Alberta – alleged limitations of arbitration unproven/insufficient to grant jurisdiction to regulator

In FortisAlberta Inc v. Alberta (Utilities Commission), 2020 ABCA 271, Mr. Justice Jack Watson refused leave to appeal from a regulator’s decision that it lacked jurisdiction over costs otherwise subject to arbitration. Watson J. held that a “harmonious reading” of legislation governing the regulatory environment created jurisdiction for both regulator and arbitration tribunals.  He resisted appellant’s alleged efforts to “confect” a “solemnly commercial sounding term” to bring the dispute within the regulator’s jurisdiction.  Watson J. also determined that any alleged limitations in the arbitration process were insufficient to empower the regulator to “effectively override” the parties’ contracts.  As appellate gatekeeper, Watson J. concluded that a full panel was unlikely to find the claim of inadequacy of arbitration anything more than just a claim supported only by appellant’s own say so.

Operating as a public utility in Alberta, FortisAlberta Inc. (“Fortis”) is subject to the jurisdiction of the Alberta Utilities Commission (“AUC”), an entity created by the Alberta Utilities Commission Act, SA 2007, c A-37.2 (“AUC Act”).  Fortis applied to the AUC for approval to have certain “costs” included in a distribution tariff.  Fortis used the term “Distribution Costs” to refer to those costs whereas Watson J. referred to them as “Disputed Costs”.  Fortis presented those Disputed Costs as arising from Fortis’ overlapping and linked operations with each individual Rural Electrification Association (“REA”).

Respondents disputed the AUC’s jurisdiction, arguing that Alberta legislation had created what Respondents styled as “the structure for intervention and reconciliation respecting overlapping costs” between public utilities and REAs.  That structure involved special agreements, referred to as “integrated operation agreements” (“IOAs”), governed by the Electric Utilities Act and the related Roles, Relationships and Responsibilities Regulation, 2003, Alta Reg 169/2003 (“3R Regulation”).  Respondents argued that the Disputed Costs were covered exclusively by IOAs and that the IOAs were subject to arbitration. Simply put, the Disputed Costs had to be arbitrated and not regulated.

Following a hearing, the AUC issued an April 17, 2020 decision (“AUC Decision”) in which it held that it lacked statutory authority under the Electric Utilities Act, SA 2003, c E-5.1 to approve recovery of “integrated distribution systems costs” as part of the proposed tariff. 

Regarding the IOA arbitration process, the 3R Regulation at section 9(1) provides that parties “agree on the terms” of each new IOA failing which section 9(2) requires them to refer the question of the terms of their new IOA to arbitration under the Arbitration Act, RSA 2000, c A-43. For arbitrations involving an REA, section 9(3) further provides that the arbitrator is responsible for issuing an award deciding the terms of a new IOA and (a) must include in the terms of the IOA anything agreed to by the owners before the award is issued and (ii) must decide the remaining terms of the IOA, whether or not those contested terms are in the then-existing IOA.

Fortis sought leave to appeal the AUC Decision to the Court of Appeal under section 29(1) of the AUC Act. That section provides that an appeal on leave lies to the Court of Appeal from a decision or order of the AUC on a question of jurisdiction or on a question of law.  Leave can be denied and Watson J. did deny leave to Fortis. 

Watson J.’s reasons for denying leave involve an overlap of decision making and dispute resolution created for the regulation of electricity in Alberta and enforced respect for the mechanism. 

At para. 32, he listed the five (5) factors for granting leave to appeal under section 29 of the AUC Act and confirmed that these were not disputed.

Watson J. noted from the onset that the AUC’s decision was referred to as a “jurisdictional ruling”.  (Fortis did raise an additional ground regarding the AUC’s refusal to adjourn the hearing to allow Fortis to call evidence on its efforts to include the Disputed Costs.  Watson J.  at paras 14-16 characterized them as procedural fairness.) 

For his part, Wilson J. also added a consideration of whether the “Court could actually do something useful” by granting leave. He observed that Forts’ application sought declaratory relief and, relying on Daniels v. Canada (Indian Affairs and Northern Development), 2016 SCC 12 (CanLII), [2016] 1 SCR 99 para. 12, a declaratory decision must have “practical utility”.

Standard of review – Watson J. debated whether Fortis’ appeal raised a “question of true jurisdiction” – which he considered as “still a somewhat rare administrative bird” – versus a purely legal question of statutory interpretation meriting a standard of correctness.  He considered the issue moot since section 29(1) of the AUC Act put the two (2) questions as alternatives.

In light of the overall legislative framework, I am satisfied that the interpretation of the AUC as to whether the Disputed Costs should have been permitted as part of the Fortis DTA was an interpretation which required a single answer, either the answer given by the AUC or the opposite”.

Watson J. therefore considered that he would apply a correctness standard.

Watson J. also considered that Fortis’ question on appeal extended beyond the ratio decidendi or what the AUC essentially decided: the Disputed Costs were matters governed by the IOAs between Fortis and each REA and were not recoverable by Fortis by means of sections 102 and122 of the Electric Utilities Act.

Watson J. recorded an important concession which Fortis appeared to make in its submissions. He observed at paras 42-43 that Fortis appeared to concede that Disputed Costs could be covered through the IOAs and by the arbitration process, thereby making the terms of each IOA relevant.  Because this broader context might change the standard of review, Watson J. at para. 44 concluded that he would proceed on the premise that the ratio decidendi was under challenge and therefore applied the correctness standard.

Harmonious reading – Watson J. safeguarded the respective jurisdictions of the AUC and the IOA arbitration tribunals, emphasizing that, despite the complexity of the regulatory environment, the legislation providing for each had to be read “harmoniously so that they all work as intended”:

[53] No one disputes that different pieces of legislation forming part of a complex regulatory and service scheme should be read harmoniously so that they all work as intended. Here, the Rural Utilities Act, the Public Utilities Act, and the Electric Utilities Act together with the 3R Regulation should be read harmoniously not only internally but in relation to each other: compare Reference Re Broadcasting Regulatory Policy CRTC 2010-167 and Broadcasting Order CRTC 2010-168, 2012 SCC 68 at paras 11-39, [2012] 3 SCR 489; Lévis (City) v. Fraternité des policiers de Lévis Inc., 2007 SCC 14 at para 47, [2007] 1 SCR 591; Pointe-Claire (City) v. Quebec (Labour Court), 1997 CanLII 390 (SCC), [1997] 1 SCR 1015 at para 61; compare also United States Forest Service v Cowpasture River Preservation Association, 590 US (2020). Fortis cites Canadian National Railway v Canada (Attorney General), 2014 SCC 40 at para 36, [2014] 2 SCR 135”.

Respondent REAs argued that an “appropriate harmonious reading” of the legislation did not support extending the AUC’s administrative decision making into areas covered by the arbitration process in the IOAs.

[56] As noted, the REAs say that the Legislature has maintained as the structure for intervention and reconciliation respecting overlapping costs via the arrangements for creation and review of the IOA under the Electric Utilities Act and the 3R Regulation. They argue that the proposed extension of the authority for the AUC to being one that could summarily override what the IOAs actually say or do not say on this topic, is not only unnecessary, it would undermine the purpose and effectiveness of the IOAs and of the 3R Regulation and render the role of arbitrators nugatory”.

Argument that IOA arbitration ‘neither efficient or effective’ – Watson J. addressed many of Fortis’ arguments including one regarding the “alternative route of arbitration under the 3R Regulation”.   Watson J. was unmoved by the alleged problems with arbitrating under the IOAs.

[97] Fortis goes on to argue that the route of the IOAs is not an answer to its dilemma. Fortis says it cannot terminate any of the IOAs under the 3R Regulation and would be forced to engage in 18 separate arbitrations with each REA “which would be neither efficient nor effective”: applicant’s memorandum at para 27. Although Fortis states that proposition about both efficiency and effectiveness in a blunt and conclusory way, it does not explain why that proposition is correct. And it is engaged right now with EQUS before an arbitrator. For all I can predict, Fortis and the REAs may well conclude that the arbitration result achieved is reasonable enough to carry it forward into all the other IOAs.

[98] This would be like the old days when the United Auto Workers would agree to go to battle with one of the “Big Three” automakers of the day leading to a collective agreement, after which under a tradition of pattern bargaining the other two automakers would largely accept the outcome for their own collective agreements: … [references omitted] …  In light of what counsel said about the willingness of the parties to work around potential limitations of the 3R Regulation and other forms of co-operation, I see no reason to be pessimistic about this possibility”.

Watson J. acknowledged Fortis’ arguments but commented that those arguments did not explain why alleged limitations in the IOA arbitration process were sufficient to empower the AUC to “effectively override the IOA contract with each REA”.  As a gatekeeper for the appeal, Watson J. concluded that “[i]n my view, it is not likely that a panel of this Court would find the claim of inadequacy of arbitration to be more than an ipse dixit by Fortis”.

Vocabulary for jurisdiction – The term “costs” played a decisive role in the AUC Decision and in Watson J.’s decision. Respondents argued that Fortis’ “confected” terms were framed to fit jurisdiction. At para. 99, Watson J. notes that Respondent REAs suggested the Fortis had “in effect, invented a solemnly commercial sounding terms” in order to fit the costs into the AUC’s jurisdiction.

[100] The REAs hinted that Fortis confected an expression also to bring into play the general enabling language for the AUC in order to get this claim into the DTA process. The REAs said the transfer of the Disputed Costs from the IOA regime to the DTA regime was foreign to the history of relations between the REAs and Fortis. It amounted to a linguistical key to open a door through which the AUC can step in order to take up the subject of the balancing of provider expenses as between Fortis and the REAs”.

urbitral note – First, as noted above, terms matter and affect jurisdiction. Despite Watson J.’s use of the term “Disputed Costs” in his reasons as a matter of declared convenience, Watson J. offered a glimpse of the complexity of other, adjacent categories of “costs” which arose from the regulation of electricity and reflected the “technological and operational features of this intricate industry”. 

Early in his reasons he paused to identify a relevant selection of them, including “integrated distribution system costs”, “REA Wire Owner – Integrated System Charges” (aka “Distribution Costs”), “shared costs” and “overlapping costs”.  For safe measure, he included mention of three (3) “other shared costs” not in dispute as they relate to transmission and not distribution, namely “system access costs”, “load settlement costs” and “Option M costs”.

Second, all counsel appeared via WebEx as noted in the list of Appearances at the foot of the decision.