CITATION: Town of Petrolia v. Municipal Property Assessment Corporation, 2022 ONSC 946

DIVISIONAL COURT FILE NO.: 37/21

DATE: 20220211

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Dambrot, Swinton and Copeland JJ.

BETWEEN:

THE TOWN OF PETROLIA AND THE COUNTY OF LAMBTON

Appellants

– and –

MUNICIPAL PROPERTY ASSESSMENT CORPORATION AND WASTE MANAGEMENT OF CANADA CORPORATION

Respondents

Cynthia B. Kuehl and Lucy Sun, for the Appellants

Jeffrey E. Feiner and Hilary Brown, for the Respondent Municipal Property Assessment Corporation

Stephen Aylward, Robert Brazzell and Jesse White, for the Respondent Waste Management of Canada Corporation

HEARD at Toronto (by videoconference): January 25, 2022

Swinton J.:

Overview

1The Town of Petrolia and the County of Lambton appeal, with leave, from a decision of the Assessment Review Board (the “Board”) dated July 13, 2020. The Board determined that the current value assessment of a landfill site owned and operated by the respondent Waste Management of Canada Corporation (“WMC”) should be determined without including the value of a facility used to generate electricity from landfill gas (the “Facility”).

2The appellants argue that the Board erred in law in concluding that the Facility was used “exclusively” for landfilling activity, as required by the applicable regulation under the Assessment Act, R.S.O. 1990, c. A.31 (the “AA”), because the electricity generated by the Facility is sold for distribution in the electricity market, and thus it is a commercial activity.

3For the following reasons, I would dismiss the appeal, as the Board made no error of law when it concluded that the current value of WMC’s landfill site should be determined without regard to the Facility.

The Factual Background

4The parties proceeded before the Board by way of an Agreed Statement of Facts (“ASF”).

5WMC owns a property in Petrolia, in the County of Lambton, on which it operates a landfilling and waste disposal site. As the organic waste contained in the landfill decomposes, it produces landfill gas that contains high levels of methane, a potent greenhouse gas.

6The property includes a flare building built in 2005 and a flare stack built in 2009. The flare stack and flare building are used to burn landfill gas and emit it into the air as less toxic carbon dioxide.

7The property also contains the Facility, built in 2011, which collects, treats, and converts landfill gas to generate electricity. The ASF describes the process used by the Facility in para. 7:

The landfill gas is collected and piped into the Facility. In the facility, landfill gas enters its first filtration stage whereby larger debris and liquids are removed. The landfill gas is then cooled, re-filtered, and compressed to a density such that it can be used as a fuel for the engines in the Facility, which power an electrical generator (i.e. produce electricity).

8The Facility was built by WMC in partnership with Bluewater Power Corporation (“Bluewater”) and its subsidiaries. Bluewater is a municipal enterprise whose shareholders are local municipalities. It is a licensed electricity distributor and distributes electricity to approximately 35,000 customers in the neighbouring area. Bluewater receives a financial return on its investment in the Facility.

9The Facility is operated by WMC. It has a contract with the Independent Electrical System Operator for the transfer of the electricity generated by the Facility to the power grid, where it is then distributed by Bluewater.

10The parties agree that the Facility is expected to continue to generate electricity after the landfill closes. It will stop generating electricity once the landfill site ceases to emit sufficient fuel to generate electricity.

The Legislative Framework

The environmental regulation of landfill sites in Ontario

11Landfill sites in Ontario are regulated under the Environmental Protection Act, R.S.O. 1990, c. E.19 (the “EPA”) and its regulations. Operating landfill sites require an Environmental Compliance Approval (“ECA”) from what is now the Ministry of the Environment, Conservation and Parks (“MECP”), as s. 27(1) of the EPA provides that no waste disposal site can be operated except under, and in accordance with, an ECA.

12Pursuant to regulations under the EPA, certain landfill sites, including WMC’s property, must operate in accordance with environmental control mechanisms. There is no general requirement for landfill sites in Ontario to use landfill gas to generate electricity. However, Regulation 347 under the EPA requires them to contain “facilities for the collection, and for the burning or use, of landfill gas generated by the site during the operation and following site closure” (O. Reg. 347, General – Waste Management, s. 11.1(1)(a)). Pursuant to the regulations, landfill gas can be burned in a flare stack, which converts the gas to carbon dioxide, or used as a fuel for engines/turbines that generate electricity.

13A 2008 amendment to Regulation 347 expressly required owners and operators of landfill sites to report on the design and possible improvements to landfill gas collection facilities in order to increase the amount of landfill gas generated by the site that could be collected, and then burned or used (s. 11.1(1)(a) and (b)). WMC proposed a design to improve its gas collection system in June 2009, which at that time consisted of the flare building and flare stack. The new design and the later construction of the Facility were approved by the Ministry and described in the amended ECAs of 2011 and 2014 as a “landfill gas collection and utilization system” and “utilization facility.” Pursuant to s. 11.3 of Regulation 347, WMC is required to ensure the Facility is in operation during the site’s operation and after its closure.

The assessment of landfills

14The Assessment Act intends that every parcel of land shall bear its proportionate share of property taxation in a fair and equitable manner (Municipal Property Assessment Corporation v. BCE Place Limited, 2009 50862 (Div. Ct.) at para. 63). However, as this Court has observed, “the public interest in the generation of revenues may be outweighed by the public interest in benefitting discrete groups or advancing purposes other than revenue generation” (Walton International v. Farm Property Class Tax Rate Program, 2012 ONSC 4172 (Div. Ct.) at para. 31).

15Amendments to O. Reg. 282/98 (the “Regulation”) under the AA were adopted in December 2016, following two reports by John Wilkinson of PricewaterhouseCoopers entitled Landfill Assessment Methodology Review and Implementation of the Landfill Assessment Review. The amendments added a new landfill property class and prescribed a method for determining the current value of landfill sites.

16Mr. Wilkinson’s reports were appended to the ASF, and all parties made reference to them in this appeal. He recommended that the value of two key environmental protection features in most landfill sites - cell liners and methane gas capture equipment - be excluded from the assessed value of landfill sites in order “to recognize the greater public good of these features” (Report, April 18, 2016, p. 9).

17Section 14.3 of the amended Regulation defines the “landfill property class”:

(1) Subject to subsection (2) and regardless of any other use of the land, the landfill property class consists of,

(a) land on which landfilling is permitted to occur pursuant to a current environmental compliance approval; and

(b) land that contains a closed landfill cell.

(2) The landfill property class does not include the following:

1. Closed landfilling sites.

2. Landfilling sites that are approved for the deposit of waste primarily generated by the owner or operator of the landfilling site in the course of the person’s business operations.

3. Landfilling sites that are approved for the receipt and deposit of hazardous waste.

(3) In this section,

“environmental compliance approval” means an environmental compliance approval within the meaning of the Environmental Protection Act;

“landfilling” means the disposal of waste by deposit, under controlled conditions, on land or on land covered with water, and includes compaction of the waste into a cell and covering the waste with cover material in regular intervals;

“landfilling activities” means activities related to the operation of a landfilling site, such as depositing waste in the waste fill area, maintaining areas approved for future landfilling in the waste fill area, and operational, monitoring, maintenance and environmental control activities on the landfilling site, but does not include on-site thermal treatment of the waste or the transfer, sorting, shredding, recycling or composting of the waste;

“landfilling site” means land for which an environmental compliance approval has been issued in respect of landfilling activities.

18Section 43.2 deals with the determination of the current value of landfilling sites, other than closed landfilling sites. It provided, at the time of the current proceeding:

(1) This section applies to any portion of land in a landfilling site, other than a closed landfilling site, that is used exclusively for landfilling activities or that contains a closed landfill cell.

(2) For the 2017, 2018, 2019 and 2020 taxation years, the current value of the land shall be determined as if it were vacant industrial land, subject to subsections (3) and (4).

(3) The current value of the land shall be determined without regard to the value of,

(a) primary and secondary liners;

(b) structures, machinery, equipment or fixtures that are associated with primary leachate collection systems, secondary leachate collection systems or gas collection systems; and

(c) for landfilling sites that are approved for the receipt and deposit of hazardous waste, structures, machinery, equipment or fixtures that are used for pre-treatment and processing of hazardous waste.

(4) The current value of buildings and structures located on the land, other than those listed in subsection (3), shall be determined using the replacement cost new approach to valuation, less depreciation.

(5) In this section,

“closed landfill cell”, “closed landfilling site”, “environmental compliance approval”, “landfill cell”, “landfilling activities” and “landfilling site” have the same meaning as in subsection 14.3 (3);

“gas collection system” means facilities to detect, monitor, collect, redirect, treat, utilize or vent landfill gasses;

“primary leachate collection system”, “primary liner”, “secondary leachate collection system” and “secondary liner” have the same meaning as in Ontario Regulation 232/98 (Landfilling Sites) made under the Environmental Protection Act.

19With respect to closed landfilling sites, s. 43.3 applies:

(1) This section applies to land in a closed landfilling site, as defined in subsection 14.3 (3).

(2) For the 2017, 2018, 2019 and 2020 taxation years, the current value of the land shall be determined without regard to the value of the items listed in subsection 43.2 (3).

The Decision of the Board

20WMC appealed its 2016 current value assessment by the Municipal Property Assessment Corporation (“MPAC”) on the basis that its landfill site was closed effective June 1, 2016. The appellants took the position that the Facility should be classified as industrial, and the landfill site was not closed.

21On further investigation, MPAC concluded that the valuation should exclude the value of the gas collection system, including the flare stack, the flare building and the Facility.

22When the issue of the valuation of WMC’s property came before the Board, the only issue was whether the Facility should be excluded from the current valuation of the landfill site. WMC and MPAC took the position that the Facility should be excluded, while the appellants argued that it should be included.

23The Board set out the two issues to be determined: first, is the Facility used “exclusively” for landfilling activities, and if so, is the Facility a “gas collection system”?

24It found that the Facility is on a portion of a landfilling site, and that the Facility is used for landfilling activities. It then determined that the exclusivity requirement in s. 43.2(1) of the Regulation was met, and the Facility was a gas collection system. Accordingly, the Facility should not be included in the valuation of the landfill site for assessment purposes.

The Issues on Appeal

25Pursuant to s. 43.1(1) of the AA, an appeal lies to the Divisional Court only on a question of law and with leave.

26The appellants raise two issues on appeal:

1. Did the Board err in placing the burden of proof on the appellants?

2. Did the Board err in law in finding that the property was used exclusively for landfilling activities?

The Standard of Review

27As this is an appeal on a question of law, the standard of review is correctness (Minister of Citizenship and Immigration v. Vavilov, 2019 SCC 65 at para. 37).

Analysis

Did the Board err in placing the burden of proof on the appellants?

28The appellants argue that the Board erred in para. 20 of its reasons when it stated that the appellants bore the burden of proof in the proceedings. Subsection 40(17) of the Act states that “where value is a ground of appeal, the burden of proof as to the correctness of the current value of the land rests with the assessment corporation.”

29The respondents argue that the leave judge did not grant leave on this issue, so this Court should not address the issue on this appeal.

30The leave judge did not state the precise question or questions of law that the Divisional Court should address on the appeal. Therefore, the appellants are not barred from raising the first issue respecting the burden of proof.

31While the Board erred in its statement about the burden of proof, this error had no effect on the outcome of the proceeding before the Board. Nor does it have any effect on this appeal, which deals with a question of statutory interpretation. The burden of proof is important when a tribunal is assessing evidence and determining whether the party with the burden of proof has met its onus. Here, the Board was not engaged in finding facts based on the evidence presented by opposing parties. The facts were not in dispute. Rather, the task of the Board was the interpretation of the Regulation and its application to the facts set out by the parties in the AFS.

32Accordingly, I would give no effect to this ground of appeal.

Did the Board err in law in finding that the property was used exclusively for landfilling activities?

33The sole issue in this appeal is whether the Board erred in law in finding that the property was used “exclusively” for “landfilling activities”, as required by s. 43.2(1) of the Regulation.

34The task of the Board and this Court is one of statutory interpretation. In accordance with the modern approach to statutory interpretation, the words of the Regulation must be read in context and in their grammatical and ordinary sense, harmoniously with the scheme of the regulation, its object, and the intention of the legislator (Rizzo & Rizzo Shoes Ltd. (Re), 1998 837 (SCC), [1998] 1 S.C.R. 27 at para. 21).

35There is no dispute that the subject property is a “landfilling site” as defined in s. 14.3(3) of the Regulation. A “landfilling site” is defined as “land for which an environmental compliance approval has been issued in respect of landfilling activities.” WMC operates its landfill site in accordance with environmental compliance approvals that have been issued by the MECP.

36The ultimate question is whether the portion of the land where the Facility is located is used “exclusively” for “landfilling activities”. The appellants argue that the Board erred in concluding that the Facility was used exclusively for landfilling activities because the electricity generated was then distributed and sold. They submit that this distribution was not a required environmental control activity. Rather, it was a commercial activity, and therefore, the portion of the site on which the Facility was located was not “exclusively” used for landfilling activities.

37While the appellants focus on the word “exclusively”, the interpretation of that word requires that it be considered in the context of other parts of the Regulation, as well as the broader context of the environmental regulation of landfills and the object of the Regulation.

38The definition of “landfilling activities” in s. 14.3(3) of the Regulation, quoted earlier, begins, “activities related to the operation of a landfilling site.” It then sets out several examples - “such as depositing waste in the waste fill area, maintaining areas approved for future landfilling in the waste fill area, and operational monitoring, maintenance and environmental control activities on the landfilling site” (emphasis added).

39The definition then states that it “does not include on-site thermal treatment of the waste or the transfer, sorting, shredding, recycling or composting of the waste.” It is noteworthy that the excluded activities do not refer to the generation or sale of electricity. In my view, the Board correctly concluded that none of the enumerated exclusions in the definition of landfilling activities relate to the generation of electricity or its sale.

40“Environmental control activities” is not defined in the Regulation. However, ss. 14.3 and 43.2 of the Regulation refer to the EPA and environmental compliance approval within the meaning of the EPA as they apply to landfills. For example, s. 14.3(1) provides that, subject to specified exclusions in s. 14.3(2), the landfill property class consists of “land on which landfilling is permitted to occur pursuant to a current environmental compliance approval” and land that contains a closed landfill cell. Subsection 14.3(3) states that “environmental compliance approval” means, in this section, an environmental compliance approval within the meaning the EPA, while “landfilling site” is defined as “land for which an environmental compliance approval has been issued in respect of landfilling activities.” Subsection 43.2(5) then states that in s. 43.2,“… ‘environmental compliance approval’, … ‘landfilling activities’ and ‘landfilling site’ have the same meaning as in subsection 14.3 (3)”. Given all these referrals to the EPA regulatory scheme, the interpretation of the Regulation under the AA should be informed by and be harmonious with the regulatory provisions under the EPA.

41The Board concluded that “the process of using landfill gases to create electricity is a known method of dealing with such gases, and that activity is compliant with the regulatory scheme within which it is operating” (Reasons, para. 40). As a result, the Board concluded that the Facility “is an environmental control facility as captured by the definition” (at para. 41).

42The Board misspoke when it described the Facility as an environmental control “facility”, but nothing turns on that. It is more accurate to say that the Facility is engaged in environmental control activity, because it controls the discharge of gases from the landfill site through the generation of electricity. Its operation of gathering, treating, and converting landfill gases in order to generate electricity is an environmental control activity, and thus a “landfill activity” within the meaning of the Regulation.

43Both the appellants and MPAC made reference to an email from Rick Li at the MECP dated July 4, 2019. This email provides a helpful context and supports the Board’s conclusion:

1. Landfill gas collection is mandatory for the Petrolia Landfill as per Section 11.1(1) of Reg. 347. For compliance with Reg. 347, a design report for the landfill gas management system that includes details for the gas wellfield network and piping, operation, maintenance and monitoring was submitted to the ministry. The ECA approves the design report, it also specifies information related to the landfill gas management system to be included in the annual report to be submitted to the MECP.

2. MECP only regulates methane capture for landfill sites, the site owner can choose either to flare or use to generate electricity. As such the Waste ECA does not have requirement for power generation facility. However, due to exhaust gas emission, the power facility shall have an approval for Section 9 EPA (Air ECA).

This email confirms that burning or using methane gas to generate electricity are both acceptable methods to meet the obligation to capture landfill gas.

44However, the appellants argue that the generation of electricity was not required for environmental control, nor does the ECA require transmission and distribution of electricity. WMC could have burned the gases. Instead, they chose to use them for the generation of electricity that was then distributed in the market.

45The problem with this argument is that it ignores the fact that WMC was required to report on ways to improve its gas collection system, as I have described earlier in these reasons. The Ministry approved the Facility’s design and the ECA was amended to approve its operation. Compliance with the ECA is required in order that the landfill operates in accordance with the EPA (see s. 11.3 of the EPA regulation described earlier). Therefore, the Facility carries on an environmental control activity when it generates electricity.

46Section 43.2(3) also assists in the interpretation of s. 43.2(1). It sets out exclusions from the market value calculation of landfill sites - for example, structures, machinery, equipment, or fixtures that are associated with “gas collection systems”. That term is defined in s. 43.2(3) to mean “facilities to detect, monitor, collect, redirect, treat, utilize or vent landfill gases” (emphasis added). The Board found that the Facility is a gas collection system, given its utilization of landfill gases.

47The appellants argue that the Court should not consider this definition, as it only becomes relevant if the Facility is “used exclusively for landfilling activities” within s. 43.2(1). I disagree. Section 43.2 must be read as a whole. The definition of gas collection systems recognizes that utilization of landfill gas can be a feature of a particular gas collection system. Moreover, the regulations under the EPA and the ECAs applicable to this site also recognize that generation of electricity from landfill gases is an appropriate and acceptable treatment of those gases.

48I agree with the Board’s conclusion that the Facility is used exclusively for landfilling activity, despite the subsequent distribution of the electricity in the market. The evidence is clear that the Facility was designed, proposed to the Ministry, approved and then built as an improvement to the gas collection system used at the landfill site in order to treat and utilize landfill gas. The continued operation of the Facility is required by the site’s ECA. The Facility operates to treat and use landfill gas to generate electricity, rather than burn it off. This is an acceptable method of dealing with the gases under the environmental regulatory scheme, even if there may be spin off benefits to the landowner (see British Columbia (Assessment Commissioner v. MacMillan Bloedel Ltd., [1982] B.C.J. No. 997 (S.C.) at para. 3; Weyerhauser Canada Ltd. v. Assessor of Area #23 – Kamloops (B.C.S.C. unreported, April 7, 1998), aff’d B.C.C.A. June 11, 1999).

49The appellants argue that electricity generated from landfill gases is a commercial activity if it is ultimately distributed through the electricity market. If the electricity were used on site, s. 43.2(1) would apply, but any sale of that electricity takes the Facility out of the landfill site valuation as vacant land.

50The appellants’ argument is not consistent with the text, context or apparent object of the Regulation. The generation of electricity at the landfill site is an integral part of WMC’s landfilling activities. Even if the electricity is subsequently distributed and sold, the Board correctly held that the sale is ancillary to the landfilling activity – that is, the management of landfill gas in an environmentally acceptable manner.

51The appellants rely on a statement of the leave judge to the effect that the sale of electricity is “not a mere incidental activity related to landfill activities but a separate and distinct activity.” In my view, the leave judge erred in making this statement. It is contrary to the factual finding of the Board with respect to the nature of the activity at the Facility, a finding that is consistent with the factual record. The ultimate distribution and sale of the electricity was ancillary to the landfilling activity carried out by the Facility, a facility that was built to upgrade WMC’s gas collection system in accordance with environmental regulations and its ECA. In any event, the issue before the leave judge was limited to whether leave to appeal should be granted. Although this issue required a limited consideration of the merits of the (then) proposed appeal, his comments on the merits do not bind this panel.

52The appellants rely on 2317089 Ontario Ltd. v. Municipal Property Assessment Corporation, 2018 241, a decision of the Board dealing with the reclassification of property from farmland to industrial after the owners installed solar panels on the roof of barns and sold the electricity into the grid. The owner relied on s. 42.2 of the Regulation that prohibits reclassification due to the installation of machinery or equipment used to produce renewable energy, provided that “the production of electricity is ancillary to another use on the same site.” The Board found that the barn roofs were covered in solar panels and that no farming activity was being conducted on the site. It concluded that the primary use of the properties was the production of electricity.

53In contrast, the present case deals with a different part of the Regulation and different language. As the earlier description of the environmental framework demonstrates, the generation of electricity is a permitted and accepted form of landfill gas management. Distribution into the electricity grid is ancillary to what is an acceptable environmental control activity on a landfill site like WMC’s.

54The interpretation of s. 43.2 adopted by the Board is also consistent with the Wilkinson Reports, referred to earlier, that led up to the 2016 amendment to the Regulation. Those reports recommended the exclusion of gas collection systems from the assessed value of landfills to recognize their greater public good. At p. 8 of the first report (Caselines at A184), Mr. Wilkinson discussed environmental protection:

As noted above under Background, there are two key environmental protection features in most landfill sites – cell liners and methane gas capture equipment.

I recommend that the value of these two features of a landfill be excluded from the assessed value to recognize the greater public good of these features.

55Treating the utilization Facility differently from the flare stack and buildings would be inconsistent with the environmental regulations, which do not mandate or favour one form of landfill gas collection over another.

56The appellants’ proposed interpretation is also inconsistent with the remaining part of the Regulation. Section 43.3 applies to closed landfilling sites. Subsection 43.3(2) provides that the valuation of such sites will be calculated without regard to the elements set out in s. 43.2(3) – that is, without the value of gas collection systems. This suggests that the legislative intention was to exclude the value of all gas collection systems, whether on closed or operating landfill sites – regardless of whether the electricity generated is ultimately sold. Otherwise, gas collection systems on open landfilling sites would be treated differently from those on closed landfilling sites. This seems inconsistent with the object of the Regulation.

57In my view, the Board correctly interpreted and applied s. 43.2(1) of the Regulation. The Facility, in using landfill gas to generate electricity, is used exclusively for landfilling activities, even if the electricity is later sold. Therefore, s. 43.2 applies to determine the current value of the landfill for purposes of assessment, and the structures of the gas collection system are properly excluded from the valuation.

Conclusion

58Accordingly, the appeal is dismissed. The parties have reached an agreement on costs.

Swinton J.

I agree _______________________________

Dambrot J.

I agree _______________________________

Copeland J.