National Steel Car Ltd. v. Independent Electricity System Operator

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

)

BETWEEN:

)

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, 2009,¹which amended

the Ontario Energy Board Act, 1998,²and the Electricity Act, 1998,³the 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

¹S.O. 2009 c. 12.

²S.O. 1998, c. 15, Sch. B.

³S.O. 1998, c. 15, sch A.

⁴Ont. Reg. 429/04 (Adjustments Under Section 25.33 of the Act).

⁵Kingstreet Investments v. New Brunswick (Department of Finance), 2007 SCC 1; Air Canada v British Columbia,

[1989] 1 S.C.R. 1161.

⁶The 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, 1999,⁷because 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;⁸and (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

⁷S.O. 1999, c. 7, Sch. A.

⁸CV-17-580045.

⁹CV-17-585295.

5

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 Programs’ charges are a genuine and

legitimate part of a regulatory scheme.

[20] The third branch of the Respondents’ argument is an issue of law or of mixed fact and law

from which a legal issue may be extracted. The Respondents submit that the Global Adjustment,

including the FIT Programs part of it, are a closed system, in which no revenues ever reach the

Provincial Government and its consolidated revenue fund, and, therefore, it cannot be argued that

the FIT Programs are taxation because taxation entails the raising of revenues for government

purposes.

[21] The fourth branch of the Respondents’ argument is an alternative submission that is another

issue of law or of mixed fact and law from which a legal issue may be extracted. The Respondents

argue that if the costs of the FIT Programs are indeed a tax, then they are a lawful tax because the

rigors of sections 53 and 54 of the Constitution Act, 1867 have been satisfied.

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.¹⁰The cardinal cases in reverse

chronological order are: 620 Connaught Ltd. v. Canada (Attorney General);¹¹Westbank First

Nation v. British Columbia Hydro and Power Authority;¹²Eurig Estate (Re);¹³Ontario Home

Builders’ Association v. York Region Board of Education;¹⁴Allard Contractors Ltd. v. Coquitlam

(District);¹⁵Re Exported Natural Gas Tax;¹⁶Reference respecting the Agricultural Products

Marketing Act, R.S.C. 1970, s. A-7;¹⁷Reference Re Milk Industry Act (British Columbia);¹⁸Ontario

¹⁰B. Laskin, Laskin’s Canadian Constitutional Law (5^thed.) (Toronto: Carswell, 1986); G.V. La Forest, The

Allocation of Taxing Power under the Canadian Constitution (2^nded.) (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.

¹¹2008 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.

7

Boys' Wear Ltd. v. The Advisory Committee;¹⁹Shannon v. Lower Mainland Dairy Products

Board;²⁰Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy, Ltd.;²¹

Lawson v. Interior Tree Fruit and Vegetable Committee of Direction;²²City of Halifax v. Estate of

J. P. Fairbanks;²³British Columbia v. Canadian Pacific Railway Co.;²⁴Cotton v. The King;²⁵Bank

of Toronto v. Lambe;²⁶and 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 Government’s and the Provincial Governments’

legislative authority to levy taxes, licence fees, and charges associated with regulatory schemes,

particularly marketing schemes. After his appointment to the bench, Chief Justice Laskin

referenced the work of Professor La Forest. Justice La Forest and Justice Iacobucci sat together on

the Supreme Court of Canada, and they debated Justice Laskin’s decisions and they debated each

other about the law associated with ultra vires taxes and intra vires regulatory charges.

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.²⁹Indirect taxes are demanded from persons from whom the government intended and

expected would be indemnified by another person.³⁰Examples 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.).

²⁸Ontario 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.).

²⁹Bank of Toronto v. Lambe, (1887), 12 A.C. 575 (P.C.).

³⁰Eurig 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).

8

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.³²In 620 Connaught Ltd.

v. Canada (Attorney General),³³the 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

³¹Eurig 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.).

³²Toronto 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.

³³2008 SCC 7 at para. 49.

9

parties to the contract.³⁴Thus, 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.³⁶In 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.³⁷Pursuant 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

³⁴Unfiltered 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.

³⁵Toronto 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.

³⁶Westbank 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.

³⁷Westbank 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.³⁹However, 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.⁴²When 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.⁴³If the pith and substance of the levy is the raising of revenue for

general government purposes then the levy is a tax,⁴⁴but 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

³⁸620 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.

³⁹Westbank 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.

⁴⁰Westbank 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.

⁴¹620 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.

⁴²620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at para. 16-17.

⁴³Ontario Home Builders’ Association v. York Region Board of Education, [1996] 2 S.C.R. 929 at para. 43.

⁴⁴Westbank First Nation v. British Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134.

⁴⁵620 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,⁴⁷differentiating 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.⁴⁹The 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.⁵¹A regulatory charge may be the means of: (a) advancing a

regulatory purpose;⁵²and, 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

⁴⁶Ontario 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.

⁴⁸620 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.

⁴⁹620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at para. 19; Eurig Estate (Re), [1998] 2 S.C.R.

565, at para. 22.

⁵⁰Angus 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.

⁵¹620 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. (4^th) 536 (N.S.S.C.), aff’d (1997), 151 D.L.R. (4^th) 575 (N.S.C.A.), leave to appeal

ref’d [1997] 3 S.C.R. vii.

⁵²Westbank 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. (4^th) 536 (N.S.S.C.), aff’d (1957), 151

D.L.R. (4^th) 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).

⁵³Westbank 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.⁵⁴To 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

⁵⁴Westbank First Nation v. British Columbia Hydro and Power Authority [1999] 3 S.C.R. 134 at para. 26.

⁵⁵Angus 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.

⁵⁶620 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.

⁵⁷620 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.

⁵⁸620 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,⁵⁹the 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,⁶⁰the 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,⁶¹the 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.,⁶²the 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,⁶³as part of a

marketing scheme, the Provincial Government of British Columbia empowered a regulator to

impose levies for the purposes of defraying the costs of the marketing scheme. The Supreme Court

of Canada characterized the levies as indirect taxes but as within the legislative authority of the

province as a regulatory charge ancillary to a regulatory marketing scheme. The Court thus

inferentially ruled that regulation charges that fell within provincial legislative competence were

intra vires; however, the Supreme Court ruled that the levies were ultra vires as within the

exclusive legislative jurisdiction of the Federal Government’s authority over extra-provincial trade

and commerce under s. 91(2) of the Constitution Act, 1867.

[59] In Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy, Ltd.,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,⁶⁵the 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,⁶⁶the 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),⁶⁷the 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-7,⁶⁸the

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,⁶⁹the 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),⁷⁰municipalities 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;⁷¹pursuant 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),⁷²the 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,⁷³pursuant 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),⁷⁴the 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.)

⁷⁴2008 SCC 7. (McLachlin, C.J. and Bastarache, Binnie, LeBel, Deschamps, Fish, Abella, Charron, and Rothstein,

JJ.)

17

about Re Exported Natural Gas Tax,⁷⁵Allard Contractors Ltd. v. Coquitlam (District),⁷⁶and

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,⁷⁸and

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.)

⁷⁸National Steel Car Limited v. Independent Electricity System Operator, 2018 ONSC 3845, rev’d 2019 ONCA

929.

⁷⁹National 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.⁸⁰The 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

⁸⁰Carmen Alfano Family Trust (Trustee of) v. Piersanti, 2012 ONCA 297 at para. 109, leave to appeal refused

[2012] S.C.C.A. No. 309.

⁸¹White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23.

⁸²R.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

⁸³2015 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.⁸⁴There is, however, an exception for witnesses duly qualified to express an expert's

opinion.⁸⁵As confirmed by the Supreme Court of Canada in White Burgess Langille Inman v.

Abbott and Haliburton Co.,⁸⁶there 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,⁸⁷which 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.,⁸⁹Justice 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.⁹⁰The

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.⁹²Second, as codified by rule 4.1.01 of the Rules of

Civil Procedure⁹³and 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

⁸⁴Graat v. The Queen, [1982] 2 S.C.R. 819.

⁸⁵R. v. Abbey, [1982] 2 S.C.R. 24.

⁸⁶2015 SCC 23.

⁸⁷[1994] 2 S.C.R. 9.

⁸⁸White 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.

⁸⁹2015 SCC 23.

⁹⁰R. 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.

⁹¹Wright v. Detour Gold Corp., 2016 ONSC 6807 at para. 32; United City Properties Ltd. v. Tong, 2010 BCSC 111.

⁹²R. v. Mohan, [1994] 2 S.C.R. 9 at para. 27.

⁹³R.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

⁹⁴Ontario 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.⁹⁶The court retains its gatekeeper function in relation to the opinion evidence from

participant experts.⁹⁷If 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

⁹⁵2015 ONCA 206, leave to appeal refused [2015] S.C.C.A. No. 198.

⁹⁶See 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

⁹⁷Children’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.

⁹⁸Imeson 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.⁹⁹With 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.

⁹⁹St. 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, 1998¹⁰⁰and the Electricity Act, 1998,¹⁰¹are 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;

¹⁰⁰S.O. 1998, c. 15, Sch. B.

¹⁰¹S.O. 1998, c 15, sch A.

¹⁰²Consumers 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.¹⁰³For 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

¹⁰³Iroquois Falls Power Corporation v. Ontario Electricity Financial Corporation, 2016 ONCA 271 at para. 23,

leave to appeal ref’d, [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.¹⁰⁴The 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, 2009.¹⁰⁵The preamble of the Act stated:

¹⁰⁴The 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.

¹⁰⁵S.O. 2009, c. 12.

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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.

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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

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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, 2016,¹⁰⁶s. 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, 1867.¹⁰⁷It 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

¹⁰⁶2016, S.O. 2016, c. 10.

¹⁰⁷The 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.¹⁰⁹As 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

¹⁰⁸H. (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.

¹⁰⁹Reference 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 “adders” are an example of this

triviality and standing alone $46.8 million per annum additional cost in a billion dollar

procurement program is insufficient to make the cost of the FIT Programs a tax as opposed to a

regulatory charge. The FIT Programs “adders” represent 0.4% of the Global Adjustment.

[169] With respect to the ninth task, National Steel Car’s argument, which relies on Angus v.

Port Hope,¹¹¹does 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

¹¹¹2016 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.¹¹²In 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 Governments’ regulatory scheme

to supply electricity to its citizens.

[178] As noted above in the discussion of the law associated with ultra vires taxes, there is a two-

part test to determine whether a levy is connected to a regulatory scheme. The first step is to

determine whether there is a regulatory scheme. The second step is to determine whether there is

a relationship between that regulatory scheme and the charge because the person obliged to paying

the charge caused the need for the regulation or receives a direct benefit from the regulation.

[179] In the immediate case, there was very little, if any, dispute that there is a regulatory scheme.

The criteria of the first step are satisfied; visualize: (a) the Ontario Energy Board Act, 1998 and,

the Electricity Act, 1998 set out a detailed scheme for the regulation of electricity in Ontario; (b)

the FIT Programs part of the Global Adjustment are not colourable taxation for all the reasons set

out in the discussion about colourable taxation; (c) the regulatory scheme affects the behaviour of

suppliers and consumers of electricity by promoting cleaner energy sources and technologies and

by ensuring, for the benefit of consumers, the adequacy, safety, sustainability and reliability of

electricity supply in Ontario; and (d) there are genuine costs and expenses associated with the

regulatory scheme including the costs of procuring the electrical supply.

[180] The second step of the two-part test is satisfied because the Global Adjustment is tied to,

and limited to, the costs of this regulatory scheme.

[181] Expanding upon the second branch of the Respondents’ argument, this argument is amply

supported by the case law and most particularly by Allard Contractors Ltd. v. Coquitlam

39

(District),¹¹³and 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),¹¹⁵municipalities 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

significant about the Supreme Court’s unanimous decision in Allard was its recognition that levies

connected to a regulatory scheme were not a form of taxation. The decision in Allard is the

continuation of the jurisprudence that reached the zenith of its several waves with Reference

respecting the Agricultural Products Marketing Act, R.S.C. 1970, s. A-7,¹¹⁶which overturned the

restrictions on provincial marketing schemes that had followed from Lower Mainland Dairy

Products Sales Adjustment Committee v. Crystal Dairy, Ltd.¹¹⁷

[185] For present purposes the main point to be taken from the Allard case is that the FIT

Programs in the immediate case appear to be of the same juridical nature as the price fixing, price

adjusting, product allocation, expense recoupment levies of provincial marketing schemes that

have been held to be intra vires under provincial heads of power notwithstanding that they might

be characterized as a form of indirect taxation beyond the jurisdiction of the province under the

Constitution Act, 1867. They were intra vires because they were levies connected to a regulatory

scheme within the legislative authority of the Provincial Government.

[186] Moving on to Ontario Home Builders’ Association v. York Region Board of Education, in

this case, Justice Iacobucci felt that the Education Development Charges (EDCs) were closely

enough connected to the regulatory scheme involving land development to justify imposing levies

to raise money to pay for the capital costs of school construction. This holding was significant

because Justice Iacobucci otherwise felt that the levies would be a form of indirect taxation beyond

the jurisdiction of the Provincial Government. Justice La Forest disagreed that the levies were a

¹¹³[1993] 4 S.C.R. 371. (Lamer C.J. and La Forest, L'Heureux-Dubé, Sopinka, Gonthier, Cory, McLachlin,

Iacobucci and Major JJ.).

¹¹⁴[1996] 2 S.C.R. 929. (Lamer C.J., Sopinka, Cory, Iacobucci and Major JJ; La Forest, L'Heureux-Dubé, Gonthier,

and McLachlin, JJ.).

¹¹⁵[1993] 4 S.C.R. 371. (Lamer C.J. and La Forest, L'Heureux-Dubé, Sopinka, Gonthier, Cory, McLachlin,

Iacobucci and Major JJ.)

¹¹⁶[1978] 2 S.C.R. 1198. (Martland,. Ritchie, Pigeon, Beetz and de Grandpré, JJ.; Laskin, C.J. and Judson, Spence,

and Dickson, JJ.)

¹¹⁷[1933] A.C. 168 (P.C.).

40

form of indirect taxation. He, rather, concluded that the levies were direct taxation within the

jurisdiction of the province.

[187] The matter of juridical interest to the immediate case in this debate between Justice La

Forest and Justice Iacobucci is that Justice La Forest did not backtrack from the holding in Allard

that a levy properly connected to a regulatory scheme was not a tax and would be intra vires under

some head of legislative authority conferred by s. 92 of the Constitution Act, 1867. Justice La

Forest’s concern was in furtherance of the theme developed in his academic writing that the

restriction in s. 92(2) confining the provinces to direct taxation not become a dead letter of the

Constitution Act, 1867. Justice Iacobucci did not disagree with that sentiment, and he rather felt

that the complicated structure of the calculation of the EDC and the restrictions on the use to be

made of them precisely to satisfy the demands on school services for the land development projects

was sufficient to keep the Province’s legislation within the boundaries of the Constitution Act,

1867. In paragraph 85 in an addendum written to respond to Justice La Forest’s reasons, Justice

Iacobucci stated: “The carefully designed mechanics of the scheme ensure that the power of

indirect taxation will not extend beyond the regulatory costs; this is crucial in order to avoid

rendering s. 92(2) of the Constitution Act, 1867 meaningless.”

[188] In my opinion, for all the reasons set out in the discussion above about the alleged

colourability of the FIT Programs part of the Global Adjustment, the FIT Programs are connected

to a regulatory scheme within the boundaries of the Constitution Act, 1867. In this regard, it is

interesting and significant to note that while in the Ontario Home Builders’ case there were

restrictions on the use of the EDCs precisely for the school board’s capital works projects, there

was no restriction on a school board’s decisions on what land it could purchase for those projects

and no restrictions on a school board’s decisions on the costs of construction for the school project.

Like the Provincial Government, or its instrumentality the IESO, in the immediate case, the school

boards in the Ontario Home Builders’ case were entitled to decide what they would procure and

then look to the EDC for the funds to pay that expense as part of the regulatory scheme.

[189] I, therefore, conclude that the second branch of the Respondents’ argument succeeds, and

this provides a second basis to dismiss National Steel Car’s applications.

P. Conclusion

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

[191] If the parties cannot agree about the matter of costs, they may make submissions in writing

beginning with the Respondents’ submissions within twenty days of the release of these reasons

for decision followed by National Steel Car’s submissions within a further twenty days.

Perell, J.

Released: April 27, 2022.

41

Schedule “A” - Constitution Act, 1867

MONEY VOTES; ROYAL ASSENT

Appropriation and Tax Bills

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

originate in the House of Commons.

Recommendation of Money Votes

54 It shall not be lawful for the House of Commons to adopt or pass any Vote, Resolution, Address,

or Bill for the Appropriation of any Part of the Public Revenue, or of any Tax or Impost, to any

Purpose that has not been first recommended to that House by Message of the Governor General in

the Session in which such Vote, Resolution, Address, or Bill is proposed.

[…]

POWERS OF THE PARLIAMENT

Legislative Authority of Parliament of Canada

91. It shall be lawful for the Queen, by and with the Advice and Consent of the Senate and House

of Commons, to make Laws for the Peace, Order, and good Government of Canada, in relation to

all Matters not coming within the Classes of Subjects by this Act assigned exclusively to the

Legislatures of the Provinces; and for greater Certainty, but not so as to restrict the Generality of the

foregoing Terms of this Section, it is hereby declared that (notwithstanding anything in this Act) the

exclusive Legislative Authority of the Parliament of Canada extends to all Matters coming within

the Classes of Subjects next hereinafter enumerated; that is to say,

1. […]

1A. The Public Debt and Property.

2. The Regulation of Trade and Commerce.

2A. Unemployment insurance.

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

[…]

And any Matter coming within any of the Classes of Subjects enumerated in this Section shall not

be deemed to come within the Class of Matters of a local or private Nature comprised in the

Enumeration of the Classes of Subjects by this Act assigned exclusively to the Legislatures of the

Provinces.

EXCLUSIVE POWERS OF PROVINCIAL LEGISLATURES

Subjects of exclusive Provincial Legislation

92. In each Province the Legislature may exclusively make Laws in relation to Matters coming

within the Classes of Subjects next hereinafter enumerated; that is to say,

[…]

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

Purposes.

42

[…]

8. Municipal institutions in the province.

9. Shop, Saloon, Tavern, Auctioneer, and other Licences in order to the raising of a

Revenue for Provincial, Local, or Municipal Purposes.

[…]

13. Property and Civil Rights in the Province.

14. The Administration of Justice in the Province, including the Constitution, Maintenance,

and Organization of Provincial Courts, both of Civil and of Criminal Jurisdiction, and

including Procedure in Civil Matters in those Courts.

[…]

16.

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

[…]

NON-RENEWABLE NATURAL RESOURCES,

FORESTRY RESOURCES AND ELECTRICAL ENERGY

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

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

(a) exploration for non-renewable natural resources in the province;

(b) development, conservation and management of non-renewable natural resources and

forestry resources in the province, including laws in relation to the rate of primary

production therefrom; and

(c) development, conservation and management of sites and facilities in the province for

the generation and production of electrical energy.

Export from provinces of resources

(2) In each province, the legislature may make laws in relation to the export from the province to

another part of Canada of the primary production from non-renewable natural resources and forestry

resources in the province and the production from facilities in the province for the generation of

electrical energy, but such laws may not authorize or provide for discrimination in prices or in

supplies exported to another part of Canada.

Authority of Parliament

(3) Nothing in subsection (2) derogates from the authority of Parliament to enact laws in relation to

the matters referred to in that subsection and, where such a law of Parliament and a law of a province

conflict, the law of Parliament prevails to the extent of the conflict.

Taxation of resources

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

or system of taxation in respect of

(a) non-renewable natural resources and forestry resources in the province and the primary

production therefrom, and

43

(b) sites and facilities in the province for the generation of electrical energy and the

production therefrom,

whether or not such production is exported in whole or in part from the province, but such laws may

not authorize or provide for taxation that differentiates between production exported to another part

of Canada and production not exported from the province.

"Primary production"

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

Existing powers or rights

(6) Nothing in subsections (1) to (5) derogates from any powers or rights that a legislature or

government of a province had immediately before the coming into force of this section.

[…]

Exemption of Public Lands, etc.

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

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

BETWEEN:

NATIONAL STEEL CAR LIMITED

Applicant

- and –

INDEPENDENT ELECTRICITY SYSTEM

OPERATOR, MINISTRY OF ATTORNEY

GENERAL (ONTARIO) and MINISTER OF

ENERGY (ONTARIO)

Respondents

AND BETWEEN:

NATIONAL STEEL CAR LIMITED

Applicant

- and –

INDEPENDENT ELECTRICITY SYSTEM

OPERATOR, THE ATTORNEY GENERAL OF

ONTARIO and HER MAJESTY THE QUEEN IN

RIGHT OF ONTARIO

Respondents

REASONS FOR DECISION

PERELL J.

Released: April 27, 2022