ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 740563/11
DATE: 20121004

BETWEEN:

Enbridge Gas Distribution Inc. Applicant – and – Municipal Property Assessment Corporation, and The Corporation of The City of Oshawa Respondent

David G. Fleet, for the Applicant

Shawn R. Douglas, for the Respondent Municipality Property Assessment Corporation Arend Wakeford, for Respondent Corporation of the City of Oshawa

HEARD: August 10, 2012

REASONS FOR DECISION

eDWARDs j.

Nature of the Motion

[ 1 ] This is a motion by Enbridge Gas Distribution Inc. (“Enbridge”) for leave to appeal to the Divisional Court a decision of the Assessment Review Board (“ARB”) dated June 30, 2011 (“the decision”).

[ 2 ] The issue before the ARB was to determine whether or not the premises in issue were properly classified within the industrial class as opposed to the commercial class pursuant to Rule 6(1) , 1 (i), of Ontario Regulation 282/98 as amended (“the regulation”). Enbridge submits ARB erred in the classification of the property as industrial.

The Facts

[ 3 ] The subject property is municipally known as 227 Harmony Road, Oshawa (“the property”). The property is used as a gate station which accepts natural gas from a TransCanada pipeline. The property is approximately .24 Acres in size and has a series of buildings known as a regulator remote terminal unit and buildings having a total floor area of approximately 500 square feet. The gate station supplies gas primarily to the residential market.

[ 4 ] A TransCanada pipeline distributes natural gas to Enbridge for its distribution to Oshawa and surrounding communities. There is no dispute that the core business of Enbridge is the service of delivering heat value in the form of natural gas from TransCanada to ultimate Enbridge customers.

[ 5 ] Enbridge bills its customers for a gas distribution charge based upon reasonable costs incurred for the distribution services plus a regulated profit which is not a profit margin on its costs. Neither TransCanada nor Enbridge may at any given point in time own the natural gas that is transported or distributed by them. In fact the natural gas can be owned by either Enbridge, or a marketer, or supplier, or an aggregator, or a customer itself who contracts for the gas.

[ 6 ] The gas which is at the property is simply under the custody of Enbridge who then ultimately distributes the gas to the end user.

[ 7 ] When the natural gas enters the gas transfer station at the property it is a natural odourless natural gas at around 800 pounds per square inch. The gas then goes through what is known as a straightening process. The natural gas flows through two regulators to reduce the gas pressure to 400 pounds per square inch. The natural gas upon entering the transfer station is also cold and is heated prior to entering the regulators. The intermittent heating prevents damage downstream such as frost heaves to sidewalks, driveways and roads.

[ 8 ] Neither the intermittent heating nor the reduction in gas pressure changes the quality or characteristics of the natural gas.

[ 9 ] One further process takes place at the transfer station at the property which includes the addition of an odorant, which adds a rotten egg smell to the natural gas. The addition of the odorant is necessary to comply with Federal Government legal requirements. The odorant is injected into the natural gas at the rate of twelve parts per million. There is no dispute that the addition of the odorant does not change the essence of natural gas as a combustible fuel. It is also beyond dispute that the addition of the odorant has no bearing on the quantum of Enbridge’s’ profit. It is also accepted as a fact that the odorant provides no economic benefit to Enbridge’s’ customers. The fact remains, however, that without the addition of the odorant natural gas could not be sold to the end user. The purpose of the odorant is clear. Natural gas in its natural state is colourless and odourless. The addition of the odorant allows the end user to readily appreciate if there is a leak. The smell of the rotten egg caused by the addition of the odorant creates the obvious sign of a potentially dangerous situation.

The Legislation

[ 10 ] The issue before the ARB was whether or not the property should be classified as industrial or commercial. Section 6(1) of the Regulation classifies property for assessment purposes as industrial in accordance with the following definition:

Land used for or in connection with,

(i) Manufacturing, producing or processing anything (emphasis added).

[ 11 ] The definition of commercial property is set forth in Section 5(1) of the Regulation as follows:

The commercial property class consists of the following:

(i) Land and vacant land that is not included in any other property class.

[ 12 ] By definition if the property did not fall within the provisions of Section 6(1) of the Regulation, and specifically if it was not used for or in connection with processing anything, then the property had to be defined as commercial.

Test for Leave

[ 13 ] There is no dispute between the parties that the test for leave on this motion is twofold. There must be a question or law of sufficient importance to merit the attention of the Divisional Court and there must be a good reason to doubt the correctness of the ARB’s decision. The Court granting leave is not required to conclude that the decision complained of is wrong or probably wrong but rather that there is good reason to doubt the correctness of the decision. (See Regional Assessment Commissioner Region No. 9 v. Templeton Management Limited et al. 1992 [O.J. No. 1343] and Municipal Property Assessment Corp. v. Inmet Mining Corp. 2002 7325 (ON SCDC) , [2002] O.J. No. 3540).

[ 14 ] Enbridge submits as one of its primary arguments that the ARB failed to have regard to the real character or Enbridge’s business operation at the property. Fundamental to the position of Enbridge, is the suggested failure of the ARB to consider that Enbridge’s primary business is that of the distribution of natural gas not the sale of natural gas. As such, if there was any processing of the natural gas with the addition of the odorant it was not fundamental to the business purpose of Enbridge at the property which is the distribution of natural gas to the end user. In that regard Enbridge notes that the significance of any change to the natural gas, and its marketability with the addition of the odorant must be considered in the context of the use of the property for the distribution of combustible natural gas. Enbridge argues that the odorant does not enhance the ability to deliver natural gas; does not enhance the heating value of natural gas; is of a minuscule quantity; has a negligible impact on revenue and expenses; and has no bearing on Enbridge’s profit.

[ 15 ] ARB dealt in part with these arguments as follows:

I think it is reasonable to consider the de minimus principle in relation to the result of the change rather than the size of the input. It is the magnitude of the effect of the change that should be measured and not the magnitude of the cause. Change in the “quality” of a good by definition means a qualitative measure of the change to the product. The input is twelve parts per million of odorant, which I agree is miniscule in relative quantitative terms, but not so by qualitative measure. The gas entering the gate station has the qualities of being an undetectable, combustible, potentially explosive substance unfit for distribution . The gas exiting the gas station has the qualitative difference of being detectible and thus, substantially less likely to cause an explosion, and therefore safe enough for distribution and sale. While the amount of odorant required may be “very small” the change of the end product is anything but “trifling, and on the contrary, constitutes a significant modification in its result” (emphasis added).

[ 16 ] The ARB then goes on in its decision to review the general business of Enbridge and comes to the following conclusion:

In considering the general business of Enbridge, I accept that it is in the business of gas distribution. In this regard, it is not unlike other businesses engaged in the transport and/or distribution of goods through the commercial chain that do not attract the industrial classification. It is not the purpose or object of the Act to include the transportation or distribution of products for sale as industrial. The industrial class is intended to include activities that are involved in the creation of the end product. At the Enbridge gate station, at the very beginning of the distribution system, there is a very important process that is, in fact the final step in the production of safe, saleable natural gas. So while the bulk of Enbridge’s business is indeed the commercial transportation and distribution of its product, the gate station at the inlet side of their system houses what can be reasonably characterized as an “industrial process”.

The Law

[ 17 ] With the enactment of the Assessment Act RSO 1990 c. A.31 the Legislature made provision for the Assessment Review Board, which pursuant to Section 40(22) of the Assessment Act is given exclusive authority to hear and determine all questions of law, or of fact and whose decisions are final and binding, unless an appeal is taken pursuant to Section 43.1 on a question of law alone. The appeal on a question of law is only with leave to the Divisional Court. The limited case law that has developed with respect to such leave applications makes clear that deference must be shown to the ARB on a higher scale than that of correctness and for the appellant to proceed it must show the decision of the ARB to be clearly wrong or unreasonable. See Municipal Property Assessment Corp. v. Minto Developments Inc . [2003] 2M.P.L.R. (4 th ) 89 .

[ 18 ] As previously noted the issue before the ARB was whether or not the property was properly classified as industrial or commercial. The issue came down to a question of whether or not the process at the property amounted to processing. The ARB reviewed the evidence and came to the conclusion that it did amount to processing largely on the basis that without the addition of the odorant the natural gas could not be legally distributed or sold. Thus the ARB determined the subject property housed an industrial process and the word “processing” found in the regulation were properly given their ordinary meaning by the ARB.

[ 19 ] The ARB made its own conclusion relying upon the evidence before him and he was entitled to rely upon his own expertise as an experienced board member. As has been made clear in earlier leave applications the decision of such an experienced board member is entitled to deference.

[ 20 ] Having reviewed the evidence and the authorities I am not satisfied that there is sufficient evidence to raise doubt as to the correctness of the decision. The ARB was mindful of the nature of Enbridge’s distribution business.

[ 21 ] Even if I had been of the opinion that there was good reason to doubt the correctness of the decision, I must also be satisfied that this matter raises an issue of sufficient legal importance to merit the attention of a Divisional Court panel. As expressed by E.R. Browne J. in Municipal Property Assessment Corporation v. L.H. Gray & Sons Limited and the Town of North Perth , Decision of the Divisional Court released November 29, 2002:

Expressed differently, what is the importance of what is at issue here beyond the importance to the immediate parties? I asked that question, I did not receive meaningful assistance. In my view the hearing of the complaint and the reasons given illustrate the application of existing stated principles to a particular fact situation between the parties to this motion and will have little impact upon other parties.

[ 22 ] The comments of E.R. Browne J. aforesaid are equally applicable to the facts of this motion and I fail to see that there is any issue of sufficient legal importance that would merit the attention of a full Divisional Court panel.

[ 23 ] The motion seeking leave to appeal is dismissed with costs. If the parties cannot agree upon costs, arrangements can be made to make oral submissions on the issue of costs, to be preceded by written submissions, limited to no more than four pages in length. If no request is made to the trial coordinator, for an oral hearing within two weeks from today’s date, I will assume the issue of costs have been resolved by the parties.

Justice M. Edwards

Released: October 4, 2012