FortisAlberta Inc v Alberta (Utilities Commission), 2015 ABCA 295

Five electrical utilities and two gas utilities appealed two decisions rendered by the Alberta Utilities Commission ("AUC") that held utility shareholders should bear the risk of stranded assets, not ratepayers. The two decisions in question are the 2011 Generic Cost of Capital ("2011 GCoC") and the Utilities Asset Disposition ("UAD"). The UAD appeal raised the issue of whether the AUC was entitled to make policy determinations to govern utilities based on the existing case law and legislative schemes. In the UAD, the AUC held that utility shareholders should bear the risk of assets that have been stranded by extraordinary events rather than be retained in the rate base and paid for by ratepayers. From that, it was also held that rates should cover the cost of assets only when they are used or required to be used. According to this decision, even if the services have not been fully depreciated, the utility and its shareholders bear the risk. The goal of this decision was to establish an acceptable regulatory approach to the disposition of utility assets and establish a consistent approach to issues available to regulators to achieve its legislative objectives. Examples of the legislative objectives included setting just and reasonable rates, ensuring quality and quantity of regulated service, and allowing utilities the opportunity to make reasonable rates of return and recover costs that they had incurred.
In the 2011 GCoC appeal, the applicant challenged the procedural aspects of the decision. They stated that they were not given sufficient opportunity to provide evidence and submissions on the UAD decision regarding stranded costs, the impact of stranded costs on the utilities' risks, and their fair returns. The 2011 GCoC set the equity return rates and deemed capital structures for 2011 and 2012. In the decision, the AUC considered the effects of defaulted payments and considered the proposed financing mechanism for contribution payments by industrial customers. The AUC review panel then commented on stranded costs in obiter and stated these costs should be evaluated in the UAD. The UAD commented on stranded asset risk, heard arguments, addressed problematic statements, and consequently varied the 2011 GCoC decision. The City of Calgary was granted status as an intervenor in the actions involving ATCO Gas and Pipelines, ATCO Electric Ltd, and AltaGas Utilities Inc. Calgary adopted a similar position to the Utilities Consumer Advocate ("UCA") in regards to the UAD appeals. The UCA is statutorily appointed to represent small business, farm and residential consumers and took the position that the UAD decision by the AUC was both fair, reasonable, and supported by the authorities set out in the Alberta Court of Appeal and in ATCO Gas & Pipelines Ltd v Alberta (Energy & Utilities Board), 2006 SCC 4. Similarly, Calgary argued that the AUC's decision was "well within its mandate; to set rates, this being a matter of depreciation and amortization expenses of certain assets."

The appeal was dismissed on both issues. On the AUD issue, the Court of Appeal held that the AUC has a strong public interest mandate. Under this mandate they are expected to establish a "balanced and predicable" application of principles to the relationship between "revenues, expenses and assets (both depreciable and non-depreciable) of utilities on the one hand, and the reasonable expectations of the ratepayers who receive and pay for services on the other". Stranded assets are a policy issue, and the AUC's decision in UAD is considered to be a legitimate and defensible policy decision that is within it legislated power. On the 2011 GCoC issue, it was held that there is no procedural unfairness attached and that the appellants were given sufficient opportunity to bring evidence and arguments related to stranded costs.