A majority of the Court found that the Defendant Board had exceeded its jurisdiction by requiring the Appellant Public Utility to distribute the net gain from the sale of assets, in part, to its ratepaying customers

Administrative law – Natural resources – Natural gas – Powers under legislation – Decisions of administrative tribunals – Energy and Utilities Board – Sale of assets – Judicial review – Jurisdiction – Statutory interpretation – Legislative compliance – Public interest – Standard of review – Correctness

ATCO Gas & Pipelines Ltd. v. Alberta (Energy & Utilities Board), [2006] S.C.J. No. 4, Supreme Court of Canada, February 9, 2006, McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Fish and Charron JJ.

ATCO is a public utility in Alberta which delivers natural gas. Its activities are regulated by the Board. ATCO had filed an Application by letter with the Board pursuant to s. 25.1(1) of the Gas Utilities Act, R.S.A. 2000, c.G-5 (“GUA”) for approval of the sale of land and buildings in Calgary. 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 which should be paid to shareholders. The Board dealt with the Application in writing, and also received written Submissions from the City of Calgary, the Federation of Alberta Gas Coops Ltd., Gas Alberta Inc., and the municipal intervenors, who all opposed ATCO’s position with respect to the disposition of the sale proceeds to shareholders.

The Board approved the sale transaction on the basis that customers would not be harmed by the sale. 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. The Board applied a formula which recognizes profits realized when proceeds of sale exceed the original cost, and allocated the gain between customers and shareholders of ATCO.

The Alberta Court of Appeal had set aside the Board’s decision, directing the Board to allocate the entire amount of the sale proceeds to ATCO. The City of Calgary appealed that decision, arguing that the Board had jurisdiction to allocate a portion of the net gain to the ratepaying customers. ATCO brought a cross-appeal in which it argued that the Board did not have any jurisdiction to allocate any of ATCO’s proceeds from the sale to customers.

Bastarache J., writing for the majority, applied the pragmatic and functional approach to determine the appropriate standard of review. He found that the parties were, in essence, asking the Court to answer two questions, each of which required a distinct standard of review. First, to determine the Board’s power to allocate the proceeds from a sale of Utility assets suggested a standard of review of correctness. Second, the question regarding the Board’s actual method used for the allocation of proceeds attracted a more deferential standard. Because of the majority’s answer to the first question, it was unnecessary to determine the specific standard of review on the second question.

The majority considered whether the Board had the prerogative to decide on the distribution of sale proceeds. The Court considered s. 26(2)(d)(i) of the GUA, ss. 15(1) and 3(d) of the Alberta Energy and Utilities Board Act and s. 37 of the Public Utilities Board Act, under which the Board had acted. The Court found that a simple reading of s. 26(2) of the GUA permits one to conclude that the Board does not have the power to allocate the proceeds of an asset sale. The remaining provisions were vague and open-ended and did not allow the Board an unfettered discretion to attach any condition it wishes to an order it makes. Moreover, the concept of “public interest” found in s. 15(3) is very wide and elastic, and that the Board cannot be given total discretion over its limitations.

The majority went on to consider the total context of the provisions to be interpreted, the purpose and scheme of the legislation, the legislative intent and the relevant legal norms. 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. It was also necessary to have regard to the doctrine of jurisdiction by necessary implication, which provided that 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.

The Court reviewed the historical background and broader context of public utility regulation in Alberta. It was clear that the principle function of the Board in respect to 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 object of the statutes is to protect both the customer and the investor; however, the arrangement does not 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 customers have no property interest in the Utility – such would distort the fundamental principles of corporate law. Shareholders, not ratepayers, have made the investment and assume all risks as the residual claimants to the Utility’s profit.

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.

The City had argued that the Board was seeking to rectify what it perceived as a historic over-compensation to the Utility by ratepayers. There was 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.

As a second argument, the City submitted that the power to allocate the proceeds from the sale of the Utility’s assets was necessarily incidental to the express powers conferred on the Board by its various enabling statutes. 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. 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. 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.

The majority considered, notwithstanding its conclusion regarding jurisdiction, whether the exercise of the Board’s discretion to allocate the sale proceeds as it did was reasonable. 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. In the result, the Board’s decision to exercise it’s discretion did not meet a reasonable standard.

Binnie J., for the minority, would have allowed the appeal and restored the Board’s decision. He found that the Board had authority under s. 15(3) of the AEUBA to oppose on the sale “any additional conditions that the Board considers necessary in the public interest”. The necessity of these conditions for the public interest was for the Board to decide. The Board was in a better position than the Courts to assess necessity in this field for the protection of the public interest.

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