Procedural Fairness and Regulatory Policy: Alta Link Management Ltd v. Alberta Utilities Commission, 2023 ABCA 325

A rare defeat for a regulator on an issue of procedural fairness occurred in Alta Link Management Ltd v. Alberta Utilities Commission, 2023 ABCA 325. At issue here were a series of decisions made by the Commission relating to the recovery, through rates, of expenses incurred in Alberta’s transmission and distribution network.

To be more precise, the main question related to the recovery of costs at the interface between transmission and distribution, that is, substations and other facilities that transform high-voltage electricity to low-voltage electricity so as to facilitate delivery to consumers. In Alberta, transmission facility owners and distribution facility owners interact with the Alberta Electric System Operator, a corporation established under the Electric Utilities Act, SA 2003, c E-5.1 to direct the safe, reliable, and economic operation of the interconnected electric system, plan the capability of the transmission system, arrange for the expansion of and enhancement of the transmission system, and provide system access service on the transmission system.

The lead-up to this case involved a dispute between transmission and distribution facilities operators about the Operator’s policy. This policy, in place for about 20 years, allowed distribution facilities operators to invest in, and earn a return on, transmission facilities. The upshot of the lengthy, complex proceedings that resulted in the series of decisions was that neither transmission nor distribution facilities operators would be allowed to earn a return on contributions channelled through the Operator. 20 years of settled practice were thereby overturned. The argument that succeeded on appeal was that the Commission breached procedural fairness because the parties were not given adequate notice that the Commission was considering a fundamental change of policy.

Typically, economic regulators benefit from a high degree of deference on procedural matters (see e.g. Rogers Communications Canada Inc. v. Ontario Energy Board, 2020 ONSC 6549). Here, however, any deference was tempered by recognition of the significant consequences for market operators: the “capital-intensive” nature of their investments was recognized as important, as was their ability to access capital on equity and debt markets (at paras. 51-55), and required heightened procedural protection. The issue here was the adequacy of the notice provided about the change of policy: “the Commission was required to provide clear and transparent notice that an issue to be considered was whether both DFOs and TFOs should be precluded from earning a return on such costs” (at para. 57). The Court of Appeal was not satisfied that the notice was adequate.

The Commission’s argument was that the notice stated “that it would consider the legal basis of the current … customer contribution policy as it pertains to [transmission and distribution] whether there is a need for a new policy, and the date on which any new policy would commence, [making] clear that the interest of both [transmission and distribution facilities operators] in earning a return on customer contributions were implicated in the proceeding” (at para. 60). The Court of Appeal was unimpressed. Perhaps the interests of both players were engaged, but the possibility of a radical policy change had not been countenanced:

That the Commission’s Notice Document did not clearly inform the appellants it was considering whether both [transmission and distribution facilities operators] should be precluded from earning a return is illustrated by the absence of submissions and evidence on that issue. The ability of [transmission and distribution facilities operators] to earn a return on customer contributions was clearly of great importance to the appellants. Indeed, these proceedings originated because both AltaLink and Fortis sought to include those costs in their rate base and earn the attendant return (at para. 63).

This failing had a material impact on the proceedings. The Commission’s concern was about price distortion but, as the Court of Appeal pointed out, had that concern been properly communicated to the parties, they could have led expert evidence about the effect of the Operator’s policy on price signals (at para. 64).

In the result, the matter was remitted to the Commission (with extensive obiter comments about the legal framework, especially the notions of ownership and fair return). This decision is certainly a useful reminder that the courts have the last word on questions of procedural fairness, even if economic regulators generally have a track record of success on judicial review. It is, nonetheless, somewhat surprising that the Commission ran afoul of the duty of fairness on such a fairly technical issue. Evidently, the Court of Appeal felt that it was faced with a stark disparity between what was ultimately decided and what the parties thought would be decided. The fact that the parties’ submissions were so far off what turned out to be the mark must have concerned the Court of Appeal. The countervailing concern in procedural fairness cases is that the courts might gum up the works of public administration by requiring too much by way of procedures – that concern did not have much weight here, however, because the Commission’s proceedings spanned several years. It must have surprised the Court of Appeal, given the length and iterative nature of the proceedings, that such a gap emerged between what the parties and Commission thought the issue was. In the end, then, the unusual facts of this case mean that it is unlikely to occasion a sea change in the relationship between the courts and regulators on issues of fairness.

This content has been updated on January 23, 2024 at 20:50.