Prudency review required before deferred revenue can be recovered

June 17, 2010

In a decision released on June 3, 2010, the Ontario Court of Appeal upheld orders of the Ontario Energy Board and the Divisional Court that deny Great Lakes Power (GLP) recovery of approximately $15 million from its customers because the underlying costs had not been subject to a prudency review.

The appeal related to a portion of GLP's revenue requirement that had been voluntarily deferred between 2002 and 2007 to avoid rate shock to its customers.  The underlying costs did not undergo a full prudency review by the Board because of the "rate freeze" implemented by Bill 210 in 2002.  GLP refused to submit to a prudency review when it sought recovery of these amounts in its 2007 rate application.  GLP argued that the Board had approved the costs in a 2002 interim order and was foreclosed from revisiting those costs by Bill 210.  The Board disagreed with GLP's interpretation of the 2002 interim order and denied recovery in the absence of a prudency review.  The Board's decision was affirmed by the Divisional Court in July 2009. A full description of the case appeared in the August 2009 edition of our Energy Update. 

In affirming the decisions of the Board and Divisional Court, the Court of Appeal ruled that the Board is entitled to deference when interpreting its own orders as that task calls upon the Board's expertise and policy considerations.  Further, the Court agreed that the costs at issue were not approved by the 2002 interim order and could not be recovered in the absence of a prudency review by the Board.  In dismissing GLP's pleas that the result was unfair, the Court noted that GLP was ignoring those parts of Bill 210 that allowed for a prudency review of the deferred amounts and had "made a conscious decision to forego a prudency review" in its 2007 application.

Glenn Zacher and Patrick Duffy represented the Ontario Energy Board before the Divisional Court and the Court of Appeal.

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