CITATION: National Steel Car Ltd. v. Independent Electricity System Operator,  
2022 ONSC 2567  
COURT FILE NO.: CV-17-580045  
COURT FILE NO.: CV-17-585295  
DATE: 20220427  
ONTARIO  
SUPERIOR COURT OF JUSTICE  
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NATIONAL STEEL CAR LIMITED  
Earl Cherniak, Q.C., Jerome R. Morse, and  
David Trafford for the Applicant  
Applicant  
- and -  
INDEPENDENT ELECTRICITY  
SYSTEM OPERATOR, MINISTRY OF  
ATTORNEY GENERAL (ONTARIO)  
and MINISTER OF ENERGY  
(ONTARIO)  
Alan Mark and Melanie Ouanounou for the  
Respondent Independent Electricity System  
Operator  
Padraic Ryan and Karlson Leung for the  
Respondents 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  
Respondents  
AND BETWEEN:  
NATIONAL STEEL CAR LIMITED  
Ontario in Application No. CV-17-585295  
Applicant  
- and -  
INDEPENDENT ELECTRICITY  
SYSTEM OPERATOR, THE  
ATTORNEY GENERAL OF ONTARIO  
and HER MAJESTY THE QUEEN IN  
RIGHT OF ONTARIO  
Respondents  
) HEARD: March 1-4, 2022  
Contents  
A. Introduction.......................................................................................................................... 2  
2
B.  
Overview.............................................................................................................................. 4  
National Steel Car’s Argument............................................................................................ 4  
The Respondents’ Argument ............................................................................................... 5  
Overview.............................................................................................................................. 5  
Methodology........................................................................................................................ 6  
The Law Associated with Ultra Vires Taxes....................................................................... 6  
Introduction.......................................................................................................................... 6  
The Legal Principles ............................................................................................................ 7  
The Caselaw....................................................................................................................... 13  
C.  
D.  
E. Procedural Background ......................................................................................................... 17  
F. Evidentiary Background........................................................................................................ 17  
G.  
H.  
The Evidence of Messrs. Adams and McKitrick............................................................... 19  
The Structure of Ontario’s Electricity System................................................................... 24  
I. The Regulation of Ontario’s Electricity System.................................................................... 26  
J. Electricity Charges and the Global Adjustment .................................................................... 27  
K.  
The Authorization of the Feed-In Tariff (FIT Programs) .................................................. 29  
L. The Minister’s Directions to Implement the FIT Programs .................................................. 31  
M.  
N.  
O.  
The FIT Programs.............................................................................................................. 32  
Are the FIT Programs Colourable Taxation?..................................................................... 33  
Are the FIT Programs a Tax or a Intra Vires Regulatory Charge?.................................... 38  
P. Conclusion............................................................................................................................. 40  
Schedule “A” - Constitution Act, 1867......................................................................................... 41  
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  
 
3
Programs were authorized by the Green Energy and Green Economy Act, 2009,1 which amended  
the Ontario Energy Board Act, 1998,2 and the Electricity Act, 1998,3 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. 429/04.4  
[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.5  
[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, 1867.6  
[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  
1 S.O. 2009 c. 12.  
2 S.O. 1998, c. 15, Sch. B.  
3 S.O. 1998, c. 15, sch A.  
4 Ont. Reg. 429/04 (Adjustments Under Section 25.33 of the Act).  
5 Kingstreet Investments v. New Brunswick (Department of Finance), 2007 SCC 1; Air Canada v British Columbia,  
[1989] 1 S.C.R. 1161.  
6 The Constitution Act, 1867, 30 & 31 Vict., c. 3.  
4
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, 1999,7 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;8 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.9  
[11] These applications have proceeded together as if one application. For the following  
reasons, the applications are dismissed.  
B. Overview  
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  
7 S.O. 1999, c. 7, Sch. A.  
8 CV-17-580045.  
9 CV-17-585295.  
   
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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.  
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 Programscharges 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.  
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  
   
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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  
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.10 The cardinal cases in reverse  
chronological order are: 620 Connaught Ltd. v. Canada (Attorney General);11 Westbank First  
Nation v. British Columbia Hydro and Power Authority;12 Eurig Estate (Re);13 Ontario Home  
Builders’ Association v. York Region Board of Education;14 Allard Contractors Ltd. v. Coquitlam  
(District);15 Re Exported Natural Gas Tax;16 Reference respecting the Agricultural Products  
Marketing Act, R.S.C. 1970, s. A-7;17 Reference Re Milk Industry Act (British Columbia);18 Ontario  
10 B. Laskin, Laskin’s Canadian Constitutional Law (5th ed.) (Toronto: Carswell, 1986); G.V. La Forest, The  
Allocation of Taxing Power under the Canadian Constitution (2nd ed.) (Toronto: Canadian Tax Foundation, 1981);  
J.E. Magnet, “The Constitutional Distribution of Taxation Powers in Canada” (1978), 10 Ottawa Law Rev. 473; B.  
Laskin, “Provincial Marketing Levies: Indirect Taxation and Federal Power” [1959] Univ. of Toronto Law Journal  
1.  
11 2008 SCC 7.  
12 [1999] 3 S.C.R. 134.  
13 [1998] 2 S.C.R. 565.  
14 [1996] 2 S.C.R. 929.  
15 [1993] 4 S.C.R. 371.  
16 [1982] 1 S.C.R. 1004.  
17 [1978] 2 S.C.R. 1198.  
18 [1960] S.C.R. 346.  
     
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Boys' Wear Ltd. v. The Advisory Committee;19 Shannon v. Lower Mainland Dairy Products  
Board;20 Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy, Ltd.;21  
Lawson v. Interior Tree Fruit and Vegetable Committee of Direction;22 City of Halifax v. Estate of  
J. P. Fairbanks;23 British Columbia v. Canadian Pacific Railway Co.;24 Cotton v. The King;25 Bank  
of Toronto v. Lambe;26 and Attorney-General for Quebec v. Reed.27  
[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 Governments 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.  
The Legal Principles  
[31] Taxes may be direct taxes or indirect taxes.28 “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.29 Indirect taxes are demanded from persons from whom the government intended and  
expected would be indemnified by another person.30 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  
19 [1944] S.C.R. 349.  
20 [1938] A.C. 708 (P.C.)  
21 [1933] A.C. 168 (P.C.).  
22 [1931] S.C.R. 357.  
23 [1928] A.C. 117 (P.C.), rev'g [1926] S.C.R. 349.  
24 [1927] A.C. 934 (P.C.).  
25 [1914] A.C. 176 (P.C.).  
26 (1887), 12 A.C. 575 (P.C.).  
27 (1884), 10 App. Cas. 141 (P.C.).  
28 Ontario Home Builders’ Association v. York Region Board of Education, [1996] 2 S.C.R. 929; Minister of  
Finance of New Brunswick v. Simpsons-Sears Ltd., [1982] 1 S.C.R. 144; Canadian Industrial Gas & Oil Ltd. v.  
Government of Saskatchewan, [1978] 2 S.C.R. 545; Cairns Construction Ltd. v. Government of Saskatchewan,  
[1960] S.C.R. 619; Canadian Pacific Railway Co. v. Attorney General for Saskatchewan, [1952] 2 S.C.R. 231;  
Atlantic Smoke Shops, Ltd. v. Conlon, [1943] A.C. 550 (P.C.); City of Halifax v. Estate of J. P. Fairbanks [1928]  
A.C. 117 (P.C.), rev'g [1926] S.C.R. 349; Brewers and Maltsters' Association of Ontario v. Attorney-General for  
Ontario, [1897] A.C. 231 (P.C.).  
29 Bank of Toronto v. Lambe, (1887), 12 A.C. 575 (P.C.).  
30 Eurig Estate (Re), [1998] 2 S.C.R. 565 at paras. 25-27; Allard Contractors Ltd. v. Coquitlam (District) [1993] 4  
S.C.R. 371; (1887), 12 A.C. 575 (P.C.); John Stuart Mill, Principles of Political Economy (1884), Book V, ch. II.  
(New York: D. Appelton, 1884).  
 
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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 Confederation  
Act, 1867, a Provincial Government has the power only to levy direct taxation, and provinces  
cannot raise revenue by indirect taxation.31  
[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, 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.32 In 620 Connaught Ltd.  
v. Canada (Attorney General),33 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  
31 Eurig Estate (Re), [1998] 2 S.C.R. 565 at para. 24; Allard Contractors Ltd. v. Coquitlam (District) [1993] 4  
S.C.R. 371 at p. 394; British Columbia v. Esquimalt and Nanaimo Railway Co., [1950] A.C. 87 (P.C.); Lower  
Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy, Ltd., [1933] A.C. 168 (P.C.); British  
Columbia v. Canadian Pacific Railway Co., [1927] A.C. 934; Attorney-General for Quebec v. Reed (1884), 10 App.  
Cas. 141. (P.C.).  
32 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), 97 O.R. (3d) 745 (C.A.); 620 Connaught Ltd. v. Canada  
(Attorney General), 2008 SCC 7.  
33 2008 SCC 7 at para. 49.  
9
parties to the contract.34 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.  
b.  
direct or indirect taxes - a charge to raise revenue for public purpose;  
a licence or user fee or proprietary charge a fee paid to use government property,  
facilities, or services.35  
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.36 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.37 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  
34 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 48 A.R. 255 (Q.B.), aff’d 1984 ABCA 311;  
Abernethy-Lougheed Logging Co. (Trustee of) v British Columbia, [1938] 2 D.L.R. 790 (B.C.S.C.) rev’d but affd on  
this point at paras. 54-55 526 (B.C.C.A.); Lynch v. The Canada Northwest Land Company (1891), 19 S.C.R. 204 at  
p. 208.  
35 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.  
36 Westbank First Nation v. British Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134; Eurig Estate (Re),  
[1998] 2 S.C.R. 565 at paras. 30-32.  
37 Westbank First Nation v. British Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134 at para. 19; Eurig  
Estate (Re), [1998] 2 S.C.R. 565, at para. 30.  
10  
delegates such as the Lieutenant Governor in Council.38  
[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.39 However, while there cannot  
be any intergovernmental taxation, there can be intergovernmental user fees and regulatory  
charges.40  
[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.41  
[43] The pith and substance of a government levy is its dominant, primary and most important  
characteristic as distinguished from its incidental features.42 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.43 If the pith and substance of the levy is the raising of revenue for  
general government purposes then the levy is a tax,44 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.45  
[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  
38 620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at para. 5; Eurig Estate (Re), [1998] 2 S.C.R. 565  
at paras. 28-30.  
39 Westbank First Nation v. British Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134; Re: Exported  
Natural Gas Tax, [1982] 1 S.C.R. 1004.  
40 Westbank First Nation v. British Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134; Re Exported  
Natural Gas Tax, [1982] 1 S.C.R. 1004; General of Canada v. Registrar of Titles, [1934] 4 D.L.R. 764 (B.C.C.A.);  
Attorney-General of British Columbia v. Attorney General of Canada (1922), 64 S.C.R. 377, aff’d [1924] A.C. 222  
(P.C.) (the Johnny Walker case); Minister of Justice v. City of Levis; [1919] A.C. 505 (P.C.); Attorney General of  
Canada v. City of Toronto (1892), 23 S.C.R. 514.  
41 620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at para. 17; Westbank First Nation v. British  
Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134 at para. 30.  
42 620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at para. 16-17.  
43 Ontario Home Builders’ Association v. York Region Board of Education, [1996] 2 S.C.R. 929 at para. 43.  
44 Westbank First Nation v. British Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134.  
45 620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7; Reference respecting the Agricultural Products  
Marketing Act, R.S.C. 1970, s. A-7 [1978] 2 S.C.R. 1198.  
11  
and regulatory charges to avoid rendering s. 92(2) of the Constitution Act, 1867, meaningless.46  
As Justice La Forest noted in Ontario Home Builders’ Association v. York Region Board of  
Education,47 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.48  
[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.49 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.50  
[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.51 A regulatory charge may be the means of: (a) advancing a  
regulatory purpose;52 and, or (b) defraying the expenses of a regulatory scheme.53  
[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  
46 Ontario Home Builders’ Association v. York Region Board of Education, [1996] 2 S.C.R. 929 at para. 85.  
47 [1996] 2 S.C.R. 929 at para. 95.  
48 620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at para. 22-24; Westbank First Nation v. British  
Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134.  
49 620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at para. 19; Eurig Estate (Re), [1998] 2 S.C.R.  
565, at para. 22.  
50 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  
para. 22-24; Westbank First Nation v. British Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134 at para.22;  
Eurig Estate (Re), [1998] 2 S.C.R. 565, at para. 21; Allard Contractors Ltd. v. Coquitlam, [1993] 4 S.C.R. 371.  
51 620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at para. 20; Westbank First Nation v. British  
Columbia Hydro and Power Authority [1999] 3 S.C.R. 134; Cape Breton Beverages Ltd. v. Nova Scotia (Attorney  
General) (1997), 144 D.L.R. (4th) 536 (N.S.S.C.), aff’d (1997), 151 D.L.R. (4th) 575 (N.S.C.A.), leave to appeal  
ref’d [1997] 3 S.C.R. vii.  
52 Westbank First Nation v. British Columbia Hydro and Power Authority [1999] 3 S.C.R. 134 at para. 29; Cape  
Breton Beverages Ltd. v. Nova Scotia (Attorney General), (1977), 144 D.L.R. (4th) 536 (N.S.S.C.), aff’d (1957), 151  
D.L.R. (4th) 575 (N.S.C.A.), leave to appeal ref’d, [1977] 3 S.C.R. vii; Attorney-General of British Columbia v.  
Attorney General of Canada (1922), 64 S.C.R. 377, aff’d [1924] A.C. 222 (P.C.) (the Johnny Walker case).  
53 Westbank First Nation v. British Columbia Hydro and Power Authority [1999] 3 S.C.R. 134 at para. 29; Allard  
Contractors Ltd. v. Coquitlam (District) [1993] 4 S.C.R. 371.  
12  
some specific purpose.54 To identify the existence of a regulatory scheme the following non-  
exhaustive and non-inclusive list of factors provides guidance; visualize:  
a.  
b.  
c.  
Is there a regulatory purpose to affect some behaviour?  
Is there a comprehensive complex code of regulation?  
Has the cost of implementing the regulation been calculated or properly  
estimated?55  
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?56  
[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.57  
[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.58  
[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  
54 Westbank First Nation v. British Columbia Hydro and Power Authority [1999] 3 S.C.R. 134 at para. 26.  
55 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] 4 S.C.R. 371.  
56 620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at para. 25; Westbank First Nation v. British  
Columbia Hydro and Power Authority [1999] 3 S.C.R. 134 at para. 44.  
57 620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at paras. 38-40; Eurig Estate (Re), [1998] 2  
S.C.R. 565, at para. 22; Allard Contractors Ltd. v. Coquitlam (District); [1993] 4 S.C.R. 37 at pp. 411-12.  
58 620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at paras. 35-37; Westbank First Nation v. British  
Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134 at para. 44.  
13  
enabling legislation is a head of power under s. 92 of the Constitution Act - 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.  
The Caselaw  
[54] In Attorney-General for Quebec v. Reed,59 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,60 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,61 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.,62 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.  
59 (1884), 10 App. Cas. 141. (P.C.).  
60 (1887), 12 A.C. 575 (P.C.).  
61 [1914] A.C. 176 (P.C.).  
62 [1927] A.C. 934 (P.C.).  
 
14  
[58] In Lawson v. Interior Tree Fruit and Vegetable Committee of Direction,63 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 Governments 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.,64  
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, 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 Diary 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,65 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, 1967 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,66 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, 1967 as fees for services  
rendered by the province or its authorized instrumentalities.  
63 [1931] S.C.R. 357. (Duff, Rinfret, and Lamont, JJ.; Newcombe, J.; Cannon, J.) The Crystal Dairy case was  
followed in Lower Mainland Dairy Products Board v. Turner’s Dariy Ltd., [1941] S.C.R. 573.  
64 [1933] A.C. 168 (P.C.).  
65 [1938] A.C. 708 (P.C.).  
66 [1944] S.C.R. 349 (Rinfret C.J. and Kerwin, Hudson, Taschereau and Rand JJ.  
15  
[63] In Reference Re Milk Industry Act (British Columbia),67 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., 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-7,68 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., 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, 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., 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,69 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),70 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  
67 [1960] S.C.R. 346. (Kerwin, C.J, and Taschereau, Locke, Cartwright, Fauteux, Abbott, Martland, Judson, and  
Ritchie, JJ.).  
68 [1978] 2 S.C.R. 1198. (Martland,. Ritchie, Pigeon, Beetz and de Grandpré, JJ.; Laskin, C.J. and Judson, Spence,  
and Dickson, JJ.).  
69 [1982] 1 S.C.R. 1004. (Martland, Ritchie, Dickson, Beetz, Estey and Chouinard, JJ.; Laskin, C.J., McIntyre and  
Lamer, JJ., dissenting.).  
70 [1993] 4 S.C.R. 371. (Lamer C.J. and La Forest, L'Heureux-Dubé, Sopinka, Gonthier, Cory, McLachlin, Iacobucci  
and Major JJ.)  
16  
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;71 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),72 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,73 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),74 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  
71 [1996] 2 S.C.R. 929. (Lamer C.J., Sopinka, Cory, Iacobucci and Major JJ; La Forest, L'Heureux-Dubé, Gonthier,  
and McLachlin, JJ.).  
72 [1998] 2 S.C.R. 565. (Lamer, C.J. and L’Heureux-Dubé, Cory, Iacobucci, and Major, JJ.; McLachlin and Binnie,  
JJ.; Gonthier and Bastarache, JJ., dissenting.)  
73 [1999] 3 S.C.R. 134. (Lamer, C.J., Gonthier, McLachlin, Iacobucci, Major, Bastarache, and Binnie, JJ.)  
74 2008 SCC 7. (McLachlin, C.J. and Bastarache, Binnie, LeBel, Deschamps, Fish, Abella, Charron, and Rothstein,  
JJ.)  
17  
about Re Exported Natural Gas Tax,75 Allard Contractors Ltd. v. Coquitlam (District),76 and  
Ontario Home Builders’ Association v. York Region Board of Education.77  
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,78 and  
National Steel Car appealed.  
[76] On November 27, 2019, the Court of Appeal granted National Steel Car’s appeal.79  
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  
75 [1982] 1 S.C.R. 1004.  
76 [1993] 4 S.C.R. 371. (Lamer C.J. and La Forest, L'Heureux-Dubé, Sopinka, Gonthier, Cory, McLachlin, Iacobucci  
and Major JJ.)  
77 [1996] 2 S.C.R. 929. (Lamer C.J., Sopinka, Cory, Iacobucci and Major JJ; La Forest, L'Heureux-Dubé, Gonthier,  
and McLachlin, JJ.)  
78 National Steel Car Limited v. Independent Electricity System Operator, 2018 ONSC 3845, rev’d 2019 ONCA  
929.  
79 National Steel Car Limited v. Independent Electricity System Operator, 2019 ONCA 929, rev’g 2018 ONSC  
3845.  
   
18  
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  
19  
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.80 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.81  
[83] The duties of an expert witness are set out in rule 4.1.01 of the Rules of Civil Procedure,82  
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  
80 Carmen Alfano Family Trust (Trustee of) v. Piersanti, 2012 ONCA 297 at para. 109, leave to appeal refused  
[2012] S.C.C.A. No. 309.  
81 White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23.  
82 R.R.O. 1990, Reg. 194.  
 
20  
(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.83  
[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  
83 2015 ONCA 206, leave to appeal refused [2015] S.C.C.A. No. 198.  
21  
they perceived, not as to the inferences -- that is, the opinions -- that they drew from their  
perceptions.84 There is, however, an exception for witnesses duly qualified to express an expert's  
opinion.85 As confirmed by the Supreme Court of Canada in White Burgess Langille Inman v.  
Abbott and Haliburton Co.,86 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,87 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.88  
[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.,89 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.90 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.91  
[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.92 Second, as codified by rule 4.1.01 of the Rules of  
Civil Procedure93 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  
84 Graat v. The Queen, [1982] 2 S.C.R. 819.  
85 R. v. Abbey, [1982] 2 S.C.R. 24.  
86 2015 SCC 23.  
87 [1994] 2 S.C.R. 9.  
88 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.  
89 2015 SCC 23.  
90 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.  
91 Wright v. Detour Gold Corp., 2016 ONSC 6807 at para. 32; United City Properties Ltd. v. Tong, 2010 BCSC 111.  
92 R. v. Mohan, [1994] 2 S.C.R. 9 at para. 27.  
93 R.R.O. 1990, Reg. 194.  
22  
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.94  
[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  
94 Ontario Home Builders’ Association v. York Region Board of Education, [1996] 2 S.C.R. 929 at para. 42.  
23  
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.95  
[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, 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.96 The court retains its gatekeeper function in relation to the opinion evidence from  
participant experts.97 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.98  
[104] The Rule from the Westhof 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  
95 2015 ONCA 206, leave to appeal refused [2015] S.C.C.A. No. 198.  
96 See also: 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  
97 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.  
98 Imeson v. Maryvale, 2018 ONCA 888 at para. 53; Westerhof v. Gee Estate, 2015 ONCA 206 at para. 60.  
24  
permitted by the Court of Appeal’s ruling in Westerhof v. Gee Estate 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.99 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.  
[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.  
99 St. Marthe v. O'Connor, 2021 ONCA 790; Hoang v. Vicentini, 2016 ONCA 723.  
 
25  
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 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.  
26  
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, 1998100 and the Electricity Act, 1998,101 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.102  
[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;  
100 S.O. 1998, c. 15, Sch. B.  
101 S.O. 1998, c 15, sch A.  
102 Consumers Council of Canada (Re), 2011 LNONOEB 326 at para. 56.  
 
27  
(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.103 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  
103 Iroquois Falls Power Corporation v. Ontario Electricity Financial Corporation, 2016 ONCA 271 at para. 23,  
leave to appeal refd, [2016] S.C.C.A. No. 279.  
 
28  
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.  
29  
[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.104 The remaining 15% of such costs  
that continue to be paid through the Global Adjustment represent the government’s estimate of the  
costs that would be necessary to procure this electricity from an alternative, non-renewable source  
during peak times.  
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, 2009.105 The preamble of the Act stated:  
104 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.  
105 S.O. 2009, c. 12.  
 
30  
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.  
31  
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  
 
32  
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  
 
33  
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, 2016,106 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, 1867.107 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  
106 2016, S.O. 2016, c. 10.  
107 The Constitution Act, 1867, 30 & 31 Vict., c. 3.  
 
34  
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.108  
[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.109 As Chief Justice  
Laskin noted in Re Exported Natural Gas Tax:110  
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  
108 H. (F.) v. McDougall, 2008 SCC 53; R. v. Oakes, [1986] 1 S.C.R. 103; Continental Insurance Co. v. Dalton  
Cartage Co., [1982] 1 S.C.R. 164; Hanes v. Wawanesa Mutual Insurance Co., [1963] S.C.R. 164.  
109 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), 2 O.R. (3d) 65 at p. 69 (C.A.); Amex Potash of  
Saskatchewan, [1977] 2 S.C.R. 576; Bank of Toronto v. Lambe, (1887), 12 A.C. 575 (P.C.).  
110 [1982] 1 S.C.R. 1004 at p. 1021.  
35  
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  
36  
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 addersare 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,111 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  
111 2016 ONSC 3931.  
37  
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.112 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, the FIT  
112 [1982] 1 S.C.R. 1004.  
38  
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 Governmentsregulatory 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  
 
39  
(District),113 and Ontario Home Builders’ Association v. York Region Board of Education.114  
[182] Allard Contractors Ltd. v. Coquitlam (District) 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, 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),115 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 referrable 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  
s