ALBERTA ENERGY AND UTILITIES BOARD Calgary, Alberta CANADIAN WESTERN NATURAL GAS COMPANY LIMITED REDWOOD MEADOWS RIDER ‘B’ 1. BACKGROUND TO THE APPLICATION Decision U99011 Application 980311 File 5626-31
Canadian Western Natural Gas Company Limited (CWNG) filed an application (the Application) dated 3 June 1998 with the Alberta Energy and Utilities Board (the Board) for approval for an addition to CWNG’s Rider “B” to be recovered from customers residing in the Townsite of Redwood Meadows (Redwood Meadows or the Townsite). A Rider “B” provides the means for CWNG to recover from customers resident in municipalities specific costs that are not generally incurred by the utility, including any property tax that is assessed in the specific municipality under the Municipal Government Act. The Rider “B” charges are collected by applying a percentage to the estimated gross revenue from the specific municipality. CWNG stated that the addition to its Rider “B” was required because the Tsuu T’ina Nation (the Nation, formerly the Sarcee Band) was levying a 1998 property tax of $9,085 on CWNG’s gas distribution system within the boundaries of Redwood Meadows. Since the tax was unique to Redwood Meadows, CWNG expressed the view that the tax should be recovered from residents within the community. The Tsuu T’ina Nation’s lands comprising Redwood Meadows were conditionally surrendered in 1974 to the Federal government (the Crown) by way of a 75 year head lease. The Crown, in turn, leased the lands to Sarcee Developments Ltd. (SDL), a company wholly-owned and controlled by the Nation, which sub-leased individual plots of land to persons desirous of building homes in Redwood Meadows. As a result, the Townsite of Redwood Meadows was originally created in 1976. The lands will revert back to the Nation at the expiry of the 75-year term pursuant to the provisions of the head lease (the expiry date is September 5, 2049). In 1988, a contract was established between SDL and the Townsite of Redwood Meadows Administration Society (the Society), assigning various powers and responsibilities to the Society (the Administration Agreement). Some of the assignments included taxation, policing, fiscal control and any services that a normal municipality would perform. In the Application, CWNG requested approval for levying a surcharge of 5.58 per cent on forecast revenue of $162,840 over the period 1 August 1998 to 31 January 1999. Similar to other assessments provided for on Rider “B”, the additional Rider “B”
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assessment would be reconciled and revised effective 1 February 1999, reflecting the recovery of the 1999 tax assessment over the subsequent 12 month period. According to CWNG estimates, an annualized Rider “B” for Redwood Meadows would represent a surcharge of approximately 3% for 1999 and beyond, assuming a taxation level and revenue base similar to 1998. By letter dated 9 June 1998, Redwood Meadows filed a submission with the Board, registering an objection to the Rider “B” addition proposed by CWNG. Redwood Meadows stated that it did not agree with CWNG’s intention to recover the tax levied by the Nation from the residents of the community. In its objection, Redwood Meadows argued that the taxation was the result of an agreement struck between CWNG and the Nation that had no bearing, benefit or connection to the individual residents, or the legal body governing Redwood Meadows. Redwood Meadows also argued that the community should not be penalized by the fact that there was an existing agreement in place requiring CWNG to pay taxes to the Nation. Initially, the Board decided to consider the Application at an oral hearing on 20 August 1998. However, in a letter dated 31 July 1998, CWNG requested that the Board give consideration to a written proceeding instead of the scheduled oral hearing. Redwood Meadows agreed with this proposal. As a result, the Board decided to grant the request to consider the Application via a written proceeding. While the Nation did not initially make submissions to the Board regarding the taxation of CWNG’s gas distribution system within Redwood Meadows, in a letter dated 9 October 1998, the Nation provided its position with respect to the matter. The Nation stated that it had the authority to levy property tax within Redwood Meadows. It stated further that while Redwood Meadows was entitled to levy a tax, that tax would be in the form of a services recovery tax for the specific services it provides pursuant to the Administration Agreement. On 10 May 1999, the Board issued a letter to the Nation seeking further clarification from the Nation regarding the nature and effect of the several transactions that have resulted in the creation of Redwood Meadows. The Board confirmed that its enquiry and the additional information obtained would assist it in determining the competing contentions over the authority to impose a tax on the CWNG facilities within Redwood Meadows. The written proceeding was extended as a result of this request for more information regarding the matter of taxation. In a letter dated 3 June 1999, the Nation responded to the Board’s request for additional information. In the letter, the Nation discussed and summarized the nature and effect of the transactions that precipitated the creation of Redwood Meadows. The Nation reiterated that it had the right to tax interests in land in Tsuu T’ina Reserve Number 145. In a letter to the Board dated 29 June 1999, CWNG amended its original Application (the Amended Application) with respect to the implementation date of the Rider “B”, changing the date to 1 January 2000. As a result of the revision, CWNG requested
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approval for recovering the 2000 tax assessment during the year 2000. CWNG revised the effective date so as to allow it some time to provide a reasonable notice to the Townsite citizens prior to introducing the adjustment on their bills. On 14 August 1998, CWNG and related companies applied for an order or orders of the Board approving a reorganization to be completed in the early part of 2000. Effective 26 April 1999, the gas distribution business of CWNG began to be conducted publicly under the name of ATCO Gas.
ISSUES RAISED BY THE PARTIES The Authority of the Tsuu T’ina Nation to Impose Taxes on CWNG’s Facilities located within The Townsite of Redwood Meadows
Townsite of Redwood Meadows Redwood Meadows argued that it obtained the exclusive right to impose taxes on the lands comprising the Townsite by virtue of the terms of the Administration Agreement. Redwood Meadows pointed out that the clear intention of the Administration Agreement was to assign the fiscal control, including the implementation of taxes on utility assets located with its boundaries, to itself. Thus, the authority to impose such taxes was essential to its obligations under the Administration Agreement in order to operate and administer general services to the Townsite in the same manner as other municipalities in Alberta. One of the services was the provision of utilities. CWNG and the Tsuu T’ina Nation Both CWNG and the Tsuu T’ina Nation submitted that the Nation possessed the requisite authority to impose a tax on utility facilities located within the boundary of Redwood Meadows on the basis of section 83 of the Indian Act. This section empowers the Nation, upon the passing of a taxing by-law, with the authority to tax all interests held by persons in Reserve lands. By-law Number 2, the Sarcee Indian Reserve Property Taxation Bylaw, was passed by the Nation and the present levy was issued under its authority. The Nation asserted that the lands comprising Redwood Meadows still retain the status of reserve lands because their surrender to the Crown was for a term of 75 years, at the expiry of which, the lands would revert back to the Nation. Views of the Board The Board accepts the Tsuu T’ina Nation’s position that it possesses the lawful taxing authority under the provisions of the Indian Act, sufficient to allow it to impose the tax on CWNG’s gas utility facilities located within the boundaries of Redwood Meadows. Under section 2(1) of that legislation, “reserve” includes “designated lands” which are defined as:
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“… a tract of land or any interest therein the legal title to which remains vested in Her Majesty and in which the band for whose use and benefit it was set apart as a reserve has, otherwise than absolutely, released or surrendered its rights or interests, whether before or after the coming into force of this definition.” The Tsuu T’ina lands comprising Redwood Meadows meet the definition of “designated lands” in the Indian Act because they were not surrendered absolutely to the Crown. The right of reversion means that the lands are subject to the Nation’s right of taxation as set forth in section 83(1)(a) of that statute: “Without prejudice to the powers conferred by section 81, the council of a band may, subject to the approval of the Minister, make by-laws for any or all of the following purposes, namely, (a) subject to subsections (2) and (3), taxation for local purposes of land, or interests in land, in the reserve, including rights to occupy, possess or use land in the reserve;” In short, the Redwood Meadow’s lands have not lost their character as reserve lands and the Nation is entitled to tax utility facilities located on the lands, notwithstanding that the lands have been the subject of an initial surrender to the Crown, a subsequent leasing by the Crown to SDL and a further sub-leasing to individual home builders. The Administration Agreement between SDL and the Society cannot confer on Redwood Meadows the Nation’s right to tax the lands. There is no legislative authority for the Nation to transfer such rights to anyone. The Administration Agreement does, however, give the Townsite the right to collect the costs of operating Redwood Meadows from the homeowners. These costs have been termed “taxes” in the Administration Agreement, but their nature is more properly characterized as a contractual right negotiated between private parties. Both the taxes imposed by the Nation and the costs incurred on behalf of the residents and collected by Redwood Meadows may co-exist concurrently. For these reasons, the Board accepts the submission that the Nation has properly imposed the tax on CWNG facilities located within the boundaries of Redwood Meadows that serve the residents of Redwood Meadows. 2) Reasonableness of the Proposed Levy to the Townsite of Redwood Meadows
Townsite of Redwood Meadows Redwood Meadows noted that the Nation has not been providing any services to Redwood Meadows. Instead, the Nation has been responsible for development of design, infrastructure and marketing of the individual lots. Also, no financial contribution has taken place from the Nation to Redwood Meadows.
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Redwood Meadows commented that, to this point in time, CWNG has not received revenues to offset the taxes imposed by the Nation. Also, it was Redwood Meadows’ understanding that taxation of underground utility facilities by municipalities normally provides additional revenue for the municipalities. However, Redwood Meadows has not received any such revenue to date. CWNG and the Tsuu T’ina Nation CWNG submitted that Redwood Meadows should not expect to be provided any revenues from CWNG. In addition, CWNG stated that Redwood Meadows had chosen not to enter into a Franchise Agreement with the utility, representing an alternative to a Rider “B”. The Nation asserted that the Administration Agreement simply represents an operating agreement to facilitate the administration of Redwood Meadows. The Nation also stated that the only taxing authority delegated by way of the Administration Agreement was for the recovery of operating costs. In its first submission to the Board, the Nation also stated that it provides services to the Townsite, which includes water, sewer, backhoeing, and periodic snow clearance at the golf course entrance to the community. Views of the Board The Board notes that CWNG and the Nation entered into a franchise agreement, dated 22 August 1980, pursuant to the Rural Gas Act, that gives exclusive right to CWNG to install, supply and operate a natural gas distribution system in a franchise area which includes the Townsite of Redwood Meadows. In the franchise agreement, the Nation granted to CWNG for a period of twenty (20) years “the exclusive right and privilege to exercise any and all the rights and benefits … including the installation of any and all pipelines, equipment and the supply and sale of natural gas within the franchise area” (Clause 1 of the franchise agreement). The Board notes that by virtue of the exclusive rights and obligations bestowed upon CWNG in the franchise agreement, the residents of Redwood Meadows receive the benefits of a secure supply of natural gas. Accordingly, the Board considers that CWNG’s proposed levy for its gas distribution system within the boundaries of Redwood Meadows is appropriate and reasonable. 3. IMPLEMENTATION OF A RIDER “B”
In the Application, CWNG requested approval to levy a surcharge of 5.58 per cent on forecast revenue of $162,840 over the period 1 August 1998 to 31 January 1999. Similar to other assessments provided for on Rider “B”, the addition to Rider “B” as a result of
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the Application would be subsequently reconciled and revised effective 1 February of the following year, reflecting the recovery of the actual tax assessment over the subsequent 12 month period. Based on its Amended Application, CWNG requested approval for levying a surcharge of approximately 3% on forecast revenue for gas consumption beginning on 1 January 2000, reflecting recovery of the 2000 tax assessment over the subsequent 12 month period. The actual property tax paid by CWNG in 1998 was $8,907. CWNG anticipated that the amount for taxes in the years 1999 and 2000 and for some time beyond will be the same as in 1998. As a result, the percentage figure required to recover the property tax amounts within the boundaries of Redwood Meadows is expected to fluctuate very little from year to year. 4. BOARD FINDINGS
The Board notes CWNG’s long-standing practice of recovering tax and other specific costs directly from residents on a community specific basis either through the use of a Rider “B”, or in the case of franchise payments “in lieu of taxes”, a Rider ‘A’. These cost recovery mechanisms are appropriate and reasonable schemes, linking local customers with local cost of service arrangements. In terms of the specific addition to Rider “B” that CWNG has applied for, which is to be recovered from the customers residing in the Townsite of Redwood Meadows, the Board is of the view that a 3% surcharge represents a just and reasonable rate to be applied on forecast revenue based on historical tax assessments by the Nation. In accordance with the Application made by CWNG, the Board finds it appropriate that the tax levied by the Tsuu T’ina Nation on CWNG’s gas distribution system within Redwood Meadows should be recovered from the users of CWNG gas services in Redwood Meadows. Based on the Amended Application, the Board considers that CWNG should be allowed to recover the 2000 tax assessment levied by the Tsuu T’ina Nation for the year 2000, on gas consumption from and after 1 January 2000.
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THEREFORE IT IS HEREBY ORDERED THAT: 1. Rider “B” of the Canadian Western Natural Gas Company Limited Tariff, as set forth in Board Order E93098, be replaced by a new Rider “B” as set forth in the attached Schedule “A” and that the Rider take affect for natural gas consumption from and after 1 January 2000. Pursuant to the reorganization approved in Decision U99102, the Rider “B” shall be issued in the name of ATCO Gas-South (a Division of Canadian Western Natural Gas Company Limited). The Rider “B” is being issued on an interim basis, to be declared final pending completion of the reorganization transactions originally approved in Decision U99102. Nothing in this order shall bind, affect or prejudice the Board in any way in its consideration of any other matter or question relating to ATCO GasSouth (a Division of Canadian Western Natural Gas Company Limited).
Dated in Calgary, Alberta this 2 day of December 1999. ALBERTA ENERGY AND UTILITIES BOARD
B. T. McManus, Q.C. Presiding Member
Gordon J. Miller Board Member
Michael J. Bruni Acting Board Member
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SCHEDULE “A” Effective by Decision U99011 On Consumption on and after January 1, 2000 This replaces Rider “B” Previously effective January 1, 1994
ATCO GAS - SOUTH (A DIVISION OF CANADIAN WESTERN NATURAL GAS COMPANY LIMITED) RIDER “B” TO RATE NO. 1 TO RATE NO. 8 AND ANY OTHER RIDERS THERETO Additions may be made to the Rate of customers resident in municipalities that receive a property tax assessed under the Municipal Government Act. The addition is the estimated percentage of gross revenue required to provide for the tax payable each year. To the extent that this percentage may be more or less than that required to pay the tax, the percentage of gross revenue provided in the Rider will be adjusted on the 1st of February each year. AND Additions to be made to the Rate of customers resident in areas or municipalities for the recovery of specific costs which are not generally incurred by the Company. The addition is the estimated percentage of gross revenue required to provide for the costs payable each year. To the extent that this percentage may be more or less than that required to recover the costs incurred, the percentage of gross revenue provided in the Rider will be adjusted on the 1st of February each year. Banff Redwood Meadows
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