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Power lines leave the Darlington Nuclear Station which produced 19% of the electricity consumed in Ontario in 2010. Photo taken April 6 2011 near Oshawa, Ont..Fred Lum/The Globe and Mail

Ontario's energy regulator will have to reconsider a bid by Ontario Power Generation to hike the price of electricity.

The OPG, the government-owned company that produces most of the province's power, proposed a 6.5-per-cent increase in rates in 2010. The firm argued that it needed the money to cover operating costs, including an arbitrator-imposed contract that gave the OPG's white collar employees a six-per-cent pay bump.

But the Ontario Energy Board only allowed it to make a one-per-cent hike and ordered it to find $145-million worth of savings over two years. The board ruled that OPG salaries were too high and that it had too many people in its employ.

The OPG appealed the ruling. Last week, the Ontario Court of Appeal sided with the company and ordered the board to re-evaluate the OPG's proposed rate hike.

"This just gives us the right to make the case again," at the board, said Neal Kelly, the OPG's director of government relations. "This doesn't give us money right now – it allows us to go back into that process and make the case."

The board could try to appeal the ruling to the Supreme Court, but it is not clear whether it will. The OEB could not be reached for comment Sunday.

Mr. Kelly said there have been no plans made for a future OEB hearing or any timing laid out for a decision on rates. He said that, if the OEB does not seek leave to appeal, it would be up to the board to decide how to reconsider the application. Until then, the court ruling will have no effect on rates.

In their decision, appeal court justices Marc Rosenberg, Stephen Goudge and Robert Blair ruled that the board "acted unreasonably" when it told the OPG to cut jobs and reduce salaries to avoid dinging ratepayers, since these costs were already locked in.

Pay rates and staffing levels at OPG power plants are set by collective agreements, one of which included a clause forbidding the company from laying off union members. On top of this, the Canadian Nuclear Safety Commission dictates the number of staff the OPG must have at its nuclear facilities.

"Under these agreements, OPG is not free to reduce compensation rates unilaterally. Nor can it reduce staffing levels unilaterally, as it wishes," the justices wrote.

They also faulted the board for using salary comparisons and other data that did not exist when the OPG's collective agreements were signed, in assessing what the OPG's costs should be.

The justices ruled that the board must undertake a more thorough review of OPG's requested rate increase.