Canadian Energy Law : Lawyers & Attorneys for Environmental Energy Law

As Union's 2008 earnings were more than 300 basis points above the OEB's formula, Union was required to bring a review application. As part of the application, Union agreed to a settlement under which the off-ramp provision was replaced by a commitment to share 90% of any earnings more than 300 basis points above the OEB's formula with ratepayers. One intervenor, the Industrial Gas Users Association (IGUA), objected to the removal of the off-ramp provision because it provided Union with a "licence" to continue to over-earn without review of the reasons for the over-earning.

While recognizing IGUA's concern, the OEB panel approved the settlement, noting that "even if the contractual right of the parties to review the plan disappears when the trigger mechanism disappears, the Board still has inherent jurisdiction to review situations it regards as unfair or unreasonable." In the panel's view, the 90/10 sharing mechanism was an appropriate check on Union's ability to over-earn and provided greater regulatory certainty. In reaching this conclusion, the OEB made it clear that, while parties have considerable latitude to design and alter earnings share mechanisms, it continues to have the ultimate responsibility to ensure such mechanisms are just and reasonable.

A number of intervenors objected to Union's proposed treatment of its cost reductions.  In particular, the intervenors argued that if Union had disclosed the transaction in a timely fashion, the cost reductions would have been factored into the IRM Plan.  In support of their position, the intervenors pointed to an internal Union memorandum from August 2007 that quantified the tax savings of the reorganization.  In response, Union argued the reorganization was "just a gleam in somebody's eye" in August 2007 and did not need to be disclosed until the plan received final approval from Union's board in September 2008.

In siding with the intervenors, the OEB stated that regulated utilities have a duty to disclose "all relevant information relating to Board proceedings it is engaged in" and should err on the side of inclusion.  Where information is not disclosed, the utility will bear the burden of establishing that "there is no reasonable possibility that withholding the information would impair a fair outcome in the proceeding."  With respect to Union, the reorganization should have been disclosed in the IRM Plan proceeding because the tax benefits had been quantified and there was a "real prospect" that it would occur.  The panel rejected Union's arguments on the ground that it was not believable that a sophisticated organization like Union would leave $50 million on the table.

LIEN appealed and the Divisional Court set aside the OEB's decision. Two of the three judges on the panel, Justices Kiteley and Cumming, held the OEB could consider income levels in pricing to achieve the delivery of affordable energy to low-income consumers. The majority grounded its decision in the OEB's broad authority under section 36 of Ontario Energy Board Act to fix "just and reasonable rates" by adopting "any method or technique it considers appropriate". In their view, as long as the global amount of return to the utility is achievable, then the setting of rates to generate the required return is matter within the OEB's discretion. They went on to note that taking into consideration the ability to pay in rate-setting could also be used by the OEB to further its statutory objective of protecting "the interests of consumers with respect to prices". That said, Justices Kiteley and Cumming were careful to add that their decision was limited to the jurisdictional issue and they were not implying any preferred course of action in rate-setting by the OEB.

The third member of the panel, Justice Swinton, dissented. In her opinion, section 36 could not be viewed as conferring unlimited discretion on OEB; rather that authority was confined by the statutory regime and the longstanding principle that customers receiving the same service must be treated equally. Further, Justice Swinton noted the ability to order a rate affordability plan would be a fundamental departure from the OEB's traditional role and require it to assume a significant new role as a regulator of social policy. In support of this proposition, Justice Swinton cited cases from a number of other jurisdictions in which regulators were denied the authority to consider ability to pay in rate-setting. On these grounds, she concluded that the Legislature could not have intended to authorize the OEB to discriminate among customers unless it used specific words to express that intention.

While the decision leaves the OEB with the authority to decide how far to go in exercising this "unwanted" power, it could open up rate proceedings to a range of issues that fall outside of the traditional rate case. The OEB may feel restrained when determining whether to exclude issues raised by intervenors from the issues list. This in turn could result in longer proceedings to hear evidence on all of the issues included on the issues list.