Power Perspectives 2022 - Energy Litigation
AltaLink Management Ltd. v. Alberta (Utilities Commission), 2021 ABCA 342
As discussed in more detail in our Aboriginal Law article, the Alberta Court of Appeal further clarified the nature of the public interest as it relates to decisions affecting First Nations in AltaLink Management Ltd. v. Alberta (Utilities Commission). In November 2018, the Alberta Utilities Commission (AUC) conditionally approved transfers of electrical transmission assets between AltaLink Management Ltd. and limited partnerships controlled by two Alberta First Nations. The AUC applied a “no harm” test and determined that transfers were in the public interest, though it did not accept arguments to justify passing on the anticipated increased costs (about C$60,000 annually) to ratepayers. The appellants had argued before the AUC that savings arose from the lines having been optimally routed through First Nations lands (i.e. when they were initially constructed) and that intangible benefits arising from the partnership with the First Nations provided further justification.
The Court varied the decision of the AUC, and allowed the incremental costs to be recovered from ratepayers. The majority declined to address the constitutional questions presented, but Feehan, JA in his concurring opinion gave guidance to the Commission that “the Commission must take all relevant factors into account in determining the public interest” (para 126), including the honour of the Crown and the objective of reconciliation.
COVID-19 has changed the nature of proceedings in many ways, most commonly by necessitating remote hearings, but in also in less obvious (and perhaps more important) ways, one of which was at issue in The Office of the Utilities Consumer Advocate v. Alberta Utilities Commission. In March of 2020, an intensive proceeding to set the fair return for electrical rates for 2021 was underway when it was temporarily suspended because of the rapidly evolving market conditions at that time, brought about by COVID-19. That proceeding was intensive, involving extensive evidence, including expert evidence. The intensive process was not resumed, and in October 2020, the AUC extended the status quo for a fair return into 2021. In December 2020, the AUC initiated the proceeding to determine the fair return for 2022, and invited comments on substantive and procedural issues for that proceeding from interested parties, including the Office of the Utilities Consumer Advocate (Applicant). Ultimately, in March 2021, the AUC decided to set the fair return for 2022 at the same level as for 2021 because of the unusually high flux and uncertainty in the markets.
The applicant requested the AUC review and vary the March 2021 decision, but that application was dismissed. The applicant then sought leave to appeal from the Court of Appeal on the questions of: (i) whether the AUC erred in law or jurisdiction by failing to undertake its statutory obligation to set a fair return for 2022; and (ii) whether the AUC erred in law by breaching its duty of procedural fairness in setting a fair return for 2022. The Court considered the test for permission to appeal, and concluded that although the points on appeal were significant to the practice and the proceeding itself, they could ultimately not succeed. On the first question, the Court concluded that “[t]he Commission had discretion to employ an appropriate method and procedure given the COVID-19 pandemic. It was not required to utilize the intensive process it had used at times past; it could adopt an alternative approach, particularly in light of the COVID-19 pandemic” (at para 17), and that using that alternative approach could not amount to an error of law. On the procedural fairness question, the Court likewise noted the unprecedented conditions presented by COVID-19, and held that “the [Applicant] was not denied any procedural rights nor was it treated any differently than other parties in the proceedings” (at para 31). Leave to appeal was thus denied.
Alberta (Attorney General) v. British Columbia (Attorney General) is another chapter in the years-long dispute between the governments of Alberta and British Columbia (BC) arising from a 2018 Alberta law, which BC asserts to be political retaliation for its lack of support for the Trans Mountain pipeline expansion project. That law, the Preserving Canada’s Economic Prosperity Act, SA 2018, cP-21.5 (Act), colloquially known as the ‘turn off the taps legislation’, received royal assent on May 18, 2018 and was proclaimed into force on April 30, 2019. The Act authorizes Alberta’s Minister of Energy (Minister) to create a licencing regime for the export of natural gas, crude oil, and refined fuels and for the Lieutenant Governor in Council to make regulations. Importantly, at all material times, no such licencing regime, nor any regulations, had been enacted under the Act.
As noted above, this case has a long procedural history, which includes actions before the Court of Queen’s Bench of Alberta and the Federal Court. Before the Federal Court, BC sought a declaration that the Act was unconstitutional, and applied for an interlocutory injunction to prohibit the Minister from exercising her powers under the Act until the action had been finally resolved. BC’s constitutionality arguments focused on sections 92A(2) and 121 of the Constitution Act, 1867. Alberta brought a motion to strike the federal action on the ground that it disclosed no reasonable cause of action. On September 24, 2019, the Federal Court granted BC’s injunction and dismissed Alberta’s motion to strike in British Columbia (Attorney General) v. Alberta (Attorney General), 2019 FC 1195. The present case is an appeal of that Federal Court decision.
The Federal Court of Appeal allowed Alberta’s appeal, dismissing BC’s action and quashing the injunction. The Court considered the jurisdiction of the Federal Court under section 19 of the Federal Courts Act (RSC 1985, c F-7, s 19), a point on which Nadon, JA and the majority disagreed (though Nadon, JA’s decision otherwise concurred with the majority). The majority held that the “controversies“ that may be considered by the Federal Court under section 19 can include challenges to the validity of legislation, even including provincial legislation. The majority decided the appeal on the basis that declaratory relief was not appropriate, given that no Ministerial action had been taken under the Act, nor had regulations been enacted. In other words, BC’s claim was premature, as the constitutional disputes that may arise as a result of the law “[have] yet to arise and may not arise” (paras 181 and 188). Interestingly, the government of Alberta allowed the Act to lapse under its own terms in 2021, though it enacted a new and similar (though not identical) act retroactively a short time later under the same name as the previous Act (SA 2021, c P-21.51). It seems that the constitutional uncertainty surrounding the new act, as well as the tension between the litigants, is likely to remain for the foreseeable future.
In July 2019, the government of Alberta initiated an inquiry into anti-Alberta energy campaigns (Inquiry), under the Public Inquiries Act (RSA 2000, c P–39). Ecojustice Canada Society (Applicant) applied for judicial review in November 2019, alleging that the Inquiry is unlawful, and seeking to halt the Inquiry, or to restrict the publication of the report and other information. After delays in the hearing caused by COVID-19, and some interlocutory applications (which we discussed in this publication last year), the matter was heard and decided in this case.
The Applicant argued its application on three grounds. Firstly, that the Inquiry was brought for an improper purpose and was therefore outside the Lieutenant Governor in Council’s legal authority under section 2 of the Public Inquiries Act; secondly, on the constitutional ground that certain matters identified in the order initiating the Inquiry (including the terms of reference appended thereto) are matters of exclusive federal jurisdiction; and thirdly that the political context of the Inquiry, certain terms of the order initiating the Inquiry and certain political donations made by the Inquiry commissioner give a reasonable apprehension of bias.
The Court rejected the first point, finding that the order initiating the Inquiry was “a reasonable exercise of Cabinet discretion” (para 45). On the second point, the Court considered the pith and substance of the order initiating the Inquiry, and concluded that it was “to discover and report on the existence of a perceived threat to Alberta’s energy industry and explore ways of addressing that threat if considered necessary” (para 76). As such, the Court considered the appropriate head of power under the Constitution Act, 1867 to be s. 92(13) (“Property and Civil Rights in the Province”), noting that it also concerned the province’s legislative and proprietary powers over natural resources under s. 92A and s. 109. The Court reviewed certain federal heads of power, but was not convinced that the order could be brought within any of them. The constitutional ground of the application was dismissed. On the reasonable apprehension of bias question, the Court found the application to be premature, but would have held that no reasonable apprehension of bias existed in any event. As such, the application for judicial review was dismissed in its entirety. The final report of the Inquiry was released on July 30, 2021.
Trillium Power Wind Corp. v. Ontario, 2021 ONSC 6731
The long running litigation arising from the 2011 offshore wind moratorium announcement is nearing its conclusion. Trillium Power Wind Corporation, a proponent of an offshore wind project in Lake Ontario, had originally commenced a broad claim against the Province in 2011 attacking the merits and the motives of the Province’s moratorium. That claim was substantially narrowed by the Court of Appeal in 2013, and Trillium’s only surviving claim was that Trillium had been specifically targeted by the Province when it stopped all off-shore wind development in the Province on the day Trillium’s financing was scheduled to close.
In the course of the litigation, a second claim was added for “spoliation” — destruction of evidence — based on the practice of the Premier’s office (during Dalton McGuinty’s tenure) of deleting emails and destroying handheld devices when personnel left the office. Given that the moratorium was a highly political decision, Trillium alleged that relevant documents had likely been destroyed when key decision makers left the Premier’s office.
Both claims were dismissed in November 2021. Fundamentally Trillium was unable to make out its claims because there was no evidence that the Province knew about the closing date of Trillium’s financing so it could not have been targeting Trillium when it announced the moratorium. In a similar vein, it was clear that the deletion of emails and other potentially relevant documents was done in the normal course of business and not done in contemplation of any litigation — a necessary element for any claim of spoliation according to the motions judge.
It is noteworthy that throughout his somewhat entertaining decision, the motions judge makes a number of sweeping conclusions about government power policy. Most notably, in reference to the Green Energy Act, asserting that that the “McGuinty government’s policy accomplished none of its stated goals.” Certainly some commentators may share his views, but it is unusual to see such commentary in a judicial decision.
Rayonier A.M. Canada Enterprises Inc. v. Independent Electricity System Operator
An interesting challenge to the Independent Electricity System Operator’s ability to create market rules was launched in June 2020 by Rayonier A.M. Canada Enterprises Inc. (RYAM).
The IESO is the entity mandated under the Ontario Electricity Act, 1998 to, among other things, operate and administer the wholesale electricity markets in Ontario. At the time of the application, RYAM had a pulp and paper manufacturing company with facilities in Ontario, registered to withdraw electricity required for its operations from the IESO-controlled electricity grid.
As a registered entity participating in the IESO-administered markets, RYAM was required to comply with the IESO’s market rules — a collection of over 10,000 rules, manuals and procedures governing market participation. A subset of the IESO, namely its market assessment and compliance division (MACD), conducts investigations of market participants like RYAM to ensure participation is compliant with the IESO market rules.
In conducting its investigations, MACD relies on certain market rules¹ that purportedly permit it to compel the production of documents and information and to make non-compliance determinations. MACD’s investigation findings can result in orders imposing financial penalties of up to C$1 million per occurrence; additional or more stringent record-keeping or reporting requirements; requirements to do or cease from doing such things MACD deems to be required; and/or suspension or termination of any future participation in the IESO-administered markets.
In its application for judicial review, RYAM challenged the IESO’s authority to create these market rules. RYAM argued in its application that although the IESO has the statutory authority to make market rules “governing the making of orders” as prescribed under subsection 32(2) (e) of the Electricity Act, that authority does not extend to establishing an investigatory regime, including one that requires mandatory preparation of evidence and documentary production.
Following the determination of certain procedural motions in September 2020 (2020 ONSC 5460), the application was dismissed earlier this year on consent without a final determination.
Notwithstanding the dismissal, the application raises important and unresolved issues regarding the IESO’s purported authority to conduct and enforce market rules compliance investigations of its market participants. Time will tell if these issues are resurrected following the issuance of future investigation orders by the IESO/MACD against other market participants.
Gaspé Énergies inc. c. Ministre de l’Énergie et des Ressources naturelles, 2021 QCCQ 11747
In this groundbreaking decision, the Court declared illegal a regulatory provision adopted under the Petroleum Resources Act (PTA), a provincial Act, and declared illegal the decision of the Minister to refuse to issue a drilling permit to Gaspé Énergies Inc. (Gaspé). This case represented the first opportunity for a court to rule on the process followed by the Ministry of Energy and Natural Resources (MENR) in implementing the PTA. More broadly, this decision is of interest for any organization dealing with an administrative decision maker in a context where there are changes in government and public policy. Indeed, the contested decision was rendered a few months prior to the announcement by the Québec government that it was considering the option of permanently ending oil and gas exploration and production in Québec.
The decision pertains to the Galt Project, a light oil production project located approximately 20 kilometers west of the town of Gaspé. In July 2008, an exploration permit was issued by the Minister to Junex Inc. In 2018, a new regulatory regime for the hydrocarbon industry in Québec was introduced. In 2020, the permit was transferred from Junex to Gaspé and Gaspé filed an application for authorization to perform onshore exploratory drilling. This was, incidentally, the very first such application under the new regime. In support of its application, Gaspé filed an environmental study presenting the potential environmental impacts of the drilling, as well as detailing the proposed mitigation measures. It was not disputed that this study met all the MENR’s requirements. Despite this, the Minister decided in October 2020 not to grant authorization to Gaspé based on s. 23 of the Regulation respecting petroleum exploration, production and storage on land (Regulation), which provided the Minister with a broad discretion to refuse an application.
Gaspé filed an application for judicial review of the Minister’s decision. Before the Court, Gaspé argued that s. 23 of the Regulations was not pre-published in contravention of the government’s and the Minister’s duty to consult under the requirements of the Regulations Act. The Court agreed and overturned the Minister’s decision because the Regulation was not enacted in accordance with the requirements of the Regulations Act, which rendered it inoperative and unenforceable. Thus, the Minister’s decision was invalid because it was based on an inoperative section. Given this conclusion, the Court wrote that it was not necessary to rule specifically on Gaspé argument that the Minister relied exclusively on political considerations.
Gaspé also argued that the Minister’s decision was not sufficiently justified. The Court concluded that the Minister was required to give reasons in support of his decision, notably given the important impacts this decision had on Gaspé. In the presence of a duty to give reasons, the Court concluded that the Minister could not limit himself to indicating to Gaspé that he had not been convinced. He had to explain why. Therefore, the Court referred the case back to the Minister for a new decision on Gaspé’s application for authorization for exploratory drilling.
Conseil des Innus Pessamit c. Hydro-Québec, 2020 QCCS 4345
In this decision rendered at the very end of 2020, the Superior Court of Québec granted in part an injunction sought by the Innu Council of Pessamit to stop Hydro- Québec from raising to its maximum limit the level of the reservoir supplying the Daniel-Johnson Dam and Manic-5 Generating Station, a major hydroelectricity facility with a capacity of 2,660 MW located on the Manicouagan River in northern Québec. The Court concluded that under the very specific circumstances of the case, Hydro-Québec needed to obtain new governmental authorizations before raising the reservoir level up to the maximum height previously authorized. However, the Court only imposed a limit already accepted by Hydro-Québec at trial.
Hydro-Québec occupies the site under validly issued leases or permits of occupation since the 1960s. The dam was designed for a maximum use level of 359.66 meters but the level has never exceeded 354 meters since 1985. Starting in 2016, Hydro-Québec began raising the level and wanted to reach the dam’s maximum operating level of 359.66 metres “as early as 2019.”
Notified of Hydro-Québec’s intention to raise its reservoir, the Innu Council of Pessamit presented an application for an permanent injunction to limit the retention level. They invoked the breach of various environmental laws, both federal and provincial, as well as the Charter of Human Rights and Freedoms. The Innu Nation argued that its members often visit, hunt and fish at the reservoir, and are thus affected by the proposed raising. It sought an order that the maximum elevation not exceed 353 meters until the impacts have been examined. Hydro-Québec retorted that it had the right to use the reservoir up to the maximum height previously authorized, i.e. 359.66 metres, hence its challenge. A few days before the start of the trial, Hydro-Québec announced that it has agreed not to exceed the level of 355.95 meters (which is still 2 meters more than the level sought by the Innu Nation) until the governmental authorities decide on applications for approval that it will initiate.
The issue the Court had to decide was whether Hydro-Québec needed to obtain new governmental authorizations before raising the reservoir level up to the maximum height previously authorized. The Court concluded that Hydro-Québec’s decision to undergo the governmental authorization process made it clear that that the environmental acceptability of the raising should be left to the governmental authorities. This non-interference by the Court was all the more important given that some of the laws invoked are under federal jurisdiction. As for the limit imposed, the Court concluded that the Innu Nation failed to present a convincing justification for the limit it sought, and that it was inappropriate to go below the limit accepted by Hydro-Québec, i.e. 355.95 metres.
1. IESO Market Rules at Chapter 3, section 6.2.