SOMBA K'E/YELLOWKNIFE - A tax refund, albeit small, that brought Northland Utilities a bit of extra money in 2007 will not be funnelled back to Yellowknife ratepayers after the NWT Supreme Court ruled in the company's favour.

"The whole thing, the court action, is about the principle in the matter because the amount is very minimal," said Joe Acorn, chair of the NWT Public Utility Board - which issued a directive that launched the dispute.

Up until 2008, Northland Utilities' investment stock-handling charges had been filed yearly as capital expenses.

While the company was making its rate applications, it became aware those charges could be claimed as tax deductions, and so the stock-handling charges from 2007 were claimed in the company's 2008 tax returns.

The amount of return for the Yellowknife branch of Northland Utilities was $19,400.

The Public Utility Board stated this money should be "flowed through" to the 7,960 Yellowknife customers to blunt future rate hikes that might arise should the utility claim the deductions The board also said the Hay River branch of Northland Utilities should pay back the $3,800 it has claimed.

"By expensing them, these amounts can't go into the capital cost allowance and the capital cost allowance is used to reduce income tax in future years," explained Acorn.

"So, by having them claimed immediately as an expense by Northland, as a tax refund for them, it increases the income tax payable in future years."

This, in turn, would affect the amount of revenue needed in the future and therefore may cause rates to rise, as slight as that might be.

Northland Utilities argued the directive to pay the money to customers was "retroactive rate-setting," which is something public boards do not have the authority to do.

In Justice John Vertes' written decision, he added an excerpt from another Supreme Court case which explained the definition of retroactive rate-setting and why it's not allowed: A utility regulator can use its past financial data to forecast future expenses and thus adjust rates, but it cannot design its future rates to recover past deficits or, in turn, spread the wealth from past profits.

It is generally prohibited because customers whose rates would change - either higher or lower to recover these losses or receive the gains - may be different customers than those who were charged more or less than what the company needed in the past.

Vertes decided it was retroactive rate-setting in his decision, issued on Nov. 24. The parties involved in the court case have two months to reach an agreement on who is paying for legal costs.

Duane Morgan, manager of Northland Utilities for Yellowknife, said he did not know how much the legal proceedings cost the company when News/North spoke with him on Wednesday, but said it would be "minimal" because the matter only took one day in court for both sides to make submissions.

Morgan also said future tax returns will be used to offset ratepayer costs, and that the issue was just the principle of retroactive rate-setting, and not the money.

"The future benefits are going to flow through to customers," said Morgan.

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