. This application was premised on a revenue requirement of $12.7 million per year. However, in order to avoid "rate shock" to its customers, the utility reduced its request to $9.8 million per year. The remaining $2.9 million per year would be recorded on its books as a "rate deferral plan", to be recovered from its customers later. The utility proposed to record these amounts in a specific account referred to as "Account 1574".
[3] On May 13, 2002, the Board issued an interim order approving the utility's rates in amounts corresponding to a $9.8 million revenue requirement pending a full public hearing.
[4] Before the Board could hold a public hearing, the Ontario government enacted legislation in December, 2002 that temporarily froze electricity rates. The legislation, known as "Bill 210", also deemed any existing interim orders of the Board to be final. The rate freeze was in effect for two years. On December 9, 2004, Bill 210 was repealed.
[5] In August, 2007, the utility applied to the Board for approval of its rates for 2007. Included in the application was a claim for disbursement of $14.9 million - the utility's remaining deferral account balance as recorded in account 1574 – over several years. The utility argued not only that the Board had approved its revenue requirement of $12.7 million and the rate deferral plan in its interim decision of 2002, but also that the decision had become final by virtue of Bill 210.
[6] The Board rejected the utility's claim for recovery of the $14.9 million. The Board held that in its interim order of 2002, it had not approved the utility's revenue requirement of $12.7 million, or its rate deferral plan. Indeed, the interim order made no mention of either. The Board made it clear that it would not have provided the utility with the approvals it sought without holding a public hearing.
[7] The utility appealed the decision to the Divisional Court, arguing that the Board misinterpreted the scope of the 2002 interim order and erred by failing to take into account the effect of Bill 210. As a result, the Board's decision denied the utility the opportunity to realize a fair and reasonable return on its investment. See: British Columbia Electric Railway v. Public Utilities Commission of British Columbia et al. (1960), 1960 CanLII 44 (SCC), 25 D.L.R. (2d) 689 (S.C.C.).
[8] Applying the standard of review of reasonableness, the Divisional Court upheld the Board's decision. The utility appeals that decision to this court.
[9] For the following reasons, we would dismiss the appeal.
Analysis
[10] Before examining the utility's arguments, we will deal with the standard of review and briefly explain the concept of a prudence review.
(i) Standard of Review
[11] In terms of the standard of review, we do not agree with counsel for the utility that the Divisional Court erred in reviewing the decision of the Board on the basis of reasonableness. The issue before the Board involved an interpretation of its own order, an issue calling upon the Board's expertise and policy considerations. Accordingly, the recent decisions of this court in Graywood Investments Ltd. v. Toronto Hydro Electric System Ltd., 2006 CanLII 16823 at para. 24 (ON C.A.) Natural Resource Gas Ltd. v. Ontario Energy Board, 2006 CanLII 24440 at paras. 23 and 24 (ON C.A.) and Toronto Hydro-Electric System Limited v. Ontario Energy Board, 2010 ONCA 284, apply. These decisions establish that, in these circumstances, the standard of review from orders of the Board, is reasonableness.
(ii) Prudency Review
[12] Through a process called a prudency review, the Board responds to its obligations under the Act to protect the interest of ratepayers by reviewing a distributor's revenue requirement and ensuring that it is reasonable before passing the costs off to its customers. It is undisputed that the utility's full revenue requirement of $12.7 million did not undergo the usual prudency review process which, in the normal course, would have required, among other things, notice to interested parties and an opportunity for them to present submissions at a hearing.
(iii) The Utility's Arguments
[13] First, the utility submits that the Board and the Divisional Court erred in failing to recognize that the 2002 interim order constituted an approval of its revenue requirement and its rate deferral plan.
[14] We disagree.
[15] The Board rejected the utility's submissions that, in the 2002 interim decision, it approved the proposed $12.7 million revenue requirement and the rate deferral plan. It gave reasons for this rejection that can be summarized, as follows:
The submission was not supported by the evidence and therefore was entirely speculative. The Board's silence on the issue could not reasonably be interpreted as supporting the inference that the Board was endorsing a material proposition affecting present and future rates.
The 2002 interim order was the first order the Board made in its regulation of the utility's distribution business. It is inconceivable that the Board would approve something of this magnitude without hearing from interested indiv-iduals.
The utility was attaching more importance to the 2002 interim order than is warranted as interim orders are generally based on an incomplete evidentiary record that is generally not tested.
[16] Based on these findings, the Board had no difficulty concluding that the proposed revenue requirement and the rate deferral plan had never explicitly or implicitly been approved. Accordingly, allowing the utility to dispose of Account 1574 as requested, would be contrary to regulatory practice.
[17] In the light of the considerable deference to which the Board is entitled in determining what it means and does not mean in one of its orders, we agree with the Divisional Court's conclusion that the Board's holding that the interim order was not meant to cover the $12.7 million revenue requirement and the rate deferral plan, is reasonable
[18] Having upheld the Board's conclusion that the interim order did not deal with the $12.7 million revenue requirement and the rate deferral plan, it is not necessary to consider the appellant's argument based on Bill 210's having rendered the interim order, final. The Bill cannot render final an issue that was not dealt with in the interim order.
[19] Finally, counsel for the utility raises the issue of fairness. He forcefully argues that Bill 210 should not be interpreted in such a way as to interfere with his client's right to a fair return on its investment.
[20] The objective of fairness, no matter how compelling, cannot justify a redefinition of the terms of the interim order.
[21] Furthermore, the argument that the Board's interpretation of Bill 210 would have the effect of foreclosing the utility's right to prove its entitlement to the amounts accrued under the rate deferral plan, ignores those parts of the legislation that allow the utility to approach the Board for that very purpose. Having made a conscious decision to forego a prudency review under Bill 210 and related regulatory framework, the utility's argument that it has been unfairly treated must fail.
Conclusion
[22] A public utility must undergo a prudency review before passing along its costs to consumers. To this point, the utility has not done so and therefore is not entitled to the benefit of an approved rate of return.
[23] Our conclusion that this appeal must be dismissed should not be taken to preclude the utility from going before the Board, with proper evidence, for a prudency review. We note that before this court, counsel for the Board did not suggest that the provisions in Bill 210 relating to Account 1574, were not available to the utility. He also did not argue that the utility could not now apply for approval of the proposed $12.7 million revenue requirement and the rate deferral plan under s. 78 of the Act. Moreover, despite some arguable ambiguity in the language used in the Board's 2007 decision, counsel for the Board submitted that the Board had not in any way denied the utility's entitlement to go before the Board and seek approval for its revenue requirement or its rate deferral plan.
[24] Having regard to the "regulatory compact" (as coined by the Supreme Court of Canada in Atco Gas & Pipelines Ltd. v. Alberta Utilities Board, 2006 D.L.R. (4th) 193 at para. 63) that requires a balancing of rights and interests of utilities against those of ratepayers, the ideal situation would be for the Board to decide upon the utility's entitlement to approval of its proposed revenue requirement and the rate deferral plan, based on a proper prudency hearing.
[25] While, in our view, that would be the best result, we leave it to the utility to decide whether to approach the Board on that basis and to the Board to determine whether such a review is authorized or permissible at this stage.
Disposition
[26] For these reasons, the appeal is dismissed.
[27] On the consent of the parties, there will be no order as to costs.
RELEASED:
"JUN -3 2010" "Doherty J.A."
"JS" "Janet Simmons J.A."
"Gloria Epstein J.A."