2022 ONSC 2567

COURT FILE NO.: CV-17-580045 COURT FILE NO.: CV-17-585295 DATE: 20220427

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: NATIONAL STEEL CAR LIMITED Applicant

• and - INDEPENDENT ELECTRICITY SYSTEM OPERATOR, MINISTRY OF ATTORNEY GENERAL (ONTARIO) and MINISTER OF ENERGY (ONTARIO) Respondents

AND 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

Counsel: Earl Cherniak, Q.C., Jerome R. Morse, and David Trafford for the Applicant Alan Mark and Melanie Ouanounou for the Respondent Independent Electricity System Operator Padraic Ryan and Karlson Leung for the Respondents Ministry of the Attorney General (Ontario) and Minister of Energy (Ontario) in Application No. CV-17-580045 and Attorney General of Ontario and Her Majesty the Queen in Right of Ontario in Application No. CV-17-585295

HEARD: March 1-4, 2022

PERELL, J.

REASONS FOR DECISION

A. Introduction

[1] In 2009, the Ontario Provincial Government introduced procurement programs designed to recruit suppliers of renewable electricity (called generators) to the province’s electrical grid. The programs were known as the “FIT Programs” where FIT means “feed-in-tariff”. The FIT Programs were authorized by the Green Energy and Green Economy Act, 2009, which amended the Ontario Energy Board Act, 1998, and the Electricity Act, 1998, the primary statutes governing the electricity system in Ontario.

[2] The FIT Programs ushered in a very large increase in the “Global Adjustment,” which is a levy imposed on and paid by electricity consumers, the formula for which is found in a regulation, Ont. Reg. 429/04.

[3] The Applicant, National Steel Car Limited, is a manufacturer in Hamilton, Ontario. Beginning in 2009, there was a large increase in what National Steel Car had to pay for electricity because of the increases to the Global Adjustment. Visualize, in 2008, National Steel Car paid $207,260 annually for electricity, but by 2016, it paid $3,390,645.08 annually for electricity.

[4] In this application, National Steel Car’s fundamental argument is that the FIT Programs, which caused the enormous increase in the cost of electricity to consumers, constituted an unlawful tax and that the increased payments for electricity should be refunded by the Provincial Government and by the Independent Electricity System Operator (“IESO”), which sets the Global Adjustment, as unlawful taxes. [Kingstreet Investments v. New Brunswick (Department of Finance), 2007 SCC 1]; [Air Canada v British Columbia, 1989 SCC 95].

[5] In this application, National Steel Car submits the FIT Programs of the Green Energy and Green Economy Act, 2009 were colourable taxation. It submits that the professed purposes of the FIT Programs to augment the electricity system were falsehoods and that the genuine purpose of the FIT Programs was to generate tax revenue for the Provincial Government.

[6] More precisely, National Steel Car submits that the FIT Programs were designed to provide: (a) general economic stimulus; and (b) specific economic assistance to rural municipalities, co-operatives, and Indigenous communities that had been adversely affected by the 2008 economic financial crisis. National Steel Car labels this generation of unlawful tax revenue the “Stimulus Goals” of the FIT Programs. National Steel Car submits that the FIT Programs were a colourable attempt to tax through regulation, which is contrary to the Constitution Act, 1867.

[7] National Steel Car submits that the implementation of the FIT Programs is unrelated to the regulation of electricity and constitutes taxation under the guise of regulation, which is unconstitutional because it is contrary to sections 53 and 54 of the Constitution Act, 1867, which requires taxes to be authorized by the Provincial Legislature by statute and not by the executive by regulation. To quote from its factum, National Steel Car submits that the FIT Programs departed from the overriding constitutional principle that a regulatory charge demonstrably intended to raise revenues in excess of regulatory needs is a strong indication that the levy was in pith and substance a tax.

[8] National Steel Car submits that the Stimulus Goals were funded by electricity consumers through the Global Adjustment and that this funding of the Stimulus Goals was an objective unrelated to the regulation of electricity. National Steel Car submits that the Stimulus Goals had no proper regulatory purpose and that their cost was not necessarily incidental to the cost of the regulation of electricity.

[9] Further, and somewhat incidentally, National Steel Car also alleges that the Provincial Government has violated the Taxpayer Protection Act, 1999, because it submits that the FIT Programs portion of the Global Adjustment should have been first authorized by a referendum.

[10] To advance these arguments: (a) on August 1, 2017, National Steel Car commenced an application against IESO, Ministry of Attorney General, Minister of Energy (collectively “the Provincial Government”) to challenge the FIT Programs part of the Global Adjustment as ultra vires (CV-17-580045); and (b) on October 26, 2017, National Steel Car commenced an application against IESO, the Attorney General of Ontario, and Her Majesty the Queen in Right of Ontario (collectively “the Provincial Government”) to challenge the FIT Programs part of the Global Adjustment as ultra vires (CV-17-585295).

[11] These applications have proceeded together as if one application. For the following reasons, the applications are dismissed.

B. Overview

1. National Steel Car’s Argument

[12] In its essence, National Steel Car’s argument is that a portion of what consumers of electricity paid pursuant to Ont. Reg. 429/04, which was enacted pursuant to the Electricity Act, 1998, is a tax and the tax is unlawful because it was enacted by regulation and not by statute. More precisely, National Steel Car’s argument is that pursuant to Ont. Reg. 429/04, electricity consumers (ratepayers) pay a charge called the Global Adjustment and a part of the Global Adjustment is the cost of the FIT Programs, which is a cost of acquiring electricity passed on to the consumers of the electricity; however, the cost of the FIT Programs is a tax and it is an unlawful tax because it was not authorized by a statute of the Ontario Legislature.

[13] National Steel Car submits that the cost of the FIT Programs is a tax because the genuine purpose of the FIT Programs was to pump money into the economy, which purpose National Steel Car labels the Stimulus Purpose. The stimulus was accomplished by charging consumers for a source of electricity that was any or all of unnecessary, useless, unusable, unused, and massively overpriced.

[14] In short, National Steel Car submits that it was a not useful source of electricity and it was much more expensive than other sources of electricity. National Steel Car goes so far as submitting that the professed purposes of the FIT Programs of: (a) eliminating coal-fired generation of electricity; (b) improving air quality and reducing healthcare costs; (c) planning for an impending supply shortage; and (d) increasing renewable energy sources were falsehoods to conceal the FIT Programs’ Stimulus Purpose.

[15] Assuming that its arguments succeed that the impugned part of the Global Adjustment is an unlawful tax, National Steel Car next argues that the Provincial Government has contravened the Taxpayer Protection Act, 1999.

[16] Finally, National Steel Car argues that it is entitled to a repayment of the unconstitutional tax, and it proposes a variety of methodologies and procedures for the calculation of what it is owed.

2. The Respondents’ Argument

[17] IESO and the Provincial Government resist National Steel Car’s applications. The Respondents’ defence to National Steel Car’s applications has four more or less mutually exclusive branches.

[18] The first branch of the Respondents’ argument is an issue of fact, and they dispute that any of the professed purposes of the FIT Programs were falsehoods. They assert that there is nothing inconsistent with the purposes of the Electricity Act, 1998 to use the procurement of different sources of electricity to stimulate the economy. The main thrust of this branch of the Respondents’ argument is that there is nothing colourable about the FIT Programs. A subtext to this first branch of the Respondents’ argument is their submission that even if the FIT Programs can be criticized as poor planning, poor policy, poor implementation, and/or as having poor outcomes, those facts do not make the charges for the FIT Programs colourable taxes.

[19] The second branch of the Respondents’ argument is an issue of law or of mixed fact and law from which a legal issue may be extracted. The Respondents submit that the costs of the FIT Programs are not a tax but are an intra vires regulatory charge connected to the Electricity Act, 1998. The thrust of the second branch is that the FIT Programs’ charges are a genuine and legitimate part of a regulatory scheme.

[20] The third branch of the Respondents’ argument is an issue of law or of mixed fact and law from which a legal issue may be extracted. The Respondents submit that the Global Adjustment, including the FIT Programs part of it, are a closed system, in which no revenues ever reach the Provincial Government and its consolidated revenue fund, and, therefore, it cannot be argued that the FIT Programs are taxation because taxation entails the raising of revenues for government purposes.

[21] The fourth branch of the Respondents’ argument is an alternative submission that is another issue of law or of mixed fact and law from which a legal issue may be extracted. The Respondents argue that if the costs of the FIT Programs are indeed a tax, then they are a lawful tax because the rigors of sections 53 and 54 of the Constitution Act, 1867 have been satisfied.

3. Overview

[22] In my opinion, as I shall explain below, National Steel Car’s arguments are incorrect and the first two branches of the Respondents’ argument are correct. Therefore, National Steel Car’s applications should be dismissed.

[23] In these circumstances, I need not consider: (a) the third and fourth branches of the Respondents’ argument; (b) National Steel Car’s arguments about the Taxpayer Protection Act, 1999; and (c) National Steel Car’s arguments about the calculation of a restitutionary award for an unlawful tax.

[24] I also need not explicate and decide the contentious debate between the parties about whom has the onus of proving in whole or in part the elements of the legal test to differentiate a tax from an intra vires regulatory charge. In the case at bar, the Respondents succeed on their strong arguments that the FIT Programs are not colourable and are proven to be a regulatory charge. I need not decide this case on the weak argument that one side or the other failed to meet the evidentiary onus of proof.

C. Methodology

[25] To explain my reasons for dismissing National Steel Car’s applications, I shall begin by describing the law associated with ultra vires taxes. It is necessary to keep this law in mind to appreciate what is factually relevant to the complex analysis of mixed fact and law that a court must undertake to determine whether a government charge or levy is an ultra vires tax or an intra vires regulatory charge.

[26] After this discussion of the law, I shall next describe in two sections the procedural and evidentiary background and a problem with respect to the evidence of the two expert witnesses proffered by National Steel Car. Then, the factual background will have six sections. Next, I will discuss National Steel Car’s argument and two of the Respondents’ four counterarguments leading up to the conclusion that National Steel Car’s applications should be dismissed.

D. The Law Associated with Ultra Vires Taxes

1. Introduction

[27] The law associated with ultra vires taxes is a fundamental aspect of constitutional law.

[28] For present purposes, the relevant provisions of the Constitution Act, 1867 are set out in Schedule “A” to these Reasons for Decision.

[29] The law associated with ultra vires taxes has developed since Confederation from complex Privy Council and Supreme Court of Canada decisions. The cardinal cases in reverse chronological order are: [620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7]; [Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 SCC 655]; [Eurig Estate (Re), 1998 SCC 801]; [Ontario Home Builders’ Association v. York Region Board of Education, 1996 SCC 164]; [Allard Contractors Ltd. v. Coquitlam (District), 1993 SCC 45]; [Re Exported Natural Gas Tax, 1982 SCC 189]; [Reference respecting the Agricultural Products Marketing Act, R.S.C. 1970, s. A-7, 1978 SCC 10]; [Reference Re Milk Industry Act (British Columbia), 1960 SCC 36]; [Ontario Boys' Wear Ltd. v. The Advisory Committee, 1944 SCC 7]; [Shannon v. Lower Mainland Dairy Products Board, 1938 UK JCPC 250]; [Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy, Ltd., 1932 UK JCPC 313]; [Lawson v. Interior Tree Fruit and Vegetable Committee of Direction, 1930 SCC 91]; [City of Halifax v. Estate of J. P. Fairbanks, 1927 UK JCPC 337], rev'g [1926 SCC 70]; [British Columbia v. Canadian Pacific Railway Co., 1927 UK JCPC 482]; [Cotton v. The King, 1913 UK JCPC 396]; [Bank of Toronto v. Lambe, (1887) 12 A.C. 575 (P.C.)]; and [Attorney-General for Quebec v. Reed, (1884) 10 App. Cas. 141 (P.C.)].

[30] In this section of my Reasons for Decision, I shall attempt to synthesize the principles that can be extracted from these cases. Before doing so, I pause to note that the law associated with ultra vires taxes is an extraordinary story of Canadian legal history and of the legal scholarship and judicial contribution of Law Professors and Justices Bora Laskin, Gerald V. La Forest, and Frank Iacobucci. Before their appointments to the bench, Chief Justice Laskin and Justice La Forest wrote the seminal legal texts on the work of the Supreme Court and the Privy Council on the constitutional law associated with the Federal Government’s and the Provincial Governments’ legislative authority to levy taxes, licence fees, and charges associated with regulatory schemes, particularly marketing schemes. After his appointment to the bench, Chief Justice Laskin referenced the work of Professor La Forest. Justice La Forest and Justice Iacobucci sat together on the Supreme Court of Canada, and they debated Justice Laskin’s decisions and they debated each other about the law associated with ultra vires taxes and intra vires regulatory charges.

2. The Legal Principles

[31] Taxes may be direct taxes or indirect taxes. [Ontario Home Builders’ Association v. York Region Board of Education, 1996 SCC 164]; [Minister of Finance of New Brunswick v. Simpsons-Sears Ltd., 1982 SCC 158]; [Canadian Industrial Gas & Oil Ltd. v. Government of Saskatchewan, 1977 SCC 210]; [Cairns Construction Ltd. v. Government of Saskatchewan, 1960 SCC 59]; [Canadian Pacific Railway Co. v. Attorney General for Saskatchewan, 1952 SCC 39]; [Atlantic Smoke Shops, Ltd. v. Conlon, 1943 UK JCPC 372]; [City of Halifax v. Estate of J. P. Fairbanks, 1927 UK JCPC 337], rev'g [1926 SCC 70]; [Brewers and Maltsters' Association of Ontario v. Attorney-General for Ontario, [1897] A.C. 231 (P.C.)]. “Direct taxes” are demanded from the very persons whom the government intended should pay it. Examples of direct taxes are: income tax, death duties, property taxes, municipal realty taxes, and flat fees for licences and government services. [Bank of Toronto v. Lambe, (1887) 12 A.C. 575 (P.C.)]. Indirect taxes are demanded from persons from whom the government intended and expected would be indemnified by another person. [Eurig Estate (Re), 1998 SCC 801 at paras. 25-27]; [Allard Contractors Ltd. v. Coquitlam (District), 1993 SCC 45]; [(1887) 12 A.C. 575 (P.C.)]; John Stuart Mill, Principles of Political Economy (1884), Book V, ch. II. (New York: D. Appelton, 1884). Examples of indirect taxes are customs duties, excise duties, succession duties, sales taxes on consumer goods, and fees on services.

[32] The characteristics of taxes are: (a) they are enforceable by law; (b) they are enacted under the authority of the Legislature or Parliament; (c) they are levied by a public body; and (d) they are intended for a public purpose.

[33] It shall be important to observe that the characteristics of a tax are the same characteristics of a statutorily imposed fee or a statutorily imposed regulatory levy. Thus, the case law has had to develop ways and means to differentiate taxes from statutory imposed levies. The ability to differentiate between taxes and statutorily imposed levies is fundamentally important because as will appear from the discussion below, the characterization of a charge as one or the other ultimately determines whether the charge is ultra vires or intra vires.

[34] Pursuant to s. 91(3), the Federal Government has the legislative authority to raise money by any mode or system of taxation, i.e., by direct and indirect taxes.

[35] Subject to the four exceptions next described, pursuant to s. 91(2) of the Constitution Act, 1867, a Provincial Government has the power only to levy direct taxation, and provinces cannot raise revenue by indirect taxation. [Eurig Estate (Re), 1998 SCC 801 at para. 24]; [Allard Contractors Ltd. v. Coquitlam (District), 1993 SCC 45 at p. 394]; [British Columbia v. Esquimalt and Nanaimo Railway Co., 1949 UK JCPC 324]; [Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy, Ltd., 1932 UK JCPC 313]; [British Columbia v. Canadian Pacific Railway Co., 1927 UK JCPC 482]; [Attorney-General for Quebec v. Reed, (1884) 10 App. Cas. 141 (P.C.)].

[36] The exceptions where a Provincial Government can raise revenues by any means are:

a. First, pursuant to s. 92A(4) of the Constitution Act, 1867, a Provincial Government has constitutional authority to make laws in relation to the raising of money by any mode or system of taxation in respect, among other things, to natural resources and facilities in the province for the generation of electrical energy and the production therefrom. b. Second, pursuant to s. 92(9) of the Constitution Act, 1867, a Provincial Government has constitutional authority to raise revenue by business licences and other licences for provincial, local, or municipal purposes. For the provinces, charging fees is authorized by s. 92(9) of the Constitution Act, 1867, which empowers a province to legislate with respect to: “Shop, Saloon, Tavern, Auctioneer, and other Licences in order to the raising of a Revenue for Provincial, Local, or Municipal Purposes.” c. Third, in an exception that is related to the licensing and fee exception of s. 92 (2), pursuant to a head of legislative power within s. 92 of the Constitution Act, 1867, a province can charge user fees and proprietary charges and enter into contracts with respect to its property and assets, and these proprietary charges are not taxes. [Toronto Distillery Company Ltd. v. Ontario (Alcohol and Gaming Commission), 2016 ONCA 960], aff’g [2016 ONSC 2202]; [Boniferro Mill Works ULC v. Ontario (2009), 2009 ONCA 75]; [620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7]. In [620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at para. 49], the Supreme Court recognized that proprietary charges for goods and services supplied in a commercial context are distinct from either regulatory charges or taxes and may be determined by market forces. The authorities establish that contractual payments made to a government authority are a private law matter and not a public law matter of taxation because taxes are imposed by a government without the taxpayer’s consent while contracts are a matter of a voluntary agreement between the parties to the contract. [Unfiltered Brewing Inc. v. Nova Scotia Liquor Corp., 2019 NSCA 10]; [Steam Whistle Brewing Inc. v. Alberta Gaming and Liquor Commission, 2018 ABQB 476]; [Toronto Distillery Company Ltd. v Ontario, 2016 ONCA 960], aff’g [2016 ONSC 2202]; [QCTV Ltd. v. Edmonton (City), 1983 ABKB 1088], aff’d [1984 ABCA 311]; [Abernethy-Lougheed Logging Co. (Trustee of) v British Columbia, 1937 BCSC 261], rev’d but affd on this point at paras. 54-55 526 (B.C.C.A.); [Lynch v. The Canada Northwest Land Company (1891), 1891 SCC 60]. Thus, contractual payments do not satisfy the indicia of a tax of being an imposed obligation. d. Fourth, pursuant to a provincial head of power under s. 92 of the Constitution Act, 1867, such as s. 92(13) (property and civil rights in the province) or s. 92(16) (matters of a merely local or private nature in the province), a Provincial Government can charge levies to finance or to constitute a regulatory scheme.

[37] Thus, subject to the stipulations of the Constitution Act, 1867, the Federal Government and the Provincial Governments may impose taxes and other types of government levies or charges. Government levies can be:

a. direct or indirect taxes - a charge to raise revenue for public purpose; b. a licence or user fee or proprietary charge – a fee paid to use government property, facilities, or services. [Toronto Distillery Company Ltd. v. Ontario (Alcohol and Gaming Commission), 2016 ONCA 960], aff’g [2016 ONSC 2202]; [620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7]. c. a regulatory charge – an aspect of a regulatory scheme.

[38] To determine whether a government charge or levy is lawful, intra vires, under the Constitution Act, 1867¸ or unlawful, ultra vires, it is necessary to characterize, which is to say, to identify whether the charge is a (a) tax; (b) user fee; or (c) regulatory charge.

[39] The characterization of the charge is necessary because, in addition to falling within a head of legislative authority, to be lawful, which is to say intra vires, a tax (be it a direct tax or an indirect tax) must originate in the House of Commons or a Provincial Legislature.

[40] Section 53 of the Constitution Act, 1867 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.” Section 54 of the Constitution Act, 1867 requires that taxes be raised only pursuant to enabling legislation enacted by the House of Commons. By virtue of s. 90 of the Constitution Act, 1867, sections 53 and 54 apply to Provincial Governments. The essential principle underlying sections 53 and 54 is that there should be no taxation without representation. [Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 SCC 655]; [Eurig Estate (Re), 1998 SCC 801 at paras. 30-32]. In a democracy, citizens have the right to have their elected representatives debate whether their money should be appropriated and how the money should be spent. [Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 SCC 655 at para. 19]; [Eurig Estate (Re), 1998 SCC 801 at para. 30]. Pursuant to s. 53 of the Constitution Act, 1867, only Parliament or a Legislature can impose a tax, but s. 53 does not prohibit Parliament or the legislatures from vesting any control over the details and mechanism of taxation in statutory delegates such as the Lieutenant Governor in Council. [620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at para. 5]; [Eurig Estate (Re), 1998 SCC 801 at paras. 28-30].

[41] The characterization of the charge as a tax, licence or user fee, or a regulatory charge is also necessary because the characterization may make a difference as to upon whom the levy may be imposed. Visualize, by virtue of s. 125 of the Constitution Act, 1867, which provides that “no lands or property belonging to Canada or any Province shall be liable to Taxation,” the Federal Government cannot tax the Provincial Governments and vice versa. [Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 SCC 655]; [Re: Exported Natural Gas Tax, 1982 SCC 189]. However, while there cannot be any intergovernmental taxation, there can be intergovernmental user fees and regulatory charges. [Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 SCC 655]; [Re Exported Natural Gas Tax, 1982 SCC 189]; [General of Canada v. Registrar of Titles, 1934 BCCA 237]; [Attorney-General of British Columbia v. Attorney General of Canada (1922), 1922 SCC 47], aff’d [1923 UK JCPC 426] (the Johnny Walker case); [Minister of Justice v. City of Levis; 1918 UK JCPC 402]; [Attorney General of Canada v. City of Toronto (1892), 1893 SCC 22].

[42] To determine the characterization of the government charge, it is necessary to determine its fundamental nature, its “pith and substance.” Taxes, user fees, and regulatory charges are different legal concepts, and the task for the court is to identify what is the pith and substance of the government levy be it: (a) a tax to raise revenue for general purposes; (b) a licence or user fee for government goods or services; or (c) a regulatory charge as a constituent element of a regulatory scheme. [620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at para. 17]; [Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 SCC 655 at para. 30].

[43] The pith and substance of a government levy is its dominant, primary and most important characteristic as distinguished from its incidental features. [620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at paras. 16-17]. When determining the pith and substance of a levy, it is important to keep in mind, the context within which the charge is made and the purpose of the charge. [Ontario Home Builders’ Association v. York Region Board of Education, 1996 SCC 164 at para. 43]. If the pith and substance of the levy is the raising of revenue for general government purposes then the levy is a tax, [Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 SCC 655] but if the levy is a user charge or a charge for regulatory purposes or necessarily incidental to a regulatory scheme, then the levy is not in pith and substance taxation. [620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7]; [Reference respecting the Agricultural Products Marketing Act, R.S.C. 1970, s. A-7, 1978 SCC 10].

[44] The identification of the nature of the government charge is a delicate and complicated task because there is a tension or potential conflict between the Constitution Act, 1867’s restricting the Provincial Governments to raising revenue only by direct taxation and the Constitution Act, 1867’s permitting the provinces to impose licence fees pursuant to s. 92(9) and to impose regulatory charges as incidental or ancillary to a regulatory scheme.

[45] If these permissions are interpreted too liberally, then the restriction on the Provincial Governments’ power to raise revenue only by direct taxation would be easily avoided and in effect become meaningless. Thus, there are sophisticated legal tests to differentiate taxes from user fees and regulatory charges to avoid rendering s. 92(2) of the Constitution Act, 1867, meaningless. [Ontario Home Builders’ Association v. York Region Board of Education, 1996 SCC 164 at para. 85]. As Justice La Forest noted in [Ontario Home Builders’ Association v. York Region Board of Education, 1996 SCC 164 at para. 95], differentiating a tax from a regulatory charge is “as is so often the case in cases dealing with the distribution of powers – no easy task.”

[46] For a levy to be characterized as a tax to raise revenue for general purposes, it must: (a) be enforceable by law; (b) be imposed by the authority of Parliament or a Legislature; (c) be charged by a public body; (d) be intended for a public purpose; and (e) be unconnected to a regulatory scheme. [620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at paras. 22-24]; [Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 SCC 655].

[47] For a levy to be characterized as a user fee, it must be a fee for a government facility (for example, a fee for use of a park) or service (for example, the supply of electrical power) and there must be a close correspondence between the quantum of the fee and the actual cost to the government of providing the facility or service. [620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at para. 19]; [Eurig Estate (Re), 1998 SCC 801 at para. 22]. The factor that a fee must have a nexus between the quantum charged and the cost of the service helps distinguish a fee from a tax, the revenues from which may be used for general public purposes. [Angus v. Corporation of the Municipality of Port Hope, 2016 ONSC 3931]; [Greater Toronto Apartment Association v. Toronto (City), 2012 ONSC 4448]; [620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at paras. 22-24]; [Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 SCC 655 at para. 22]; [Eurig Estate (Re), 1998 SCC 801 at para. 21]; [Allard Contractors Ltd. v. Coquitlam, 1993 SCC 45].

[48] As noted above, a levy that is a regulatory charge will have the same characteristics as a tax. For a levy to be characterized as a regulatory charge and differentiated from a tax: (a) the levy must be in relation to the rights and privileges associated with a regulatory scheme; and (b) the levy must be used to finance the regulatory scheme or be used to alter individual behaviour in relation to the regulatory scheme. [620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at para. 20]; [Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 SCC 655]; [Cape Breton Beverages Ltd. v. Nova Scotia (Attorney General) (1997), 1997 NSSC 9915], aff’d [1997 NSCA 122], leave to appeal ref’d [1997] 3 S.C.R. vii. A regulatory charge may be the means of: (a) advancing a regulatory purpose; [Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 SCC 655 at para. 29]; [Cape Breton Beverages Ltd. v. Nova Scotia (Attorney General) (1977), 1997 NSSC 9915], aff’d (1957), [1997 NSCA 122], leave to appeal ref’d, [1977] 3 S.C.R. vii; [Attorney-General of British Columbia v. Attorney General of Canada (1922), 1922 SCC 47], aff’d [1923 UK JCPC 426] (the Johnny Walker case); and, or (b) defraying the expenses of a regulatory scheme. [Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 SCC 655 at para. 29]; [Allard Contractors Ltd. v. Coquitlam (District), 1993 SCC 45].

[49] There is a two-step process to determine if a levy is connected to a regulatory charge. The first step is to identify the existence of a regulatory scheme and if there is a regulatory scheme, the second step is to determine whether there is a relationship between the scheme and the charge.

[50] The first step is to identify whether there is a regulatory scheme that is pertinent to the person being charged the fee. A regulatory scheme must regulate in some specific way and for some specific purpose. [Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 SCC 655 at para. 26]. To identify the existence of a regulatory scheme the following non-exhaustive and non-inclusive list of factors provides guidance; visualize:

a. Is there a regulatory purpose to affect some behaviour? b. Is there a comprehensive complex code of regulation? c. Has the cost of implementing the regulation been calculated or properly estimated? [Angus v. Corporation of the Municipality of Port Hope, 2016 ONSC 3931]; [Greater Toronto Apartment Association v. Toronto (City), 2012 ONSC 4448]; [Allard Contractors Ltd. v. Coquitlam, 1993 SCC 45]. d. Is there a cause or effect relationship between the person or thing being regulated and the regulatory scheme in the sense that the person or thing either causes the need for the regulation or benefits from the regulation? [620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at para. 25]; [Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 SCC 655 at para. 44].

[51] If the levy is intended to defray the costs of a regulatory scheme, then to not be characterized as a tax, the fee revenue must be tied to the costs of the regulatory scheme and the revenue from the fees cannot systemically exceed the costs of the scheme, but a small or sporadic surplus would not make the regulatory fee a tax as long as there was a reasonable attempt by the government to match revenue with the costs associated with the regulatory scheme. [620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at paras. 38-40]; [Eurig Estate (Re), 1998 SCC 801 at para. 22]; [Allard Contractors Ltd. v. Coquitlam (District), [1993] 4 S.C.R. 37 at pp. 411-12].

[52] Provided that a relevant regulatory scheme is found to exist, the second step is to determine whether there is a relationship between the charge and the scheme in the sense that the revenues are tied to the costs of the regulatory scheme or the charges themselves have a regulatory purpose, such as the regulation of behaviour or the conferral of benefits. [620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at paras. 35-37]; [Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 SCC 655 at para. 44].

[53] To summarize the law with respect to a Provincial Government’s authority to raise revenue:

a. There are some levies or charges made by a provincial government that are not taxes but are user fees and proprietary charges or revenues from contracts with respect to the Provincial Government’s property and assets, and these levies are not taxes. b. If a Provincial Government imposes a levy and the pith and substance of the enabling legislation is direct taxation for the purposes of raising revenue for the province, the Provincial Government must comply with sections 53 and 54 of the Constitution Act, 1867 and the levy cannot apply to the Federal Government. If the Provincial Government does not comply with sections 53 and 54 of the Constitution Act, 1867, the enabling legislation is ultra vires and the levy is illegal. c. If a Provincial Government imposes a levy and the pith and substance of the enabling legislation is indirect taxation, then unless the indirect tax is authorized by s. 92A of the Constitution Act, 1867, the enabling legislation is ultra vires and the levy is illegal. d. If a Provincial Government imposes a levy and the pith and substance of the enabling legislation is a head of power under s. 92 of the Constitution Act, 1867 - other than 92(2) (taxing power) - for example, s. 92(9) licence fees, s. 92(13) (property and civil rights), s. 92(14) (administration of justice) or s. 92(16) (matters of local or private nature), then the enabling legislation is intra vires and the levy is lawful notwithstanding that they levy could be characterized as a direct or an indirect tax and notwithstanding that the Provincial Government may not have complied with sections 53 and 54 of the Constitution Act, 1867. e. Since any levy imposed by a Provincial Government will have the same characteristics as a tax, for a levy to be characterized as an intra vires user fee, it must be a fee for a government facility and there must be a close correspondence between the quantum of the fee and the actual cost to the government of providing the facility or service. f. Since any levy imposed by a Provincial Government will have the same characteristics as a tax, for a levy to be characterized as an intra vires regulatory charge: (a) the levy must be in relation to the rights and privileges associated with a regulatory scheme; or (b) the levy must be used to finance the regulatory scheme or be used to alter individual behaviour in relation to the regulatory scheme. There is a two-step process to determine if a levy is connected to a regulatory charge. The first step is to identify the existence of a regulatory scheme and if there is a regulatory scheme, the second step is to determine whether there is a relationship between the scheme and the charge.

3. The Caselaw

[54] In [Attorney-General for Quebec v. Reed, (1884) 10 App. Cas. 141 (P.C.)], the Province of Quebec required that every exhibit filed in court in any action be affixed with a ten-cent stamp. The Privy Council struck down the levy as indirect taxation. The Privy Council stated that it did not have to address the argument that the levy was related to the administration of justice (a regulatory charge) because the funds, which were added to the consolidated revenue fund, were indirect taxation in order to raise revenue for provincial purposes. The Reed case is the first caselaw recognition of the possibility that a user fee or service charge might be intra vires, notwithstanding that it could be classified as an indirect tax, an issue that the Privy Council did not decide.

[55] In [Bank of Toronto v. Lambe, (1887) 12 A.C. 575 (P.C.)], the Privy Council held that a flat fee is a type of direct taxation, but that the nature of variable fees as being direct or indirect taxation had to be determined on a case-by-case basis.

[56] In [Cotton v. The King, 1913 UK JCPC 396], the Privy Council held that a succession duty payable by an executor or other person in a representative capacity constitutes indirect taxation.

[57] In [British Columbia v. Canadian Pacific Railway Co., 1927 UK JCPC 482], the Privy Council struck down a Province of British Columbia statute that levied upon gasoline purchasers a charge of one-half cent per gallon of fuel oil purchased as an indirect tax beyond the legislative authority of the province.

[58] In [Lawson v. Interior Tree Fruit and Vegetable Committee of Direction, 1930 SCC 91], as part of a marketing scheme, the Provincial Government of British Columbia empowered a regulator to impose levies for the purposes of defraying the costs of the marketing scheme. The Supreme Court of Canada characterized the levies as indirect taxes but as within the legislative authority of the province as a regulatory charge ancillary to a regulatory marketing scheme. The Court thus inferentially ruled that regulation charges that fell within provincial legislative competence were intra vires; however, the Supreme Court ruled that the levies were ultra vires as within the exclusive legislative jurisdiction of the Federal Government’s authority over extra-provincial trade and commerce under s. 91(2) of the Constitution Act, 1867.

[59] In [Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy, Ltd., 1932 UK JCPC 313], the Province of British Columbia legislated a milk marketing scheme that included an expense levy and an adjustment levy. The adjustment levy imposed a volumetric fee on farmers selling milk that was used for the purpose of apportioning revenues from the sales of milk and milk products among the dairy farmers. The Privy Council held that the adjustment levy and the expense levy, which it viewed as ancillary to the adjustment levy, were ultra vires as indirect taxes. The Privy Council thus rejected the idea raised in [Lawson v. Interior Tree Fruit and Vegetable Committee of Direction, 1930 SCC 91], supra that a regulation charge might be intra vires pursuant to sections 92(13) and 92(16) of the Constitution Act, 1867.

[60] As will appear, subsequent cases saw the Crystal Dairy case overlooked, distinguished, and eventually circumvented and overturned so that a levy connected to a regulatory scheme could be intra vires notwithstanding that it had the nature of an indirect tax.

[61] In [Shannon v. Lower Mainland Dairy Products Board, 1938 UK JCPC 250], the Province of British Columbia legislated a marketing scheme that included a licence fee of persons marketing products. The Privy Council held that the licence fees were intra vires pursuant to s. 92(9) of the Constitution Act, 1867. The Law Lords held that it was unobjectionable that fees were charged either to defray the costs of administration or to increase the revenues of the province or for both purposes. Alternatively, the Law Lords also held that the fees were intra vires pursuant to sections 92(13) and 92(16) of the Constitution Act, 1867 as fees for services rendered by the province or its authorized instrumentalities, i.e., the marketing board. Thus, charges to meet the expenses of a regulatory scheme are intra vires. It may be noted that the Privy Council’s decision in Shannon is at least in so far as the Law Lords relied on sections 92(13) and 92(16) inconsistent with its Crystal Dairy decision.

[62] In [Ontario Boys' Wear Ltd. v. The Advisory Committee, 1944 SCC 7], the Province of Ontario imposed charges on employers by payroll deductions to finance a scheme for labour standards. The Supreme Court held that the payroll deductions were intra vires as a direct tax or they could be justified pursuant to sections 92(13) and s. 92(16) of the Constitution Act, 1867 as fees for services rendered by the province or its authorized instrumentalities.

[63] In [Reference Re Milk Industry Act (British Columbia), 1960 SCC 36], the Province of British Columbia legislated a milk marketing scheme that fixed prices and specified a levy in which milk producers’ revenues from the sale of milk and milk products were pooled and then after deducting the expenses of the marketing board, the revenues were allocated among the milk producers in accordance with a formula. Distinguishing [Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy, Ltd., 1932 UK JCPC 313], supra, the Supreme Court of Canada upheld the marketing scheme and the pooling arrangement as matters of a merely local or private nature in the province under sections 92(13) and 92(16) of the Constitution Act, 1867. Thus, the Supreme Court agreed with the Province of British Columbia’s argument that the legislation did not impose any tax.

[64] In [Reference respecting the Agricultural Products Marketing Act, R.S.C. 1970, s. A-7, 1978 SCC 10], the Federal Government enacted legislation to assist the provinces to get around the restrictions of [Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy, Ltd., 1932 UK JCPC 313], supra. The federal legislation attempted to offer this assistance by delegating to provincial marketing boards the power to impose regulatory levies that otherwise could be considered to be indirect taxation. The Supreme Court, however, struck down the Federal legislation as being in pith and substance about trade within a province, and thus ultra vires the Federal Government. In making this ruling, the Supreme Court characterized what had been characterized in the Crystal Dairy case as an indirect tax as charges forming an integral part of an interprovincial marketing scheme and thus not taxes at all. Thus, in [Reference respecting the Agricultural Products Marketing Act, R.S.C. 1970, s. A-7, 1978 SCC 10], the Federal Government’s assistance was not required, and it was encroaching on provincial jurisdiction. In this result, the Supreme Court overturned [Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy, Ltd., 1932 UK JCPC 313], supra. And, the Supreme Court recognized that levies that were in other respects indirect taxation were nevertheless intra vires pursuant to sections 92(13) and s. 92(16) of the Constitution Act, 1867.

[65] In [Re Exported Natural Gas Tax, 1982 SCC 189], the Federal Government levied on natural gas owned by the Province of Alberta and exported to the United States a tax on each gigajoule of marketable pipeline gas. The levy was ruled a tax and not a regulatory charge. The levy was ultra vires as offending s. 125 of the Constitution Act, 1867, which prohibits intergovernmental taxation. In a dissenting judgment, Chief Justice Laskin (MacIntyre and Lamer, JJ. with him in dissent) concluded that the Federal Government’s tax was a part of a regulatory scheme and could be imposed on the Provincial Government and was not a tax caught by s. 125 of the Constitution Act, 1867.

[66] In [Allard Contractors Ltd. v. Coquitlam (District), 1993 SCC 45], municipalities in British Columbia charged gravel pit operators an annual fee based on the volume of gravel extracted. The gravel pit operators challenged the annual fee as ultra vires as an indirect tax. The Supreme Court agreed that the fee had the characteristics of an indirect tax, but the Court held that the variable fee was intra vires pursuant to s. 92(9) of the Constitution Act, 1867 in conjunction with sections 92(13) and 92(16), because the fee was referable to a scheme with respect to gravel and road regulation. The Court’s decision in Allard expressly did not decide whether s. 92(9) comprehended a power to levy indirect taxes to raise revenue in excess of regulatory costs, but the Court expressed the concern that extending s. 92(9) substantially beyond regulatory costs could have the serious consequence of rendering s. 92(2) of the Constitution Act, 1867 meaningless.

[67] In [Ontario Home Builders’ Association v. York Region Board of Education, 1996 SCC 164]; pursuant to land planning legislation, municipal school boards required land developers seeking a building permit to pay an education development charge (and “EDC”) that was calculated based on their paying a part of the capital cost of new school construction. Five justices of the Court held that notwithstanding that the EDC was an indirect tax, it was intra vires the Provincial Government because the charge was ancillary to a regulatory scheme clearly within provincial jurisdiction under ss. 92(9) (licensing to raise revenue), 92(13) (property and civil rights), and 92(16) (matters of a local nature). Four justices of the Court held that the education development charge was intra vires as direct taxation of land, historically regarded as a direct tax, and hence intra vires within provincial authority to enact a direct tax.

[68] In [Eurig Estate (Re), 1998 SCC 801], the Provincial Government levied a fee on an applicant for a grant of probate of $5 on the first $50,000 of the value of the estate and $15 per thousand dollars of the estate value exceeding $50,000. The fee was held to be an indirect tax and not a regulatory charge and as such it was ultra vires because the province cannot impose indirect taxes.

[69] In [Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 SCC 655], pursuant to the Federal Government’s Indian Act, the Westbank First Nation passed by-laws to impose realty and property taxes on British Columbia Hydro, a provincial Crown agent, which had constructed electrical transmission lines on the First Nation’s reserves to provide electricity to the residents. The levy was held to be a tax and not a regulatory charge, and it was ruled ultra vires as against British Columbia Hydro pursuant to s. 125 of the Constitution Act, 1867, which forbids the Federal Government from levying taxes on a Provincial Government and vice versa.

[70] In [620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7], the Federal Government’s Minister of Culture levied by regulation an annual business licence fee on hotel, restaurants, and bars in Jasper National Park of $75 plus 3% of the gross value of liquor purchased and 2% of the gross value of beer purchased by the licensees. The fee was held to be an intra vires regulatory charge and not a tax. Had the business licence fee been a tax, it would have been ultra vires because sections 53 and 54 of the Constitution Act, 1867 requires that taxes be raised only pursuant to enabling legislation enacted by the House of Commons.

[71] In the discussion and analysis part of these Reasons for Decision, I shall have more to say about [Re Exported Natural Gas Tax, 1982 SCC 189], [Allard Contractors Ltd. v. Coquitlam (District), 1993 SCC 45], and [Ontario Home Builders’ Association v. York Region Board of Education, 1996 SCC 164].

E. Procedural Background

[72] On August 1, 2017, National Steel Car commenced an application against IESO, Ministry of Attorney General, Minister of Energy (collectively “the Provincial Government”) to challenge the FIT Programs part of the Global Adjustment as ultra vires.

[73] On October 26, 2017, National Steel Car commenced an application against IESO, the Attorney General of Ontario, and Her Majesty the Queen in Right of Ontario (collectively “the Provincial Government”) to challenge the FIT Programs part of the Global Allowance as ultra vires.

[74] These applications have proceeded together as if one application.

[75] In May 2018, the Provincial Government, supported by IESO, moved pursuant to Rule 21 to have National Steel Car’s applications dismissed. Justice Matheson granted the motion, [National Steel Car Limited v. Independent Electricity System Operator, 2018 ONSC 3845], and National Steel Car appealed.

[76] On November 27, 2019, the Court of Appeal granted National Steel Car’s appeal. [National Steel Car Limited v. Independent Electricity System Operator, 2019 ONCA 929]. Assuming that the facts pleaded in the Statement of Claim could be proven, the Court ruled that National Steel Car’s claim was plausible and that the applications should not have been dismissed on a pleadings motion before the development of a full record. It was not plain, obvious and beyond doubt that the FIT Programs part of the Global Adjustment was not an ultra vires tax. It was not plain, obvious and beyond doubt that the FIT Programs part of the Global Adjustment was an intra vires regulatory charge. In short, there was a colourability issue that had to be determined on a full evidentiary record.

F. Evidentiary Background

[77] The parties proffered an evidentiary record of 16,728 pages along with factums (351 pages) and legal authorities briefs (1,355 pages).

[78] National Steel Car supported its applications with evidence from the following:

• Affidavits dated July 31, 2017, June 19, 2020, and January 29, 2021 of Thomas Adams. Mr. Adams is an energy and environmental researcher adviser, media commentator, and has been an expert witness before administrative tribunals. His focus is on energy consumer concerns mostly in Eastern Canada. He was on the board of directors for the predecessor of IESO from 1999-2001 and served on the Ontario Centre for Excellence for Energy Board of Management from 2003 to 2007. He was retained by National Steel Car to provide an expert opinion. He was cross-examined on June 16 and 17, 2021.
• Affidavits dated August 21, 2017 and June 19, 2020 of Vincenzo De Luca. Mr. De Luca is the Chief Financial Officer of National Steel Car Limited.
• Affidavits dated July 27, 2017, June 18, 2020, and January 11, 2021 of Ross McKitrick. He has a B.A. (Hons), MA. and Ph.D. in economics. Mr. McKitrick is a Professor of Economics at the University of Guelph with an expertise in environmental economics, including climate change, policy analysis, and electricity policy. He was retained by National Steel Car to opine whether the Global Adjustment constitutes a tax from an economic perspective. He was cross-examined on June 14 and 15, 2021.

[79] The Provincial Government resisted the National Steel Car’s applications with evidence from the following:

• Affidavit dated December 4, 2020 of William Hogan. Mr. Hogan is the Raymond Plank Research Professor of Global Energy Policy at Harvard University and past president of the International Association of Energy Economics. He has B.S., MBA, and Ph.D. degrees. He was retained by the Provincial Government to provide an expert opinion. He was cross-examined on March 23, 2021.
• Affidavits dated December 7, 2020 and February 22, 2021 of Richard Jennings. Mr. Jennings joined Ontario’s Ministry of Energy in 1981, and he was appointed Assistant Deputy Minister of the Energy Supply Division in 2005. He held the position of an Assistant Deputy Minister until his retirement from the public service in 2015. He then became Director of Stakeholder Relations at Ontario Power Generation. He has a bachelor’s degree in industrial engineering as well as an MBA. He led the Energy Supply Policy Division’s work on the development and implementation of the Global Adjustment in 2004-2005 and Ontario’s renewable energy policy in 2008 and the FIT Programs in 2009. He was cross-examined on May 20 and 21, 2021 and June 23, 2021.
• Affidavit dated December 7, 2020 of Lena Kitzing. Ms. Kitzing is Associate Professor in the Department of Wind Energy at the Technical University of Denmark and Head of Section for Society, Markets and Policy with expertise in energy economics and the qualitative analysis of energy policy design. She has an M.S. (industrial engineering and management) and Ph.D. She was retained as an expert witness by the Provincial Government. She was cross-examined on April 14, 2021.
• Affidavit dated December 7, 2020 of Arne Olson. Mr. Olson is a Senior Partner at Energy and Environmental Economics, Inc. with expertise in the energy industry specializing in the areas of transmission, planning, rate and tariff design and renewable energy planning. He has an M.S. (energy management and policy) and B.S. degrees (mathematics, statistics.) He was retained as an expert witness for the Provincial Government. Mr. Olson was cross-examined on March 23, 2021 and April 14, 2021.

[80] IESO resisted National Steel Car’s applications with evidence from the following:

• Affidavit dated December 7, 2020 of Robert Cary. He has an MA (math, physics, engineering) and an MBA. Mr. Cary is a Senior Consultant at Charles River Associates, where he provides consulting services for the Ontario electricity sector. He has been involved in the design of Ontario’s electricity market since 1998, and he was involved in the development of the market rules for the introduction of an electricity marketplace in Ontario. He was retained by IESO to provide an expert opinion. He was cross-examined on March 24 and 25, 2021.
• Affidavits dated December 7, 2020, February 19, 2021 and September 30, 2021 of Chuck Farmer. He has a B.A. in business administration and a master’s certificate in public management. Mr. Farmer is the Senior Director of Power Systems Planning with IESO. Mr. Farmer was the Director of Demand and Conservation Planning at Ontario Power Authority (“OPA”) before its amalgamation with IESO. He is now responsible for overseeing IESO’s Power System Planning Group. He was cross-examined on April 12 and 13, 2021.
• Affidavit dated December 7, 2020 of Adonis Yatchew. He has a Ph.D. from Harvard University. Mr. Yatchew is a professor of economics at the University of Toronto where his research focuses on energy regulation and econometrics. He was retained by IESO to provide an expert opinion. He was cross-examined on March 26, 2021.

G. The Evidence of Messrs. Adams and McKitrick

[81] In this part of my Reasons for Decision, I address a problem with respect to the expert evidence of Mr. Adams and Professor McKitrick.

[82] An expert witness has a special duty to the court to provide fair, objective and non-partisan assistance. This special duty is comprised of impartiality, independence, and the absence of bias. The expert must be impartial in the sense that he or she is expressing their own unbiased professional objective assessment. The expert must be independent in the sense that his or her opinion is the product of their own, independent judgment based on their own knowledge and judgment and uninfluenced by the litigant who retained the witness; the expert should never assume the role of advocate. [Carmen Alfano Family Trust (Trustee of) v. Piersanti, 2012 ONCA 297 at para. 109]. The expert must be unbiased in the sense that he or she does not favour one litigant’s position over another. The fact that an expert is paid by one of the litigants does not, standing alone, undermine the expert’s impartiality, independence or freedom from bias. [White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23].

[83] The duties of an expert witness are set out in rule 4.1.01 of the Rules of Civil Procedure, which states:

Duty of Expert

4.1.01 (1) It is the duty of every expert engaged by or on behalf of a party to provide evidence in relation to a proceeding under these rules,

(a) to provide opinion evidence that is fair, objective and non-partisan;

(b) to provide opinion evidence that is related only to matters that are within the expert’s area of expertise; and

(c) to provide such additional assistance as the court may reasonably require to determine a matter in issue.

Duty Prevails

(2) The duty in subrule (1) prevails over any obligation owed by the expert to the party by whom or on whose behalf he or she is engaged.

[84] As noted above, in support of its applications, National Steel Car relied on the expert evidence of Mr. Adams and of Professor McKitrick, both of whom delivered affidavits and reports and both of whom were cross-examined over several days.

[85] To confront the evidence of Messrs. Adams and McKitrick the Provincial Government retained Professor Hogan, Professor Kitzing and Mr. Olson as expert witnesses and IESO retained Mr. Cary and Professor Yatchew as expert witnesses. The parties prepared factums with a fulsome and fierce attack on the substance of Mr. Adams’ and Professor McKitrick’s opinion evidence.

[86] The Provincial Government now submits that this Court should give no weight or very limited weight to the evidence of Mr. Adams and Professor McKitrick because of their alleged partisanship and inability to comply with the duties of an expert. IESO now submits that the court should reject their evidence outrightly or give it very little weight.

[87] As I shall explain below, the Respondents ought to have moved to have Messrs. Adams and McKitrick disqualified before the Respondents delivered their own experts’ reports and before making National Steel Car’s witnesses undergo four days of cross-examinations. Had the Respondents done what they ought to have done, I would have disqualified Mr. Adams and Professor McKitrick and not admitted their evidence because of their fervent partisanship, particularly on behalf of the cause of cheap electricity charges for consumers of electricity.

[88] However, had a preliminary motion been brought, I would have provided National Steel Car the opportunity to retain both: (a) qualified expert witnesses who could comply with the duties of an expert; and also, (b) qualified expert witnesses who did not have to comply with the duties of an expert as recognized by the Court of Appeal in [Westerhof v. Gee Estate, 2015 ONCA 206].

[89] Since the Respondents did not do what they ought to have done, I am confronted with a dilemma. If I perform the court’s evidentiary gatekeeper function, none of Mr. Adams’ and Professor McKitrick’s evidence should be admitted; however, if none of their evidence is admitted, then: (a) What am I do with and how am I to contextualize the evidence of Professors Hogan, Kitzing, and Yatchew and Messrs. Olson and Cary? and (b) How am I to ensure procedural fairness?

[90] Such being the dilemma, I have decided to admit Mr. Adams’ and Professor McKitrick’s evidence, some of which may be admissible without them complying with the duties of an expert. In short, I shall admit their evidence and give it the weight it deserves in light of all the evidence, including the evidence of the Respondents’ experts. My elucidation of this solution to the dilemma follows.

[91] As a general rule, opinion evidence is not admissible; witnesses testify as to the facts which they perceived, not as to the inferences -- that is, the opinions -- that they drew from their perceptions. [Graat v. The Queen, 1982 SCC 33]. There is, however, an exception for witnesses duly qualified to express an expert's opinion. [R. v. Abbey, 1982 SCC 25]. As confirmed by the Supreme Court of Canada in [White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23], there is a two-stage test for the admission of opinion evidence.

[92] In the first stage, (the threshold stage), the litigant proffering expert evidence must satisfy the four factors from [R. v. Mohan, 1994 SCC 80], which are: (1) relevance; (2) necessity in assisting the trier of fact; (3) the absence of an exclusionary rule; and (4) qualification as an expert. There is a fifth factor from Mohan in cases in which the expert's opinion is based on novel or contested science or science used for a novel purpose, and in these cases, the reliability of the underlying science for that purpose must be established. [White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23 at para. 23]; [R. v. J.-L.J., 2000 SCC 51]; [R. v. Trochym, 2007 SCC 6].

[93] In the second stage, (the gatekeeper stage), the court makes a cost-benefit discretionary decision weighing the probative value of admitting the evidence against the potential adverse impacts of admitting the evidence including the consumption of time, prejudice, and the risk of confusing the trier of fact.

[94] In the immediate case, the problems posed by Mr. Adams’ and Professor McKitrick’s evidence is associated with the fourth of the Mohan criteria in the threshold stage. In the case at bar, the problems are about the non-partisan factor. In [White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23], Justice Cromwell for the Supreme Court explained that the independence and impartiality of the expert are to be considered at the threshold stage and not left as a matter going to the weight to be given to the expert's testimony. Rather, an expert's objectivity, independence, and non-partisanship are pre-conditions for the admissibility of his or her testimony. [R. v. L.K., 2011 ONSC 2562]; [R. v. Docherty, 2010 ONSC 3628]; [United City Properties Ltd. v. Tong, 2010 BCSC 111]; [Deemar v. College of Veterinarians Ontario, 2008 ONCA 600]. The disqualification inquiry is a fact-based inquiry having regard to the particular circumstances of the proposed expert and the substance of the proposed evidence. [Wright v. Detour Gold Corp., 2016 ONSC 6807 at para. 32]; [United City Properties Ltd. v. Tong, 2010 BCSC 111].

[95] For the fourth criteria to be satisfied, two factors must be satisfied. First, the witness must be shown to have acquired special or peculiar knowledge through experience or study in respect of the matters on which he or she will testify. [R. v. Mohan, 1994 SCC 80 at para. 27]. Second, as codified by rule 4.1.01 of the Rules of Civil Procedure and as required by the acknowledgement mandated by rule 53.03, the witness must be independent, objective, and impartial.

[96] Justice Cromwell stated that a proposed expert witness who is unable or unwilling to comply with these duties of impartiality is not qualified to give expert opinion evidence and should not be permitted to do so. Absent a challenge, the expert's attestation or testimony recognizing and accepting the duty will generally be sufficient to establish that the threshold test has been met. The burden is then on the litigant opposing the admission of the evidence to show that there is a realistic concern that the expert's evidence should not be received because the expert is unable or unwilling to comply with his or her duty. If the opponent meets this burden of showing a realistic concern, then the litigant proffering the witness must demonstrate that the expert is impartial, independent and unbiased. If this is not done, the expert's evidence, or those parts of it that are tainted by a lack of independence or by impartiality, should be excluded.

[97] In the immediate case, the Respondents showed that there is a realistic concern that Mr. Adams’ and Professor McKitrick’s evidence are not impartial, independent, and unbiased. National Steel Car, however, did not meet the burden of showing that their expert witnesses could honour their duties to the court. Their witnesses have an overwhelming bias in favour of policies that achieve low cost energy. National Steel Car’s experts were biased supporters and advocates for National Steel Car and for their own campaign and mission as opponents of green energy projects and proponents of an electricity scheme that provided optimally efficient and affordable electrical energy.

[98] Mr. Adams is a long-time activist and lobbyist about electricity policy. For many years, he was a principal for the lobby group Energy Probe. He has appeared as an advocate at the Ontario Energy Board. He swore an information alleging that the Provincial Government has not complied with environmental laws. He is on record multiple times criticizing the Provincial Government’s energy policies and legislation including the policies engaged in the immediate case. In one video, he argued that a “wicked thing glowers from the back pages of Ontario’s Green Energy Act, although it masquerades as environmental protection.” He called the Green Energy Act a form of illegitimate taxing power that invites corruption. In another video, he argued that the legislation “represents a fundamental retrenchment of some of our basic civil rights and freedoms and also a perverse new electricity tax, the revenues of which will be paid to a group of private developers of renewable energy projects and also secretive new government departments ….” In a 2010 blog post, he characterized the FIT Programs as an unconstitutional tax.

[99] On philosophical, ideological, and religious grounds Professor McKitrick opposes renewable energy development as a job killer, an impediment to economic development, a dangerous expansion of government control over private life. He is on record denying that there is convincing scientific evidence of greenhouse gases causing global warming and he has called for political leaders to adopt policies that protect human liberty, make energy more affordable, and free the poor to rise out of poverty, while abandoning fruitless, indeed harmful policies to control global temperature. He has advocated for the cancellation of FIT Programs contracts. Professor McKitrick has published numerous op-ed pieces and letters to newspapers and appeared before administrative tribunals criticizing the Government of Ontario’s green energy policies, the decision to shut down coal-fired generation, the development of wind power projects.

[100] Additionally, with respect to Professor McKitrick’s opinion evidence in his area of expertise, an economic analysis of what counts for taxation is not helpful in addressing what ultimately is a juridical analysis based on legal authorities not economic theory. As noted in the jurisprudence, the test for the incidence of a tax is based on legal distinctions not economic distinctions. [Ontario Home Builders’ Association v. York Region Board of Education, 1996 SCC 164 at para. 42].

[101] Mr. Adams and Professor McKitrick are entitled to their own opinions about the Provincial Government’s electricity policies and about the merits and demerits of the FIT Programs that are the subject matter of National Steel Car’s applications. However, the court is entitled to receive opinion evidence that is fair, objective and non-partisan from witnesses who have acquired special or peculiar knowledge through experience or study in respect of the opinion evidence. In the immediate case, National Steel Car’s experts have entrenched bias and preconceived conclusions and are not unbiased. Their opinions about the constitutionality of the FIT Programs are neither appropriate nor helpful.

[102] Thus, had a motion been brought in the immediate case to strike their affidavits and reports, I would have granted the motion. However, as I indicated above, I would also have provided National Steel Car the opportunity to find replacement expert evidence. I would have given it the opportunity to retain both: (a) qualified expert witnesses who could comply with the duties of an expert; and also (b) qualified expert witnesses who did not have to comply with the duties of an expert as recognized by the Court of Appeal in [Westerhof v. Gee Estate, 2015 ONCA 206].

[103] In this last regard, it is necessary to note that in some circumstances, an expert can be called to give evidence without complying with the duty of an expert as required by rule 4.1.01 of the Rules of Civil Procedure. In [Westerhof v. Gee Estate, 2015 ONCA 206], the Court of Appeal held that a treating physician could provide expert opinion evidence for the truth of its contents without complying with the duty of an expert: (a) based on the witness's observation of or participation in the events at issue; and (b) provided that the witness formed his or her opinion as part of the ordinary exercise of his or her skill, knowledge, training and experience while observing or participating in such events. [St. Marthe v. O'Connor, 2021 ONCA 790]; [Girao v. Cunningham, 2020 ONCA 260]; [Dermann v. Baker, 2019 ONCA 584]; [Ontario (Attorney General) v. 855 Darby Road, Welland (In Rem), 2019 ONCA 31]; [Imeson v. Maryvale, 2018 ONCA 888]; [Froehlich-Fivey v. Fivey, 2016 ONCA 833]; [Mask v. Silvercorp Metals Inc., 2016 ONCA 641]; [Professional Institute of the Public Service of Canada v. Canada (Attorney General), 2016 ONCA 625]. The court retains its gatekeeper function in relation to the opinion evidence from participant experts. [Children’s Aid Society of the Niagara Region v. S.S. and T.F., 2021 ONSC 8582 at para. 26]; [Hoang v. Vicentini, 2016 ONCA 723 at para. 31]; [Westerhof v. Gee Estate, 2015 ONCA 206 at para. 64]. If the participant witness or non-party expert expresses his opinion beyond his or her participation in the events, the witness must comply with rule 53.03 to the extent of that departure. [Imeson v. Maryvale, 2018 ONCA 888 at para. 53]; [Westerhof v. Gee Estate, 2015 ONCA 206 at para. 60].

[104] The Rule from the [Westerhof v. Gee Estate, 2015 ONCA 206] case explains why experts such as treating physicians that participated in the plaintiff or defendant’s story can testify in a somewhat partisan way in the sense that they will be loyal to their patient, and it also explains why observer witnesses like investigators, inspectors, assessors, detectives, and scientists who were after-the-fact observers may be able to testify sometimes with and sometimes without satisfying the requirements of rule 4.1.01 of the Rules of Civil Procedure.

[105] In the immediate case, both parties required evidence about the structure and organization of Ontario’s electricity system. For National Steel Car that evidence and evidence of the legislative history of the Electricity Act, 1998 could have been given by an expert who need not comply with rule 4.1.01 and indeed this type of evidence is sometimes provided by associate lawyers and even students-at-law largely because the documents can speak for themselves but in the immediate case the evidence was provided by Mr. Adams and Professor McKitrick.

[106] Unless disclosed well in advance of the hearing, where a non-party expert of the type permitted by the Court of Appeal’s ruling in [Westerhof v. Gee Estate, 2015 ONCA 206] gives opinion evidence that goes beyond the expert's observations and comments in his or her original report, the court may exclude the observations and comments if the prejudice to justice involved in receiving the evidence exceeds the prejudice involved in excluding the evidence. [St. Marthe v. O'Connor, 2021 ONCA 790]; [Hoang v. Vicentini, 2016 ONCA 723]. With several reports and several days of cross-examination, there was ample disclosure of Mr. Adams and Professor McKitrick’s non-party type of evidence.

[107] Thus, had a motion been brought in the immediate case to strike the affidavits and reports of Mr. Adams and Professor McKitrick, I would have granted the motion, but I would have given National Steel Car the opportunity to retain a qualified expert witness who did not have to comply with the duties of an expert as recognized by the Court of Appeal in [Westerhof v. Gee Estate, 2015 ONCA 206].

[108] With this background to the evidentiary record and this explanation of why and how I shall treat the evidence of Mr. Adams and Professor McKitrick, I now move on to make my findings of fact.

H. The Structure of Ontario’s Electricity System

[109] Before the introduction of the Electricity Act, 1998 other than by a few privately-owned utilities, it was Ontario Hydro, a vertically integrated monopoly, that generated electricity in Ontario and all electricity prices were set by Ontario Hydro. In 1998, a competitive electricity market was introduced, and Ontario Hydro was reorganized. The current structure of Ontario’s Electricity System is as follows.

[110] Independent Electricity System Operator (“IESO”) (formerly the Independent Market Operator) is responsible for the day-to-day operations of the electrical system and for administering the competitive wholesale electricity market. It is responsible for the planning of Ontario’s electricity system and for the procurement of electricity supply, which responsibilities formerly were those of the Ontario Power Authority (“OPA”). In 2004, the Government established the OPA and gave it the power to procure new generation and to enter into contracts with generators (suppliers) when directed to do so by the Minister of Energy. The OPA’s mandate was to ensure a long‐term adequate supply of electricity in Ontario, including procurement of new generation. In January 2015, the OPA merged with the IESO.

[111] IESO is required to recover the electricity system costs from customers. IESO is a not-for-profit corporate entity, and it does not make any remittance to the Provincial Government’s consolidated revenue fund. IESO’s objects include:

a. contracting for the procurement of electricity supply and operating the electrical grid to promote the purposes of the Electricity Act, 1998. b. engaging 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. c. regulating Ontario’s electricity markets pursuant to Part III of the Electricity Act, 1998, which establishes the markets and empowers IESO to make rules regulating them.

[112] IESO does not set broad energy policy. Energy policy is set by the Provincial Government. IESO does not make decisions regarding the mix of supply technologies to meet the current or future electricity needs of Ontario. Those policy decisions are made at the direction of the Provincial Government.

[113] Part III of the Electricity Act, 1998 establishes Ontario’s electricity markets and empowers IESO to make rules establishing and governing markets related to electricity. These IESO market rules govern the conduct of the activity of market participants. Under the Electricity Act, 1998 and Ontario Energy Board Act, 1998 scheme, electricity rates are “determined through a mix of market, regulatory and government mechanisms.”

[114] IESO administers this mixed market scheme by supervising the day-to-day scheduling of resources and establishing the “Hourly Ontario Energy Price” (HOEP) based on market supply and demand. IESO is empowered to contract for the procurement of electricity supply. The HOEP is sometimes referred to as the “spot market price” or the “wholesale price.” The IESO purchases energy from generators (i.e. electric energy suppliers) and pays them the HOEP and IESO purchases energy from other generators who are paid a retail price pursuant to contracts that pay more than the HOEP.

[115] The wholesale electricity market was originally designed with the objective that, over the long-run, HOEP would be sufficient to allow electricity producers to recover both their fixed costs and variable costs (costs which increase with the quantity of electricity produced, such as fuel costs, labour costs, etc. However, following the opening of Ontario’s competitive wholesale electricity market in May 2002, the prices of electricity rose significantly. This, in turn, caused the government of the day to introduce legislative price controls. This price freeze meant that the market price (HOEP) would not be permitted to rise to cover the cost of private investment in new generation facilities that were needed to meet the province’s electricity demands.

[116] Ontario Electricity Financial Corporation is the successor to Ontario Hydro. It, among other things, manages the debt of Ontario Hydro, and it receives payments from IESO under the Electricity Act, 1998.

[117] Ontario Power Generation Inc. generates electricity and competes with other generation companies in the wholesale electricity market. It is the largest electricity supplier, and its plants include nuclear, hydroelectric, wind, gas, and biomass facilities. Its prices are regulated by the Ontario Energy Board rather than set by contract. Today, most electricity in Ontario is supplied under contracts or at fixed rates set by the Ontario Energy Board.

[118] Ontario’s electrical energy utilizes a variety of sources for the supply of electricity including: (a) baseload power generation sources, such as nuclear and hydro, which are designed to continuously operate; (b) variable or intermittent renewable power generation sources, such as thermal and windmill; and (c) intermediate and peak power generation sources designed to ramp up and down as demand changes throughout the day, such as natural gas and hydro generation with some storage capability.

[119] Hydro One Inc. transmits and distributes electricity.

[120] Electrical Safety Authority oversees the installation and inspection of electrical equipment.

I. The Regulation of Ontario’s Electricity System

[121] The Provincial Government’s legislative authority to regulate the electricity system derives from: (a) s. 92(13) of the Constitution Act, 1867 with respect to property and civil rights in the province; (b) s. 92(16) of the Constitution Act, 1867 with respect to matters of a merely local or private nature in the province; and (c) s. 92A(1)(c) of the Constitution Act, 1867 with respect to the development, conservation and management of sites and facilities in the province for the generation and production of electrical energy.

[122] The Ontario Energy Board Act, 1998 and the Electricity Act, 1998, are the two main statutes governing the electricity system in Ontario. The Ontario Energy Board has held that the Electricity Act, 1998 is a regulatory scheme which provides a benefit to electricity consumers. [Consumers Council of Canada (Re), 2011 LNONOEB 326 at para. 56].

[123] Section 1 of the Electricity Act, 1998 defines its purposes as follows:

Purposes

1 The purposes of this Act include 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; (a.1) to establish a mechanism for energy planning; (b) to encourage electricity conservation and the efficient use of electricity in a manner consistent with the policies of the Government of Ontario; (c) to facilitate load management 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; (e) to provide generators, retailers, market participants and consumers with non-discriminatory access to transmission and distribution systems in 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; (g.1) to facilitate the alteration of ownership structures of publicly-owned corporations that transmit, distribute or retail electricity; (g.2) to facilitate the disposition, in whole or in part, of the Crown’s interest in corporations that transmit, distribute or retail electricity, and to make the proceeds of any such disposition available to be appropriated for any Government of Ontario purpose; (h) to ensure that Ontario Hydro’s debt is repaid in a prudent manner and that the burden of debt repayment is fairly distributed; (i) to facilitate the maintenance of a financially viable electricity industry; and (j) to protect corridor land so that it remains available for uses that benefit the public, while recognizing the primacy of transmission uses.

J. Electricity Charges and the Global Adjustment

[124] Electricity charges are determined through a mix of market and government mechanisms including regulations. [Iroquois Falls Power Corporation v. Ontario Electricity Financial Corporation, 2016 ONCA 271 at para. 23]. For consumers, the HOEP is combined with regulatory charges to make up the fee paid for the use of electricity. Consumers pay the HOEP, the Global Adjustment, a debt retirement charge, transmission and delivery fees, and market service charges meant to recover administrative costs.

[125] Originally called the Provincial Benefit, the Global Adjustment was introduced January 1, 2005, and was designed so that the electricity regulator could recover from consumers the difference between the HOEP and the contractual price paid to electricity generators. The “Global Adjustment”, comes from s. 25.33 of the Electricity Act, 1998 which states:

IESO to make adjustments

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.

[126] Section 25.33 of the Electricity Act, 1998 requires that IESO ensure that rates are adjusted to recover, among other things, amounts paid to entities with whom IESO has procured contracts. Section 25.33 states that the details of the adjustments are to be set out in the regulations which are promulgated under the Electricity Act, 1998.

[127] Section 114 (1.3) (f) of the Electricity Act, 1998 identifies the types of regulations that the Lieutenant Governor in Council may make in connection with s. 25.33 of the Electricity Act, 1998 including, calculating the amount of the adjustments and how those amounts will be recovered through rates. Ontario Regulation 429/04 (Adjustments Under Section 25.33 of the Act) sets out the detailed formula for calculating the Global Adjustment 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.

[128] Thus, the Global Adjustment incorporates costs that IESO must pay various market participants including entities with whom IESO has a procurement contract.

[129] National Steel Car does not challenge the Global Adjustment, as such, as being a tax disguised as a regulatory charge. National Steel Car acknowledges that when it was introduced the Global Adjustment was a valid regulatory charge. However, National Steel Car submits that with the introduction in 2009 of the FIT Programs, elements “E”, “F” and “G” in the formula were unconstitutional taxation because it submits that these elements are Stimulus Goals that are taxes and not regulatory charges.

[130] Local distribution companies (“distributors”) pass costs through to all consumers in their service area, so that each consumer pays their share of the Global Adjustment when they pay their monthly electricity bill. IESO does not to retain the funds that are collected through the Global Adjustment, or use them to pay for any costs not explicitly listed in the text of section 25.33. For this reason, it has been described as a “closed system” in which only actual costs are collected from consumers.

[131] The proportion of the Global Adjustment used to fund costs of renewable generation declined significantly starting on January 1, 2021 because the current Provincial Government chose to fund 85% of such costs from general revenues going forward under the Comprehensive Electricity Plan, formerly known as the Renewable Cost Shift. The Electricity Act, 1998 provides authority for such costs to be paid for out of general revenues in s. 25.34, which was created by the Fixing the Hydro Mess Act, 2019. As with any program, the government has the option of funding it through tax revenues instead of valid regulatory charges.

K. The Authorization of the Feed-In Tariff (FIT Programs)

[132] In the early 2000s, as pollution and global warming became prominent issues, the Provincial Government introduced legislation and programs to decarbonize the electricity sector. In the context of the 2008 financial crisis and the global recession, the Provincial Government developed an interest in procuring new renewable energy generation which by its nature does not emit carbon and reduces the reliance on sources of energy that emit carbon into the atmosphere.

[133] The Minister of Energy and Infrastructure presented a proposal to Cabinet for policy approval on October 8, 2008. The proposal indicated three benefits from investing in conservation and renewable energy: (a) environmental benefits - cleaner air, much lower greenhouse gas emissions, and shifting reliance from non-renewable resources; (b) economic benefits - a “green economy” - jobs and economic development opportunities in green manufacturing through skills development and innovation; and (c) social benefits - regional opportunities, including rural areas and the north, First Nations and Métis partnership opportunities, protection for low-income Ontarians, and community participation including municipalities and Local Distribution Companies.

[134] In 2009, in furtherance of these policies, the Provincial Government enacted the Green Energy and Green Economy Act, 2009. The preamble of the Act stated:

Preamble

The Government of Ontario is committed to fostering the growth of renewable energy projects, which use cleaner sources of energy, and to removing barriers to and promoting opportunities for renewable energy projects and to promoting a green economy.

The Government of Ontario is committed to ensuring that the Government of Ontario and the broader public sector, including government-funded institutions, conserve energy and use energy efficiently in conducting their affairs.

The Government of Ontario is committed to promoting and expanding energy conservation by all Ontarians and to encouraging all Ontarians to use energy efficiently.

[135] The Green Energy and Green Economy Act, 2009, among other things, amended s. 25.35 (set out below) to the Electricity Act, 1998. Section 25.35 authorized the feed-in tariff (“FIT”) program that was designed to procure energy from renewable energy sources. A feed-in-tariff program involves the generation of electricity by private entities through the use of renewable electricity generation technology such as solar panels and wind turbines. The electricity is fed-in the electricity grid where it is transmitted or distributed to electricity consumers, thereby providing ‘green’ renewable electricity. The generators are paid a fixed fee that varies depending on the type of electricity produced, i.e. solar or wind.

[136] The FIT Programs were modelled on renewable energy programs in Germany, Denmark, and Spain and offered government-backed, non-competitively procured, 20-year power purchase agreements. The FIT Programs were a continuation of predecessor programs to increase the supply of renewable energy as part of Ontario’s electricity system. Before the FIT Programs, the Ministry of Energy and the OPA had engaged in three competitive procurements for the generation of electricity from renewable energy sources between June 2004 and August 2005 (known as RES I, RES II, and RES III) and, in 2006, there was a standard offer renewables procurement known as RESOP. The expense of these programs is part of the Global Adjustment.

[137] At the time of the inception of the FIT Programs, the Province of Ontario was phasing out coal and anticipating that some nuclear facilities would be retired without replacement and others would have to be refurbished. It was envisioned that the FIT Programs would be needed as part of the redesigned system to address the immediate and the future capacity needs of Ontario’s electricity consumers.

[138] At the time of the inception of the FIT Programs, demand and energy forecasts showed a need for new generation capacity after 2015. As it subsequently happened, the refurbishment of the nuclear facilities was postponed, and the anticipated demand on the electrical system did not materialize.

[139] Section 25.35 of the Electricity Act, 1998 which authorized the FIT Programs, states:

Feed-in tariff program

25.35 (1) The Minister may direct the OPA [now the IESO] 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.

Minister’s directions

(2) Where the Minister has issued a direction under subsection (1), the Minister may issue, and the OPA [now the IESO] 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.

Same, domestic content

(3) Where the Minister has issued a direction under subsection (1), the Minister shall issue, and the OPA [now the IESO] 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.

Definition

(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.

[140] Section 25.35(2) of the Electricity Act, 1998 provides that the Minister may issue directions as to the goals to be achieved by the FIT Programs. Permissible goals include: (a) the participation by Indigenous communities 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. Section 25.35(3) provides that the Minister shall issue directions that set out the goals relating to domestic content to be achieved by the FIT Programs.

[141] Another of the Green Energy and Green Economy Act, 2009, amendments to the Electricity Act, 1998 became s. 25.32(8) of the Electricity Act, 1998. Under this provision the Minister had the authority to direct IESO to establish programs or funding to facilitate the participation and engagement in the electricity sector of Indigenous communities and rural municipalities, among others.

L. The Minister’s Directions to Implement the FIT Programs

[142] On September 24, 2009, the Minister (George Smitherman) issued a directive to the OPA to develop and administer the FIT Programs. The directive noted that the FIT Programs are designed to procure energy from a wide range of renewable energy sources and are critical to Ontario’s success in becoming a leading renewable energy jurisdiction. The Minister’s direction identified the objectives of the program to be: (a) to increase capacity of renewable energy supply to ensure adequate generation and reduce emissions; (b) to introduce a simpler method to procure and develop generating capacity from renewable sources of energy; (c) to enable new green industries through new investment and job creation; and (d) to provide incentives for investment in renewable energy technologies.

[143] The Minister’s direction also identified the desire to encourage Indigenous communities to participate under the FIT Programs through various means including: support programs and “price adders”, which are small additions to the price for electricity generated by projects having a minimum percentage of Indigenous community ownership, co-operative ownership or municipality or other public sector entity ownership intended: (a) to incentivize Indigenous community or municipal investment and participation and to overcome barriers to entry; and (b) and to reflect the fact that Indigenous and community-based projects are generally recognized as having higher cost structures than projects developed by commercial developers.

M. The FIT Programs

[144] The Green Energy and Green Economy Act, 2009 introduced three feed-in tariff programs: (a) the Feed-in Tariff Program, which provided for wind, solar and bio-fuel generation contracts; (b) the Green Energy Investment Agreement, a $1 billion contract with a Korean Consortium; and (c) the Micro-FIT Program involving small generation installations such as solar panels on rooftops and barns or in parking lots and fields.

[145] As set out in the 2011 Annual Report of the Provincial Government’s Auditor General, the FIT Programs were designed to meet three policy objectives: (a) to reduce Ontario’s environmental footprint by bringing more renewable energy online; (b) to better protect the health of Ontarians by eliminating harmful emissions from burning coal; and (c) to create green energy jobs and attract scarce investment capital to Ontario in a global recession.

[146] The Minister’s Direction did not specify the prices to be paid for the electricity procured through the FIT program. These were set out in a price schedule published by the OPA [now the IESO]. The principles governing the price-setting exercise used by the OPA [now the IESO] were that generators should be compensated for the costs of construction combined with a reasonable rate of return on investment. In calculating the FIT prices, the OPA [now the IESO] sought to provide an 11 per cent return on equity as a reasonable commercial rate of return on investment.

[147] The FIT Programs contracts had a standardized price and contract structure. All solar and wind FIT contracts were for 20-year terms. The FIT Programs provided price incentives, called “adders”. These “adders” supplemented i.e., increased the rates for projects with a minimum percentage of Indigenous ownership, co-operative ownership, or municipality/public sector ownership. The revenue to the beneficiaries of the adders increased without any increase in their costs of supplying electricity. The total cost of the price adders amounts to an additional payment of approximately $936 million over the 20-year life of the program (average $46.8 million per annum).

[148] The OPA [now the IESO] carried out the Minister’s Direction and launched the FIT Programs on October 1, 2009. It signed over 30,000 individual contracts through five rounds of procurement over seven years including contracts for wind turbines, solar panels, hydroelectric generation, and biogas. Renewable generation procured under the FIT Programs resulted in 4,151 Megawatts of electricity generation capacity connected to the Ontario grid as of 2020.

[149] The contracts resulting from the FIT Programs were a subset of the IESO procurement contracts that the Global Adjustment pays for. Other procurement programs included Renewable Energy Supply (RES) I, II and III, Renewable Energy Standard Offer Program (RESOP) and Large Renewable Procurement (LRP).

[150] The 2011 and 2015 Reports of the Provincial Government’s Auditor General were critical of the performance of the Green Energy and Green Economy Act, 2009.

[151] The FIT Programs are now a historical component of the Provincial Government’s public policy. A Minister’s Direction dated December 16, 2016 instructed the IESO to cease accepting applications for FIT contracts on December 31, 2016. In 2016, pursuant to the Energy Law Statute Amendment Act, 2016, s. 25.35 of the Electricity Act, 1998 was repealed. The FIT Programs were over, but the contracts already entered into last until the end of their terms and remain included in the Global Adjustment.

[152] With the above factual and legal background, I now turn to the answer the fundamental issue of the immediate case of whether the FIT Programs part of the Global Adjustment is ultra vires taxation of the Provincial Government.

N. Are the FIT Programs Colourable Taxation?

[153] National Steel Car’s primary factual argument is that the FIT Programs are a colourable attempt to tax through regulation, which is contrary to the Constitution Act, 1867. It submits that s. 25.35 (1) - (3) of the Electricity Act, 1998 as created by s. 7 Schedule B of the Green Energy and Green Economy Act, 2009, which authorized the FIT Programs, created an unconstitutional tax because it was a colourable attempt to fund the Stimulus Goals under the guise of regulation. National Steel Car submits that the Stimulus Goals were funded by electricity consumers through the FIT Programs portion of the Global Adjustment and that this funding of the Stimulus Goals had no proper regulatory purpose and that the cost of the FIT Programs was not necessarily incidental to the cost of the regulation of electricity. National Steel Car submits that the implementation of the FIT Programs has nothing to do with the true costs of generating electricity and constitutes taxation under the guise of regulation, which is unconstitutional because it is contrary to sections 53 and 54 of the Constitution Act, 1867, which requires taxes to be authorized by the legislature and not by the executive by regulation. National Steel Car’s primary factual argument is summarized in paragraphs 7 and 8 of its Reply Factum:

7. NSC’s position is clear: Ontario intentionally entered into the FIT Program contracts at guaranteed rates far in excess of market rates for electricity Ontario did not need (as analyzed by its OPA experts) and with contractual terms contrary to the recommendations of its experts, in order to, as claimed by the government, pursue the Stimulus Goals as a response to economic harm following the 2008 financial crisis. The FIT Program was not enacted to achieve the other purposes the government claimed. Economic stimulus was the principal objective, in pith and substance, not a “side-effect” of the FIT Program.
8. The Stimulus Goals in the Green Energy and Green Economy Act, 2009 had no regulatory purpose in the Green Energy and Green Economy Act, 2009 or the Electricity Act, 1998. The cost of the Stimulus Goals, collected by the Global Adjustment, were and are not ancillary and adhesive to the regulation of electricity and do not represent a valid regulatory charge, but rather are a tax. The tax was not introduced and voted upon in the legislature in the manner and form required by the Constitution and, therefore, it is ultra vires.

[154] As I shall now explain, as an issue of fact, National Steel Car’s colourability argument fails. The argument fails because the two major factual premises of the argument are not true.

[155] The two major factual premises of National Steel Car’s arguments are that: (a) the FIT Programs’ professed environmental and conservation purposes of procuring renewable sources of electricity are falsehoods; and (b) the only genuine purpose of the FIT Programs is to generate tax revenue for the Provincial Government to achieve its Stimulus Goals. As issues of fact, these premises are not proven to be true, and, therefore, National Steel Car’s colourable taxation argument fails.

[156] The debunking of National Steel Car’s arguments may begin by analyzing how herculean is the task that it has taken in attempting to prove its factual premises to the argument that the FIT Programs are colourable taxation. The theory of National Steel Car’s case is sound enough. It is theoretically conceivable that a Provincial Government could enact a regulatory fee that is colourable in the sense that its pith and substance is taxation that is ultra vires because it was not enacted in compliance with sections 53 and 54 of the Constitution Act, 1867. However, admitting the evidence of Messrs. Adams and McKitrick and of the Respondents’ witnesses, National Steel Car is confronted with daunting tasks to prove its theory of the case.

[157] The first herculean labour confronted by National Steel Car is the seriousness of the factual allegation it makes against the Provincial Government. In the immediate case, National Steel Car is not using the colourability principle to argue that the purposes of the FIT Programs have been mischaracterized; rather, it is using the colourability principle to argue that the characterization of the FIT Programs as being about environmental concerns associated with fossil fuels, about energy conservation, and about procuring renewable electricity are lies. While allegations of fraud and lying made in a civil proceeding do not change the standard of proof on the balance of probabilities and while there are no varying degrees of probability within the civil standard of proof, the court should be mindful of the seriousness of the allegations, the consequences of the allegations having occurred, and the inherent probabilities or improbabilities of the allegations having occurred and the evidence must be scrutinized with care in deciding whether it is more likely than not that an alleged event has occurred and the evidence must always be clear, convincing, and cogent in order to satisfy the balance of probabilities test. [H. (F.) v. McDougall, 2008 SCC 53]; [R. v. Oakes, 1986 SCC 46]; [Continental Insurance Co. v. Dalton Cartage Co., 1982 SCC 13]; [Hanes v. Wawanesa Mutual Insurance Co., [1963] S.C.R. 164].

[158] I am not persuaded that the Provincial Government made bald-faced lies. The extensive evidentiary record does not show that the Provincial Government was lying, and the record rather reveals a Provincial Government working towards the regulatory purpose of increasing and incentivizing renewable electricity generation in Ontario. The FIT Programs are a genuine part of the electrical system and resulted in tens of thousands of wind turbines and solar panels being installed across Ontario generating electricity.

[159] The second herculean labour confronted by National Steel Car in making its colourability argument arises from the legal constraint that the wisdom of legislation is for the legislature to address; it is for the court to determine what is constitutionally permissible. [Reference re Securities Act, 2011 SCC 66]; [Reference re Firearms Act (Canada), 2000 SCC 31]; [Peel (Regional Municipality) v. Great Atlantic & Pacific Co. of Canada (1991), 1991 ONCA 7068]; [Amex Potash of Saskatchewan, 1976 SCC 15]; [Bank of Toronto v. Lambe, (1887) 12 A.C. 575 (P.C.)]. As Chief Justice Laskin noted in [Re Exported Natural Gas Tax, 1982 SCC 189 at p. 1021]:

The wisdom or likely success of the policies envisaged by the National Energy Program are not matters for assessment by this Court. The Court's role is the determination of validity when, as here, a constitutional challenge is raised to legislation. A court must be careful not to confuse validity with wisdom or efficacy and it is also expected to defer to the legislative, indeed to the political judgment which the legislation expresses, save as it clearly sees constitutional infirmity in what is proposed or enacted.

[160] That the FIT Programs may have been bad policy or a good policy implemented badly is relevant only insofar as it sheds light on what is the pith and substance of the enabling legislation. That the Provincial Government’s electricity procurement policy meant that some of the procured energy may have been wasted because it was not needed or it was not taken up or it was taken up and exported at a loss and that this resulted in higher prices for consumers, however, is not necessarily evidence of colourability under the Constitution Act, 1867. It may just be evidence that a constitutionally authorized and implemented government policy was fodder for the criticism of the government’s auditors, the loyal opposition, and the electorate but not the courts. In the immediate case, the barrage of factual allegations that National Steel Car makes against the FIT Programs upon analysis do indeed confuse constitutional validity with alleged Provincial Government policy mistakes or policy stupidity.

[161] The third herculean labour confronted by National Steel Car in making its colourability argument arises from the fact that only a part of the Global Adjustment is being impugned. It is not submitted that the totality of the Global Adjustment is an unlawful tax. Detached from the FIT Programs, the Global Adjustment appears to be a regulatory charge or a user fee that ensures that the amount paid by consumers reflects the price set under the regulatory scheme that governs the electricity market. But the FIT Programs are just another pea {“E”, “F” and “G”} in the regulatory pod of the alphabet {(A – B) + (C – D) + (E – F) + G + H)} of Global Adjustment charges and adjustments.

[162] The fourth herculean labour confronted by National Steel Car in making its colourability argument arises from the inconsistency that National Steel Car does not challenge the economic stimulus yielded by the predecessor 2004, 2005, and 2006 RES I, RES II, RES III and RESOP programs to procure renewable energy. Thus, National Steel Car has the challenge of differentiating the other parts of the Global Adjustment from FIT Programs, but all these charges are of the identical type, being the expense of procuring various sources of electricity.

[163] The fifth herculean labour confronted by National Steel Car in making its colourability argument arises from a premise of its colourability argument that the dominating pith and substance of the Electricity Act, 1998 is “to protect the interests of consumers with respect to prices and the adequacy, reliability and quality of electricity service,” but the FIT Programs do not serve and indeed disserve the purposes of the Electricity Act, 1998. In its factum, National Steel Car denies that its argument includes this premise, but its denial just adds irony to the falsity of the premise. While National Steel Car is correct that interests of consumers with respect to prices and the adequacy, reliability, and quality of electricity service are a purpose of the Electricity Act, 1998 as defined by s. 1 of the Act, which is set out above, affordable electricity is just one of thirteen purposes that have to be blended together to fulfill the mission of the Electricity Act, 1998 and at least five of the thirteen purposes set out in s. 1 (s. 1 (b), (c), (d), €, and (g)) arguably would support the FIT Programs.

[164] The incentivization of participation in the ownership of renewable projects by Indigenous communities, and the promotion of job creation are related to an electricity regime and are among the purposes authorized by the Electricity Act, 1998. As noted by Dr. Yatchew, and acknowledged by Professor McKitrick, it is common for electricity policies to pursue related objectives which may be economic or social in nature. Choices regarding generation technologies will necessarily have economic, environmental, and social impacts and will incur expenditures that are connected to the electricity system. Professor McKitrick acknowledged that electricity planners must consider these objectives. The central and significant role electricity has in the economic and social fabric of Ontario belies the notion that the dominating pith and substance of intra vires legislation about electricity must be about procuring cheap or the cheapest source of energy.

[165] The sixth, seventh, eighth, and ninth herculean labours confronted by National Steel Car in making its colourability argument arise from taking on the task of proving that the costs of the FIT Programs that form part of the Global Adjustment do not relate to the regulation of electricity but are a surplus of revenue for Stimulus Goals that are extraneous to Ontario’s electricity system.

[166] With respect to the sixth task, contrary to National Steel Car’s submissions, the Stimulus Goals are not extraneous to Ontario’s electricity system. It is not extraneous to Ontario’s electricity system to achieve general or specific economic development. The evidence establishes that the Provincial Government made a policy decision to pursue renewable energy rather than fossil fuel technologies when planning for the next generation of electricity supply and that this might stimulate the economy and encourage Indigenous communities and rural communities to participate in the electricity industry. These policy decisions, which incur expenses, are not extraneous to the regulatory system and rather are integral and they are expressly mandated by the governing legislation.

[167] With respect to the seventh task, the costs of the FIT Programs do relate to the procurement of renewable energy. The electricity suppliers who were recruited to incur the expense of building windmills and solar panels were paid for their investment in and contribution to Ontario’s electricity grid. It is a fact that the participants in the FIT Programs provided renewable energy and they were paid for their contribution to the energy grid.

[168] With respect to the eighth task, even if it could be established that the Stimulus Goals were extraneous to Ontario’s electricity system, which I find as an issue of mixed fact and law not to be the case, some of the extraneousness is trivial and does not change the pith and substance of the FIT Programs as being an intra vires regulatory charge. The “adders” are an example of this triviality and standing alone $46.8 million per annum additional cost in a billion dollar procurement program is insufficient to make the cost of the FIT Programs a tax as opposed to a regulatory charge. The FIT Programs “adders” represent 0.4% of the Global Adjustment.

[169] With respect to the ninth task, National Steel Car’s argument, which relies on [Angus v. Port Hope, 2016 ONSC 3931], does not withstand analysis. In the Angus case, Justice Woodley concluded that there was no nexus between the municipality charging a fee for regulatory costs because there was no evidence to make the connection that the fee was connected to a calculation of the actual costs of the municipality’s regulatory scheme. That type of argument, however, does not have traction in the immediate case. Although it is true that the evidentiary record in the immediate case does not reveal how the costs of the FIT Program were connected to the entire costs of the Provincial Government’s energy scheme and although it is true that the evidentiary record in the immediate case does not reveal what ought to have been the costs of the procurement of energy if the predominant overriding purpose of the Electricity Act, 1998 was an adequate supply of electricity at the cheapest prices, the evidentiary record does reveal that the costs of the FIT Program were calculated as no more than necessary to recruit applicants for the FIT Programs, who would achieve an 11% return on their investment in building electricity infrastructure on their farms or other properties.

[170] The Provincial Government did not incur expenses that were recouped as a part of the Global Adjustment that were unrelated to the costs of the regulation of energy. The FIT Programs procured renewable energy. The FIT Programs advanced environmental and conservation policies associated with the supply of energy. The FIT Programs promoted the participation of Indigenous communities in Ontario’s energy system. Economic stimulus is inherently related to the procurement of energy, including electrical energy, and any economic stimulus of the FIT Programs are reasonably related to the regulatory scheme of the Electricity Act, 1998.

[171] National Steel Car conceded that economic stimulus could be pursued as an objective within a regulatory scheme provided that the economic stimulus is reasonably related to the regulatory scheme. Given that the procurement of energy is a vital component of any economy and any business (particularly manufacturing businesses like National Steel Car), the pursuit of an economic stimulus can be related to a regulatory scheme about energy. The evidence in the immediate case showed that the economic stimulus of the FIT Programs was objectively reasonably related to electricity regulation. There is no surplus in the Global Adjustment, which is expressly limited to the costs of the regulatory scheme. Raising revenue for general purposes is not the dominant characteristic of the FIT Programs part of the Global Adjustment and that part of the Global Adjustment is not a different type of charge from the other costs included in the Global Adjustment that have not been impugned as the raising of revenue of general purposes.

[172] The failures of National Steel Car’s pith and substance colourability argument in the immediate case can be elucidated by comparing its argument in the immediate case to the Province of Alberta’s successful colourability argument in [Re Exported Natural Gas Tax, 1982 SCC 189]. In that case, the Federal Government passed legislation to tax Alberta’s natural gas that it was exporting by a pipeline to the United States and failed to justify the tax as an aspect of its trade and commerce jurisdiction under s. 91(2) of the Constitution Act, 1867 rather than as a direct tax under s. 91(3). The majority of the Supreme Court however, concluded that the legislation had no regulatory purpose. The majority stated at p. 1073 of its decision:

It is urged upon this Court by counsel for the Attorney General of Canada that the statute finds its constitutional base in s. 91(2) (trade and commerce) of the B.N.A. Act, as well as s. 91(3) (taxation by any mode). […] As will be seen, there is nothing in [the statute] which is any way regulates the flow of natural gas produced in Canada through interprovincial or international channels. It is not a conservation statute nor is it indeed a price regulating statute. It has nothing to do with the channels of industry into which the gas should be routed, as, for example, in replacement of electricity, coal or other sources of energy. In short, it is purely, as announced in the budget and The National Energy Program 1980 a revenue raising measure. […]

[173] In contrast, in the immediate case, the FIT Programs did have a regulatory purpose associated with Ontario’s electricity scheme. The FIT Programs had the regulatory purposes of: (a) eliminating coal-fired generation of electricity; (b) improving air quality and reducing healthcare costs; (c) planning for an impending supply shortage; (d) increasing renewable energy sources; and (e) encouraging Indigenous communities to participate in Ontario’s electrical system. Unlike the situation of the Federal Government’s tax in [Re Exported Natural Gas Tax, 1982 SCC 189], the FIT Programs were not in pith and substance only a revenue-raising mechanism.

[174] The first branch of the Respondents’ arguments therefore succeeds. This is sufficient for me to dismiss National Steel Car Limited’s applications. It has now had the opportunity given to it by the Court of Appeal’s decision to develop a full evidentiary record to prove that the FIT Programs part of the Global Adjustment is colourable legislation designed to conceal that it is raising taxes for the general purposes (the Stimulus Goals) of the Provincial Government. It, however, has failed on the evidentiary record to do so.

[175] Notwithstanding that this conclusion is sufficient to dispose of National Steel Car’s applications, I shall move on to consider the second branch of the Respondents’ argument.

O. Are the FIT Programs a Tax or a Intra Vires Regulatory Charge?

[176] The second branch of the Respondents’ counterargument to National Steel Car’s argument that the FIT Programs are an unlawful tax is that the levy of the FIT Programs is a regulatory charge. To analyze this argument, it does not matter whether the FIT Programs part of the Global Adjustment is a direct tax or an indirect tax. The objection being made to this tax levy is that in either event, it should have been enacted by statute and not by regulation. The Respondents’ counterargument is that the FIT Programs levy is not a tax at all but that it is a regulatory charge that is intra vires even if enacted by regulation.

[177] I conclude that the second branch of the Respondents’ counterargument succeeds. I find as a fact that the FIT Programs part of the Global Adjustment is: (a) in relation to the rights and privileges associated with a regulatory scheme; (b) used to finance the regulatory scheme; and (c) used to alter individual behaviour in relation to the regulatory scheme. I find as a fact that the FIT Programs part of the Global Adjustment is a regulatory charge to advance the purposes of the Electricity Act, 1998 and defrays the expenses of the Provincial Governments’ regulatory scheme to supply electricity to its citizens.

[178] As noted above in the discussion of the law associated with ultra vires taxes, there is a two-part test to determine whether a levy is connected to a regulatory scheme. The first step is to determine whether there is a regulatory scheme. The second step is to determine whether there is a relationship between that regulatory scheme and the charge because the person obliged to paying the charge caused the need for the regulation or receives a direct benefit from the regulation.

[179] In the immediate case, there was very little, if any, dispute that there is a regulatory scheme. The criteria of the first step are satisfied; visualize: (a) the Ontario Energy Board Act, 1998 and, the Electricity Act, 1998 set out a detailed scheme for the regulation of electricity in Ontario; (b) the FIT Programs part of the Global Adjustment are not colourable taxation for all the reasons set out in the discussion about colourable taxation; (c) the regulatory scheme affects the behaviour of suppliers and consumers of electricity by promoting cleaner energy sources and technologies and by ensuring, for the benefit of consumers, the adequacy, safety, sustainability and reliability of electricity supply in Ontario; and (d) there are genuine costs and expenses associated with the regulatory scheme including the costs of procuring the electrical supply.

[180] The second step of the two-part test is satisfied because the Global Adjustment is tied to, and limited to, the costs of this regulatory scheme.

[181] Expanding upon the second branch of the Respondents’ argument, this argument is amply supported by the case law and most particularly by [Allard Contractors Ltd. v. Coquitlam (District), 1993 SCC 45], and [Ontario Home Builders’ Association v. York Region Board of Education, 1996 SCC 164].

[182] [Allard Contractors Ltd. v. Coquitlam (District), 1993 SCC 45] was a unanimous decision of the Supreme Court of Canada written by Justice Iacobucci for a panel that included Justice La Forest. The significance of Justice La Forest agreeing with Justice Iacobucci that the levy in the Allard case was intra vires as connected to a regulatory scheme will become more apparent when I discuss [Ontario Home Builders’ Association v. York Region Board of Education, 1996 SCC 164], where these two judicial giants disagreed on the reasoning but agreed in the result that the levy was intra vires. In the Ontario Home Builders’ case, Justice Iacobucci for the majority held that the levy was intra vires as connected to a regulatory scheme. Justice La Forest held that the levy was intra vires as a valid direct tax within the legislative jurisdiction of the Provincial Government.

[183] In [Allard Contractors Ltd. v. Coquitlam (District), 1993 SCC 45], municipalities in British Columbia charged gravel pit operators an annual fee based on the volume of gravel extracted. The gravel pit operators challenged the annual fee as ultra vires as an indirect tax. The Supreme Court agreed that the fee had the characteristics of an indirect tax, but the Court held that the variable fee was intra vires pursuant to s. 92(9) of the Constitution Act, 1867 in conjunction with sections 92(13) and 92(16), because the fee was referable to a scheme with respect to gravel and road regulation.

[184] For the present purposes of National Steel Car’s applications, what is perhaps most significant about the Supreme Court’s unanimous decision in Allard was its recognition that levies connected to a regulatory scheme were not a form of taxation. The decision in Allard is the continuation of the jurisprudence that reached the zenith of its several waves with [Reference respecting the Agricultural Products Marketing Act, R.S.C. 1970, s. A-7, 1978 SCC 10], which overturned the restrictions on provincial marketing schemes that had followed from [Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy, Ltd., 1932 UK JCPC 313].

[185] For present purposes the main point to be taken from the Allard case is that the FIT Programs in the immediate case appear to be of the same juridical nature as the price fixing, price adjusting, product allocation, expense recoupment levies of provincial marketing schemes that have been held to be intra vires under provincial heads of power notwithstanding that they might be characterized as a form of indirect taxation beyond the jurisdiction of the province under the Constitution Act, 1867. They were intra vires because they were levies connected to a regulatory scheme within the legislative authority of the Provincial Government.

[186] Moving on to [Ontario Home Builders’ Association v. York Region Board of Education, 1996 SCC 164], in this case, Justice Iacobucci felt that the Education Development Charges (EDCs) were closely enough connected to the regulatory scheme involving land development to justify imposing levies to raise money to pay for the capital costs of school construction. This holding was significant because Justice Iacobucci otherwise felt that the levies would be a form of indirect taxation beyond the jurisdiction of the Provincial Government. Justice La Forest disagreed that the levies were a form of indirect taxation. He, rather, concluded that the levies were direct taxation within the jurisdiction of the province.

[187] The matter of juridical interest to the immediate case in this debate between Justice La Forest and Justice Iacobucci is that Justice La Forest did not backtrack from the holding in Allard that a levy properly connected to a regulatory scheme was not a tax and would be intra vires under some head of legislative authority conferred by s. 92 of the Constitution Act, 1867. Justice La Forest’s concern was in furtherance of the theme developed in his academic writing that the restriction in s. 92(2) confining the provinces to direct taxation not become a dead letter of the Constitution Act, 1867. Justice Iacobucci did not disagree with that sentiment, and he rather felt that the complicated structure of the calculation of the EDC and the restrictions on the use to be made of them precisely to satisfy the demands on school services for the land development projects was sufficient to keep the Province’s legislation within the boundaries of the Constitution Act, 1867. In paragraph 85 in an addendum written to respond to Justice La Forest’s reasons, Justice Iacobucci stated: “The carefully designed mechanics of the scheme ensure that the power of indirect taxation will not extend beyond the regulatory costs; this is crucial in order to avoid rendering s. 92(2) of the Constitution Act, 1867 meaningless.”

[188] In my opinion, for all the reasons set out in the discussion above about the alleged colourability of the FIT Programs part of the Global Adjustment, the FIT Programs are connected to a regulatory scheme within the boundaries of the Constitution Act, 1867. In this regard, it is interesting and significant to note that while in the Ontario Home Builders’ case there were restrictions on the use of the EDCs precisely for the school board’s capital works projects, there was no restriction on a school board’s decisions on what land it could purchase for those projects and no restrictions on a school board’s decisions on the costs of construction for the school project. Like the Provincial Government, or its instrumentality the IESO, in the immediate case, the school boards in the Ontario Home Builders’ case were entitled to decide what they would procure and then look to the EDC for the funds to pay that expense as part of the regulatory scheme.

[189] I, therefore, conclude that the second branch of the Respondents’ argument succeeds, and this provides a second basis to dismiss National Steel Car’s applications.

P. Conclusion

[190] For the above reasons, National Steel Car’s applications are dismissed.

[191] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with the Respondents’ submissions within twenty days of the release of these reasons for decision followed by National Steel Car’s submissions within a further twenty days.

Perell, J.

Released: April 27, 2022.

Schedule “A” - Constitution Act, 1867

MONEY VOTES; ROYAL ASSENT

Appropriation and Tax Bills

53. Bills for appropriating any Part of the Public Revenue, or for imposing any Tax or Impost, shall originate in the House of Commons.

Recommendation of Money Votes

54 It shall not be lawful for the House of Commons to adopt or pass any Vote, Resolution, Address, or Bill for the Appropriation of any Part of the Public Revenue, or of any Tax or Impost, to any Purpose that has not been first recommended to that House by Message of the Governor General in the Session in which such Vote, Resolution, Address, or Bill is proposed.

POWERS OF THE PARLIAMENT

Legislative Authority of Parliament of Canada

91. It shall be lawful for the Queen, by and with the Advice and Consent of the Senate and House of Commons, to make Laws for the Peace, Order, and good Government of Canada, in relation to all Matters not coming within the Classes of Subjects by this Act assigned exclusively to the Legislatures of the Provinces; and for greater Certainty, but not so as to restrict the Generality of the foregoing Terms of this Section, it is hereby declared that (notwithstanding anything in this Act) the exclusive Legislative Authority of the Parliament of Canada extends to all Matters coming within the Classes of Subjects next hereinafter enumerated; that is to say,

92. […] 1A. The Public Debt and Property.

93. The Regulation of Trade and Commerce. 2A. Unemployment insurance.

94. The raising of Money by any Mode or System of Taxation.

And any Matter coming within any of the Classes of Subjects enumerated in this Section shall not be deemed to come within the Class of Matters of a local or private Nature comprised in the Enumeration of the Classes of Subjects by this Act assigned exclusively to the Legislatures of the Provinces.

EXCLUSIVE POWERS OF PROVINCIAL LEGISLATURES

Subjects of exclusive Provincial Legislation

92. In each Province the Legislature may exclusively make Laws in relation to Matters coming within the Classes of Subjects next hereinafter enumerated; that is to say,

93. Direct Taxation within the Province in order to the raising of a Revenue for Provincial Purposes.

94. Municipal institutions in the province.

95. Shop, Saloon, Tavern, Auctioneer, and other Licences in order to the raising of a Revenue for Provincial, Local, or Municipal Purposes.

96. Property and Civil Rights in the Province.

97. The Administration of Justice in the Province, including the Constitution, Maintenance, and Organization of Provincial Courts, both of Civil and of Criminal Jurisdiction, and including Procedure in Civil Matters in those Courts.

98. Generally all Matters of a merely local or private Nature in the Province.

NON-RENEWABLE NATURAL RESOURCES, FORESTRY RESOURCES AND ELECTRICAL ENERGY

Laws respecting non-renewable natural resources, forestry resources and electrical energy

92A. (1) In each province, the legislature may exclusively make laws in relation to

(a) exploration for non-renewable natural resources in the province; (b) development, conservation and management of non-renewable natural resources and forestry resources in the province, including laws in relation to the rate of primary production therefrom; and (c) development, conservation and management of sites and facilities in the province for the generation and production of electrical energy.

Export from provinces of resources

(2) In each province, the legislature may make laws in relation to the export from the province to another part of Canada of the primary production from non-renewable natural resources and forestry resources in the province and the production from facilities in the province for the generation of electrical energy, but such laws may not authorize or provide for discrimination in prices or in supplies exported to another part of Canada.

Authority of Parliament

(3) Nothing in subsection (2) derogates from the authority of Parliament to enact laws in relation to the matters referred to in that subsection and, where such a law of Parliament and a law of a province conflict, the law of Parliament prevails to the extent of the conflict.

Taxation of resources

(4) In each province, the legislature may make laws in relation to the raising of money by any mode or system of taxation in respect of

(a) non-renewable natural resources and forestry resources in the province and the primary production therefrom, and (b) sites and facilities in the province for the generation of electrical energy and the production therefrom,

whether or not such production is exported in whole or in part from the province, but such laws may not authorize or provide for taxation that differentiates between production exported to another part of Canada and production not exported from the province.

"Primary production"

(5) The expression "primary production" has the meaning assigned by the Sixth Schedule.

Existing powers or rights

(6) Nothing in subsections (1) to (5) derogates from any powers or rights that a legislature or government of a province had immediately before the coming into force of this section.

Exemption of Public Lands, etc.

125. No Lands or Property belonging to Canada or any Province shall be liable to Taxation.