COURT FILE NOS.: CV-17-580045; CV-17-585295
DATE: 20180620
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
NATIONAL STEEL CAR LIMITED
Applicant
– and –
INDEPENDENT ELECTRICITY SYSTEM OPERATOR, THE ATTORNEY GENERAL OF ONTARIO and HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO
Respondents
Jerome R. Morse and David Trafford, for the Applicant
Alan H. Mark and Melanie Ouanounou, for the Respondent Independent Electricity System Operator
Robin K. Basu, Padraic Ryan, Hayley Pitcher and James Rehob, for the Respondents The Attorney General of Ontario and Her Majesty the Queen in Right of Ontario
HEARD: May 7 and 8, 2018
reasons for decision
W. MATHESON J.
[1] The respondents The Attorney General of Ontario and Her Majesty the Queen in Right of Ontario (the “moving parties”) move to strike out two applications that challenge the constitutionality of aspects of the Global Adjustment, which forms part of the electricity regime in Ontario. The parties agree that there is no material difference between the two applications for the purpose of these motions.[^1] The motions are supported by the respondent Independent Electricity System Operator (“IESO”), which has responsibility for administering the challenged legislative regime. Other relief is also sought by the moving parties.
[2] For the reasons set out below, the motions to strike out these applications are granted.
Nature of motions
[3] The moving parties move to strike out the applications, or, in the alternative, move for an order staying the applications pending the determination of the issues by the Ontario Energy Board (“OEB”). There is no proceeding underway at the OEB nor does this issue normally get addressed in the OEB hearing or adjudication process. The moving parties submit, in the alternative to the applications being struck out now, that a special OEB proceeding should be commenced by the applicant for this purpose. Although secondary to the main issues before me, the moving parties also seek to strike out a portion of the affidavit evidence delivered in support of the applications.
[4] For the most part, the moving parties rely on Rule 21.01(1)(b), submitting that it is plain and obvious that these applications will fail.
Rule 21 applied to applications
[5] Rule 21.01(1)(b) is available to strike out an application if it discloses no reasonable cause of action. Although Rule 21.01(1)(b) refers to striking out a pleading, Rule 14.09 provides that “[a]n originating process that is not a pleading may be struck out or amended in the same manner as a pleading.” In its plain and ordinary meaning, this rule extends Rule 21.01(1) to applications: Martin v. Ontario, [2004] O.J. No. 2247 (S.C.), at paras. 6-10.
[6] As noted by Justice David M. Brown, as he then was, “some degree of caution must be exercised when applying a pleadings-oriented rule, such as Rule 21.01, to a notice of application, making due allowance for the different requirements mandated for the content of those different originating processes”: Barbra Schlifer Commemorative Clinic v. Canada (Attorney General), 2012 ONSC 5271, at para. 41, leave to appeal refused, 2012 ONSC 5577 (Div. Ct.).
[7] Allowance has been made because, unlike statements of claim, notices of application need not include all the material facts relied upon. The parties agree that when applying Rule 21.01(1)(b) to an application, the supporting affidavits are also treated as pleaded material facts: Energy Probe v. Canada (Attorney-General) (1989), 1989 CanLII 258 (ON CA), 68 O.R. (2d) 449 (C.A.), at p. 454, leave to appeal refused, [1989] S.C.C.A. No. 223.
[8] In turn, for the purposes of these motions, the facts set out in the notices of applications and supporting affidavits are taken as proved, except where the alleged facts are based on assumptive or speculative conclusions that are otherwise incapable of proof: Doe v. Metropolitan Toronto (Municipality) Commissioners of Police, (1990) 1990 CanLII 6611 (ON SC), 74 O.R. (2d) 225 (Div. Ct.), at p. 229, leave to appeal refused, 1991 CanLII 7565 (ON CA), 1 O.R. (3d) 416 n; and Nash v. Ontario (1995), 1995 CanLII 2934 (ON CA), 27 O.R. (3d) 1 (C.A.), at p. 6.
[9] All of the facts set out below are, therefore, from either the notices of application or the supporting affidavits. The applicant has delivered three affidavits in support of its applications: an affidavit of Vincenzo DeLuca, the Chief Financial Officer of the applicant; an affidavit of Ross McKitrick, Professor of Economics at the University of Guelph; and an affidavit of Thomas Adams, an independent energy and environmental advisor and researcher.
[10] Professor McKitrick tenders his expert opinion as an economist and for the purposes of these motions I accept his expertise in that area, as set out in his curriculum vitae. Professor McKitrick has previously worked with Thomas Adams, whose affidavit states that he sets out “facts concerning certain aspects of the electricity system in Ontario.” However, Mr. Adams has also ascribed to the obligations set out in Rule 53 of the Rules of Civil Procedure.
[11] Although the moving parties seek to strike out portions of some of the applicant’s affidavits, they do not rely on success on that aspect of these motions for the determination under Rule 21.01(1)(b). They submit that the applications, taken as a whole, are bound to fail.
[12] The threshold for success on this type of motion is high. It must be plain, obvious and beyond doubt that the applications cannot succeed: Hunt v. Care Canada Inc., 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959, at p. 979; and Dumont v. Canada (Attorney General), 1990 CanLII 131 (SCC), [1990] 1 S.C.R. 279, at p. 280.
The applications
[13] The applicant corporation manufactures steel rail cars. It is classified as a Class A user of electricity due to its use of more than 1MwH of electricity per year. Due to the nature of its business, the applicant is unable to take advantage of an electricity rate reduction available to companies who either eliminate or substantially reduce their electricity use on five peak demand days in a year.
[14] The applicant’s electricity bills have increased dramatically over the approximately 8-year period since the passage of the Green Energy and Green Economy Act, 2009, S.O. 2009, c. 12 (the “GEGE Act”). The GEGE Act introduced the feed-in tariff (FIT) program,[^2] under which private suppliers of renewable energy were paid to “feed in” energy into Ontario’s electricity grid. The FIT contracts are the primary focus of these applications.
[15] The applicant seeks a declaration that part of the amount it has paid for electricity is an unconstitutional tax rather than a valid regulatory charge. More specifically, it challenges part of the Global Adjustment, which is a component of electricity pricing and incorporates obligations under FIT contracts. The applicant submits that s. 25.33 of the Electricity Act, 1998, S.O. 1998, c. 15, Sch. A (the “Electricity Act”), which authorizes the Global Adjustment, is ultra vires as of the enactment of the GEGE Act and its policy-driven goals.
[16] The applicant’s challenge is based on s. 53 of The Constitution Act, 1867, 30 & 31 Vict., c. 3 (“Constitution Act, 1867”), which requires taxes to be authorized by the legislature.[^3] The applicant also relies on an alleged violation of the Taxpayer Protection Act, 1999, S.O. 1999, c. 7, Sch. A (the “TPA”). As a prerequisite to these arguments, the applicant submits that the Global Adjustment is, at least in its challenged part, a tax. If it is, the applicant submits that s. 53 has been breached because the formula for the Global Adjustment is found in a regulation rather than in legislation, and that under the TPA, it should have been first authorized by a referendum.
[17] The Global Adjustment forms part of the legislative regime governing electricity in this province and must be considered within its statutory context.
The legislative regime
Restructuring the energy market
[18] In 1998, the provincial legislature introduced the Energy Competition Act, and ultimately enacted both the Electricity Act and the Ontario Energy Board Act, 1998, S.O. 1998, c. 15, Sch. B (the “OEB Act”) that, together, establish the primary legislative framework for the regulation of electricity in Ontario.
[19] The Electricity Act re-structured the electricity market in Ontario by breaking up Ontario Hydro and opening up that market. Under the Electricity Act, Ontario Hydro was reorganized into the following companies:
(i) Ontario Power Generation Inc. (“OPG”), which generates electricity in competition with other generation companies in the wholesale electricity market (Part IV.1 of the Electricity Act). OPG owns and operates nuclear, hydro, fossil and biomass field power generating stations, owns and operates all sites once owned by Ontario Hydro and supplies about half of Ontario’s electricity generation.
(ii) The IESO (then called the Independent Market Operator) is a not-for-profit company that is responsible for day-to-day operations of Ontario’s electrical system and for administering the competitive wholesale electricity market (Part II of the Electricity Act). Among other things, the IESO forecasts short and long-term electricity demand and procures the necessary generation to balance supply and demand. The Global Adjustment is administered by the IESO.
(iii) The Ontario Electricity Financial Corporation, which is the corporate successor to Ontario Hydro and, among other things, manages the debt of Ontario Hydro (Part V of the Electricity Act).
(iv) Hydro One Inc., which transmits and distributes electricity (Part IV of the Electricity Act).
(v) The Electrical Safety Authority (Part VIII of the Electricity Act).
[20] Alternative and renewable energy became a common theme in this and later legislative changes to the electricity regulatory regime. Among the purposes of the Electricity Act, as set out in its s. 1, are the following:
(a) to ensure the adequacy, safety, sustainability and reliability of electricity supply in Ontario through responsible planning and management of electricity resources, supply and demand;
(b) to encourage electricity conservation and the efficient use of electricity in a manner consistent with the policies of the Government of Ontario;
(d) to promote the use of cleaner energy sources and technologies, including alternative energy sources and renewable energy sources, in a manner consistent with the policies of the Government of Ontario;
(f) to protect the interests of consumers with respect to prices and the adequacy, reliability and quality of electricity service;
(g) to promote economic efficiency and sustainability in the generation, transmission, distribution and sale of electricity; and,
(i) to facilitate the maintenance of a financially viable electricity industry. [Emphasis added.]
[21] Under the Electricity Act and OEB Act regime, electricity rates are “determined through a mix of market, regulatory and government mechanisms”: Iroquois Falls Power Corporation v. Ontario Electricity Financial Corporation, 2016 ONCA 271, 398 D.L.R. (4th) 652, at para. 23, leave to appeal refused, [2016] S.C.C.A. No. 279.
[22] In 2004, the Electricity Restructuring Act, 2004, S.O. 2004, c. 23, was enacted (the “Electricity Restructuring Act”). Among other things, it created the Ontario Power Authority (the “OPA”) and gave the OPA the power to procure new generation and to enter into direct contracts with generators where directed to do so by the Minister of Energy.
[23] As set out in the Electricity Restructuring Act, the objects of the OPA were as follows:
(a) to forecast electricity demand and the adequacy and reliability of electricity resources for Ontario for the medium and long term;
(b) to conduct independent planning for electricity generation, demand management, conservation and transmission and develop integrated power system plans for Ontario;
(c) to engage in activities in support of the goal of ensuring adequate, reliable and secure electricity supply and resources in Ontario;
(d) to engage in activities to facilitate the diversification of sources of electricity supply by promoting the use of cleaner energy sources and technologies, including alternative energy sources and renewable energy sources;
(e) to establish system-wide goals for the amount of electricity to be produced from alternative energy sources and renewable energy sources;
(f) to engage in activities that facilitate loan management;
(g) to engage in activities that promote electricity conservation and the efficient use of electricity;
(h) to assist the OEB by facilitating stability in rates for certain types of consumers; and,
(i) to collect and provide to the public and the OEB information relating to medium and long term electricity needs of Ontario and the adequacy and reliability of the integrated power system to meet those needs. [Emphasis added.]
[24] In order to carry out those objects, the OPA (which, in 2015, merged with and continued as the IESO) had the power to enter into a variety of contracts. The Electricity Restructuring Act added ss. 25.2(5) through 25.32 to the Electricity Act, including the power under s. 25.2(5) to enter into contracts that related to the following:
(i) the adequacy and reliability of electricity supply;
(ii) the procurement of electricity supply and capacity in or outside of Ontario;
(iii) the procurement of electricity supply and capacity using alternative energy sources or renewable energy sources to assist the Government of Ontario in achieving goals in the development and use of alternative or renewable energy technology and resources; and,
(iv) the procurement of reductions in electricity demand and the management of electricity demand to assist the government in achieving goals in electricity conservation.
[25] The IESO now administers the mixed market regime. The IESO’s objects include operating the IESO-administered markets to promote the purposes of the Electricity Act and engaging in activities related to contracting for the procurement of electricity supply. Part III of the Electricity Act establishes Ontario’s electricity markets and empowers the IESO to make rules establishing and governing markets related to electricity. These IESO market rules are made pursuant to ss. 32 through 34 of the Electricity Act and govern the conduct of market participants in the IESO market.
[26] The IESO supervises the day-to-day scheduling of resources and establishes the Hourly Ontario Energy Price (“HOEP”) based on market supply and demand available during each hour. It operates a real-time market for electricity through the IESO-controlled grid. This market includes 5-minute auctions in which electricity generators offer power and are scheduled based on a clearing price at which the marginal generator agrees to provide electricity. The clearing prices at which electricity is obtained through these auctions, when averaged over the course of each hour of the day, result in the HOEP. The HOEP is combined with other charges to make up the fee paid by consumers for the use of electricity.
[27] The IESO objects include engaging in activities related to contracting for the procurement of electricity supply and engaging in activities related to settlements, payments under a contract entered into under the authority of the Electricity Act and payments provided for under the Electricity Act or the OEB Act. In turn, ss. 78.1, 78.2 and 78.5 of the OEB Act require that the IESO make the payments to generators, to distributors and to the Ontario Electricity Financial Corporation, as prescribed by regulations.
[28] The procurement contracts and related contractual payment obligations that the IESO must fulfill form part of the challenged Global Adjustment.
Global Adjustment
[29] The Electricity Restructuring Act amended the Electricity Act to introduce the requirement that rates are adjusted to recover, among other things, amounts paid to entities with whom the OPA, and now the IESO, has procurement contracts. This is the Global Adjustment that is challenged on these applications. The current enactment of s. 25.33 of the Electricity Act provides as follows:
25.33 (1) The IESO shall, through its billing and settlement systems, make adjustments in accordance with the regulations that ensure that, over time, payments by classes of market participants in Ontario that are prescribed by regulation reflect,
(a) amounts paid to generators, the Financial Corporation and distributors, whether the amounts are determined under the market rules or under section 78.1, 78.2 or 78.5 of the Ontario Energy Board Act, 1998;
(b) amounts paid to entities with whom the IESO has a procurement contract, as determined under the procurement contract; and
(c) such amounts as may be prescribed that are paid or incurred by the IESO in relation to the Ontario Fair Hydro Plan Act, 2017.
(2) Distributors and retailers shall, through their billing systems, make adjustments in accordance with the regulations that ensure that, over time, payments by classes of consumers in Ontario that are prescribed by regulation reflect,
(a) amounts paid to generators, the Financial Corporation and distributors, whether the amounts are determined under the market rules or under section 78.1, 78.2 or 78.5 of the Ontario Energy Board Act, 1998;
(b) amounts paid to entities with whom the IESO has a procurement contract, as determined under the procurement contract; and
(c) such amounts as may be prescribed that are paid or incurred by the IESO in relation to the Ontario Fair Hydro Plan Act, 2017. [Emphasis added.]
[30] In accordance with the above statutorily-mandated adjustment, s. 114(1.3)(f) of the Electricity Act provides that the Lieutenant Governor in Council may make regulations governing adjustments, payments, setoffs and credits for the purposes of s. 25.33.
[31] Pursuant to this legislative authority, s. 1.1 of the Adjustments Under Section 25.33 of the Act, O. Reg. 429/04 (the “Regulation”) sets out the detailed formula for calculating the Global Adjustment, including an adjustment regarding procurement contracts, as follows:
1.1 (1) For the purposes of this Regulation, the global adjustment for a month is the amount calculated by the IESO using the formula,
(A – B) + (C – D) + (E – F) + G + H
in which,
“A” is the total amount payable by the IESO under section 78.1 of the Ontario Energy Board Act, 1998 to generators who are prescribed under that Act for the purposes of that section with respect to output for the previous month from units at generation facilities that are prescribed under that Act for the purposes of that section,
“B” is the total amount that, but for section 78.1 of the Ontario Energy Board Act, 1998, would be payable by the IESO under the market rules to generators referred to in “A” on behalf of those generators with respect to the output referred to in “A”,
“C” is the amount payable by the IESO to the Financial Corporation under section 78.2 of the Ontario Energy Board Act, 1998 for the previous month, less amounts payable by licensed distributors with respect to output for the previous month from generation facilities that are prescribed under that Act for the purposes of that section,
“D” is the amount that, but for section 78.2 of the Ontario Energy Board Act, 1998, would be payable by the IESO under the market rules for the previous month with respect to output generated at, and ancillary services provided at, generation facilities that are prescribed under that Act for the purpose of that section and for which the Financial Corporation is the metered market participant,
“E” is the amount payable by the IESO to generators and other persons or entities with respect to output generated by units at generation facilities and ancillary services in respect of which the IESO has entered into procurement contracts under Part II.2 of the Electricity Act, 1998 for the previous month, less amounts payable by licensed distributors to the IESO for the previous month in respect of procurement contracts referred to in that Part,
“F” is the amount that would be payable to the IESO under the market rules for the previous month with respect to output generated by units at generation facilities and ancillary services in respect of which the IESO has entered into procurement contracts under Part II.2 of the Electricity Act, 1998 and that are generated or provided at generation facilities for which the IESO is the metered market participant,
“G” is the amount paid or payable by the IESO to persons or entities with whom the IESO has entered into a procurement contract under Part II.2 of the Electricity Act, 1998 for the previous month, and
“H” is the sum of all amounts approved by the Board under section 78.5 of the Ontario Energy Board Act, 1998 that are payable by the IESO to distributors for the month. [Emphasis added.]
[32] Thus, the Global Adjustment incorporates costs that the IESO must pay to various entities, including OPG, distributors and generators. Payments due under procurement contracts are expressly addressed in the formula.
[33] The applicant challenges elements E, F and G of the above formula, all of which relate to procurement contracts. It is not disputed that there may be a Global Adjustment made with respect to the other elements in the formula. The applicant’s evidence is that the disputed portion of the adjustment is more than 50% of the total amount.
[34] In addition to setting out how much money must be collected under the Global Adjustment (or paid out, if the total amount is negative) in the above section, the Regulation also determines how this amount is allocated amongst electricity consumers and market participants. Sections 6 and 7 of the Regulation define “Class A consumers” and “Class A market participants”. The rest of the Regulation sets out how the IESO is to calculate the amounts payable by Class A and Class B consumers and market participants, and other administrative provisions.
[35] The applicant is a Class A consumer. The Global Adjustment for Class A consumers is based upon a peak demand factor, which is calculated on the basis of the electricity consumed over the course of five days of peak demand in Ontario. Certain Class A consumers are able to substantially reduce or completely eliminate their Global Adjustment costs by forecasting the peak demand and either substantially reducing or completely eliminating their electricity consumption on the five peak days. However, the applicant is unable to do so.
[36] Under this regime, the IESO administers the process under which amounts required under procurement contracts are paid. None of the amounts paid by electricity consumers are retained by IESO or go into general revenue for the province.
[37] The FIT contracts, which are a primary focus for the applicant, are addressed under the part of the calculation of the Global Adjustment that is challenged in the above formula.
Green Energy and Green Economy Act, 2009
[38] The applicant’s challenge commences with the passage of the GEGE Act in 2009, and in turn, the Green Energy Act, 2009, S.O. 2009, c. 12, Sch. A, including amendments to the Electricity Act and the OEB Act. The applicant’s evidence is that the Global Adjustment dramatically increased electricity costs to both Class A and B consumers after the enactment of the GEGE Act.
[39] As set out in the Preamble to the GEGE Act, that Act arose from the Government of Ontario’s commitment to fostering the growth of renewable energy projects, removing barriers to and promoting opportunities for renewable energy projects, promoting a green economy and promoting and expanding efficient use of energy and energy conservation.
[40] Mr. Adams notes that job creation following the 2008 recession was an objective of the GEGE Act. As put by one of the government representatives that he quoted, “The confluence of the need for a new approach to energy generation and the need for an economic stimulus that would generate jobs led to the development of the new legislation.”[^4]
[41] The GEGE Act introduced the feed-in tariff (FIT) program through the addition of s. 25.35 to the Electricity Act. As set out in the 2011 Annual Report of the Auditor General, provided by Mr. Adams, the FIT program was designed to meet three policy objectives:
(1) to reduce Ontario’s environmental footprint by bringing more renewable energy online;
(2) to better protect the health of Ontarians by eliminating harmful emissions from burning coal; and
(3) to create green energy jobs and attract scarce investment capital to Ontario in a global recession.
[42] Section 25.35 of the Electricity Act gave the authority to enter into FIT contracts. Section 25.35 expressly incorporated FIT program goals with respect to aboriginal peoples and community involvement in renewable energy, as follows:
25.35 (1) The Minister may direct the OPA to develop a feed-in tariff program that is designed to procure energy from renewable energy sources under such circumstances and conditions, in consideration of such factors and within such period as the Minister may require.
(2) Where the Minister has issued a direction under subsection (1), the Minister may issue, and the OPA shall follow in preparing its feed-in tariff program, directions that set out the goals to be achieved during the period to be covered by the program, including goals relating to,
(a) the participation by aboriginal peoples in the development and establishment of renewable energy projects; and
(b) the involvement of members of the local community in the development and establishment of renewable energy projects.
(3) Where the Minister has issued a direction under subsection (1), the Minister shall issue, and the OPA shall follow in preparing its feed-in tariff program, directions that set out the goals relating to domestic content to be achieved during the period to be covered by the program.
(4) In this section,
“feed-in tariff program” means a program for procurement, including a procurement process, providing standard program rules, standard contracts and standard pricing regarding classes of generation facilities differentiated by energy source or fuel type, generator capacity and the manner by which the generation facility is used, deployed, installed or located. [Emphasis added.]
[43] As noted by Mr. Adams, in keeping with the rationale of the GEGE Act and the FIT program providing economic stimulus to rural and aboriginal communities, there were certain price incentives called “adders” that formed part of the contract price for electricity generated by projects having a minimum percentage of aboriginal ownership, co-operative ownership (where a certain number of the co-op members own property in the municipality where the project is to be located) or municipality or other public sector entity ownership.
[44] One of the GEGE Act amendments to the Electricity Act was s. 25.32(4.5), now s. 25.32(8), under which the Minister had the authority to direct the OPA (now the IESO) to establish programs or funding to facilitate the participation and engagement in the electricity sector of aboriginal peoples, among others. The Aboriginal Energy Partnerships Program supported aboriginal participation in the renewable energy sector with the goal of helping to build sustainable and stronger economies in aboriginal communities.
[45] After the passage of the GEGE Act, there also remained the power to enter into contracts for the procurement of electricity outside the FIT program. The FIT contracts are therefore only a subset of the contracts entered into under Part II.2 of the Electricity Act, all of which fall under elements E, F and G in the Global Adjustment formula.
[46] These FIT and other procurement contracts are the subject of the main disputed portion of the Global Adjustment calculation, which adjusts cost to incorporate the difference between the amounts actually due under procurement contracts and the amount that would be payable under the market rules. To the extent that these contract obligations exceed the market rates from time to time, there is an adjustment that may increase cost. In the period relevant to these applications, the evidence is that the difference substantially increased the cost to consumers.
[47] The FIT program was modelled on earlier renewable energy programs in Germany, Denmark and Spain and offered government-backed, non-competitively procured, 20-year power purchase agreements. To summarize some of the evidence on these applications is to say that the FIT contracts were improvident, creating high fixed costs in long-term agreements, in comparison to market rates, whether the electricity was needed or not.
[48] The 2011 Report of the Ontario Auditor General was critical of the Ontario government in relation to the GEGE Act. And again in 2015, the Auditor General reported that since her predecessor’s criticisms in 2011, a new approach by the government was not evident. The Energy Statute Law Amendment Act, 2016, S.O. 2016, c. 10 then brought the FIT program to an end, but the contracts previously entered into subsist until the end of their terms.
Issues
[49] The overarching issue on these motions is whether, as a matter of constitutional law, the Global Adjustment is a tax (and in turn whether there is a breach of s. 53 of the Constitution Act, 1867).
[50] If it is plain, obvious and beyond doubt that the Global Adjustment is not a tax, the other issues need not be addressed. The other issues are as follows:
(1) the impact of the TPA;
(2) the alternative relief sought regarding the OEB, and other remedial issues; and,
(3) the request to strike out part of the affidavit evidence.
[51] The FIT contracts are at the core of the applicant’s arguments. There is no doubt that the payments under those procurement contracts must be made. That is not disputed. The effect of what the applicant is seeking would be to shift the burden of those costs from electricity ratepayers (including the applicant, which is a very substantial electricity consumer) to all taxpayers in the province.
Constitutional context
[52] The provincial legislature derives its power to regulate electricity in Ontario from the following sections of the Constitution Act, 1867: s. 92(13) with respect to property and civil rights in the province; s. 92(16) with respect to matters of a merely local or private nature in the province; and, s. 92A(1)(c) with respect to the development, conservation and management of sites and facilities in the province for the generation and production of electrical energy.
[53] With respect to taxation, Ontario has the power to levy direct taxation under s. 92(2) of the Constitution Act, 1867. In addition, Ontario has constitutional authority to make laws in relation to the raising of money by any mode or system of taxation under s. 92A(4) of the Constitution Act, 1867, including in respect of sites and facilities in the province for the generation of electrical energy and the production therefrom.
[54] In this case, the above powers are not in dispute. There is constitutional authority to implement the Global Adjustment. The issue is compliance with s. 53 of the Constitution Act, 1867, which provides that “Bills for appropriating any Part of the Public Revenue, or for imposing any Tax or Impost, shall originate in the House of Commons.” By virtue of s. 90 of the Constitution Act, 1867, s. 53 extends to and applies to provincial legislatures as well. The essential principle underlying s. 53 is that there should be no taxation without representation: Re. Eurig Estate, 1998 CanLII 801 (SCC), [1998] 2 S.C.R. 565, at paras. 30-32.
[55] The threshold issue regarding s. 53 is whether or not the Global Adjustment is a tax. If it is, the applicant submits that s. 53 has been breached because the formula for the Global Adjustment is found in a regulation rather than in legislation. The respondents submit that the Global Adjustment is a price adjustment within a market regulatory regime, not a tax, and in any event is properly authorized by the Electricity Act itself.
[56] For the reasons set out below, I conclude that the Global Adjustment is not a tax, and there is no breach of s. 53 of the Constitution Act, 1867.
Whether the Global Adjustment is a tax
[57] The question of whether something is a tax for the purposes of constitutional law is the subject of well-settled authority from the Supreme Court of Canada.
[58] Whether a levy is a tax or a fee was considered in Lawson v. Interior Tree Fruit & Vegetable Committee of Direction, 1930 CanLII 91 (SCC), [1931] S.C.R. 357. As summarized in Re. Eurig, at para. 7, the majority in Lawson concluded that the levy in question was a tax because it was: (1) enforceable by law, (2) imposed under the authority of the legislature, (3) levied by a public body, and (4) intended for a public purpose.
[59] The Supreme Court of Canada has aptly observed that most levies would meet the above test: 620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7, [2008] 1 S.C.R. 131 at para. 23.
[60] However, there is also a fifth requirement. It must also be demonstrated that the levy is, in pith and substance, a tax: 620 Connaught Ltd., at paras. 17, 24, citing Westbank First Nation v. British Columbia Hydro & Power Authority, 1999 CanLII 655 (SCC), [1999] 3 S.C.R. 134. The “pith and substance” is the dominant or most important characteristic of the levy: 620 Connaught Ltd., at para. 16.
[61] As put in citing Westbank and adopted in 620 Connaught at para. 17,
In all cases, a court should identify the primary aspect of the impugned levy. . . . Although in today’s regulatory environment, many charges will have elements of taxation and elements of regulation, the central task for the court is to determine whether the levy’s primary purpose is, in pith and substance: (1) to tax, i.e., to raise revenue for general purposes; (2) to finance or constitute a regulatory scheme, i.e., to be a regulatory charge or to be ancillary or adhesive to a regulatory scheme; or (3) to charge for services directly rendered, i.e., to be a user fee. [Emphasis added.]
[62] Thus, a levy must both meet the Lawson test and its primary purpose, in pith and substance, must be to tax. Although the satisfaction of the Lawson test is not accepted by the moving parties in this case, for the purpose of these motions I am proceeding on the basis that the Lawson test is satisfied. The remaining issue is, therefore, whether the Global Adjustment’s primary purpose is to tax, that is, to raise revenue for general purposes.
[63] The IESO seeks to add another layer to this analysis. It submits that the Global Adjustment is not a “levy” to begin with, let alone one that is in pith and substance a tax. In the submission of the IESO, it is plain and obvious that the global adjustment is a mechanism by which consumers pay generators the price the generators are contractually entitled to and, as such, the Global Adjustment is not a levy at all. I find that the basis for this argument is more properly located under the analysis of whether the primary purpose of the Global Adjustment is, in pith and substance, to tax.
[64] The Global Adjustment is a price adjustment that adjusts the amounts paid by consumers having regard for the amount that must be paid to producers of electricity. The adjustment can go either way, resulting in more or less favourable prices to consumers. However, in recent times, it has resulted in higher costs to consumers.
[65] Most importantly, the Global Adjustment limits recoupment to actual costs, which is contrary to a characterization of the Global Adjustment as a tax: Ontario Home Builders' Association v. York Region Board of Education, 1996 CanLII 164 (SCC), [1996] 2 S.C.R. 929, at para. 55 (Iacobucci J.). The Global Adjustment provides for the payment of the actual costs that the IESO (and before it, the OPA) has incurred for the purpose of procuring, generating and conserving electricity. Its primary purpose is not to raise revenue for general purposes and the funds do not go into general revenue. Monies are collected to meet obligations, and obligations to participants in the electricity regime are fulfilled.
[66] The OPA was authorized to enter into contracts relating to the procurement of electricity supply in Ontario using alternative energy sources, including FIT contracts, and the IESO is currently authorized to enter into procurement contracts for the generation of electricity in Ontario. Similarly, under ss. 78.1, 78.2 and 78.5 of the OEB Act, the IESO is required to make various payments. Payments must be made to OPG. Payments must be made to the Ontario Electricity Financial Corporation. Payments must be made to satisfy contractual obligations under FIT and other procurement contracts. The Global Adjustment incorporates these payment obligations into the setting of electricity prices.
[67] The essence of the applicant’s complaint is that past legislative choices have resulted in a substantially higher cost of electricity. Put simply, the applicant’s position is that the FIT program was improvident, and the prices that must still be paid under those procurement contracts have resulted in its high electricity costs, at least in substantial part. Although the FIT program has been terminated, the existing long-term contracts subsist, as does the impact of those contracts. The applicant submits that this is not a good way to finance renewable energy initiatives and that the prior regime was preferable. However, an improvident legislative choice does not answer the question of whether a levy is a tax. The prudence of this legislation is for the legislature to address; it is for the court to determine what is constitutionally permissible: Peel (Regional Municipality) v. Great Atlantic & Pacific Co. of Canada (1991), 1991 CanLII 7068 (ON CA), 2 O.R. (3d) 65 (C.A.), at p. 69 (Dubin C.J.O.); Reference re Securities Act, 2011 SCC 66, [2011] 3 S.C.R. 837, at para. 90; and Reference re Firearms Act (Canada), 2000 SCC 31, [2000] 1 S.C.R. 783, at paras. 18, 57.
[68] The applicant relies on Prof. McKitrick, who has given his view, as an economist, that the Global Adjustment is a tax. However, this does not determine the constitutional characterization of the Global Adjustment. The Supreme Court has recognized that economists’ definitions do not assist in the constitutional characterization of taxes and charges: Ontario Home Builders’ Association, at para. 42 (Iacobucci J.).
[69] The applicant focuses on the purposes of the Electricity Act, and submits that the choice to support participation by aboriginal peoples and members of local communities under the FIT program does not fall under any of the Act’s objectives. In turn, the applicant submits that supporting those peoples to redress economic hardship is a general policy objective detached from the electricity regime and the monies collected are therefore a tax. However, even if the FIT program did not fall within the Act’s objectives (which is disputed), the purposes of the Electricity Act cannot be read in isolation to ignore the plain words of the statute. Section 25.35 of the Electricity Act expressly provided that the FIT program had goals relating to, in s. 25.35(2)(a), “the participation by aboriginal peoples in the development and establishment of renewable energy projects”; and, in s. 25.35(1)(b), “the involvement of members of the local community in the development and establishment of renewable energy projects.” These goals were expressed in the legislation itself and cannot be detached from it.
[70] It was open to Ontario to implement an electricity regime that was not driven by market forces alone. In Crawford v. Attorney-General for British Columbia (Reference Re Milk Industry Act), 1960 CanLII 36 (SCC), [1960] S.C.R. 346, the Supreme Court of Canada confirmed that the legislation that permitted the board to fix the price at which vendors paid milk producers was within the provincial powers under the Constitution Act, 1867, even if there were cross-subsidies and the result of the scheme meant that producers got paid less money than they might otherwise have received on the free market. In Reference re Agricultural Products Marketing Act, 1978 CanLII 10 (SCC), [1978] 2 S.C.R. 1198, at p. 1234 (Laskin C.J.) and pp. 1291-1292 (Pigeon J.), the Supreme Court found that a price adjustment is not a tax.
[71] The Global Adjustment is a price adjustment that is based on actual costs that must be and are paid to third parties. It does not raise money for general provincial purposes. The monies are not paid into general revenue. Its purpose is not, in pith and substance, to tax.
[72] This conclusion is underscored by the established law regarding charges in relation to a regulatory scheme, which are not taxes. A levy will be a regulatory charge, not a tax, if it is connected to a regulatory regime: 620 Connaught Ltd., at para. 24. Under that test, the Global Adjustment is, again, not a tax.
[73] In Westbank, the Supreme Court established a two-step approach to determine if a governmental levy is connected to a regulatory scheme and therefore not a tax: 620 Connaught Ltd., at para. 25, citing Westbank. First, the court must identify the presence of a regulatory scheme and its relevance to the person being regulated. Second, the court must identify a relationship between the charge and the scheme itself.
[74] If there is a regulatory scheme and it is found to be relevant to the person being regulated under step one, and there is a relationship between the levy and the scheme itself under step two, the pith and substance of the levy will be a regulatory charge and not a tax: 620 Connaught Ltd., at para. 28.
[75] For the first step, some or all of the following factors may be indications of a regulatory scheme, as set out in 620 Connaught Ltd., at paras. 25 to 28, and Westbank, at paras. 43 to 44:
(i) a complete, complex and detailed code of regulation;
(ii) a regulatory purpose that seeks to affect some behaviour; and,
(iii) the presence of actual or properly estimated costs of the regulation.
It is not necessary to have all of the above indicia to show the existence of a regulatory scheme.
[76] As well, there must be a relationship between the person being regulated and the regulation, where the person either benefits from, or causes the need for, the regulation: 620 Connaught Ltd., at paras. 25-28; and Westbank, at paras. 43-44.
[77] It is plain and obvious that the electricity regulatory regime is a complete, complex and detailed code of regulation. The above statutes set out a detailed scheme for the regulation of electricity in Ontario, including with respect to the generation, distribution, transmission, procurement, consumption, conservation and planning of electricity within the province. As noted by Prof. McKitrick: “There is a detailed code of regulation referable to the Green Energy Act and the Global Adjustment.”
[78] Further, the regulatory regime has a regulatory purpose that seeks to affect some behaviour, by promoting cleaner energy sources and technologies and encouraging electricity conservation and the efficient use of electricity. As well, the regulatory scheme has the more general objective of ensuring, for the benefit of consumers, “the adequacy, safety, sustainability and reliability of electricity supply in Ontario through responsible planning and management of electricity resources, supply and demand” and to “promote economic efficiency and sustainability in the generation, transmission, distribution and sale of electricity” as set out in the Electricity Act.
[79] With respect to the third indicator of a regulatory scheme, there are actual costs related to regulating the procurement and generation of electricity that the IESO is required to pay, including amounts payable to generators and other entities under procurement contracts, amounts payable to distributors for conservation programs, amounts payable to the Financial Corporation and amounts payable to OPG. It is not necessary that all costs be quantified in advance: e.g., Ontario Home Builders’ Association.
[80] With respect to the fourth indicator of a regulatory scheme, Ontario consumers benefit from this regulatory scheme, under which they are provided with electricity in order to satisfy their demand for energy.
[81] Where the first step is met, as it is here, the second step is to identify a relationship between the levy and the scheme itself. This relationship will exist when the revenues are tied to the costs of the regulatory scheme or the charges themselves have a regulatory purpose, such as the regulation of certain behaviour: 620 Connaught Ltd., at paras. 25-28; and Westbank, at paras. 43-44.
[82] The Global Adjustment is tied to the costs of the regulatory scheme and, as a price adjustment, has a regulatory purpose. Section 25.33 of the Electricity Act identifies the costs of the regulatory scheme for the procurement, generation and conservation of electricity in Ontario that need to be accounted for and recovered in the Global Adjustment, and s. 1.1 of the Regulation sets out the formula for calculating the Global Adjustment based on these costs. The regulatory scheme is essentially a “closed system” in which only actual costs are included in the Global Adjustment, and those actual costs all arise from the regulatory regime itself and the purpose of that regime.
[83] Thus, the Global Adjustment is not a tax because its purpose, in pith and substance, is not to tax, and it is a regulatory charge and therefore, again, not a tax.
[84] I therefore conclude that it is plain, obvious and beyond doubt that the Global Adjustment is not a tax.
No breach of s. 53
[85] Even if the Global Adjustment was a tax, there was no breach of s. 53. The Ontario Legislature itself imposes the Global Adjustment under s. 25.33 of the Electricity Act, which requires that the Global Adjustment be charged by the IESO to market participants such as distributors under s. 25.33(1), as well as by distributors and retailers to ultimate consumers under s. 25.33(2). As expressly provided for in s. 25.33, the IESO, distributors and retailers shall, through their billing and settlement systems, make adjustments in accordance with the Regulation which ensure that payments by market participants and consumers in Ontario reflect (a) amounts paid to generators, the Financial Corporation and distributors, and (b) amounts paid to entities with whom the IESO has a procurement contract, as determined under the procurement contract.
[86] As discussed above, s. 114(1.3)(f) of the Electricity Act identifies the types of regulations that the Lieutenant Governor in Council may make in connection with s. 25.33 of the Electricity Act, including prescribing the methods for determining the amounts of adjustments under s. 25.33. The Regulation sets out the formula, but it does not itself impose the obligation to recover the costs. That authority is imposed at the statutory level pursuant to s. 25.33 of the Electricity Act.
[87] As confirmed by the Supreme Court of Canada in Re. Eurig, at para. 30, s. 53 does not prohibit the Government of Ontario from vesting control over the details and mechanism of taxation in the Lieutenant Governor in Council, as it has done under the Electricity Act with respect to the Regulation. Because the Global Adjustment is imposed by s. 25.33 of the Electricity Act, it is plain and obvious that there was and is no breach of s. 53.
Other issues
[88] The TPA provides that a referendum must be conducted, and must authorize, any new taxes. There are a number of issues that arise regarding the impact of the TPA, but the Act is only engaged where there is a tax. Given my conclusion that the Global Adjustment is not a tax, there is no need to deal with those issues. As well, the other issues raised by the applications need not be addressed.
Motion to strike out portions of affidavits
[89] The moving parties seek to strike out parts of the affidavits of Prof. McKitrick and Mr. Adams.
[90] The primary objection made is based on the unremarkable principle that evidence on domestic law is not admissible and while a party is entitled to bring forward any legal arguments that are available, they ought not be put forward under the guise of evidence, expert or otherwise: Laiken v. Carey, 2013 ONCA 530, 116 O.R. (3d) 641, at para. 41, aff’d 2015 SCC 17, [2015] 2 S.C.R. 79. The McKitrick and Adams affidavits contain statements setting out, or opinions on, domestic law. Other objections are also put forward, including unsupported conjecture or conclusions, statements beyond the expertise of the witness, irrelevant evidence and hearsay.
[91] However, generally issues regarding the admissibility of evidence filed on an application should be dealt with by the judge hearing the application, at that time: Belokon v. The Kyrgyz Republic, 2015 ONSC 5918, at para. 22, leave to appeal refused, 2016 ONSC 1075 (Div. Ct.). An exception has developed for judicial review applications where the record is the subject of the dispute. However, in a judicial review application the record has a special role, which does not apply here. That exception is the basis for most of the cases put forward by the moving parties: see e.g. Sierra Club of Canada v. Ontario (Ministry of Natural Resources), 2011 ONSC 4086 (Div. Ct.), at paras. 7-10, 13, 23.
[92] As I mentioned above, this aspect of the motions need not be addressed in order to decide the motions to strike out the applications, and I otherwise see no reason to depart from the general rule. If I had not decided to strike out these applications, I would have left the issues regarding the evidence to be decided by the judge (or other tribunal) hearing the matters.
Orders
[93] The motions to strike out the applications are granted.
[94] If the parties are unable to agree on costs, they shall make their costs submissions in writing as follows: any party seeking costs shall deliver brief written submissions plus a costs outline by July 10, 2018 and any party from whom costs are sought shall deliver brief written responding submissions by July 24, 2018. The parties may agree on a different schedule provided that it is on consent and I am notified of it before July 10, 2018.
Justice W. Matheson
Released: June 20, 2018
COURT FILE NOS.: CV-17-580045; CV-17-585295
DATE: 20180620
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
NATIONAL STEEL CAR LIMITED
Applicant
– and –
INDEPENDENT ELECTRICITY SYSTEM OPERATOR, THE ATTORNEY GENERAL OF ONTARIO and HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO
Respondents
REASONS FOR DECISION
MATHESON J.
Released: June 20, 2018
[^1]: The second application was brought to address a potential challenge based upon an alleged failure to give the required notice under the Proceedings Against the Crown Act, R.S.O. 1990, c. P. 27, and to correct the title of proceedings. Only the corrected title of proceedings is set out above.
[^2]: The FIT program includes a program for generators under 10 kW, such as rooftop solar panels, which is called the MicroFIT program.
[^3]: A further challenge based upon s. 92(2) is no longer being pursued due to s. 92A(4).
[^4]: Assistant Deputy Minister of Energy, Susan Lo.