Supreme Court Rulings Squeeze Utility Workers

Posted on September 25, 2015

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Once every decade or so, the Supreme Court of Canada issues a decision in the field of utility regulation. These are invariably landmark cases that have a huge impact on the regulation of energy and other utilities across the country, and the tens of billions of dollars that these public and private companies collect from Canadian customers each year. These decisions are very important not only for the companies and their customers, but also for their employees.

Two Supreme Court rulings released today are about utility workers’ pay and benefits. One was about compensation costs in the collective agreement covering Ontario nuclear plant employees, and the other was about pension cost-of-living adjustments at ATCO, a large private utility in Alberta.

These decisions change the rules for utilities to pass on to customers the cost of their management’s decisions about operations as well as investment in plant and other capital. They turn the tables on utility companies and give regulators (like our Utilities Commission here in BC) greater leeway to reject requests to pass on costs to customers.

This is a highly technical area of law where only a small number of BC lawyers practice. Any attempt to explain the decision in detail would take a much longer article than you are likely interested in reading; the full texts are to be found here and here.

Until now, these employer costs were generally seen as automatic “flow-through” items that could be passed on to customers with little risk of being rolled back by regulators. After all, the companies are entitled to recover their operating costs through their rates, and to make a profit on their investment in facilities, wires, pipes, and other assets. The decisions make the right to recover workforce costs – even where they flow from freely negotiated or arbitrated collective agreements – less certain. The companies will have to demonstrate that their wage levels and pension plans, for example, are “reasonable.”

The Ontario Energy Board decided that Ontario Power Generation’s nuclear plant employees were paid more than their counterparts elsewhere; the Alberta Utilities Commission decided that a 100% COLA for pensioners was too rich, given that the plan was in an actuarial shortfall (after years of employer contribution holidays). The regulators rolled back the rates the companies wanted to charge customers, to slice off a portion of those workforce costs.

The Supreme Court rejected the prevailing rule that management decisions are presumed to be reasonable, and cannot be questioned on the basis of hindsight. The decisions also loosen the right of utility companies to recover their operating and capital costs on a year-by-year basis and turn this entitlement into a more long-term question. This allows the regulators to pinch the companies’ finances in the short term to pressure them to change their practices and reduce costs in the longer run – in these cases, by squeezing their employees and pensioners.

What will this mean in British Columbia? The rules for utility regulation vary from province to province. There is room for lawyers to argue that our local laws change the end result here. But we can be sure that utilities will rely on these decisions to support hard lines at the bargaining table.

Employees of BC Crown corporations that are under the Utilities Commission (BC Hydro and ICBC) are more clearly buffered from these decisions because they are covered by the Public Sector Employers Act. Their employers come to the table with targets and standards set by the provincial government. That makes it harder for the Utilities Commission to question the reasonableness of contract settlements.

For privately-owned utilities, like FortisBC and Pacific Northern Gas, this buffer is not available. Fortis is already squeezing its workforce very hard to maximize financial bonuses to its shareholders under its current regulatory set-up, at its employees’ expense.

We can be sure that utility management is looking closely at these two court decisions, and recalibrating their approach to employees and their unions. Perhaps the most important lesson is how important it is for utility workers’ unions to pay attention to their employers’ regulatory processes, which will have an increasing impact on the workplace.

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