Supreme Court

Public Utilities

Given nature of labour costs, Board did not act unreasonably in not applying prudent investment test

Ontario Energy Board disallowed $145 million in labour compensation costs related to Ontario Power Generation’s nuclear operations applied for as part of rate application covering. Board found that labour costs out of step with comparable entities. Majority of Ontario Divisional Court dismissed OPG’s appeal and upheld Board’s decision. Ontario Court of Appeal set aside decisions of Divisional Court and Board and remitted matter to Board for redetermination. Board appealed. OPG argued that Board legally required to compensate it for all prudently committed or incurred costs, that prudence has particular methodological meaning and that OPG should benefit from presumption of prudence. Appeal allowed. It was not improper, in this case, for Board to participate in arguing in favour of reasonableness of its decision. Board was only respondent in initial review and it was exercising regulatory role by setting just and reasonable payment amounts to a utility. Utilities regulation must encourage investment in robust utility infrastructure and protect consumer interests. It would be inconsistent with statutory scheme to presume that utility decisions to incur costs were prudent. Ontario Energy Board Act, 1998 does not prescribe methodology Board must use to determine just and reasonable payment amounts and imposes on applicant utility the burden of establishing that payment amounts are just and reasonable. Board has broad discretion to determine methods it may use; Board not required to use no hindsight, presumption of prudence test. Regulator may make use of variety of analytical tools in assessing justness and reasonableness of utility’s proposed payment amounts. Statute requires only that regulator set “just and reasonable” payments. Impugned labour compensation costs were partly committed, since they resulted from collective agreements, and partly subject to management discretion, since OPG retained some flexibility to manage total staffing levels. Given nature of labour costs, Board did not act unreasonably in not applying prudent investment test. Board’s adoption of mixed approach that did not rely on quantifying exact share of compensation costs that fell into forecast and committed categories was proper exercise of Board’s methodological discretion where disputed costs did not fit easily into one category or the other.

Ontario (Energy Board) v. Ontario Power Generation Inc. (Sep. 25, 2015, S.C.C., McLachlin C.J.C., Abella J., Rothstein J., Cromwell J., Moldaver J., Karakatsanis J., and Gascon J., File No. 35506) Decision at 228 A.C.W.S. (3d) 1172 was reversed.  257 A.C.W.S. (3d) 252.

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