Hydro One Networks Inc. v. Ontario Energy Board

CITATION: Hydro One Networks Inc. v. Ontario Energy Board, 2019 ONSC 3763

DIVISIONAL COURT FILE NO.: 200/19

DATE: 20190618

ONTARIO

SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

BETWEEN:

HYDRO ONE NETWORKS INC. Appellant

– and –

ONTARIO ENERGY BOARD Respondent

– and –

ONTARIO EDUCATION SERVICES CORPORATION Proposed Intervenor

COUNSEL:

Geoff Hall for the Appellant, Hydro One Networks

Hansen Wong for Respondent, Ontario Energy Board

M. Rubenstein for the proposed Intervenor, Ontario Education Services Corporation

HEARD at Toronto: June 5 and 13, 2019

REASONS FOR DECISION

THORBURN J.

BACKGROUND

[1] This is a motion brought by the Ontario Education Services Corporation (“OESC”) to intervene in Hydro One Networks Inc.’s (“Hydro One”) appeal of the Ontario Energy Board’s (“OEB”) Rehearing Decision.

[2] Hydro One filed an application with the OEB for approval of a proposed revenue requirement for its transmission business for 2017 and 2018.

[3] The approved revenue requirement is collected from electricity ratepayers through rates. Part of the revenue requirement request was amounts related to income taxes. Some or all of those taxes would not be paid due to the tax savings resulting from the Government of Ontario’s decision to sell its ownership interest in Hydro One by way of initial public offering and the subsequent sale of shares.

[4] Hydro One took the position that Hydro One, not its ratepayers, was required to pay a significant Departure Tax to exit the provincial payments in lieu of taxes regime after Ontario made a public offering of its indirect parent company’s shares in 2015. This increased the value of Hydro One’s assets and its deductions in computing future income tax. Hydro One never sought to recover the Departure Tax from its ratepayers and, as Hydro One paid the departure tax, Hydro One took the position that its shareholders, not ratepayers, were entitled to the future tax savings.

[5] The OESC through its project, the School Energy Coalition (which represents the interest of Ontario schools in energy regulatory matters), was granted intervenor status, participated fully, and made submissions before the OEB. The SEC argued that based on the just and reasonable principle, 100% of the future tax savings should be allocated to customers.

[6] In its Original Decision, the OEB held that it is required to balance the interests of customers and shareholders. The Original Decision resulted in a proportioning of the future tax savings between shareholders and customers and allocated the future tax savings, 62% to shareholders and 38% to the ratepayers.

[7] The OEB successfully sought a rehearing of the OEB decision. The OEB’s Rehearing Decision upheld the Original Decision in respect of the allocation of future tax savings.

[8] The issue on this Appeal is the reasonableness of the OEB’s Rehearing Decision including the allocation of tax savings as between Hydro One shareholders and ratepayers, and the amount Hydro One should be permitted to charge its ratepayers.

[9] Hydro One has filed its factum on the Appeal but the OEB has yet to file its response.

[10] At the outset of this hearing, all parties agreed that they would not wait for OEB to file its material before addressing the issue of OESC’s request to intervene. At the request of the parties and on the authority of Associate Chief Justice Marrocco, I am hearing this matter as a single judge.

THE ISSUE TO BE DETERMINED

[11] The issue on this motion is whether the OESC should be granted party intervenor status in accordance with Rule 13.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[12] OESC is a non-profit corporation that allows Ontario school boards to procure goods and services jointly where they have common needs. It represents approximately 5,000 schools and about 2 million students in Ontario.

[13] The School Energy Coalition is an OESC project to represent the interests of all Ontario publicly funded schools in matters relating to energy regulation, policy and management with the aim of controlling their energy costs. Much of what they spend on energy costs is established though rates regulated by the OEB.

THE REHEARING DECISION

[14] In the Rehearing Decision, the OEB refused to vary its original decision setting the electricity transmission revenue requirements for 2017 and 2018 after directing that its original decision be reconsidered. The OEB decided at the Rehearing that:

In consideration of the Review Panel’s determinations and the entire record, in particular the Original Panel’s consideration of the 2005 Report, the OEB considers the Original Decision to be reasonable.

The review of the Original Decision by the Review Panel did not include submissions on, or analysis of, the Original Panel’s reliance on the OEB’s principles contained in the 2005 Report.

The 2005 Report contained a determination that future treatment of tax savings would be made by the OEB in response to future proposals and in consideration of the details of the transactions that had triggered the creation of tax savings. The Original Panel determined that the treatment of the tax saving was a matter of ratemaking and that it had the full discretion to make whatever determination it considered to be reasonable.

The correction of the error that the departure tax was variable and that the Province could have or should have changed the PILs [Payment in Lieu of Taxes] legislation also results in the payment being recognized as a real cost to Hydro One.

The Original Decision was based on certain premises that the Review Panel determined were incorrect. With the correction of those errors, the OEB is still faced with a requirement to balance the interests of customers and shareholders. The Original Decision resulted in a proportioning of the Future Tax Savings between shareholders and customers.

Hydro One has argued that 100% of the Future Tax Savings should be allocated to shareholders. The OEB sees merit in this argument based on Hydro One’s assertions that it should get the benefit of the Future Tax Savings resulting from the IPO transaction because it paid for it through the Departure Tax.

SEC [School Energy Coalition] has argued that based on the just and reasonable principle, 100% of the Future Tax Savings should be allocated to customers. The OEB sees merit in this argument based on SEC’s assertions that costs caused by non-regulated activities (i.e. Departure Tax resulting from the IPO) are not recoverable from customers in regulated rates. Although SEC submits that the Review Panel did not discuss how this rule should be applied, SEC argues that this outcome would still be consistent with the findings of the Review Panel.

… the OEB finds that the Original Decision results in an allocation of the Future Tax Savings (62% to shareholders and 38% to the ratepayers) that is within the realm of reasonable outcomes.

The Review Panel had determined that both allocation methodologies used by the Original Panel “appeared to be inappropriate” for reasons related to errors that had been identified. SEC submitted that one of the methods (the Recapture Ratio method) would still be reasonable once the errors identified by the Review Panel are corrected and that the outcome of the Original Decision - sharing of the Future Tax Savings based on recapture percentage – is one of the reasonable outcomes the Original Panel could have reached based on the evidence. The OEB has determined that, given its balance of interest approach and the range of reasonableness of outcomes that stems from the application of the principles contained in 2005 Report, it need not pursue the identification of a more appropriate allocation methodology. Further, the consideration of the appropriateness of one method over the other is not required if both would result in a reasonable outcome. The purpose of this exercise is as stated earlier, to consider the reasonableness of the outcome of the Original Decision in view of the Review Panel’s determinations. The OEB considers the outcome of the Original Decision to be reasonable. The motion is dismissed and the original decision upheld.

[15] The Rehearing Decision therefore allocated 62% of the nearly $900 million in tax savings to Hydro One’s ratepayers, and 38% to its shareholders.

THE POSITIONS OF THE PARTIES

[16] The Ontario Education Services Corporation (“OESC”) seeks leave to intervene in this Appeal as a party pursuant to Rule 13.01 of the Rules of Civil Procedure, on the following terms:

a. leave to file a factum of no more than 15 pages;

b. leave to make oral argument for no more than 15 minutes; and

c. OESC will neither seek nor pay costs.

[17] OESC submits that it has a different interest than the OEB and a distinct perspective to offer regarding the issues under appeal and may be adversely affected by the decision. OESC was granted intervenor status before the OEB and participated fully in those proceedings.

[18] The OESC submits that it would highlight the consumer perspective and how that perspective is integral to any decision related to the setting of rates by the OEB and therefore the reasonableness of its decision.

[19] OESC submits that its participation would not delay the Appeal.

[20] Hydro One objects to OESC’s request to be added as a party intervenor as it takes the position that the OESC “merely add[s] a second voice advancing a position that will already be put forward by one of the parties who are already before the Divisional Court [being the OEB].” Hydro One therefore takes the position that the OESC has not shown the court how its participation will offer a useful and distinct contribution or how its unique perspective on the issues will assist the court: See Clublink Corp. ULC v. Oakville (Town), 2019 ONCA 358 (Chambers) at paras. 3-4.

[21] The OEB does not object to granting the OESC intervenor status.

THE RULE

[22] Rule 13 provides as follows:

13.01 (1) A person who is not a party to a proceeding may move for leave to intervene as an added party if the person claims,

(a) an interest in the subject matter of the proceeding;

(b) that the person may be adversely affected by a judgment in the proceeding; or

(c) that there exists between the person and one or more of the parties to the proceeding a question of law or fact in common with one or more of the questions in issue in the proceeding.

(2) On the motion, the court shall consider whether the intervention will unduly delay or prejudice the determination of the rights of the parties to the proceeding and the court may add the person as a party to the proceeding and may make such order as is just.

13.03 (1) Leave to intervene in the Divisional Court as an added party or as a friend of the court may be granted by a panel of the court, the Chief Justice or Associate Chief Justice of the Superior Court of Justice or a judge designated by either of them.

[23] The subrules of Rule 13.01 are disjunctive and only one of the grounds need be satisfied to seek party intervenor status. Moreover, the Rules do not require a party seeking leave to intervene to have a direct interest in the issue to be determined: See Bloorview Children Hospital Foundation v. Bloorview MacMillan Centre, [2001] O.J. No. 1700, 105 A.C.W.S. (3d) (S.C.J.) at paras. 17 and 22.

[24] An intervenor cannot introduce new issues or claim new relief; it is limited to addressing issues already contained in the pleadings: See Tseil-Waututh Nation v. Canada (Attorney General), 2017 FCA 174.

FACTORS TO BE CONSIDERED IN DECIDING WHETHER TO GRANT INTERVENOR STATUS

[25] The four factors to be considered in deciding whether to allow a person or entity to intervene are:

i. the nature of the case;

ii. the issues involved;

iii. the likelihood that the proposed intervenor can make a useful and distinct contribution to the resolution of the appeal not otherwise offered by the parties; and

iv. whether the intervention will cause injustice to the parties or undue delay.

See: R. v. Finta, 1993 132 (SCC), [1993] 1 S.C.R. 1138 at para. 5 and Peel (Regional Municipality) v. Great Atlantic & Pacific Co. of Canada Ltd. (1990), 1990 6886 (ON CA), 74 O.R. (2d) 164 (C.A.) at p. 167.

What Constitutes a “Useful and Distinct Contribution”?

[26] A contribution is not useful if it simply repeats issues and arguments put forward by the parties although some overlap may be permitted: See Halpern v. Toronto (City) Clerk (2000), 2000 29029 (ON SCDC), 51 O.R. (3d) 742 at para. 18 (Div. Ct.).

[27] There must be a real, substantial and identifiable interest in the subject matter, and an important and a distinct perspective to be articulated that is different from that of the parties. A well-recognized group with special expertise and a broadly identifiable membership base may be better able to provide a useful and distinct contribution to the resolution of the matter. Intervention is especially helpful where the interest of the more vulnerable are at stake and the outcome will be beyond the private rights of parties: See Reference re Workers’ Compensation Act 1983 (Nfld), [1989] 2 SCR 335, 1989 23 (SCC) at paras. 11-12.

[28] The courts have recognized the desirability of having “all of the relevant possibilities brought to its attention, including submissions on the impact of its judgment, not only on the parties, but on those not before the court.” This is true even where only certain aspects of the ultimate decision may bear on the rights at issue and where the intervenor may bring only a slightly different perspective to be considered: See Childs et al v. Desormeaux, [2003] OJ No 3800 (QL), 2003 47870 (OCA) at para 15.

[29] The fact that the proposed intervenor is not indifferent to the outcome of the appeal is not a reason to deny it the right to intervene: See Oakwell Engineering Ltd. v. Enernorth Industries Inc., [2006] O.J. No. 1942 (C.A.) at para. 9.

ANALYSIS

[30] As noted above, the OESC needs satisfy only one of the requirements in Rule 13.01. It satisfies two: As a significant ratepayer group, the OESC has an interest in the subject matter of the proceeding and may be adversely affected by the decision of this Court. If the Appeal is granted, Hydro One's ratepayers, including the many member schools served by Hydro One’s distribution business, will be adversely affected by the requirement to pay additional rate amounts.

[31] On the terms proposed, that is the filing of a 15 page factum, 15 minutes for oral submissions and restriction to the issues raised in its factum, the addition of OESC as a party intervenor will not delay the proceeding.

[32] The OESC will argue that:

a. Ratepayers start from the expectation that their rates will only include costs that "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": See Ontario (Energy Board) v. Ontario Power Generation Inc., 2015 SCC 44 at para. 15, citing Northwestern Utilities Ltd. v. City of Edmonton, 1929 39 (SCC), [1929] S.C.R. 186 at p. l92-193.

b. The OEB's statutory objectives for electricity require it to "[t]o protect the interests of consumers with respect to prices ... ": See Ontario Energy Board Act, 1998, S.O. 1998, c. 15, Sched. B, s. I (I) I.

c. Since Hydro One will not actually pay the taxes it seeks to recover in rates, from the customer point of view, those are not costs incurred by Hydro One, and thus, they are prima facie not recoverable.

d. The “benefits follow the costs principle” articulated by Hydro One is therefore, only part of the overall balancing of interests between a utility and its customers and the statutory requirement that rates must be “just and reasonable”, balancing of interests between the utility and its customers, which is what the OEB did.

[33] The OESC may advance a position that will already be put forward by the OEB. However, OESC’s interest is different from that of the EOB and the perspective it offers is distinct and different: the perspective of ratepayers. As a large, well-recognized group, the OESC is well placed to provide the perspective of what is “just and reasonable” from the ratepayers’ perspective: See Ontario Energy Board Act, 1998, S.O. 1998, c. 15, Sched. B, s. 78(3) and (7). Moreover, the OESC will offer submissions on the impact of its judgment, not only on the parties, but on those not before the court, something the courts have recognized as desirable.

CONCLUSION

[34] For the above reasons, I find that the OESC has an interest in the Appeal and will be affected by the outcome. Moreover, the four factors to be considered have been addressed in this case:

a. These important ratemaking issues engage the public interest, and the rights and interests of significant ratepayers;

b. There is a “likelihood that the proposed intervenor can make a useful and distinct contribution” given its interest that differs from that of the OEB, its distinct perspective, and the fact that it has experience by participating in the OEB decisions; and

c. No injustice or undue delay would result from allowing the proposed intervenors to file short submissions and make brief oral submissions to the court.

[35] As such, the OESC is permitted to intervene to file material and make brief oral submissions.

[36] Usually when intervenor status is granted, the intervenor is permitted to make limited oral submissions and costs are neither sought by nor awarded to intervenors. Nothing here is intended to interfere with the panel’s discretion. With this in mind, the following conditions are imposed:

a) The intervenor will not adduce any new evidence or raise any new issues save for those raised in the factum in support of this request for intervenor status;

b) The factum of the intervenor will be limited to no more than 15 pages;

c) The intervenor will have 15 minutes to make any oral submissions;

d) The intervenor will make its oral submissions after the Respondent OEB has made its oral submissions;

e) The intervenor will make every reasonable effort to avoid duplication of submissions of the OEB; and

f) The intervenor will not seek costs nor will costs be payable by it, unless the panel orders otherwise.

___________________________ thorburn J.

Date of Release: June 18, 2019

CITATION: Hydro One Networks Inc. v. Ontario Energy Board, 2019 ONSC 3763

DIVISIONAL COURT FILE NO.: 200/19

DATE: 20190618

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

BETWEEN:

HYDRO ONE NETWORKS INC. Appellant

– and –

ONTARIO ENERGY BOARD Respondent

– and –

ONTARIO EDUCATION SERVICES CORPORATION Proposed Intervenor

REASONS FOR DECISION

THORBURN J.

Date of Release: June 18, 2019