Canadian Hydro Developers, Inc.

Decision 2005-070 Request for Review and Variance of Decision Contained in EUB Letter Dated April 14, 2003 Respecting the Price Payable for Power from the Belly River, St. Mary and Waterton Hydroelectric Plants For the 11 th and Subsequent Years of Their Contracts July 6, 2005

ALBERTA ENERGY AND UTILITIES BOARD Decision 2005-070: Review and Variance of Decision contained in EUB Letter dated April 14, 2003 Application No. 1301794 July 6, 2005 Published by Alberta Energy and Utilities Board 640 5 Avenue SW Calgary, Alberta T2P 3G4 Telephone: (403) 297-8311 Fax: (403) 297-7040 Web site: www.eub.gov.ab.ca

Contents 1 INTRODUCTION AND BACKGROUND... 1 1.1 Details of the Application... 1 1.2 EUB Process... 2 2 CRITERIA AND SCOPE OF REVIEW... 3 3 LEGISLATIVE REGIME... 4 4 EUB APRIL 14, 2003 DECISION... 5 5 SHOULD THE APRIL 2003 DECISION BE VARIED?... 6 5.1 Definition of Avoided Cost... 6 5.2 Is the SPRD Act Avoided Cost Concept Now Obsolete in Alberta s Restructured Industry?... 7 5.3 Review Panel Conclusion on Whether the April 2003 Decision Should be Varied... 11 6 ORDER... 12 EUB Decision 2005-070 (July 6, 2005) i

ALBERTA ENERGY AND UTILITIES BOARD Calgary Alberta CANADIAN HYDRO DEVELOPERS, INC. REQUEST FOR REVIEW AND VARIANCE OF DECISION Decision 2005-070 CONTAINED IN EUB LETTER DATED APRIL 14, 2003 Application No. 1301794 1 INTRODUCTION AND BACKGROUND By letter dated November 6, 2002, Canadian Hydro Developers Inc. (Canadian Hydro or CHD) requested the Alberta Energy and Utilities Board (EUB or Board) to set the price applicable to the Belly River Hydro Electric Plant contract for the 11 th and subsequent years of the contract. Canadian Hydro sought direction on the process the Board would use to determine utility avoided cost and on cost recovery in respect of that process. By letter dated April 14, 2003 (April 2003 Decision), the Board advised Canadian Hydro that because integrated utility companies no longer existed in Alberta s restructured electric industry the concept of utility avoided cost, as it related to electric energy generation, was no longer relevant or applicable in Alberta s deregulated generation environment. The Board considered section 4(3)(a) of the Small Power Research and Development Act, RSA 2000, c. S-9 (SPRD Act) to be obsolete and, consequently, the only possible choice for setting small power production contract (SPP Contract) prices in the 11 th and subsequent years was the method prescribed in section 4(3)(b) of the SPRD Act. The Board also advised Canadian Hydro that, while section 4(3) of the SPRD Act requires the Board to set the SPP Contract price for the 11 th and subsequent years of the contract, it did not prescribe a process for making a price determination. Given the Board s view on the obsolescence of utility avoided generation cost in Alberta s restructured electric industry, the Board considered that no process was needed in the circumstances. By letter dated May 14, 2003, Canadian Hydro filed Application 1301794 (Application) with the EUB requesting that the Board review and vary (R&V) certain aspects of the April 2003 Decision. 1.1 Details of the Application In the Application, Canadian Hydro submitted that the Board made procedural and substantive errors. Canadian Hydro noted that the Board issued the April 2003 Decision without providing Canadian Hydro, or any other parties, an opportunity to present submissions and without providing notice to any parties that the Board intended to make a decision regarding the SPP Contract price. Canadian Hydro submitted that in doing so, the Board made numerous procedural errors in violation of the rules of natural justice, which included: failing to give notice, including failing to comply with the Board s Rules of Practice to issue a Notice of Application or Notice of Hearing, and not providing a copy of the application to parties whose rights may be affected by a decision of the Board EUB Decision 2005-070 (July 6, 2005) 1

failing to allow Canadian Hydro a reasonable opportunity to know the case against it, the issues the Board was considering, and the facts upon which the Board was going to base its decision failing to allow Canadian Hydro an opportunity to submit argument on the issues and failing to respond to its request for procedural directions failing to allow all affected parties the right to be heard on this issue Canadian Hydro submitted that the Board made substantive errors in determining that utility avoided cost no longer existed. Canadian Hydro argued that the Board incorrectly relied on and interpreted the Small Power Inquiry, PUB Report E88001, ERCB Report 88-A, February 29, 1988 (the Small Power Inquiry Report) in reaching its decision on the meaning of utility avoided costs. Canadian Hydro submitted that the Board erred in law and jurisdiction by failing to follow the recommendations and methodology set out in the Small Power Inquiry Report. Canadian Hydro also argued that the Board erred in law in taking into account matters relating to industry restructuring that could not have been in the mind of the legislature when the SPRD Act was enacted. Further, Canadian Hydro submitted that weight should be given to the fact that the pricing provisions of the SPRD Act have not been amended since deregulation. Canadian Hydro also argued that the Board s decision had the effect of retroactively changing the SPP Contracts without jurisdiction. Canadian Hydro referred to s. 45.96 of the Electric Utilities Act S.A. 2003, c. E-5.1 (EUA) in support of this proposition and argued that the intent of this provision was that contracts should continue to be paid by the Balancing Pool. Canadian Hydro considered that the Board acted without jurisdiction by failing to set the SPP Contract price in accordance with the requirements of the SPRD Act. That is, either using utility avoided costs or the indexed price under section 4(3)(b). Canadian Hydro submitted that it would be prejudiced and would suffer damages because it will be deprived of the benefit following from the alternative pricing mechanisms contained in the SPRD Act. 1.2 EUB Process For the Application, the Board employed the two-step process that it normally uses when dealing with an R&V application. On March 4, 2004, the Board requested submissions from interested parties on the Application. This was to assist the Board in determining the R&V Phase 1 process question of whether a review should be undertaken based on whether the applicant established significant doubt as to the correctness of the decision according to the provisions of section 126(2) of the EUA and section 46 of the Board s Rules of Practice. The Board received a submission from the Industrial Power Consumers Association of Alberta (IPCAA). Letters were also received from the Balancing Pool, which advised it had no comment at that time, but wished to remain involved in the process, and from the FIRM Group of Customers who indicated they supported IPCAA s position. 2 EUB Decision 2005-070 (July 6, 2005)

By letter dated August 16, 2004, the Board advised interested parties to the Application that the Board had granted CHD s request for a review and was proceeding to the second stage (Phase 2) of the R&V process. The division of the Board assigned to review and decide Phase 2 of the Application (Review Panel) consisted of Board Member B. T. McManus, Q. C. (Presiding Member), Board Member R. G. Lock, P.Eng., and acting Board Member R. C. Clark. The Review Panel determined that the Phase 2 review would be conducted by way of a written process and that it would be helpful to receive submissions related to utility avoided cost in the restructured Alberta electric industry. The original schedule for submissions and reply submissions was significantly delayed due to the need for Board rulings on a number of procedural motions relating to the amount of Phase 1 information that should be used in Phase 2 and who should be responsible for participants costs. Following the Board procedural rulings, the Review Panel established the following schedule in a letter dated March 1, 2005 to complete the record of the proceeding. CHD Amendment or Refiling of its Phase II submission March 11, 2005 Submissions from Interested Parties March 29, 2005 Reply Submission from CHD, if any April 12, 2005 The Review Panel received Phase 2 submissions from CHD, the Balancing Pool, IPCAA and the FIRM Group of Customers on March 29, 2005 and a Reply Submission from CHD on April 12, 2005. Accordingly, the Review Panel considers that the record of this proceeding closed on April 12, 2005. This decision addresses the Review Panel s Phase 2 findings and determinations with respect to the Application. 2 CRITERIA AND SCOPE OF REVIEW To assist it in addressing the R&V Phase 2 question of whether the April 2003 Decision should be varied and, if so, how it should be varied, the Review Panel sought submissions from interested parties on the following questions: 1. Whether utility avoided cost as contemplated in the Small Power Research and Development Act exists in the context of the restructured Alberta electric industry. 2. If yes, how should utility avoided cost be determined. The Review Panel recognizes that the two questions posed to interested parties are interrelated. If the first question is answered in the negative, there is no need to address the second one. EUB Decision 2005-070 (July 6, 2005) 3

One of the criticisms of the April 2003 Decision was that the Board s determination was reached without the benefit of input from Canadian Hydro and other interested parties. The Review Panel will review the Board s determination in the April 2003 Decision with the full benefit of the submissions filed in response to the Board s request to determine whether the April 2003 Decision should be varied. In arriving at its decision the Review Panel must be guided by the provisions of section 126(2)(d) of the EUA, which states: 126(2) Any person affected by an order approving a tariff may ask the Board to review the order (d) if, in the Board s opinion, the order contains an error of fact or law, and if the request for a review on that ground is filed with the Board not later than 90 days after the making of the order. The Review Panel notes that Canadian Hydro filed the Application within the 90-day timeframe and that subsection (d) further requires that the Review Panel must find an error of fact or law before it can vary the determination in the April 2003 Decision. 3 LEGISLATIVE REGIME Subsequent to the enactment of the SPRD Act in 1989, some public utilities and small power producers entered into SPP Contracts pursuant to the SPRD Act. Where the term of an SPP Contract exceeds 10 years, section 4(3) of the SPRD Act obliges the EUB to set the price payable under the contract for the 11 th and subsequent years as follows: (3) Where the term of a small power production contract is greater than 10 years, the Public Utilities Board shall, during the 10th year of the contract, review and adjust the price payable for power delivered under the contract so that the price payable for the 11th year and subsequent years of the contract will be the greater of a) the utility avoided cost, and b) the price that would be payable during the 10 th year of the contract if determined under subsection (1)(b)(ii). Subsection 4(1)(b)(ii) of the SPRD Act applies primarily to SPP Contracts that have not yet reached the 11 th year of their contract term and the subsection states that a SPP Contract must: b) provide that the public utility is to pay to the small power producer in respect of power delivered under the contract for the first 10 years of the contract an amount per kilowatt hour determined by one of the following options: (ii) $0.0464 per kilowatt hour for power delivered in 1990 and, for power delivered in 1991 and subsequent years, a price per kilowatt hour based on $0.0464 and adjusted annually for inflation in the manner prescribed in the regulations. 4 EUB Decision 2005-070 (July 6, 2005)

The Small Power Research and Development Regulation, AR 336/88 (Regulation) provides the escalation factor used in subsection 4(1)(b)(ii). It states: 5.1 For the purposes of section 3(1)(b)(ii) (now s. 4) of the Act, the annual adjustment of the price for inflation shall be calculated on January 1 of each year by increasing the price for the previous calendar year by a percentage equal to the rate of inflation for that previous calendar year for Alberta as shown in the Alberta Consumer Price Index, All Items, published by Statistics Canada. Alberta Energy has been setting the price annually for the subsection 4(1)(b)(ii) escalated price option. In January 2005, the 2005 escalated price was set at 6.94 cents per kilowatt-hour. The Independent Power and Small Power Regulation, AR 285/95 and AR177/2000 were both passed to continue the SPP Contracts in the restructured industry environment. These regulations specify inter alia that the SPRD generators are to be deemed to have a standing offer of zero for any electric energy offered into the pool, and that additional incremental costs associated with a generator having to upgrade its metering, or any other reasonable costs that are incurred by the SPRD generator as a result of the coming into force of the EUA, or the regulations or amendments to the regulations would be paid by the Balancing Pool. The more recent Independent Power and Small Power Regulation AR 111/2003, which superseded and repealed AR 285/95, sets out among other things the financial obligations of the Balancing Pool to the utility that is the counterparty to SPP Contracts such as those held by CHD. Where the contract price exceeds the pool price in an hour, the Balancing Pool pays the difference to the utility. Where the contract price is less than the pool price in an hour, the Balancing Pool recovers the difference from the utility. Settlement is done on a monthly basis. The Balancing Pool is also responsible for paying the utility costs for administration of the SPP Contracts. 4 EUB APRIL 14, 2003 DECISION By letter dated November 6, 2002, CHD requested that the Board set the price under the Belly River contract for the 11 th year and subsequent years as required under the SPRD Act. Subsequently, by letter dated February 3, 2003, CHD requested the Board to also set the price for the St. Mary and Waterton contracts held by CHD. In response to CHD s request, the Board interpreted the words utility avoided costs contained in section 4(3)(a) of the SPRD Act. The Board s interpretation had regard for the structure of the electric industry at the time that the SPRD Act was enacted, and regard also for subsequent changes to the electric industry that occurred in the 1990s and early 2000s. On this basis, the Board found that legislative changes had rendered section 4(3)(a) of the SPRD Act meaningless and obsolete. Notwithstanding the Board s finding that section 4(3)(a) of the SPRD Act had no force or effect, the Board was still required by the SPRD Act to make a determination respecting price for the 11 th year and subsequent years of the CHD SPP Contracts. Therefore, the Board proceeded to do so according to the remaining price option defined by section 4(3)(b) of the SPRD Act. The Board declared the price for the 11 th and subsequent years of the CHD SPP Contracts to be the EUB Decision 2005-070 (July 6, 2005) 5

price that would be payable during the 10 th year of the contract, if determined under subsection 4(1)(b)(ii) of the SPRD Act 1. The Review Panel will now review the Board s determination with the benefit of the fullness of the Phase 2 submissions to determine whether the April 2003 Decision should be varied. 5 SHOULD THE APRIL 2003 DECISION BE VARIED? Before the Review Panel can vary the determination in the April 2003 Decision it must find that the Board made an error of fact or law in concluding that the concept of utility avoided cost contained in section 4(3)(a) of the SPRD Act was obsolete and, therefore, that section had no force or effect even though it continues to exist as law. To determine whether utility avoided cost as contemplated in the SPRD Act continues to exist in Alberta s restructured electric industry, the Review Panel must first clarify the meaning of this concept. 5.1 Definition of Avoided Cost In this regard, the SPRD Act is not very helpful. Although the SPRD Act requires the Board to use the utility avoided cost as one of the parameters in determining the price payable under an SPP Contract for the 11 th and subsequent years of the contract, the SPRD Act does not provide a definition of utility avoided cost. The Review Panel must therefore look to other sources to determine a reasonable definition of the term utility avoided cost that is used in the SPRD Act. One logical place to look for such a definition is in the Small Power Inquiry Report that was issued prior to the enactment of the SPRD Act and on which the SPRD Act is purportedly based. In that report, the PUB and ERCB 2 defined the term avoided cost as follows: The Boards accept that SPPs should receive fair value for the energy and capacity they would provide to the AIS as a substitute for what utilities would likely impose in their absence. In broad terms, this is commonly referred to as avoided cost. 3 CHD provided these additional definitions of avoided cost in its submission: and The cost the utility would incur but for the existence of an independent generator or other energy service option. Avoided cost rates have been used as the power purchase price utilities offer independent suppliers (Qualifying Facilities or QFs) 4 "Avoided Cost" is essentially the marginal cost for a public utility to produce one more unit of power. Because QFs reduce the utility's need to produce this additional power 1 2 3 4 This was clarified in a letter from the EUB dated April 15, 2003. The Small Power Inquiry was held in 1988 pursuant to Order in Council 211/87 that requested the Public Utilities Board (PUB) and the Energy Resources Conservation Board (ERCB) to inquire into, report upon, and make such recommendations as were necessary or advisable respecting electricity generation by small producers. Page 10, Small Power Inquiry, ERCB Report 88-A and PUB Report E88001, February 29, 1988. http://www.naruc.org/displaycommon.cfm?an=1&subarticlenbr=275 6 EUB Decision 2005-070 (July 6, 2005)

themselves, the price utilities pay for QF power has been set to the avoided, or marginal, cost. In California, the utilities' avoided costs are determined by the California Public Utilities Commission (CPUC) in public hearings. These prices are designed to simulate a "market price" for energy, and have helped make utilities more efficient in their operations. 5 Although the language is different in the three definitions above, the Review Panel considers all of these definitions to be similar in concept. Central to these definitions is the notion that the cost to be avoided is the cost related to energy and capacity that a utility company would otherwise provide. This is understandable given that these definitions were created in an environment where regulated utilities owned significant generation assets and had an obligation to provide service to end-use customers. This was certainly true at the time of the Small Power Inquiry into small power generation in 1987. For purposes of this Application, the Review Panel will adopt the essence of the definitions of utility avoided cost noted above. The Review Panel must now assess whether these definitions and the avoided cost concept they embody have endured the passage of time and more particularly the passage of the EUA in 1995, which deregulated the generation sector of the Alberta electric industry and removed generation from the definition of an electric utility. 5.2 Is the SPRD Act Avoided Cost Concept Now Obsolete in Alberta s Restructured Industry? The April 2003 Decision addressed this question as follows: Deregulation has resulted in industry restructuring and has brought competition to the Province s electric utility industry to replace regulation in the areas of electric energy production and retail markets. This has resulted in the elimination of the regulated market that bound together producer and consumer via the regulated integrated utilities. The market has been opened to independent power producers and independent retailers. For utilities this has meant that the traditional right and obligation to provide electric energy to all of their customers within each of their respective distribution service areas has been eliminated. It was the combination of that right and obligation to serve that provided the impetus for utilities to construct and operate generation facilities or otherwise contract for energy from other wholesale utility suppliers, subject to long-term contracts. Absent the regulated market, regulated utilities have ceased to plan, own or invest in generation facilities or to contract for the long-term supply of electric energy. Respecting customers, large industrial and commercial consumers have since January 1, 2001, wholly obtained their electrical energy supply in the deregulated market. The nonresidential Regulated Rate Option (RRO) for small industrial and commercial customers is scheduled to expire December 31, 2003, to be followed by the RRO for residential and farm customers on December 31, 2005. Respecting producers, determination of utility avoided cost 6 for pricing purposes, as reflected in the SPRD Act, was based on determination of Alberta Integrated System 5 6 http://www.iepa.com/avoid.asp Page 10, Small Power Inquiry, ERCB Report 88-A and PUB Report E88001, February 29, 1988 EUB Decision 2005-070 (July 6, 2005) 7

(AIS) long-term avoided costs in a completely regulated world as existed prior to 1996 and 2001, when the first and second rounds of deregulation and restructuring were implemented in Alberta. Consequently, for pricing purposes, utility avoided cost has been eliminated with the elimination of regulated electric energy planning, investment and production. Electric energy pricing is now market driven not cost driven. Thus, the concept of utility avoided cost has neither meaning nor application in the deregulated markets that now exist for both producers and consumers in Alberta. Submissions received from interveners indicated support for the Board s assessment in the April 2003 Decision and the conclusion that avoided cost was an obsolete concept in the restructured Alberta electric industry, thereby making it currently impossible to determine utility avoided cost for purposes of section 4(3)(a) of the SPRD Act. The Balancing Pool submitted that because of changes to the Alberta electric industry since the enactment of the SPRD Act, the concept of utility avoided cost, as the term is used in the SPRD Act, does not exist in Alberta s restructured industry. As such, utility avoided cost cannot be calculated. The Balancing Pool submitted that the Board s April 2003 Decision that the concept of utility avoided cost was obsolete was correct and need not be varied. IPCAA submitted that, in the April 2003 Decision, the Board carried out its statutory duties properly and fairly and arrived at the only reasonable alternative given today s environment. In IPCAA s view, it was not necessary to embark on what would be a lengthy, expensive and unnecessary hearing to define a term which no longer has reasonable meaning in Alberta due to changes that have occurred in the industry, particularly when a simple and clear alternative was provided in the SPRD Act. IPCAA submitted that the Board must apply some reasonableness test and if it does, trying to define utility avoided costs in today s environment fails that test. IPCAA submitted that the Application should be dismissed. The FIRM Customers agreed with IPCAA that utility avoided cost, as contemplated in the SPRD Act, does not exist in the context of the restructured Alberta industry because of industry changes that occurred subsequent to the enactment of the SPRD Act. The FIRM Customers submitted that the Application should be dismissed. The Review Panel finds persuasive the Board s analysis and the submissions of the interveners with respect to the existence of avoided cost, as contemplated in the SPRD Act, in the current Alberta market environment. The Board s reasoning was sound and the conclusions reached were reasonable and logical. There is no doubt that since the enactment of the SPRD Act in 1989, there has been a major reduction to the scope of the integrated utilities functions, particularly in the area of generation. In the Review Panel s view, this is cause in and of itself to seriously question whether utility avoided cost currently exists in Alberta with respect to the provision of energy and capacity to the Alberta electricity market. As noted previously, at the foundation of the avoided cost definitions is the notion that the cost to be avoided is the cost related to energy and capacity that a utility company would otherwise provide as a result of an obligation to provide such services. The EUA has created an 8 EUB Decision 2005-070 (July 6, 2005)

environment in which the market decides when new generation should be added. This has relieved the former integrated utilities from their obligation to provide energy and capacity for the benefit of the Alberta electricity consumers and for incurring costs to meet such obligations. This diminished role of the former integrated utilities in the Alberta electricity market is also reflected in the EUA by the exclusion of the ownership of generation in the definition of an electric utility. As a utility no longer has a need to incur generating capacity and energy costs, the cost that is contemplated to be avoided in the definitions, and by inference the SPRD Act, no longer exists. CHD submitted that utility avoided cost is a concept that had a recognized meaning at the time the contracts were entered into, and one that is still used in the industry and specifically recognized in the restructured industry structure in Alberta. In support of this position, CHD cited the Independent Assessment Team s determination of the Power Purchase Arrangements in Decisions U99913 and U99073 and the use of a proxy plant methodology in Decision 2002-103 for assessing a discretionary amount under Article 24.3(f) respecting 2001 compensation, which was similar to the proxy plant method proposed by the PUB and ERCB in the Small Power Inquiry Report. CHD appears to imply that the use in recent proceedings of parameters, assumptions, and methodology similar to those used to determine utility long run avoided costs in the Small Power Inquiry Report is proof that the utility avoided cost concept contemplated in the SPRD Act still exists in today s environment. The Review Panel notes that none of the proceedings cited by CHD dealt with either the concept or determination of utility avoided cost. Moreover, the use of the methodology in the instances cited was being applied to totally different concepts. The Review Panel cannot accept that the mere application of the methodology used to give effect to the utility avoided cost concept in the Small Power Inquiry is proof that utility avoided cost still exists. CHD also argued that because section 4(3)(a) of the SPRD Act continues to exist as law despite changes to the SPRD Act, then the concept of utility avoided cost under the SPRD Act must be presumed to continue to exist in today s environment. With respect, the Review Panel disagrees. There have been other instances when specific provisions of an Act have outlived their usefulness, but continued beyond the point where they were no longer relevant before they were eventually repealed. For example, in Decision 2002-45 the Board came to a similar conclusion with respect to the interpretation of a section of the Public Utilities Act and found that it had been rendered meaningless by subsequent changes to the Municipal Government Act. Consequential changes to a particular act or provision in the act resulting from changes to another act or due to the enactment of new legislation, sometimes get overlooked and the obsolete sections are repealed at a later point in time. Indeed, it is a recognized principle of statutory interpretation that legislative provisions may be rendered obsolete such that they have no force or effect because the facts that supported their adoption no longer exist or there are no longer any facts to which they can apply even though the provision in question has not yet been repealed or amended by the legislature. 7 The Review Panel notes that while there were consequential changes to the SPRD Act resulting from the enactment of the EUA, these changes appeared to be focused on the short term question of the continuation and administration of the SPP Contracts during the first 10 years of the contract term. The Review Panel considers that the 7 Sullivan and Driedger on the Construction of Statutes, 4 th ed., Ruth Sullivan (2002, Butterworths), p. 118-120 EUB Decision 2005-070 (July 6, 2005) 9

short-term focus of the SPRD Act amendment may be indicative of the fact that not much attention, if any, was given to the longer term pricing provisions contained in section 4(3). Accordingly, the Review Panel does not find CHD s argument regarding the continued existence of the concept of utility avoided cost in section 4(3)(a) to be persuasive. In the Review Panel s view, a provision within an act can continue as law even though the facts that originally supported its inclusion may no longer exist. In that case, it is not possible to give effect to the provisions of the section. The Review Panel believes this to be the case with section 4(3)(a) of the SPRD Act as a result of the enactment of the EUA subsequent to the enactment of the SPRD Act. CHD also argued that in failing to set a price for the SPP Contracts based on utility avoided cost, the Board has frustrated the SPP Contracts and the intent of the SPRD Act. With regard to the SPP Contracts themselves, CHD submitted that the price setting method in the SPRD Act requires a determination of the greater of the two prices, not a choice between them. Failing to set a price based on utility avoided cost frustrates the SPP Contracts because the contract price can no longer be determined as intended by the parties, which CHD submits was to allow small power producers to get the benefit of a pricing mechanism that ensured the compensation for the power produced by them remained current over the life of the SPP Contracts with terms greater than 10 years. In regard to the intent of the SPRD Act, CHD argued that the Board imposed its own view of the appropriate pricing mechanism, contrary to section 4(3). As a result, the legislative intent of encouraging investment by small power developers in the industry has been frustrated because the price-setting incentive mechanism in section 4(3) of the SPRD Act is no longer available. CHD further argued that the Board failed to apply a liberal or remedial interpretation that would best attain the objectives of the SPRD Act by failing or refusing to determine the utility avoided cost when setting the price of the SPP Contract. In response to CHD s arguments, the Balancing Pool submitted that CHD s discussion was irrelevant as it incorrectly proceeded on the assumption that utility avoided cost does exist in the deregulated environment. The Balancing Pool argued that the Board, in its April 2003 Decision, did not refuse to abide by the plain meaning of section 4(3)(a) of the SPRD Act because the Board determined that the concept of utility avoided cost was obsolete. Having made that determination, the Board could not employ a concept that no longer existed, and therefore, the Board did not fail to properly interpret the SPRD Act. The Review Panel agrees with CHD that in construing legislation, the Board is to apply ordinary principles of statutory interpretation. These include giving statutory language its plain and ordinary meaning having regard to its context, and applying a broad purposive approach. The Board must also interpret provisions in different enactments with similar subject matter so as to avoid conflict between them. In this case, the Board was faced with a provision in the SPRD Act that it had to interpret, giving consideration to the legislative scheme in the EUA which establishes the overall scheme under which small power producers operate pursuant to the SPRD Act. If the Review Panel were to find that utility avoided cost existed, the Review Panel agrees with CHD that it would be an error if it did not consider this in accordance with section 4(3) of the SPRD Act. However, for the reasons articulated above, the Review Panel has determined that utility avoided cost does not 10 EUB Decision 2005-070 (July 6, 2005)

exist in light of the EUA and the resulting changes to the electric industry. The Review Panel does not agree with CHD that applying a broad, liberal and remedial approach to interpreting the SPRD Act requires the Board to necessarily ascribe some meaning to section 4(3)(a). CHD is essentially asking the Review Panel to come up with new parameters for the determination of utility avoided cost since the parameters no longer exist for determining utility avoided cost in the manner intended at the time the SPRD Act was enacted. The Review Panel is of the view that to ascribe a new meaning to utility avoided cost would go beyond applying a liberal and remedial interpretation and would be tantamount to rewriting the legislation. Therefore, setting the price based on section 4(3)(a) is not a option that can be exercised by the Board. 5.3 Review Panel Conclusion on Whether the April 2003 Decision Should be Varied The Review Panel finds that, notwithstanding the lack of input from CHD and other interested parties, the reasoning in the April 2003 Decision was sound and the conclusions reached were reasonable. The Review Panel finds that the concept of utility avoided cost as contemplated in the SPRD Act has not survived the changes to the Alberta electric industry that have occurred since the SPRD Act came into force. This concept is no longer relevant or meaningful in the current restructured Alberta electricity market. Therefore, even though section 4(3)(a) of the SPRD Act continues as law, it has no force or effect because the facts supporting it no longer exist. As a practical matter, section 4(3)(a) of the SPRD Act is not available to the Board as an option when setting the price payable under a SPP Contract for the 11 th year and subsequent years of such contracts. With the inability to apply section 4(3)(a) of the SPRD Act, the only recourse for the Board to discharge its responsibilities under section 4(3) of the SPRD Act is by way of section 4(3)(b). In the April 2003 Decision, the Board applied section 4(3)(b) of the SPRD Act and declared a price for the 11 th and subsequent years of the CHD SPP Contracts. For all of these reasons, the Review Panel sees no need to vary the Board s April 2003 Decision respecting the price for the 11 th year and subsequent years under the Belly River, St. Mary and Waterton contracts held by CHD. EUB Decision 2005-070 (July 6, 2005) 11

6 ORDER For and subject to the reasons set out in this Decision, IT IS HEREBY ORDERED THAT Canadian Hydro s request to vary EUB Decision dated April 14, 2003 is denied. Dated in Calgary, Alberta on July 6, 2005. ALBERTA ENERGY AND UTILITIES BOARD (original signed by) B. T. McManus, Q.C. Presiding Member (original signed by) R. G. Lock, P.Eng. Member (original signed by) R. C. Clark Acting Member 12 EUB Decision 2005-070 (July 6, 2005)