SUPREME COURT OF CANADA

Citation: ATCO Gas & Pipelines Ltd. v. Alberta (Energy & Utilities Board), [2006] 1 S.C.R. 140, 2006 SCC 4

Date: 20060209

Docket: 30247

Between:

City of Calgary Appellant/Respondent on cross‑appeal

v.

ATCO Gas and Pipelines Ltd. Respondent/Appellant on cross‑appeal

‑ and ‑

Alberta Energy and Utilities Board, Ontario Energy Board, Enbridge Gas Distribution Inc. and Union Gas Limited Interveners

Coram: McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Fish and Charron JJ.

Reasons for Judgment: (paras. 1 to 87)

Dissenting Reasons: (paras. 88 to 149)

Bastarache J. (LeBel, Deschamps and Charron JJ. concurring)

Binnie J. (McLachlin C.J. and Fish J. concurring)

ATCO Gas and Pipelines Ltd. v. Alberta (Energy and Utilities Board), [2006] 1 S.C.R. 140, 2006 SCC 4

City of Calgary Appellant/Respondent on cross‑appeal

v.

ATCO Gas and Pipelines Ltd. Respondent/Appellant on cross‑appeal

and

Alberta Energy and Utilities Board, Ontario Energy Board, Enbridge Gas Distribution Inc. and Union Gas Limited Interveners

Indexed as: ATCO Gas and Pipelines Ltd. v. Alberta (Energy and Utilities Board)

Neutral citation: 2006 SCC 4.

File No.: 30247.

2005: May 11; 2006: February 9.

Present: McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Fish and Charron JJ.

on appeal from the court of appeal for alberta

Administrative law — Boards and tribunals — Regulatory boards — Jurisdiction — Doctrine of jurisdiction by necessary implication — Natural gas public utility applying to Alberta Energy and Utilities Board to approve sale of buildings and land no longer required in supplying natural gas — Board approving sale subject to condition that portion of sale proceeds be allocated to ratepaying customers of utility — Whether Board had explicit or implicit jurisdiction to allocate proceeds of sale — If so, whether Board’s decision to exercise discretion to protect public interest by allocating proceeds of utility asset sale to customers reasonable — Alberta Energy and Utilities Board Act, R.S.A. 2000, c. A‑17, s. 15(3) — Public Utilities Board Act, R.S.A. 2000, c. P‑45, s. 37 — Gas Utilities Act, R.S.A. 2000, c. G‑5, s. 26(2).

Administrative law — Judicial review — Standard of review — Alberta Energy and Utilities Board — Standard of review applicable to Board’s jurisdiction to allocate proceeds from sale of public utility assets to ratepayers — Standard of review applicable to Board’s decision to exercise discretion to allocate proceeds of sale — Alberta Energy and Utilities Board Act, R.S.A. 2000, c. A‑17, s. 15(3) — Public Utilities Board Act, R.S.A. 2000, c. P‑45, s. 37 — Gas Utilities Act, R.S.A. 2000, c. G‑5, s. 26(2).

ATCO is a public utility in Alberta which delivers natural gas. A division of ATCO filed an application with the Alberta Energy and Utilities Board for approval of the sale of buildings and land located in Calgary, as required by the Gas Utilities Act (“GUA”). According to ATCO, the property was no longer used or useful for the provision of utility services, and the sale would not cause any harm to ratepaying customers. ATCO requested that the Board approve the sale transaction, as well as the proposed disposition of the sale proceeds: to retire the remaining book value of the sold assets, to recover the disposition costs, and to recognize that the balance of the profits resulting from the sale should be paid to ATCO’s shareholders. The customers’ interests were represented by the City of Calgary, who opposed ATCO’s position with respect to the disposition of the sale proceeds to shareholders.

Persuaded that customers would not be harmed by the sale, the Board approved the sale transaction on the basis that customers would not “be exposed to the risk of financial harm as a result of the Sale that could not be examined in a future proceeding”. In a second decision, the Board determined the allocation of net sale proceeds. The Board held that it had the jurisdiction to approve a proposed disposition of sale proceeds subject to appropriate conditions to protect the public interest, pursuant to the powers granted to it under s. 15(3) of the Alberta Energy and Utilities Board Act (“AEUBA”). The Board applied a formula which recognizes profits realized when proceeds of sale exceed the original cost can be shared between customers and shareholders, and allocated a portion of the net gain on the sale to the ratepaying customers. The Alberta Court of Appeal set aside the Board’s decision, referring the matter back to the Board to allocate the entire remainder of the proceeds to ATCO.

Held (McLachlin C.J. and Binnie and Fish JJ. dissenting): The appeal is dismissed and the cross‑appeal is allowed.

Per Bastarache, LeBel, Deschamps and Charron JJ.: When the relevant factors of the pragmatic and functional approach are properly considered, the standard of review applicable to the Board’s decision on the issue of jurisdiction is correctness. Here, the Board did not have the jurisdiction to allocate the proceeds of the sale of the utility’s asset. The Court of Appeal made no error of fact or law when it concluded that the Board acted beyond its jurisdiction by misapprehending its statutory and common law authority. However, the Court of Appeal erred when it did not go on to conclude that the Board has no jurisdiction to allocate any portion of the proceeds of sale of the property to ratepayers. [21‑34]

The interpretation of the AEUBA, the Public Utilities Board Act (“PUBA”) and the GUA can lead to only one conclusion: the Board does not have the prerogative to decide on the distribution of the net gain from the sale of assets of a utility. On their grammatical and ordinary meaning, s. 26(2) GUA, s. 15(3) AEUBA and s. 37 PUBA are silent as to the Board’s power to deal with sale proceeds. Section 26(2) GUA conferred on the Board the power to approve a transaction without more. The intended meaning of the Board’s power pursuant to s. 15(3) AEUBA to impose conditions on an order that the Board considers necessary in the public interest, as well as the general power in s. 37 PUBA, is lost when the provisions are read in isolation. They are, on their own, vague and open‑ended. It would be absurd to allow the Board an unfettered discretion to attach any condition it wishes to any order it makes. While the concept of “public interest” is very wide and elastic, the Board cannot be given total discretion over its limitations. These seemingly broad powers must be interpreted within the entire context of the statutes which are meant to balance the need to protect consumers as well as the property rights retained by owners, as recognized in a free market economy. The context indicates that the limits of the Board’s powers are grounded in its main function of fixing just and reasonable rates and in protecting the integrity and dependability of the supply system. [7] [41] [43] [46]

An examination of the historical background of public utilities regulation in Alberta generally, and the legislation in respect of the powers of the Alberta Energy and Utilities Board in particular, reveals that nowhere is there a mention of the authority for the Board to allocate proceeds from a sale or the discretion of the Board to interfere with ownership rights. Moreover, although the Board may seem to possess a variety of powers and functions, it is manifest from a reading of the AEUBA, the PUBA and the GUA that the principal function of the Board in respect of public utilities, is the determination of rates. Its power to supervise the finances of these companies and their operations, although wide, is in practice incidental to fixing rates. The goals of sustainability, equity and efficiency, which underlie the reasoning as to how rates are fixed, have resulted in an economic and social arrangement which ensures that all customers have access to the utility at a fair price — nothing more. The rates paid by customers do not incorporate acquiring ownership or control of the utility’s assets. The object of the statutes is to protect both the customer and the investor, and the Board’s responsibility is to maintain a tariff that enhances the economic benefits to consumers and investors of the utility. This well‑balanced regulatory arrangement does not, however, cancel the private nature of the utility. The fact that the utility is given the opportunity to make a profit on its services and a fair return on its investment in its assets should not and cannot stop the utility from benefiting from the profits which follow the sale of assets. Neither is the utility protected from losses incurred from the sale of assets. The Board misdirected itself by confusing the interests of the customers in obtaining safe and efficient utility service with an interest in the underlying assets owned only by the utility. [54‑69]

Not only is the power to allocate the proceeds of the sale absent from the explicit language of the legislation, but it cannot be implied from the statutory regime as necessarily incidental to the explicit powers. For the doctrine of jurisdiction by necessary implication to apply, there must be evidence that the exercise of that power is a practical necessity for the Board to accomplish the objects prescribed by the legislature, something which is absent in this case. Not only is the authority to attach a condition to allocate the proceeds of a sale to a particular party unnecessary for the Board to accomplish its role, but deciding otherwise would lead to the conclusion that broadly drawn powers, such as those found in the AEUBA, the GUA and the PUBA, can be interpreted so as to encroach on the economic freedom of the utility, depriving it of its rights. If the Alberta legislature wishes to confer on ratepayers the economic benefits resulting from the sale of utility assets, it can expressly provide for this in the legislation. [39] [77‑80]

Notwithstanding the conclusion that the Board lacked jurisdiction, its decision to exercise its discretion to protect the public interest by allocating the sale proceeds as it did to ratepaying customers did not meet a reasonable standard. When it explicitly concluded that no harm would ensue to customers from the sale of the asset, the Board did not identify any public interest which required protection and there was, therefore, nothing to trigger the exercise of the discretion to allocate the proceeds of sale. Finally, it cannot be concluded that the Board’s allocation was reasonable when it wrongly assumed that ratepayers had acquired a proprietary interest in the utility’s assets because assets were a factor in the rate‑setting process. [82‑85]

Per McLachlin C.J. and Binnie and Fish JJ. (dissenting): The Board’s decision should be restored. Section 15(3) AEUBA authorized the Board, in dealing with ATCO’s application to approve the sale of the subject land and buildings, to “impose any additional conditions that the Board considers necessary in the public interest”. In the exercise of that authority, and having regard to the Board’s “general supervision over all gas utilities, and the owners of them” pursuant to s. 22(1) GUA, the Board made an allocation of the net gain for public policy reasons. The Board’s discretion is not unlimited and must be exercised in good faith for its intended purpose. Here, in allocating one third of the net gain to ATCO and two thirds to the rate base, the Board explained that it was proper to balance the interests of both shareholders and ratepayers. In the Board’s view to award the entire gain to the ratepayers would deny the utility an incentive to increase its efficiency and reduce its costs, but on the other hand to award the entire gain to the utility might encourage speculation in non‑depreciable property or motivate the utility to identify and dispose of properties which have appreciated for reasons other than the best interest of the regulated business. Although it was open to the Board to allow ATCO’s application for the entire profit, the solution it adopted in this case is well within the range of reasonable options. The “public interest” is largely and inherently a matter of opinion and discretion. While the statutory framework of utilities regulation varies from jurisdiction to jurisdiction, Alberta’s grant of authority to its Board is more generous than most. The Court should not substitute its own view of what is “necessary in the public interest”. The Board’s decision made in the exercise of its jurisdiction was within the range of established regulatory opinion, whether the proper standard of review in that regard is patent unreasonableness or simple reasonableness. [91‑92] [98‑99] [110] [113] [122] [148]

ATCO’s submission that an allocation of profit to the customers would amount to a confiscation of the corporation’s property overlooks the obvious difference between investment in an unregulated business and investment in a regulated utility where the ratepayers carry the costs and the regulator sets the return on investment, not the marketplace. The Board’s response cannot be considered “confiscatory” in any proper use of the term, and is well within the range of what is regarded in comparable jurisdictions as an appropriate regulatory allocation of the gain on sale of land whose original investment has been included by the utility itself in its rate base. Similarly, ATCO’s argument that the Board engaged in impermissible retroactive rate making should not be accepted. The Board proposed to apply a portion of the expected profit to future rate making. The effect of the order is prospective not retroactive. Fixing the going‑forward rate of return, as well as general supervision of “all gas utilities, and the owners of them”, were matters squarely within the Board’s statutory mandate. ATCO also submits in its cross‑appeal that the Court of Appeal erred in drawing a distinction between gains on sale of land whose original cost is not depreciated and depreciated property, such as buildings. A review of regulatory practice shows that many, but not all, regulators reject the relevance of this distinction. The point is not that the regulator must reject any such distinction but, rather, that the distinction does not have the controlling weight as contended by ATCO. In Alberta, it is up to the Board to determine what allocations are necessary in the public interest as conditions of the approval of sale. Finally, ATCO’s contention that it alone is burdened with the risk on land that declines in value overlooks the fact that in a falling market the utility continues to be entitled to a rate of return on its original investment, even if the market value at the time is substantially less than its original investment. Further, it seems such losses are taken into account in the ongoing rate‑setting process. [93] [123‑147]

Cases Cited

By Bastarache J.

Referred to: Re ATCO Gas‑North, Alta. E.U.B., Decision 2001‑65, July 31, 2001; TransAlta Utilities Corp. v. Public Utilities Board (Alta.) (1986), 1986 ABCA 64, 68 A.R. 171; Re TransAlta Utilities Corp., Alta. E.U.B., Decision 2000‑41, July 5, 2000; Pushpanathan v. Canada (Minister of Citizenship and Immigration), 1998 CanLII 778 (SCC), [1998] 1 S.C.R. 982; United Taxi Drivers’ Fellowship of Southern Alberta v. Calgary (City), [2004] 1 S.C.R. 485, 2004 SCC 19; Consumers’ Gas Co. v. Ontario (Energy Board), [2001] O.J. No. 5024 (QL); Coalition of Citizens Impacted by the Caroline Shell Plant v. Alberta (Energy Utilities Board) (1996), 1996 ABCA 277, 41 Alta. L.R. (3d) 374; Atco Ltd. v. Calgary Power Ltd., 1982 CanLII 208 (SCC), [1982] 2 S.C.R. 557; Dome Petroleum Ltd. v. Public Utilities Board (Alberta) (1976), 1976 CanLII 2022 (AB SCAD), 2 A.R. 453, aff’d 1977 CanLII 235 (SCC), [1977] 2 S.C.R. 822; Barrie Public Utilities v. Canadian Cable Television Assn., [2003] 1 S.C.R. 476, 2003 SCC 28; Rizzo & Rizzo Shoes Ltd. (Re), 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27; Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, 2002 SCC 42; H.L. v. Canada (Attorney General), [2005] 1 S.C.R. 401, 2005 SCC 25; Marche v. Halifax Insurance Co., [2005] 1 S.C.R. 47, 2005 SCC 6; Contino v. Leonelli‑Contino, [2005] 3 S.C.R. 217, 2005 SCC 63; Re Alberta Government Telephones, Alta. P.U.B., Decision No. E84081, June 29, 1984; Re TransAlta Utilities Corp., Alta. P.U.B., Decision No. E84116, October 12, 1984; TransAlta Utilities Corp. (Re), [2002] A.E.U.B.D. No. 30 (QL); ATCO Electric Ltd. (Re), [2003] A.E.U.B.D. No. 92 (QL); Canadian Pacific Air Lines Ltd. v. Canadian Air Line Pilots Assn., 1993 CanLII 31 (SCC), [1993] 3 S.C.R. 724; Bristol‑Myers Squibb Co. v. Canada (Attorney General), [2005] 1 S.C.R. 533, 2005 SCC 26; Chieu v. Canada (Minister of Citizenship and Immigration), [2002] 1 S.C.R. 84, 2002 SCC 3; Bell Canada v. Canada (Canadian Radio‑Television and Telecommunications Commission), 1989 CanLII 67 (SCC), [1989] 1 S.C.R. 1722; R. v. McIntosh, 1995 CanLII 124 (SCC), [1995] 1 S.C.R. 686; Re Dow Chemical Canada Inc. and Union Gas Ltd. (1982), 1982 CanLII 3238 (ON SCDC), 141 D.L.R. (3d) 641, aff’d (1983), 1983 CanLII 1879 (ON CA), 42 O.R. (2d) 731; Interprovincial Pipe Line Ltd. v. National Energy Board, 1977 CanLII 3163 (FCA), [1978] 1 F.C. 601; Canadian Broadcasting League v. Canadian Radio‑television and Telecommunications Commission, 1982 CanLII 5204 (FCA), [1983] 1 F.C. 182, aff’d 1985 CanLII 63 (SCC), [1985] 1 S.C.R. 174; Northwestern Utilities Ltd. v. City of Edmonton, 1929 CanLII 39 (SCC), [1929] S.C.R. 186; Northwestern Utilities Ltd. v. City of Edmonton, 1978 CanLII 17 (SCC), [1979] 1 S.C.R. 684; Re Canadian Western Natural Gas Co., Alta. P.U.B., Decision No. E84113, October 12, 1984; Re Union Gas Ltd. and Ontario Energy Board (1983), 1983 CanLII 1982 (ON SC), 1 D.L.R. (4th) 698; Duquesne Light Co. v. Barasch, 488 U.S. 299 (1989); Market St. Ry. Co. v. Railroad Commission of State of California, 324 U.S. 548 (1945); Re Coseka Resources Ltd. and Saratoga Processing Co. (1981), 1981 ABCA 180, 126 D.L.R. (3d) 705, leave to appeal refused, [1981] 2 S.C.R. vii; Re Consumers’ Gas Co., E.B.R.O. 410‑II, 411‑II, 412‑II, March 23, 1987; National Energy Board Act (Can.) (Re), 1986 CanLII 4033 (FCA), [1986] 3 F.C. 275; Pacific National Investments Ltd. v. Victoria (City), [2000] 2 S.C.R. 919, 2000 SCC 64; Leiriao v. Val‑Bélair (Town), 1991 CanLII 46 (SCC), [1991] 3 S.C.R. 349; Hongkong Bank of Canada v. Wheeler Holdings Ltd., 1993 CanLII 148 (SCC), [1993] 1 S.C.R. 167.

By Binnie J. (dissenting)

Atco Ltd. v. Calgary Power Ltd., 1982 CanLII 208 (SCC), [1982] 2 S.C.R. 557; C.U.P.E. v. Ontario (Minister of Labour), [2003] 1 S.C.R. 539, 2003 SCC 29; TransAlta Utilities Corp. v. Public Utilities Board (Alta.) (1986), 1986 ABCA 64, 68 A.R. 171; Dr. Q v. College of Physicians and Surgeons of British Columbia, [2003] 1 S.C.R. 226, 2003 SCC 19; Calgary Power Ltd. v. Copithorne, 1958 CanLII 73 (SCC), [1959] S.C.R. 24; United Brotherhood of Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., 1993 CanLII 88 (SCC), [1993] 2 S.C.R. 316; Pezim v. British Columbia (Superintendent of Brokers), 1994 CanLII 103 (SCC), [1994] 2 S.C.R. 557; Memorial Gardens Association (Canada) Ltd. v. Colwood Cemetery Co., 1958 CanLII 82 (SCC), [1958] S.C.R. 353; Union Gas Co. of Canada Ltd. v. Sydenham Gas and Petroleum Co., 1957 CanLII 5 (SCC), [1957] S.C.R. 185; Re C.T.C. Dealer Holdings Ltd. and Ontario Securities Commission (1987), 1987 CanLII 4234 (ON SC), 59 O.R. (2d) 79; Committee for the Equal Treatment of Asbestos Minority Shareholders v. Ontario (Securities Commission), [2001] 2 S.C.R. 132, 2001 SCC 37; Re Consumers’ Gas Co., E.B.R.O. 341‑I, June 30, 1976; Re Boston Gas Co., 49 P.U.R. 4th 1 (1982); Re Consumers’ Gas Co., E.B.R.O. 465, March 1, 1991; Re Natural Resource Gas Ltd., O.E.B., RP‑2002‑0147, EB‑2002‑0446, June 27, 2003; Yukon Energy Corp. v. Utilities Board (1996), 1996 CanLII 2558 (YK CA), 74 B.C.A.C. 58; Re Arizona Public Service Co., 91 P.U.R. 4th 337 (1988); Re Southern California Water Co., 43 C.P.U.C. 2d 596 (1992); Re Southern California Gas Co., 118 P.U.R. 4th 81 (1990); Democratic Central Committee of the District of Columbia v. Washington Metropolitan Area Transit Commission, 485 F.2d 786 (1973); Board of Public Utility Commissioners v. New York Telephone Co., 271 U.S. 23 (1976); Northwestern Utilities Ltd. v. City of Edmonton, 1978 CanLII 17 (SCC), [1979] 1 S.C.R. 684; New York Water Service Corp. v. Public Service Commission, 208 N.Y.S.2d 857 (1960); Re Compliance with the Energy Policy Act of 1992, 62 C.P.U.C. 2d 517 (1995); Re California Water Service Co., 66 C.P.U.C. 2d 100 (1996); Re TransAlta Utilities Corp., Alta. P.U.B., Decision No. E84116, October 12, 1984; Re Alberta Government Telephones, Alta. P.U.B., Decision No. E84081, June 29, 1984; Re TransAlta Utilities Corp., Alta. P.U.B., Decision No. E84115, October 12, 1984; Re Canadian Western Natural Gas Co., Alta. P.U.B., Decision No. E84113, October 12, 1984.

Statutes and Regulations Cited

Alberta Energy and Utilities Board Act, R.S.A. 2000, c. A‑17, ss. 13, 15, 26(1), (2), 27.

Gas Utilities Act, R.S.A. 2000, c. G‑5, ss. 16, 17, 22, 24, 26, 27(1), 36 to 45, 59.

Interpretation Act, R.S.A. 2000, c. I‑8, s. 10.

Public Utilities Act, S.A. 1915, c. 6, ss. 21, 23, 24, 29(g).

Public Utilities Board Act, R.S.A. 2000, c. P‑45, ss. 36, 37, 80, 85(1), 87, 89 to 95, 101(1), (2), 102(1).

Authors Cited

Anisman, Philip, and Robert F. Reid. Administrative Law Issues and Practice. Scarborough, Ont.: Carswell, 1995.

Black, Alexander J. “Responsible Regulation: Incentive Rates for Natural Gas Pipelines” (1992), 28 Tulsa L.J. 349.

Blake, Sara. Administrative Law in Canada, 3rd ed. Markham, Ont.: Butterworths, 2001.

Brown, David M. Energy Regulation in Ontario. Aurora, Ont.: Canada Law Book, 2001 (loose‑leaf updated November 2004, release 3).

Brown, Donald J. M., and John M. Evans. Judicial Review of Administrative Action in Canada. Toronto: Canvasback, 1998 (loose‑leaf updated July 2005).

Brown‑John, C. Lloyd. Canadian Regulatory Agencies: Quis custodiet ipsos custodes? Toronto: Butterworths, 1981.

Canadian Institute of Resources Law. Canada Energy Law Service: Alberta. Edited by Steven A. Kennett. Toronto: Thomson Carswell, 1981 (loose‑leaf updated 2005, release 2).

Côté, Pierre‑André. The Interpretation of Legislation in Canada, 3rd ed. Scarborough, Ont.: Carswell, 2000.

Cross, Phillip S. “Rate Treatment of Gain on Sale of Land: Ratepayer Indifference, A New Standard?” (1990), 126 Pub. Util. Fort. 44.

Depoorter, Ben W. F. “Regulation of Natural Monopoly”, in B. Bouckaert and G. De Geest, eds., Encyclopedia of Law and Economics, vol. III, The Regulation of Contracts. Northampton, Mass.: Edward Elgar, 2000.

Driedger, Elmer A. Construction of Statutes, 2nd ed. Toronto: Butterworths, 1983.

Green, Richard, and Martin Rodriguez Pardina. Resetting Price Controls for Privatized Utilities: A Manual for Regulators. Washington, D.C.: World Bank, 1999.

Kahn, Alfred E. The Economics of Regulation: Principles and Institutions, vol. 1, Economic Principles. Cambridge, Mass.: MIT Press, 1988.

MacAvoy, Paul W., and J. Gregory Sidak. “The Efficient Allocation of Proceeds from a Utility’s Sale of Assets” (2001), 22 Energy L.J. 233.

Milner, H. R. “Public Utility Rate Control in Alberta” (1930), 8 Can. Bar Rev. 101.

Mullan, David J. Administrative Law. Toronto: Irwin Law, 2001.

Netz, Janet S. “Price Regulation: A (Non‑Technical) Overview”, in B. Bouckaert and G. De Geest, eds., Encyclopedia of Law and Economics, vol. III, The Regulation of Contracts. Northampton, Mass.: Edward Elgar, 2000.

Reid, Robert F., and Hillel David. Administrative Law and Practice, 2nd ed. Toronto: Butterworths, 1978.

Sullivan, Ruth. Sullivan and Driedger on the Construction of Statutes, 4th ed. Markham, Ont.: Butterworths, 2002.

Trebilcock, Michael J. “The Consumer Interest and Regulatory Reform”, in G. B. Doern, ed., The Regulatory Process in Canada. Toronto: Macmillan of Canada, 1978, 94.

APPEAL and CROSS‑APPEAL from a judgment of the Alberta Court of Appeal (Wittmann J.A. and LoVecchio J. (ad hoc)) (2004), 24 Alta. L.R. (4th) 205, 339 A.R. 250, 312 W.A.C. 250, [2004] 4 W.W.R. 239, [2004] A.J. No. 45 (QL), 2004 ABCA 3, reversing a decision of the Alberta Energy and Utilities Board, [2002] A.E.U.B.D. No. 52 (QL). Appeal dismissed and cross‑appeal allowed, McLachlin C.J. and Binnie and Fish JJ. dissenting.

Brian K. O’Ferrall and Daron K. Naffin, for the appellant/respondent on cross‑appeal.

Clifton D. O’Brien, Q.C., Lawrence E. Smith, Q.C., H. Martin Kay, Q.C., and Laurie A. Goldbach, for the respondent/appellant on cross‑appeal.

J. Richard McKee and Renée Marx, for the intervener the Alberta Energy and Utilities Board.

Written submissions only by George Vegh and Michael W. Lyle, for the intervener the Ontario Energy Board.

Written submissions only by J. L. McDougall, Q.C., and Michael D. Schafler, for the intervener Enbridge Gas Distribution Inc.

Written submissions only by Michael A. Penny and Susan Kushneryk, for the intervener Union Gas Limited.

The judgment of Bastarache, LeBel, Deschamps and Charron JJ. was delivered by

Bastarache J. —

1. Introduction

1At the heart of this appeal is the issue of the jurisdiction of an administrative board. More specifically, the Court must consider whether, on the appropriate standard of review, this utility board appropriately set out the limits of its powers and discretion.

2Few areas of our lives are now untouched by regulation. Telephone, rail, airline, trucking, foreign investment, insurance, capital markets, broadcasting licences and content, banking, food, drug and safety standards, are just a few of the objects of public regulations in Canada: M. J. Trebilcock, “The Consumer Interest and Regulatory Reform”, in G. B. Doern, ed., The Regulatory Process in Canada (1978), 94. Discretion is central to the regulatory agency policy process, but this discretion will vary from one administrative body to another (see C. L. Brown-John, Canadian Regulatory Agencies: Quis custodiet ipsos custodes? (1981), at p. 29). More importantly, in exercising this discretion, statutory bodies must respect the confines of their jurisdiction: they cannot trespass in areas where the legislature has not assigned them authority (see D. J. Mullan, Administrative Law (2001), at pp. 9-10).

3The business of energy and utilities is no exception to this regulatory framework. The respondent in this case is a public utility in Alberta which delivers natural gas. This public utility is nothing more than a private corporation subject to certain regulatory constraints. Fundamentally, it is like any other privately held company: it obtains the necessary funding from investors through public issues of shares in stock and bond markets; it is the sole owner of the resources, land and other assets; it constructs plants, purchases equipment, and contracts with employees to provide the services; it realizes profits resulting from the application of the rates approved by the Alberta Energy and Utilities Board (“Board”) (see P. W. MacAvoy and J. G. Sidak, “The Efficient Allocation of Proceeds from a Utility’s Sale of Assets” (2001), 22 Energy L.J. 233, at p. 234). That said, one cannot ignore the important feature which makes a public utility so distinct: it must answer to a regulator. Public utilities are typically natural monopolies: technology and demand are such that fixed costs are lower for a single firm to supply the market than would be the case where there is duplication of services by different companies in a competitive environment (see A. E. Kahn, The Economics of Regulation: Principles and Institutions (1988), vol. 1, at p. 11; B. W. F. Depoorter, “Regulation of Natural Monopoly”, in B. Bouckaert and G. De Geest, eds., Encyclopedia of Law and Economics (2000), vol. III, 498; J. S. Netz, “Price Regulation: A (Non-Technical) Overview”, in B. Bouckaert and G. De Geest, eds., Encyclopedia of Law and Economics (2000), vol. III, 396, at p. 398; A. J. Black, “Responsible Regulation: Incentive Rates for Natural Gas Pipelines” (1992), 28 Tulsa L.J. 349, at p. 351). Efficiency of production is promoted under this model. However, governments have purported to move away from this theoretical concept and have adopted what can only be described as a “regulated monopoly”. The utility regulations exist to protect the public from monopolistic behaviour and the consequent inelasticity of demand while ensuring the continued quality of an essential service (see Kahn, at p. 11).

4As in any business venture, public utilities make business decisions, their ultimate goal being to maximize the residual benefits to shareholders. However, the regulator limits the utility’s managerial discretion over key decisions, including prices, service offerings and the prudency of plant and equipment investment decisions. And more relevant to this case, the utility, outside the ordinary course of business, is limited in its right to sell assets it owns: it must obtain authorization from its regulator before selling an asset previously used to produce regulated services (see MacAvoy and Sidak, at p. 234).

5Against this backdrop, the Court is being asked to determine whether the Board has jurisdiction pursuant to its enabling statutes to allocate a portion of the net gain on the sale of a now discarded utility asset to the rate-paying customers of the utility when approving the sale. Subsequently, if this first question is answered affirmatively, the Court must consider whether the Board’s exercise of its jurisdiction was reasonable and within the limits of its jurisdiction: was it allowed, in the circumstances of this case, to allocate a portion of the net gain on the sale of the utility to the rate-paying customers?

6The customers’ interests are represented in this case by the City of Calgary (“City”) which argues that the Board can determine how to allocate the proceeds pursuant to its power to approve the sale and protect the public interest. I find this position unconvincing.

7The interpretation of the Alberta Energy and Utilities Board Act, R.S.A. 2000, c. A-17 (“AEUBA”), the Public Utilities Board Act, R.S.A. 2000, c. P-45 (“PUBA”), and the Gas Utilities Act, R.S.A. 2000, c. G-5 (“GUA”) (see Appendix for the relevant provisions of these three statutes), can lead to only one conclusion: the Board does not have the prerogative to decide on the distribution of the net gain from the sale of assets of a utility. The Board’s seemingly broad powers to make any order and to impose any additional conditions that are necessary in the public interest has to be interpreted within the entire context of the statutes which are meant to balance the need to protect consumers as well as the property rights retained by owners, as recognized in a free market economy. The limits of the powers of the Board are grounded in its main function of fixing just and reasonable rates (“rate setting”) and in protecting the integrity and dependability of the supply system.

1.1 Overview of the Facts

8ATCO Gas - South (“AGS”), which is a division of ATCO Gas and Pipelines Ltd. (“ATCO”), filed an application by letter with the Board pursuant to s. 25.1(2) (now s. 26(2)) of the GUA, for approval of the sale of its properties located in Calgary known as Calgary Stores Block (the “property”). The property consisted of land and buildings; however, the main value was in the land, and the purchaser intended to and did eventually demolish the buildings and redevelop the land. According to AGS, the property was no longer used or useful for the provision of utility services, and the sale would not cause any harm to customers. In fact, AGS suggested that the sale would result in cost savings to customers, by allowing the net book value of the property to be retired and withdrawn from the rate base, thereby reducing rates. ATCO requested that the Board approve the sale transaction and the disposition of the sale proceeds to retire the remaining book value of the sold assets, to recover the disposition costs, and to recognize the balance of the profits resulting from the sale of the plant should be paid to shareholders. The Board dealt with the application in writing, without witnesses or an oral hearing. Other parties making written submissions to the Board were the City of Calgary, the Federation of Alberta Gas Co‑ops Ltd., Gas Alberta Inc. and the Municipal Interveners, who all opposed ATCO’s position with respect to the disposition of the sale proceeds to shareholders.

1.2 Judicial History

1.2.1 Alberta Energy and Utilities Board

1.2.1.1 Decision 2001-78

9In a first decision, which considered ATCO’s application to approve the sale of the property, the Board employed a “no-harm” test, assessing the potential impact on both rates and the level of service to customers and the prudence of the sale transaction, taking into account the purchaser and tender or sale process followed. The Board was of the view that the test had been satisfied. It was persuaded that customers would not be harmed by the sale, given that a prudent lease arrangement to replace the sold facility had been concluded. The Board was satisfied that there would not be a negative impact on customers’ rates, at least during the five-year initial term of the lease. In fact, the Board concluded that there would be cost savings to the customers and that there would be no impact on the level of service to customers as a result of the sale. It did not make a finding on the specific impact on future operating costs; for example, it did not consider the costs of the lease arrangement entered into by ATCO. The Board noted that those costs could be reviewed by the Board in a future general rate application brought by interested parties.

1.2.1.2 Decision 2002-037, [2002] A.E.U.B.D. No. 52 (QL)

10In a second decision, the Board determined the allocation of net sale proceeds. It reviewed the regulatory policy and general principles which affected the decision, although no specific matters are enumerated for consideration in the applicable legislative provisions. The Board had previously developed a “no‑harm” test, and it reviewed the rationale for the test as summarized in its Decision 2001‑65 (Re ATCO Gas-North): “The Board considers that its power to mitigate or offset potential harm to customers by allocating part or all of the sale proceeds to them, flows from its very broad mandate to protect consumers in the public interest” (p. 16).

11The Board went on to discuss the implications of the Alberta Court of Appeal decision in TransAlta Utilities Corp. v. Public Utilities Board (Alta.) (1986), 1986 ABCA 64, 68 A.R. 171, referring to various decisions it had rendered in the past. Quoting from its Decision 2000‑41 (Re TransAlta Utilities Corp.), the Board summarized the “TransAlta Formula”:

In subsequent decisions, the Board has interpreted the Court of Appeal’s conclusion to mean that where the sale price exceeds the original cost of the assets, shareholders are entitled to net book value (in historical dollars), customers are entitled to the difference between net book value and original cost, and any appreciation in the value of the assets (i.e. the difference between original cost and the sale price) is to be shared by shareholders and customers. The amount to be shared by each is determined by multiplying the ratio of sale price/original cost to the net book value (for shareholders) and the difference between original cost and net book value (for customers). However, where the sale price does not exceed original cost, customers are entitled to all of the gain on sale. [para. 27]

The Board also referred to Decision 2001‑65, where it had clarified the following:

In the Board’s view, if the TransAlta Formula yields a result greater than the no‑harm amount, customers are entitled to the greater amount. If the TransAlta Formula yields a result less than the no‑harm amount, customers are entitled to the no‑harm amount. In the Board’s view, this approach is consistent with its historical application of the TransAlta Formula. [para. 28]

12On the issue of its jurisdiction to allocate the net proceeds of a sale, the Board in the present case stated:

The fact that a regulated utility must seek Board approval before disposing of its assets is sufficient indication of the limitations placed by the legislature on the property rights of a utility. In appropriate circumstances, the Board clearly has the power to prevent a utility from disposing of its property. In the Board’s view it also follows that the Board can approve a disposition subject to appropriate conditions to protect customer interests.

Regarding AGS’s argument that allocating more than the no‑harm amount to customers would amount to retrospective ratemaking, the Board again notes the decision in the TransAlta Appeal. The Court of Appeal accepted that the Board could include in the definition of “revenue” an amount payable to customers representing excess depreciation paid by them through past rates. In the Board’s view, no question of retrospective ratemaking arises in cases where previously regulated rate base assets are being disposed of out of rate base and the Board applies the TransAlta Formula.

The Board is not persuaded by the Company’s argument that the Stores Block assets are now ‘non‑utility’ by virtue of being ‘no longer required for utility service’. The Board notes that the assets could still be providing service to regulated customers. In fact, the services formerly provided by the Stores Block assets continue to be required, but will be provided from existing and newly leased facilities. Furthermore, the Board notes that even when an asset and the associated service it was providing to customers is no longer required the Board has previously allocated more than the no‑harm amount to customers where proceeds have exceeded the original cost of the asset. [paras. 47-49]

13The Board went on to apply the no‑harm test to the present facts. It noted that in its decision on the application for the approval of the sale, it had already considered the no‑harm test to be satisfied. However, in that first decision, it had not made a finding with respect to the specific impact on future operating costs, including the particular lease arrangement being entered into by ATCO.

14The Board then reviewed the submissions with respect to the allocation of the net gain and rejected the submission that if the new owner had no use of the buildings on the land, this should affect the allocation of net proceeds. The Board held that the buildings did have some present value but did not find it necessary to fix a specific value. The Board recognized and confirmed that the TransAlta Formula was one whereby the “windfall” realized when the proceeds of sale exceed the original cost could be shared between customers and shareholders. It held that it should apply the formula in this case and that it would consider the gain on the transaction as a whole, not distinguishing between the proceeds allocated to land separately from the proceeds allocated to buildings.

15With respect to allocation of the gain between customers and shareholders of ATCO, the Board tried to balance the interests of both the customers’ desire for safe reliable service at a reasonable cost with the provision of a fair return on the investment made by the company:

To award the entire net gain on the land and buildings to the customers, while beneficial to the customers, could establish an environment that may deter the process wherein the company continually assesses its operation to identify, evaluate, and select options that continually increase efficiency and reduce costs.

Conversely, to award the entire net gain to the company may establish an environment where a regulated utility company might be moved to speculate in non-depreciable property or result in the company being motivated to identify and sell existing properties where appreciation has already occurred. [paras. 112-13]

16The Board went on to conclude that the sharing of the net gain on the sale of the land and buildings collectively, in accordance with the TransAlta Formula, was equitable in the circumstances of this application and was consistent with past Board decisions.

17The Board determined that from the gross proceeds of $6,550,000, ATCO should receive $465,000 to cover the cost of disposition ($265,000) and the provision for environmental remediation ($200,000), the shareholders should receive $2,014,690, and $4,070,310 should go to the customers. Of the amount credited to shareholders, $225,245 was to be used to remove the remaining net book value of the property from ATCO’s accounts. Of the amount allocated to customers, $3,045,813 was allocated to ATCO Gas - South customers and $1,024,497 to ATCO Pipelines - South customers.

1.2.2 Court of Appeal of Alberta ((2004), 24 Alta. L.R. (4th) 205, [2004 ABCA 3](https://www.canlii.org/en/ab/abca/doc/2004/2004abca3/2004abca3.html))

18ATCO appealed the Board’s decision. It argued that the Board did not have any jurisdiction to allocate the proceeds of sale and that the proceeds should have been allocated entirely to the shareholders. In its view, allowing customers to share in the proceeds of sale would result in them benefiting twice, since they had been spared the costs of renovating the sold assets and would enjoy cost savings from the lease arrangements. The Court of Appeal of Alberta agreed with ATCO, allowing the appeal and setting aside the Board’s decision. The matter was referred back to the Board, and the Board was directed to allocate the entire amount appearing in Line 11 of the allocation of proceeds, entitled “Remainder to be Shared” to ATCO. For the reasons that follow, the Court of Appeal’s decision should be upheld, in part; it did not err when it held that the Board did not have the jurisdiction to allocate the proceeds of the sale to ratepayers.

2. Analysis

2.1 Issues

19There is an appeal and a cross-appeal in this case: an appeal by the City in which it submits that, contrary to the Court of Appeal’s decision, the Board had jurisdiction to allocate a portion of the net gain on the sale of a utility asset to the rate-paying customers, even where no harm to the public was found at the time the Board approved the sale, and a cross-appeal by ATCO in which it questions the Board’s jurisdiction to allocate any of ATCO’s proceeds from the sale to customers. In particular, ATCO contends that the Board has no jurisdiction to make an allocation to rate-paying customers, equivalent to the accumulated depreciation calculated for prior years. No matter how the issue is framed, it is evident that the crux of this appeal lies in whether the Board has the jurisdiction to distribute the gain on the sale of a utility company’s asset.

20Given my conclusion on this issue, it is not necessary for me to consider whether the Board’s allocation of the proceeds in this case was reasonable. Nevertheless, as I note at para. 82, I will direct my attention briefly to the question of the exercise of discretion in view of my colleague’s reasons.

2.2 Standard of Review

21As this appeal stems from an administrative body’s decision, it is necessary to determine the appropriate level of deference which must be shown to the body. Wittmann J.A., writing for the Court of Appeal, concluded that the issue of jurisdiction of the Board attracted a standard of correctness. ATCO concurs with this conclusion. I agree. No deference should be shown for the Board’s decision with regard to its jurisdiction on the allocation of the net gain on sale of assets. An inquiry into the factors enunciated by this Court in Pushpanathan v. Canada (Minister of Citizenship and Immigration), 1998 CanLII 778 (SCC), [1998] 1 S.C.R. 982, confirms this conclusion, as does the reasoning in United Taxi Drivers’ Fellowship of Southern Alberta v. Calgary (City), [2004] 1 S.C.R. 485, 2004 SCC 19.

22Although it is not necessary to conduct a full analysis of the standard of review in this case, I will address the issue briefly in light of the fact that Binnie J. deals with the exercise of discretion in his reasons for judgment. The four factors that need to be canvassed in order to determine the appropriate standard of review of an administrative tribunal decision are: (1) the existence of a privative clause; (2) the expertise of the tribunal/board; (3) the purpose of the governing legislation and the particular provisions; and (4) the nature of the problem (Pushpanathan, at paras. 29-38).

23In the case at bar, one should avoid a hasty characterizing of the issue as “jurisdictional” and subsequently be tempted to skip the pragmatic and functional analysis. A complete examination of the factors is required.

24First, s. 26(1) of the AEUBA grants a right of appeal, but in a limited way. Appeals are allowed on a question of jurisdiction or law and only after leave to appeal is obtained from a judge:

26(1) Subject to subsection (2), an appeal lies from the Board to the Court of Appeal on a question of jurisdiction or on a question of law.

(2) Leave to appeal may be obtained from a judge of the Court of Appeal only on an application made

(a) within 30 days from the day that the order, decision or direction sought to be appealed from was made, or

(b) within a further period of time as granted by the judge where the judge is of the opinion that the circumstances warrant the granting of that further period of time.

In addition, the AEUBA includes a privative clause which states that every action, order, ruling or decision of the Board is final and shall not be questioned, reviewed or restrained by any proceeding in the nature of an application for judicial review or otherwise in any court (s. 27).

25The presence of a statutory right of appeal on questions of jurisdiction and law suggests a more searching standard of review and less deference to the Board on those questions (see Pushpanathan, at para. 30). However, the presence of the privative clause and right to appeal are not decisive, and one must proceed with the examination of the nature of the question to be determined and the relative expertise of the tribunal in those particular matters.

26Second, as observed by the Court of Appeal, no one disputes the fact that the Board is a specialized body with a high level of expertise regarding Alberta’s energy resources and utilities (see, e.g., Consumers’ Gas Co. v. Ontario (Energy Board), [2001] O.J. No. 5024 (QL) (Div. Ct.), at para. 2; Coalition of Citizens Impacted by the Caroline Shell Plant v. Alberta (Energy Utilities Board) (1996), 1996 ABCA 277, 41 Alta. L.R. (3d) 374 (C.A.), at para. 14. In fact, the Board is a permanent tribunal with a long-term regulatory relationship with the regulated utilities.

27Nevertheless, the Court is concerned not with the general expertise of the administrative decision maker, but with its expertise in relation to the specific nature of the issue before it. Consequently, while normally one would have assumed that the Board’s expertise is far greater than that of a court, the nature of the problem at bar, to adopt the language of the Court of Appeal (para. 35), “neutralizes” this deference. As I will elaborate below, the expertise of the Board is not engaged when deciding the scope of its powers.

28Third, the present case is governed by three pieces of legislation: the PUBA, the GUA and the AEUBA. These statutes give the Board a mandate to safeguard the public interest in the nature and quality of the service provided to the community by public utilities: Atco Ltd. v. Calgary Power Ltd., 1982 CanLII 208 (SCC), [1982] 2 S.C.R. 557, at p. 576; Dome Petroleum Ltd. v. Public Utilities Board (Alberta) (1976), 1976 CanLII 2022 (AB SCAD), 2 A.R. 453 (C.A.), at paras. 20-22, aff’d 1977 CanLII 235 (SCC), [1977] 2 S.C.R. 822. The legislative framework at hand has as its main purpose the proper regulation of a gas utility in the public interest, more specifically the regulation of a monopoly in the public interest with its primary tool being rate setting, as I will explain later.

29The particular provision at issue, s. 26(2)(d)(i) of the GUA, which requires a utility to obtain the approval of the regulator before it sells an asset, serves to protect the customers from adverse results brought about by any of the utility’s transactions by ensuring that the economic benefits to customers are enhanced (MacAvoy and Sidak, at pp. 234-36).

30While at first blush the purposes of the relevant statutes and of the Board can be conceived as a delicate balancing between different constituencies, i.e., the utility and the customer, and therefore entail determinations which are polycentric (Pushpanathan, at para. 36), the interpretation of the enabling statutes and the particular provisions under review (s. 26(2)(d) of the GUA and s. 15(3)(d) of the AEUBA) is not a polycentric question, contrary to the conclusion of the Court of Appeal. It is an inquiry into whether a proper construction of the enabling statutes gives the Board jurisdiction to allocate the profits realized from the sale of an asset. The Board was not created with the main purpose of interpreting the AEUBA, the GUA or the PUBA in the abstract, where no policy consideration is at issue, but rather to ensure that utility rates are always just and reasonable (see Atco Ltd., at p. 576). In the case at bar, this protective role does not come into play. Hence, this factor points to a less deferential standard of review.

31Fourth, the nature of the problem underlying each issue is different. The parties are in essence asking the Court to answer two questions (as I have set out above), the first of which is to determine whether the power to dispose of the proceeds of sale falls within the Board’s statutory mandate. The Board, in its decision, determined that it had the power to allocate a portion of the proceeds of a sale of utility assets to the ratepayers; it based its decision on its statutory powers, the equitable principles rooted in the “regulatory compact” (see para. 63 of these reasons) and previous practice. This question is undoubtedly one of law and jurisdiction. The Board would arguably have no greater expertise with regard to this issue than the courts. A court is called upon to interpret provisions that have no technical aspect, in contrast with the provision disputed in Barrie Public Utilities v. Canadian Cable Television Assn., [2003] 1 S.C.R. 476, 2003 SCC 28, at para. 86. The interpretation of general concepts such as “public interest” and “conditions” (as found in s. 15(3)(d) of the AEUBA) is not foreign to courts and is not derived from an area where the tribunal has been held to have greater expertise than the courts. The second question is whether the method and actual allocation in this case were reasonable. To resolve this issue, one must consider case law, policy justifications and the practice of other boards, as well as the details of the particular allocation in this case. The issue here is most likely characterized as one of mixed fact and law.

32In light of the four factors, I conclude that each question requires a distinct standard of review. To determine the Board’s power to allocate proceeds from a sale of utility assets suggests a standard of review of correctness. As expressed by the Court of Appeal, the focus of this inquiry remains on the particular provisions being invoked and interpreted by the tribunal (s. 26(2)(d) of the GUA and s. 15(3)(d) of the AEUBA) and “goes to jurisdiction” (Pushpanathan, at para. 28). Moreover, keeping in mind all the factors discussed, the generality of the proposition will be an additional factor in favour of the imposition of a correctness standard, as I stated in Pushpanathan, at para. 38:

. . . the broader the propositions asserted, and the further the implications of such decisions stray from the core expertise of the tribunal, the less likelihood that deference will be shown. Without an implied or express legislative intent to the contrary as manifested in the criteria above, legislatures should be assumed to have left highly generalized propositions of law to courts.

33The second question regarding the Board’s actual method used for the allocation of proceeds likely attracts a more deferential standard. On the one hand, the Board’s expertise, particularly in this area, its broad mandate, the technical nature of the question and the general purposes of the legislation, all suggest a relatively high level of deference to the Board’s decision. On the other hand, the absence of a privative clause on questions of jurisdiction and the reference to law needed to answer this question all suggest a less deferential standard of review which favours reasonableness. It is not necessary, however, for me to determine which specific standard would have applied here.

34As will be shown in the analysis below, I am of the view that the Court of Appeal made no error of fact or law when it concluded that the Board acted beyond its jurisdiction by misapprehending its statutory and common law authority. However, the Court of Appeal erred when it did not go on to conclude that the Board has no jurisdiction to allocate any portion of the proceeds of sale of the property to ratepayers.

2.3 Was the Board’s Decision as to Its Jurisdiction Correct?

35Administrative tribunals or agencies are statutory creations: they cannot exceed the powers that were granted to them by their enabling statute; they must “adhere to the confines of their statutory authority or ‘jurisdiction’[; and t]hey cannot trespass in areas where the legislature has not assigned them authority”: Mullan, at pp. 9-10 (see also S. Blake, Administrative Law in Canada (3rd ed. 2001), at pp. 183-84).

36In order to determine whether the Board’s decision that it had the jurisdiction to allocate proceeds from the sale of a utility’s asset was correct, I am required to interpret the legislative framework by which the Board derives its powers and actions.

2.3.1 General Principles of Statutory Interpretation

37For a number of years now, the Court has adopted E. A. Driedger’s modern approach as the method to follow for statutory interpretation (Construction of Statutes (2nd ed. 1983), at p. 87):

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.

(See, e.g., Rizzo & Rizzo Shoes Ltd. (Re), 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27, at para. 21; Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, 2002 SCC 42, at para. 26; H.L. v. Canada (Attorney General), [2005] 1 S.C.R. 401, 2005 SCC 25, at paras. 186-87; Marche v. Halifax Insurance Co., [2005] 1 S.C.R. 47, 2005 SCC 6, at para. 54; Barrie Public Utilities, at paras. 20 and 86; Contino v. Leonelli-Contino, [2005] 3 S.C.R. 217, 2005 SCC 63, at para. 19.)

38But more specifically in the area of administrative law, tribunals and boards obtain their jurisdiction over matters from two sources: (1) express grants of jurisdiction under various statutes (explicit powers); and (2) the common law, by application of the doctrine of jurisdiction by necessary implication (implicit powers) (see also D. M. Brown, Energy Regulation in Ontario (loose-leaf ed.), at p. 2-15).

39The City submits that it is both implicit and explicit within the express jurisdiction that has been conferred upon the Board to approve or refuse to approve the sale of utility assets, that the Board can determine how to allocate the proceeds of the sale in this case. ATCO retorts that not only is such a power absent from the explicit language of the legislation, but it cannot be “implied” from the statutory regime as necessarily incidental to the explicit powers. I agree with ATCO’s submissions and will elaborate in this regard.

2.3.2 Explicit Powers: Grammatical and Ordinary Meaning

40As a preliminary submission, the City argues that given that ATCO applied to the Board for approval of both the sale transaction and the disposition of the proceeds of sale, this suggests that ATCO recognized that the Board has authority to allocate the proceeds as a condition of a proposed sale. This argument does not hold any weight in my view. First, the application for approval cannot be considered on its own an admission by ATCO of the jurisdiction of the Board. In any event, an admission of this nature would not have any bearing on the applicable law. Moreover, knowing that in the past the Board had decided that it had jurisdiction to allocate the proceeds of a sale of assets and had acted on this power, one can assume that ATCO was asking for the approval of the disposition of the proceeds should the Board not accept their argument on jurisdiction. In fact, a review of past Board decisions on the approval of sales shows that utility companies have constantly challenged the Board’s jurisdiction to allocate the net gain on the sale of assets (see, e.g., Re TransAlta Utilities Corp., Alta. E.U.B., Decision 2000-41; Re ATCO Gas-North, Alta. E.U.B., Decision 2001-65; Re Alberta Government Telephones, Alta. P.U.B., Decision No. E84081, June 29, 1984; Re TransAlta Utilities Corp., Alta. P.U.B., Decision No. E84116, October 12, 1984; TransAlta Utilities Corp. (Re), [2002] A.E.U.B.D. No. 30 (QL); ATCO Electric Ltd. (Re), [2003] A.E.U.B.D. No. 92 (QL)).

41The starting point of the analysis requires that the Court examine the ordinary meaning of the sections at the centre of the dispute, s. 26(2)(d)(i) of the GUA, ss. 15(1) and 15(3)(d) of the AEUBA and s. 37 of the PUBA. For ease of reference, I reproduce these provisions:

GUA

26. . . .

(2) No owner of a gas utility designated under subsection (1) shall

(d) without the approval of the Board,

(i) sell, lease, mortgage or otherwise dispose of or encumber its property, franchises, privileges or rights, or any part of it or them

and a sale, lease, mortgage, disposition, encumbrance, merger or consolidation made in contravention of this clause is void, but nothing in this clause shall be construed to prevent in any way the sale, lease, mortgage, disposition, encumbrance, merger or consolidation of any of the property of an owner of a gas utility designated under subsection (1) in the ordinary course of the owner’s business.

AEUBA

15(1) For the purposes of carrying out its functions, the Board has all the powers, rights and privileges of the ERCB [Energy Resources Conservation Board] and the PUB [Public Utilities Board] that are granted or provided for by any enactment or by law.

(3) Without restricting subsection (1), the Board may do all or any of the following:

(d) with respect to an order made by the Board, the ERCB or the PUB in respect of matters referred to in clauses (a) to (c), make any further order and impose any additional conditions that the Board considers necessary in the public interest;

PUBA

37 In matters within its jurisdiction the Board may order and require any person or local authority to do forthwith or within or at a specified time and in any manner prescribed by the Board, so far as it is not inconsistent with this Act or any other Act conferring jurisdiction, any act, matter or thing that the person or local authority is or may be required to do under this Act or under any other general or special Act, and may forbid the doing or continuing of any act, matter or thing that is in contravention of any such Act or of any regulation, rule, order or direction of the Board.

42Some of the above provisions are duplicated in the other two statutes (see, e.g., PUBA, ss. 85(1) and 101(2)(d)(i); GUA, s. 22(1); see Appendix).

43There is no dispute that s. 26(2) of the GUA contains a prohibition against, among other things, the owner of a utility selling, leasing, mortgaging or otherwise disposing of its property outside of the ordinary course of business without the approval of the Board. As submitted by ATCO, the power conferred is to approve without more. There is no mention in s. 26 of the grounds for granting or denying approval or of the ability to grant conditional approval, let alone the power of the Board to allocate the net profit of an asset sale. I would note in passing that this power is sufficient to alleviate the fear expressed by the Board that the utility might be tempted to sell assets on which it might realize a large profit to the detriment of ratepayers if it could reap the benefits of the sale.

44It is interesting to note that s. 26(2) does not apply to all types of sales (and leases, mortgages, dispositions, encumbrances, mergers or consolidations). It excludes sales in the ordinary course of the owner’s business. If the statutory scheme was such that the Board had the power to allocate the proceeds of the sale of utility assets, as argued here, s. 26(2) would naturally apply to all sales of assets or, at a minimum, exempt only those sales below a certain value. It is apparent that allocation of sale proceeds to customers is not one of its purposes. In fact, s. 26(2) can only have limited, if any, application to non-utility assets not related to utility function (especially when the sale has passed the “no-harm” test). The provision can only be meant to ensure that the asset in question is indeed non-utility, so that its loss does not impair the utility function or quality.

45Therefore, a simple reading of s. 26(2) of the GUA does permit one to conclude that the Board does not have the power to allocate the proceeds of an asset sale.

46The City does not limit its arguments to s. 26(2); it also submits that the AEUBA, pursuant to s. 15(3), is an express grant of jurisdiction because it authorizes the Board to impose any condition to any order so long as the condition is necessary in the public interest. In addition, it relies on the general power in s. 37 of the PUBA for the proposition that the Board may, in any matter within its jurisdiction, make any order pertaining to that matter that is not inconsistent with any applicable statute. The intended meaning of these two provisions, however, is lost when the provisions are simply read in isolation as proposed by the City: R. Sullivan, Sullivan and Driedger on the Construction of Statutes (4th ed. 2002), at p. 21; Canadian Pacific Air Lines Ltd. v. Canadian Air Line Pilots Assn., 1993 CanLII 31 (SCC), [1993] 3 S.C.R. 724, at p. 735; Marche, at paras. 59-60; Bristol-Myers Squibb Co. v. Canada (Attorney General), [2005] 1 S.C.R. 533, 2005 SCC 26, at para. 105. These provisions on their own are vague and open-ended. It would be absurd to allow the Board an unfettered discretion to attach any condition it wishes to an order it makes. Furthermore, the concept of “public interest” found in s. 15(3) is very wide and elastic; the Board cannot be given total discretion over its limitations.

47While I would conclude that the legislation is silent as to the Board’s power to deal with sale proceeds after the initial stage in the statutory interpretation analysis, because the provisions can nevertheless be said to reveal some ambiguity and incoherence, I will pursue the inquiry further.

48This Court has stated on numerous occasions that the grammatical and ordinary sense of a section is not determinative and does not constitute the end of the inquiry. The Court is obliged to consider the total context of the provisions to be interpreted, no matter how plain the disposition may seem upon initial reading (see Chieu v. Canada (Minister of Citizenship and Immigration), [2002] 1 S.C.R. 84, 2002 SCC 3, at para. 34; Sullivan, at pp. 20-21). I will therefore proceed to examine the purpose and scheme of the legislation, the legislative intent and the relevant legal norms.

2.3.3 Implicit Powers: Entire Context

49The provisions at issue are found in statutes which are themselves components of a larger statutory scheme which cannot be ignored:

As the product of a rational and logical legislature, the statute is considered to form a system. Every component contributes to the meaning as a whole, and the whole gives meaning to its parts: “each legal provision should be considered in relation to other provisions, as parts of a whole” . . . .

(P.-A. Côté, The Interpretation of Legislation in Canada (3rd ed. 2000), at p. 308)

As in any statutory interpretation exercise, when determining the powers of an administrative body, courts need to examine the context that colours the words and the legislative scheme. The ultimate goal is to discover the clear intent of the legislature and the true purpose of the statute while preserving the harmony, coherence and consistency of the legislative scheme (Bell ExpressVu, at para. 27; see also Interpretation Act, R.S.A. 2000, c. I-8, s. 10 (in Appendix)). “[S]tatutory interpretation is the art of finding the legislative spirit embodied in enactments”: Bristol-Myers Squibb Co., at para. 102.

50Consequently, a grant of authority to exercise a discretion as found in s. 15(3) of the AEUBA and s. 37 of the PUBA does not confer unlimited discretion to the Board. As submitted by ATCO, the Board’s discretion is to be exercised within the confines of the statutory regime and principles generally applicable to regulatory matters, for which the legislature is assumed to have had regard in passing that legislation (see Sullivan, at pp. 154-55). In the same vein, it is useful to refer to the following passage from Bell Canada v. Canada (Canadian Radio-Television and Telecommunications Commission), 1989 CanLII 67 (SCC), [1989] 1 S.C.R. 1722, at p. 1756:

The powers of any administrative tribunal must of course be stated in its enabling statute but they may also exist by necessary implication from the wording of the act, its structure and its purpose. Although courts must refrain from unduly broadening the powers of such regulatory authorities through judicial law‑making, they must also avoid sterilizing these powers through overly technical interpretations of enabling statutes.

51The mandate of this Court is to determine and apply the intention of the legislature (Bell ExpressVu, at para. 62) without crossing the line between judicial interpretation and legislative drafting (see R. v. McIntosh, 1995 CanLII 124 (SCC), [1995] 1 S.C.R. 686, at para. 26; Bristol-Myers Squibb Co., at para. 174). That being said, this rule allows for the application of the “doctrine of jurisdiction by necessary implication”; the powers conferred by an enabling statute are construed to include not only those expressly granted but also, by implication, all powers which are practically necessary for the accomplishment of the object intended to be secured by the statutory regime created by the legislature (see Brown, at p. 2-16.2; Bell Canada, at p. 1756). Canadian courts have in the past applied the doctrine to ensure that administrative bodies have the necessary jurisdiction to accomplish their statutory mandate:

When legislation attempts to create a comprehensive regulatory framework, the tribunal must have the powers which by practical necessity and necessary implication flow from the regulatory authority explicitly conferred upon it.

Re Dow Chemical Canada Inc. and Union Gas Ltd. (1982), 1982 CanLII 3238 (ON SCDC), 141 D.L.R. (3d) 641 (Ont. H.C.), at pp. 658-59, aff’d (1983), 1983 CanLII 1879 (ON CA), 42 O.R. (2d) 731 (C.A.) (see also Interprovincial Pipe Line Ltd. v. National Energy Board, 1977 CanLII 3163 (FCA), [1978] 1 F.C. 601 (C.A.); Canadian Broadcasting League v. Canadian Radio-television and Telecommunications Commission, 1982 CanLII 5204 (FCA), [1983] 1 F.C. 182 (C.A.), aff’d 1985 CanLII 63 (SCC), [1985] 1 S.C.R. 174).

52I understand the City’s arguments to be as follows: (1) the customers acquire a right to the property of the owner of the utility when they pay for the service and are therefore entitled to a return on the profits made at the time of the sale of the property; and (2) the Board has, by necessity, because of its jurisdiction to approve or refuse to approve the sale of utility assets, the power to allocate the proceeds of the sale as a condition of its order. The doctrine of jurisdiction by necessary implication is at the heart of the City’s second argument. I cannot accept either of these arguments which are, in my view, diametrically contrary to the state of the law. This is revealed when we scrutinize the entire context which I will now endeavour to do.

53After a brief review of a few historical facts, I will probe into the main function of the Board, rate setting, and I will then explore the incidental powers which can be derived from the context.

2.3.3.1 Historical Background and Broader Context

54The history of public utilities regulation in Alberta originated with the creation in 1915 of the Board of Public Utility Commissioners by The Public Utilities Act, S.A. 1915, c. 6. This statute was based on similar American legislation: H. R. Milner, “Public Utility Rate Control in Alberta” (1930), 8 Can. Bar Rev. 101, at p. 101. While the American jurisprudence and texts in this area should be considered with caution given that Canada and the United States have very different political and constitutional-legal regimes, they do shed some light on the issue.

55Pursuant to The Public Utilities Act, the first public utility board was established as a three-member tribunal to provide general supervision of all public utilities (s. 21), to investigate rates (s. 23), to make orders regarding equipment (s. 24), and to require every public utility to file with it complete schedules of rates (s. 23). Of interest for our purposes, the 1915 statute also required public utilities to obtain the approval of the Board of Public Utility Commissioners before selling any property when outside the ordinary course of their business (s. 29(g)).

56The Alberta Energy and Utilities Board was created in February 1995 by the amalgamation of the Energy Resources Conservation Board and the Public Utilities Board (see Canadian Institute of Resources Law, Canada Energy Law Service: Alberta (loose-leaf ed.), at p. 30-3101). Since then, all matters under the jurisdiction of the Energy Resources Conservation Board and the Public Utilities Board have been handled by the Alberta Energy and Utilities Board and are within its exclusive jurisdiction. The Board has all of the powers, rights and privileges of its two predecessor boards (AEUBA, ss. 13, 15(1); GUA, s. 59).

57In addition to the powers found in the 1915 statute, which have remained virtually the same in the present PUBA, the Board now benefits from the following express powers to:

1. make an order respecting the improvement of the service or commodity (PUBA, s. 80(b));

2. approve the issue by the public utility of shares, stocks, bonds and other evidences of indebtedness (GUA, s. 26(2)(a); PUBA, s. 101(2)(a));

3. approve the lease, mortgage, disposition or encumbrance of the public utility’s property, franchises, privileges or rights (GUA, s. 26(2)(d)(i); PUBA, s. 101(2)(d)(i));

4. approve the merger or consolidation of the public utility’s property, franchises, privileges or rights (GUA, s. 26(2)(d)(ii); PUBA, s. 101(2)(d)(ii)); and

5. authorize the sale or permit to be made on the public utility’s book a transfer of any share of its capital stock to a corporation that would result in the vesting in that corporation of more than 50 percent of the outstanding capital stock of the owner of the public utility (GUA, s. 27(1); PUBA, s. 102(1)).

58It goes without saying that public utilities are very limited in the actions they can take, as evidenced from the above list. Nowhere is there a mention of the authority to allocate proceeds from a sale or the discretion of the Board to interfere with ownership rights.

59Even in 1995 when the legislature decided to form the Alberta Energy and Utilities Board, it did not see fit to modify the PUBA or the GUA to provide the new Board with the power to allocate the proceeds of a sale even though the controversy surrounding this issue was full-blown (see, e.g., Re Alberta Government Telephones, Alta. P.U.B., Decision No. E84081; Re TransAlta Utilities Corp., Alta. P.U.B., Decision No. E84116). It is a well-established principle that the legislature is presumed to have a mastery of existing law, both common law and statute law (see Sullivan, at pp. 154-55). It is also presumed to have known all of the circumstances surrounding the adoption of new legislation.

60Although the Board may seem to possess a variety of powers and functions, it is manifest from a reading of the AEUBA, the PUBA and the GUA that the principal function of the Board in respect of public utilities is the determination of rates. Its power to supervise the finances of these companies and their operations, although wide, is in practice incidental to fixing rates (see Milner, at p. 102; Brown, at p. 2-16.6). Estey J., speaking for the majority of this Court in Atco Ltd., at p. 576, echoed this view when he said:

It is evident from the powers accorded to the Board by the legislature in both statutes mentioned above that the legislature has given the Board a mandate of the widest proportions to safeguard the public interest in the nature and quality of the service provided to the community by the public utilities. Such an extensive regulatory pattern must, for its effectiveness, include the right to control the combination or, as the legislature says, “the union” of existing systems and facilities. This no doubt has a direct relationship with the rate-fixing function which ranks high in the authority and functions assigned to the Board. [Emphasis added.]

In fact, even the Board itself, on its website (http://www.eub.gov.ab.ca/BBS/eubinfo/default.htm), describes its functions as follows:

We regulate the safe, responsible, and efficient development of Alberta’s energy resources: oil, natural gas, oil sands, coal, and electrical energy; and the pipelines and transmission lines to move the resources to market. On the utilities side, we regulate rates and terms of service of investor-owned natural gas, electric, and water utility services, as well as the major intra-Alberta gas transmission system, to ensure that customers receive safe and reliable service at just and reasonable rates. [Emphasis added.]

61The process by which the Board sets the rates is therefore central and deserves some attention in order to ascertain the validity of the City’s first argument.

2.3.3.2 Rate Setting

62Rate regulation serves several aims — sustainability, equity and efficiency — which underlie the reasoning as to how rates are fixed:

. . . the regulated company must be able to finance its operations, and any required investment, so that it can continue to operate in the future. . . . Equity is related to the distribution of welfare among members of society. The objective of sustainability already implies that shareholders should not receive “too low” a return (and defines this in terms of the reward necessary to ensure continued investment in the utility), while equity implies that their returns should not be “too high”.

(R. Green and M. Rodriguez Pardina, Resetting Price Controls for Privatized Utilities: A Manual for Regulators (1999), at p. 5)

63These goals have resulted in an economic and social arrangement dubbed the “regulatory compact”, which ensures that all customers have access to the utility at a fair price — nothing more. As I will further explain, it does not transfer onto the customers any property right. Under the regulatory compact, the regulated utilities are given exclusive rights to sell their services within a specific area at rates that will provide companies the opportunity to earn a fair return for their investors. In return for this right of exclusivity, utilities assume a duty to adequately and reliably serve all customers in their determined territories, and are required to have their rates and certain operations regulated (see Black, at pp. 356-57; Milner, at p. 101; Atco Ltd., at p. 576; Northwestern Utilities Ltd. v. City of Edmonton, 1929 CanLII 39 (SCC), [1929] S.C.R. 186 (“Northwestern 1929”), at pp. 192-93).

64Therefore, when interpreting the broad powers of the Board, one cannot ignore this well-balanced regulatory arrangement which serves as a backdrop for contextual interpretation. The object of the statutes is to protect both the customer and the investor (Milner, at p. 101). The arrangement does not, however, cancel the private nature of the utility. In essence, the Board is responsible for maintaining a tariff that enhances the economic benefits to consumers and investors of the utility.

65The Board derives its power to set rates from both the GUA (ss. 16, 17 and 36 to 45) and the PUBA (ss. 89 to 95). The Board is mandated to fix “just and reasonable . . . rates” (PUBA, s. 89(a); GUA, s. 36(a)). In the establishment of these rates, the Board is directed to “determine a rate base for the property of the owner” and “fix a fair return on the rate base” (GUA, s. 37(1)). This Court, in Northwestern Utilities Ltd. v. City of Edmonton, 1978 CanLII 17 (SCC), [1979] 1 S.C.R. 684 (“Northwestern 1979”), at p. 691, adopted the following description of the process:

The PUB approves or fixes utility rates which are estimated to cover expenses plus yield the utility a fair return or profit. This function is generally performed in two phases. In Phase I the PUB determines the rate base, that is the amount of money which has been invested by the company in the property, plant and equipment plus an allowance for necessary working capital all of which must be determined as being necessary to provide the utility service. The revenue required to pay all reasonable operating expenses plus provide a fair return to the utility on its rate base is also determined in Phase I. The total of the operating expenses plus the return is called the revenue requirement. In Phase II rates are set, which, under normal temperature conditions are expected to produce the estimates of “forecast revenue requirement”. These rates will remain in effect until changed as the result of a further application or complaint or the Board’s initiative. Also in Phase II existing interim rates may be confirmed or reduced and if reduced a refund is ordered.

(See also Re Canadian Western Natural Gas Co., Alta. P.U.B., Decision No. E84113, October 12, 1984, at p. 23; Re Union Gas Ltd. and Ontario Energy Board (1983), 1983 CanLII 1982 (ON SC), 1 D.L.R. (4th) 698 (Ont. Div. Ct.), at pp. 701-2.)

66Consequently, when determining the rate base, the Board is to give due consideration (GUA, s. 37(2)):

(a) to the cost of the property when first devoted to public use and to prudent acquisition cost to the owner of the gas utility, less depreciation, amortization or depletion in respect of each, and

(b) to necessary working capital.

67The fact that the utility is given the opportunity to make a profit on its services and a fair return on its investment in its assets should not and cannot stop the utility from benefiting from the profits which follow the sale of assets. Neither is the utility protected from losses incurred from the sale of assets. In fact, the wording of the sections quoted above suggests that the ownership of the assets is clearly that of the utility; ownership of the asset and entitlement to profits or losses upon its realization are one and the same. The equity investor expects to receive the net revenues after all costs are paid, equal to the present value of original investment at the time of that investment. The disbursement of some portions of the residual amount of net revenue, by after-the-fact reallocation to rate-paying customers, undermines that investment process: MacAvoy and Sidak, at p. 244. In fact, speculation would accrue even more often should the public utility, through its shareholders, not be the one to benefit from the possibility of a profit, as investors would expect to receive a larger premium for their funds through the only means left available, the return on their original investment. In addition, they would be less willing to accept any risk.

68Thus, can it be said, as alleged by the City, that the customers have a property interest in the utility? Absolutely not: that cannot be so, as it would mean that fundamental principles of corporate law would be distorted. Through the rates, the customers pay an amount for the regulated service that equals the cost of the service and the necessary resources. They do not by their payment implicitly purchase the asset from the utility’s investors. The payment does not incorporate acquiring ownership or control of the utility’s assets. The ratepayer covers the cost of using the service, not the holding cost of the assets themselves: “A utility’s customers are not its owners, for they are not residual claimants”: MacAvoy and Sidak, at p. 245 (see also p. 237). Ratepayers have made no investment. Shareholders have and they assume all risks as the residual claimants to the utility’s profit. Customers have only “the risk of a price change resulting from any (authorized) change in the cost of service. This change is determined only periodically in a tariff review by the regulator” (MacAvoy and Sidak, at p. 245).

69In this regard, I agree with ATCO when it asserts in its factum, at para. 38:

The property in question is as fully the private property of the owner of the utility as any other asset it owns. Deployment of the asset in utility service does not create or transfer any legal or equitable rights in that property for ratepayers. Absent any such interest, any taking such as ordered by the Board is confiscatory . . . .

Wittmann J.A., at the Court of Appeal, said it best when he stated:

Consumers of utilities pay for a service, but by such payment, do not receive a proprietary right in the assets of the utility company. Where the calculated rates represent the fee for the service provided in the relevant period of time, ratepayers do not gain equitable or legal rights to non-depreciable assets when they have paid only for the use of those assets. [Emphasis added; para. 64.]

I fully adopt this conclusion. The Board misdirected itself by confusing the interests of the customers in obtaining safe and efficient utility service with an interest in the underlying assets owned only by the utility. While the utility has been compensated for the services provided, the customers have provided no compensation for receiving the benefits of the subject property. The argument that assets purchased are reflected in the rate base should not cloud the issue of determining who is the appropriate owner and risk bearer. Assets are indeed considered in rate setting, as a factor, and utilities cannot sell an asset used in the service to create a profit and thereby restrict the quality or increase the price of service. Despite the consideration of utility assets in the rate-setting process, shareholders are the ones solely affected when the actual profits or losses of such a sale are realized; the utility absorbs losses and gains, increases and decreases in the value of assets, based on economic conditions and occasional unexpected technical difficulties, but continues to provide certainty in service both with regard to price and quality. There can be a default risk affecting ratepayers, but this does not make ratepayers residual claimants. While I do not wish to unduly rely on American jurisprudence, I would note that the leading U.S. case on this point is Duquesne Light Co. v. Barasch, 488 U.S. 299 (1989), which relies on the same principle as was adopted in Market St. Ry. Co. v. Railroad Commission of State of California, 324 U.S. 548 (1945).

70Furthermore, one has to recognize that utilities are not Crown entities, fraternal societies or cooperatives, or mutual companies, although they have a “public interest” aspect which is to supply the public with a necessary service (in the present case, the provision of natural gas). The capital invested is not provided by the public purse or by the customers; it is injected into the business by private parties who expect as large a return on the capital invested in the enterprise as they would receive if they were investing in other securities possessing equal features of attractiveness, stability and certainty (see Northwestern 1929, at p. 192). This prospect will necessarily include any gain or loss that is made if the company divests itself of some of its assets, i.e., land, buildings, etc.

71From my discussion above regarding the property interest, the Board was in no position to proceed with an implicit refund by allocating to ratepayers the profits from the asset sale because it considered ratepayers had paid excessive rates for services in the past. As such, the City’s first argument must fail. The Board was seeking to rectify what it perceived as a historic over-compensation to the utility by ratepayers. There is no power granted in the various statutes for the Board to execute such a refund in respect of an erroneous perception of past over-compensation. It is well established throughout the various provinces that utilities boards do not have the authority to retroactively change rates (Northwestern 1979, at p. 691; Re Coseka Resources Ltd. and Saratoga Processing Co. (1981), 1981 ABCA 180, 126 D.L.R. (3d) 705 (Alta. C.A.), at p. 715, leave to appeal refused, [1981] 2 S.C.R. vii; Re Dow Chemical Canada Inc. (C.A.), at pp. 734-35). But more importantly, it cannot even be said that there was over-compensation: the rate-setting process is a speculative procedure in which both the ratepayers and the shareholders jointly carry their share of the risk related to the business of the utility (see MacAvoy and Sidak, at pp. 238-39).

2.3.3.3 The Power to Attach Conditions

72As its second argument, the City submits that the power to allocate the proceeds from the sale of the utility’s assets is necessarily incidental to the express powers conferred on the Board by the AEUBA, the GUA and the PUBA. It argues that the Board must necessarily have the power to allocate sale proceeds as part of its discretionary power to approve or refuse to approve a sale of assets. It submits that this results from the fact that the Board is allowed to attach any condition to an order it makes approving such a sale. I disagree.

73The City seems to assume that the doctrine of jurisdiction by necessary implication applies to “broadly drawn powers” as it does for “narrowly drawn powers”; this cannot be. The Ontario Energy Board in its decision in Re Consumers’ Gas Co., E.B.R.O. 410-II/411-II/412-II, March 23, 1987, at para. 4.73, enumerated the circumstances when the doctrine of jurisdiction by necessary implication may be applied:

• [when] the jurisdiction sought is necessary to accomplish the objectives of the legislative scheme and is essential to the Board fulfilling its mandate;

• [when] the enabling act fails to explicitly grant the power to accomplish the legislative objective;

• [when] the mandate of the Board is sufficiently broad to suggest a legislative intention to implicitly confer jurisdiction;

• [when] the jurisdiction sought must not be one which the Board has dealt with through use of expressly granted powers, thereby showing an absence of necessity; and

• [when] the Legislature did not address its mind to the issue and decide against conferring the power upon the Board.

(See also Brown, at p. 2-16.3.)

74In light of the above, it is clear that the doctrine of jurisdiction by necessary implication will be of less help in the case of broadly drawn powers than for narrowly drawn ones. Broadly drawn powers will necessarily be limited to only what is rationally related to the purpose of the regulatory framework. This is explained by Professor Sullivan, at p. 228:

In practice, however, purposive analysis makes the powers conferred on administrative bodies almost infinitely elastic. Narrowly drawn powers can be understood to include “by necessary implication” all that is needed to enable the official or agency to achieve the purpose for which the power was granted. Conversely, broadly drawn powers are understood to include only what is rationally related to the purpose of the power. In this way the scope of the power expands or contracts as needed, in keeping with the purpose. [Emphasis added.]

75In the case at bar, s. 15 of the AEUBA, which allows the Board to impose additional conditions when making an order, appears at first glance to be a power having infinitely elastic scope. However, in my opinion, the attempt by the City to use it to augment the powers of the Board in s. 26(2) of the GUA must fail. The Court must construe s. 15(3) of the AEUBA in accordance with the purpose of s. 26(2).

76MacAvoy and Sidak, in their article, at pp. 234-36, suggest three broad reasons for the requirement that a sale must be approved by the Board:

1. It prevents the utility from degrading the quality, or reducing the quantity, of the regulated service so as to harm consumers;

2. It ensures that the utility maximizes the aggregate economic benefits of its operations, and not merely the benefits flowing to some interest group or stakeholder; and

3. It specifically seeks to prevent favoritism toward investors.

77Consequently, in order to impute jurisdiction to a regulatory body to allocate proceeds of a sale, there must be evidence that the exercise of that power is a practical necessity for the regulatory body to accomplish the objects prescribed by the legislature, something which is absent in this case (see National Energy Board Act (Can.) (Re), 1986 CanLII 4033 (FCA), [1986] 3 F.C. 275 (C.A.)). In order to meet these three goals, it is not necessary for the Board to have control over which party should benefit from the sale proceeds. The public interest component cannot be said to be sufficient to impute to the Board the power to allocate all the profits pursuant to the sale of assets. In fact, it is not necessary for the Board in carrying out its mandate to order the utility to surrender the bulk of the proceeds from a sale of its property in order for that utility to obtain approval for a sale. The Board has other options within its jurisdiction which do not involve the appropriation of the sale proceeds, the most obvious one being to refuse to approve a sale that will, in the Board’s view, affect the quality and/or quantity of the service offered by the utility or create additional operating costs for the future. This is not to say that the Board can never attach a condition to the approval of sale. For example, the Board could approve the sale of the assets on the condition that the utility company gives undertakings regarding the replacement of the assets and their profitability. It could also require as a condition that the utility reinvest part of the sale proceeds back into the company in order to maintain a modern operating system that achieves the optimal growth of the system.

78In my view, allowing the Board to confiscate the net gain of the sale under the pretence of protecting rate-paying customers and acting in the “public interest” would be a serious misconception of the powers of the Board to approve a sale; to do so would completely disregard the economic rationale of rate setting, as I explained earlier in these reasons. Such an attempt by the Board to appropriate a utility’s excess net revenues for ratepayers would be highly sophisticated opportunism and would, in the end, simply increase the utility’s capital costs (MacAvoy and Sidak, at p. 246). At the risk of repeating myself, a public utility is first and foremost a private business venture which has as its goal the making of profits. This is not contrary to the legislative scheme, even though the regulatory compact modifies the normal principles of economics with various restrictions explicitly provided for in the various enabling statutes. None of the three statutes applicable here provides the Board with the power to allocate the proceeds of a sale and therefore affect the property interests of the public utility.

79It is well established that potentially confiscatory legislative provision ought to be construed cautiously so as not to strip interested parties of their rights without the clear intention of the legislation (see Sullivan, at pp. 400-403; Côté, at pp. 482-86; Pacific National Investments Ltd. v. Victoria (City), [2000] 2 S.C.R. 919, 2000 SCC 64, at para. 26; Leiriao v. Val‑Bélair (Town), 1991 CanLII 46 (SCC), [1991] 3 S.C.R. 349, at p. 357; Hongkong Bank of Canada v. Wheeler Holdings Ltd., 1993 CanLII 148 (SCC), [1993] 1 S.C.R. 167, at p. 197). Not only is the authority to attach a condition to allocate the proceeds of a sale to a particular party unnecessary for the Board to accomplish its role, but deciding otherwise would lead to the conclusion that a broadly drawn power can be interpreted so as to encroach on the economic freedom of the utility, depriving it of its rights. This would go against the above principles of interpretation.

80If the Alberta legislature wishes to confer on ratepayers the economic benefits resulting from the sale of utility assets, it can expressly provide for this in the legislation, as was done by some states in the United States (e.g., Connecticut).

2.4 Other Considerations

81Under the regulatory compact, customers are protected through the rate-setting process, under which the Board is required to make a well-balanced determination. The record shows that the City did not submit to the Board a general rate review application in response to ATCO’s application requesting approval for the sale of the property at issue in this case. Nonetheless, if it chose to do so, this would not have stopped the Board, on its own initiative, from convening a hearing of the interested parties in order to modify and fix just and reasonable rates to give due consideration to any new economic data anticipated as a result of the sale (PUBA, s. 89(a); GUA, ss. 24, 36(a), 37(3), 40) (see Appendix).

2.5 If Jurisdiction Had Been Found, Was the Board’s Allocation Reasonable?

82In light of my conclusion with regard to jurisdiction, it is not necessary to determine whether the Board’s exercise of discretion by allocating the sale proceeds as it did was reasonable. Nonetheless, given the reasons of my colleague Binnie J., I will address the issue very briefly. Had I not concluded that the Board lacked jurisdiction, my disposition of this case would have been the same, as I do not believe the Board met a reasonable standard when it exercised its power.

83I am not certain how one could conclude that the Board’s allocation was reasonable when it wrongly assumed that ratepayers had acquired a proprietary interest in the utility’s assets because assets were a factor in the rate-setting process, and, moreover, when it explicitly concluded that no harm would ensue to customers from the sale of the asset. In my opinion, when reviewing the substance of the Board’s decision, a court must conduct a two-step analysis: first, it must determine whether the order was warranted given the role of the Board to protect the customers (i.e., was the order necessary in the public interest?); and second, if the first question is answered in the affirmative, a court must then examine the validity of the Board’s application of the TransAlta Formula (see para. 12 of these reasons), which refers to the difference between net book value and original cost, on the one hand, and appreciation in the value of the asset on the other. For the purposes of this analysis, I view the second step as a mathematical calculation and nothing more. I do not believe it provides the criteria which guides the Board to determine if it should allocate part of the sale proceeds to ratepayers. Rather, it merely guides the Board on what to allocate and how to allocate it (if it should do so in the first place). It is also interesting to note that there is no discussion of the fact that the book value used in the calculation must be referable solely to the financial statements of the utility.

84In my view, as I have already stated, the power of the Board to allocate proceeds does not even arise in this case. Even by the Board’s own reasoning, it should only exercise its discretion to act in the public interest when customers would be harmed or would face some risk of harm. But the Board was clear: there was no harm or risk of harm in the present situation:

With the continuation of the same level of service at other locations and the acceptance by customers regarding the relocation, the Board is convinced there should be no impact on the level of service to customers as a result of the Sale. In any event, the Board considers that the service level to customers is a matter that can be addressed and remedied in a future proceeding if necessary.

(Decision 2002-037, at para. 54)

After declaring that the customers would not, on balance, be harmed, the Board maintained that, on the basis of the evidence filed, there appeared to be a cost savings to the customers. There was no legitimate customer interest which could or needed to be protected by denying approval of the sale, or by making approval conditional on a particular allocation of the proceeds. Even if the Board had found a possible adverse effect arising from the sale, how could it allocate proceeds now based on an unquantified future potential loss? Moreover, in the absence of any factual basis to support it, I am also concerned with the presumption of bad faith on the part of ATCO that appears to underlie the Board’s determination to protect the public from some possible future menace. In any case, as mentioned earlier in these reasons, this determination to protect the public interest is also difficult to reconcile with the actual power of the Board to prevent harm to ratepayers from occurring by simply refusing to approve the sale of a utility’s asset. To that, I would add that the Board has considerable discretion in the setting of future rates in order to protect the public interest, as I have already stated.

85In consequence, I am of the view that, in the present case, the Board did not identify any public interest which required protection and there was, therefore, nothing to trigger the exercise of the discretion to allocate the proceeds of sale. Hence, notwithstanding my conclusion on the first issue regarding the Board’s jurisdiction, I would conclude that the Board’s decision to exercise its discretion to protect the public interest did not meet a reasonable standard.

3. Conclusion

86This Court’s role in this case has been one of interpreting the enabling statutes using the appropriate interpretive tools, i.e., context, legislative intention and objective. Going further than required by reading in unnecessary powers of an administrative agency under the guise of statutory interpretation is not consistent with the rules of statutory interpretation. It is particularly dangerous to adopt such an approach when property rights are at stake.

87The Board did not have the jurisdiction to allocate the proceeds of the sale of the utility’s asset; its decision did not meet the correctness standard. Thus, I would dismiss the City’s appeal and allow ATCO’s cross-appeal, both with costs. I would also set aside the Board’s decision and refer the matter back to the Board to approve the sale of the property belonging to ATCO, recognizing that the proceeds of the sale belong to ATCO.

The reasons of McLachlin C.J. and Binnie and Fish JJ. were delivered by

88Binnie J. (dissenting) — The respondent ATCO Gas and Pipelines Ltd. (“ATCO”) is part of a large entrepreneurial company that directly and through various subsidiaries operates both regulated businesses and unregulated businesses. The Alberta Energy and Utilities Board (“Board”) believes it not to be in the public interest to encourage utility companies to mix together the two types of undertakings. In particular, the Board has adopted policies to discourage utilities from using their regulated businesses as a platform to engage in land speculation to increase their return on investment outside the regulatory framework. By awarding part of the profit to the utility (and its shareholders), the Board rewards utilities for diligence in divesting themselves of assets that are no longer productive, or that could be more productively employed elsewhere. However, by crediting part of the profit on the sale of such property to the utility’s rate base (i.e. as a set-off to other costs), the Board seeks to dampen any incentive for utilities to skew decisions in their regulated business to favour such profit taking unduly. Such a balance, in the Board’s view, is necessary in the interest of the public which allows ATCO to operate its utility business as a monopoly. In pursuit of this balance, the Board approved ATCO’s application to sell land and warehousing facilities in downtown Calgary, but denied ATCO’s application to keep for its shareholders the entire profit resulting from appreciation in the value of the land, whose cost of acquisition had formed part of the rate base on which gas rates had been calculated since 1922. The Board ordered the profit on the sale to be allocated one third to ATCO and two thirds as a credit to its cost base, thereby helping keep utility rates down, and to that extent benefiting ratepayers.

89I have read with interest the reasons of my colleague Bastarache J. but, with respect, I do not agree with his conclusion. As will be seen, the Board has authority under s. 15(3) of the Alberta Energy and Utilities Board Act, R.S.A. 2000, c. A-17 (“AEUBA”), to impose on the sale “any additional conditions that the Board considers necessary in the public interest”. Whether or not the conditions of approval imposed by the Board were necessary in the public interest was for the Board to decide. The Alberta Court of Appeal overruled the Board but, with respect, the Board is in a better position to assess necessity in this field for the protection of the public interest than either that court or this Court. I would allow the appeal and restore the Board’s decision.

I. Analysis

90ATCO’s argument boils down to the proposition announced at the outset of its factum:

In the absence of any property right or interest and of any harm to the customers arising from the withdrawal from utility service, there was no proper ground for reaching into the pocket of the utility. In essence this case is about property rights.

(Respondent’s factum, at para. 2)

91For the reasons which follow I do not believe the case is about property rights. ATCO chose to make its investment in a regulated industry. The return on investment in the regulated gas industry is fixed by the Board, not the free market. In my view, the essential issue is whether the Alberta Court of Appeal was justified in limiting what the Board is allowed to “conside[r] necessary in the public interest”.

A. The Board’s Statutory Authority

92The first question is one of jurisdiction. What gives the Board the authority to make the order ATCO complains about? The Board’s answer is threefold. s. 22(1) of the Gas Utilities Act, R.S.A. 2000, c. G-5 (“GUA”), provides in part that “[t]he Board shall exercise a general supervision over all gas utilities, and the owners of them . . .”. This, the Board says, gives it a broad jurisdiction to set policies that go beyond its specific powers in relation to specific applications, such as rate setting. Of more immediate pertinence, s. 26(2)(d)(i) of the same Act prohibits the regulated utility from selling, leasing or otherwise encumbering any of its property without the Board’s approval. (To the same effect, see s. 101(2)(d)(i) of the Public Utilities Board Act, R.S.A. 2000, c. P-45.) It is common ground that this restraint on alienation of property applies to the proposed sale of ATCO’s land and warehouse facilities in downtown Calgary, and that the Board could, in appropriate circumstances, simply have denied ATCO’s application for approval of the sale. However, the Board was of the view to allow the sale subject to conditions. The Board ruled that the greater power (i.e. to deny the sale) must include the lesser (i.e. to allow the sale, subject to conditions):

In appropriate circumstances, the Board clearly has the power to prevent a utility from disposing of its property. In the Board’s view it also follows that the Board can approve a disposition subject to appropriate conditions to protect customer interests.

(Decision 2002-037, [2002] A.E.U.B.D. No. 52 (QL), at para. 47)

There is no need to rely on any such implicit power to impose conditions, however. As stated, the Board’s explicit power to impose conditions is found in s. 15(3) of the AEUBA, which authorizes the Board to “make any further order and impose any additional conditions that the Board considers necessary in the public interest”. In Atco Ltd. v. Calgary Power Ltd., 1982 CanLII 208 (SCC), [1982] 2 S.C.R. 557, at p. 576, Estey J., for the majority, stated:

It is evident from the powers accorded to the Board by the legislature in both statutes mentioned above that the legislature has given the Board a mandate of the widest proportions to safeguard the public interest in the nature and quality of the service provided to the community by the public utilities. [Emphasis added.]

The legislature says in s. 15(3) that the conditions are to be what the Board considers necessary. Of course, the discretionary power to impose conditions thus granted is not unlimited. It must be exercised in good faith for its intended purpose: C.U.P.E. v. Ontario (Minister of Labour), [2003] 1 S.C.R. 539, 2003 SCC 29. ATCO says the Board overstepped even these generous limits. In ATCO’s submission:

Deployment of the asset in utility service does not create or transfer any legal or equitable rights in that property for ratepayers. Absent any such interest, any taking such as ordered by the Board is confiscatory . . . .

(Respondent’s factum, at para. 38)

In my view, however, the issue before the Board was how much profit ATCO was entitled to earn on its investment in a regulated utility.

93ATCO argues in the alternative that the Board engaged in impermissible “retroactive rate making”. But Alberta is an “original cost” jurisdiction, and no one suggests that the Board’s original cost rate making during the 80-plus years this investment has been reflected in ATCO’s ratebase was wrong. The Board proposed to apply a portion of the expected profit to future rate making. The effect of the order is prospective, not retroactive. Fixing the going-forward rate of return as well as general supervision of “all gas utilities, and the owners of them” were matters squarely within the Board’s statutory mandate.

B. The Board’s Decision

94ATCO argues that the Board’s decision should be seen as a stand-alone decision divorced from its rate-making responsibilities. However, I do not agree that the hearing under s. 26 of the GUA can be isolated in this way from the Board’s general regulatory responsibilities. ATCO argues in its factum that

the subject application by [ATCO] to the Board did not concern or relate to a rate application, and the Board was not engaged in fixing rates (if that could provide any justification, which is denied).

(Respondent’s factum, at para. 98)

95It seems the Board proceeded with the s. 26 approval hearing separately from a rate setting hearing firstly because ATCO framed the proceeding in that way and secondly because this is the procedure approved by the Alberta Court of Appeal in TransAlta Utilities Corp. v. Public Utilities Board (Alta.) (1986), 1986 ABCA 64, 68 A.R. 171. That case (which I will refer to as TransAlta (1986)) is a leading Alberta authority dealing with the allocation of the gain on the disposal of utility assets and the source of what is called the TransAlta Formula applied by the Board in this case. Kerans J.A. had this to say, at p. 174:

I observe parenthetically that I now appreciate that it suits the convenience of everybody involved to resolve issues of this sort, if possible, before a general rate hearing so as to lessen the burden on that already complex procedure.

96Given this encouragement from the Alberta Court of Appeal, I would place little significance on ATCO’s procedural point. As will be seen, the Board’s ruling is directly tied into the setting of general rates because two thirds of the profit is taken into account as an offset to ATCO’s costs from which its revenue requirement is ultimately derived. As stated, ATCO’s profit on the sale of the Calgary property will be a current (not historical) receipt and, if the Board has its way, two thirds of it will be applied to future (not retroactive) rate making.

97The s. 26 hearing proceeded in two phases. The Board first determined that it would not deny its approval to the proposed sale as it met a “no-harm test” devised over the years by Board practice (it is not to be found in the statutes) (Decision 2001‑78). However, the Board linked its approval to subsequent consideration of the financial ramifications, as the Board itself noted:

The Board approved the Sale in Decision 2001-78 based on evidence that customers did not object to the Sale [and] would not suffer a reduction in services nor would they be exposed to the risk of financial harm as a result of the Sale that could not be examined in a future proceeding. On that basis the Board determined that the no-harm test had been satisfied and that the Sale could proceed. [Underlining and italics added.]

(Decision 2002-037, at para. 13)

98In effect, ATCO ignores the italicized words. It argues that the Board was functus after the first phase of its hearing. However, ATCO itself had agreed to the two-phase procedure, and indeed the second phase was devoted to ATCO’s own application for an allocation of the profits on the sale.

99In the second phase of the s. 26 approval hearing, the Board allocated one third of the net gain to ATCO and two thirds to the rate base (which would benefit ratepayers). The Board spelled out why it considered these conditions to be necessary in the public interest. The Board explained that it was necessary to balance the interests of both shareholders and ratepayers within the framework of what it called “the regulatory compact” (Decision 2002‑037, at para. 44). In the Board’s view:

(a) there ought to be a balancing of the interests of the ratepayers and the owners of the utility;

(b) decisions made about the utility should be driven by both parties’ interests;

(c) to award the entire gain to the ratepayers would deny the utility an incentive to increase its efficiency and reduce its costs; and

(d) to award the entire gain to the utility might encourage speculation in non-depreciable property or motivate the utility to identify and dispose of properties which have appreciated for reasons other than the best interest of the regulated business.

100For purposes of this appeal, it is important to set out the Board’s policy reasons in its own words:

To award the entire net gain on the land and buildings to the customers, while beneficial to the customers, could establish an environment that may deter the process wherein the company continually assesses its operation to identify, evaluate, and select options that continually increase efficiency and reduce costs.

Conversely, to award the entire net gain to the company may establish an environment where a regulated utility company might be moved to speculate in non-depreciable property or result in the company being motivated to identify and sell existing properties where appreciation has already occurred.

The Board believes that some method of balancing both parties’ interests will result in optimization of business objectives for both the customer and the company. Therefore, the Board considers that sharing of the net gain on the sale of the land and buildings collectively in accordance with the TransAlta Formula is equitable in the circumstances of this application and is consistent with past Board decisions. [Emphasis added; paras. 112-14.]

101The Court was advised that the two-third share allocated to ratepayers would be included in ATCO’s rate calculation to set off against the costs included in the rate base and amortized over a number of years.

C. Standard of Review

102The Court’s modern approach to this vexed question was recently set out by McLachlin C.J. in Dr. Q v. College of Physicians and Surgeons of British Columbia, [2003] 1 S.C.R. 226, 2003 SCC 19, at para. 26:

In the pragmatic and functional approach, the standard of review is determined by considering four contextual factors — the presence or absence of a privative clause or statutory right of appeal; the expertise of the tribunal relative to that of the reviewing court on the issue in question; the purposes of the legislation and the provision in particular; and, the nature of the question — law, fact, or mixed law and fact. The factors may overlap. The overall aim is to discern legislative intent, keeping in mind the constitutional role of the courts in maintaining the rule of law.

103I do not propose to cover the ground already set out in the reasons of my colleague Bastarache J. We agree that the standard of review on matters of jurisdiction is correctness. We also agree that the Board’s exercise of its jurisdiction calls for greater judicial deference. Appeals from the Board are limited to questions of law or jurisdiction. The Board knows a great deal more than the courts about gas utilities, and what limits it is necessary to impose “in the public interest” on their dealings with assets whose cost is included in the rate base. Moreover, it is difficult to think of a broader discretion than that conferred on the Board to “impose any additional conditions that the Board considers necessary in the public interest” (s. 15(3)(d) of the AEUBA). The identification of a subjective discretion in the decision maker (“the Board considers necessary”), the expertise of that decision maker and the nature of the decision to be made (“in the public interest”), in my view, call for the most deferential standard, patent unreasonableness.

104As to the phrase “the Board considers necessary”, Martland J. stated in Calgary Power Ltd. v. Copithorne, 1958 CanLII 73 (SCC), [1959] S.C.R. 24, at p. 34:

The question as to whether or not the respondent’s lands were “necessary” is not one to be determined by the Courts in this case. The question is whether the Minister “deemed” them to be necessary.

See also D. J. M. Brown and J. M. Evans, Judicial Review of Administrative Action in Canada (loose-leaf ed.), vol. 1, at para. 14:2622: “‘Objective’ and ‘Subjective’ Grants of Discretion”.

105The expert qualifications of a regulatory Board are of “utmost importance in determining the intention of the legislator with respect to the degree of deference to be shown to a tribunal’s decision in the absence of a full privative clause”, as stated by Sopinka J. in United Brotherhood of Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., 1993 CanLII 88 (SCC), [1993] 2 S.C.R. 316, at p. 335. He continued:

Even where the tribunal’s enabling statute provides explicitly for appellate review, as was the case in Bell Canada [v. Canada (Canadian Radio-Television and Telecommunications Commission), 1989 CanLII 67 (SCC), [1989] 1 S.C.R. 1722], it has been stressed that deference should be shown by the appellate tribunal to the opinions of the specialized lower tribunal on matters squarely within its jurisdiction.

(This dictum was cited with approval in Pezim v. British Columbia (Superintendent of Brokers), 1994 CanLII 103 (SCC), [1994] 2 S.C.R. 557, at p. 592.)

106A regulatory power to be exercised “in the public interest” necessarily involves accommodation of conflicting economic interests. It has long been recognized that what is “in the public interest” is not really a question of law or fact but is an opinion. In TransAlta (1986), the Alberta Court of Appeal (at para. 24) drew a parallel between the scope of the words “public interest” and the well-known phrase “public convenience and necessity” in its citation of Memorial Gardens Association (Canada) Ltd. v. Colwood Cemetery Co., 1958 CanLII 82 (SCC), [1958] S.C.R. 353, where this Court stated, at p. 357:

[T]he question whether public convenience and necessity requires a certain action is not one of fact. It is predominantly the formulation of an opinion. Facts must, of course, be established to justify a decision by the Commission but that decision is one which cannot be made without a substantial exercise of administrative discretion. In delegating this administrative discretion to the Commission the Legislature has delegated to that body the responsibility of deciding, in the public interest . . . . [Emphasis added.]

107This passage reiterated the dictum of Rand J. in Union Gas Co. of Canada Ltd. v. Sydenham Gas and Petroleum Co., 1957 CanLII 5 (SCC), [1957] S.C.R. 185, at p. 190:

It was argued, and it seems to have been the view of the Court, that the determination of public convenience and necessity was itself a question of fact, but with that I am unable to agree: it is not an objective existence to be ascertained; the determination is the formulation of an opinion, in this case, the opinion of the Board and of the Board only. [Emphasis added.]

108Of course even such a broad power is not untrammelled. But to say that such a power is capable of abuse does not lead to the conclusion that it should be truncated. I agree on this point with Reid J. (co-author of R. F. Reid and H. David, Administrative Law and Practice (2nd ed. 1978), and co-editor of P. Anisman and R. F. Reid, Administrative Law Issues and Practice (1995)), who wrote in Re C.T.C. Dealer Holdings Ltd. and Ontario Securities Commission (1987), 1987 CanLII 4234 (ON SC), 59 O.R. (2d) 79 (Div. Ct.), in relation to the powers of the Ontario Securities Commission, at p. 97:

. . . when the Commission has acted bona fide, with an obvious and honest concern for the public interest, and with evidence to support its opinion, the prospect that the breadth of its discretion might someday tempt it to place itself above the law by misusing that discretion is not something that makes the existence of the discretion bad per se, and requires the decision to be struck down.

(The C.T.C. Dealer Holdings decision was referred to with apparent approval by this Court in Committee for the Equal Treatment of Asbestos Minority Shareholders v. Ontario (Securities Commission), [2001] 2 S.C.R. 132, 2001 SCC 37, at para. 42.)

109“Patent unreasonableness” is a highly deferential standard:

A correctness approach means that there is only one proper answer. A patently unreasonable one means that there could have been many appropriate answers, but not the one reached by the decision maker.

(C.U.P.E., at para. 164)

110Having said all that, in my view nothing much turns on the result on whether the proper standard in that regard is patent unreasonableness (as I view it) or simple reasonableness (as my colleague sees it). As will be seen, the Board’s response is well within the range of established regulatory opinions. Hence, even if the Board’s conditions were subject to the less deferential standard, I would find no cause for the Court to interfere.

D. Did the Board Have Jurisdiction to Impose the Conditions It Did on the Approval Order “In the Public Interest”?

111ATCO says the Board had no jurisdiction to impose conditions that are “confiscatory”. Framing the question in this way, however, assumes the point in issue. The correct point of departure is not to assume that ATCO is entitled to the net gain and then ask if the Board can confiscate it. ATCO’s investment of $83,000 was added in increments to its regulatory cost base as the land was acquired from time to time between 1922 and 1965. It is in the nature of a regulated industry that the question of what is a just and equitable return is determined by a board and not by the vagaries of the speculative property market.

112I do not think the legal debate is assisted by talk of “confiscation”. ATCO is prohibited by statute from disposing of the asset without Board approval, and the Board has statutory authority to impose conditions on its approval. The issue thus necessarily turns not on the existence of the jurisdiction but on the exercise of the Board’s jurisdiction to impose the conditions that it did, and in particular to impose a shared allocation of the net gain.

E. Did the Board Improperly Exercise the Jurisdiction It Possessed to Impose Conditions the Board Considered “Necessary in the Public Interest”?

113There is no doubt that there are many approaches to “the public interest”. Which approach the Board adopts is largely (and inherently) a matter of opinion and discretion. While the statutory framework of utilities regulation varies from jurisdiction to jurisdiction, and practice in the United States must be read in light of the constitutional protection of property rights in that country, nevertheless Alberta’s grant of authority to its Board is more generous than most. ATCO concedes that its “property” claim would have to give way to a contrary legislative intent, but ATCO says such intent cannot be found in the statutes.

114Most if not all regulators face the problem of how to allocate gains on property whose original cost is included in the rate base but is no longer required to provide the service. There is a wealth of regulatory experience in many jurisdictions that the Board is entitled to (and does) have regard to in formulating its policies. Striking the correct balance in the allocation of gains between ratepayers and investors is a common preoccupation of comparable boards and agencies:

First, it prevents the utility from degrading the quality, or reducing the quantity, of the regulated service so as to harm consumers. Second, it ensures that the utility maximizes the aggregate economic benefits of its operations, and not merely the benefits flowing to some interest group or stakeholder. Third, it specifically seeks to prevent favoritism toward investors to the detriment of ratepayers affected by the transaction.

(P. W. MacAvoy and J. G. Sidak, “The Efficient Allocation of Proceeds from a Utility’s Sale of Assets” (2001), 22 Energy L.J. 233, at p. 234)

115The concern with which Canadian regulators view utilities under their jurisdiction that are speculating in land is not new. In Re Consumers’ Gas Co., E.B.R.O. 341-I, June 30, 1976, the Ontario Energy Board considered how to deal with a real estate profit on land which was disposed of at an after-tax profit of over $2 million. The Board stated:

The Station “B” property was not purchased by Consumers’ for land speculation but was acquired for utility purposes. This investment, while non-depreciable, was subject to interest charges and risk paid for through revenues and, until the gas manufacturing plant became obsolete, disposal of the land was not a feasible option. If, in such circumstances, the Board were to permit real estate profit to accrue to the shareholders only, it would tend to encourage real estate speculation with utility capital. In the Board’s opinion, the shareholders and the ratepayers should share the benefits of such capital gains. [Emphasis added; para. 326.]

116Some U.S. regulators also consider it good regulatory policy to allocate part or all of the profit to offset costs in the rate base. In Re Boston Gas Co., 49 P.U.R. 4th 1 (Mass. D.P.U. 1982), the regulator allocated a gain on the sale of land to ratepayers, stating:

The company and its shareholders have received a return on the use of these parcels while they have been included in rate base, and are not entitled to any additional return as a result of their sale. To hold otherwise would be to find that a regulated utility company may speculate in nondepreciable utility property and, despite earning a reasonable rate of return from its customers on that property, may also accumulate a windfall through its sale. We find this to be an uncharacteristic risk/reward situation for a regulated utility to be in with respect to its plant in service. [Emphasis added; p. 26.]

117Canadian regulators other than the Board are also concerned with the prospect that decisions of utilities in their regulated business may be skewed under the undue influence of prospective profits on land sales. In Re Consumers’ Gas Co., E.B.R.O. 465, March 1, 1991, the Ontario Energy Board determined that a $1.9 million gain on sale of land should be divided equally between shareholders and ratepayers. It held that

the allocation of 100 percent of the profit from land sales to either the shareholders or the ratepayers might diminish the recognition of the valid concerns of the excluded party. For example, the timing and intensity of land purchase and sales negotiations could be skewed to favour or disregard the ultimate beneficiary. [para. 3.3.8]

118The Board’s principle of dividing the gain between investors and ratepayers is consistent, as well, with Re Natural Resource Gas Ltd., RP-2002-0147, EB-2002-0446, June 27, 2003, in which the Ontario Energy Board addressed the allocation of a profit on the sale of land and buildings and again stated:

The Board finds that it is reasonable in the circumstances that the capital gains be shared equally between the Company and its customers. In making this finding the Board has considered the non-recurring nature of this transaction. [para. 45]

119The wide variety of regulatory treatment of such gains was noted by Kerans J.A. in TransAlta (1986), at pp. 175-76, including Re Boston Gas Co. mentioned earlier. In TransAlta (1986), the Board characterized TransAlta’s gain on the disposal of land and buildings included in its Edmonton “franchise” as “revenue” within the meaning of the Hydro and Electric Energy Act, R.S.A. 1980, c. H-13. (The case therefore did not deal with the power to impose conditions “the Board considers necessary in the public interest”.) Kerans J.A. said (at p. 176):

I do not agree with the Board’s decision for reasons later expressed, but it would be fatuous to deny that its interpretation [of the word “revenue”] is one which the word can reasonably bear.

Kerans J.A. went on to find that in that case “[t]he compensation was, for all practical purposes, compensation for loss of franchise” (p. 180) and on that basis the gain in these “unique circumstances” (p. 179) could not, as a matter of law, be characterized as revenue, i.e. applying a correctness standard. The range of regulatory practice on the “gains on sale” issue was similarly noted by Goldie J.A. in Yukon Energy Corp. v. Utilities Board (1996), 1996 CanLII 2558 (YK CA), 74 B.C.A.C. 58 (Y.C.A.), at para. 85.

120A survey of recent regulatory experience in the United States reveals the wide variety of treatment in that country of gains on the sale of undepreciated land. The range includes proponents of ATCO’s preferred allocation as well as proponents of the solution adopted by the Board in this case:

Some jurisdictions have concluded that as a matter of equity, shareholders alone should benefit from any gain realized on appreciated real estate, because ratepayers generally pay only for taxes on the land and do not contribute to the cost of acquiring the property and pay no depreciation expenses. Under this analysis, ratepayers assume no risk for losses and acquire no legal or equitable interest in the property, but rather pay only for the use of the land in utility service.

Other jurisdictions claim that ratepayers should retain some of the benefits associated with the sale of property dedicated to utility service. Those jurisdictions that have adopted an equitable sharing approach agree that a review of regulatory and judicial decisions on the issue does not reveal any general principle that requires the allocation of benefits solely to shareholders; rather, the cases show only a general prohibition against sharing benefits on the sale property that has never been reflected in utility rates.

(P. S. Cross, “Rate Treatment of Gain on Sale of Land: Ratepayer Indifference, A New Standard?” (1990), 126 Pub. Util. Fort. 44, at p. 44)

Regulatory opinion in the United States favourable to the solution adopted here by the Board is illustrated by Re Arizona Public Service Co., 91 P.U.R. 4th 337 (Ariz. C.C. 1988), at p. 361:

To the extent any general principles can be gleaned from the decisions in other jurisdictions they are: (1) the utility’s stockholders are not automatically entitled to the gains from all sales of utility property; and (2) ratepayers are not entitled to all or any part of a gain from the sale of property which has never been reflected in the utility’s rates. [Emphasis in original.]

121Assets purchased with capital reflected in the rate base come and go, but the utility itself endures. What was done by the Board in this case is quite consistent with the “enduring enterprise” theory espoused, for example, in Re Southern California Water Co., 43 C.P.U.C. 2d 596 (1992). In that case, Southern California Water had asked for approval to sell an old headquarters building and the issue was how to allocate its profits on the sale. The Commission held:

Working from the principle of the “enduring enterprise”, the gain-on-sale from this transaction should remain within the utility’s operations rather than being distributed in the short run directly to either ratepayers or shareholders.

The “enduring enterprise” principle, is neither novel nor radical. It was clearly articulated by the Commission in its seminal 1989 policy decision on the issue of gain-on-sale, D.89-07-016, 32 Cal. P.U.C.2d 233 (Redding). Simply stated, to the extent that a utility realizes a gain-on-sale from the liquidation of an asset and replaces it with another asset or obligation while at the same time its responsibility to serve its customers is neither relieved nor reduced, then any gain-on-sale should remain within the utility’s operation. [p. 604]

122In my view, neither the Alberta statutes nor regulatory practice in Alberta and elsewhere dictates the answer to the problems confronting the Board. It would have been open to the Board to allow ATCO’s application for the entire profit. But the solution it adopted was quite within its statutory authority and does not call for judicial intervention.

F. ATCO’s Arguments

123Most of ATCO’s principal submissions have already been touched on but I will repeat them here for convenience. ATCO does not really dispute the Board’s ability to impose conditions on the sale of land. Rather, ATCO says that what the Board did here violates a number of basic legal protections and principles. It asks the Court to clip the Board’s wings.

124Firstly, ATCO says that customers do not acquire any proprietary right in the company’s assets. ATCO, rather than its customers, originally purchased the property, held title to it, and therefore was entitled to any gain on its sale. An allocation of profit to the customers would amount to a confiscation of the corporation’s property.

125Secondly, ATCO says its retention of 100 percent of the gain has nothing to do with the so-called “regulatory compact”. The gas customers paid what the Board regarded over the years as a fair price for safe and reliable service. That is what the ratepayers got and that is all they were entitled to. The Board’s allocation of part of the profit to the ratepayers amounts to impermissible “retroactive” rate setting.

126Thirdly, utilities are not entitled to include in the rate base an amount for depreciation on land and ratepayers have therefore not repaid ATCO any part of ATCO’s original cost, let alone the present value. The treatment accorded gain on sales of depreciated property therefore does not apply.

127Fourthly, ATCO complains that the Board’s solution is asymmetrical. Ratepayers are given part of the benefit of an increase in land values without, in a falling market, bearing any part of the burden of losses on the disposition of land.

128In my view, these are all arguments that should be (and were) properly directed to the Board. There are indeed precedents in the regulatory field for what ATCO proposes, just as there are precedents for what the ratepayers proposed. It was for the Board to decide what conditions in these particular circumstances were necessary in the public interest. The Board’s solution in this case is well within the range of reasonable options, as I will endeavour to demonstrate.

1. The Confiscation Issue

129In its factum, ATCO says that “[t]he property belonged to the owner of the utility and the Board’s proposed distribution cannot be characterized otherwise than as being confiscatory” (respondent’s factum, at para. 6). ATCO’s argument overlooks the obvious difference between investment in an unregulated business and investment in a regulated utility where the regulator sets the return on investment, not the marketplace. In Re Southern California Gas Co., 118 P.U.R. 4th 81 (C.P.U.C. 1990) (“SoCalGas”), the regulator pointed out:

In the non‑utility private sector, investors are not guaranteed to earn a fair return on such sunk investment. Although shareholders and bondholders provide the initial capital investment, the ratepayers pay the taxes, maintenance, and other costs of carrying utility property in rate base over the years, and thus insulate utility investors from the risk of having to pay those costs. Ratepayers also pay the utility a fair return on property (including land) while it is in rate base, compensate the utility for the diminishment of the value of its depreciable property over time through depreciation accounting, and bear the risk that they must pay depreciation and a return on prematurely retired rate base property. [p. 103]

(It is understood, of course, that the Board does not appropriate the actual proceeds of sale. What happens is that an amount equivalent to two-thirds of the profit is included in the calculation of ATCO’s current cost base for rate-making purposes. In that way, there is a notional distribution of the benefit of the gain amongst the competing stakeholders.)

130ATCO’s argument is frequently asserted in the United States under the flag of constitutional protection for “property”. Constitutional protection has not however prevented allocation of all or part of such gains to the U.S. ratepayers. One of the leading U.S. authorities is Democratic Central Committee of the District of Columbia v. Washington Metropolitan Area Transit Commission, 485 F.2d 786 (D.C. Cir. 1973). In that case, the assets at issue were parcels of real estate which had been employed in mass transit operations but which were no longer needed when the transit system converted to buses. The regulator awarded the profit on the appreciated land values to the shareholders but the Court of Appeals reversed the decision, using language directly applicable to ATCO’s “confiscation” argument:

We perceive no impediment, constitutional or otherwise, to recognition of a ratemaking principle enabling ratepayers to benefit from appreciations in value of utility properties accruing while in service. We believe the doctrinal consideration upon which pronouncements to the contrary have primarily rested has lost all present-day vitality. Underlying these pronouncements is a basic legal and economic thesis — sometimes articulated, sometimes implicit — that utility assets, though dedicated to the public service, remain exclusively the property of the utility’s investors, and that growth in value is an inseparable and inviolate incident of that property interest. The precept of private ownership historically pervading our jurisprudence led naturally to such a thesis, and early decisions in the ratemaking field lent some support to it; if still viable, it strengthens the investor’s claim. We think, however, after careful exploration, that the foundations for that approach, and the conclusion it seemed to indicate, have long since eroded away. [p. 800]

The court’s reference to “pronouncements” which have “lost all present-day vitality” likely includes Board of Public Utility Commissioners v. New York Telephone Co., 271 U.S. 23 (1976), a decision relied upon in this case by ATCO. In that case, the Supreme Court of the United States said:

Customers pay for service, not for the property used to render it. Their payments are not contributions to depreciation or other operating expenses or to capital of the company. By paying bills for service they do not acquire any interest, legal or equitable, in the property used for their convenience or in the funds of the company. Property paid for out of moneys received for service belongs to the company just as does that purchased out of proceeds of its bonds and stock. [p. 32]

In that case, the regulator belatedly concluded that the level of depreciation allowed the New York Telephone Company had been excessive in past years and sought to remedy the situation in the current year by retroactively adjusting the cost base. The court held that the regulator had no power to re-open past rates. The financial fruits of the regulator’s errors in past years now belonged to the company. That is not this case. No one contends that the Board’s prior rates, based on ATCO’s original investment, were wrong. In 2001, when the matter came before the Board, the Board had jurisdiction to approve or not approve the proposed sale. It was not a done deal. The receipt of any profit by ATCO was prospective only. As explained in Re Arizona Public Service Co.:

In New York Telephone, the issue presented was whether a state regulatory commission could use excessive depreciation accruals from prior years to reduce rates for future service and thereby set rates which did not yield a just return. . . . [T]he Court simply reiterated and provided the reasons for a ratemaking truism: rates must be designed to produce enough revenue to pay current (reasonable) operating expenses and provide a fair return to the utility’s investors. If it turns out that, for whatever reason, existing rates have produced too much or too little income, the past is past. Rates are raised or lowered to reflect current conditions; they are not designed to pay back past excessive profits or recoup past operating losses. In contrast, the issue in this proceeding is whether for ratemaking purposes a utility’s test year income from sales of utility service can include its income from sales of utility property. The United States Supreme Court’s decision in New York Telephone does not address that issue. [Emphasis added; p. 361.]

131More recently, the allocation of gain on sale was addressed by the California Public Utilities Commission in SoCalGas. In that case, as here, the utility (SoCalGas) wished to sell land and buildings located (in that case) in downtown Los Angeles. The Commission apportioned the gain on sale between the shareholders and the ratepayers, concluding that:

We believe that the issue of who owns the utility property providing utility service has become a red herring in this case, and that ownership alone does not determine who is entitled to the gain on the sale of the property providing utility service when it is removed from rate base and sold. [p. 100]

132ATCO argues in its factum that ratepayers “do not acquire any interest, legal or equitable, in the property used to provide the service or in the funds of the owner of the utility” (para. 2). In SoCalGas, the regulator disposed of this point as follows:

No one seriously argues that ratepayers acquire title to the physical property assets used to provide utility service; DRA [Division of Ratepayer Advocates] argues that the gain on sale should reduce future revenue requirements not because ratepayers own the property, but rather because they paid the costs and faced the risks associated with that property while it was in rate base providing public service. [p. 100]

This “risk” theory applies in Alberta as well. Over the last 80 years, there have been wild swings in Alberta real estate, yet through it all, in bad times and good, the ratepayers have guaranteed ATCO a just and equitable return on its investment in this land and these buildings.

133The notion that the division of risk justifies a division of the net gain was also adopted by the regulator in SoCalGas:

Although the shareholders and bondholders provided the initial capital investment, the ratepayers paid the taxes, maintenance, and other costs of carrying the land and buildings in rate base over the years, and paid the utility a fair return on its unamortized investment in the land and buildings while they were in rate base. [p. 110]

In other words, even in the United States, where property rights are constitutionally protected, ATCO’s “confiscation” point is rejected as an oversimplification.

134My point is not that the Board’s allocation in this case is necessarily correct in all circumstances. Other regulators have determined that the public interest requires a different allocation. The Board proceeds on a “case-by-case” basis. My point simply is that the Board’s response in this case cannot be considered “confiscatory” in any proper use of the term, and is well within the range of what are regarded in comparable jurisdictions as appropriate regulatory responses to the allocation of the gain on sale of land whose original investment has been included by the utility itself in its rate base. The Board’s decision is protected by a deferential standard of review and in my view it should not have been set aside.

2. The Regulatory Compact

135The Board referred in its decision to the “regulatory compact” which is a loose expression suggesting that in exchange for a statutory monopoly and receipt of revenue on a cost plus basis, the utility accepts limitations on its rate of return and its freedom to do as it wishes with property whose cost is reflected in its rate base. This was expressed in the Washington Metropolitan Area Transit case by the U.S. Court of Appeals for the District of Columbia Circuit as follows:

The ratemaking process involves fundamentally “a balancing of the investor and the consumer interests”. The investor’s interest lies in the integrity of his investment and a fair opportunity for a reasonable return thereon. The consumer’s interest lies in governmental protection against unreasonable charges for the monopolistic service to which he subscribes. In terms of property value appreciations, the balance is best struck at the point at which the interests of both groups receive maximum accommodation. [p. 806]

136ATCO considers that the Board’s allocation of profit violated the regulatory compact not only because it is confiscatory but because it amounts to “retroactive rate making”. In Northwestern Utilities Ltd. v. City of Edmonton, 1978 CanLII 17 (SCC), [1979] 1 S.C.R. 684, Estey J. stated, at p. 691:

It is clear from many provisions of The Gas Utilities Act that the Board must act prospectively and may not award rates which will recover expenses incurred in the past and not recovered under rates established for past periods.

137As stated earlier, the Board in this case was addressing a prospective receipt and allocated two thirds of it to a prospective (not retroactive) rate-making exercise. This is consistent with regulatory practice, as is illustrated by New York Water Service Corp. v. Public Service Commission, 208 N.Y.S.2d 857 (1960). In that case, a utility commission ruled that gains on the sale of real estate should be taken into account to reduce rates annually over the following period of 17 years :

If land is sold at a profit, it is required that the profit be added to, i.e., “credited to”, the depreciation reserve, so that there is a corresponding reduction of the rate base and resulting return. [p. 864]

The regulator’s order was upheld by the New York State Supreme Court (Appellate Division).

138More recently, in Re Compliance with the Energy Policy Act of 1992, 62 C.P.U.C. 2d 517 (1995), the regulator commented:

. . . we found it appropriate to allocate the principal amount of the gain to offset future costs of headquarters facilities, because ratepayers had borne the burden of risks and expenses while the property was in ratebase. At the same time, we found that it was equitable to allocate a portion of the benefits from the gain-on-sale to shareholders in order to provide a reasonable incentive to the utility to maximize the proceeds from selling such property and compensate shareholders for any risks borne in connection with holding the former property. [p. 529]

139The emphasis in all these cases is on balancing the interests of the shareholders and the ratepayers. This is perfectly consistent with the “regulatory compact” approach reflected in the Board doing what it did in this case.

3. Land as a Non-Depreciable Asset

140The Alberta Court of Appeal drew a distinction between gains on sale of land, whose original cost is not depreciated (and thus is not repaid in increments through the rate base) and depreciated property such as buildings where the rate base does include a measure of capital repayment and which in that sense the ratepayers have “paid for”. The Alberta Court of Appeal held that the Board was correct to credit the rate base with an amount equivalent to the depreciation paid in respect of the buildings (this is the subject matter of ATCO’s cross-appeal). Thus, in this case, the land was still carried on ATCO’s books at its original price of $83,720 whereas the original $596,591 cost of the buildings had been depreciated through the rates charged customers to a net book value of $141,525.

141Regulatory practice shows that many (not all) regulators also do not accept the distinction (for this purpose) between depreciable and non-depreciable assets. In Re Boston Gas Co. for example (cited in TransAlta (1986), at p. 176), the regulator held:

. . . the company’s ratepayers have been paying a return on this land as well as all other costs associated with its use. The fact that land is a nondepreciable asset because its useful value is not ordinarily diminished through use is, we find, irrelevant to the question of who is entitled to the proceeds on the sales of this land. [p. 26]

142In SoCalGas, as well, the Commission declined to make a distinction between the gain on sale of depreciable, as compared to non-depreciable, property, stating: “We see little reason why land sales should be treated differently” (p. 107). The decision continued:

In short, whether an asset is depreciated for ratemaking purposes or not, ratepayers commit to paying a return on its book value for as long as it is used and useful. Depreciation simply recognizes the fact that certain assets are consumed over a period of utility service while others are not. The basic relationship between the utility and its ratepayers is the same for depreciable and non‑depreciable assets. [Emphasis added; p. 107.]

143In Re California Water Service Co., 66 C.P.U.C. 2d 100 (1996), the regulator commented that:

Our decisions generally find no reason to treat gain on the sale of nondepreciable property, such as bare land, different[ly] than gains on the sale of depreciable rate base assets and land in PHFU [plant held for future use]. [p. 105]

144Again, my point is not that the regulator must reject any distinction between depreciable and non-depreciable property. Simply, my point is that the distinction does not have the controlling weight as contended by ATCO. In Alberta, it is up to the Board to determine what allocations are necessary in the public interest as conditions of the approval of sale. ATCO’s attempt to limit the Board’s discretion by reference to various doctrine is not consistent with the broad statutory language used by the Alberta legislature and should be rejected.

4. Lack of Reciprocity

145ATCO argues that the customers should not profit from a rising market because if the land loses value it is ATCO, and not the ratepayers, that will absorb the loss. However, the material put before the Court suggests that the Board takes into account both gains and losses. In the following decisions the Board stated, repeated, and repeated again its “general rule” that

the Board considers that any profit or loss (being the difference between the net book value of the assets and the sale price of those assets) resulting from the disposal of utility assets should accrue to the customers of the utility and not to the owner of the utility. [Emphasis added.]

(See Re TransAlta Utilities Corp., Alta. P.U.B., Decision No. E84116, October 12, 1984, at p. 17; Re TransAlta Utilities Corp., Alta. P.U.B., Decision No. E84115, October 12, 1984, at p. 12; Re Canadian Western Natural Gas Co., Alta. P.U.B., Decision No. E84113, October 12, 1984, at p. 23.)

146In Re Alberta Government Telephones, Alta. P.U.B., Decision No. E84081, June 29, 1984, the Board reviewed a number of regulatory approaches (including Re Boston Gas Co., previously mentioned) with respect to gains on sale and concluded with respect to its own practice, at p. 12:

The Board is aware that it has not applied any consistent formula or rule which would automatically determine the accounting procedure to be followed in the treatment of gains or losses on the disposition of utility assets. The reason for this is that the Board’s determination of what is fair and reasonable rests on the merits or facts of each case.

147ATCO’s contention that it alone is burdened with the risk on land that declines in value overlooks the fact that in a falling market the utility continues to be entitled to a rate of return on its original investment, even if the market value at the time is substantially less than its original investment. As pointed out in SoCalGas:

If the land actually does depreciate in value below its original cost, then one view could be that the steady rate of return [the ratepayers] have paid for the land over time has actually overcompensated investors. Thus, there is symmetry of risk and reward associated with rate base land just as there is with regard to depreciable rate base property. [p. 107]

II. Conclusion

148In summary, s. 15(3) of the AEUBA authorized the Board in dealing with ATCO’s application to approve the sale of the subject land and buildings to “impose any additional conditions that the Board considers necessary in the public interest”. In the exercise of that authority, and having regard to the Board’s “general supervision over all gas utilities, and the owners of them” (GUA, s. 22(1)), the Board made an allocation of the net gain for the public policy reasons which it articulated in its decision. Perhaps not every regulator and not every jurisdiction would exercise the power in the same way, but the allocation of the gain on an asset ATCO sought to withdraw from the rate base was a decision the Board was mandated to make. It is not for the Court to substitute its own view of what is “necessary in the public interest”.

III. Disposition

149I would allow the appeal, set aside the decision of the Alberta Court of Appeal, and restore the decision of the Board, with costs to the City of Calgary both in this Court and in the court below. ATCO’s cross-appeal should be dismissed with costs.

APPENDIX

Alberta Energy and Utilities Board Act, R.S.A. 2000, c. A-17

Jurisdiction

13 All matters that may be dealt with by the ERCB or the PUB under any enactment or as otherwise provided by law shall be dealt with by the Board and are within the exclusive jurisdiction of the Board.

Powers of the Board

15(1) For the purposes of carrying out its functions, the Board has all the powers, rights and privileges of the ERCB and the PUB that are granted or provided for by any enactment or by law.

(2) In any case where the ERCB, the PUB or the Board may act in response to an application, complaint, direction, referral or request, the Board may act on its own initiative or motion.

(3) Without restricting subsection (1), the Board may do all or any of the following:

(a) make any order that the ERCB or the PUB may make under any enactment;

(b) with the approval of the Lieutenant Governor in Council, make any order that the ERCB may, with the approval of the Lieutenant Governor in Council, make under any enactment;

(c) with the approval of the Lieutenant Governor in Council, make any order that the PUB may, with the approval of the Lieutenant Governor in Council, make under any enactment;

(d) with respect to an order made by the Board, the ERCB or the PUB in respect of matters referred to in clauses (a) to (c), make any further order and impose any additional conditions that the Board considers necessary in the public interest;

(e) make an order granting the whole or part only of the relief applied for;

(f) where it appears to the Board to be just and proper, grant partial, further or other relief in addition to, or in substitution for, that applied for as fully and in all respects as if the application or matter had been for that partial, further or other relief.

Appeals

26(1) Subject to subsection (2), an appeal lies from the Board to the Court of Appeal on a question of jurisdiction or on a question of law.

(2) Leave to appeal may be obtained from a judge of the Court of Appeal only on an application made

(a) within 30 days from the day that the order, decision or direction sought to be appealed from was made, or

(b) within a further period of time as granted by the judge where the judge is of the opinion that the circumstances warrant the granting of that further period of time.

Exclusion of prerogative writs

27 Subject to section 26, every action, order, ruling or decision of the Board or the person exercising the powers or performing the duties of the Board is final and shall not be questioned, reviewed or restrained by any proceeding in the nature of an application for judicial review or otherwise in any court.

Gas Utilities Act, R.S.A. 2000, c. G-5

Supervision

22(1) The Board shall exercise a general supervision over all gas utilities, and the owners of them, and may make any orders regarding equipment, appliances, extensions of works or systems, reporting and other matters, that are necessary for the convenience of the public or for the proper carrying out of any contract, charter or franchise involving the use of public property or rights.

(2) The Board shall conduct all inquiries necessary for the obtaining of complete information as to the manner in which owners of gas utilities comply with the law, or as to any other matter or thing within the jurisdiction of the Board under this Act.

Investigation of gas utility

24(1) The Board, on its own initiative or on the application of a person having an interest, may investigate any matter concerning a gas utility.

Designated gas utilities

26(1) The Lieutenant Governor in Council may by regulation designate those owners of gas utilities to which this section and section 27 apply.

(2) No owner of a gas utility designated under subsection (1) shall

(a) issue any

(i) of its shares or stock, or

(ii) bonds or other evidences of indebtedness, payable in more than one year from the date of them,

unless it has first satisfied the Board that the proposed issue is to be made in accordance with law and has obtained the approval of the Board for the purposes of the issue and an order of the Board authorizing the issue,

(b) capitalize

(i) its right to exist as a corporation,

(ii) a right, franchise or privilege in excess of the amount actually paid to the Government or a municipality as the consideration for it, exclusive of any tax or annual charge, or

(iii) a contract for consolidation, amalgamation or merger,

(c) without the approval of the Board, capitalize any lease, or

(d) without the approval of the Board,

(i) sell, lease, mortgage or otherwise dispose of or encumber its property, franchises, privileges or rights, or any part of it or them, or

(ii) merge or consolidate its property, franchises, privileges or rights, or any part of it or them,

and a sale, lease, mortgage, disposition, encumbrance, merger or consolidation made in contravention of this clause is void, but nothing in this clause shall be construed to prevent in any way the sale, lease, mortgage, disposition, encumbrance, merger or consolidation of any of the property of an owner of a gas utility designated under subsection (1) in the ordinary course of the owner’s business.

Prohibited share transactions

27(1) Unless authorized to do so by an order of the Board, the owner of a gas utility designated under section 26(1) shall not sell or make or permit to be made on its books any transfer of any share or shares of its capital stock to a corporation, however incorporated, if the sale or transfer, by itself or in connection with previous sales or transfers, would result in the vesting in that corporation of more than 50% of the outstanding capital stock of the owner of the gas utility.

Powers of Board

36 The Board, on its own initiative or on the application of a person having an interest, may by order in writing, which is to be made after giving notice to and hearing the parties interested,

(a) fix just and reasonable individual rates, joint rates, tolls or charges or schedules of them, as well as commutation and other special rates, which shall be imposed, observed and followed afterwards by the owner of the gas utility,

(b) fix proper and adequate rates and methods of depreciation, amortization or depletion in respect of the property of any owner of a gas utility, who shall make the owner’s depreciation, amortization or depletion accounts conform to the rates and methods fixed by the Board,

(c) fix just and reasonable standards, classifications, regulations, practices, measurements or service, which shall be furnished, imposed, observed and followed thereafter by the owner of the gas utility,

(d) require an owner of a gas utility to establish, construct, maintain and operate, but in compliance with this and any other Act relating to it, any reasonable extension of the owner’s existing facilities when in the judgment of the Board the extension is reasonable and practical and will furnish sufficient business to justify its construction and maintenance, and when the financial position of the owner of the gas utility reasonably warrants the original expenditure required in making and operating the extension, and

(e) require an owner of a gas utility to supply and deliver gas to the persons, for the purposes, at the rates, prices and charges and on the terms and conditions that the Board directs, fixes or imposes.

Rate base

37(1) In fixing just and reasonable rates, tolls or charges, or schedules of them, to be imposed, observed and followed afterwards by an owner of a gas utility, the Board shall determine a rate base for the property of the owner of the gas utility used or required to be used to provide service to the public within Alberta and on determining a rate base it shall fix a fair return on the rate base.

(2) In determining a rate base under this section, the Board shall give due consideration

(a) to the cost of the property when first devoted to public use and to prudent acquisition cost to the owner of the gas utility, less depreciation, amortization or depletion in respect of each, and

(b) to necessary working capital.

(3) In fixing the fair return that an owner of a gas utility is entitled to earn on the rate base, the Board shall give due consideration to all facts that in its opinion are relevant.

Excess revenues or losses

40 In fixing just and reasonable rates, tolls or charges, or schedules of them, to be imposed, observed and followed afterwards by an owner of a gas utility,

(a) the Board may consider all revenues and costs of the owner that are in the Board’s opinion applicable to a period consisting of

(i) the whole of the fiscal year of the owner in which a proceeding is initiated for the fixing of rates, tolls or charges, or schedules of them,

(ii) a subsequent fiscal year of the owner, or

(iii) 2 or more of the fiscal years of the owner referred to in subclauses (i) and (ii) if they are consecutive,

and need not consider the allocation of those revenues and costs to any part of that period,

(b) the Board may give effect to that part of any excess revenue received or any revenue deficiency incurred by the owner that is in the Board’s opinion applicable to the whole of the fiscal year of the owner in which a proceeding is initiated for the fixing of rates, tolls or charges, or schedules of them, that the Board determines is just and reasonable,

(c) the Board may give effect to that part of any excess revenue received or any revenue deficiency incurred by the owner after the date on which a proceeding is initiated for the fixing of rates, tolls or charges, or schedules of them, that the Board determines has been due to undue delay in the hearing and determining of the matter, and

(d) the Board shall by order approve

(i) the method by which, and

(ii) the period, including any subsequent fiscal period, during which,

any excess revenue received or any revenue deficiency incurred, as determined pursuant to clause (b) or (c), is to be used or dealt with.

General powers of Board

59 For the purposes of this Act, the Board has the same powers in respect of the plant, premises, equipment, service and organization for the production, distribution and sale of gas in Alberta, and in respect of the business of an owner of a gas utility and in respect of an owner of a gas utility, that are by the Public Utilities Board Act conferred on the Board in the case of a public utility under that Act.

Public Utilities Board Act, R.S.A. 2000, c. P-45

Jurisdiction and powers

36(1) The Board has all the necessary jurisdiction and power

(a) to deal with public utilities and the owners of them as provided in this Act;

(b) to deal with public utilities and related matters as they concern suburban areas adjacent to a city, as provided in this Act.

(2) In addition to the jurisdiction and powers mentioned in subsection (1), the Board has all necessary jurisdiction and powers to perform any duties that are assigned to it by statute or pursuant to statutory authority.

(3) The Board has, and is deemed at all times to have had, jurisdiction to fix and settle, on application, the price and terms of purchase by a council of a municipality pursuant to section 47 of the Municipal Government Act

(a) before the exercise by the council under that provision of its right to purchase and without binding the council to purchase, or

(b) when an application is made under that provision for the Board’s consent to the purchase, before hearing or determining the application for its consent.

General power

37 In matters within its jurisdiction the Board may order and require any person or local authority to do forthwith or within or at a specified time and in any manner prescribed by the Board, so far as it is not inconsistent with this Act or any other Act conferring jurisdiction, any act, matter or thing that the person or local authority is or may be required to do under this Act or under any other general or special Act, and may forbid the doing or continuing of any act, matter or thing that is in contravention of any such Act or of any regulation, rule, order or direction of the Board.

Investigation of utilities and rates

80 When it is made to appear to the Board, on the application of an owner of a public utility or of a municipality or person having an interest, present or contingent, in the matter in respect of which the application is made, that there is reason to believe that the tolls demanded by an owner of a public utility exceed what is just and reasonable, having regard to the nature and quality of the service rendered or of the commodity supplied, the Board

(a) may proceed to hold any investigation that it thinks fit into all matters relating to the nature and quality of the service or the commodity in question, or to the performance of the service and the tolls or charges demanded for it,

(b) may make any order respecting the improvement of the service or commodity and as to the tolls or charges demanded, that seems to it to be just and reasonable, and

(c) may disallow or change, as it thinks reasonable, any such tolls or charges that, in its opinion, are excessive, unjust or unreasonable or unjustly discriminate between different persons or different municipalities, but subject however to any provisions of any contract existing between the owner of the public utility and a municipality at the time the application is made that the Board considers fair and reasonable.

Supervision by Board

85(1) The Board shall exercise a general supervision over all public utilities, and the owners of them, and may make any orders regarding extension of works or systems, reporting and other matters, that are necessary for the convenience of the public or for the proper carrying out of any contract, charter or franchise involving the use of public property or rights.

Investigation of public utility

87(1) The Board may, on its own initiative, or on the application of a person having an interest, investigate any matter concerning a public utility.

(2) When in the opinion of the Board it is necessary to investigate a public utility or the affairs of its owner, the Board shall be given access to and may use any books, documents or records with respect to the public utility and in the possession of any owner of the public utility or municipality or under the control of a board, commission or department of the Government.

(3) A person who directly or indirectly controls the business of an owner of a public utility within Alberta and any company controlled by that person shall give the Board or its agent access to any of the books, documents and records that relate to the business of the owner or shall furnish any information in respect of it required by the Board.

Fixing of rates

89 The Board, either on its own initiative or on the application of a person having an interest, may by order in writing, which is to be made after giving notice to and hearing the parties interested,

(a) fix just and reasonable individual rates, joint rates, tolls or charges, or schedules of them, as well as commutation, mileage or kilometre rate and other special rates, which shall be imposed, observed and followed subsequently by the owner of the public utility;

(b) fix proper and adequate rates and methods of depreciation, amortization or depletion in respect of the property of any owner of a public utility, who shall make the owner’s depreciation, amortization or depletion accounts conform to the rates and methods fixed by the Board;

(c) fix just and reasonable standards, classifications, regulations, practices, measurements or service, which shall be furnished, imposed, observed and followed subsequently by the owner of the public utility;

(d) repealed;

(e) require an owner of a public utility to establish, construct, maintain and operate, but in compliance with other provisions of this or any other Act relating to it, any reasonable extension of the owner’s existing facilities when in the judgment of the Board the extension is reasonable and practical and will furnish sufficient business to justify its construction and maintenance, and when the financial position of the owner of the public utility reasonably warrants the original expenditure required in making and operating the extension.

Determining rate base

90(1) In fixing just and reasonable rates, tolls or charges, or schedules of them, to be imposed, observed and followed subsequently by an owner of a public utility, the Board shall determine a rate base for the property of the owner of a public utility used or required to be used to provide service to the public within Alberta and on determining a rate base it shall fix a fair return on the rate base.

(2) In determining a rate base under this section, the Board shall give due consideration

(a) to the cost of the property when first devoted to public use and to prudent acquisition cost to the owner of the public utility, less depreciation, amortization or depletion in respect of each, and

(b) to necessary working capital.

(3) In fixing the fair return that an owner of a public utility is entitled to earn on the rate base, the Board shall give due consideration to all those facts that, in the Board’s opinion, are relevant.

Revenue and costs considered

91(1) In fixing just and reasonable rates, tolls or charges, or schedules of them, to be imposed, observed and followed by an owner of a public utility,

(a) the Board may consider all revenues and costs of the owner that are in the Board’s opinion applicable to a period consisting of

(i) the whole of the fiscal year of the owner in which a proceeding is initiated for the fixing of rates, tolls or charges, or schedules of them,

(ii) a subsequent fiscal year of the owner, or

(iii) 2 or more of the fiscal years of the owner referred to in subclauses (i) and (ii) if they are consecutive,

and need not consider the allocation of those revenues and costs to any part of such a period,

(b) the Board shall consider the effect of the Small Power Research and Development Act on the revenues and costs of the owner with respect to the generation, transmission and distribution of electric energy,

(c) the Board may give effect to that part of any excess revenue received or any revenue deficiency incurred by the owner that is in the Board’s opinion applicable to the whole of the fiscal year of the owner in which a proceeding is initiated for the fixing of rates, tolls or charges, or schedules of them, as the Board determines is just and reasonable,

(d) the Board may give effect to such part of any excess revenue received or any revenue deficiency incurred by the owner after the date on which a proceeding is initiated for the fixing of rates, tolls or charges, or schedules of them, as the Board determines has been due to undue delay in the hearing and determining of the matter, and

(e) the Board shall by order approve the method by which, and the period (including any subsequent fiscal period) during which, any excess revenue received or any revenue deficiency incurred, as determined pursuant to clause (c) or (d), is to be used or dealt with.

Designated public utilities

101(1) The Lieutenant Governor in Council may by regulation designate those owners of public utilities to which this section and section 102 apply.

(2) No owner of a public utility designated under subsection (1) shall

(a) issue any

(i) of its shares or stock, or

(ii) bonds or other evidences of indebtedness, payable in more than one year from the date of them,

unless it has first satisfied the Board that the proposed issue is to be made in accordance with law and has obtained the approval of the Board for the purposes of the issue and an order of the Board authorizing the issue,

(b) capitalize

(i) its right to exist as a corporation,

(ii) a right, franchise or privilege in excess of the amount actually paid to the Government or a municipality as the consideration for it, exclusive of any tax or annual charge, or

(iii) a contract for consolidation, amalgamation or merger,

(c) without the approval of the Board, capitalize any lease, or

(d) without the approval of the Board,

(i) sell, lease, mortgage or otherwise dispose of or encumber its property, franchises, privileges or rights, or any part of them, or

(ii) merge or consolidate its property, franchises, privileges or rights, or any part of them,

and a sale, lease, mortgage, disposition, encumbrance, merger or consolidation made in contravention of this clause is void, but nothing in this clause shall be construed to prevent in any way the sale, lease, mortgage, disposition, encumbrance, merger or consolidation of any of the property of an owner of a public utility designated under subsection (1) in the ordinary course of the owner’s business.

Prohibited share transaction

102(1) Unless authorized to do so by an order of the Board, the owner of a public utility designated under section 101(1) shall not sell or make or permit to be made on its books a transfer of any share of its capital stock to a corporation, however incorporated, if the sale or transfer, in itself or in connection with previous sales or transfers, would result in the vesting in that corporation of more than 50% of the outstanding capital stock of the owner of the public utility.