Ontario Superior Court Dismisses National Steel Car’s Challenges to the “Global Adjustment”
Global Adjustment (“GA”) is not an unlawful tax, says the recent decision by the Ontario Superior Court of Justice in National Steel Car Limited v. Independent Electricity System Operator.
National Steel Car Limited (“National Steel Car”) challenged the constitutionality of the GA by arguing:
- the FIT programs first introduced in 2009 were an indirect attempt by the Ontario government to tax ratepayers in order to fund public policy objectives and stimulus goals unrelated to Ontario’s electricity scheme; and
- GA is a tax not enacted by statute.
More precisely, National Steel argued that the government’s purported purposes of the FIT programs to enhance Ontario’s electricity system were lies. Rather, the “real” purposes of the FIT programs were to provide general economic stimulus as well as specific economic assistance to rural municipalities, co-operatives, and Indigenous communities that had been adversely affected by the 2008 economic financial crisis (together, the “Stimulus Goals”).
National Steel argued that the Stimulus Goals funded by the GA (as it existed following the introduction of the FIT programs in 2009) were unrelated to the regulation of electricity and that the GA is therefore a tax in disguise, i.e. colourable attempt to tax or “colourable taxation”, contrary to the Canadian Constitution Act, 1867.
In the alternative, National Steel argued that the GA is unlawful because it is contrary to sections 53 and 54 of the Constitution Act, 1867, which require provincial taxes to be authorized by statute and not merely by regulation.
The Court held that National Steel Car’s arguments failed and that the GA is in fact constitutional because:
- the pith and substance of the FIT Programs is indeed related to Ontario’s electricity scheme; and
- the GA is not a tax but is rather a regulatory charge, which can lawfully be implemented by provincial regulation.
GA is not a colourable tax
In deciding that the GA is not a colourable tax, the Court made note of the seriousness of National Steel's allegations that the Ontario government lied in its characterization of the FIT programs as being about environmental concerns associated with fossil fuels, energy conservation and procuring renewable electricity.
The Court was not persuaded that the Ontario government had made “bald-faced lies”. Rather, the Court found that the evidence demonstrated that the Ontario government was making efforts toward a regulatory purpose of increasing and incentivizing renewable electricity generation in Ontario. In so doing, the Court wrote:
“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.”
Also harmful to National Steel’s arguments was the fact that it did not challenge the constitutionality of the GA as it was implemented in connection with earlier renewable energy procurement programs, e.g. RES I, RES II, RES III and RESOP programs.
The Court ultimately found that the professed purposes of the FIT programs were in fact integral to Ontario’s electricity regulatory system. This included (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.
The Court also confirmed that given “that the procurement of energy is a vital component of any economy and any business”, the pursuit of economic stimulus can be lawfully related to a regulatory scheme about energy. The Court found that the evidence showed that the economic stimulus of the FIT programs was objectively and reasonably related to Ontario’s electricity regulation.
GA is not a direct or indirect tax
The Constitution Act, 1867 generally requires provincial taxes to be enacted by statute. This rule, however, does not apply to regulatory charges. In other words, regulatory charges can lawfully be enacted by provincial regulation alone.
In determining that the GA is a regulatory charge (rather than a tax), the Court applied the requisite legal test and held that the GA is (a) in relation to rights and privileges associated with a regulatory scheme established under the Ontario Energy Board Act, 1998 and the Electricity Act, 1998; (b) used to finance that regulatory scheme (is not a colourable tax), and (c) used to alter individual behavior in relation to that regulatory scheme by promoting cleaner energy sources and technologies and by ensuring the adequacy, safety, sustainability and reliability of electricity supply for the benefit of Ontario consumers.
The Court’s decision provides much needed clarity at a time when Ontario energy policy is swiftly pivoting toward supporting broader climate change initiatives. While the Ontario government and stakeholders grapple with the design and implementation of net zero mandates and electrification protocols, we can take comfort in knowing that the anticipated resulting cost increases to ratepayers are likely constitutionally valid and lawful.
Our team at McCarthy Tétrault LLP will continue to monitor the developments in the courts related to energy policy, including any further appeals of this case. Please contact Reena Goyal, Mitchell Lui, or any other member of the Power Group with any questions or for assistance.
 2022 ONSC 2567. As we previously reported, the Ontario Court of Appeal decided in November 2019 that the Independent Electricity System Operator’s (“IESO”) motion for summary judgment should not have been granted and that the lower court should evaluate the full evidentiary record to determine whether the GA associated with the FIT programs is a legally permissible regulatory charge.
 National Steel also argued that the Ontario government violated the Taxpayer Protection Act, 1999 because the GA should have first been authorized by a referendum. The SCJ determined that it did not need to consider this argument since National Steel’s application already failed on the other arguments.
 Supra note 1 at paragraph 160.
Global Adjustment Renewable Power tax