Cite as: Atlantic Provinces Trucking Association v. Halifax-Dartmouth Bridge Commission, 1994 NSCA 17
C.A. No. 02891
NOVA SCOTIA COURT OF APPEAL Jones, Chipman and Pugsley, JJ.A.
BE1WEEN: ATLANTIC PROVINCES TRUCKING ) Peter G. Green, Q. C. ASSOCIATION ) and ) Usa M. Welton Appellant ) for the Appellant ) - and· ) ) HALIFAX-DARTMOUTH BRIDGE ) John S. Stringer COMMISSION ) Richard J. Freeman ) for the Respondent ) Respondent ) ) ) ) ) ) Appeal Heard: ) December 7, 1993 ) ) ) Judgment Delivered: ) January 26, 1994 THE COURT: The appeal is dismissed as per reasons for judgment of Chipman, J.A; Jones, J.A., concurring and Pugsley, J.A, dissenting, by separate reasons.
CHIPMAN, .loA.: This is an appeal by Atlantic Provinces Trucking Association from a decision of the Nova Scotia Utility and Review Board dated July 20, 1993 following an application by Halifax-Dartmouth Bridge Commission for increases in truck and bus tolls. By virtue of s. 30 of the Utility and Review Board Act, S.N.S. 1992, c. 11, an appeal lies to this Court from an order of the Board upon any question as to its jurisdiction or upon any question of law. By its decision, the Board approved, effective August 3, 1993, increases in Class 2, 3 & 4 truck tolls in the amount of 75% for cash and 76.5% for tokens. The Commission is a body corporate by virtue of the Halifax-Dartmouth Bridge Commission Act, R.S.N.S. 1989, c. 192 (the H,D,B.C. Act). The Commission is authorized to construct, maintain and operate the Angus L. Macdonald and A Murray MacKay Bridges spanning Halifax Harbour. By virtue of s. 24(1) of the H.D.B.C. Act, the Commission is deemed to be a public utility within the meaning of and subject to the provisions of the Public Utilities Act, R.S.N.S. 1989, c. 380 except in relation to certain aspects of capital expenditures, financing and annual depreciation. The Commission is therefore required to secure the approval of the Board of tolls charged by it for vehicles using those bridges. The cash toll for automobiles had been $.25 since 1959. In 1982, the automobile token fare was increased from $.20 to $.25, eliminating the token discount. There was no change in fares for trucks or buses at that time. Automobile cash fares were increased from $.25 to $.50 in 1989, an increase of 100% and to $.75 in 1992, a further 50% increase. Automobile token fares increased from $.25 to $.40 in 1989, an increase of 60%
2 and to $.60 in 1992, a further 50% increase. In 1987, truck customer classes were restructured and truck rates increased substantially for the first time since 1975. For example,· the cash fare for Class 4 - the heaviest class - increased from $1.25 to $3.00, an increase of 140%, the token fare being increased at the same time by 139%. Truck rates have not been increased since 1987. Bus fares were decreased in 1987 and have remained unchanged since. By petition dated August 19, 1992, the Commission applied for approval of changes to its tolls with respect to Class 2, 3, 4 and 5 vehicles - trucks and buses. The appellant was concerned with respect to trucks which are Class 2, 3 and 4 vehicles. The Commission sought increases ranging from 100% for Class 2 trucks effective January 1, 1993 to 200% for Class 4 trucks effective January 1, 1994. The appellant was a formal intervenor at the hearings of the Board which were held on November 9, 10, 12, 13 and December 16, 1992 and Janua,ry 20, 1993. As well, there were two other formal intervenors and five informal intervenors. All were in opposition to the proposed toll increases. The Board reviewed the application of the Commission which was based on cost studies which allocated operating, maintenance and administration costs (OMA) and debt service costs to the various vehicle classes. The Commission's position was that toll rates must be sufficient to meet all costs, including financing costs. It said that the current tolls were insufficient and that under the current toll structure, trucks were not paying their fair share. The Commission submitted that the proposed rates were just and reasonable as among customer classes and reflected the costs incurred on behalf of each of those classes. The appellant opposed the application focusing on the economic position of
3 the trucking industry, an analysis of the rate base of the Commission, other financial analyses presented by the intervenors and the large foreign exchange losses incurred by the Commission on its financing. Commencing in 1969, the Commission embarked upon a program of borrowing in foreign currencies. It turned out to be a disaster as a result of large increases in the exchange rate of such currencies. As a result of foreign exchange losses, the largest annual expenditure of the Commission was on debt service charges and debt repayment. Of the total debt of the Commission outstanding of $100 million, $54.7 million resulted from foreign exchange losses. The total capital cost of the two bridges was $48.8 million and this amount included $17.3 million representing the cost of approach roads subsequently transferred to the Province of Nova Scotia. The Commission's large debt brought about by the heavy foreign exchange losses was a major subject of contention at the hearing before the Board and is at the heart of the principal issues in this appeal. In 1991, the Commission took steps to convert its indebtedness from foreign currency to Canadian dollars. It borrowed $100 million from the Bank of Montreal, the proceeds of which were used in large part to redeem the existing loan denominated in Swiss Francs. The loan from the Bank of Montreal is for ten years with an interest rate of 11%. The Commission is required to pay $11 million annually in interest and must deposit a further $5 million annually into a sinking fund. Thus the annual cost of servicing the debt is $16 million. The Commission projected its total operating costs in 1992 and 1993 to be
4 $20.8 million and $20.7 million respectively, which amounts included the cost of debt financing of $16 million annually. Thus, approximately 77% of the Commission's projected operating costs directly related to the debt financing. At existing toll levels, the Commission projected deficits of $1.6 million in 1992, $1.2 million in 1993 and $1.3 million in 1994. The borrowings of the Commission are subject to the approval of the Governor-in-Council. The Province may guarantee the bonds or debentures issued by the Commission. The current Bank of Montreal financing is secured by a debenture guaranteed by the Province. With respect to the borrowing costs of the Commission, the appellant and the other intervenors submitted to the Board that the foreign exchange losses should be absorbed by the Province as the owner/investor of the Commission. It urged that the users of the bridge should not. be responsible for the excessive losses resulting from the Commission's decision to finance in foreign currencies. The position of the Commission on the other hand was that rates must be sufficient to adequately reflect the cost of the service, which cost included the financing costs incurred by the Commission. The financing of the bridge was not within the jurisdiction of the Board. Having been excluded by virtue of s. 24(1) of the H.D.B.C. Act, such financing was determined by the Commission with the approval of the Governor in Council. That section provides: "24(1) The Commission shall be deemed to be a public utility within the meaning of the Public Utilities Act and shall be subject to the provisions of the Public Utilities Act, provided, however, that the provisions of that Act relating to new construction, improvements or betterments in, or extensions or additions to the property of a public utility and relating to the
5 issuance of shares, stocks, bonds, debentures or any evidence of indebtedness issued by a public utility shall not apply to the Commission, and further provided that the provisions of that Act relating to the provisions of proper and adequate annual depreciation of its property and assets and the setting up, maintaining, use and disposal of depreciation reserve funds shall not apply to the Commission."
As the Board pointed out, the Commission is a public utility but is not fully regulated. The Board quoted from its decision of January 30, 1992 which approved the latest automobile toll increases: "The Board also recognizes the need to repay the existing debt in a reasonable period of time. The debt ballooned over the years and now is approximate twice the original cost of the bridges. The Board, however, is not convinced that the sins of the past must be wiped out in ten years as proposed by the Commission. The Board is also fully aware that under the Halifax-Dartmouth Bridge Commission Act it has no authority to approve either the borrowing or the capital expenditures under the Bridge Commission. However, it is charged with the duty of setting tolls which are just and reasonable. On the one hand, any tolls approved by the Board .must enable the
Commission to properly operate and maintain the bridges and repay its long term debt over a period of time. On the other hand, tolls must be set in accordance with accepted public utility accounting principles."
The Board then, with s. 24(1) of the H.D.B.C. Act in mind, stated: "It appears that the Legislature intended that the Board would be concerned with the quality of service and the setting of rates which are just and reasonable, and that the Board would not be concerned with the prudency of capital expenditures or the nature and amount of capital indebtedness. The Board is also unable to relate rates, tolls and charges to a rate base which normally would be determined by the Board."
The Board then stated that with regard to the $54.7 million in foreign
6 exchange losses that had contributed to the outstanding debt, the Board's jurisdiction did not cover any aspects of the Commission's financing decisions and, therefore, the Board was obliged to consider the Commission responsible for this debt. The Board then referred to the argument of the intervenors that the ten year repayment schedule under the terms of the 1991 loan from the Bank of Montreal was too ambitious, and that the revenues necessary to retire the debt should be collected over a longer period, up to 30 years. The Board concluded that the amortization period proposed by the Commission was unreasonably short in view of the projected life of the assets.. Referring again to its decision of January 30, 1992, the Board affirmed that the recovery of costs associated with major capital improvement should be made insofar as possible over the lives. of those improvements. The Board was of the same opinion with respect to outstanding debt and was not prepared to approve rates that would permit the amortization sought by the appellant. The Board determined a just and reasonable rate schedule to both the Commission and the users of the bridge (given the restraints placed on the Board's authority to regulate the Commission) to be that which provided for truck toll increases of 75% and 76.5% for cash and token rates respectively. The Board declined to make any changes in either the customer classes or in the tolls to be paid by buses. It directed the Commission to reapply to the Board for approval of new bus rates. The appellant asserted four grounds of appeal which may be restated as follows: (1) That the Board erred in concluding that its jurisdiction did not cover
7 any aspect of the financing decisions of the Commission. (2) That the Board erred in failing to remove or consider removing the foreign exchange losses from the factors to be considered in setting the Class 2, 3 and 4 truck tolls. (3) That the Board failed to properly consider all relevant evidence, particularly the negative impact of the rate increases on the trucking industry and, in allowing the increases for the Class 2, 3 and 4 truck tolls, erred in making findings that were patently unreasonable. FIRST ISSUE The appellant's first argument fastens on the Board's statement that its jurisdiction does not cover any aspects of the Commission's financing decisions. In the Board's own words: "Similarly, with regard to the $54.7 million in foreign exchange losses that has contributed to the outstanding debt, the Board's jurisdiction does not cover any aspects of the Commission's financing decisions and therefore the Board must consider that the Commission is responsible for this amount of debt."
The Board, in making this statement, had in mind s. 24(1) of the H.D.B.C. Act, as well as s. 11 and s. 18 thereof which give the Commission wide borrowing powers, with the approval of the Governor in Council. I cannot take exception to the impugned statement of the Board. I do not take the statement, as the appellant appears to do, as meaning that financing decisions and the impact thereof are entirely irrelevant in the setting of tolls. The provisions of s. 24(1) are clear. The Board simply has no jurisdiction over the Commission's financing and,
8 specifically, did not have jurisdiction over or any hand in the creation of the large debt which resulted from the foreign borrowings. It does not follow from this, however, that the Board, in arriving at just and reasonable tolls, is obliged to ignore the existence of this indebtedness and the burden it places upon the Commission. It did not, in fact, do so. While the Board in its decision was not concerned with the wisdom of the foreign exchange borrowings in the sense that it could have prevented or controlled them, it was very much concerned with their consequences, which could not be ignored in setting the tolls. The Board's decision, read as a whole, makes this clear. With respect, the appellant is reading too much into the impugned statement. The appellant also takes issue with the following statement of the Board which I repeat: lilt appears that the Legislature intended that the Board would be concerned with the quality of service and the setting of rates that are just and reasonable, and that the Board would not be concerned with the prudency of capital expenditures or the nature and the amount of capital indebtedness. The Board is also unable to relate rates. tolls and charges to a rate base which normally would be determined by the Board."
(emphasis added) In dealing with an application to set the Commission's tolls, the Board is governed not only by the H.D.B.C. Act but by the Public Utilities Act. The following sections of the Public Utilities Act must be considered: "42 (1) The Board shall fix and determine a separate rate base for each type or kind of service furnished, rendered or supplied to the public by a public utility.
9 (2) In establishing a rate base the Board shall determine the value of the physical assets of the public utility in accordance with the provisions of this Act, including in such value the actual reasonable and necessary cost of labour and supervision up to and including gang foreman, and the Board may, in its discretion, make allowances for the following matters, and such other matters as the Board deems appropriate:
(a) necessaty working capital; (b) organization expenses to the extent of such sum as the public utility may establish to the satisfaction of the Board to have been reasonably and prudently expended out of capital account in respect of organization expenses as defined by the regulations of the Board;
(c) construction overheads to the extent of such sum as the public utility may establish to the satisfaction of the Board to have been reasonably and prudently expended out of capital account in respect of engineering, superintendence, legal services, taxes and interest during construction, and like matters not included in the valuation of the physical assets;
(d) expenses of valuations to the extent of such sums as may have been expended in respect of a valuation by the Board and, with the approval of the Board, charged to capital account;
(e) costs in whole or in part of land aCQuired in reasonable anticipation of future reQuirements.
43 Where any public utility furnishes, renders or supplies more than one type or kind of service, the Board shall segregate such types or kinds of service into distinct classes or categories of service, and, for the purposes of determining the rate base for a particular service furnished, rendered or supplied, and for the purpose of annual and other returns or
10 reports to be made to the Board, each distinct class or category of service shall be considered as a separate and self-contained unit, the rate base for which shall be determined and fixed without regard to the rate base determined and fixed for any other unit.
44 The Board may make from time to time such orders as it deems just in respect to the tolls, rates and charges to be paid to any public utility for services rendered or facilities provided, and amend or rescind such orders or make new orders in substitution therefor.
45 (1) Every public utility shall be entitled to earn annually such return as the Board deems just and reasonable on the rate base as fixed and determined by the Board for each type or kind of service furnished, rendered or supplied by such public utility, provided, however, that where the Board by order requires a public utility to set aside annually any sum for or towards an amortization fund or other special reserve in respect of any service furnished, rendered or supplied, and does not in such order or in a subsequent order authorize such sum or any part thereof to be charged as an operating expense in connection with such service, such sum or part thereof shall be deducted from the amount which otherwise under this Section such public utility would be entitled to earn in respect of such service, and the net earnings from such service shall be reduced accordingly.
(2) Such return shall be in addition to such exPenses as the Board may allow as reasonable and prudent and properly chargeable to operating account, and to all just allowances made by the Board according to this Act and the rules and regulations of the Board."
(emphasis added) It should be observed that s. 42(2) was amended by S.N.S. 1992, c. 8, s. 35(5) which amendment came into force on December 14, 1992. Prior thereto the provision for the five listed allowances was preceded by these words: "... and the Board may, in its discretion, make allowances for the following matters and for these only:"
11 The Board has jurisdiction, subject to s. 24 of the H.D.B.C. Act, to fix the Commission's tolls. See s. 44(1) of the Public Utilities Act, supra, and s. 7(1) of the H.D.B.C. Act. Section 24(1) of the H.D.B.C. Act excludes four elements. They are: (a) construction, improvements or betterments to the property of a public utility; (b) the issuance of shares, stocks, bonds, debentures or any evidence of indebtedness issued by a utility; (c) the provision of proper and adequate annual depreciation; and (d) the use and disposal of depreciation reserve funds. In applying the provisions of the Public Utilities Act to the Bridge Commission the Board must, of course, read them together and keep in mind the effect of the exclusions of these elements. However, because the Board must ignore these elements, it does not follow that the conditions that result from them are not relevant to be considered by the Board in carrying out the duties imposed by it with respect to the Commission under the Public Utilities Act. I have set out the principal sections. In Public Utilities Board v. Nova Scotia Power Corporation et ale (1976), 18 N.S.R. (2d) 692, this Court acknowledged that utility rates must cover the cost of the service provided and include a profit margin sufficient to achieve and maintain the sound financial position of a utility. MacKeigan, C,J.N.S. described the scheme of regulation at pp. 702-3: liThe scheme of regulation established by the Act envisages and indeed compels control by the Board of all aspects of a utility's operation in providing a controlled service. Two great objects are enshrined - that all rates charged must be just, reasonable and sufficient and not discriminatory or preferential, and that the service must be adequately, efficiently and reasonably
12 supplied to the public. Almost all provisions of the Act are directed toward securing these two objects - that a public utility give adequate service and charge only reasonable and just rates.
Rates must be '~ust" (s. 41) [now s. 44] and must not be unreasonable or unjustly discriminatory (s. 18 and s. 78(1», or "unjust, unreasonable, insufficient or unjustly discriminatory or ... preferential" (s. 82(1» [now s. 83(1)]. The "justness" of rates has two aspects - rates of a utility as a whole must be "reasonable" and just for the public it serves and just and "sufficient" for the utility itself - and the rates for the various customers or classes of customers of a utility must not as between each other be "unjustly discriminatory" or "preferential"."
MacKeigan, C.l.N.S. referred to the control of the overall level of rates as having its keystone in s. 42(1), now s. 45.(1) quoted above. He stated that the rate base of a utility is established by the Board determining the value of the physical assets of the utility which are used and useful in furnishing, rendering or supplying a particular service to or for the public (s. 29(1), now s. 30(1». MacKeigan, C.l.N.S. continued at p. 704: "The concept of a utility securing a reasonable return on its rate base automatically makes specific the apparent vague standard that rates be "just". The utility'S economic health and its ability to supply adequate service and to finance capital exPansion are assured by giving it a "just and reasonable" return. Overall rates must thus be sufficient to produce that return after allowing operating expenses and other "just allowances" (s. 42(2» [now s. 45(2) set out above]. The rates must thus be "sufficient" to produce that return, no less and no more."
Subject to these specific requirements of the Public Utilities Act, the strength of the general rate making power under s. 44 is, as MacKeigan, C.J.N.S. said at p. 702, "sweeping".
13 On the hearing before us, counsel for the appellant shifted the focus of his argument somewhat by submitting that the Board made a major error by saying: "... The Board is also unable to relate rates, tolls and charges to a rate base which normally would be determined by the Board."
Was the Board correct in so saying? In Northwestern Utilities Ltd. v. City of Edmonton et at. , [1929] S.C.R. 186 at p. 190, Lamont, J. said in connection with utilities regulation: "In order to fix just and reasonable rates, which it was the duty of the Board to fix, the Board had to consider certain elements which must always be taken into account in fixing a rate which is fair and reasonable to the consumer and to the company. One of these is the rate base, by which is meant the amount which the Board considers the owner of the utility has invested in the enterprise and on which he is entitled to a fair return. Another is the percentage to be allowed as a fair return."
At p. 192 Lamont, J. continued: "The duty of the Board was to fix fair and reasonable rates; rates which, under the circumstances, would be fair to the consumer on the one hand, and which, on the other hand, would secure to the company a fair return for the capital invested ... In fixing this net return the Board should take into
consideration the rate of interest which the company is obliged to pay upon its bonds as a result of having to sell them at a time when the rate of interest payable thereon exceeded that payable on bonds issued at the time of the hearing ..."
In establishing a rate base under s. 42 of the Public Utilities Act, the Board must value the assets of the utility in accordance with the provisions of that Act. Section 30 requires the Board to inquire into and determine the extent, condition and value of the whole or any portion of property and assets of a public utility used and useful in furnishing or rendering a service to the public. Section 30(2) determines the factors to be used in the
14 valuation: "30 (2) The Board shall determine the value of such property and assets on the basis of the prudent original cost thereof or by such other method as the Board may from time to time prescribe~ deducting therefrom the amount of the accrued depreciation of such property and the assets as determined by the Board."
The phrase "prudent original cost" is used in the context of the Public Utilities Act which requires a public utility to secure the approval of the Board for new construction or additions to its property or for significant financing: "35 No public utility shall proceed with any new constructio~ improvements or betterments in or extensions or additions to its property used or useful in furnishing~ rendering or supplying any service which requires the expenditure of more than $5~000 without first securing the approval thereof by the Board.
74(1) No public utility shall issue any shares~ stocks~ bonds~ debentures or any evidence of indebtedness payable in more than one year from the date thereof~ except as in subsection (2) provided~ unless it has obtained approval from the Board for such proposed issue."
In the context of the Commissio~ the exercise required by s. 30 assumes an air of unreality in the face of the exclusion of the effect of these provisions as a result Of s. 24(1) of the H.D.B.C. Act. Not only has the Board lost control over the Commission~s acquisitions and financing~ but the requirement of s. 38 of the Public Utilities Act that a utility make provision for proper and adequate depreciation as determined by the Board is excluded from the regulation process. The Board~s authority over depreciation reserve funds by virtue of s. 39 is also excluded. This came about as a result of an amendment to s. 24(1) (then s. 22(1» by S.N.S. 1969~ c. 20. Previous to that~ orders of the Board had required the
15 Commission to make proper and adequate depreciation of its property and assets in amounts fixed by the Board and to make additions to its depreciation fund. Under s. 25(1) of the H.D.B.C. Act the Board may take into account depreciation of property that the Commission wishes to provide, set aside and maintain. That is now the extent of the Board's jurisdiction respecting depreciation. likewise, the matters enumerated in s. 42(2) involve, for the most part, considerations by the Board which are excluded by reason of s. 24(1) of the H.D.B.C. Act. In Nova Scotia Power Corporation, supra, MacKeigan, C.l.N.S. said at p. 705: "The public interest charges the Board with a duty of insuring no extravagance by a utility in either capital or operating expenditure. The rate base is to include only assets "used and useful" in providing service (s. 29(1». Additions to it are controlled by the requirement that Board approval be secured for any new construction project of more than $5,000 (s. 34 as amended). The expenses for rate making purposes are only those the Board allows "as reasonable and prudent and properly chargeable to operating account" (s. 42(2». Other "just allowances" are prescribed by the Act and regulations, ego annual depreciation charges (ss. 35-38).
A rate base, of course, constantly changes, as plant depreciates, is withdrawn from service or is extended or improved."
Additions to the Commission's rate base are not controlled nor is depreciation nor, realistically, expenses under s. 45(2), in view of the Board's total lack of control over the former two. In short, an examination of the relevant legislation leads to the conclusion that the Board simply cannot, for practical purposes, determine the value of the physical assets of the Commission in accordance with the provisions of the Public Utilities Act. The
16 addition in 1976 to s. 30(2) of the Public Utilities Act of the words "or by such other method as the Board may from time to time prescribe" (S.N.S. 1976, c. 32, s. 1) does not convince me that the Legislature thereby intended to alter the scheme it had created for the Commission. In the face of all this, I conclude that the unique statutory scheme of regulation applicable to the Commission which is found in a mix of the provisions of the H.D.B.C. Act and the Public Utilities Act does not require the determination of a rate base in the traditional manner applicable to other public utilities. The Board, in its 1975 and subsequent decisions respecting the Commission, has taken this approach and, in my view, was correct in so doing. Thus the Board was entitled to proceed as it did, focusing instead on what were just and reasonable tolls to be charged by the Commission in the circumstances of its expenditures and indebtedness, all of which were incurred without the Board's jurisdiction or control. The Board did a balancing exercise with respect to the interests of the utility and the public when it said: 'The Board is of the opinion that the amortization period proposed by the applicant is unreasonably short in view of the projected life of the assets. In its decision of January 30, 1992 the Board said that it was '... firmly of the opinion that recovery of costs associated with major capital improvements should be made insofar as possible over the lives of those improvements'. The Board is of the same opinion with respect to outstanding debt and consequently will not approve rates that will permit the amortization period sought by the applicant."
In doing so, the Board addressed the two requirements of reasonableness for the public and sufficiency for the Commission which it was required to do under the
17 legislation. I believe that the Board correctly perceived its mandate. I would thus reject the appellant's contention that the Board erred in exercising its jurisdiction. SECOND AND THIRD ISSUES These two issues can be conveniently dealt with together. The burden is on the appellant to show that the Board erred in law or jurisdiction in approving the Class 2, 3 and 4 truck tolls resulting in increases of 75% and 76.5% for cash and token rates respectively. In approaching this issue, we must keep in mind s. 26 of the Utility and Review Board Act, S.N.S. 1992, c. 11: "26 The finding or determination of the Board upon a question of fact within its jurisdiction is binding and conclusive."
While the appellant submits that in allowing the increases the Board erred in making findings which were patently unreasonable, an examination of the record and the Board's decision makes abundantly clear that the appellant is asking this court to retry the issue determined by the Board. We are not entitled to do so and are limited to considering a question as to jurisdiction of the Board or a question of law. The appellant complains that there is a Jack of analysis by the Board of the toll setting process that was undertaken. In my opinion, the analysis carried out by the Board was sufficient. It gave what weight it considered appropriate to debt servicing costs in setting the rate. As pointed out the Board balanced, as it was required to do, the reasonableness for the public and the sufficiency for the Commission of the tolls to be set.
18 In so doing, no error of law or jurisdiction on its part has been demonstrated by the appellant. In particular, the interest expense resulting from the foreign exchange losses was a part of the Commission's revenue requirements. It was incurred with respect to property which was used or useful in furnishing the service of the Commission to its users. The Board was entitled to take this expense into account. The appellant has failed to demonstrate that in the setting of the tolls, the Board made any patently unreasonable finding. I would reject the appellant's submissions on these two issues. In the result, I would dismiss the appeal with costs in the amount of $2,500.
J.A Concurred in: Jones, JA~ •
19 PUGSLEY, .loA.: (Dissenting) I have had the benefit of reasons of Justice Chipman. I adopt his summary of the facts and I am in agreement with his conclusion that the "unique statutory scheme" found in the provisions of the Halifax-Dartmouth Bridge Commission Act (H.D.B.C. Act) and the Public Utilities Act does not require the determination of a rate base in the traditional manner applicable to other public utilities. I am also in agreement with his conclusions respecting the second and third issues, as he has defined them. I respectfully disagree with his conclusion respecting the Board's decision that it cannot consider the prudency of capital expenditures or the nature and the amount of capital indebtedness. BACKGROUND: The Halifax-Dartmouth Bridge Commission is a creature of statute and was constituted to "construct, maintain and operate" a bridge across Halifax Harbour between the two cities of Halifax and Dartmouth. The Angus L. Macdonald Bridge costing $11.5 million was opened for traffic in 1955. With the approval of the Governor in Council, the Commission constructed a second bridge, the A Murray MacKay Bridge; which opened in 1970, at a total cost of approximately $36 million. In July, 1991, the Commission refinanced its long term debt and borrowed $100 million from the Bank of Montreal. The loan is secured by a debenture guaranteed
20 by the Province. Approximately 55% of the long term debt is the result of foreign exchange losses incurred as the result of a decision to finance its capital debt in German deutsche marks and subsequently Swiss francs. The Commission is deemed under s. 24(1) of the statute to be a public utility. It is therefore subject to the provisions of the Public Utilities Act, provided that: "... the provisions of that Act relating to new construction, improvements or betterments in, or extensions or additions to the property of a public utility and relating to the issuance of shares, stocks, bonds, debentures or any evidence of indebtedness issued by a public utility shall not apply to the Commission, and further provided that the provisions of that Act relating to the provision of proper and adequate annual depreciation of its property and assets and the setting up, maintaining, use and disposal of reserve funds shall not apply to the Commission." (S. 24(1) of the Halifax-Dartmouth Bridge Commission Act).
The Public Utilities Act empowers the Board to have the "general supervision of all public utilities", which by statute includes the Commission. (S. 18 of the Public Utilities Act). MANDATE OF THE BOARD: The Board is required to "fix and determine a separate rate base for each type or kind of service furnished, rendered or supplied to the public". (S. 42(1) of the Public Utilities Act). In the course of carrying out that instruction, the Board may: "Make from time to time such orders as it deems just in respect to the tolls, rates and charges to be paid to any public utility for services rendered ..." (S. 44 of the Public Utilities Act).
21 These, and other sections of the Public Utilities Act, influenced MacKeigan, C.1.N.S. in Public Utilities Board v. Nova Scotia Power Corporation (1976), 18 N.S.R. (2d) 692 to conclude, at 802: "The scheme of regulation established by the Act envisages and indeed compels control by the Board of all aspects of a utilities operation in providing a controlled service. Two great objects are enshrined - that all rates charged must be just, reasonable and sufficient and not discriminatory or preferential, and that the service must be· adequately, efficiently and reasonably supplied to the public. Almost all provisions in the Act are directed securing these two objects - that a public utility give adequate service and charge only reasonable and just rates."
(Emphasis Added) These comments in the circumstances existing in the present appeal, must be interpreted, of course, in the context of the H.D.B.C. Act, in particular, s. 24(1) and s. 74 of the Public Utilities Act. I note that both counsel agreed that the only specific provisions of the Public Utilities Act relevant to this appeal, to which one is directed by s. 24(1) of the H.D.B.C. Act, are those set forth in s. 74 of the Public Utilities Act. The heading of that section reads: "Approval for issue of certain securities." The following subsections are relevant: Section 74(1): "No public utility shall issue any shares, stocks, bonds, debentures or any evidence of indebtedness payable in more than one year from the date hereof except as in subsection (2) provided unless it has obtained approval from the Board for such proposed issue."
22 Order of approval: Section 74(4): "After hearing such application and when satisfied that the proposed issue by a public utility of its shares, stocks, bonds, debentures or other evidence of indebtedness is to be made in accordance with law and for a purpose approved by the Board, it shall be the duty of the Board to make an order approving the proposed issue to such amount as it deems proper, and also to prescribe the purpose to which the same or the proceeds thereof shall be applied."
THE BOARD'S DECISION: The Board determined: "It appears that the Legislature intended that the Board would be concerned with the quality of service and the setting of rates that are just and reasonable and that the Board would not be concerned with the prudency of capital expenditures or the nature and amount of capital indebtedness ...
Similiarly, with regard to the $54.7 million in foreign exchange losses that has contributed to the outstanding debt, the Board's jurisdiction does not cover any aspects of the Commission's financing decisions and therefore the Board must consider that the Commission is responsible for this amount of debt."
(Emphasis Added) ISSUE: Has the Board, in carrying out its mandate to determine a just and reasonable rate, declined jurisdiction by refusing to consider: (1) the nature and amount of the capital indebtedness; as well as (2) the prudence, or lack of same, that led to the financing decisions to borrow in foreign markets? APPELLANT'S SUBMISSIONS:
23 The appellant makes the following arguments: (1) The provisions of s. 24(1) excluded from the Board's area of regulation do not apply to the setting of tolls, but only the approval of the issuance of debt instruments. The Board's conclusion that it is not "concerned" with the prudency of capital expenditures is inconsistentwith the power and mandate to supervise all public utilities set forth in s. 18 of the Public Utilities Act, and to set rates which are just and reasonable. (2) The Board's refusal to remove, or to consider removing, the foreign exchange losses as a cost factor in approving truck toll increases constitutes a jurisdictional error. THE ROLE OF THE PROVINCIAL GOVERNMENT: Part of the thrust of the appellant's submission relies on the close inter relationship between the Commission and the Government of Nova Scotia. An examination of the H.D.B.C. Act reveals that the activities of the Commission are, to a significant degree, indirectly influenced by the government or subject to the approval of the Governor in Council: the Commission consists of nine members, five of whom are appointed by the Governor in Council; the remuneration of all members is determined by the Governor in Council; bylaws must be approved by the Governor in Council before they come into effect; the Commission has the power to construct, maintain and operate
24 additional bridges across Halifax Harbour and the Northwest Arm, but only with the approval of the Governor in Council; the Commission may borrow, raise or secure the payment of funds subject to the approval of the Governor in Council; the Commission may sell property and assets, not required for the purposes of the Commission, provided permission from the Governor in Council's is first obtained; the Co~ssion only has power to borrow and to issue or sell bonds or debentures after it has obtained the approval of the Governor in Council; the Province of Nova Scotia may unconditionally guarantee bonds or debentures; the Province, after all bond and indebtedness of the Commission has been retired, after repayment to the two Municipal units of Halifax-Dartmouth and Halifax County of any amounts advanced pursuant to agreement, and after assuming all obligations to the Commission, may acquire all the undertaking of the Commission. In the Commission's incorporating statute (c. 7, Acts of 1950) it is provided: "Section 17: The Province may unconditionally guarantee the bonds or debentures as to principle and interest issued by the Commission for the objects of the Commission in an aggregate amount not exceeding $7,000,000." (In 1976 the words "in an aggregate amount not exceeding $7,000,000" were struck - S.N.S. 1976, c. 18).
Section 18: The Commission shall, if the Province has guaranteed the bonds
25 and debentures of the Commission, and if the Commission is unable to pay the interest or principle or interest or principle on any bonds and debentures issued for the purposes of the Commission, demand from the Provincial Treasurer and the Provincial Treasurer shall pay the amount of such interest or principle or interest and principle which the Commission is unable to pay."
The history of the relationship between the Province and the Commission is set out in a decision filed in 1975 (Application by Halifax-Dartmouth Bridge Commission for an increase in tolls, rate and charges, February 18, 1975). Some of the salient points include the following: "In the early years of operation of the Angus L. Macdonald Bridge, the amount of operating revenues needed to pay operating expenses including depreciation and provide a return sufficient to meet debt servicing resulted in just and reasonable rates, tolls and charges that could be measured by public utility standards".
The 1972 Annual Report of the Commission records that "the Commission advised the Government of Nova Scotia of its intention to apply to the Board of Commissioners of Public Utilities for approval of increases in rates, tolls and charges" in view of the very large deficit incurred in the year 1971"; that an exhaustive study into the financial affairs of the Commission had been undertaken by the Commission and its auditors "in conjunction with the Department of Finance, Province of Nova Scotia"; that "the Premier requested the Commission to defer action on its application for an increase pending the result of the stUdy"; that "The Honourable Gerald A Regan, Premier of Nova Scotia, on August 10, 1972, advised the Commission on behalf of the Province that studies indicated that projections of increases in toll revenues, the decisive factor, could not be determined with any degree of reliability at this time and that a period of a year or two would be
26 required to determine with accuracy the financial needs of the Commission"; that "under these circumstances the Premier requested that the Commission defer action on an application for an increase in tolls until the financial position of the Commission was resolved and that until this time the Province of Nova Scotia would reimburse the Commission for current deficits as provided under the Halifax-Dartmouth Bridge Commission Act"; "that the Commission was happy to accept the proposal of the Province of Nova Scotia and has deferred indefinitely any application for an increase in tolls, rates and charges"; that "the 1971 deficit of $1,327,675.85 was paid by the Province to the Commission and shown in the financial statement as "Contributed Surplus"; that the "1972 deficiency was paid by the Province to the Commission and shown in the financial statement as an increase in "Contributed Surplus"; that, "the 1973 deficit of the Commission amounted to $2,459,714 made up of an operating loss of $1,239,513 and a currency exchange loss on the retirement of the German loan of $1.220.201 ... additional information supplied to the Board by the Commission indicates that the 1973 deficiency has been paid by the Province to the Commission and has been added to "Contributed Surplus"; (Emphasis Added). The Board concluded its resume of the history of the activities of the Commission by stating: "These and other developments and practices have convinced the Board that the operation by the Commission of the two bridges is no longer a public utility operation by a Commission originally created for the purpose of constructing and operating a bridge between Halifax and Dartmouth."
The Province, in the opinion of the Board, had: "become a partner with the users of the bridges and must be expected to make a contribution to the financial need of the
27 Commission by the continued payment of annual deficits." (Emphasis Added) It is pertinent that s. 18 of the incorporating statute was repealed in 1983 and the following substituted: "The Minister of Finance may pay such amounts as are appropriated for the purpose or, with the approval of the Governor in Council, advance to the Commission such amounts as the Minister may from time to time consider necessary."
This Court has determined that the Commission "is, in effect, an arm of government" (McLachlin v. The Halifax-Dartmouth Bridge Commission, C.A No. 02054, November 9, 1993 at p. 13). OPINION: The Commission, in support of its application for an increase in rates, adduced evidence before the Board from the Commission staff as well as experts. The procedure followed was consistent with that established in previous hearings. In an earlier decision, the Board commented: "When an application is made to this Board for approval of revisions of rates, tolls and charges designed to produce additional revenue, the public utility is required to produce evidence showing the needs and purposes for which such additional revenue is required and upon any such application the Board inquires into and examines the adequacy and the reasonableness of existing services, the efficiency of the public utility, the nature and extent of the needs and purposes upon which the application is grounded, and the priority of the proposed rate changes."
(Application for increase in rates, Maritime Telegraph and Telephone Limited,
28 February 25, 1970, p. 23). Basil Gordon, General Manager of the Commission, was asked how the Commission justified recovering the foreign exchange loss from the users. His response is revealing: "I have no answer for that." The Board's comment that "it can be argued that foreign exchange losses have no direct connection to the original cost of the bridges" reflects Mr. Gordon's difficulty in responding to the question directed. Donald Leet, a Chartered Accountant, called as an expert witness on behalf of the appellant, testified that the foreign exchange loss had been incurred through no fault of the users, that the province played a role similar to that of a shareholder in a private corporation, and should bear the losses resulting from the foreign exchange venture. Support for this opinion is found in American rate hearings involving privately owned utilities. In Re Colorado· UTE Electric Association Inc., (1989), 108 PUR (4th) 432 the Colorado Public Utilities Commission, after advice from its staff that the rates charged by Colorado-UTE may not be 'Just and reasonable" (the statutory standard) conducted an investigation of the 14 member cooperative. The cooperative had a negative equity of approximately $30 million and the cash received from operations did not meet its expenses. After concluding that the cooperative had not "experienced the degree of sound financial management necessary to achieve a stable corporate structure", the
29 Commission commented: "If this Commission were to raise rates to a level that would permit Colorado-UTE to repay its defaulted debts, the effect would be to require a contributional substitution of capital from ratepayers in order to allow the creditors to recoup all or part of their investment. This would be contrary to the universal and well-established rule that a utilities investors not its consumers must contribute to the utilities capital."
One starts with the concept that the Commission is a public utility subject to the Public Utilities Act and that its operations are regulated in all matters by the Board, except for the four areas carved out in s. 24(1) of the H.D.B.C. Act. Section 74 of the Public Utilities Act, in my opinion, only relieves the Commission from obtaining Board approval prior to incurring any indebtedness payable in more than one. year. In effect, the Governor in Council has assumed a role somewhat analogous to that of the Board by virtue of the provisions of s. 18 of the H.D.B.C. Act: "(the Commission, with the approval of the Governor in Council shall have power and is hereby authorized to borrow from time to time such sums as it may require for the purposes of the Commission and to issue or sell bonds and debentures therefore and may secure such bonds and debentures or other borrowings by mortgage or deed of trust or otherwise on the revenues and real and personal property and undertaking of the Commission, including after acquired property)".
(Emphasis Added) The Board determined that it would not be concerned with the "nature and amount of capital indebtedness". What if the Commission had lost $250 million in its foreign exchange dealings rather than $54 million? Should the users be expected to shoulder that burden? Only if it was just and reasonable for the users to bear it, and the answer to that question should
30 be based upon evidence adduced before the Board. The issue was not of such critical concern to the users of the bridge until after the 1983 amendment which repealed s. 18 of the 1950 Act and gave to the government a discretion concerning the advancing of funds to the Commission. Prior to that time, the Province paid the "deficiency". The role played by the Province as a partner with, or investor in, the Commission, and the indirect, if not, direct benefit that all citizens of the Province receive from the two bridges, are matters that the Board ought to consider when determining if it is just and reasonable to place the burden of the foreign exchange losses on the users alone. The Board, in its refusal to consider the role of the Province, as well as the nature and amount of capital indebtedness, in my opinion, has wrongfully declined jurisdiction. I am also of the opinion that the Board's refusal to consider the "prudency" of incurring the indebtedness constitutes a wrongful declining of jurisdiction. The provisions of s. 24(1) of the H.D.H.C. Act relieve the Commission from obtaining prior approval for the issue of any "bonds, debentures or any evidence of indebtedness payable in more than one year from the date thereof'. Section 24(1) does not mean, nor does it state, that the Board is not permitted to review the borrowing transaction in its search to determine what is a just and reasonable rate for the users. I do not agree with the appellant's submission that the Board committed a jurisdictional error by refusing to eliminate foreign exchange losses before considering
31 increases to be passed on to the appellant, but I do conclude that the Board's refusal to consider the matter at all constituted an error of law. Without prejudging all of the evidence that might be relevant on issues of this kind, evidence relating to the following ought to be considered: (1) . What information was before the Province and/or the Commissionwith respect to the advantages and/or disadvantages in borrowing in foreign markets at the time the loans were incurred? (2) What part did the Province play in the decision to borrow in foreign markets? I would remit the matter to the Board to set the tolls for the Class 2, 3 and 4 trucks, after consideration of the directions in this opinion, and in accordance with the • requirements of the H.D.B.C. Act and the Public Utilities Act.
l.A
July 20, 1993 PRO~CEOFNOVASCOTIA NOVA SCOTIA UTILITY AND REVIEW BOARD - and IN THE MAlTER OF THE PUBUC UTILITIES ACf AND THE HALIFAX-DARTMOUTH BRIDGE COMMISSION ACT
- and-IN THE MATIER OF AN APPLICAnON OF THE HALIFAX-DARTMOUTH BRIDGE COMMISSION FOR AN INCREASE TO ITS CURRENT CASH AND TOKEN FARES FOR TRUCKS AND PUBLIC PASSENGER VEHICLFS AFFECTING VEHICLE . CLASSES 2,3,4 AND S. , BEFORE: R.A. Robertson, F.C.A., Chair L.D. Garber, Vice-ehair J.L. Harris, Q.C., Member C.l. McManus, P.Eng., Member
COUNSEL: BRIDGE COMMISSION John D. Stringer. ... Bernard F. Miller
ACADIAN LINES LTD. & AIRPORT TRANSFER LID. Dawna J. Ring
ATLANTIC PROVINCES TRUCKERS ASSOCIAnON Peter Green, Q.C. Jill Wry, Articled Clerk
NOVA SCOTIA UTILITY AND REVIEW BOARD Richard Melanson
DocUlDeDt: 4CI
BRIDGE92.DEC '1 - 1 ! j ~..
C.A No. 02891 NOVA SCOTIA COURT OF APPEAL BE1WEEN: ) ) ATLANTIC PROVINCES ) mUCKING ASSOCIATION ) ) REASONS FOR Appellant ) JUDGMENT ) BY: • and· ) ) CHIPMAN, JA HALIFAX-DARTMOUTH ) PUSGLEY, J.A BRIDGE COMMISSION ) (Dissenting) ) Respondent. )