FortisBC is the dominant natural gas service provider in British Columbia, serving nearly a million customers in over 135 communities in the province.¹ It is a public utility regulated by the British Columbia Utilities Commission (BCUC), under the Utilities Commission Act.²

In a series of applications since 2009 FortisBC has sought BCUC orders allowing it to develop and expand service to natural gas-powered vehicles  (NGVs).³  The   BCUC’s   responses to those applications have been marked by a consistent concern to ensure no incremental burden on FortisBC’s non-bypass customers – those mostly smaller residential and commercial customers with no practical alternative to monopoly natural gas service. This concern has been maintained even as the province has expressed increasing levels of commitment to NGV fuel-switching as a means to further its greenhouse gas (GHG) reduction policies.⁴ That is, subject to the specific requirements of recent enactments, the BCUC has not embraced  the  policy  objective  of  expanding NGV service, at least at the potential cost to FortisBC’s non-bypass customers. This case comment looks at recent NGV decisions of the BCUC against the backdrop of evolving NGV policy and concludes that it has done no more than apply the traditional regulatory framework, and that any failure  to  advance the provincial policy objectives beyond that framework was quite predictable.

BFI Canada Inc. Application

On February 29, 2012, FortisBC applied to the BCUC for approval to construct and operate a compressed natural gas fuelling  station  at the premises of a customer, BFI Canada Inc. (BFI). BFI operates a fleet of waste collection trucks powered by natural gas. FortisBC also applied for approval of the rates to be charged to the customer. After a short written process, the BCUC approved the construction of the facilities, but flatly refused to approve the proposed NGV rates on the basis that they failed to recover the full cost of service.⁵ Of particular import was the fact that under the UCA, the sale of compressed or liquefied natural gas is not a public utility service, except insofar as it is provided by an entity already a public utility.⁶ Had FortisBC not already been a regulated public utility, it would not have needed any BCUC approvals to establish the new NGV service.  In  these  circumstances, the BCUC’s concern was to ensure that FortisBC’s non-bypass customers faced no more cost or risk exposure than if FortisBC’s NGV service had in fact been unregulated. A further apparent concern of the BCUC was fairness to unregulated would-be competitors of FortisBC.⁷

Provincial Natural Gas Policy and GHG Regulation

More or less contemporaneously with the hearing of the BFI application, British Columbia announced a new  policy  focus on the development of natural gas resources in British Columbia, which cites the substitution of natural gas for diesel fuel for fleet use.⁸ Consistent with and further to the policy statement, the province also issued the Greenhouse Gas Reduction (Clean Energy) Regulation in May 2012 (GHG Regulation).⁹ Among other things, the GHG Regulation describes four NGV initiatives that FortisBC may undertake and which, pursuant to section 18 of the Clean Energy Act, the BCUC may not interfere with. Further, the BCUC is obliged to allow FortisBC to recover the costs of those NGV initiatives in its regulated rates up to $104.5 million in a five-year period.¹⁰ Each of the policy statement, section 18 of the Clean Energy Act, and the GHG Regulation are silent on the allocation between FortisBC’s customers of those costs. However, the implicit effect of the enactments is to impose on non-bypass customers the risk that NGV customer revenue will be less than the cost of service.

Reconsideration of BFI Decision

Upon application by FortisBC, and in light of the newly expressed natural gas policy and the GHG Regulation, the BCUC reconsidered the BFI decision.¹¹ In doing so the BCUC considered and rejected the argument of FortisBC that the GHG Regulation was necessarily to be understood as a provincial policy favouring further subsidization by non-bypass customers in favour of FortisBC’s would-be NGV customers: “However,  a further intent of the  Regulation  is  arguably to limit the potential subsidies provided by a utility’s ratepayers to finance eligible  natural gas vehicles and build CNG/LNG[¹²] fueling infrastructure….”¹³ One argument that seems not to have been raised is that subsidies in favour  of  NGV  customers  would   reduce the risk to bypass customers of  NGV  load not materializing. In the result, the BCUC re-affirmed its earlier conclusion that non- bypass customers should be kept whole from the costs of a service offering that could be provided in a competitive marketplace by non- regulated entities subject only to the mandated assumption of NGV revenue risk. It varied its earlier orders in minor ways, and allowed FortisBC to file a new rate proposal.

In November 2012 FortisBC applied  again for BCUC approval of its NGV rate for BFI. Once again the BCUC was critical of FortisBC arguments that supported relatively low cost allocations to NGV customers, and reiterated again its concern for the protection of non- NGV customers. With regard to the GHG Regulation, the BCUC wrote: “The Greenhouse Gas Reduction Regulation (GHG Regulation) specifically limits the amounts  which  can be spent on incentives, including incentives relating to safety practices, as well as costs related to administration, marketing, training and education. In the Panel’s view, it is not reasonable to allocate the majority of general overhead costs relating to the NGT (NGV) market to non-bypass customers (non-NGV customers) without regard to specific activities. To the extent that any portion of such costs are sought to be borne by non-bypass customers, these costs should be specifically identified and accounted for as expenditures pursuant to the Greenhouse Gas Reduction Regulation and not buried in broader overhead.”¹⁴

Discussion

The BCUC’s NGV decisions can be understood, in part, as resistance to the argument that government policy statements, at least insofar as they are manifest in legislative exemptions from normal regulatory processes, ought to necessarily inform the BCUC’s exercise of discretion. In the main, this seems appropriate, in circumstances where the legislative exemption is focussed and discrete and the BCUC’s otherwise applicable scope of discretion is quite broad, as has been the case in the NGV proceedings. Under the UCA, and indeed the enabling statutes of many utility regulators, the BCUC does not simply approve rates, it determines and sets them.¹⁵ Rather than simply an oversight function, rate-setting is a primary responsibility of the regulator, not the utility (or the province). Commensurate with that responsibility comes a broad discretion. Where that discretion is restricted by enactment in the narrow circumstances of a particular initiative – NGV rates, in this case – one would think that the independence that regulators enjoy does not simply allow but in fact requires them to read no more into the policy impetus underlying the enactment than is consistent with the exercise of its statutory obligations. In its NGV decisions the BCUC has not required bypass customers to subsidize NGV customers any more than required by law. In so doing it has given full effect to both the GHG Regulation and its over-arching statutory obligations in a foreseeable and even predicable way.

* Jeff Christian is currently head of the Litigation Group at Lawson Lundell. Mr. Christian is a litigation partner in the Vancouver office, with a practice focused on energy and regulated utilities. He appears regularly before administrative tribunals such as the British Columbia Utilities Commission. In addition, he has acted for clients in the insurance, manufacturing and retail sectors at all levels of court, in arbitrations and in mediations.