COURT FILE NO.: 273/07
DATE: 20080516
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
KITELEY, CUMMING, AND SWINTON JJ.
B E T W E E N:
ADVOCACY CENTRE FOR TENANTS-ONTARIO and INCOME SECURITY ADVOCACY CENTRE on behalf of LOW-INCOME ENERGY NETWORK
Appellant
- and -
ONTARIO ENERGY BOARD
Respondent
Paul Manning and Mary Truemner, for the Appellant
Michael Millar, for Ontario Energy Board
Fred Cass and David Stevens, for Enbridge Gas Distribution Inc.
Robert Warren, for Consumers Council of Canada
HEARD at Toronto: February 25, 2008
KITELEY and CUMMING JJ.
The Appeal
[1] The Respondent Ontario Energy Board (the “Board”) is the provincial economic regulator for the natural gas and electricity sectors. The Board exercises its jurisdiction within the statutory authority established by the Legislature, being the Ontario Energy Board Act, 1998, S.O. 1998, c. 15, Schedule B (the “Act”).
[2] By a majority (2:1) decision dated April 26, 2007, the Board determined that the Act does not explicitly grant to the Board jurisdiction to order the implementation of a low income affordability program: Enbridge Gas Distribution Inc. (April 26, 2007), EB-2006-0034 (Ont. Energy Bd.) (the “Board Decision”). The Board also found that the Board does not gain the requisite jurisdiction through the doctrine of necessary implication.
[3] Enbridge Gas Distribution Inc. (“EGD”) sought approval by the Board of EGD’s 2007 gas distribution rates based simply upon the Board’s traditional, standard “cost of service” rate-making principles. The Appellant Low Income Energy Network (“LIEN”) had intervened in the application before the Board. LIEN argues that without a rate affordability program, the interests of low-income consumers are not protected. LIEN proposed that the Board accept as an issue in the EGD proceeding the following matter:
Should the residential rate schedules for EGD include a rate affordability assistance program for low-income consumers? If so, how should such a program be funded? How should eligibility criteria be determined? How should levels of assistance be determined?
[4] LIEN seeks from the Board the introduction of a rate affordability assistance program to make natural gas distribution rates affordable to poor people. The underlying premise of the proposal of LIEN is that low income consumers (estimated to be about 18% of households in Ontario) should pay less for gas distribution services than other consumers. LIEN emphasizes that the supply of natural gas (or other source of energy) serves to meet basic human needs such as warmth from heating and the generation of power. Those who cannot afford to use natural gas as a source of energy may be placed at a significant disadvantage. LIEN submits that the Board can consider ability to pay in setting rates if it is necessary to meet broad public policy concerns. Access to an essential service is arguably such a concern. The supply of natural gas can be considered a necessity that is available from a single source with prices set by the Board in the public interest.
[5] The majority of the Board held that the LIEN proposal amounted to an income redistribution scheme. The Board noted that such a scheme would require a consumer rate class based upon income characteristics and would implicitly require subsidization of this new class by other rate classes. It is undisputed that a common, if not universal, historical feature of rate-making for a natural monopoly is the application of the same charges to all consumers within a given consumer classification based upon cost of service, that is, cost causality.
[6] Section 33 of the Act provides for an appeal to this Court on a question of law or jurisdiction. LIEN seeks a declaration that the Board has the jurisdiction to order a “rate affordability assistance program” for low income consumers of the utility, EGD, within its franchise areas as the distributor of natural gas.
[7] The position of EGD, the Board and the intervenor, the Consumers Council of Canada, is that LIEN’s quite understandable and commendable concern is an issue of public policy to be dealt with by the Legislature and falls outside the jurisdiction of the Board.
The Standard of Review
[8] The issue is whether the Board is correct in its determination that it does not have jurisdiction to implement a low income affordability program.
[9] There is common ground that the standard of review is correctness. That is, this Court will interpret the statutory grant of authority on the basis of its own opinion as to a statute’s construction, rather than deferring to the Board’s determination of the issue. A tribunal’s determination that it has no jurisdiction will be set aside as a “wrongful declining of jurisdiction” if the Court is of the view that the tribunal’s decision is wrong. Donald J.M. Brown and John M. Evans, Judicial Review of Administrative Action in Canada, looseleaf (Toronto: Canvasback Publishing, 1998) at 14-3 to 14-4.
Analysis of the Board’s Jurisdiction
A. Applicable Principles
[10] The Court is to be guided by the principles of statutory interpretation as set forth in Ruth Sullivan, Driedger on the Construction of Statutes, 3rd ed., (Toronto: Butterworths, 1994) at 131:
There is only one rule in modern interpretation, namely, courts are obliged to determine the meaning of legislation in its total context, having regard to the purpose of the legislation, the consequences of proposed interpretations, as well as admissible external aids. In other words, the courts must consider and take into account all relevant and admissible indicators of legislative meaning. After taking these into account, the court must then adopt an interpretation that is appropriate. An appropriate interpretation is one that can be justified in terms of (a) its plausibility, that is its compliance with the legislative text; (b) its efficacy, that is, its promotion of the legislative purpose; and (c) its acceptability, that is, the outcome is reasonable and just.
[11] The words of the Act are to be read in their entire context and in their grammatical and ordinary sense, harmoniously with the scheme and object of the legislation and the Legislature’s intent. ATCO Gas and Pipelines Ltd. v. Alberta (Energy and Utilities Board), 2006 SCC 4, [2006] 1 S.C.R. 140 at para. 37.
[12] The statute shall be interpreted as being remedial and given such “fair, large and liberal interpretation as best ensures the attainment of its objects.” Legislation Act, S.O. 2006, c. 21, Schedule F, s. 64 (1).
[13] A statutory administrative tribunal obtains its jurisdiction from two sources: explicit powers expressly granted by statute, and implicit powers by application of the common law doctrine of jurisdiction by necessary implication. Atco, supra, at para. 38.
[14] The Court must apply a “pragmatic or functional” analysis in determining the issue of jurisdiction, by considering the wording of the Act conferring jurisdiction upon the Board, the purpose of the Act creating the Board, the reason for the Board’s existence, the area of expertise of its members and the nature of the problem before the Board. Union des employés de Service, local 298 v. Bibeault, 1988 30 (SCC), [1988] 2 S.C.R. 1048 at 1088.
B. The Wording of the Act
[15] Section 36 of the Act confers the Board’s jurisdiction:
- (1) No gas transmitter, gas distributor or storage company shall sell gas or charge for the transmission, distribution or storage of gas except in accordance with an order of the Board, which is not bound by the terms of any contract.
(2) The Board may make orders approving or fixing just and reasonable rates for the sale of gas by gas transmitters, gas distributors and storage companies, and for the transmission, distribution and storage of gas.
(3) In approving or fixing just and reasonable rates, the Board may adopt any method or technique that it considers appropriate.
[16] LIEN submits that the Board’s authority to fix “just and reasonable rates” by adopting “any method or technique it considers appropriate”, conferred by s. 36 (2) and (3) of the Act is very broad and the statutory language must be given its ordinary meaning.
[17] The Board argues that the word “rates” is in the plural form in s. 36 (2) to allow the Board to set different rates for different classes of consumers based upon the costs of serving those consumers. For example, large industrial users are typically considerably more expensive to serve than residential consumers. Separate rate classes are a necessity to ensure that consumers reimburse for the actual costs of the service they receive.
[18] The majority opinion in the Board Decision is of the view that the words “any method or technique” cannot reasonably be interpreted to mean “a fundamental replacement of the rate making process based on cost causality with one based on income level as a rate grouping determinant.” (p.9)
[19] The phrase “approving or fixing just and reasonable rates” in the present s. 36 (2) was first introduced by s. 17 (1) of Bill 38, An Act to Establish the Ontario Energy Board, 1st Sess., 26th Leg., Ontario, 1960 by the then Minister of Energy Resources, the Hon. Robert Macaulay. He outlined for the Legislature the philosophy underlying rate setting (Legislature of Ontario Debates, 9 (8 February 1960) at 199 (Hon. Macaulay)):
First, why are there rate controls? There are rate controls because, in effect, the distribution of natural gas is a monopoly, a public utility. Secondly…it is fair that whatever rate is charged should be one designated, not only in the interests of the consumer, but also in the interests of the distributor…[O]ne really should have in mind 3 basic objectives: First, the rate should be low enough to secure to the user a fair and just rate. Second, the rate should be adequate to pay for good service and replacement and retirement of the used portion of the assets. Third, it should be high enough to attract a sufficient return on capital….
[20] He went on to explain the purpose of the Government’s policy (at 205):
“[F]irst, to protect the consumer, and to see that he pays a fair and just rate, not more or less, and that is competitive with other fuels. Second, to make sure the rate is sufficient to provide adequate service, replacements and safety for the company providing the service. Third, it is that the company should be able to charge a rate which is sufficient to attract the necessary capital to expand.
[21] The present s.36 (3) replaced s.19 of the old Ontario Energy Board Act, R.S.O. 1980, c. 332, which required a traditional cost of service analysis in very prescriptive terms:
19 (2) In approving or fixing rates and other charges under subsection (1), the board shall determine a rate base for the transmitter, distributor or storage company, and shall determine whether the return on the rate base …is reasonable.
The rate base …shall be the total of,
(a) a reasonable allowance for the cost of the property that is used or useful in serving the public, less an amount considered adequate by the Board for depreciation, amortization and depletion;
(b) a reasonable allowance for working capital; and
(c) such other amounts as, in the opinion of the Board, ought to be included.
[22] The authority was granted in s. 36 (3) to use “any method or technique it considers appropriate” in approving “just and reasonable rates” i.e., employing methods other than simply on a traditional cost of service basis as proscribed in the repealed s. 19 to set rates for the gas sector. This aligned the approach for natural gas with the non-prescriptive authority seen governing Ontario Hydro as a Crown corporation in rate setting for electricity distributors.
[23] Thus, under the former Act the phrase “just and reasonable rates” was limited to the cost of service basis articulated in prescriptive detail in s. 19. The change in repealing s. 19 and allowing the Board to “adopt any method or technique it considers appropriate” provides greater flexibility to the Board to employ other methods of rate making in approving and fixing “just and reasonable rates” rather than simply the traditional cost of service regulation seen in the former s. 19.
[24] Subsection 36 (3) allows the Board to adopt “any method or technique that it considers appropriate” in fixing “just and reasonable rates.” The majority Board Decision view is that this provision, considered within the context of the Act as a whole, allows the Board to employ flexible techniques and methods for cost of service analyses in determining rates, for example, the incentive rate mechanisms currently used for the major gas utilities.
[25] In the same rate setting proceeding that is under review, EGD reportedly asked the Board to approve two fuel-switching programs to enable residential consumers to shift from electric-water heaters to gas-water heaters, given that the latter promote conservation inasmuch as there is greater energy efficiency. The programs are identical except that there is a subsidy offered for the low income group of $800 per participant but a subsidy of only $600 for other consumers. Vice Chair Kaiser in dissenting points out that none of the parties have objected to this proposal and no one has argued that the Board does not have jurisdiction to approve different subsidies based upon income levels.
[26] Indeed, the majority opinion in the Board Decision allows that the Board has ordered that specific funding be channeled aimed at low income consumers for “Demand Side Management Programs.”
[27] As well, the Board on occasion has reduced a significant rate increase because of so-called “rate shock” by spreading the increase over a number of years. Although this does not in itself suggest an unequal approach as between residential consumers it does indicate that the Board considers it has jurisdiction to take “ability to pay” into account in rate setting.
[28] EGD, like other utilities, makes annual contributions to enable emergency financial relief through the so-called “Winter Warmth Program” which provides funds as a subsidy to some low income consumers, enabling them to be able to heat their homes in winter months. These subsidies are taken into account as costs of the utility in the approval and fixing of rates by the Board. Although the program is funded by all consumers, to some extent there is indirect cross-subsidization within the residential consumer class.
[29] The Board points out that this is a relatively small program in the nature of a charitable objective, involving the United Way, which is specific to individual consumers in a financial crisis situation. But the fact remains that its implementation means that some residential consumers are paying less for the distribution and purchase of natural gas than other residential consumers are paying. If the Board has jurisdiction to approve utilities paying subsidies to the benefit of low income consumers then it arguably has jurisdiction to order utilities to provide special rates on a low income basis.
[30] Section 79 of the Act explicitly authorizes the Board to provide rate protection for rural or remote consumers of an electricity distributor. The majority decision argues that it is a reasonable inference that the Legislature, by virtue of the explicit singling out of a single category of consumers in s. 79, did not intend this benefit to apply to other categories of consumers. The Board argues that if s. 36 (2) and (3) are intended to allow for differential rate setting for subsets of residential consumers, then s. 79 is unnecessary. The majority decision considers the existence of s. 79 as indicating that the Legislature has been explicit on issues that it considers warrant special treatment through a subsidy. The majority decision argues that the existence of s. 79 implicitly excludes any intent to confer jurisdiction to depart from simply the cost of service approach employed to implement the mandate given to the Board by s. 36.
[31] Moreover, the majority decision points out that rural rate assistance through s. 79 does not consider income level as an eligibility determinant. Rather, eligibility is based upon location and the inherent higher costs of service related to density levels. The assistance from the program is conferred upon all consumers within a given geographical area irrespective of their income level. Hence, this program arguably serves simply to mitigate the effect of the cost differential related to geography and remains consistent with a rate making process based upon cost causality. Nevertheless, “rate protection” through s. 79 operates as a subsidy paid by some of Ontario’s residential electricity consumers for the benefit of others and represents a departure from the principle of cost causality being applied on the same basis to all consumers within a given class (i.e., residential, commercial and industrial).
[32] As pointed out in the dissent by Board Vice Chair Gordon Kaiser, s. 79 was introduced in 1999 when the authority to regulate rates for electricity distributors was transferred to the Ontario Energy Board. Prior thereto, electricity distributors were regulated by Ontario Hydro, a Crown corporation which had established the policy of setting special rates in remote and rural areas through the now repealed s. 108 of the Power Corporation Act, R.S.O. 1990, c. P. 18. The inference can be made, as Vice Chair Kaiser asserts, that s. 79 was introduced into the Act to expressly indicate to the Board that this significant historical policy must continue.
C. The Purpose of the Act and the Reason for the Board’s existence
[33] The objectives for the Board with respect to natural gas regulation are set forth in s. 2 of the Act:
(2) The Board, in carrying out its responsibilities under this or any other Act in relation to gas, shall be guided by the following objectives:
To facilitate competition in the sale of gas to users.
To protect the interests of consumers with respect to prices and the reliability and quality of gas service.
To facilitate rational expansion of transmission and distribution systems.
To facilitate rational development and safe operation of gas storage.
To promote energy conservation and energy efficiency in a manner consistent with the policies of the Government of Ontario.
5.1To facilitate the maintenance of a financially viable gas industry for the transmission, distribution and storage of gas.
- To promote communication within the gas industry and the education of consumers.
[34] The Board is charged under s. 2 of the Act with protecting “the interests of consumers with respect to prices ….” The Board argues that this provision speaks to consumers as a single class, not to a particular subset of consumers. The majority decision of the Board says the Board’s mandate is to balance the interests of consumers as a single group with the interests of the regulated utility in the setting of “just and reasonable rates.”
[35] The Divisional Court has emphasized in the past that the Board’s mandate to fix just and reasonable rates “is unconditioned by directed criteria and is broad; the board is expressly allowed to adopt any method it considers appropriate.” Natural Resource Gas Ltd. v Ontario Energy Board, [2005] O.J. No. 1520 at para. 13 (Div. Ct.). The Divisional Court also stated in Enbridge Gas Distribution Inc. v. Ontario Energy Board (2005), 2005 4941 (ON SCDC), 75 O.R. (3d) 72, [2005] O.J. No. 756 at para.24:
…[T]he legislation involves economic regulation of energy resources, including setting prices for energy which are fair and reasonable to the distributors and the suppliers, while at the same time are a reasonable cost for the consumer to pay. This will frequently engage the balancing of competing interests, as well as consideration of broad public policy.
[36] Writing for the majority of the Supreme Court of Canada in Atco, supra, at para. 62 Bastarache J. stated that “[r]ate regulation serves several aims – sustainability, equity and efficiency – which underlie the reasoning as to how rates are fixed.”
D. The Area of Expertise of its Members and the Nature of the Problem before the Board
[37] The Board was asked to consider the application of the utility to establish rates. In that context, an intervenor asked the Board to consider whether, as a factor in rate-setting, the Board could consider the interests of low-income consumers and establish a rate affordability program. That issue of rate-setting is squarely within the jurisdiction of the Board.
[38] The majority opinion in the Board Decision correctly states that the Board’s mandate for economic regulation is “rooted in the achievement of economic efficiencies, the establishment of fair returns for natural monopolies and the development of appropriate costs allocation methodologies”.. However, that does not answer the question as to the full scope of the Board’s jurisdiction in approving or fixing “just and reasonable rates” and adopting “any method or technique that it considers appropriate” in so doing.
[39] The Board’s regulatory power is designed to act as a proxy in the public interest for competition in view of a natural gas utility’s geographical natural monopoly. Absent the intervention of the Board as a regulator in rate-setting, gas utilities (for the benefit of their shareholders) would be in a position to extract monopolistic rents from consumers, in particular, given a relatively inelastic demand curve for their commodity. Clearly, a prime purpose of the Act and the Board is to balance the interests of consumers of natural gas with those of the natural gas suppliers. The Board’s mandate through economic regulation is directed primarily at avoiding the potential problem of excessive prices resulting because of a monopoly distributor of an essential service.
[40] In performing this regulatory function, it is consistent for the Board to seek to protect the interests of all consumers vis-a-vis the reality of a monopoly. The Board must balance the respective interests of the utility and the collective interest of all consumers in rate setting. Re Union Gas Ltd. and Ontario Energy Board et al. (1983), 1983 1982 (ON SC), 1 D.L.R. (4th) 698 (Div. Ct.), (1983) 43 O.R. (2d) 489 at 501. The Board’s regulatory power is primarily a proxy for competition rather than an instrument of social policy. Dalhousie Legal Aid Service v. Nova Scotia Power Inc., (2006), 2006 NSCA 74, 268 D.L.R. (4th) 408 at para. 33 [Dalhousie].
[41] Dalhousie dealt with a request for a low income affordability program like that advanced by LIEN. However, it involved a consideration of rate setting under s. 67 (1) of the Nova Scotia Public Utilities Act ,R.S.N.S. 1989, c. 380, which is very different in wording with respect to jurisdiction to that seen in s. 36 of the Act at hand. The Nova Scotia provision expressly provides that “rates shall always, under substantially similar circumstances and conditions in respect of service of the same description, be charged equally to all persons and at the same rate ….” Hence, the Nova Scotia Utility and Review Board found that it did not have jurisdiction to order low income affordability programs.
[42] Section 36 of the Act has broad language, empowering the Board to set “just and reasonable” rates for the distribution of natural gas. The supply of natural gas can be considered a necessity that is available from a single source with prices set by the Board in the public interest. The Board has traditionally set rates on a “cost of service” basis, that is, on the basis of cost causality and employing a complex cost allocation exercise. In brief, this approach first looks to the utility’s capital investments and maintenance costs including a fair rate of return to determine revenues required. The revenue requirement is then divided amongst the utility’s rate paying consumers on a rate class basis (i.e., residential, commercial, industrial, etc.).
[43] The rates have been traditionally designed with the principled objective of having each rate class pay for the actual costs that class imposes upon the utility. That is, the Board has sought to avoid inter-class and intra class subsidies. See RP-2003-0063 (2005) at 5. Consistent with this approach, the Board has refused the establishment of a special rate class to provide redress for aboriginal consumers. Decision with Reasons EBRO493 (1997) (O.E.B.). In that case, the Ontario Native Alliance (“ONA”) requested the Board to order a utility to evaluate the establishment of a rate class for the purpose of providing a special rate class for aboriginal peoples. At 316-17, the Board stated:
The Board is required by the legislation to “fix just and reasonable rates”, and in doing so it attempts to ensure that no undue discrimination occurs between rate classes, and that the principles of cost causality are followed in allocating the underlying rates. While the board recognizes ONA’s concerns, the Board finds that the establishment of a special rate class to provide redress for aboriginal consumers of Centra does not meet the above criteria and it is not prepared to order the studies requested by ONA.
[44] This decision would be within the Board’s jurisdiction and a like response to LIEN in the case at hand would arguably be consistent and reasonable. However, the Board in dealing with the ONA request did not decline on the basis of jurisdiction. Rather, it said that it should not exercise its jurisdiction as requested by ONA for the reasons given.
[45] A low income rate affordability program would necessarily lead to treating consumer groups on a differentiated basis with higher prices for a majority of residential consumers and subsidization of the low-income subset by the majority group and/or other classes of consumers.
[46] If the Board were to reduce the rates for one class of consumers based upon an income determinant, the Board would have to increase the rates for another class or classes of consumers. In effect, such a rate reduction would impose a regressive indirect tax upon those required to pick up the shortfall. Such an approach would arguably be a dramatic departure from the Board’s regulatory function as implemented to date, which has been to protect the collective interest of consumers dealing with a monopoly supplier through a “cost of service” calculation and then to treat consumers equally through determining rates to pay for the “cost of service” on a cost causality basis for classes of consumers.
[47] The Board’s mandate has not been directed to the public interest in social or distributive justice through a differentiation of rates on the basis of income. That need is seen to be met through other mechanisms and programs legislated by the provincial Legislature and/or Parliament, for example, by refundable tax credits and social assistance.
[48] Indeed, the provincial income tax legislation previously provided for public tax expenditures to assist low income consumers with rising electricity costs. This was done through an “Ontario home electricity payment” by reference to income levels. Income Tax Act, R.S.O. 1990, c.1.2, s. 8.6.1, as rep. by Income Tax Amendment Act (Ontario Home Electricity Relief), 2006, S.O. 2006, c. 18, s. 1. As well, Parliament has provided a one-time relief for energy costs to low income families and seniors in Canada through the Energy Costs Assistance Measures Act, S.C. 2005, c. 49.
[49] The Board is an economic regulator, rather than a formulator of social policy. While no doubt the Board must take into account broad policy considerations, rate-setting is at the core of the Board’s jurisdiction. Garland v. Consumers’ Gas Company (2000), 2000 22630 (ON SC), 185 D.L.R. (4th) 536 at paras. 17, 45-46 (Ont. S.C.J.). Special rates for low income consumers would not be based upon economic principles of regulation but rather on the social principle of ability to pay. Any program to subsidize low income consumers would require a source of funding which is a matter of public policy. See generally Re Rate Concessions to Poor Persons and Senior Citizens, 14 Pub. Util. Rep. 4th 87 at 94 (Or. 1976).
[50] This view of the nature and limit of the regulatory function is generally accepted as the norm in other jurisdictions. See for example Washington Gas light Co. v. Public Service Commission of the District of Columbia (1982), 450 A.2d 1187 at para. 38 (D.C. Ct. App.); State of Louisiana v. the Council of the City of New Orleans and New Orleans Public Service, Inc. (1975), 309 So. 2nd 290 at 294 (La. Sup. Ct.).
[51] The historical common law approach for public utility regulation has been that consumers with similar cost profiles are to be treated equally so far as reasonably possible with respect to the rates paid for services. See, for example, St. Lawrence Rendering Co. Ltd. v. The City of Cornwall, 1951 81 (ON SC), [1951] O.R. 669-685 at 683; Chastain et al. v. British Columbia Hydro and Power Authority (1972), 1972 985 (BC SC), 32 D.L.R. (3d) 443 at 454 (B.C.S.C); Canada (Attorney General) v. Toronto (City) (1893), 1893 22 (SCC), 23 S.C.R. 514 at 519-520.
Conclusions on the Board’s Jurisdiction
[52] We agree that the traditional approach of “cost of service” is the root principle underlying the determination of rates by the Board because that is necessary to meet the fundamental, core objective of balancing the interests of all consumers and the natural monopoly utility in rate/price setting.
[53] However, the Board is authorized to employ “any method or technique that it considers appropriate” to fix “just and reasonable rates.” Although “cost of service” is necessarily an underlying fundamental factor and starting point to determining rates, the Board must determine what are “just and reasonable rates” within the context of the objectives set forth in s. 2 of the Act. Objective #2 therein speaks to protecting “the interests of consumers with respect to prices.”
[54] The “cost of service” determination will establish a benchmark global amount of revenues resulting from an estimated quantity of units of natural gas or electricity distributed. The Board could use this determination to fix rates on a cost causality basis. This has been the traditional approach.
[55] However, in our view, the Board need not stop there. Rather, the Board in the consideration of its statutory objectives might consider it appropriate to use a specific “method or technique” in the implementation of its basic “cost of service” calculation to arrive at a final fixing of rates that are considered “just and reasonable rates.” This could mean, for example, to further the objective of “energy conservation”, the use of incentive rates or differential pricing dependent upon the quantity of energy consumed. As well, to further the objective of protecting “the interests of consumers” this could mean taking into account income levels in pricing to achieve the delivery of affordable energy to low income consumers on the basis that this meets the objective of protecting “the interests of consumers with respect to prices.”
[56] The Board is engaged in rate-setting within the context of the interpretation of its statute in a fair, large and liberal manner. It is not engaged in setting social policy.
[57] This is not, of course, to imply any preferred course of action in rate setting by the Board. The Board in its discretion may determine that “just and reasonable rates” are those that follow from the approach of “cost causality” once the “cost of service” amount is determined. That is, the principle of equality of rates for consumers within a given class (e.g., residential consumers) may be viewed as the most just and reasonable approach. A determination by the Board that all residential gas consumers (with relatively minor deviations through such programs as the “Winter Warmth Program”) pay the same distribution rates is not in itself discriminatory on a prohibited ground. Indeed, it can be seen as a non-discriminatory policy in terms of prices paid.
[58] Nor is it to suggest that as a matter of public policy, objectives of distributive justice or conservation in respect of energy consumption are best achieved by rate setting as compared to, for instance, tax expenditures or social assistance devised and implemented by the Legislature through mechanisms independent of the operation of the Act. It is noted that the Minister is given the authority in s. 27 of the Act to issue policy statements as to matters that the Board must pursue; however, the Minister has not issued any policy statement directing the board to base rates on considerations of the ability to pay. Moreover, the power granted to a regulatory authority “must be exercised reasonably and according to the law, and cannot be exercised for a collateral object or an extraneous and irrelevant purpose, however commendable.” Re Multi Malls Inc. et al. and Minister of Transportation and Communications et al (1977), 1976 623 (ON CA), 14 O.R. (2d) 49 at 55 (C.A.). As we have said, cost of service is the starting point building block in rate setting, to meet the fundamental concern of balancing the interests of all consumers with the interests of the natural monopoly utility.
[59] Nor does our conclusion presume as to what methods or techniques may be available in determining “just and reasonable rates.” Efficiency and equity considerations must be made. Rather, this is to say only that so long as the global amount of return to the utility based upon a “cost of service” analysis is achievable, then the rates/prices (and the methods and techniques to determine those rates/prices) to generate that global amount is a matter for the Board’s discretion in its ultimate goal and responsibility of approving and fixing “just and reasonable rates.”
[60] The issue before the Court is that of jurisdiction, not how and the manner by which the Board should exercise the jurisdiction conferred upon it.
[61] In our view, and we so find, the Board has the jurisdiction to take into account the ability to pay in setting rates. We so find having taken into account the expansive wording of s. 36 (2) and (3) of the statute and giving that wording its ordinary meaning, having considered the purpose of the legislation within the context of the statutory objectives for the Board seen in s. 2, and being mindful of the history of rate setting to date in giving efficacy to the promotion of the legislative purpose.
[62] We also find that that interpretation is appropriate taking into account the criteria articulated in Driedger, above, namely it complies with the legislative text, it promotes the legislative purpose and the outcome is reasonable and just.
[63] As indicated above, a statutory administrative tribunal obtains its jurisdiction from explicit powers or implicit powers. Having found that the jurisdiction to consider ability to pay in rate setting is explicitly within the Act, we need not consider the doctrine of necessary implication or the related principle of implied exclusion.
The issue of the [Canadian Charter of Rights and Freedoms](https://www.canlii.org/en/ca/laws/stat/schedule-b-to-the-canada-act-1982-uk-1982-c-11/latest/schedule-b-to-the-canada-act-1982-uk-1982-c-11.html)
[64] Before concluding, it is appropriate to mention the submission made on behalf of LIEN in respect of s. 15 (1) of the Canadian Charter of Rights and Freedoms, Part 1 of the Constitution Act, 1982, being Schedule B to the Canada Act, 1982 (U.K.), c. 11 (the “Charter”).
[65] LIEN says it raises the Charter simply within the context of it being an interpretive tool in discerning the meaning of an asserted ambiguous s. 36 of the Act. LIEN says it does not raise any issue that the Act or the Board’s actions or inactions are contrary to the Charter.
[66] LIEN argues that in the absence of clear statutory provisions, the requirement for “just and reasonable rates” must be interpreted to comply with s. 15. The Charter applies to provincial legislation and can be used as an interpretive tool. R. v. Rogers, 2006 SCC 15, [2006] 1 S.C.R. 554, [2006] S.C.J. No. 15 at para. 18. In our view, as stated above, the Act provides the Board with the requisite jurisdiction without having to look to the Charter.
[67] While we heard submissions from LIEN, we declined to hear from counsel for the respondents on this issue. We agree with our colleague Swinton J. that such an argument requires a full evidentiary record.
Disposition
[68] For the reasons given, the appeal is allowed and it is declared that the Board has the jurisdiction to establish a rate affordability assistance program for low income consumers purchasing the distribution of natural gas from the utility, EGD.
[69] All parties agree that there is not to be any award of costs in respect of this appeal.
KITELEY J.
CUMMING J.
Released: May , 2008
Swinton J. (dissenting):
[70] The sole issue in this appeal is whether the Ontario Energy Board (the “Board”) erred in holding that it had no jurisdiction, when setting residential rates for gas distribution, to order a rate affordability program for low income consumers. In my view, the majority of the Board was correct in concluding that the Board lacked jurisdiction to make such an order.
[71] The majority of the Board predicated its decision on the understanding that the appellants’ proposal contemplated the establishment of a rate group for low income residential consumers that would be funded by general rates. I, too, proceed on that assumption. While there were no details of a specific program put forth by the appellants during the hearing, it is inevitable that the Board, in setting lower rates for the economically disadvantaged, would have to impose higher rates on other consumers.
The Board’s Practice in Setting Rates
[72] Pursuant to the Ontario Energy Board Act, 1998, S.O. 1998, c. 15, Schedule B (the “Act”), the Board has authority to set rates for both gas and electricity. It has traditionally set rates for gas through a “cost of service” assessment, in which it seeks to determine a utility’s total cost of providing service to its customers over a one year period (the “test year”). According to the Board’s factum, these costs include the rate base (which is essentially the net book value of the utility’s total capital investments) and the utility’s operational and maintenance costs for the test year, among other things. The utility’s total costs for the test year (usually including a rate of return on the rate base portion) forms the revenue requirement. The revenue requirement is then divided amongst the utility’s ratepayers on a rate class basis (that is, residential, small commercial, industrial, etc.).
[73] With respect to gas, it has always been the Board’s practice to allocate the revenue requirement to the different rate classes on the basis of how much of that cost the rate class actually causes (“cost causality”). To the greatest extent possible, the Board has striven to avoid inter-class subsidies (see, for example, Decision with Reasons, RP-2003-0063 (2005), p. 5).
The Proper Approach to Statutory Interpretation
[74] To determine the issue in this appeal, it is necessary to consider the powers conferred on the Board by its constituent legislation, the Ontario Energy Board Act. That Act must be interpreted using the modern principles of statutory interpretation described by Professor Ruth Sullivan in Driedger on the Construction of Statutes (3rd ed.) (Toronto: Butterworths, 1994) as follows:
There is only one rule in modern interpretation, namely, courts are obliged to determine the meaning of legislation in its total context, having regard to the purpose of the legislation, the consequences of proposed interpretations, the presumptions of special rules of interpretation, as well as admissible external aids. In other words, the courts must consider and take into account all relevant and admissible indicators of legislative meaning. After taking these into account, the court must then adopt an interpretation that is appropriate. An appropriate interpretation is one that can be justified in terms of (a) its plausibility, that is, its compliance with the legislative text; (b) its efficacy, that is, its promotion of the legislative purpose; and (c) its acceptability, that is, the outcome is reasonable and just. (at p. 131)
[75] The words of a statute are to be read in their entire context and in their grammatical and ordinary sense, harmoniously with the scheme of the Act, its objects, and the intent of the Legislature (ATCO Gas and Pipelines Ltd. v. Alberta (Energy and Utilities Board), 2006 SCC 4, [2006] 1 S.C.R. 140 at para. 37).
The Words of the Provision in Issue
[76] Subsection 36(2) of the Act gives the Board the broad authority to approve or fix “just and reasonable” rates for the distribution of gas. On its face, those words might encompass the power to set rates according to income. However, the words do not explicitly confer the power to do so, and the Supreme Court of Canada commented in ATCO, supra that a discretionary grant of authority to a tribunal cannot be viewed as conferring unlimited discretion. A regulatory tribunal must interpret its powers “within the confines of the statutory regime and principles generally applicable to regulatory matters, for which the legislature is assumed to have had regard in passing that legislation” (at para. 50).
[77] The appellants also rely on s. 36(3), which states that in approving or fixing just and reasonable rates, the Board may adopt “any method or technique that it considers appropriate”. These words were added to the Act in 1998. Examples of methods or techniques used by the Board for setting gas distribution rates are cost of service regulation and incentive regulation.
[78] On its face, the words of s. 36(3) do not confer the jurisdiction to provide special rates for low income customers. The subsection replaced an earlier provision of the Act which required a traditional cost of service analysis in setting rates. I agree with the conclusion of the Board majority as to the meaning of s. 36(3) (Reasons, p. 10):
It gives the Board the flexibility to employ other methods of ratemaking in fixing just and reasonable rates, such as incentive ratemaking, rather than the traditional costs of service regulation specified in section 19 of the old Act. The change in the legislation was coincident with the addition of the regulation of the electricity sector to the Board’s mandate. The granting of the authority to use methods other than cost of service to set rates for the gas sector was an alignment with the non-prescriptive authority to set rates for the electricity sector. The Board is of the view that if the intent of the legislature by the new language was to include ratemaking considering income level as a rate class determinant, the new Act would have made this provision explicit given the opportunity at the time of the update of the Act and the resultant departure from the Board’s past practice.
The Regulatory Context
[79] According to longstanding principles governing public utilities developed under the common law, a public utility like the respondent Enbridge Gas Distribution Inc. (“Enbridge”) must treat all its customers equally with respect to the rates they pay for a particular service (Attorney General of Canada v. The Corporation of the City of Toronto (1892), 1893 22 (SCC), 23 S.C.R. 514 at 519-20; St. Lawrence Rendering Co. Ltd. v. Cornwall, 1951 81 (ON SC), [1951] O.R. 669 (H.C.J.) at 683; Chastain v. British Columbia Hydro and Power Authority (1972), 1972 985 (BC SC), 32 D.L.R. (3d) 443 (B.C.S.C.) at 454).
[80] As noted in the Board’s majority reasons, the Board is, at its core, an economic regulator (Reasons, p. 4). Rate setting is at the core of its jurisdiction (Garland v. Consumer’s Gas Company (2000), 2000 22630 (ON SC), 185 D.L.R. (4th) 536 (Ont. S.C.J.) at para. 45). I agree with the majority’s description of economic regulation as being “rooted in the achievement of economic efficiencies, the establishment of fair returns for natural monopolies and the development of appropriate cost allocation methodologies” (Reasons, p. 4).
[81] Historically, in setting rates, the Board has engaged in a balancing of the interests of the regulated utility and consumers. The Board has not historically balanced the interests of different groups of consumers. As the Divisional Court stated in Union Gas Ltd. v. Ontario (Energy Board) (1983), 1983 1982 (ON SC), 43 O.R. (2d) 489 at p. 11 (Quicklaw):
… it is the function of the O.E.B. to balance the interest of the appellant in earning the highest possible return on the operation of its enterprise (a monopoly) with the conflicting interest of its customers to be served as cheaply as possible.
See, as well, Northwestern Utilities v. The City of Edmonton, [1929] 1 S.C.R. 186 at 192.
[82] In a similar vein, the Supreme Court in ATCO, supra spoke of a “regulatory compact” which ensures that all customers have access to a utility at a fair price. The Court went on to state (at para. 63):
Under the regulatory compact, the regulated utilities are given exclusive rights to sell their services within a specified area at rates that will provide companies the opportunity to earn a fair rate of return for all their investors. In return for this right of exclusivity, utilities assume a duty to adequately and reliably serve all customers of their defined territories, and are required to have their rates and certain operations regulated…
The Court described the object of the Act “to protect both the customer and the investor” (at para. 64).
[83] The Legislature, in conferring power on the Board, must be taken to have had regard to the principles generally applicable to rate regulation (ATCO, supra at paras. 50 and 64). I agree with the submission of Enbridge that those principles are the following:
(a) customers of a public utility must be treated equally insofar as the rate for a particular service or class of services is concerned; and
(b) the Legislature will be presumed not to have intended to authorize discrimination among customers of a public utility unless it has used specific words to express this intention.
[84] Thus, the considerations of justice and reasonableness in the setting of rates have been and are those between the utility and consumers as a group, not among different groups of consumers based on their ability to pay.
Other Provisions of the Act
[85] In applying s. 36(2), the Board must be bound by the objectives set out in s. 2 of the Act, which includes
- To protect the interests of consumers with respect to prices and the reliability and quality of gas service.
[86] The appellants submit that these words are broad enough to permit the Board to order a rate affordability assistance program. However, that is not obvious from the words used, which refer to “consumers” as a whole, and not to any particular subset of consumers. Indeed, it can be argued that any low income rate affordability program would run counter to the stated objective, given that such a program must almost certainly be funded through higher rates paid by other consumers. The result would be to provide benefits to one group of consumers at the expense of others.
[87] The reason for this conclusion lies in the Board’s historical approach to rate setting, as described earlier in these reasons. The Board sets a revenue requirement for utilities before allocating those costs to the different rate classes. The only way the utility could recover its revenue requirement, given a rate class with lower rates for low income consumers, would be to increase the rates charged to other classes. Therefore, such higher prices can not be seen as protecting the interests of consumers with respect to prices, as set out in objective 2.
[88] Moreover, the Act contains an explicit provision in s. 79 that allows the Board to provide rate protection for rural and remote customers of electricity distributors. Subsection 79(1) provides:
The Board, in approving just and reasonable rates for a distributor who delivers electricity to rural or remote consumers, shall provide rate protection for those consumers or prescribed classes of those consumers by reducing the rates that would otherwise apply in accordance with the prescribed rules.
Section 79 also provides grandfathering for those who had a subsidy prior to the change in the Act. As well, it explicitly allows the distributor to be compensated for the subsidized rates through contributions from other consumers, as provided by the regulations.
[89] This section was added to the Act in 1998, when the Board was given the authority over electricity rate regulation. Section 79 ensured the ongoing protection of rural rates put in place when electricity distribution was regulated by Ontario Hydro.
[90] One of the principles of statutory interpretation is “implied exclusion”. As Professor Sullivan has stated, this principle operates “whenever there is reason to believe that if the legislature had meant to include a particular thing within its legislation, it would have referred to that thing expressly” (supra, p. 186). While the purpose of s. 79 of the Act was to protect a pre-existing policy to assist rural and remote residential consumers, nevertheless, it is telling that there is no similar explicit power to order special rates or rate subsidies for other groups elsewhere in the Act.
The Significance of Ordering Rate Affordability Programs
[91] An appropriate interpretation can be justified in terms of its promotion of the legislative purpose and the reasonableness of the outcome (see Sullivan, quoted above at para. 5).
[92] The ability to order a rate affordability program would significantly change the role that the Board has played – indeed, the majority of the Board stated a number of times that the proposal to base rates on income level would be a “fundamental” departure from its current practice. In the past, the Board has acted as an economic regulator, balancing the interests of the utility and its shareholders against the interests of consumers as a group. Were it to assume jurisdiction over rate affordability programs, it would carry out an entirely different function. It would enter into the realm of social policy, weighing the interests of low income consumers against those of other consumers. This is not a role that the Board has traditionally played. This is not where its expertise lies, nor is it well-suited to taking on such a role.
[93] An examination of the particular case before the Board illustrates this. The appellants seek a rate affordability assistance program for gas in response to Enbridge’s application for a rate increase for gas distribution – that is, for the delivery of natural gas. Customers can make arrangements for the purchase of the commodity of natural gas with a variety of suppliers in the competitive market. Therefore, were the Board to assume jurisdiction to order a rate affordability assistance program here, it could address only one part of the problem that low income consumers face in meeting their heating costs – the cost of distribution of gas.
[94] In addition, the Board would have to consider eligibility criteria for a rate affordability assistance program that reasonably would take into account existing programs for assistance to low income consumers. Obviously, this would include social assistance programs. As well, Enbridge, in its factum, has identified other programs which provide assistance for low income consumers. For example, the Ontario government has implemented a program to assist low income customers with rising electricity costs through amendments to income tax legislation (Income Tax Act, R.S.O. 1990, c. I.2, s. 8.6.1, as amended S.O. 2006, c.18, c.1). At the federal level, there was one-time relief for low income families and senior citizens provided by the Energy Costs Assistance Measures Act, S.C. 2005, c. 49.
[95] Moreover, in order to cover the lower costs, the Board would have to increase the rates of other customers in a manner that would inevitably be regressive in nature, as it is difficult to conceive how the Board would be able to determine, in a systematic way, the ability of these other customers to pay.
[96] Clearly, the determination of the need for a subsidy for low income consumers is better made by the Legislature. That body has the ability to consider the full range of existing programs, as well as a wide range of funding options, while the Board is necessarily limited to allocating the cost to other consumers. The relative advantages of a legislative body in establishing social programs of the kind proposed are well described in the following excerpt from a decision of the Oregon Public Utility Commissioner (Re Rate Concessions to Poor Persons and Senior Citizens (1976), 14 PUR 4th 87 at p. 94):
Utility bills are not poor persons’ only problems. They also cannot afford adequate shelter, transportation, clothing or food. The legislative assembly is the only agency which can provide comprehensive assistance, and can fund such assistance from the general tax funds. It has the information and responsibility to deal with such matters, and can do so from an overall perspective. It can determine the needs of various groups and compare those needs to existing social programs. If it determines a special program is needed to deal with energy costs, it can affect all energy sources rather than only those the commissioner regulates.
With clear authority to establish social welfare policy, the legislative assembly also can monitor all state and federal welfare programs and the sources and extent of aid given to different groups. Without such overview, as independent agencies aid various segments of society, the total aid given each group is unknown, and unequal treatment of different groups becomes likely.
[97] Where the issue of rate affordability programs has arisen in other jurisdictions, courts and boards have ruled that a public utilities board does not have jurisdiction to set rates based on ability to pay (see, for example, Washington Gas Light Co. v. Public Service Commission of the District of Columbia (1982), 450 A. 2d 1187 (D.C. Ct. App.) at para. 38; Dalhousie Legal Aid Service v. Nova Scotia Power Inc. (2006), 2006 NSCA 74, 268 D.L.R. (4th) 408 (N.S.C.A.) at 419; Alberta Energy and Utilities Board Decision 2004-066, Section 9.2.6 at 161, as well as the Oregon case, supra).
[98] The appellants distinguish the Dalhousie Legal Aid case because the Nova Scotia legislation is different from Ontario’s. Specifically, s. 67(1) of the Public Utilities Act, R.S.N.S. 1989, c. 380 provides that “[a]ll tolls, rates and charges shall always, under substantially similar circumstances and conditions in respect of service of the same description, be charged equally to all persons and at the same rate”.
[99] While the language of the two statutes does differ, nevertheless, the reasons of the Nova Scotia Court of Appeal make it clear that the Board’s role is not to set social policy. At para. 33, Fichaud J.A, observed, “The Board’s regulatory power is a proxy for competition, not an instrument of social policy.”
[100] Moreover, the principle in s. 67(1) of the Nova Scotia Act requiring that rates be charged equally is a codification of the common law, set out earlier in these reasons. The Ontario Board has long operated according to the same principles.
[101] The appellants submit that the recent decision in Allstream Corp. v. Bell Canada, [2005] F.C.J. No. 1237 (C.A.) assists their case. There, the Federal Court of Appeal upheld a decision of the Canadian Radio-Television and Telecommunications Commission (the “CRTC”) approving special facilities tariffs submitted by Bell for the provision of optical fibre services pursuant to certain customer-specific arrangements. All but one related to a Quebec government initiative aimed at supporting the construction of broadband networks for rural municipalities, school boards and other institutions. The Court determined that the Commission’s decision approving the tariffs was not patently unreasonable, given the exceptional circumstances of the case that justified a deviation from the normal practice of rate determination. The Court noted that the Commission considered matters that were not purely economic, but noted that such considerations were part of the Commission’s wide mandate under s. 7 of the Telecommunications Act, S.C. 1993, c. 38 (at paras. 34-35).
[102] Section 7 of that Act, unlike s. 2 of the Ontario Energy Board Act, expressly includes the power “to respond to the economic and social requirements of users of telecommunications services” (s. 7(h)), as well as to enrich and strengthen the social and economic fabric of Canada and its regions (s. 7(a)). Moreover, while s. 27(2)(b) of that Act forbids unjust discrimination in rates charged, s. 27(6) explicitly permits reduced rates, with the approval of the Commission, for any charitable organization or disadvantaged person.
[103] In contrast to the broad mandate given to the CRTC, the objectives of the Board are much more confined. When the Board’s objectives go beyond the economic realm, specific reference has been made to other objectives, such as conservation and consumer education (s. 2 (5) and (6)). There is no reference to the consideration of economic and social requirements of consumers.
[104] The appellants have also pointed out that the Board has in the past authorized programs that transfer benefits to lower income customers. The Winter Warmth program is one in which individuals can apply for emergency financial relief with heating bills. It is triggered by an application from a particular customer, and the program is funded by all customers. The fact that the Board has approved this charitable program does not lead to the conclusion that it has jurisdiction to set rates on the basis of income level.
[105] With respect to the Demand Side Management (DSM) programs, the majority of the Board explained that this is not equivalent to a rate class based on income level. At p. 11 of its Reasons, the majority stated,
The Board is vigilant in ensuring that customer groups are afforded the opportunity to receive the benefits of the costs charged. In the case of Demand Side Management (DSM) programs, for example, the Board has ordered that specific funding be channeled for programs aimed at low income customers. It cannot be argued that this constitutes discriminatory pricing. Rather, the contrary. It is an attempt to avoid discrimination against low income customers who also pay for DSM programs but may not have equal opportunities to take advantage of these programs.
[106] Were the Board to assume jurisdiction to order a rate affordability assistance program, it would be taking on a significant new role as a regulator of social policy. Given the dramatic change in the role that it has historically played, as well as the departure from common law principles, it would require express language from the Legislature to confer such jurisdiction
Jurisdiction by Necessary Implication
[107] In order to impute jurisdiction to a regulatory body, there must be evidence that the exercise of the power in question is a practical necessity for the regulatory body to accomplish the goals prescribed by the Legislature (ATCO, supra at paras. 51, 77). In this case, there is no evidence that the power to implement a rate affordability assistance program is a practical necessity for the Board to meet its objectives as set out in s. 2.
The Role of the [Charter](https://www.canlii.org/en/ca/laws/stat/schedule-b-to-the-canada-act-1982-uk-1982-c-11/latest/schedule-b-to-the-canada-act-1982-uk-1982-c-11.html)
[108] The appellants submit that the values found in s. 15 of the Canadian Charter of Rights and Freedoms should be considered in the interpretation of the ratemaking provisions of the Act. However, the Charter has no relevance in interpretation unless there is genuine ambiguity in the statutory provision (R. v. Rodgers, 2006 SCC 15, [2006] 1 S.C.R. 554 at paras. 18-19). A genuine ambiguity is one in which there are “two or more plausible readings, each equally in accordance with the intentions of the statute” (at para. 18).
[109] In my view, there is no ambiguity in the interpretation of s. 36 of the Act, and therefore, there is no need to resort to the Charter.
[110] In any event, the appellants’ argument is, in fact, that the failure of the Board to order a rate affordability program is discriminatory on the basis of sex, race, age, disability and social assistance, because of the adverse impact on these groups (Factum, para. 43, as well as para. 47). Such an argument can not be made without a full evidentiary record, and the inclusion of statistical material in the Appeal Book is not a sufficient basis on which to address this equality argument.
Conclusion
[111] For these reasons, I am of the view that the majority decision of the Board was correct, and that the Board has no jurisdiction to order rate affordability assistance programs for low income consumers. Therefore, I would dismiss the appeal.
Swinton J.
Released: May 16, 2008
COURT FILE NO.: 273/07
DATE: 20080516
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
KITELEY, CUMMING AND SWINTON JJ.
B E T W E E N:
ADVOCACY CENTRE FOR TENANTS-ONTARIO and INCOME SECURITY ADVOCACY CENTRE on behalf of LOW-INCOME ENERGY NETWORK
Appellant
- and -
ONTARIO ENERGY BOARD
Respondent
REASONS FOR JUDGMENT
Released: May 16, 2008