The appeal by an energy distributor (“Natural Resources”) from the dismissal of its appeal from a decision of the Ontario Energy Board (the “Board”) was dismissed where the Court found that the Board had reasonably disallowed Natural Resources’ recovery of regulatory costs and interest costs that had been incurred as a result of an accounting error

Administrative law – Natural resources – Natural gas – Distribution – Decisions of administrative tribunals – Energy and Utilities Board – Accounting errors – Recovery – Judicial review – Standard of review – Reasonableness simpliciter

Natural Resources Gas Ltd. v. Ontario Energy Board, [2006] O.J. No. 2961, Ontario Court of Appeal, July 21, 2006, J.I. Laskin, S. Borins and R.G. Juriansz JJ.A

Natural Resources was an energy distributor that purchased gas from producers and distributed it to customers at rates regulated by the Board. An accounting error resulted in Natural Resources failing to record $531,794 in gas purchasing costs from October 2002 to December 2003. In the normal course of business, these costs would have been passed on to Natural Resources’ customers. Natural Resources applied to the Board to record the costs as a debit as of January 1, 2004 and an order allowing Natural Resources to recover the unrecorded costs by increasing rates for a twelve-month period commencing May 1, 2004. The Board found the unrecorded costs were material and prudently incurred and therefore Natural Resources should be permitted to recover them. The Board decided Natural Resources’ recovery of the costs would be deferred over three years. The Board further decided that Natural Resources was not allowed to recover regulatory costs or interest charges associated with the deferral. Natural Resources’ appeal of the Board’s decision to the Divisional Court was dismissed. Natural Resources then appealed to the Court of Appeal.

On the issue of the standard of review, the Court of Appeal noted that the Board was a specialized expert tribunal with broad authority to regulate the energy sector. The Board was faced with a question of mixed fact and law involving policy considerations. As such, the Board possessed greater expertise than the Court in determining the answer. Its decision was reviewable on the standard of reasonableness.

The Court of Appeal held that the Board’s decision was reasonable. The decision was not inconsistent with the proposition that Natural Resources should be allowed to recover all its prudently incurred costs. Although some costs were prudently incurred, the Court held that the regulatory costs and interest costs were not necessarily prudently incurred. But for the accounting error, Natural Resources would not have incurred costs to secure and obtain the Board’s decision to permit recovery of the unrecorded costs. In the result, Natural Resources’ appeal was dismissed.

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