Docket UE20311
Order UE93-16

IN THE MATTER of a dispute between the O'Leary Community Sports Centre Inc. and Maritime Electric Company, Limited.

BEFORE THE COMMISSION

on Tuesday, the 21st day of December, 1993.

Linda Webber, Chair
John L. Blakney, Vice-Chair

Reasons for Order

1.1 Introduction

These Reasons for Order are issued in respect of Commission Order UE93-16 which was issued by the Commission on October 21, 1993. Order UE93-16 together with these reasons address a dispute between the O'Leary Community Sports Centre Inc. (the "Complainant") and Maritime Electric Company, Limited (the "Company" or "Maritime Electric") concerning the provision of electrical service at the facility referred to herein as the O'Leary Rink.

1.2 Background

In early October, 1993, the Complainant applied to the Company for electrical service at the O'Leary rink. On October 15, 1993, the Company wrote the Complainant the following letter:

October 15, 1993
Warren Ellis, President
O'Leary Community Sports Centre Inc.
O'Leary, P.E.I.
C0B 1V0

Dear Mr. Ellis:

Re: O'Leary Rink

After due consideration and following up with your meeting with Donald Campbell, Western Region Manager, and Jane Ralling, counsel, Maritime Electric still is of the view that your organization and the former organization, O'Leary Athletic Association Inc., are related within the meaning of our Rules and Regulations No. 4.3.4. As a result, the amount of arrears accrued for the O'Leary Rink of $11,600 must be paid in order to allow us to provide electric service again at this location.

Maritime Electric is not unmindful of the immediate need for electrical hook-up and the strain that a large lump sum payment might have on a community-based organization such as yours. We have a historical precedent of allowing a customer to pay arrears over time, even though electric service was immediately hooked up.

In the spirit of co-operation with your organization, we make the following proposal:

- repayment of arrears of $11,600. in equal monthly payments over the next 12 months.

- conditional upon your organization agreeing to keep its monthly bill current.

In any case, a deposit of an estimated two-months billing ($10,500) would be required before service could be hooked up. I understand discussions took place regarding a bank letter of credit to satisfy this requirement and that is entirely satisfactory.

I trust this proposal meets with your organization's approval. Please contact Donald Campbell to make arrangements for immediate hook-up.

Yours very truly,

MARITIME ELECTRIC COMPANY, LIMITED

(Sgd) J.K. Landrigan

J.K. Landrigan

Director, Customer Service

The Company relies on Section 4.3.4 of the Prince Edward Island Electric Utilities General Rules and Regulations (the "Rules and Regulations") as authority to require payment of the arrears of the former owner of the O'Leary Rink:

4.3.4 No application for service at any metered location shall be accepted by the Utility:

(i) if the applicant is a customer or former customer who is in default in payment if any amount due to the Utility, or

(ii) if the applicant is a related person to or the agent of any person referred to in (i), applying for service at premises occupied by a person referred to in (i).

Related person is defined in the Rules and Regulations as follows:

'Related Persons' has the meaning given to that expression in the Income Tax Act (Canada).

The Company submits, among other things, that the Complainant and the former owner of the O'Leary Rink, the O'Leary Athletic Association Inc., are related persons in that they are both community-based non-profit organizations having similar objects:

They [the two organizations] own, occupy and operate the same facility. At least two of the present directors have been actively involved in the earlier organization. Membership is open to exactly the same 'group of persons'—those located in the O'Leary area with an interest in promoting community sporting activities who apply or otherwise indicate their interest and who pay a small membership fee. This is the 'group of persons' who make the two companies related within the meaning of the [Income Tax Act (Canada)] and our Rules and Regulations.1

In a subsequent submission to the Commission2, the Company argues as follows:

At a meeting in Summerside, on 14 October 1993, the new organization's made a point to emphasize that they had not contracted for any of the old debt. By organizing as they did and purchasing the principal assets of the old organization, the new organization has effectively defeated the old organization's creditors. Those defeated creditors have a choice to supply or deal with the new organization or to refuse to deal with them based on their previous bad experience. As a monopoly, Maritime Electric does not have that choice, but rather only has the protection afforded by section 4.3.4 to deny service to a party related to a former defaulting customer.

As outlined in our letter of 15 October 1993, the determination that two corporations are 'related' is based on who controls the corporations. Although the board of directors controls a corporation day-to-day, the ultimate control of a corporation is in the hands of its shareholders. In the case of Part II (Non-Profit Corporations) the analogous situation to shareholders is the members. Every case would have to be assessed on its own particular facts.

The Complainant submits that it is not a related person within the meaning of the Rules and Regulations and is therefore entitled to electrical service without having to settle the arrears of the former owner. According to the Complainant3:

Maritime Electric's point that these two companies are related since they are both community based non-profit organizations is taking the point too far. I'm sure there are more than one community based non-profit organizations in many communities. If there were two non-profit companies in one community - are we to assume that because both are in the same community ie: A Lions Club and a Curling Club and we will assume the Lions Club folded and the Curling Club purchased its assets by tender. Is Maritime Electric then saying the Curling Club is responsible for the debts of the Lions Club?

1.3 Findings

The matter before us has been a difficult one to decide. The ultimate issue, in the Commission's view, is the protection of the ratepayers of Maritime Electric from costs that should be properly attributed to and paid for by specific consumers of electrical services. Fair treatment of all requires special treatment for none. Government, business, non-profit organizations, residences, etc., all pay for the service rendered to them. Subsidization is appropriate action by government from government revenues—not from payments by other electric consumers.

A monopoly electric utility is faced with the problem of being obliged to provide service to virtually anyone who wants it—with a few exceptions. The Company is correct when it says that section 4.3.4 of the Regulations was designed to overcome some of the problems this obligation to serve can create.

The regulation in question was an attempt to get behind the legal harness/legal fictions that often protect debtors from creditors. Overall, the customers of Maritime Electric are better served if we do not allow groups of people to run up electric bills under one name, declare bankruptcy or otherwise end their corporate existence without paying these bills, and then start up again under a new name.

For this reason, the Commission has urged the Company to vigorously pursue bad debts and to refuse service to bad debtors. While this may not make the Company popular, it keeps the costs down for all those customers who regularly pay their bills. Because of this, the Commission found itself in agreement with the arguments put forward by the Company against the provision of service to the Complainant. The Company's position was, in our view, consistent with the spirit of Regulation 4.3.4 and was in defense of all ratepayers.

Unfortunately, after carefully considering all of the submissions of the Complainant and the Company in this matter, the Commission is forced to conclude that insufficient grounds exist in a legal sense to establish that the Complainant is a related person within the meaning of section 4.3.4 of the Rules and Regulations. Ultimately, our decision has had to be made on a strict, legal interpretation of the rule as it is written and the facts put before us.

Related persons as defined in the Income Tax Act (Canada) include, among others,

251

...

2(c) any two corporations

(1) if they are controlled by the same person or group of persons.

A difficulty in the case before us is that both the Complainant and former owner are Part II Companies under the Companies Act and are without share capital. As a result, in order to determine control, we found it necessary to examine the Letters Patent and Memoranda of Agreement and filings of both companies with the (now) Department of Provincial Affairs. This examination reveals the following.

The O'Leary Athletic Association Inc. was incorporated in July of 1979 and was controlled by a 15-member Board of Directors elected each year by the members of the Corporation who were granted membership by the Board on the basis of their interest in community activities and their residence within the community for the last 12 months. The 15-member board was elected for three-year terms with five members to retire each year. In addition, there was a requirement that the members of the Board be elected from six geographical zones.

The Complainant was incorporated on September 14, 1993, with the original incorporators being Frances Dewar, Thelma Sweet, Warren Ellis, William McKendrick and Allan Shaw. The applicants are stated to be members of the Company for a period of six months and, after that time, the members of the corporation elect a Board of Directors of between three and 12 persons. Directors serve in office for a period of three years, with the initial elected board composed of eight people, three serving a three-year term, two a two-year term and three a one-year term. Again the members of the Corporation are selected by the Board of Directors.

It is apparent to the Commission that the somewhat circular process of the Board of Directors approving its members and then the members electing the next Board of Directors confuses the issue of control. As a result, based on the information available to us, we are unable to conclude definitively that the persons who controlled the former owner of the O'Leary rink also control the Complainant.

While the Commission has in this instance found against the Company, for the reasons given we must compliment it for its vigorous defense of the greater public interest. In our view, the public interest would be better served if the regulation in question were amended to clearly cover situations such as the one before us.

The unique feature here is the non-profit corporate status of the O'Leary Athletic Association Inc. and the Complainant and the fact that they are community-based organizations with memberships determinable by their respective boards. This legal form is difficult to fit within the usual definitions of corporate structure and control.

The significant issue to the Commission is that each is a community-based facility set up to carry out specific functions on behalf of the Community. In this case, both were intended to operate the O'Leary Rink. What the Commission must weigh is the benefit versus the detriment of allowing the existing legal rules to determine the responsibility to pay electric bills in these situations. We know there are many community-run rinks on P.E.I. There are also community-run swimming pools, fire halls and meeting rooms.

If the electric power debts of predecessor community organizations are not paid before a new community-based organization is provided with electric power to operate such a facility, then ratepayers across the province will end up continually subsidizing those communities who have either uneconomical or poorly-run facilities. We do not think this is in the best interests of the ratepayers in the province or consistent with the requirements of the Electric Power and Telephone Act, R.S.P.E.I. 1988 Cap. E-4.

In this case, for the reasons noted earlier, we have ordered Maritime Electric Company, Limited to provide service to the Complainant. We do not think the existing rule is sufficient to prevent this.

At the same time we give notice that the Commission will be considering a new rule to cover similar situations involving community-based organizations and/or facilities. A draft of the proposed rule will be made available to the public for comment before being officially adopted by the Commission. The Company is directed to develop such a rule for our review.

DATED at Charlottetown, Prince Edward Island, this 21st day of December, 1993.

BY THE COMMISSION:

Linda Webber, Chair

John L. Blakney, Vice-Chair

1 Letter to the Commission, dated October 15, 1993.

2 Letter to the Commission, dated October 20, 1993.

3 Letter to the Commisison, dated October 16, 1993.