Northwestern Utilities Ltd. and al. v. Edmonton, [1979] 1 SCR 684

SUPREME COURT OF CANADA

Northwestern Utilities Ltd. and al. v. Edmonton, [1979] 1 S.C.R. 684

Date: 1978-10-03

Northwestern Utilities Limited and The Public Utilities Board of the Province of Alberta Appellants;

and

The City of Edmonton Respondent.

1977: November 28; 1978: October 3.

Present: Laskin C.J. and Ritchie, Spence, Pigeon, Dickson, Estey and Pratte JJ.

ON APPEAL FROM THE SUPREME COURT OF ALBERTA, APPELLATE DIVISION

Public utilities — Application for interim rate increase — Order of Public Utilities Board permitting recovery of losses incurred before date of application — Board thereby offending provisions of s. 31 of The Gas Utilities Act, R.S.A. 1970, c. 158 — Application of s. 8 of The Administrative Procedures Act, R.S.A. 1970, c. 2, to proceedings — Matter returned to Board for continuation of hearing.

Commencing on August 20, 1974, the appellant com­pany filed an application with the Alberta Public Utili­ties Board for an order determining the rate base and fixing a fair return thereon and approving the rates and charges for the natural gas supplied by the company to its customers. The application made reference to the powers under s. 31 of The Gas Utilities Act, R.S.A. 1970, c. 158, by asking for an order "giving effect to such part of any losses incurred by the applicant as may be due to any undue delay in the hearing and determin­ing of the application". Finally the application sought an order fixing interim rates pending the establishment of "final rates". As a result of this application several interim orders were issued between November 15, 1974, and June 30, 1975. In response to the application of August 20, 1974, the Board by order made on Septem­ber 15, 1975, established the rate base, a fair return thereon and the total utility requirement at $72,141,000. These items were respectively found and included in the order on the basis of "actual 1974" figures and "forecast 1975" figures. The Board then directed the company to file a schedule of rates "designed to generate the forego­ing total utility revenue requirements approved by the Board".

On August 20, 1975, the company filed with the Board an application for an order "approving changes in existing rates, tolls or charges for gas supplied and services rendered by [the company] to its customers"; and on September 25, 1975, it filed an application for an interim order "approving changes in existing rates, tolls

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or charges for gas supplied and services rendered by [the company] to its customers pending final determination of the matter". The application of 1975 recited the history of the 1974 application and stated that the operating costs and gas costs of the company "have increased substantially over the amounts included in the 1974 application and continue to increase". After recit­ing that the Board in response to the 1974 application has awarded the applicant "interim refundable rates", the 1975 application went on to state that the "existing rates charged by the applicant for natural gas do not produce revenues sufficient to provide for its present or prospective proper operating and depreciation expense and a fair return on the property used in the service to the public". Therefore the company went onto apply for an order determining the rate base, and a fair return thereon, and fixing and approving rates for natural gas supplied by the company to its customers, The company sought as well an order giving effect to "such part of any losses incurred by the applicant as may be due to any undue delay in the hearing and determining of the application". The 1975 application sought as well interim rates "pending the fixing of final rates".

By its order of October 1, 1975, the Board granted an interim increase in rates the effect of which was to allow the company to receive $2,785,000 in excess of its revenues for 1975 which would have been received under the then existing rates, The City of Edmonton appealed from this interim order to the Appellate Division of the Supreme Court of Alberta pursuant to s. 62 of The Public Utilities Board Act, R.S.A. 1970, c. 302. The majority of the Appellate Division set aside the order and remitted it to the Board for reconsideration on two grounds: (1) that the effect of the order was a contra­vention of s. 31 of The Gas Utilities Act in that the company was thereby granted recovery of losses incurred before the date of application, namely, August 20, 1975; and (2) that the Board failed to comply with s. 8 of The Administrative Procedures Act, R.S.A. 1970, c. 2, by reason of its failure to give reasons for its decision. The company and the Board appealed to this Court from the decision of the Appellate Division.

Held: The appeal should be dismissed and the matter returned to The Public Utilities Board for continuation of the hearing of the company's application of August 20, 1975.

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The word "losses" as it is employed in s. 31 does not refer to accounting losses in the sense of a net loss occurring in a defined fiscal period but rather refers to the loss of revenue suffered by a utility during a defined period by reason of the delay in the imposition during that period of the proposed increased rates.

The first of the two principal issues in this appeal, i.e., whether the Board by its interim order of October 1, 1975, offended the provisions of s. 31 by granting as alleged by the City an order permitting the recovery of losses incurred before the date of the application, August 20, 1975, was very narrow. The issue was simply whether or not the company by not applying in the 1974 application for a further interim order caused the Board to respond to the new application in 1975 in such a way as to authorize a new tariff which when implemented by the company will have the effect of recovering from future gas consumers revenue losses incurred by the company with respect to gas deliveries made to consum­ers prior to the date of the application in question (August 20, 1975) or prior to the advent of the October 1, 1975, rates in a manner not authorized by s. 31.

The majority in the Court below observed that "pri­ma facie the new tentative rate base includes an amount for revenue losses in 1975 up to the date of the applica­tion in August, since the figures do not purport to apportion the loss between the two periods of the year". This Court was not prepared to say that a prima fade case had been established that the effect of the applica­tion of the interim rates from October 1, 1975, onwards will be the recovery in the future of revenue shortfalls incurred prior to August 20, 1975. The test was not whether the "new tentative rate base includes an amount for revenue losses" but rather the question was whether or not the interim rates prospectively applied will produce an amount in excess of the estimated total revenue requirements for the same period of the utility by reason of the inclusion in the computation of those future requirements of revenue shortfalls which have occurred prior to the date of the application in question, whether or not those "shortfalls" have been somehow incorporated into the rate base or have been included in the operating expenses forecast for the period in which the new interim rates will be applied, subject always to the Board's limited power under s. 31.

The company submitted that a determination of what is or is not a 'past loss' is a pure question of fact and as such is not subject to appeal by reason of s. 62 of The Public Utilities Board Act, which limits appeals from Board decisions to questions of "law or jurisdiction". The appeal before this Court involved a determination

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of the intent of the Legislature with respect to the Board's jurisdiction to take into account shortfalls in revenue or excess expenditures occurring or properly allocable to a period of time prior to an application for the establishment of rates under the Act. The Board's decision as to characterization of "the forecast revenue deficiency in the 1975 future test year" of the company involved a determination of the matters of which cogni­zance may be taken by the Board in setting rates under the statute. This is a question of law and may properly be made the subject of an appeal to a court pursuant to s. 62. The disposition of an application which involved the Board in construing ss. 28 and 31 of The Gas Utilities Act raises a question of law and may well go to the jurisdiction of the Board.

However, it was not possible for the reviewing tri­bunal in the circumstances in this proceeding to ascer­tain from the Board's order whether the Board acted within or outside the ambit of its statutory authority. The form and content of the Board's order were so narrow in scope and of such extraordinary brevity that one was left without guidance as to the basis upon which the rates had been established for the period October 1, 1975, onwards. Hence this submission of the company failed.

As to the second issue, namely the application to these proceedings of s. 8 of The Administrative Procedures Act, which provision imposes upon certain administra­tive tribunals the obligation of providing the parties to its proceedings with a written statement of its decision and the facts upon which the decision is based and the reasons for it, the Board in its decision allowing the interim rate increase failed to meet the requirements of this section. The failure of the Board to perform its function under s. 8 included most seriously a failure to set out "the findings of fact upon which it based its decision" so that the parties and a reviewing tribunal were unable to determine whether or not in discharging its functions, the Board had remained within or had transgressed the boundaries of its jurisdiction estab­lished by its parent statute. The appellants were not assisted by the decision in Dome Petroleum Ltd. v. Public Utilities Board (Alberta) and Canadian Superior Oil Ltd. (1976), 2 A.R. 453, aff'd [1977] 2 S.C.R. 822, to the effect that under s. 8 of The Administrative Procedures Act the reasons must be proper, adequate and intelligible, and must enable the person concerned to assess whether he has grounds of appeal. Nor could the Board rely on the peculiar nature of the order in this case, being an interim order with the amounts payable thereunder perhaps being refundable at some later date, to deny the obligation to give reasons. The order of the

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Board revealed only conclusions without any hint of the reasoning process which led thereto. The result was that a reviewing tribunal could not with any assurance determine that the statutory mandates bearing upon the Board's process had been heeded.

As for the participation of The Public Utilities Board in these proceedings, there is no doubt that s. 65 of The Public Utilities Board Act confers upon the Board the right to participate on appeals from its decisions, but in the absence of a clear expression of intention on the part of the Legislature, this right is a limited one. The Board is given locus standi as a participant in the nature of an amicus curiae but not as a party. That this is so is made evident by s. 63(2) under which a distinction is drawn between "parties" who seek to appeal a decision of the Board or were represented before the Board, and the Board itself.

The policy of this Court is to limit the role of an administrative tribunal whose decision is at issue before the Court, even where the right to appear is given by statute, to an explanatory role with reference to the record before the Board and to the making of represen­tations relating to jurisdiction.

Gill Lumber Chipman (1973) Ltd. v. United Brotherhood of Carpenters and Joiners of America Local 2142 (1973), 7 N.B.R. (2d) 41; MacDonald v. The Queen (1976), 29 C.C.C. (2d) 257; Re Canada Metal Co. Ltd. et al. and MacFarlane (1973), 1 O.R. (2d) 577; Labour Relations Board of the Province of New Brunswick v. Eastern Bakeries Ltd., [1961] S.C.R. 72; Labour Rela­tions Board of Saskatchewan v. Dominion Fire Brick and Clay Products Ltd., [1947] S.C.R. 336; Interna­tional Association of Machinists v. Genaire Ltd. and Ontario Labour Relations Board (1958), 18 D.L.R. (2d) 588; Central Broadcasting Co. Ltd. v. Canada Labour Relations Board and International Brotherhood of Electrical Workers, Local Union No. 529, [1977] 2 S.C.R. 112; Canada Labour Relations Board v. Tran­sair Ltd. et al., [1977] 1 S.C.R. 772, referred to.

APPEAL from a judgment of the Supreme Court of Alberta, Appellate Division[1], setting aside an order of The Public Utilities Board of the Province of Alberta granting an interim increase in rates pursuant to s. 52(2) of The Public Utilities Board Act, R.S.A. 1970, c. 302. Appeal dismissed.

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T. Mayson, Q. C., for the appellant Northwestern Utilities Ltd.

W. J. Major, Q. C., and C. K. Sheard, for the appellant Public Utilities Board of the Province of Alberta.

M. H. Patterson, Q. C., for the respondent.

The judgment of the Court was delivered by

ESTEY J.—This is an appeal by The Public Utilities Board for the Province of Alberta and Northwestern Utilities Limited from a decision of the Appellate Division of the Supreme Court setting aside an order of the Board granting an interim increase in rates pursuant to s. 52(2) of The Public Utilities Board Act, R.S.A. 1970, c. 302.

The majority of the Court of Appeal set aside the order and remitted it to the Board for reconsid­eration on two grounds:

(1) That the effect of the order was a contravention of s. 31 of The Gas Utilities Act, R.S.A. 1970, c. 158, in that Northwestern Utilities Limited was thereby granted recovery of losses incurred before the date of application, namely, the 20th of August 1975; and

(2) That the Board failed to comply with s. 8 of The Administrative Procedures Act, R.S.A. 1970, c. 2, by reason of its failure to give reasons for its decision.

The appellant, The Public Utilities Board (herein referred to as 'the Board'), is constituted under The Public Utilities Board Act to "deal with public utilities and the owners thereof as provided in this Act" (s. 28(1)), and is given more specific duties and powers with respect to gas utilities under The Gas Utilities Act. The appellant, Northwestern Utilities Limited (herein referred to as 'the Company'), is a gas utility regulated under these statutes.

The Board is by the latter statute directed to "fix just and reasonable ... rates, ... tolls or charges ..." which shall be imposed by the Com­pany and other gas utilities and in connection therewith shall establish such depreciation and

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other accounting procedures as well as "standards, classifications [and] regulations ..." for the service of the community by the gas utilities (s. 27, The Gas Utilities Act). In the establishment of these rates and charges, the Board is directed by s. 28 of the statute to "determine a rate base" and to "fix a fair return thereon". The Board then esti­mates the total operating expenses incurred in operating the utility for the period in question. The total of these two quantities is the 'total revenue requirement' of the utility during a defined period. A rate or tariff of rates is then struck which in a defined prospective period will produce the total revenue requirement. The whole process is simply one of matching the anticipated revenue to be produced by the newly authorized future rates to future expenses of all kinds. Because such a matching process requires comparisons and esti­mates, a period in time must be used for analysis of past results and future estimates alike. The fiscal year of the utility is generally found to be a convenient but not a mandatory period for these purposes. It is a process based on estimates of future expenses and future revenues. Both accord­ing to the evidence fluctuate seasonally and both vary according to many uncontrollable forces such as weather variations, cost of money, wage rate settlements and many other factors. Thus the rate when finally established will be such as the Board deems just and reasonable to allow the recovery of the expenses incurred by a utility in supplying gas to its customers, together with a fair return on the investment devoted to the enterprise. We are here concerned only with the rate establishing process and, hence, this summation of the Board's func­tions and powers is limited to that aspect of its statutory operations.

While the statute does not precisely so state, the general pattern of its directing and empowering provisions is phrased in prospective terms. Apart from s. 31 there is nothing in the Act to indicate any power in the Board to establish rates retro­spectively in the sense of enabling the utility to recover a loss of any kind which crystallized prior to the date of the application (vide City of Edmonton et al. v. Northwestern Utilities Limited[2], per Locke J. at pp. 401, 402).

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The rate-fixing process was described before this Court by the Board as follows:

The PUB approves or fixes utility rates which are estimated to cover expenses plus yield the utility a fair return or profit. This function is generally performed in two phases. In Phase I the PUB determines the rate base, that is the amount of money which has been invested by the company in the property, plant and equipment plus an allowance for necessary working capital all of which must be determined as being neces­sary to provide the utility service. The revenue required to pay all reasonable operating expenses plus provide a fair return to the utility on its rate base is also determined in Phase I. The total of the operating expenses plus the return is called the revenue requirement. In Phase II rates are set, which, under normal temperature conditions are expected to produce the estimates of "forecast revenue requirement". These rates will remain in effect until changed as the result of a further applica­tion or complaint or the Board's initiative. Also in Phase II existing interim rates may be confirmed or reduced and if reduced a refund is ordered.

The statutory pattern is founded upon the con­cept of the establishment of rates in futuro for the recovery of the total forecast revenue requirement of the utility as determined by the Board. The establishment of the rates is thus a matching process whereby forecast revenues under the proposed rates will match the total revenue requirement of the utility. It is clear from many provi­sions of The Gas Utilities Act that the Board must act prospectively and may not award rates which will recover expenses incurred in the past and not recovered under rates established for past periods. There are many provisions in the Act which make this clear and I take but one example, found in s. 35, which provides:

(1) No change in any existing rates ... shall be made by a ... gas utility ... until such changed rates or new rates are approved by the Board.

(2) Upon approval, the changed rates ... come into force on a date to be fixed by the Board and the Board

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may either upon written complaint or upon its own initiative herein determine whether the imposed increases, changes or alterations are just and reasonable.

Section 32 likewise refers to rates "to be imposed thereafter by a gas utility". The 1959 version of the legislation before the Court in this proceeding was examined by the Alberta Court of Appeal in City of Calgary and Home Oil Co. Ltd. v. Madi­son Natural Gas Co. Ltd. and British American Utilities Ltd.[3] wherein Johnson J.A. observed at p. 661:

The powers of the Natural Gas Utilities 'Board have been quoted above and the Board's function was to determine "the just and reasonable price" or prices to be paid. It was to deal with rates prospectively and having done so, so far as that particular application is con­cerned, it ceased to have any further control. To give the Board retrospective control would require clear lan­guage and there is here a complete absence of any intention to so empower the Board.

Vide also Regina v. Board of Commissioners of Public Utilities (N.B.), Ex parte Moncton Utility Gas Ltd.[4], at p. 710; Bradford Union v. Wilts[5], at p. 616.

There is but one exception in this statutory pattern and that is found in s. 31 which is critical in these proceedings. It is convenient to set it out in full.

It is hereby declared that, in fixing just and reasonable rates, the Board may give effect to such part of any excess revenues received or losses incurred by an owner of a gas utility after an application has been made to the Board for the fixing of rates as the Board may determine has been due to undue delay in the hearing and determining of the application.

It should be noted that s. 31 has been amended by s. 5 of The Attorney General Statutes Amendment Act, 1977, 1977 (Alta.), c. 9, which received Royal Assent on May 18, 1977. However, s. 5(3) of that Act provides that s. 31 "as it stood immedi­ately before the commencement of' s. 5 "... con­tinues to apply to proceedings initiated ..." before

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May 18, 1977. Accordingly, this case stands to be determined in accordance with s. 31 as set out above.

The interpretative difficulties raised by s. 31 are manifold. For one thing, the word losses' which is not defined in the Act is employed with reference to the Board's power to establish rates with respect to the period after an application has been made and before the Board has fully disposed of the application by taking into account "excess reve­nues and losses" which the Board determines have been "due to undue delay in the hearing and determination of the application". It is in my view apparent once the statute is examined as a whole that 'losses' as the word is employed in s. 31 does not refer to accounting losses in the sense of a net loss occurring in a defined fiscal period but rather refers to the loss of revenue suffered by a utility during a defined period by reason of the delay in the imposition during that period of the proposed increased rates. The word in short is an abbrevia­tion for 'lost revenue' which may indeed be suf­fered by a utility during a period when the utility is not in a net loss position in the accounting sense of that term. This Court had occasion to consider s. 31 collaterally in City of Edmonton et al. v. Northwestern Utilities Limited, supra. Locke J. writing on behalf of the whole Court on this point so interpreted and applied the word "losses" as it appears in this section.

Much of the difficulty encountered before the Board and again reflected in the judgment of the Court of Appeal has arisen by the use of the expression 'loss' sometimes to refer to a net loss for a period in the past and sometimes by applying the term to a shortfall of revenue in the sense in which I believe the Legislature uses the term in s. 31. This difficulty appears to have been obviated by the new s. 31 which is not now before the Court (vide The Attorney General Statutes Amendment Act, 1977, supra).

Section 52(2) of The Public Utilities Board Act should also be noted:

The Board may, instead of making an order final in the first instance, make an interim order and reserve

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further direction, either for an adjourned hearing of the matter or for further application.

Section 54 provides in similar language the author­ity for the Board to make such interim orders ex parte. These interim orders are couched in the same terms as the final or basic orders establishing rates and tariffs and hence are likewise prospec­tive.

Against this statutory background a brief outline of the historical facts of this proceeding and its origins bring the two issues now before the Court into sharper focus. Commencing on August 20, 1974, the Company filed an application for an order determining the rate base and fixing a fair return thereon and approving the rates and charges for the natural gas supplied by the Com­pany to its customers. The application made refer­ence to the powers under s. 31 by asking for an order "giving effect to such part of any losses incurred by the applicant as may be due to any undue delay in the hearing and determining of the application". Finally the application sought an order fixing interim rates pending the establishment of "final rates". As a result of this applica­tion several interim orders were issued between November 15, 1974, and June 30, 1975. In response to the application of August 20, 1974, the Board by order made on September 15, 1975, established the rate base, a fair return thereon and the total utility revenue requirement at $72,141,—000. These items were respectively found and included in the order on the basis of "actual 1974" figures and "forecast 1975" figures. The Board then directed the Company to file a schedule of rates "designed to generate the foregoing total utility revenue requirements approved by the Board".

The practice and terminology historically adopted by the Board in the discharge of its statutory functions are no doubt clear to the industry and to persons attending upon the Board in the discharge of its functions but leaves something to be desired in the sense that the terminology does not precisely fit that employed by the legislation to which refer­ence has been made. It is clear, however, that in its order with respect to the August 1974 application,

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the Board has attempted to establish in the pros­pective sense those rates which the Company will require to enable it to carry on its business as a gas utility in the future and until such further and other rates are established by the Board. Had the Company then responded to the September 15 order by filing a proposed schedule of rates the Board would no doubt in completion of its statutory response to the August 1974 application by the Company have established the appropriate schedule of rates to be brought into effect by the Company in its billings from and after a date prospectively prescribed by the Board.

The complication which gives rise to these pro­ceedings occurred on August 20, 1975, when the Company filed with the Board an application (not to be confused with the application filed on August 20, 1974) for an order "approving changes in existing rates, tolls or charges for gas supplied and services rendered by Northwestern Utilities Lim­ited to its customers"; together with an application on September 25, 1975, for an interim order "approving changes in existing rates, tolls or charges for gas supplied and services rendered by Northwestern Utilities Limited to its customers pending final determination of the matter". The application of 1975 recites the history of the 1974 application and states that the operating costs and gas costs of the Company "have increased substan­tially over the amounts included in the 1974 application and continue to increase". After recit­ing that the Board in response to the 1974 applica­tion had awarded the applicant "interim refundable rates", the 1975 application went on to state:

The existing rates charged by the Applicant for natu­ral gas do not produce revenues sufficient to provide for its present or prospective proper operating and deprecia­tion expense and a fair return on the property used in the service to the public.

Therefore the Company went on to apply for an order determining the rate base, and a fair return thereon, and fixing and approving rates for natural gas supplied by the Company to its customers. The

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Company sought as well an order giving effect to "such part of any losses incurred by the applicant as may be due to any undue delay in the hearing and determining of the application", apparently paraphrasing s. 31 of The Gas Utilities Act. The 1975 application seeks as well interim rates "pend­ing the fixing of final rates".

It is also relevant to note in passing that the 1974 application indeed had its own roots in a prior procedure before the Board initiated by the Board itself under s. 27 of The Gas Utilities Act in 1974. In June 1974, the Company applied for an interim rate increase and after a hearing in July 1974 the application was denied on August 19, 1974, and the application of August 20, 1974, was thereupon filed.

By its order of October 1, 1975, the Board granted an interim increase in rates the effect of which was to allow the Company to receive $2,785,000 in excess of its revenues for 1975 which would have been received under the then existing rates. The question immediately arises as to whether this sum represents increased expenses to be incurred by the Company for the period after the interim rates became effective (October 1, 1975) or whether it represents expenses incurred and unrecovered in the past. It was from this interim order that the City of Edmonton (herein referred to as 'the City') appealed to the Appellate Division of the Supreme Court of Alberta pursu­ant to s. 62 of The Public Utilities Board Act:

(1) Subject to subsection (2) [the requirement of leave], upon a question of jurisdiction or upon a question of law, an appeal lies from the Board to the Appellate Division of the Supreme Court of Alberta.

The Appellate Division of the Supreme Court of Alberta set aside the Board order of October 1, 1975, and referred the matter to the Board "for further consideration and redetermination". One preliminary argument can be disposed of at the outset. It was argued in the Courts below, as well

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as in this Court, that the interim order under appeal (dated October 1, 1975) was made pursu­ant to the 1974 rate application, either as a vari­ance of the 1974 order pursuant to s. 56 of The Public Utilities Board Act, or as an interim order in respect of the 1974 application. That submis­sion, whatever its effect, was rejected by the Court of Appeal and must be rejected here. On the face of the interim order is found a reference to "the application of N.U.L. dated the 20th day of August, 1975". That reference, when read with the transcript of the evidence at the hearing leaves no doubt that the interim order was made with respect to the 1975 application which clearly was an independent application to establish, pursuant to the aforementioned sections of The Gas Utilities Act, the statutory prerequisites to a new tariff of rates, and then a new tariff of rates.

I turn then to the first issue as to whether the Board by its interim order of October 1, 1975, has offended the provisions of s. 31 of The Gas Utili­ties Act by granting as alleged by the City an order permitting the recovery of losses incurred before the date of the application, August 20, 1975. It was not argued before this Court that the Board could not through s. 31 reach back to August 20, 1975, and grant a rate increase to recover costs thereafter incurred. The recitals to the order of October 1975 make it difficult to determine whether in fact the Board has invoked s. 31 in the interim rates established by the order or whether the Board has simply made an interim order under s. 51(2) of The Public Utilities Board Act. We need not determine the answer to that question in order to deal with this issue.

The issue is at this stage very narrow. No contest is raised as to the validity of the September 15, 1975, order nor the various interim rates authorized in the 1974 application. The issue is simply whether or not the Company by not apply­ing in the 1974 application for a further interim order has caused the Board to respond to the new application in 1975 in such a way as to authorize a new tariff which when implemented by the Com­pany will have the effect of recovering from future gas consumers revenue losses incurred by the

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Company with respect to gas deliveries made to consumers prior to the date of the application in question (August 20, 1975) or prior to the advent of the October 1, 1975, rates but in a manner not authorized by s. 31.

The Appellate Division of the Supreme Court of Alberta in both the judgments of Clement J.A. and McDermid J. A., as well as counsel before this Court, devoted a considerable amount of attention to the accounting evidence filed by the Company with reference to the total revenue requirement of the Company in the years 1974 and 1975 and to the possibility that the inclusion in the rate base or the operating expenses established in Phase I of the 1975 application of the additional expenses which gave rise to the 1975 application, will have the effect of violating or going beyond s. 31 by authorizing rates which will have the effect of recovering past losses. We are here not concerned with capitalized losses because there is no sugges­tion that the rate base will be enlarged by the inclusion of any historical loss in the sense of an accounting deficit in prior fiscal intervals but rather with revenue losses other than those which may be recovered pursuant to s. 31 and which relate to the period from and after August 20, 1975. These losses of course have no relationship to a rate base computed and established pursuant to s. 28 of The Gas Utilities Act. We are con­cerned only with whether or not the Board in its processes has determined the total operating expenses for some period, as well as the fair return on the rate base, so as to enable the Board to calculate prospectively the anticipated total reve­nue requirement of the utility and thereby estab­lish rates which prospectively will produce future revenues to match the estimated future total reve­nue requirement.

This procedure was the subject of comment by Porter J.A. in Re Northwestern Utilities Ltd.[6] at p. 290, and which comments I find apt in the circumstances now before us:

One effect of this ruling is that future consumers will have to pay for their gas a sum of money which equals that which consumers prior to August 31, 1959 ought to have paid but did not pay for gas they had used: In

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short, the undercharge to one group of consumers for gas used in the past is to become an overcharge to another group on gas it uses in the future. When the Board capitalized this sum, it made all the future con­sumers debtors to the company for the total amount of the deficiency, payable ratably with interest from their respective future gas consumption.

It is conceded of course that the Act does not prevent the Board from taking into account past experience in order to forecast more accurately future revenues and expenses of a utility. It is quite a different thing to design a future rate to recover for the utility a 'loss' incurred or a revenue defi­ciency suffered in a period preceding the date of a current application. A crystallized or capitalized loss is, in any case, to be excluded from inclusion in the rate base and therefore may not be reflected in rates to be established for future periods.

The evidence submitted by the Company on the hearing of the 1975 application centred largely upon the urgent need for interim refundable rates by which the Company;

can recover its costs of service and earn an adequate return on its utility assets for the year 1975. If the interim rates requested are nor granted, the costs of providing natural gas service would not be fully recovered.

The evidence goes on to outline the utility income under existing rates for the years 1975 and 1976 and it is stated that these rates unless augmented by interim rates as proposed will produce a short-fall in revenue of approximately $700,000 per month. The accounts so filed reveal computations which show the need for an additional $2.785 million for the year 1975 of which operating expenses represent $2.105 million. Unhappily, the record does not reveal whether all the components of the additional $2.785 million are recurring expenses and costs, or legitimate demands for return on capital, which will run evenly into the future. It may be that in the quarterly period of 1975 remaining at the time of the order, these projections will exceed or be less than the actual expenses to be incurred in that very quarterly period. On this the evidence is strangely silent. The

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evidence of the treasurer of the Company deals with the revenues for the year 1975 as follows:

A. The revenues from gas sales for the test year 1975 of $87,265,000 as shown on line 6 of Statement 2.01 (Forecast-Proposed Rates) constitutes $84,480,000 of revenues forecast under existing rates as shown on Line 6 of Statement 2.01 (Fore­cast-Existing Rates) and $2,785,000 of additional revenues to earn a utility rate of return of 9.93%. The increase is that estimated to be derived from introduction on October 1, 1975, of the requested interim rates, including an increase in franchise tax of $120,000.

Q. On what year are the interim rates designed?

A. 1975 was chosen as the test year and rates were designed to recover 1975 costs.

In its application for interim rates the Company reduces the effect of the anticipated loss of revenue to the conclusion:

The rate of return on the base rate drops from 9 percent in 1974 to 8.43 percent in 1975 and further declines to 6.77 percent in 1976. The requested rate of return on rate base for 1975 under the proposed rates is 9.93 percent. This difference of 1½ percent represents $1,600,000 in utility income.

This reference would appear to be to the difference between the prevailing rates in 1975 prior to Octo­ber 1st and the rates which would prevail in 1975 under the proposal made for the rates effective October 1, 1975. The application for the interim rates goes on to state:

Without rate relief in the form of interim rates for the balance of 1975, the imputed return on common equity drops to 10.2 percent compared to the recommended equity return of 145/s percent to 15½ percent .. .

From this and like excerpts from evidence, testi­mentary and documentary, the City has taken the view that the augmentation to rates for the last quarter of 1975 sought by the Company and granted by the Board has in effect been a recogni­tion of a deemed increase in the rate base or operating expenses by the inclusion therein of an

[Page 701]

otherwise unrecoverable loss in that part of the year 1975 preceding the 1975 application filed on August 20. Additionally, or perhaps more accu­rately, alternatively, the City has put the argument that the Company by its interim rate proposal has sought to recover in 1975 additional costs of $2.785 million without in any way establishing that the revenue so sought is required to match expenses to be incurred either during the effective period of the new interim rates, or is to recover lost revenue in the manner authorized by s. 31. In support of this argument, the City points out that the sum of $2.1 million, which is said to be required to meet increases in operating expenses, is not isolated and shown to be additional expenses to be incurred in the last quarter of 1975 but rather is the excess of 1975 expenses over and above those forecast in the earlier proceedings and which excess is forecast on the basis of actual expendi­tures in the first 6 months of 1975 together with anticipated expenditures in the last 6 months of 1975.

The Company meets this argument by the submission that losses contemplated by s. 31 cannot be discerned until the close of the fiscal period selected as the basis for the application for new rates and that this is peculiarly so in the case of a gas utility by reason of fluctuating conditions beyond the control of the utility. The Board in disposing of these opposing positions states simply:

AND THE BOARD having considered the argument of counsel for Interveners that the application for interim refundable rates by N.U.L. should be rejected, in whole or in part, on the grounds that the increased interim refundable rates are for the purpose of recovering "past losses" which they claim have been incurred by N.U.L. since January 1, 1975:

AND THE BOARD considering that the forecast revenue deficiency in the 1975 future test year requested by N.U.L. cannot be properly characterized as "past losses".

The terminology "past losses", employed per­haps by all parties before the Board and adopted by the Board in its order, makes it difficult in reviewing the record as well as the various orders of the Board to determine whether or not the

[Page 702]

Board was indeed attempting to isolate the ele­ments to be taken into account by the Board in discharging its functions under ss. 27, 28 and 29 of The Gas Utilities Act with reference to specific parts of the calendar year 1975. If, for example, the Board had assumed that the additional revenue sought in the application of September 25, 1975, for an interim order pending the determination of the application of August 20, 1975, was to match expenses forecast to be incurred by the Company in the last quarter of 1975, then there would be no attempt by the Board to take into account revenue losses incurred prior to August 20, 1975, and thus no failure on the part of the Board to comply with the statute and with s. 31 in particular. The process of matching forecast revenues to be realized from the proposed interim rates against the forecast expenses comprising the total revenue require­ments for the last quarterly period would be com­plete. It is impossible to discern whether or not that is the result which is sought to be reflected by the Board in its order of October 1, 1975. Such may well be the case, but on the other hand, it might be as submitted by the City that these additional expenses totalling $2.785 million are in whole or in part the result of annualizing expenses incurred before and/or after August 20, 1975, so that the total revenue requirement for the "test year" need be augmented by $2.785 million in order to meet the total revenue requirements for the year. It is in my view wholly unnecessary to enter the debate as to whether or not in making the estimates for future expenses a fiscal period of a year, two years, a half year, etc., need be selected. What is required by the statute is an estimate by the Board of the future needs of the utility which are recognized in the statute to be compen­sable by the operation in the future of the rates prescribed by the Board. Similarly the forecast of revenues to be recovered by the proposed rates need not be predicated necessarily upon a hypo­thetical or real fiscal year or . a shorter period. Obviously in a seasonal enterprise such as the gas utility business a full calendar fiscal period repre­sents the marketing picture throughout the four seasons of the year. Equally obviously, recurring cash outlays relevant to expenses unevenly incurred throughout the year can be annualized

[Page 703]

either by an accounting adjustment where the expense incurred relates to a longer period or extends beyond the fiscal year in question, or can be annualized where the expense incurred relates to a segment of the fiscal period. In any case the administrative mechanics to be adopted in the discharge of the function mandated by The Gas Utilities Act are exclusively within the power of the Board. We need not here deal with the ques­tion of arbitrariness in the discharge of adminis­trative functions for there is no evidence on the record before this Court raising any such issue. This Court is concerned only with the issue as to whether the Board in the performance of its duties under the statute has exceeded the power and authority given to it by the Legislature. Clement J.A. has observed in his reasons:

[P]rima facie the new tentative rate base includes an amount for revenue losses in 1975 up to the date of the application in August, since the figures do not purport to apportion the loss between the two periods of the year.

I am not prepared to say that a prima facie case has been established that the effect of the applica­tion of the interim rates from October 1, 1975, onwards will be the recovery in the future of revenue shortfalls incurred prior to August 20, 1975. Indeed, in my respectful view, the test is not whether the "new tentative rate base includes an amount for revenue losses" but rather the question is whether or not the interim rates prospectively applied will produce an amount in excess of the estimated total revenue requirements for the same period of the utility by reason of the inclusion in the computation of those future requirements of revenue shortfalls which have occurred prior to the date of the application in question, whether or not those "shortfalls" have been somehow incorpo­rated into the rate base or have been included in the operating expenses forecast for the period in which the new interim rates will be applied, sub­ject always to the Board's limited power under s. 31.

The Company submitted to this Court that a determination of what is or is not a 'past loss' is a

[Page 704]

pure question of fact and as such is not subject to appeal by reason of s. 62 of The Public Utilities Board Act, supra, which limits appeals from Board decisions to questions of "law or jurisdic­tion". The appeal before this Court involves a determination of the intent of the Legislature with respect to the Board's jurisdiction to take into account shortfalls in revenue or excess expendi­tures occurring or properly allocable to a period of time prior to an application for the establishment of rates under the Act. The Board's decision as to the characterization of "the forecast revenue defi­ciency in the 1975 future test year" of the Com­pany involves a determination of the matters of which cognizance may be taken by the Board in setting rates under the statute. This is a question of law and may properly be made the subject of an appeal to a court pursuant to s. 62. The disposition of an application which, as I have said, involved the Board in construing ss. 28 and 31 of The Gas Utilities Act, raises a question of law and may well go to the jurisdiction of the Board.

However, it is not possible for the reviewing tribunal in the circumstances in this proceeding to ascertain from the Board order whether the Board acted within or outside the ambit of its statutory authority. The form and content of the Board's order are so narrow in scope and of such extraordi­nary brevity that one is left without guidance as to the basis upon which the rates have been estab­lished for the period October 1, 1975, onwards. Hence this further submission of the Company must fail.

I turn now to the second issue, namely the application of s. 8 of The Administrative Proce­dures Act of Alberta, supra, to these proceedings. This provision imposes upon certain administrative tribunals the obligation of providing the parties to its proceedings with a written statement of its decision and the facts upon which the decision is based and the reasons for it. Section 8 states:

Where an authority exercises a statutory power so as to adversely affect the rights of a party, the authority shall furnish to each party a written statement of its decision setting out

(a) the findings of fact upon which it based its deci­sion, and

[Page 705]

(b) the reasons for the decision.

The "reasons" handed down by the Board consist of the following:

INTERIM ORDER

UPON THE APPLICATION of Northwestern Utilities Lim­ited, (hereinafter referred to as "N.U.L.") to the Public Utilities Board for an Order or Orders approving changes in existing rates, tolls or charges for gas supplied and services rendered by N.U.L. to its customers;

AND UPON READING the application of N.U.L. dated the 20th day of August, 1975 and the Affidavit of Dorothea E. Blackwood concerning service by mail and by newspaper publication of a Notice of the matter as directed by the Board and written evidence of witnesses of N.U.L. and other material filed in support of the application;

AND UPON HEARING an application made by N.U.L. on September 25, 1975, for an Interim Order approving changes in existing rates, tolls or charges for gas supplied and services rendered by N.U.L. to its customers pending final determination of the matter;

AND UPON HEARING the application, testimony and submission of witnesses and counsel for N.U.L.;

AND THE BOARD having considered the argument of counsel for Interveners that the application for interim refundable rates by N.U.L. should be rejected, in whole or in part, on the grounds that the increased interim refundable rates are for the purpose of recovering "past losses" which they claim have been incurred by N.U.L. since January 1, 1975;

AND THE BOARD considering that the forecast revenue deficiency in the 1975 future test year requested by N.U.L. cannot be properly characterized as "past losses'.".

AND THE BOARD considering that delay in granting an interim increase in rates may adversely affect N.U.L.'s financial integrity and customer service;

AND N.U.L. having undertaken to refund to its customers such amounts as the Board may direct if any of the said interim rates are changed after further hearing.

IT IS ORDERED as follows:... .

The law reports are replete with cases affirming the desirability if not the legal obligation at common law of giving reasons for decisions (vide Gill Lumber Chipman (1973) Ltd. v. United Brotherhood of Carpenters and Joiners of America Local 2142[7], per Hughes C.J.N.B. at p. 47;

[Page 706]

MacDonald v. The Queen[8], per Laskin C.J.C. at p. 262). This obligation is a salutary one. It reduces to a considerable degree the chances of arbitrary or capricious decisions, reinforces public confi­dence in the judgment and fairness of administra­tive tribunals, and affords parties to administrative proceedings an opportunity to assess the question of appeal and if taken, the opportunity in the reviewing or appellate tribunal of a full hearing which may well be denied where the basis of the decision has not been disclosed. This is not to say, however, that absent a requirement by statute or regulation a disposition by an administrative tri­bunal would be reviewable solely by reason of a failure to disclose its reasons for such disposition.

The Board in its decision allowing the interim rate increase which is challenged by the City failed to meet the requirements of s. 8 of The Adminis­trative Procedures Act. It is not enough to assert, or more accurately, to recite, the fact that evidence and arguments led by the parties have been con­sidered. That much is expected in any event. If those recitals are eliminated from the 'reasons' of the Board all that is left is the conclusion of the Board "that the forecast revenue deficiency in the 1975 future test year requested by the Company cannot be properly characterized as "past losses" ". The failure of the Board to perform its function under s. 8 included most seriously a fail­ure to set out "the findings of fact upon which it based its decision" so that the parties and a reviewing tribunal are unable to determine wheth­er or not, in discharging its functions, the Board has remained within or has transgressed the boundaries of its jurisdiction established by its parent statute. The obligation imposed under s. 8 of the Act is not met by the bald assertion that, as Keith J. succinctly put it in Re Canada Metal Co. Ltd. et al. and MacFarlane[9], at p. 587, when dealing with a similar statutory requirement, "my reasons are that I think so".

[Page 707]

The appellants are not assisted by the decision of the Appellate Division of the Supreme Court of Alberta in Dome Petroleum Ltd. v. Public Utili­ties Board (Alberta) and Canadian Superior Oil Ltd[10], affirmed by this Court at [1977] 2 S.C.R. 822 to the effect that under s. 8 of The Adminis­trative Procedures Act the reasons must be proper, adequate and intelligible, and must enable the person concerned to assess whether he has grounds of appeal. Nor can the Board rely on the peculiar nature of the order in this case, being an interim order with the amounts payable thereunder per­haps being refundable at some later date, to deny the obligation to give reasons. Brevity in this era of prolixity is commendable and might well be rewarded by a different result herein but for the fact that the order of the Board reveals only conclusions without any hint of the reasoning process which led thereto. For example, none of the factors which the Board took into account, in reaching its conclusion that the amounts contested were not "past losses" are revealed so that a reviewing tribunal cannot with any assurance determine that the statutory mandates bearing upon the Board's process have been heeded.

The Appellate Division of the Supreme Court of Alberta, after coming to the same result, vacated the Board's order and referred the matter to the Board for further consideration and determination pursuant to s. 64 of The Public Utilities Board Act. In doing so, it is evident from the reasons for judgment of the said Court that the Court proper­ly viewed its appellate jurisdiction under s. 64 of The Public Utilities Board Act as a limited one. It is not for a court to usurp the statutory respon­sibilities entrusted to the Board, except in so far as judicial review is expressly allowed under the Act. It is, of course, otherwise where the administrative tribunal oversteps its statutory authority or fails to perform its functions as directed by the statute. Questions as to how and when operating expenses are to be measured and recovered through prescribed

[Page 708]

rates are, subject to the limits imposed by the Act itself, for the Board to decide, and the procedures for such decisions if made within the confines of the statute are administrative matters which are better left to the Board to determine (vide City of Edmonton v. Northwestern Utilities Limited, supra, per Locke J. at p. 406).

As for the participation of The Public Utilities Board in these proceedings, it was pointed out to the Court that s. 65 of The Public Utilities Board Act entitles the Board "to be heard ... upon the argument of any appeal". Under s. 66 of the Act the Board is shielded from any liability in respect of costs by reason or in respect of an appeal.

Section 65 no doubt confers upon the Board the right to participate on appeals from its decisions, but in the absence of a clear expression of inten­tion on the part of the Legislature, this right is a limited one. The Board is given locus standi as a participant in the nature of an amicus curiae but not as a party. That this is so is made evident by s. 63(2) of The Public Utilities Board Act which reads as follows:

The party appealing shall, within ten days after the appeal has been set down, give to the parties affected by the appeal or the respective solicitors by whom the parties were represented before the Board, and to the secretary of the Board, notice in writing that the case has been set down to be heard in appeal, and the appeal shall be heard by the court of appeal as speedily as practicable.

Under s. 63(2) a distinction is drawn between "parties" who seek to appeal a decision of the Board or were represented before the Board, and the Board itself. The Board has a limited status before the Court, and may not be considered as a party, in the full sense of that term, to an appeal from its own decisions. In my view, this limitation is entirely proper. This limitation was no doubt consciously imposed by the Legislature in order to avoid placing an unfair burden on an appellant who, in the nature of things, must on another day and in another cause again submit itself to the rate fixing activities of the Board. It also recognizes the

[Page 709]

universal human frailties which are revealed when persons or organizations are placed in such adver­sarial positions.

This appeal involves an adjudication of the Board's decision on two grounds both of which involve the legality of administrative action. One of the two appellants is the Board itself, which through counsel presented detailed and elaborate arguments in support of its decision in favour of the Company. Such active and even aggressive participation can have no other effect than to discredit the impartiality of an administrative tri­bunal either in the case where the matter is referred back to it, or in future proceedings involv­ing similar interests and issues or the same parties. The Board is given a clear opportunity to make its point in its reasons for its decision, and it abuses one's notion of propriety to countenance its partici­pation as a full-fledged litigant in this Court, in complete adversarial confrontation with one of the principals in the contest before the Board itself in the first instance.

It has been the policy in this Court to limit the role of an administrative tribunal whose decision is at issue before the Court, even where the right to appear is given by statute, to an explanatory role with reference to the record before the Board and to the making of representations relating to jurisdiction. (Vide The Labour Relations Board of the Province of New Brunswick v. Eastern Bakeries Limited et al.[11]; The Labour Relations Board of Saskatchewan v. Dominion Fire Brick and Clay Products Limited et al.[12]) Where the right to appear and present arguments is granted, an administrative tribunal would be well advised to adhere to the principles enunciated by Aylesworth J.A. in International Association of Machinists v. Genaire Ltd. and Ontario Labour Relations Board[13], at pp. 589, 590:

[Page 710]

Clearly upon an appeal from the Board, counsel may appear on behalf of the Board and may present argu­ment to the appellate tribunal. We think in all propriety, however, such argument should be addressed not to the merits of the case as between the parties appearing before the Board, but rather to the jurisdiction or lack of jurisdiction of the Board, If argument by counsel for the Board is directed to such matters as we have indicated, the impartiality of the Board will be the better empha­sized and its dignity and authority the better preserved, while at the same time the appellate tribunal will have the advantage of any submissions as to jurisdiction which counsel for the Board may see fit to advance.

Where the parent or authorizing statute is silent as to the role or status of the tribunal in appeal or review proceedings, this Court has confined the tribunal strictly to the issue of its jurisdiction to make the order in question. (Vide Central Broadcasting Company Ltd. v. Canada Labour Rela­tions Board and International Brotherhood of Electrical Workers, Local Union No. 529[14].)

In the sense the term has been employed by me here, "jurisdiction" does not include the transgres­sion of the authority of a tribunal by its failure to adhere to the rules of natural justice. In such an issue, when it is joined by a party to proceedings before that tribunal in a review process, it is the tribunal which finds itself under examination. To allow an administrative board the opportunity to justify its action and indeed to vindicate itself would produce a spectacle not ordinarily contem­plated in our judicial traditions. In Canada Labour Relations Board v. Transair Ltd. et al.[15], Spence J. speaking on this point, stated at pp. 746-7:

It is true that the finding that an administrative tribunal has not acted in accord with the principles of natural justice has been used frequently to determine that the Board has declined to exercise its jurisdiction and therefore has had no jurisdiction to make the decision which it has purported to make. I am of the opinion, however, that this is a mere matter of technique in determining the jurisdiction of the Court to exercise the remedy of certiorari and is not a matter of the tribunal's defence of its jurisdiction. The issue of whether or not a board has

[Page 711]

acted in accordance with the principles of natural justice is surely not a matter upon which the Board, whose exercise of its functions is under attack, should debate, in appeal, as a protagonist and that issue should be fought out before the appellate or reviewing Court by the parties and not by the tribunal whose actions are under review.

There are other issues subordinate to the two principal submissions which I have discussed above but which are inappropriate for comment at this stage by reason of the disposition which I propose in respect to this appeal. I would dismiss the appeal with costs to the respondent The City of Edmonton as against the appellant Northwestern Utilities Limited. In the result, therefore, the matter would revert to the Board for a continua­tion of the processing of the application by the Company of August 20, 1975, involving, as discussed above, the ascertainment by any means appropriate to the provisions of the statute, the expenses estimated to be incurred in the future and to be therefore properly recoverable by the application of the rates to be established by the Board; and in the event that s. 31 be invoked for the ascertainment of only those expenses which had been incurred after the application of August 20, 1975. Any further analysis of the factual background and subordinate issues would, in view of this disposition, be inappropriate.

Appeal dismissed with costs.

Solicitors for the appellant, The Public Utilities Board for the Province of Alberta: Major, Caron & Co., Calgary.

Solicitors for the appellant, Northwestern Utilities Ltd.: Milner & Steer, Edmonton.

Solicitor for the respondent, The City of Edmonton: M. H. Patterson, Calgary.