Settlement Based on No Complaint to Complaint: Alberta Public Utilities Commission Decision 26717-D01-2022 | Stikeman Elliott LLP

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On March 2, 2022, the Alberta Utilities Commission (AUC) issued a decision exempting Calgary District Energy Inc. (CDHI) and the Downtown District Energy Center (DDEC) from certain provisions of the Public Services Act and certain reporting requirements contained in AUC Rule 005 regarding annual reporting requirements for utilities.[1] The effect of the decision was to allow DDEC, which provides district energy services in the form of thermal energy to customers in downtown Calgary, to continue to operate as it has since it began operations in 2010. , while remaining subject to AUC oversight on a complaint. based.[2]

District energy service

CDHI owns and operates DDEC which provides thermal energy, in the form of central heating and hot water services, to commercial, municipal and residential buildings in downtown Calgary. The DDEC is centrally located and uses a combined heat and power unit and four high-efficiency boilers to heat water which is then distributed to customers through a network of insulated underground pipes.

The DDEC was originally built and operated by ENMAX Corporation (ENMAX) and in April 2021 the AUC approved the sale of the DDEC to CDHI.[3] Prior to the sale, and due to municipal ownership of ENMAX, DDEC was legally exempt from much of the Public Services Act and for this reason was not subject to the supervision and regulation of the AUC. Accordingly, the AUC had no direct role in regulating the operation of DDEC or in setting the rates charged to DDEC customers. When the DDEC was sold, this exemption no longer applied and both the CDHI and the DDEC became subject to the full Public Services Act and AUC monitoring.

Exemption request

Following the sale of DDEC, CDHI filed a motion seeking an order under Sections 8 and 9 of the Alberta Public Utilities Commission Act and article 79 of the Public Services Actdeclaring that certain specific provisions of the Public Services Act and AUC Rule 005 regarding: periodic filing of rate schedules and financial reports and how utilities are required to maintain certain utility accounts and file annual financial and operational reports; and the need to obtain AUC approval for any rate change to be fair and reasonable, do not apply to CDHI and DDEC. In lieu of some of the required filings, CDHI proposed filing specified key financial and operational metrics annually with the AUC.

In seeking this relief, CDHI noted that the requested exemptions were in the public interest and represented a flexible and proportionate form of lightened regulation that addressed the unique nature of district energy services. The AUC, by virtue of the express provisions of the Public Services Act, maintain monitoring of the services provided by CDHI and DDEC on a complaints basis. The AUC accepted.

Decision authorizing complaint-based regulation

By approving the request,[4] the AUC first considered a jurisdictional argument advanced by the sole intervenor in the application.[5] Specifically, the Commission rejected arguments that departing from forward-looking economic regulation with respect to CDHI and DDEC would necessarily defeat the purpose of the Public Services Act. In doing so, the AUC indicated that the protection of the public interest and the maintenance of the legislative scheme under the Public Services Act does not require a public service to be subject to forward-looking economic regulation.[6] The AUC went on to conclude that under the Public Services Act it has “broad powers to exempt any utility, or its owner, from the application of the law, in whole or in part”;[7] and that it would not be in the public interest to require forward-looking economic regulation of any entity meeting the definition of public benefit where it is determined that such regulation is not necessary to protect sophisticated customers in a competitive environment, and in light of other available regulatory mechanisms .[8]

After rejecting the jurisdictional argument, the AUC first considered whether the light or complaint-based regulation proposed by CDHI would interfere with the establishment of just and reasonable rates. After concluding that the annual reporting framework proposed by CDHI in the application provided sufficient information to facilitate the overall oversight of the AUC, the AUC approved this framework.[9] The AUC then concluded that CDHI operates in a sufficiently competitive environment that its customers have a degree of choice about their service provider that is not present in a traditional monopoly industry; that the service agreements under which CDHI provides district energy services are based on mutually agreeable terms negotiated between sophisticated commercial parties; and that CDHI customers retain the ability to file a complaint with the AUC regarding rates or service.[10] The AUC has determined that these factors – taken together – are sufficient to ensure that the rates paid by CDHI’s customers will be just and reasonable.[11]

The AUC then considered whether regulating CDHI and DDEC on the basis of a complaint would affect the safety, reliability and integrity of the service offered by CDHI and the natural gas franchisee. With respect to CDHI customers, the AUC acknowledged and relied on the fact that DDEC has been in operation for over ten years and will continue to do so under the same service agreements and that there is no is no evidence to suggest that accepting the request will result in a change. security or reliability of the service offered to DDEC customers.[12] In addition, the AUC pointed out that with the sale of the DDEC, the DDEC and the CDHI were now subject to the general oversight of the AUC.[13] With respect to the incumbent gas utility, the AUC was not convinced that approval of the application would in any way harm existing gas utility customers – concluding that no quantitative evidence was presented to support any potential harm.[14] The AUC then concluded that it accepted that the incumbent gas utility could lose some customers to DDEC, but that any impact would be insignificant due to the relatively small size of DDEC’s operations.[15]

The AUC concluded that granting the relief requested by CDHI was in the public interest. Indicating that it was satisfied that the degree of regulation proposed by CDHI, in conjunction with the conditions imposed in the decision, is sufficient to ensure the protection of current and future DDEC customers and the general public. He concluded his decision by acknowledging that, in the case of CDHI and DDEC, a complaints-based approach to regulation, coupled with periodic reporting, enables the AUC to effectively oversee DDEC’s operations and respond to concerns as they arise, in a manner commensurate with the unique circumstances of CDHI and DDEC.[16]

[1] Alberta Utilities Commission Decision 26717-D01-2022, Calgary District Heating Inc., Exemption from Provisions of the Public Utilities Act, March 2, 2022, https://www2.auc.ab.ca/Proceeding26717/ProceedingDocuments/26717_X[]_26717-D01-2022%20CDHI%20Exemption%20from%20Dispositions%20of%20the%20Public%20Utilities%20Act_000069.pdf, [Decision 26717-D01-2022].

[2] Stikeman Elliott LLP acted as counsel for CDHI in its application before the AUC.

[3] Alberta Utilities Commission, ENMAX Corporation and Calgary District Heating Inc. Decision 26163-D01-2021, Applications for Disposition of the Downtown District Energy Center and Transfer of the Combined Heat and Power Generating Unit, April 19, 2021, https://www2.auc.ab.ca/Proceeding26163/ProceedingDocuments/26163_X%5b%5d_26163-D01-2021%20ENMAX%20Disposition%20of%20DDEC%20and%20Transfer%20of%20CHP%20Unit_000070.pdf

[4] The AUC denied part of the relief sought by CHDI. Specifically, the AUC denied CDHI’s request for an exemption to Section 92 of the Public Services Act on the grounds that it was not necessary to exempt in advance the CDHI and the DDEC from the application of this provision of the Public Services Act.

[5] ATCO Gas intervened and opposed the application.

[6] Decision 26717-D01-2022 at paragraph 25.

[7] Decision 26717-D01-2022 at paragraph 26.

[8] Decision 26717-D01-2022 at paragraph 26.

[9] Decision 26717-D01-2022 at paragraph 38.

[10] Decision 26717-D01-2022 at paragraph 39.

[11] Decision 26717-D01-2022 at paragraph 39.

[12] Decision 26717-D01-2022 at paragraph 44.

[13] Decision 26717-D01-2022 at paragraph 44.

[14] Decision 26717-D01-2022 at paragraph 48.

[15] Decision 26717-D01-2022 at paragraph 49.

[16] Decision 26717-D01-2022 at paragraph 50.

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