The Alberta Court of Appeal Examines First Nations Interests in the Utilities and Ratemaking Context

 by Doug Evanchuk and Anna Fitz

In the recent AltaLink Management Ltd. v Alberta Utilities Commission decision, the Alberta Court of Appeal provided important guidance with respect to utility ratemaking and First Nations interests.

AltaLink had purchased a transmission system and sought to expand it across routes which crossed First Nations reserves. The First Nations groups affected agreed to the construction of transmission lines on their lands in exchange for an opportunity to obtain ownership interests in the transmission lines, and to participate in the energy transmission industry.

A couple years after the transmission lines became operational, the First Nations groups exercised their options to purchase an interest in the lines. The parties agreed that they would effect the transfers by creating limited partnerships which comprised AltaLink and corporate entities representing the First Nations groups. AltaLink filed applications with the Alberta Utilities Commission, requesting approval of the transfer and sale of the transmission lines to the First Nations groups, as well as approval of the partnerships’ general tariff applications for 2017 and 2018. The Commission approved the transfers in Decision 22612-D01-2018 on the condition that the partnerships could not recover from ratepayers $60,000 in incremental external auditor and hearing costs for new regulatory proceedings if the transaction was approved. AltaLink appealed the imposition of this condition by the Commission.

The Commission applied the “no-harm test” to weigh the positive and negative impacts of the transaction on ratepayers. It rejected the argument that routing the transmission lines through First Nations lands saved $32 million and would create intangible benefits such as supporting First Nations communities. Rather, the Commission stated that the “no-harm” test is a forward-looking exercise, that the Commission could not consider the alleged savings, and found that AltaLink failed to provide sufficient evidence of the intangible benefits. In the Commission’s opinion, removing the incremental costs from the tariffs did not give ratepayers a benefit they did not already enjoy, or relieve ratepayers of a cost they had to pay previously. The Commission concluded that preventing the partnerships from recovering audit and hearing costs would offset the financial harm to ratepayers from incremental costs. AltaLink sought and received leave to appeal.

The majority of the Court of Appeal found that the Commission erred in considering only forward-looking benefits, that there is no legislative basis for this approach, and that the manner in which the project was built—across First Nations lands—necessarily involved a real prospect of forward-looking savings. The majority also emphasized that projects which increase the likelihood of economic activities on reserves are in the public interest and should be encouraged. Such strategies address the employment gap between Indigenous and non-Indigenous Canadians. The majority therefore varied the Commission’s decision, permitting the partnerships to include their regulatory costs from ratepayers.

Justice Feehan agreed with the majority’s decision, but also chose to provide further clarity on when the Commission has a duty to consider reconciliation and the honour of the Crown. He concluded that the Commission must consider these principles whenever it engages with Indigenous collectives or their governance entities, and must include in its decisions an analysis of the impact of these principles on its orders when raised by the parties and relevant to the public interest.

The Court ultimately determined that the Commission committed a legal error by failing to take into account all relevant factors that determine whether a sale is in the public interest. Its decision to ignore the cost savings arising from the routing of the transmission lines across the reserves of the First Nations was found to be an error of law. The Court varied Decision 22612-D01-2018 by ordering that the partnerships be allowed to include the incremental audit and hearing costs in their respective tariff applications and recover the costs from ratepayers in the usual course.

While AltaLink’s application involved typical considerations by the Commission in the context of a transfer of utility assets, this case clarifies the broad nature of the “no-harm test” and the Commission’s on-going responsibilities toward First Nations groups. For further information regarding energy, environmental, or regulatory matters, please contact any member of our Energy, Environmental, and Regulatory PracticeGroup.