SCC upholds denial of Ontario Power Generation full rate increase

The Supreme Court of Canada ruled today that the Ontario Energy Board was justified in denying Ontario Power Generation’s full 2011 and 2012 rate increase requests in the hopes it will send a signal to better control operating costs for the consumer.

Glenn Zacher, the partner at Stikeman Elliott LLP who represented the OEB, says the decision reinforces the role of the board in future appeals against its decisions.

“It’s an affirmation of the discretion of the experts; certain costs or expenses do not mandate particular decisions by the regulators,” says Zacher. “The regulator was not beholden to those [union] expenses. It’s settled some uncertainty.”

With one dissenting judge on the panel of seven, the majority stated in Ontario (Energy Board) v. Ontario Power Generation Inc.: “the [OEB’s] disallowance may have adversely impacted OPG’s ability to earn its cost of capital in the short run. Nevertheless, the disallowance was intended to send a clear signal that OPG must take responsibility for improving its performance.”

In May 2010, OPG made a routine application to the Ontario Energy Board to have its electricity rates fixed for 2011 and 2012. The OEB determined that OPG’s staffing levels and employment costs were too high and provided a rate $145 million less than the $6.9 billion revenue requirement for the two-year term OPG had been seeking.

However, OPG had previously negotiated staffing levels and wages for its unionized workforce through 2012 and argued on appeal it was not in a position to reduce those fixed costs.

A majority at the Divisional Court ruled the OEB’s denial of the full rate increase request was reasonable and should not be disturbed on appeal, however, a dissenting judge concluded that the union agreements imposed committed compensation costs on OPG and a prudence review by the SCC was required to determine if the rate request was justified and reasonable.

“Such a signal may, in the short run, provide the necessary impetus for OPG to bring its compensation costs in line with that, in the Board’s opinion, consumers should justly expect to pay for an efficiently provided service,” wrote Justice Marshall Rothstein in today’s ruling. “Sending such a signal is consistent with the Board’s market proxy role and its objectives.”

Justice Rosalie Abella, the lone dissenter, stated she believed the OEB erred in its denial “to separately assess the compensation costs committed as a result of the collective agreements from other compensation costs” and “ignored not only its own methodological template, but labour law as well.”

“The Board’s decision was unreasonable because the Board failed to apply the methodology set out for itself for evaluating just and reasonable payment amounts,” she stated. “It [OEB] both ignored the legally binding nature of the collective agreements between Ontario Power Generation and the unions and failed to distinguish between committed compensation costs and those that were reducible.”

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