Top court backs denial of OPG rate hike bid
The Supreme Court of Canada has upheld the right of the Ontario Energy Board to ensure consumers pay “just and reasonable” rates for electricity, even if that means challenging Ontario Power Generation on hot-button expenditures like collective-bargaining labour agreements.
In a decision Friday, the high court ruled on a longstanding dispute that erupted after the energy board determined Ontario Power Generation’s labour costs were too high, and disallowed the full payment amount requested as part of its rate application covering 2011 and 2012.
“The OEB’s mandate is to review the underlying cost structure and make sure the costs that OPG seeks to pass off to customers (through) rates are just and reasonable,” said Glenn Zacher, a partner at law firm Stikeman Elliott LLP, who represented the energy board.
The Supreme Court decision backs the energy board’s assertion that it “was not constrained in its review of OPG’s labour costs because it has a duty to look out for ratepayers and it cannot allow ratepayer interests to be subordinated to the interests of unionized employees,” he said.
During the long legal fight, Ontario Power Generation officials argued the labour cost commitments were the result of negotiated collective agreements, and ought to be judged from a presumption that they were prudent at the time they were made.
In the disputed rate application for 2011-12, the Ontario Energy Board disallowed $145 million in labour compensation costs related to Ontario Power Generation’s nuclear operations on the grounds that OPG’s labour costs were “out of step with those of comparable entities,” according to the ruling.
Ontario Power Generation, which is to charge rates based on its underlying cost structure plus a reasonable rate of return, had been seeking $6.9 billion for those years.
The Supreme Court justices ruled that it was not unreasonable for the Ontario Energy Board to scrutinize labour costs and act upon its findings to balance the utility’s requirements with those of consumers, stating that “if the legislature had intended for costs under collective agreements to also be inevitably imposed on consumers, it would not have seen fit to grant the board oversight of utility compensation costs.”
The justices further wrote that the board’s decision “in no way purports to force OPG to break its contractual commitments to unionized employees.”
Neal Kelly, a spokesman for Ontario Power Generation, said Friday he could not immediately comment on the implications of the court’s decision.
“We just received the decision,” he said. “We’ll review it.”
The case had been through two lower courts, the first of which backed the energy board. The Ontario Court of Appeal then overturned that decision, which was restored Friday by the Supreme Court.
The high court acknowledged that the board’s disallowance of some funding “may have adversely impacted OPG’s ability to earn its cost of capital in the short run.” But the ruling said the move was “intended to send a clear signal that OPG must take responsibility for improving its performance.”
That signal could “provide the necessary impetus for OPG to bring its compensation costs in line with what, in the board’s opinion, consumers should justly expect to pay for an efficiently provided service,” the ruling said.
There was one dissent in Friday’s Supreme Court decision, from Justice Rosalie Abella.
She wrote that the board’s decision was “unreasonable” because it “ignored the legally binding nature of the collective agreements between Ontario Power Generation and the unions and failed to dis- tinguish between committed compensation cost and those that were reducible.”
Abella argued that the appeal should have been dismissed, and took aim at the OEB for its actions.
“Blaming collective bargaining for what are assumed to be excessive costs, imposes the appearance of an ideologically driven conclusion on what is intended to be a principled methodology based on a distinction between committed and forecast costs, not between costs which are collectively bargained and those which are not,” she wrote.