Enbridge Gas Inc v. Ontario Energy Board, 2020 ONSC 3616

CITATION: Enbridge Gas Inc v. Ontario Energy Board, 2020 ONSC 3616

DIVISIONAL COURT FILE NO.: 601/19 DATE: 20200610

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

Swinton, Backhouse and Favreau JJ.

BETWEEN:

ENBRIDGE GAS INC.

Appellant

– and –

ONTARIO ENERGY BOARD

Respondent

Crawford Smith and John Carlo Mastrangelo, for the Appellant

Ian Richler, for the Respondent

Mark Rubenstein, for the Intervenor Ontario Education Services Corporation

HEARD at Toronto (by videoconference): June 2, 2020

Swinton and Favreau JJ.

Overview

1Enbridge Gas Inc. (the “appellant”) appeals from a decision and order of the Ontario Energy Board (the “OEB”) dated September 23, 2019, OEB-2018-0305 (the “Effective Date Decision”), which determined that the effective date for a 2019 rate increase for natural gas would be April 1, 2019. The sole issue in this appeal is whether the OEB erred in law in setting this date, rather than January 1, 2019.

2For the reasons that follow, we would dismiss this appeal, as the OEB made no error in law.

Factual Background

3The appellant is a licensed distributor of gas in the province of Ontario. It was formed as a result of a merger of two predecessor companies, Enbridge Gas Distribution Inc. and Union Gas Limited.

4The OEB is the energy regulator for Ontario. It has the power to set the rates that a regulated utility can charge its customers. Pursuant to s. 36(2) of the Ontario Energy Board Act, 1998, S.O. 1998, c. 15, Sch. B (the “Act”), the OEB is authorized to “make orders approving or fixing just and reasonable rates” for the sale, transmission, distribution and storage of natural gas. Pursuant to s. 36(3), it may adopt any method or technique that it considers appropriate for approving or fixing just and reasonable rates. When an applicant seeks approval for rate changes, it has the burden to show the rates sought are just and reasonable (s. 36(4)).

5The OEB approved the amalgamation of Enbridge Gas Distribution Inc. and Union Gas Limited on August 30, 2018 (the “MAADs decision”). The order approving the amalgamation also set out the framework by which rates would be set for the newly amalgamated company over a five year period beginning in January 2019.

6The appellant’s predecessors decided to proceed with the proposed amalgamation effective January 1, 2019. In an application filed on November 23, 2018, they asked the OEB to approve increased rates beginning on January 1, 2019 on an interim basis. Subsection 21(7) of the Act permits the OEB to set interim rates for a utility pending a final determination of rates.

7On December 3, 2018, the OEB granted interim rates effective January 1, 2019 based on the 2018 basic rates. The OEB specifically stated that this interim order was without prejudice to its determination of the rates application “and should not be construed as predictive, in any way whatsoever, of the OEB’s final determination of the effective date for rates arising from the application.”

8An application for final rates for 2019 was filed on December 14, 2018. The appellant sought an order that the increase be effective January 1, 2019. The OEB rendered its decision on the final rates application on September 12, 2019, and decided that the new, higher, final rates would be implemented on November 1, 2019.

9The OEB then sought submissions from the appellant, staff and the intervenors who had participated in the rate hearing on the question of the effective date for the increase in rates. In doing so, the OEB expressed its preliminary view that the appropriate date would be April 1, 2019, because it was unreasonable for the appellant to expect that the application, filed on December 14, 2018, could be processed in time for the new rates to be effective January 1, 2019. While the OEB acknowledged that the appellant could not have proceeded until the MAADs decision in August, 2018, it also observed that the time for filing the MAADs application and the timing of the amalgamation were within the discretion of Enbridge Gas. The OEB then quoted its earlier decision in Ontario Power Generation, August 30, 2018 (EB-2018-0085) (“OPG (2018)”):

The OEB expects any applicant to make a reasonable assessment of the time that it will take to process its application based on the nature of that application and the experience of previous applications, and to file with sufficient time before the requested effective date. To the extent that this assessment is not reasonable, customers should not bear any negative consequence.

10In written submissions, the intervenors proposed later dates than April 1. Staff took the position that April 1 was within the range of reasonable options, but an earlier date would be more appropriate. The appellant again sought the date of January 1, 2019.

11The OEB issued its September 23, 2019 decision, setting April 1, 2019 as the effective date for the final rates, explaining,

The OEB concludes that an April 1, 2019 date appropriately takes into consideration the timing of the application, the timing of the MAADs Decision, the complexity of the application, and the OEB’s performance metrics.

12The OEB performance metrics are a guideline for the time required for the OEB to process an application. As mentioned in the final rates decision, the applicable performance standard was 165 days for complex incentive rate-setting applications. Given that standard, the OEB concluded that the appellant could not reasonably have expected the application filed in mid-December, 2018 would be determined by January 1, 2019.

13The OEB also took into account the timing of the MAADs decision, stating this was a reason not to choose a later effective date, as suggested by the intervenors. It also took into account that the amalgamation application was within the appellant’s discretion, and that the appellant could have taken steps to file the rate application earlier or to bifurcate it to allow a determination of the more mechanistic base rate adjustment before a determination of more complicated parts of the application.

The Appeal

14Pursuant to s. 33(2) of the Act, an appeal lies to this Court from an order of the OEB only on a question of law or jurisdiction. Given the decision of the Supreme Court of Canada in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, the standard of review on this appeal is correctness (see para. 37).

15The appellant argues that the OEB erred in law in setting April 1, 2019 as the effective date because it failed to consider whether the rates applicable for January 1, 2019 through March 31, 2019 were just and reasonable, and it failed to explain why the rates for that period, based on the interim rates order, were just and reasonable. In other words, the OEB failed to exercise its statutory authority to determine that the 2019 rates are just and reasonable at all times. Moreover, the OEB based its decision with respect to the effective date on an irrelevant consideration – namely the date at which the appellant filed its rate application for 2019 and the OEB’s performance metrics.

16The OEB argues that the appeal should be dismissed on two threshold grounds. First, the OEB submits that the appeal raises no question of law or jurisdiction. Second, the OEB argues that the Court should exercise its discretion to refuse to hear the appeal, because the appellant did not make the argument before the OEB that the April 1, 2019 effective date would result in rates that were not just and reasonable. In the alternative, the OEB argues that there is no merit to the appeal.

17The intervenor, Ontario Education Services Corporation, argues that the appellant is, in effect, arguing that the effective date for final rates must be the same as that for interim rates, and that is not consistent with the legislation, the jurisprudence, and the wide discretion of the OEB in setting rates. As well, if the appellant’s position was accepted, there would be a denial of procedural fairness, as the intervenors had not been given an opportunity to participate in the setting of the interim rates.

The preliminary issues raised by the OEB

18As reviewed above, the OEB argues that the appeal should be dismissed on the two following preliminary grounds:

a. The appeal does not raise a question of law; and

b. Even if the appeal raises a question of law, the Court should exercise its discretion not to hear the appeal because the appellant raises a new issue that was not raised before the Board.

19We decline to dismiss the appeal on these preliminary issues.

The appeal raises an issue of law

20Pursuant to s. 33(2) of the Act, an appeal from an order of the Board can be made to the Divisional Court, but only on a question of law or jurisdiction.

21The OEB argues that the appellant’s appeal does not raise a question of law or jurisdiction because it attacks the Board’s exercise of a broad discretion under s. 36(2) and (3) of the Act to fix “just and reasonable” rates and to “adopt any method or technique that it considers appropriate” in doing so. The OEB argues that, given the breadth of this discretion, it had the authority to consider the timing of the appellant’s application as a factor when fixing the effective date for new rates.

22The problem with this argument is that it goes to the merits of the appeal and not to the issue of whether the appeal raises a question of law.

23The appeal and the OEB’s response to the appeal squarely raise the issue of whether there are any constraints on the discretion to fix rates, and whether those constraints preclude the Board from considering the timing of the appellant’s application. The OEB may be correct in its assertion that it has the discretion to consider the timing of the application. But the scope of its discretion is a question of law. It requires the Court to review the legislation and prior case law to determine the breadth of the Board’s discretion and whether it encompasses consideration of the timing of an application.

24If the Board’s discretion includes consideration of the timing of the application, we agree with the OEB that the Court cannot interfere with the way the Board chose to exercise its discretion. But the threshold issue of whether the Board considered an irrelevant factor raises a question of law.

The appellant raises a new issue on appeal

25There is no dispute that the appellant raises a new issue on this appeal. In its submissions to the OEB on the effective date, the appellant did not argue that the timing of its application was irrelevant to determining the effective date. Rather, it argued that it made its application as soon as practicably possible. Therefore, the OEB did not have an opportunity to consider the relevance of the timing of the application in the context of this matter.

26Relying on this Court’s recent decision in Planet Energy (Ontario) Corp. v. Ontario Energy Board, 2020 ONSC 598 (Div. Ct.), the OEB argues that the Court should decline to hear the appeal because the OEB should have been given an opportunity to consider the issue. In response, relying on the Supreme Court of Canada’s decision in Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61, the appellant argues that the Court should deal with its appeal because it only raises a question of law and because the OEB has dealt with the relevance of the timeliness of applications in other decisions.

27In Planet Energy, this Court considered whether it should deal with an appeal from a decision of the OEB that raised a new issue. In that context, the Court reviewed the principles that apply when the Court considers whether to hear an appeal from a tribunal decision that raises an issue that was not argued before the tribunal (see paras. 17-20):

17The Board argues that this Court should exercise its discretion to refuse to determine the limitation issue, given that it was never raised before the Board and is raised for the first time on appeal. The Board relies on Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61, [2011] 3 S.C.R. 654. This was an application for judicial review in which the Supreme Court of Canada discussed when it is appropriate for a reviewing court to address an issue that was not before the administrative tribunal. The Board argues that the reasoning is applicable in the present case, even though this is an appeal rather than an application for judicial review.

18In Alberta (Information and Privacy Commissioner), the Supreme Court stated that a reviewing court has the discretion to address a new issue raised on judicial review. However, the Court observed that the discretion will generally not be exercised in favour of hearing argument on that issue if the issue could have been raised before the tribunal and was not raised (at para. 23).

19The Supreme Court discussed the rationales for this rule. First, given that the Legislature has designated the tribunal to be the decision maker of first instance, the courts should respect the legislative choice (at para. 24). Where the issue relates to the tribunal’s specialized functions, the Court should not ignore the benefit of the having tribunal’s views on the issue. Second, the Court notes that there can be prejudice to the opposing party if it has not had an opportunity to present evidence on this issue, and the reviewing court does not have an adequate evidentiary record (at para. 26).

20Courts hearing appeals have also stated that they have the discretion to refuse to hear argument on an issue not raised at first instance (Rowan v. Ontario Securities Commission, 2012 ONCA 208 at paras. 70-71, 77, a case dealing with an appeal from the Ontario Securities Commission). In the civil case of Kaiman v. Graham, 2009 ONCA 77, the Court of Appeal stated (at para. 18):

The burden is on the appellant to persuade the appellate court that “all the facts necessary to address the point are before the court as fully as if the issue had been raised at trial” …

28In Planet Energy, at para. 26, the Court went on to decline to hear the appeal, in part because “the Board is an expert and highly specialized tribunal that can assist the Court in the exercise of statutory interpretation by providing context and a consideration of the impact of various interpretations”.

29In this case, while we agree that the appellant should have raised the issue before the OEB, we nevertheless find that this is an exceptional case in which it is appropriate for the Court to decide the appeal. In Alberta (Information and Privacy Commissioner), at para. 28, the Supreme Court found that it was appropriate to deal with an issue not raised on an application for judicial review in the following circumstances:

. . . In this case, the rationales for the general rule have limited application. Both parties agreed that the Commissioner had expressed his views in several other decisions. Therefore, the Commissioner has had the opportunity to decide the issue at first instance and we have the benefit of his expertise, albeit without reasons in this case. No evidence was required to consider the timelines issue and no prejudice was alleged. Rather, it involved a straightforward determination of law, the basis of which was able to be addressed on judicial review, irrespective of what is the appropriate standard of review.

30Here, there are no facts in dispute that relate to the issue of whether the timing of the application is a relevant consideration. As reviewed above, this is a question of law.

31In addition, it is an issue the Board has already addressed in other cases. In its submissions on this issue, the appellant referred to three prior decisions of the OEB in which the Board found that the timing of an application is a relevant factor. In Ontario Power Generation, Energy Board 2013-0321, at pp. 131-139 (“OPG (2014)”), the Board addressed arguments essentially identical to the arguments made on this appeal about whether the effective date for rates has to be consistent with the beginning date for interim rates in circumstances where an application was filed late. The OEB relied on the reasoning in that decision in two subsequent decisions in which the same issue was raised: Independent Electricity Operator, Energy Board 2015-0275, at p. 4, and OPG (2018).

32Accordingly, the Court has the benefit of the OEB’s reasoning in prior decisions on this issue.

33Finally, and most significantly, given that similar issues have been raised at least three times previously before the OEB, it appears that this is a recurring issue which would benefit from a determination by this Court. This should not be taken as permission in the future to bypass the OEB when raising significant issues on appeal, including issues of law. As this Court stated in Planet Energy, despite the correctness standard of review on questions of law in the context of statutory appeals recently introduced in Vavilov, the Court nevertheless benefits from a specialized tribunal’s interpretation of its own legislation. However, given the unique circumstances of this case, we find that it is appropriate for the Court to decide the issue raised on the appeal.

The OEB made no error of law

34The appellant argues that the OEB erred in law when it decided that the 2019 final rates would be effective for only part of the period in which interim rates were in effect. In doing so, the appellant submits, the OEB failed to ensure that the rates were just and reasonable at all times.

35The appellant relies on the decision of the Supreme Court of Canada in Ontario Energy Board v. Ontario Power Generation Inc., 2015 SCC 44, [2015] 3 S.C.R. 147 (“OPG (2015)”), particularly para. 20, where the Court stated:

In order to ensure that the balance between utilities’ and consumers’ interests is struck, just and reasonable rates must be those that ensure consumers are paying what the Board expects it to cost to efficiently provide the services they receive, taking account of both operating and capital costs. In that way, consumers may be assured that, overall, they are paying no more than what is necessary for the service they receive, and utilities may be assured of an opportunity to earn a fair return for providing those services.

36In that decision (at para. 15), the Court quoted the 1929 decision of Northwest Utilities Ltd. v. City of Edmonton, 1929 39 (SCC), [1929] S.C.R. 186, which stated that “fair and reasonable” rates were those “which, under the circumstances, would be fair to the consumer on the one hand, and which, on the other hand, would secure to the company a fair return for the capital invested” (at pp. 192-93).

37We note that the 2015 OPG decision dealt with the setting of rates, not the effective date of the rates. The OEB had disallowed certain payment amounts for labour compensation in determining the rates. OPG argued unsuccessfully that the OEB was legally required to compensate it for these costs and that the OEB erred in finding that these were costs not prudently committed or incurred. The OPG decision does not deal with the issue in this appeal – the effective date of a rates decision.

38The appellant also relies on Bell Canada v. Canada (Canadian Radio-Television and Telecommunications Commission), 1989 67 (SCC), [1989] 1 S.C.R. 1722 and Coseka Resources Limited v. Saratoga Process Company Limited, 1981 ABCA 180 in support of its argument that the OEB was required to determine that rates were just and reasonable at all times.

39The issue in Bell was whether the CRTC could adjust interim rates that had been set higher than the final rates by providing a one-time credit to customers. The Supreme Court upheld its power to do so, stating at pp. 1760-61:

The very purpose of interim rates is to allay the prospect of financial instability which can be caused by the duration of proceedings before a regulatory tribunal. In fact, in this case, the respondent asked for and was granted interim rate increases on the basis of serious apprehended financial difficulties. The added flexibility provided by the power to make interim orders is meant to foster financial stability throughout the regulatory process. The power to revisit the period during which interim rates were in force is a necessary corollary of this power without which interim orders made in emergency situations may cause irreparable harm and subvert the fundamental purpose of ensuring that rates are just and reasonable.

40In Coseka, the Alberta Court of Appeal held that the Public Utilities Board had the authority to set an effective date for final rates at any time back to the date of the interim order. The Court would not intervene unless the Board had acted on a wrong principle. The Board had found the interim rates ceased to be just and reasonable shortly after the interim order was made. The Court of Appeal found that the Board then acted on a wrong principle when it refused to make the final rates effective as of 1975, the date of the interim rates order, and instead chose a date in 1977 to prevent a windfall to the utility.

41Both parties to this appeal and the intervenor rely on paragraph 36 of the Coseka reasons:

It was also urged on behalf of Coseka that great injustice will result if interim rates once paid may subsequently be varied. There is no doubt that the Board must take careful account of this factor in its determination of what is just and reasonable and the problem becomes the more serious the longer is the delay. Some purchasers of the utility service for whom it is a cost of doing business may be unable to incorporate a changed rate in the price of the goods or services they themselves sell. Other purchasers who made economic decisions on the premise that the utility service had a given cost, may find those decisions invalidated. Nevertheless all consumers of a utility service must be aware that the rates in an interim order are subject to change and determine their course of action upon the basis of that knowledge. The time involved will usually be relatively short and the Board will do its best to minimize the impact of the change. In this case, through no fault of the Board, a very long time elapsed before the interim order could be finalized. When the parties to a hearing realize that the rates set in an interim order are subject to variation, they will perceive that there is no advantage to be gained by delay.

42We now turn to the present case. Pursuant to s. 36(2) and (3), the OEB has a broad discretion to set just and reasonable rates. The Act does not set out precise factors that the OEB must apply. However, there is some guidance in the objects set out in s. 2 of the Act, where the Board is instructed that it shall be guided by a number of principles, including

2. To protect the interest of consumers with respect to prices and the reliability and quality of gas service.

5.1 To facilitate the maintenance of a financially viable gas industry for the transmission, distribution and storage of gas…

43In determining the effective date, the OEB had to consider the fairness of an adjustment of rates as of January 1, 2019 to both consumers and the appellant. Generally rate setting is prospective in nature, as the Ontario Court of Appeal observed in Union Gas Ltd. v. Ontario (Energy Board), 2015 ONCA 453 (at para. 82):

It is well established that an economic regulatory tribunal, such as the Board, operating under a positive approval scheme of ratemaking must exercise its rate-making authority on a prospective basis. Generally speaking, absent express statutory authorization, such a regulator may not exercise its rate-making authority retroactively or retrospectively.

44When the OEB makes an order setting interim rates, it removes the obstacle to retroactive or retrospective rate settings. It can revisit those rates subsequently in order to determine whether they should be adjusted in its final order. However, as the Alberta Court of Appeal observed in Coseka, there can be serious impacts on consumers if a rate change has a retrospective effect. As the intervenor pointed out, a public utility regulator may consider issues such as intergenerational equity, whereby present customers are asked to pay for the expense incurred by past customers, and hardship caused when rates are raised retroactively (see, for example, Calgary (City) v. Alberta (Energy and Utilities Board¸ 2010 ABCA 132 at para. 48).

45In reaching the decision under appeal, the OEB applied the principles that it had set out in its earlier OPG (2018) and OPG (2014) decisions. In the 2014 decision, the OEB stated (at p. 132):

As the decision to issue an interim order is discretionary, it follows that any decision to draw the effective date of the final payments order back to the date of the interim order is also discretionary. Nothing in the legislation suggests that the issuance of an interim order in any way ties the Board.

46Moreover, the OEB addressed the argument that rates must be just and reasonable at all times in OPG (2014) when it stated (at p. 134):

The obligation to ensure that rates are always just and reasonable does not mean that the Board must examine and adjust a utility’s rates on a constant basis. Most utility’s rates are set on a forecast basis, for example, and invariably these forecasts turn out to be inaccurate to some extent. Absent extraordinary circumstances, the Board does not intervene to adjust rates simply because actual costs or revenues are different from what was forecast – even though the Board has the power to do so. In other words, there is a measure of “wiggle room” in a just and reasonable rate.

47Finally, the following passage from OPG (2018) sets out the principles that the OEB applied in the present decision. At p. 16, it stated,

The declaration of interim rates provides one of the regulatory exceptions to the prohibition against rate retroactivity. It allows the OEB to consider the reasonableness of the proposed effective date taking into account such issues as rate certainty and inter-generational inequity. Setting interim rates, however, does not require the OEB to ultimately match the effective date with the date the interim order comes into effect – it simply gives it the ability to do so. As stated earlier the OEB expects any applicant to make a reasonable assessment of the time that it will take to process an application and to file with sufficient time before the requested effective date. To the extent that this assessment is not reasonable, customers should not bear the negative consequence associated with rate uncertainty.

48In the present case, the OEB had to decide whether the effective date should be January 1, April 1 or a later date. In coming to its decision that the date should be April 1, the OEB determined that January 1 was not an appropriate effective date for the rates to take effect, given the filing date of the rate application in December 2018, the Board’s performance metrics, the complexity of the application, and the fact that the appellant bore some responsibility for the complexity and the delay.

49We reject the appellant’s argument that the OEB failed to consider whether the rates it was ordering were “just and reasonable” in the period January 1 to March 31, 2019 because the decision does not mention that phrase. The whole process that the OEB was undertaking in response to the appellant’s rate application, including the determination of the effective date, was directed to the determination of just and reasonable rates.

50Moreover, we note that the appellant did not argue before the OEB that an effective date of April 1 results in 2019 rates that were not just and reasonable. It pointed to no evidence of a serious impact on its revenues if the April date were to be chosen. Nor did it submit that the timing of the rate increase application was an irrelevant consideration. Rather, the appellant submitted that the application was filed at the earliest possible time to do so after the MAADs decision.

51The OEB followed the approach it had employed in OPG (2018), holding that consumers should not have to bear the negative consequences when a utility files a rate increase application so late that the Board will not be able to process it by the effective date the utility wants. The timing of the application was not an irrelevant consideration, as the appellant argues. It fell within the Board’s broad discretion in setting rates.

52In our view, there was no error of law by the OEB in its determination of the effective date. It exercised its authority to set just and reasonable rates, taking into account the interests of both the regulated utility and consumers, and it did so on the basis of relevant considerations.

Conclusion

53Accordingly, the appeal is dismissed without costs.

Swinton J.

Favreau J.

I agree _______________________________

Backhouse J.

Released: June 10, 2020

CITATION: Enbridge Gas Inc v. Ontario Energy Board, 2020 ONSC 3616

DIVISIONAL COURT FILE NO.: 601/19 DATE: 20200610