Supreme Court of Canada

Nova, An Alberta Corporation v. Amoco Canada Petroleum Company Ltd., [1981] 2 S.C.R. 437

Date: 1981-10-06

Nova, An Alberta Corporation (Appellant) Appellant;

and

Amoco Canada Petroleum Company Ltd., Canadian Superior Oil Limited, Chevron Standard Limited, Gulf Oil Canada Limited, Hudson’s Bay Oil and Gas Limited, Imperial Oil Limited, Mobil Oil Canada, Ltd., Shell Canada Resources Limited, Texaco Exploration Canada Ltd., Union Oil Company of Canada Limited (Respondents) Respondents;

and

Nova, An Alberta Corporation (Appellant) Appellant;

and

Amoco Canada Petroleum Company Ltd., BP Exploration Company Limited, Canadian Occidental Petroleum Limited, Canadian Superior Oil Limited, Chevron Standard Limited, Esso Resources Canada Limited, Gulf Canada Resources Inc., Hudson’s Bay Oil and Gas Company Limited, Mobil Oil Canada, Ltd., Ocelot Industries Ltd., Pancanadian Petroleum Limited, Shell Canada Resources Limited, Sun Oil Company Limited, Texaco Canada Inc. (Respondents) Respondents.

1981: May 28 and 29; 1981: October 6.

Present: Martland, Ritchie, Dickson, Estey and Lamer J.J.

ON APPEAL FROM THE COURT OF APPEAL OF ALBERTA

Administrative law—Jurisdiction—Retroactivity—Authority of Alberta Public Utilities Board to retroactively vary natural gas carrier’s rates—Scope required of Board in dealing with specific complaints in context of justness and reasonableness of overall rates—Board’s authority to confirm or vary calculation of carrier’s income tax as recoverable in rates—Effect of Board’s order on those calculations—The Alberta Gas Trunk Line Company Act, 1954 (Alta.), c. 37, ss. 16, 30.

These are two appeals from judgments of the Alberta Court of Appeal dismissing two appeals from the Public Utilities Board of Alberta. The Board made an order, on respondents’ application, relating to the rates established by appellant for the transportation of natural gas within Alberta. The rate hearing and this appeal were concerned with the terms of The Alberta Gas Trunk Line Company Act, principally s. 30. These proceedings raised four principal issues. Could the Board make orders 1) that were retroactive or retrospective, and 2) that considered only the specific complaint without expressly determining the overall justness and reasonableness of the tolls? 3) Did the order effectively direct the manner in which Nova paid its income taxes? 4) Did the Board in determining Nova’s rates and tolls have the authority to vary or confirm Nova’s method for calculating income taxes claimed as a recoverable component in Nova’s rates and charges?

Held: The appeals should be dismissed.

The Board could issue orders retroactively varying, at least to the date of complaint, those company-imposed rates and tolls found to be “unjust and unreasonable”. In making its decision, the Board relied only on statutory provisions directly applicable to the complaints by s. 30 and other provisions of the AGTL Act and found only assurance from its decisions in comparable proceedings.

Nova’s rates paid to the time of the complaint, and the elements of the rate structure not complained of must be taken to be just and reasonable. Precise, specific language is necessary to burden a regulatory authority with a complete investigation of a rate’s justness and reasonableness in a hearing of every complaint. The challenges to the rates and their components were considered in an integrated fashion.

The Board was concerned only with the accounting used to determine the amount of tax to be recovered through Nova’s charges. (Any order directing Nova as to what income tax returns it should make would be ultra vires the Board and was not made.) The Board, authorized by statute to vary or confirm appellant’s method of calculating income taxes in the construction of its rates, had to analyse the taxes recoverable through rates to fully discharge its function of determining whether the rates were just and reasonable.

Northwestern Utilities Limited et al. v. The City of Edmonton, 1978 SCC 17, [1979] 1 S.C.R. 684, distinguished; Re Eurocan Pulp & Paper Co. Ltd. and British Columbia Energy Commission et al. (1978), 1978 BC CA 2196, 87 D.L.R. (3d) 727; R. v. Mansour, 1979 SCC 46, [1979] 2 S.C.R. 916; City of Edmonton, Town of Jasper Place, City of Red Deer and Town of Vegreville v. Northwestern Utilities Limited, 1961 SCC 66, [1961] S.C.R. 392, referred to.

APPEALS from two judgments of the Alberta Court of Appeal[^1] dismissing two appeals from decisions of The Public Utilities Board of Alberta varying the natural gas transportation rates established by appellant. Appeals dismissed.

M.H. Patterson, Q.C., B.A. Crane, Q.C., and H.D. Williamson, for the appellant.

J. Ballem, Q.C., and Leslie L. Fryers, for the respondents.

Robert Young, for TransCanada PipeLines Limited.

Richard Low, for Consolidated Natural Gas Limited.

W.J. Major, Q.C., for Public Utilities Board.

The judgment of the Court was delivered by

ESTEY J.—These are two appeals from the judgments of the Alberta Court of Appeal which dismissed two appeals from the Public Utilities Board of Alberta. The Board had made an order on the application of the respondents relating to the rates established by the appellant for the transportation of natural gas within the Province of Alberta. The respondents are producers of natural gas and the appellant, Nova, is engaged in the collection and transportation of natural gas from the producers to points on the Alberta boundary where the gas is delivered to a class of undertaking sometimes referred to herein as “the shippers”, and including such organizations as TransCanada PipeLines Limited, Alberta and Southern Gas Co. Ltd., West Coast Transmission Company Limited and Pan-Alberta Gas Limited. The shippers transport the natural gas to markets around North America outside the Province of Alberta. The appellant Nova was formerly known as “Alberta Gas Trunk Line Company” and will be herein referred to as “Nova”. The rate hearing and this appeal concern the terms of The Alberta Gas Trunk Line Company Act, 1954 (Alta.), c. 37, (“the AGTL Act”) as amended, and principally s. 30 which it is convenient to set out in full:

30. (1) The company shall from time to time fix and may from time to time vary the rates, tolls and other charges, including the rates and methods of depreciation and amortization, determination of rate base and rate of return thereon, for the gathering, treating, transporting, storing, distributing, commingling, exchanging, handling and delivery of gas carried by its pipe lines and other facilities or any part or parts thereof or for any service performed by the company in relation to the gathering, treating, transporting, storing, distributing, commingling, exchanging, handling or delivery of any gas.

(2) Upon complaint in writing of an interested party, the Public Utilities Board may, or upon the direction of the Lieutenant Governor in Council shall, after notice to and hearing of the parties interested, determine the justness and reasonableness of the rates, tolls or other charges fixed or varied by the company and by order in writing may vary or confirm the rates, tolls or other charges.

(3) Where the Public Utilities Board varies a rate, toll or other charge fixed or varied by the company, its order shall specify that the variation shall remain in full force and effect until a specified date or until the date of the happening of a specified event but in no case shall the period involved exceed 12 months.

(4) The provisions of Part I of The Public Utilities Board Act apply with respect to matters within the jurisdiction of the Public Utilities Board under this section in so far as they do not conflict with the provisions of this section.

By s. 16 of the AGTL Act, The Gas Utilities Act, R.S.A. 1970, c. 158, which ordinarily applies to the transportation of natural gas to consumers in the Province of Alberta is made inapplicable to the operations of Nova. As will be seen from subs. (4) of s. 30 above, Part I of The Public Utilities Board Act, R.S.A. 1970, c. 302 (“the PUB Act”) applies with respect to proceedings under the AGTL Act where those provisions are not in conflict with the latter statute. Some reference will be made below to the PUB Act, supra.

As will be noted from the terms of s. 30, supra, the plan for the establishment of the cost of shipping gas through the facilities of Nova is initiated by the announcement of rates and tolls by Nova for the use of its facilities. Thereafter, on complaint or on the direction of the Lieutenant Governor in Council, the Public Utilities Board (“the Board”) shall determine “the justness and reasonableness” of the tolls and other charges fixed from time to time by Nova. Pursuant to s. 30(2) of the Act the respondent-producers, in mid-1977, filed a complaint with respect to the rates then being charged by Nova, in the following terms:

The companies complain that the rates, tolls or charges fixed by AGTL are not just and reasonable because they provide for depreciation at a rate which is excessive for AGTL’s system and also provide for the treatment of income taxes on a deferred basis. The companies say that the just and reasonable treatment for income taxes by AGTL should be on a flow-through rather than deferred basis.

The companies respectfully ask the Board to determine that the rates, tolls or charges presently fixed by AGTL are not just and reasonable and ask that the same be varied by the Board to provide for flow-through treatment of income taxes and depreciation compatible with the life of the reserves tributary to the system.

A further and similar complaint was filed with respect to the rates proposed by Nova for the year 1979.

In response to these complaints the Board held a number of hearings and announced, between September 8, 1978 and February 6, 1979, a series of decisions as follows:

(1) Decision No. E78106 dated September 8, 1978 denying an application to introduce additional evidence by way of rehearing. (Not appealed)

(2) Decision No. C78147 dated November 8, 1978 being the final order. (Appealed)

(3) Decision No. E78140 dated November 17, 1978 being an interim order respecting the effective date of the final order. (Not appealed)

(4) Decision No. E78143 dated November 30, 1978 granting an application for review and variance of Decision C78147. (Not appealed)

(5) Decision No. C78305 dated December 21, 1978 varying Decision C78147. (Appealed)

(6) Decision No. C78221 dated December 21, 1978 being a determination of the rate of return on investment of Nova. (Not appealed)

(7) Decision No. E79027 dated February 6, 1979 (interim order) effective for twelve months commencing January 1, 1979 and directing the continuance during that period of the method of accounting for taxes and depreciation theretofore prevailing in the accounts of Nova. (Appealed)

In the result, therefore, we are concerned with an amended order that is a combination of Decisions C78147 and C78305 determining certain accounting procedures, as we shall see in more detail shortly, for the calendar year 1978; together with the continuance of those procedures through the calendar year 1979 by Decision E79027. This procedure, using both final and interim orders, is obviously adopted by the Board because of the requirement that its orders of variation shall remain in force and effect for a maximum of twelve months. How that term is to be measured in law we shall come to later.

The following is the Board order with reference to the 1978 rates issued on November 8, 1978 (C78147) and varied on December 21, 1978 (C78305) (as shown above):

(1) AGTL shall, for the twelve month period ending December 31, 1978, include in its cost of service depreciation expense calculated using the rates, methods and in the manner used by AGTL immediately prior to November 1, 1975.

(2) AGTL shall, for the twelve month period ending December 31, 1978, include in its cost of service only income taxes payable in respect to that year. The taxable income is to be calculated on the “flow-through” basis, claiming maximum capital cost allowance, or claiming a lesser amount of capital cost allowance as the Board may approve.

The interim order issued on February 6, 1979, (E79027), supra, provided as follows:

(1) Pending the final determination of the matter, the income taxes component of AGTL’s rates, tolls and other charges shall be determined on the “flow-through” basis claiming maximum capital cost allowance and not as set out under (b) of the Resolution of The Board of Directors quoted in Section 6 of this Interim Order.

(2) This Interim Order shall be effective with respect to all billings made by AGTL after the date of this Interim Order and shall remain in effect thereafter for a 12 month period pursuant to Section 30 of The Alberta Gas Trunk Line Company Act unless replaced at an earlier date by a further or final order in the matter.

There is therefore a hiatus between the 1978 rate orders quoted above and the commencement of the interim order for the period commencing February 6, 1979, but this would appear to be of no consequence in the final disposition of this appeal, presumably for the reason that the Board, in finally disposing of the 1979 issue, might issue a final order going back to the date of the application in early January 1979.

These proceedings raise four principal issues:

(1) Does the Board have the authority under the AGTL Act, supra, to make its order effective for the twelve month period commencing January 1, 1978 and ending December 31, 1978 when the orders were issued on November 8 and December 21, 1978; that is, can the Board under the statute make a retroactive or a retrospective order?

(2) Can the Board make an order in response to a complaint which does not expressly determine the justness and reasonableness of Nova’s rates, tolls and other charges established by Nova under the Act but which confines itself to dealing with the specific complaints raised by the complaining producers?

(3) Does the Board order have the effect of directing Nova as to the manner in which Nova must pay its taxes under the Income Tax Act, 1970-71-72 (Can.), c. 63, as amended?

(4) Does the Board, in determining the rates and tolls which may be levied by Nova under the Act, have the authority to vary or confirm Nova’s method for calculating the income taxes which Nova claims as a recoverable component in its rates and charges?

Of the five judges of the Alberta Court of Appeal who heard the case, four, speaking through Clement J.A., held against Nova on each of these issues. Prowse J.A., though concurring in the result, disagreed with the majority of the Court of Appeal on several points. He was of the view that the Board erred in considering in isolation a single component of price, tax expense, whereas its jurisdiction was to consider the justness and reasonableness of the overall rates. This isolated treatment, he held, was evidenced by the Board’s failure to consider parallel proceedings regarding “rate of return”, and the treatment there accorded to “normalized” tax calculation. The Board, he said, had wrongly assumed that it had a general jurisdiction over the affairs of the company. This assumption was further evidenced, in the view of Prowse J.A., by the Board’s attempt to control the manner in which the company satisfied its tax liability to Revenue Canada. Moreover, he agreed with the appellant’s submission that s. 30 gave the Board no power to make retroactive or retrospective orders. In the result, however, he dismissed the appeal. He was of the view that the appellant was attempting to retain the benefits of the “rate of return” decision reached in the parallel proceedings, while attacking the order presently in issue. The two, he held, together fixed the company’s rates for 1978. It was not open to the appellant, he said, to approve and reject those rates at the same time by appealing one decision while seeking to retain the benefit of the other.

Retroactivity of Section 30

In determining whether or not the Board may issue orders which affect past transactions I find the analysis of Prowse J.A. in the Court of Appeal helpful:

In drafting this legislation some of the options open to the legislature were:

a) to give the Board jurisdiction to make retroactive orders, orders that change past transaction [sic];

b) to make retrospective orders, that is, orders which attach new consequences to past transactions such as prospective orders that take into account losses or gains incurred or accrued prior to the effective date of the order;

c) to make orders strictly prospective in operation and effect.

Reference was made in argument before this Court and in the courts below to the decision of this Court in Northwestern Utilities Limited et al. v. The City of Edmonton[^2]. In that case, however, the Court was dealing with The Gas Utilities Act, supra, expressly made inapplicable here by the AGTL Act, supra, and it was found both here and in the courts below that the former Act established a scheme of rate regulation which was prospective in its pattern with one exception dealing with losses incurred during the hearing of an application for a rate increase. I find that decision to be of no assistance in approaching the problem under the AGTL Act here before the Court.

The order of the Board here is clearly retroactive, and the question is, does s. 30 authorize such an order? A short history of s. 30 is useful in dealing with this issue. The first enactment of s. 30, in The Alberta Gas Trunk Line Company Act, 1954 (Alta.), c. 37, was considerably shorter than the present version. It read:

30. (1) The Directors shall fix the just and reasonable rates, tolls and other charges for the gathering, transporting, distributing, handling and delivery of all gas carried by the company’s pipe lines and other facilities or any part or parts thereof.

(2) Upon the application of the company or any interested party or by direction of the Lieutenant Governor in Council, the Board of Public Utility Commissioners may vary or fix the rates so fixed by the company whether or not the company has been declared to be a common carrier by the Petroleum and Natural Gas Conservation Board and the provisions of The Public Utilities Act, with whatever changes are necessary, apply to such application or direction.

Under this section, the charges were “fixed” by the Directors of the company, and judged by the yardstick of “justness and reasonableness”. The mechanics of that judgment, however, were not detailed. An application was made to the Board of Public Utility Commissioners, the predecessor of the present Board, and The Public Utilities Act was incorporated in its entirety. The Board was to “vary or fix” rates previously “fixed” by the company.

The uncertainty generated by having two bodies both “fix” the same rates was resolved, at least in part, by amendments in 1970 (Alta.), c. 5, s. 8. Section 30 was repealed and re‑enacted in a substantially expanded form:

30. (1) The company shall from time to time fix the rates, tolls and other charges for the gathering, treating, transporting, storing, distributing, handling and delivery of gas carried by its pipe lines and other facilities or any part or parts thereof, or for any service performed by the company in relation to the gathering, treating, transporting, storing, distributing, handling or delivery of any gas.

(2) Upon complaint in writing of an interested party the Public Utilities Board may, or upon the direction of the Lieutenant Governor in Council shall, after notice to and hearing of the parties interested, determine the justness and reasonableness of any rate, toll or charge fixed by the company and by order in writing may vary or confirm the rate, toll or charge.

(3) Where the Public Utilities Board varies a rate, toll or charge fixed by the company, its order shall specify that the variation shall remain in force and effect until a specified date or until the date of the happening of a specified event but in no case shall the period involved exceed 12 months.

(4) The provisions of Part I of The Public Utilities Board Act apply with respect to matters within the jurisdiction of the Public Utilities Board under this section in so far as they do not conflict with the provisions of this section.

The initial responsibility of the company to fix rates was clarified. The Board, upon complaint, was to “vary or confirm” the rates, applying the standard of “justness and reasonableness”. For the first time, subs. (3) made provision for the life span of Board orders; and subs. (4) curtailed the wide application of the PUB Act, supra. The elements of a self-contained code of rate regulation appeared.

The first three subsections of s. 30 were again amended by 1974, (Alta.) c. 7, s. 19. The changes are essentially ones of detail. The present subsections (1) to (3), with the 1974 amendments underlined, are set out again for convenience:

30. (1) The company shall from time to time fix and may from time to time vary the rates, tolls and other charges, including the rates and methods of depreciation and amortization, determination of rate base and rate of return thereon, for the gathering, treating, transporting, storing, distributing, commingling, exchanging, handling and delivery of gas carried by its pipe lines and other facilities or any part or parts thereof or for any service performed by the company in relation to the gathering, treating, transporting, storing, distributing, commingling, exchanging, handling or delivery of any gas.

(2) Upon complaint in writing of an interested party, the Public Utilities Board may, or upon the direction of the Lieutenant Governor in Council shall, after notice to and hearing of the parties interested, determine the justness and reasonableness of the rates, tolls or other charges fixed or varied by the company and by order in writing may vary or confirm the rates, tolls or other charges.

(3) Where the Public Utilities Board varies a rate, toll or other charge fixed or varied by the company, its order shall specify that the variation shall remain in full force and effect until a specified date or until the date of the happening of a specified event but in no case shall the period involved exceed 12 months.

The appellant chooses to approach the problem of retroactivity by commencing at s. 30(3). That subsection expressly provides that the Board’s “variation shall remain in full force and effect until a specified date…” In the view of the appellant “the entire thrust of the section is prospective…” and “can only be read as meaning that any variation shall take effect at the date of the order and continue in effect into the future”. A different hue is placed upon the subsection if the interpretation commences at the beginning of the subsection with the verb “varies”. In the context of the sentence that verb has neither retroactive nor prospective application of necessity. Similarly subs. (2) is capable of bearing the sense of retroactivity in any order which “may vary or confirm the rates or tolls or other charges”. Clearly those rates and tolls, by the pattern adopted by the legislation, must be those established by Nova prior to the initiating complaint. It follows logically that the Board’s requested review should commence at least at the date of the complaint about those company-established rates. The words of subs. (2) are capable of supporting the conclusion that the legislative intent was to enable the Board to make a variation to those company-imposed rates and tolls, where the Board has found them to be “unjust and unreasonable”, with retroactive effect at least the date of the complaint.

While each statute must, for the purpose of its interpretation, stand on its own and be examined according to its terminology and the general legislative pattern it establishes, sometimes assistance in determining the meaning of the statute can be drawn from similar or comparable legislation within the jurisdiction or elsewhere. Such is the case here where reference can profitably be made to a decision of the British Columbia Court of Appeal, Re Eurocan Pulp & Paper Co. Ltd. and British Columbia Energy Commission et al.[^3] In that case the British Columbia Energy Commission was reviewing under the Energy Act, 1973 (B.C.), c. 29, a rate established by a public utility, on the complaint of a consumer that such rates were “unjust, unreasonable, insufficient, or unduly discriminatory, or in contravention of this Act or the regulations or any law…” That Act authorizes the Energy Commission, after a hearing, to “determine the just, reasonable, and sufficient rates to be observed and in force, and [the Commission] shall, by order, fix the rates” (s. 38(1)). Section 38(2) of the British Columbia statute goes on to provide:

The energy utility affected by the order under subsection (1) shall thereupon amend its schedules in conformity with the order and file amended schedules with the commission.

The British Columbia Court of Appeal found such a statutory pattern to authorize the Commission to issue retroactive orders. The Court speaking through Chief Justice Farris stated at p. 731:

Under either section it is contemplated that the Commission may consider rates established and collected by a utility in the past, or rates to be collected or enforced by it in the future. In the former case there would be a retroactive aspect to any consequent order made by the Commission. Under s. 38 it seems clear that the Commission would have jurisdiction to entertain a complaint that existing rates in effect and collected are unjust or insufficient. In that event it would clearly have jurisdiction to correct the injustice or the insufficiency. There is nothing to lead one to the conclusion that the Legislature intended that the Commission could only act in this respect prospectively.

The Chief Justice concluded at pp. 731-32:

Reading the Act as a whole, it is my opinion that the Commission has been empowered to make rates effective to the date of application, even though there is no specific language in the Act to that effect.

We are not here faced with the necessity of determining whether the Board might make its order retroactive to the date of application or further back. This is so because the orders under appeal do not reach back in their effectiveness to the date of the complaint. Neither do we have to determine whether the Board order, which must in no case remain in effect for a period greater than twelve months, must straddle the date upon which such order is issued. Such happens to be the case here and, in my view, these orders do not, for this reason, offend the Act; nor must we determine whether the orders of the Board must reach up at least to the date of their issuance, as is the case here.

In construing the first three subsections of s. 30 it is imperative to bear in mind that the scheme of the Act contemplates the transportation company, Nova, to be the moving party. Nova has the right to take the initiative to place in effect the rates, tolls and other charges which it wishes to recover from the users of its facilities. It is the plan of the AGTL Act, supra, that the user of these facilities, if it finds the rates imposed by the company to be excessive, may institute a complaint in writing to the Board. The statute then requires the Board to determine the justness and reasonableness of the rates and to either vary or confirm those rates according to its findings. Viewed in the light of this statutory pattern the terminology employed by the Legislature in my view lends itself readily to the construction authorizing the Board to vary the rates proposed by the company, at least retroactively to the point where the complaint was filed by a user of the company’s facilities.

It perhaps should be emphasized that in the statutory pattern under which the Northwestern Utilities decision, supra, was reached, no rates came into effect until authorized by the Board, and then those rates continued in effect until varied or replaced by the Board. Here, the process is reversed. Under the AGTL Act, supra, Nova is required to fix and publish rates to be charged for the use of its facilities. The statute does not require that Nova in so doing shall establish rates which are necessarily just and reasonable. Whatever rates the company establishes are those in law recoverable unless and until a complaint is made and thereafter a variation in those rates is ordered by the Board. The statute provides for hearings through which the complaint is processed, and here those hearings occupied the Board from mid‑1977 until late in 1978. When this process, as mandated by the Act, is complete the only express condition placed upon the Board in making an order is that the order shall not remain in effect for longer than twelve months. The Board in these circumstances determined that the variation effected by the Board in respect of the rates established in the first instance by Nova would take effect and apply throughout the calendar year 1978. The effect of this sequence of actions is that the complainants are left without relief with respect to those charges paid from the date in 1977 when their complaint was filed with the Board until the end of the year 1977. The second result is that Nova is free upon the expiry of the order at the end of 1978 to establish, once again, whatever rates it may wish to recover from its customers; subject of course to the right in an interested party to file a complaint, as indeed was done here by the producers. If the Board is confined by the wording of s. 30 to prospective orders, considerable hardship will fall upon the recipients of Nova’s services in that the charges therefor would be recoverable throughout the period during which the Board must devote its processes to a determination as to whether those rates imposed by Nova are in fact just and reasonable. If the Board, after this prolonged and complex process, determines that the rates placed in effect by Nova are indeed unjust and unreasonable, then the gas producers will necessarily have paid during the protracted period after their complaint, unjust and unreasonable charges for Nova’s services. I do not read the provisions in s. 30(2) and (3) as requiring such a result and I respectfully find myself in agreement with the majority of the Court of Appeal in finding that the Board orders, made effective January 1, 1978, are within the authorization of the AGTL Act, supra.

The Determination of the Justness and Reasonableness of Rates, Tolls and Charges

This brings one to the second issue, namely the question whether the Board had the power to issue its orders now under appeal with respect to the complaints made to the Board by the producers in mid-1977 without an express determination as to the justness and reasonableness of the rates, tolls and other charges imposed by Nova and applicable unless otherwise varied by the Board from 1977 onwards. By their complaints as set out above, the producers have challenged the right of Nova to incorporate in their charges depreciation rates which the respondent‑producers describe as excessive; and secondly, the producers asked the Board to provide that Nova may include in its recoverable charges only those income taxes payable when calculated on a “flow-through” basis (described and defined later). In effect, the second branch of the complaint asks that Nova be limited to including in its recoverable charges under its tariff of rates and tolls only those income taxes actually paid by Nova during the year or period in question. The Board responded to these complaints by dealing with each of these two items. The Board did not, in express words, find, in the course of this response, that the rates charged by Nova for its services were unjust and unreasonable. Nor did the Board expressly state that after giving effect to its orders, the resultant rates of Nova would be just and reasonable.

In issuing its decision No. C78147 the Board stated as follows:

(f) Board Conclusions

The Board considers that, in the absence of specific legislation authorizing the inclusion of deferred income taxes in its rates, tolls or charges, the only income taxes that AGTL should charge and collect are income taxes that are payable and are actually to be paid in respect to the current year by AGTL. The Board has consistently taken this position in respect to all “utilities” within its jurisdiction.

The Board considers that, as a regulatory authority performing its regulatory function, it insures that costs and revenues are appropriately matched both in the short term and the long term, when a company is permitted to collect, through its rates, tolls or other charges, the income taxes actually paid each year.

The appellant makes two complaints about these conclusions as reached by the Board. Firstly it is said that in the reference in the last sentence of the first paragraph of this quotation, the Board has mistakenly instructed itself to deal with these complaints and the variations to Nova’s rates in the same way as the Board does with respect to rates recoverable by public utilities under The Gas Utilities Act, supra. In my view the Board, in this statement, has done nothing more than find comfort or assurance in the conclusion reached on these complaints from decisions reached by the Board in comparable proceedings elsewhere in its activities. Nowhere does the Board reveal any reliance by it on statutory provisions other than those made directly applicable to these complaints by s. 30 and the other provisions of the AGTL Act, supra.

The second objection by the appellant is that s. 30 authorizes the Board only to proceed on the basis of findings or determinations with respect to “the justness and reasonableness of the rates, tolls or other charges fixed or varied by the company…”.

In the course of the succession of hearings conducted by the Board in response to the complaints by the producers, considerable evidence was led by the parties, including the appellant, with respect to the specific issues raised by these complaints. No evidence was proffered by the appellant concerning the general issue of justness and reasonableness of its rates. No argument was apparently advanced by the company during the proceedings before the Board that the Board must not only deal with the specifics of the complaints advanced by the producers but also with the entire question as to the justness and reasonableness of the rates of the company viewed generally and beyond these two specific items of complaint. The parties in this Court and below agreed, or assumed in their presentations, that rates recoverable by Nova are comprised of four elements:

1. cost of service of transportation rendered by Nova to its customers;

2. depreciation;

3. income taxes;

4. a return on its investment or rate base.

Only items 2 and 3 were put in issue by the complaints before the Board and evidence and argument presented to the Board related only to these two elements. The record reveals no discussion throughout these complex and lengthy proceedings (dealing with the complaint of producers, supra) of the other two components in Nova’s rates.

Quite apart from the factual background, it follows inexorably that if Nova has, pursuant to the statutory directives of the Act, established rates which have been paid up until the complaint at least by the producers, then the rates of the company so in place are taken to be just and reasonable. By their complaints the producers have placed in issue only the question of depreciation and income taxes, and otherwise, by their silence, have accepted the balance of the components in Nova’s rates as being just and reasonable. The Board, in not responding to these complaints other than to deal with and dispose of the two items so advanced, must be taken to have assumed that nothing passing before the Board in these hearings has occasioned it to find any element of unjustness or unreasonableness in Nova’s rates apart from the two items complained of. Unless the statute, by very precise and specific language, were to impose upon the regulatory authority the burden, on the hearing of every complaint, of investigating the basic and complete justness and reasonableness of rates established by the deliverer of the services in question, a court should be loathe to read such an unusual meaning into the words employed by the Legislature. I decline to do so on the basis of the terminology of the Act here before us. This conclusion is supported by the practice and conduct of the parties themselves throughout those proceedings before the Board. I therefore find no merit in the submissions of the appellant with respect to this second issue.

I do not wish to leave this second issue without making reference to a submission by Mr. Patterson, counsel for Nova, to the effect that the Board orders, numbers C78147 and C78305 in November and December 1978, because they do not deal with the entire issue of the justness and reasonableness of Nova’s rates, leave the company in a quandary as to its position under these orders and an order issued by the Board on the same date, December 21, 1978, relating to the return on investment (No. C78221). The Board had before it at the same time as the complaints of the producers with reference to income tax and depreciation, a complaint by the same producers and by the shippers filed in December 1977 concerning the rate of return employed by Nova as the fourth component in its rate computation. The actual complaints of the producers read in part as follows:

2. The Complainants submit that the rates, tolls or charges fixed by AGTL are not just and reasonable. AGTL has fixed its rates of return on its rate base at 10¾%, effective December 1, 1977, and the Complainants say that such rate of return is excessive.

3. The Complainants respectfully ask the Board to determine that the rates, tolls or other charges presently fixed by AGTL are not just and reasonable and ask that the same be varied by the Board so as to provide for a return on rate base at such rate as the Board may determine to be just and reasonable, effective December 1, 1977.

By its Decision C78221 issued on December 21, 1978, the Board stated:

(1) For the twelve month period ending December 31, 1978, the rate of return component of AGTL’s Alberta Cost of Service shall be reduced from 10.75% to 10.55% per annum on the net rate base.

This order is not subject to appeal by Nova although it deals, in the words of Nova’s counsel before this Court, “piecemeal” with the question of the justness and reasonableness of the rates established by Nova. It of course deals only with element or component number four in the four components mentioned above of a rate or charge by a person supplying services as does Nova. The acceptance of this order by Nova is an answer, and in my view a complete answer, to the argument by the appellant that by conducting its operations in this fashion the Board has exceeded its jurisdiction in that it has not on an overall and complete basis found these rates to be unjust or unreasonable. Put another way, the Board is faulted for not finding the rates to be just and reasonable but rather dealing erroneously and harmfully with items of charges embodied in the company’s rates. At pp. 49-51 of the Board Decision No. C78221 dated December 21, 1978 and dealing with the rate of return on investments which the Board might incorporate in its rates, the Board had this to say:

6. BOARD CONCLUSIONS

Following careful scrutiny and consideration of the substantial evidence and arguments submitted by the parties, being guided by the three principles quoted above and the conclusions reached in the matter of the issues heretofore mentioned, and considering the change which has taken place as a result of Board Decision C78147 which dealt with the matters of AGTL’s depreciation and income taxes, the Board has arrived at the following conclusions:

1. AGTL in its decision to reassess its rate of return component, may have exceeded reasonableness in increasing it from 10 3/8% to 10 3/4% effective December 1, 1977.

2. In its consideration of what would be a fair and reasonable rate of return, the Board developed the following table using the estimated “Average Rate Base” as shown on Schedule 2-4 (Vol. 1 AGTL) Exhibit 2;

Capital Ratios

Rate Base

Cost Factor

Return

($000)

($000)

Debt

37.06

237,517

8.72

20,711

Preferred

25.46

163,173

8.69

14,180

Deferred Tax

5.48

35,121

7.03

2,470

Equity

32.00

205,088

14.75

30,250

100.00

640,899

10.55

67,611

2. (Continued) This table illustrates that an overall rate of return of 10.55% (after providing for a cost of deferred tax in the amount of two-thirds of the rate of return) will provide a return of 14.75% on that portion of the rate base that is deemed to be financed by common equity capital.

The Board concludes that an overall rate of return on rate base of 10.55% is just and reasonable for the period of time that the Board’s Order will be in effect.

The record does not reveal nor could counsel precisely answer the question as to whether the deferred tax item shown in the above table does indeed reflect the effect of Decision C78147, being one of the orders of the Board under appeal. However, in the absence of precise evidence on this point it is open to this Court to assume that the reference by the Board to the result of its Decision C78147 justifies a conclusion that the Board was indeed not dealing piecemeal with the issue of the justness and reasonableness of the rates imposed by Nova but was indeed responding in an integrated fashion to all those challenges made by “interested parties” to these rates and to their components.

Section 30(4) of the AGTL Act incorporates Part I of The Public Utilities Board Act, supra, where the provisions of the latter do not conflict with the Act. One such section of the latter statute is s. 53 which authorizes the Board to make:

an order granting the whole or part only of the application, or may grant such further or other relief in addition to, or in substitution for, that applied for as to the Board seems just and proper, as fully and in all respects as if the application had been for such partial, further or other relief.

This supportive or ancillary provision in the Board’s administrative jurisdiction would appear to give further support to the decisions of the Board in response to specific complaints without the conduct of a general hearing to determine whether the rates imposed by Nova under the Act are “just and reasonable”.

It must be observed that the effectiveness of the appellant’s submission on this second issue is greatly undermined by the fact that the appellant has not appealed against the Board decision issued on December 21, 1978 establishing, by variation of Nova’s charges, the requirement that the rate of return on investment be reduced for the calendar year 1978. The appellant, by this conduct, has acknowledged in fact that the complaint process under s. 30 does envisage an item-by-item review of the components of the rates imposed.

The “Direction” as to Payment of Taxes

The appellant attacks the Board orders on a third basis, namely that “the order, in clear language, makes a direction as to the manner in which the appellant must satisfy its obligation to Revenue Canada to pay income taxes”. This presumably refers to the second paragraph of the conclusions in Board Decision C78305 wherein the Board states:

The taxable income is to be calculated on the “flow-through” basis, claiming maximum capital cost allowance, or claiming a lesser amount of capital cost allowance as the Board may approve.

This conclusion, however, must be read in the light of the Board’s earlier comments in its Decision C78147 to which I have earlier made reference:

The Board considers that, as a regulatory authority performing its regulatory function, it ensures that costs and revenues are appropriately matched both in the short term and the long term, when a company is permitted to collect through its rates, tolls and other charges, the income taxes actually paid each year.

The Board’s concept of taxes as a charge recoverable by rate is further elucidated in its Decision No. C78305 dated December 21, 1978, also referred to above, wherein the Board stated in its order:

AGTL shall for the twelve month period ending December 31, 1978 include in its cost of service only income taxes payable in respect to that year. [Underlining added.)

It is clear throughout the Board orders under appeal that the Board was directing its attention to:

a) only that part of the business of Nova related to its gas transmission undertaking; and,

b) the need to vary Nova’s established rates, so as to match the cost of its gas transmission service to the revenue to be produced by the rates when so varied.

Since taxes were taken by all parties during the hearings before the Board as being one of the charges recoverable by Nova in its rates to its customers, the Board concerned itself that the quantity to be included in the charges of Nova with respect to taxes should be only those taxes which would be paid by Nova if it were to claim maximum capital cost allowances authorized by the tax statute, in its taxation returns. Therefore, the Board was not concerned with what Nova actually did with reference to its obligations under the Income Tax Act, supra, but only what accounting Nova followed when determining the quantity referable to taxation, to be included in the ‘charges’ which Nova seeks to recover through its rates and tolls. Indeed, if the Board were less explicit in its order, it would be possible for Nova actually to pay more taxes than would be required if the flow‑through method were adopted in its returns under the Income Tax Act, supra, and then include those actual taxes as charges to be recoverable under the rates established by Nova. The Board, by its order and the explanation of that order as given in its decisions, clearly sought to limit the charges submitted by Nova with respect to taxation to only those taxes which would be paid if Nova were to claim in its tax accounting maximum capital cost allowances.

It is clear therefore that the Board nowhere in its orders under appeal has directed Nova as to what returns, if any, should be made by Nova to Revenue Canada under the Income Tax Act, supra. All parties agreed before this Court that such an order would be beyond the powers of the Board but in my view it is clear that no such order has been made by the Board.

Jurisdiction to Consider Income Taxes

The final challenge by the appellant is to the effect that the Board had no jurisdiction to vary the appellant’s methods of calculating income taxes. It is said that the provisions of s. 30 do not include expenses incurred by Nova with respect to income taxation and that consequently, since the “rates, tolls and other charges” imposed by Nova do not include income taxes as such, it follows that the Board may not vary the rates, tolls and other charges on any basis relating to taxation considerations. The argument goes on that if the company has the power to include in its imposed charges a component reflecting income taxation, it may only do so by reason of the fact that Nova has in fact here incurred such an expense by reason of specific contracts with shippers whereunder Nova may charge against the shippers, as part of the cost of Nova’s transportation services, income taxes calculated in a manner prescribed in those contracts. The argument goes on to claim that since these costs are incurred by contract and are not included in the description of rates, tolls and other charges in s. 30(1), the Board has no authority to vary the charges so incurred by contract and incorporated through the contract into s. 30(1).

It is helpful in dealing with this submission to recall the history of s. 30 of the Act, set out above. By an amending act, 1970 (Alta.), c. 5, s. 30(1) was enacted in substantially its present form except that the words “including the rates and methods of depreciation and amortization, determination of rate base and rate of return thereon…” were not included. These words were added in 1974 by an amending act, 1974 (Alta.), c. 7, s. 19. It has, of course, long been decided that the use of the word “including” by the statutory draftsman is an expansive technique which amplifies the meaning of the words preceding it. Vide R. v. Mansour[^4], where this Court stated at p. 920:

I have not overlooked the fact that the definition employs the expansive word “includes” rather than the word “means”. In applying this definition to the facts in question, I adopt the statement in Maxwell on Interpretation of Statutes, 12th ed., p. 270 which reads as follows:

Sometimes, it is provided that a word shall “mean” what the definition section says it shall mean: in this case, the word is restricted to the scope indicated in the definition section. Sometimes, however, the word “include” is used “in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include.” In other words, the word in respect of which “includes” is used bears both its extended statutory meaning and “its ordinary, popular, and natural sense whenever that would be properly applicable.”

It is obvious first of all that the addition of a definitive phrase commencing with the word “including” expands the ordinary meaning of that which precedes the word “including”, but also it must be added that such a technique does not revise or diminish the ordinary meaning of the preceding word. It therefore follows, in my view, that the words “rates, tolls and other charges” in s. 30(1) are not diminished, but rather are illustrated and amplified by the reference following those words to “rates and methods of depreciation and amortization, determination of rate base and rate of return thereon…”

This brings us then to the question as to whether taxes incurred or actually paid may be included by the company in the rates it establishes to recover its costs of operation from its customers; and then, if so included, may they be the subject of variation by the Board under subs. (2)?

As has been stated, the plan of the Act is very simple and very clear. Nova is recognized as a virtual monopoly engaged in the business of transporting gas from producers’ wells to border points for transmission onwards to national and international markets. Its operations are regulated in various ways and we are here concerned with the regulation of its otherwise unlimited, unilateral power to levy charges upon its customers for its monopolistic services. The restraint we find in s. 30. On the other hand, the AGTL Act clearly recognizes the need for Nova to recover from its customers all charges necessary to reimburse the company for the cost of rendering those services, as well as a return on its investment in facilities which make possible the delivery of such transportation services. Clearly there are regulatory patterns which do not recognize as a cost of doing business, the payment of income taxes which result from the generation of a profit from that business. The Board, operating under this statute, has, however, long recognized, as have the parties, that the taxes paid are indeed a cost which may be recoverable through rates imposed upon customers for gas transportation services. This Court discussed this matter in connection with operations under The Gas Utilities Act, supra, not the Act now before the Court, but which clearly recognized taxes, including income taxes, as being one of the expenses incurred in the course of the business of transportation of gas. Locke J., speaking for the Court in City of Edmonton, Town of Jasper Place, City of Red Deer and Town of Vegreville v. Northwestern Utilities Limited[^5], stated at p. 405:

In approving rates which will yield a fair return to the utility upon its rate base, it is, of course, essential for the Board to estimate the expenses which will necessarily be incurred thereafter in rendering the service. The fair return permitted is, after deducting from the gross revenue these necessary estimated expenditures and such necessary outgoings as taxes, including income taxes. The Board can only come to a conclusion as to what rates should be approved by determining as closely as may be done in advance the probable amount of these expenditures.

Once it is accepted that taxes are an outgoing which may be recovered through rates, it follows that the Board may not fully discharge its function in determining whether rates are just and reasonable unless some analysis is applied to the quantum of taxes sought to be recovered through rates levied against customers. Here the Board was faced with at least two alternatives. It might direct the recovery of:

1. taxes calculated on a flow-through basis; or,

2. taxes calculated on a normalized basis.

The Board summarized these two alternatives:

These two methods can be defined as follows:

(1) Normalized Method

The “booked depreciation expense” is used as an expense for the purpose of calculating the income tax expense included in the Cost of Service or Revenue Requirement. The income tax thus calculated may be paid or it may be partially deferred by using capital cost allowance rates to calculate the current tax payable and actually paid.

(2) Flow-through

Capital cost allowance is used as an expense for the purpose of calculating both the income tax expense included in the Cost of Service or revenue requirement and the current tax payable and actually paid.

The properly applicable base is, of course, not an issue before this Court. The only issue is as to whether the Board is authorized by statute to vary or confirm the method of calculating income taxes adopted by the appellant in the construction of the rates, tolls and other charges which the appellant Nova has imposed upon its customers. The appellant has itself consistently recognized that income taxes are a cost component to be taken into account in establishing proper rates for its services. In a prospectus in the record before the Court issued on November 23, 1977, the appellant included a reference to “income and other taxes” as a cost of service. Again on January 12, 1979 Nova’s Board of Directors passed a resolution declaring that:

The following components of the company’s rates, tolls and charges applicable to gas transmission services rendered by the company are hereby fixed commencing with the month of January 1979…

(b) income taxes collected on a normalized basis together with a collection of past deferred taxes.

As already mentioned, the rates, tolls and other charges recovered by Nova from its shippers by contract include as a cost of service income taxes paid by Nova, or calculated by Nova as being referrable to the services in question.

The appellant goes on to say, however, that where the taxes have been determined to be an expense recoverable through company-applied rates by reason of a contract with its customers, such charges so assumed by Nova may not be varied by the Board. The appellant put it this way in its factum:

As submitted above it is conceded that the Board could hear the aspect of the complaint regarding income taxes. It could determine whether or not the rates, tolls, and other charges the Appellant was empowered to fix or vary under Section 30 (1) were just and reasonable, by virtue of the treatment of income tax expense set out in certain contracts with certain Shippers. If the Board were to determine that the rates, tolls and other charges were unjust and unreasonable by virtue of the treatment of income tax expense the Board could then, by order, vary the rates, tolls and other charges. It could not, however, in the Appellant’s submission, make an order which directed the Appellant to vary its method of calculating income tax expense.

The appellant adds in this argument that, in the exercise of its statutory power to fix or vary its rates, tolls and other charges, Nova is not “given the power to unilaterally disregard its contractual undertakings with its Shippers…”.

Some light is shed upon the practices of the parties before the Board and now this Court by the history which the pricing of gas took during the 1970’s. Prior to November 1975 the cost of transportation of gas from the wellhead to the consumer was borne by the consumer as being a cost added to the cost paid by the gas utility to the producer for the natural gas at the wellhead. After 1975 any increase in the cost of transportation of the gas from the wellhead to the consumer distribution facility was deducted from the price paid by the shipper of the natural gas to the producer at the wellhead. Two of the shippers, being the companies to which Nova delivered gas at the Alberta boundary, Alberta and Southern Gas Co. Ltd. and West Coast Transmission Company Limited, entered into an agreement with Nova in 1973 in which it was agreed that the cost of transportation services rendered by Nova to these shippers would include a charge for income taxes calculated on a normalized basis. It is said by the respondents and not challenged by the appellant that this arrangement was possible by reason of the fact that these two shippers could pass on these additional costs to their customers in the United States. Subsequent to the change in pricing in Canada occurring in November 1975 as above mentioned, Nova entered into a similar agreement with TransCanada Pipe-Lines Limited and Pan-Alberta Gas Limited. One shipper, Consolidated Natural Gas Company Limited, had, to the date of the proceedings before the Board, not entered into any such agreement with Nova.

The appellant made reference to the fact that in 1971 the Board directed the company, in effect, to adopt the normalized tax method for computing the tax component in the cost of service to be recovered under the company’s rates, tolls and charges. It is clear from the reference in the Board’s decision that the reasons which impelled the Board to make such a recommendation or directive in 1971 did not apply in 1978 and 1979. Indeed, the Board makes reference to the fact that the appellant had failed to demonstrate the presence of special circumstances which would justify the Board in authorizing the continuance of the normalizing of the tax procedure. No doubt the same comments apply with reference to the depreciation charged by the company in its rates. The Board, as we have seen, has directed that the company return to the method of calculating depreciation rates which prevailed in its accounting prior to 1975. No challenge is made with respect to the legal authority of the Board to make the latter comment and we have elsewhere dealt with the authority of the Board with respect to the methods for computing the tax component to be recovered through rates imposed by the company.

These contracts with shippers and the submissions with respect thereto by Nova make the provision in s. 30c(3) of the AGTL Act relevant:

(3) In the event of conflict between any term or condition of an order made under section 30 or this section with any provision of an existing contract or arrangement, the term or condition of the order shall prevail.

Prowse J.A. in the Court of Appeal stated with reference to the applicability of the contracts between Nova and its shippers in the rate-fixing process:

Gas Trunk [Nova], in incorporating its rates into contracts, merely exercised its statutory power. The rates so fixed derived their validity from the statutory power accorded it and not from the agreement of other parties to contracts with it. To hold otherwise would permit Gas Trunk to frustrate the statutory scheme set up for controlling the rates it sought to impose on users of its services. The conclusion is supported by the inclusion of S. 30(c) [sic] the 1974 amendments to the Act (supra).

With this I respectfully agree.

I conclude therefore that there is no merit to these submissions by the appellant that the Board was without jurisdiction to vary the rates, tolls and charges imposed by the appellant by varying the methods adopted by the appellant in calculating the income tax component in the rate so imposed.

With respect to the interim order issued on February 6, 1979, and which order is included in those from which appeal was taken to the Court of Appeal and thence to this Court, limited reference to additional provisions of the statutes applicable is all that is required.

As noted above s. 30(4) of the Act incorporates by reference the provisions of Part I of the PUB Act, supra. Part I includes ss. 52 and 54 which are applicable to these proceedings.

52. (1) The Board may direct in any order that the order, or any portion or provision thereof, come into force at a future fixed time, or upon the happening of any contingency, event or condition specified in the order, or upon the performance, to the satisfaction of the Board or a person named by it for the purpose, of any terms that the Board imposes upon any party interested, and the Board may direct that the whole or any portion of the order have force for a limited time or until the happening of any specific event.

(2) The Board may, instead of making an order final in the first instance, make an interim order and reserve further direction, either for an adjourned hearing of the matter or for further application.

54. The Board may, if the special circumstances of any case in its opinion so require, make an interim ex parte order authorizing, requiring or forbidding anything to be done that the Board would be empowered on application, petition, notice or hearing to authorize, require or forbid, but no such order shall be made for any longer time than the Board deems necessary to enable the matter to be heard and determined.

These sections provide the statutory base for the interim order of the Board. The issues raised by the interim order are precisely the same as those raised with reference to Board Decisions C78147 and C78305 and hence the four submissions made with reference to the 1978 orders are answered with reference to the 1978 order.

I therefore would dismiss these appeals with costs to the respondents.

Appeals dismissed with costs.

Solicitors for the appellant: Howard, Mackie, Calgary.

Solicitors for the respondents: Ballem, McDill & McInnes, Calgary.

Solicitors for TransCanada PipeLines Limited: Walsh, Young, Calgary.

Solicitors for Alberta Southern Gas Co. Ltd.: McKimmie, Matthews, Calgary.

Solicitors for Pan-Alberta Gas Ltd.: McLaws & Company, Calgary.

Solicitors for Consolidated Natural Gas Limited: Jones, Black & Company, Calgary.

Solicitors for Public Utilities Board: Major, Caron & Company, Calgary.

[^1]: 1980 ABCA 2, [1980] 3 W.W.R. 1, 20 A.R. 384; 1980 ABCA 1, [1980] 3 W.W.R. 48, 24 A.R. 554.

[^2]: 1978 SCC 17, [1979] 1 S.C.R. 684.

[^3]: (1978), 1978 BC CA 2196, 87 D.L.R. (3d) 727.

[^4]: 1979 SCC 46, [1979] 2 S.C.R. 916.

[^5]: 1961 SCC 66, [1961] S.C.R. 392.